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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR,
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FROM THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-27012
INSIGNIA SOLUTIONS PLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ENGLAND AND WALES NOT APPLICABLE
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
----------------
41300 CHRISTY STREET INSIGNIA HOUSE
FREMONT THE MERCURY CENTRE
CALIFORNIA 94538-3115 WYCOMBE LANE, WOOBURN GREEN
UNITED STATES OF AMERICA HIGH WYCOMBE, BUCKS HP10 0HH
(510) 360-3700 UNITED KINGDOM
(44) 1628-539500
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL
PLACES OF BUSINESS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
ORDINARY SHARES (L0.20 NOMINAL VALUE)
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment of this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $41,974,000 as of March 8, 1999 based upon
the closing sale price on the Nasdaq National Market reported for such date.
Ordinary shares held by each officer and director and by each person who owns
5% or more of the outstanding Ordinary share capital have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily conclusive determination for other
purposes.
As of March 8, 1999, there were 12,737,700 Ordinary shares of L0.20 each
nominal value, outstanding.
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TABLE OF CONTENTS
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PART I PAGE
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ITEM 1. BUSINESS ............................................... 3
ITEM 2. FACILITIES ............................................. 12
ITEM 3. LEGAL PROCEEDINGS ...................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .... 13
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT ................... 13
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS .................................... 14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA ................... 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .......... 15
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE .................... 26
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ..... 27
ITEM 11. EXECUTIVE COMPENSATION ................................. 29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ......................................... 33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......... 34
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K .................................... 35
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PART I
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT") REGARDING THE COMPANY AND ITS BUSINESS, FINANCIAL CONDITION,
RESULTS OF OPERATIONS AND PROSPECTS. WORDS SUCH AS "EXPECTS," "ANTICIPATES,"
"INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES" AND SIMILAR EXPRESSIONS
OR VARIATIONS OF SUCH WORDS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS, BUT ARE NOT THE EXCLUSIVE MEANS OF IDENTIFYING FORWARD-LOOKING
STATEMENTS IN THIS REPORT. ADDITIONALLY, STATEMENTS CONCERNING FUTURE MATTERS
SUCH AS THE DEVELOPMENT OF NEW PRODUCTS, ENHANCEMENTS OR TECHNOLOGIES,
PARTICULARLY THE DEVELOPMENT OF JEODE-TM-, THE TIMING OF THE AVAILABILITY OF
JEODE, THE JEODE PRODUCT AND SERVICE OFFERINGS, THE REVENUE MODEL AND MARKET
FOR JEODE, THE FEATURES, BENEFITS AND ADVANTAGES OF JEODE, INTERNATIONAL
SALES, THE AVAILABILITY OF LICENSES TO THIRD-PARTY PROPRIETARY RIGHTS,
BUSINESS AND SALES STRATEGIES, MATTERS RELATING TO PROPRIETARY RIGHTS,
COMPETITION, YEAR 2000 COMPLIANCE, FACILITIES NEEDS, EXCHANGE RATE
FLUCTUATIONS AND THE COMPANY'S LIQUIDITY AND CAPITAL NEEDS AND OTHER
STATEMENTS REGARDING MATTERS THAT ARE NOT HISTORICAL ARE FORWARD-LOOKING
STATEMENTS.
ALTHOUGH FORWARD-LOOKING STATEMENTS IN THIS REPORT REFLECT THE GOOD
FAITH JUDGMENT OF THE COMPANY'S MANAGEMENT, SUCH STATEMENTS CAN ONLY BE BASED
ON FACTS AND FACTORS CURRENTLY KNOWN BY THE COMPANY. CONSEQUENTLY,
FORWARD-LOOKING STATEMENTS ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES,
AND ACTUAL RESULTS AND OUTCOMES MAY DIFFER MATERIALLY FROM THE RESULTS AND
OUTCOMES DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES IN RESULTS AND OUTCOMES INCLUDE
WITHOUT LIMITATION THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS REPORT. READERS ARE URGED NOT TO PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF THIS
REPORT. THE COMPANY UNDERTAKES NO OBLIGATION TO REVISE OR UPDATE ANY
FORWARD-LOOKING STATEMENTS IN ORDER TO REFLECT ANY EVENT OR CIRCUMSTANCE THAT
MAY ARISE AFTER THE DATE OF THIS REPORT. READERS ARE URGED TO REVIEW AND
CONSIDER CAREFULLY THE VARIOUS DISCLOSURES MADE BY THE COMPANY IN THIS
REPORT, WHICH ATTEMPTS TO ADVISE INTERESTED PARTIES OF THE RISKS AND FACTORS
THAT MAY AFFECT THE COMPANY'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
ITEM 1--BUSINESS
OVERVIEW
The Company, which commenced operations in 1986, develops, markets and
supports virtual machine technology which enables software applications and
operating systems to be run on various computer platforms.
The Company's principal product line in recent years has been
SoftWindows-TM-. This product enables Microsoft Windows
("Windows"-Registered Trademark-) applications to be run on most Apple
Computer Inc. ("Apple"-Registered Trademark-) Macintosh computers and many
UNIX workstations. Revenues from this product line have been declining since
1995 as a result of two factors. One factor is the declining Macintosh
market. The other factor is increased competition which has led to reduced
prices and margins. In late 1997, the Company began a strategic review of
its business and explored new markets that would leverage the Company's 10
years of emulation software development experience.
In January 1998, the Company announced its intention to launch a new
product line. This product line, called Jeode-TM-, is based on the Company's
Embedded Virtual Machine ("EVM"-TM-) technology. Jeode is the Company's
implementation of Sun Microsystems, Inc.'s ("Sun") Java technology developed
specifically for embedded systems. The Jeode platform is enabled by the
Company's EVM and is designed to enable software developers to create
reliable, efficient and predictable embedded products. In November 1998, the
Company delivered beta versions of the Jeode platform. The product became
available for sale in March 1999 and is expected to be the principal product
line in 1999 and the foreseeable future.
Between December 1995 and May 1998, the Company shipped NTRIGUE-TM-, a
Windows compatibility client/server product that supported multiple
X-terminals, workstation clients, Macintosh computers, PCs, network computers
and Net PCs from a Windows NT-based server. The Company disposed of its
NTRIGUE technology in February 1998.
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PRODUCTS AND SUPPORT
SUMMARY
In 1998, the Company shipped two principal product lines: SoftWindows
and NTRIGUE. In February 1998, the Company disposed of its NTRIGUE
technology for $17.687 million. SoftWindows accounted for 92% of revenues in
the year.
The Company derived its revenues from the shipment of products and from
offering support services. The majority of revenues are derived from the
shipment of products.
The Company delivered beta versions of its new Jeode product in late
1998. The product has been available for sale since March 16, 1999.
JEODE PLATFORM
The Company's Jeode product line is a software development system for
engineers who build embedded products that are enabled by the Java
environment. Embedded systems are specialized pre-programmed computers that
run real-time operating systems where the system has to respond to inputs
rapidly and predictably. This occurs without taking time to load a program,
input data, process data and provide output. The Company believes there are
hundreds of companies, developing thousands of embedded products, and
delivering millions of units of these various products each year.
There is a growing demand in the embedded systems market for Java
technology because the Java language is simple, robust, object oriented, and
multi-threaded--meaning it supports applications that do more than one thing
at a time. Among the Java platform's biggest advantages are its "write once,
run anywhere" architecture and its ability to deliver virus-free code. In
addition, the Java technology platform is interpreted and dynamically
extensible and is easy to connect to the Internet. Embedded devices, if
programmed in Java technology, could be dynamically downloaded with new
functionality over the Internet instead of requiring consumers to purchase an
entire new device or taking the device to a repair shop.
However, existing implementations of Java technology are designed for
medium to large computing environments, and do not scale down to meet the
resource constraints of embedded systems.
There is a significant opportunity for Java technology that can scale
down to be within the restraints of an embedded system. With the Company's
ten years of experience developing virtual machine technology to function
under severe systems resource restrictions, the Company is uniquely suited
with its technology to transition from the PC compatibility market to the
Java market. The Company has leveraged its virtual machine expertise and
algorithms and developed its EVM, which is the Company's brand of a Java
Virtual Machine. This EVM fits within the constraints of an embedded system.
The Company believes its EVM incorporates unique technologies, including
adaptive optimizing dynamic compilation and precise, concurrent garbage
collection to achieve optimal performance in limited memory embedded devices.
Consequently, the Company believes it is in a unique position to take
advantage of the opportunity and demand that now exists.
The Company's Jeode platform is comprised of two primary and
complementary components: JeodeRUNTIME and JeodeSUITE. JeodeRUNTIME consists
of a highly configurable Jeode EVM and embedded class libraries called
JeodeCLASS. These two technologies provide the runtime environment for
executing the Java application in the embedded system. JeodeSUITE is used
during the development of software for embedded systems, and consists of
JeodeBUILD AND JeodeDEBUG. JeodeBUILD provides build-time tools for editing,
compiling and browsing Java applications. JeodeDEBUG delivers runtime debug
utilities and includes utilities that monitor and analyze memory use and code
coverage and also profile performance.
A vital component of the Company's Jeode platform is the highly
configurable and tunable EVM, which optimizes the performance of embedded
application software in resource constrained embedded systems. The
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Company believes the Jeode platform addresses the specific requirements of
embedded developers, making Java technology viable for the embedded systems
market for the first time.
The Jeode platform is available for x86, MIPS, ARM, and Hitachi SH
processors, and Windows CE, Windows NT and various UNIX operating systems,
with additional processor/operating system platforms planned for introduction
later in 1999. The Company also offers various services and will license
technology for porting the Jeode platform to other platforms to help
developers migrate their applications to their platforms more easily.
The Company has filed an application with the Patent Office of the
United Kingdom for international protection of innovative technologies
related to the Jeode platform.
SOFTWINDOWS
SoftWindows, the Company's principal product line for 1998, is a
software-based, Windows and MS-DOS compatibility solution first introduced by
the Company in December 1993. This product line enables Apple, Sun, HP and
IBM UNIX workstation customers to run Windows applications. Windows is
pre-installed and ready to run.
The Company also offers RealPC, a low cost software product that allows
consumers to play games and other applications designed for Intel-based PCs
on their Power Macintosh computers. This product was first introduced in
September 1997.
SoftWindows is integrated with the host environment and has many
features that make it easy for the user to operate in both the Windows and
the host environment simultaneously on a Macintosh or UNIX platform.
SoftWindows has advanced networking support, supporting multiple network
protocols and topologies. SoftWindows works cooperatively with the host
operating system so that SoftWindows can share the network card. On a
supported LAN, a Macintosh with SoftWindows appears like a PC to a server or
to other computers.
NTRIGUE
In December 1995, the Company introduced and began shipping NTRIGUE, a
Windows compatibility client/server product that supports multiple
X-terminals, workstation clients, Macintosh computers, PCs, network computers
and NetPCs from a Windows NT-based server. NTRIGUE is built upon Citrix
Systems Inc.'s ("Citrix") WinFrame product.
In February 1998, the Company sold its NTRIGUE technology to Citrix.
Under the arrangement, Citrix acquired the Company's X-11 technology, Keoke
technology, Macintosh and UNIX ICA clients and all NTRIGUE modifications and
enhancements to WinFrame.
The Company discontinued selling NTRIGUE in May 1998, but provided
technical support to its existing NTRIGUE customers through September 1998.
SUPPORT - JEODE PLATFORM
The Company offers both pre and post sales support to its Jeode
customers. Pre sales support is free. Each customer is required to commit
to at least one year of annual maintenance which will entitle the customer to
receive standard support, including: web-based support, access to FAQs,
on-line publications and documentation, email assistance, limited telephone
support, and critical bug fixes and product updates (collective bug fixes and
minor enhancements). Annual maintenance is also required during the time
that the customer is developing and/or shipping products that include any of
the Jeode technology.
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SUPPORT - SOFTWINDOWS
The Company offers each SoftWindows customer 30 days of free first line
technical support through Startek, a third party support organization. The
Company provides second line support to Startek. The Company also provides
free SoftWindows technical support through on-line services such as America
Online and CompuServe, Internet e-mail, a Worldwide Web server, an electronic
bulletin board and a 24-hour facsimile response service.
DEPENDENCE ON JEODE REVENUE
In 1998, the Company derived 92% of its revenue from its SoftWindows
product line. However, since 1995, revenues and margins from SoftWindows
have been declining, primarily as a result of competitive pricing pressure.
Revenues and margins on the SoftWindows product line are at a level where the
Company's future can no longer depend on them.
The Company is entering the embedded systems market for the first time
with its Jeode product. There can be no assurance that the Jeode product
line will achieve or sustain acceptance by the marketplace or provide the
desired revenue levels. Any errors or "bugs" found in Jeode after commercial
shipment could result in loss of or delay in market acceptance of the new
product. In addition, the Company intends to develop additional
functionality for Jeode in 1999, particularly to provide compatibility with
additional processor/operating platforms. There can be no assurance that the
Company will successfully and timely complete development of these
enhancements to the Jeode product line. The inability of the Company, due to
resource constraints, technological or other reasons, to market and enhance
the Jeode product in a timely manner would have a material adverse effect on
the Company's business, financial condition and results of operations.
SALES AND MARKETING
JEODE PRODUCTS
Jeode customers are expected to be original equipment manufacturers
("OEMs") of embedded devices located primarily in North America, Europe and
Japan. The Company has established a specialized direct sales force to sell
the Jeode product line in North America and Europe. The Company plans to
open a Japanese sales office in 1999. Currently, members of the North
American sales force regularly visit potential customers in Japan. The
Company is also assisted in developing business relations in Japan by Japan
Entry, a third party consulting company. The Jeode product line revenue
model is based on OEM customer transactions. The timing of such transactions
is difficult to predict and revenues may vary significantly from quarter to
quarter as a result. The failure to conclude a substantial OEM transaction
during a particular quarter can have a material adverse effect on the
Company's revenues and results of operations.
MARKETING. There are many different markets for embedded products.
According to a December 1997 survey and analysis conducted by Venture
Development Corporation the market for embedded software tools and run-times
will approach $1.15 billion in 1999, and will grow to approximately $1.9
billion in 2002. Embedded systems incorporating Java-based tools and
run-times currently represent only a minimal portion of this market.
However, many developers have expressed their desire to use a viable
implementation of Java technology, and embedded systems using Java-based
tools and run-times are expected to grow rapidly over the next few years.
The Company is initially concentrating on selling to markets that it
believes will be early adopters of this technology. These early adopters
include manufacturers of smart cell phones, personal digital assistant
(PDA's), handheld PC's (HPC's), mass storage devices and car navigation
systems.
MARKET ACCEPTANCE. The Company's performance depends upon sales of
products within the Jeode product line, which is a new product. There can be
no assurance that the Company's Jeode product will achieve or sustain
acceptance by the marketplace or provide the desired revenue levels. The
failure of the Jeode product to provide an adequate level of performance and
functionality, or the lack of market acceptance of this product for any
reason, would have a material adverse effect on the Company's business,
financial condition and results of operations.
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If the Jeode product is successful and developed on a timely basis, the
Company will be required to further develop direct sales channels in the
embedded systems market and to hire and train more direct sales personnel.
For example, the Company plans to open a sales office in Japan during 1999.
Competition for qualified sales personnel is intense and there can be no
assurance that the Company will be able to attract the personnel needed to
market and sell products in the embedded systems market. The Company
anticipates increased operating expenses as it introduces the product and
develops the organization to market, sell and support the product, before any
revenue is recognized from sales of the product.
SALES CYCLE. The sales model for the Jeode product line is different
from that of prepackaged consumer software. The Company must develop a
direct sales organization to convince OEMs to design the Company's products
into their embedded systems. The sales cycle for an embedded systems
design-win can range from six months to a year. Customers make product
decisions only after extensive product review and hands-on evaluation.
Because customers in the embedded systems market tend to remain with the same
vendor over time, the Company believes that it must devote significant
resources to each potential sale. To the extent potential customers do not
design the Company's products into their systems, the resources the Company
has devoted to the sales prospect would be lost.
International operations are subject to a number of risks, including
longer payment cycles, unexpected changes in regulatory requirements, import
and export restrictions and tariffs, difficulties in staffing and managing
operations, greater difficulty or delay in accounts receivable collection,
potentially adverse tax consequences, the burdens of complying with a variety
of laws and political and economic instability. In addition, fluctuations in
exchange rates could affect demand for the Company's products. If for any
reason exchange or price controls or other currency restrictions are imposed,
the Company's business, financial condition and results of operations could
be materially adversely affected. The Company plans to market its Jeode
product line to embedded systems manufacturers in Japan. Economic conditions
in Japan generally, as well as fluctuations in the value of the Japanese yen
against the U.S. dollar and British pound sterling could have a negative
effect on the Company's revenues and results of operations. As the Company
increases its international sales, its total revenues may also be affected to
a greater extent by seasonal fluctuations resulting from lower sales that
typically occur during the summer months in Europe and other parts of the
world.
SOFTWINDOWS
The Company sells SoftWindows through a multiple channel distribution
system that currently includes distributors and resellers.
DISTRIBUTOR AND RETAIL SALES. The Company has established a worldwide
two-tier distribution channel for its SoftWindows products. Its distributor
relationships include Sun, Ingram Micro and Merisel in North America, Sun and
HP Germany in Europe and Mitsubishi Corporation ("Mitsubishi") in Japan.
Certain of these distributors, in turn, sell to major retailers such as
CompUSA, Fry's and MicroCenter. In addition, the Company's products are
carried by major national Macintosh catalog channels, such as MacWarehouse
and MacConnection.
During 1998, the Company had a distribution arrangement with Sun, under
which Sun could market and distribute SoftWindows on selected configurations
of its platforms to provide compatibility benefits on these platforms. This
agreement expired on December 31, 1998, and is unlikely to be renewed.
Sales to distributors represented approximately 92%, 42% and 40% of the
Company's total revenues in 1998, 1997 and 1996, respectively. Sales to Sun
and Ingram Micro U.S. each accounted for 27% of total revenues in 1998.
Sales to Mitsubishi accounted for 12% of total revenues in 1996. No other
distributor accounted for 10% or more of the Company's total revenues in
1998, 1997 or 1996. In 1998, the majority of the Company's sales through the
distributor channel were Macintosh products. Mitsubishi, Ingram Micro and
the Company's other distributors carry multiple product lines and could
reduce their support of the Company's products in favor of a competitive
product or for any other reason. There can be no assurance that Mitsubishi,
Ingram Micro or any other distributor of the Company's products will continue
to purchase the Company's products or provide adequate levels of support.
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In addition, the Company has limited control over the extent to which
products sold to distributors and resellers are sold through to end-users.
The Company provides sales returns provisions based on the Company's
estimates of expected sell-through by distributors and resellers of its
products. Actual results could differ from these estimates.
OEM BUNDLING. In prior years the Company participated in a number of
OEM bundling arrangements. In 1998 the Company did not participate in any
OEM arrangements, and consequently did not receive any revenue from such
arrangements. In 1997 and 1996 license revenues from OEMs represented 27%
and 24%, respectively, of the Company's total revenues. Sales to SGI
represented 19% and 14% of the Company's total revenues in 1997 and 1996,
respectively.
INTERNATIONAL SALES. Sales to customers outside the United States,
derived mainly from customers in Europe and Asia, represented approximately
24%, 27% and 31% of total revenues in 1998, 1997 and 1996, respectively. The
Company's European headquarters is located in the United Kingdom. The North
American sales organization is responsible for the remainder of the world,
including Asia, Australia and South America.
The Company offers its latest SoftWindows products in English and
Japanese. The Company has an agreement with Mitsubishi under which
Mitsubishi assists the Company in localizing its products and distributes the
Japanese language version of SoftWindows for Power Macintosh. The Company
has limited experience in adapting its software for certain non-English
speaking markets, particularly where there are double-byte computer languages
and where an alphabet is not intrinsic to the language, and there can be no
assurance that the Company's efforts to adapt its products for such markets
will be successful.
STRATEGIC ALLIANCES
JEODE PLATFORM
A key component of the Company's Jeode product line strategy involves a
strategic alliance with Sun. In the first quarter of 1999, the Company
signed a five-year agreement with Sun under which Sun established the Company
as a Sun authorized Virtual Machine provider. The agreement also authorizes
immediate access to the Java compatibility test suite and the Java technology
source code. The agreement includes technology sharing and compatibility
verification.
Under the agreement, the Company will pay Sun a per unit royalty on each
Jeode-enabled embedded product shipped by the Company's customers, plus a
royalty on all development licenses put in place between the Company and its
customers.
SOFTWINDOWS
A key component of the Company's SoftWindows business involves
agreements with Microsoft and major UNIX system vendors.
MICROSOFT DISTRIBUTION AGREEMENT. Since 1988, the Company has licensed
first MS-DOS, and later Windows, from Microsoft. Under the Company's current
agreement with Microsoft ("the Microsoft Distribution Agreement"), Microsoft
granted to the Company a non-exclusive, worldwide license to reproduce, adapt
and distribute the currently available versions of Windows that are included
as a component of the Company's products. The Company pays Microsoft a per
unit royalty for copies of the Company's products sold that include a version
of Windows. The current royalty amounts are based upon certain estimates of
the volume of the Company's sales of SoftWindows. The current Microsoft
Distribution Agreement expires on September 30, 1999. Termination or
expiration without renewal of the Microsoft Distribution Agreement would
result in the inability of the Company to sell its SoftWindows products.
Microsoft has audit rights to inspect the Company's records related to
royalties paid under the Microsoft Distribution Agreement. In January 1999,
Microsoft commenced an audit of the royalties the Company paid in 1997 and
1998. The Company has not been notified of the outcome of the audit. It is
possible, however, that Microsoft could claim underpayment of royalties by
the Company. If Microsoft claims a discrepancy over $10,000, the Company
would be obligated under the Microsoft Distribution
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Agreement to reimburse Microsoft for the cost of the audit. In addition, the
Microsoft Distribution Agreement provides for an additional royalty of 25% of
the royalty due for each unreported unit that is over 5% of the number of
units reported.
MICROSOFT SOFTWARE TRADEMARK LICENSE. Microsoft has granted the Company
a non-exclusive, non-transferable personal license to use the trademark
"SoftWindows" during the term of the Microsoft Distribution Agreement.
MICROSOFT SOURCE CODE AGREEMENT. Effective May 4, 1993, the Company
entered into an agreement with Microsoft ("the Source Code Agreement"), under
which Microsoft granted the Company access to the source code for certain
then current and future versions of Windows and the right to enhance and
compile Windows using this source code to produce optimized versions of
Windows for specified operating systems. Under the Source Code Agreement,
the Company licensed such rights to the source code for both Windows 3.11 and
Windows95. All modifications that the Company made to Windows were assigned
to Microsoft. However, Microsoft agreed not to use or to license others to
use such modifications in a standalone emulation product that competes
directly with the Company's emulation business. The Source Code Agreement
expired in May 1996, except that the Source Code Agreement provided that the
Company maintained the right to use the licensed source code until May 30,
1998 for product support purposes. The Company has not entered and does not
anticipate that it will enter into a renewal or replacement of the Source
Code Agreement for future Windows products. The Company has developed an
alternative approach to the code in the Company's products for future
versions of Windows. SoftWindows 98 was developed using this alternative
approach.
The distribution and license rights that Microsoft has granted to the
Company are non-exclusive. Microsoft has granted to other companies certain
rights to its Windows source code. The Company is aware of at least one of
these Microsoft licensees that currently offers a product that competes
directly with SoftWindows. There can be no assurance that Microsoft will not
grant to other competitors or potential competitors of the Company rights to
Microsoft technology similar to or more extensive than the rights Microsoft
has granted to the Company.
SUN DISTRIBUTION AGREEMENT. In December 1997, the Company signed a
distribution agreement with Sun (the "Sun Distribution Agreement") under
which Sun agreed to offer SoftWindows95 as an option for its Ultra
Workstation customers. In January 1998, Sun introduced two new low-priced,
power desktop systems, the Ultra 5 and Ultra 10 workstations, and a new
high-end workstation, the Ultra 60. Under the Sun Distribution Agreement,
Sun agreed to sell the Company's version of SoftWindows95 for the
Solaris-Registered Trademark-operating system as an option for Ultra
customers. SoftWindows95 for Solaris also runs on the new
UltraSPARC-Registered Trademark- IIi processor-based workstations. This
agreement expired on December 31, 1998 and has not been renewed.
COMPETITION
JEODE PRODUCTS
The markets in which the Company competes are characterized by rapid
technological change and aggressive competition. The Company believes that
the embedded systems marketplace has hundreds of companies, developing
thousands of embedded products, and delivering millions of units of these
various products each year. The Company believes the Jeode platform addresses
the specific requirements of embedded developers, making Java technology
viable for this market for the first time. The Jeode product line is
targeted to the emerging Java-based embedded products marketplace, which is
rapidly changing and is characterized by an increasing number of new entrants
whose products compete with the product under development by the Company.
Competitors in the Java-based embedded products market, such as Sun, HP,
Integrated Systems, Inc. and Wind River Systems, Inc., have significantly
greater resources than the Company. Moreover, much of the industry
infrastructure supporting the product under development by the Company for
this market is new and evolving, and it is difficult to predict the future
growth of this market. It is possible that a viable market for the Company's
Jeode product will not develop or be sustainable. If the market fails to
develop, develops more slowly than expected or becomes saturated with
competitors, or if the Company's new product does not achieve or sustain
market acceptance, the Company's business, financial condition and results of
operations would be materially affected.
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SOFTWINDOWS
SoftWindows competes primarily with three compatibility solutions:
purchasing an additional personal computer, installing certain types of
software and/or installing a PC compatibility hardware card. The Company's
SoftWindows revenues and margins have declined significantly in recent years
primarily as a result of these competitive alternatives.
The availability of low-cost PCs has led users in many organizations to
purchase a PC in addition to their Macintosh computer or Unix workstation for
those situations in which they must operate in the organization-wide PC
network.
In June 1997, Connectix Corporation introduced a software product,
Virtual PC, that competes against SoftWindows for the Macintosh. The Company
accordingly reduced its prices for SoftWindows for the Macintosh, and in
September 1997 introduced a new product, RealPC, to compete against Virtual
PC. RealPC is a low cost software product that allows consumers to play
DOS-based games and other applications designed for Intel-based PCs on their
Power Macintosh computers.
In addition, demand for the Company's SoftWindows products for Macintosh
computers has declined as a result of decreased demand for Macintosh
computers and price competition.
In the UNIX market, the Company faces competition from products such as
WinCenter Pro from NCD, Inc., WinDD from Tektronix, Inc., HP500 from HP,
WinFrame from Citrix and NTerprise from Exodus. There can be no assurance
that these or new competitors will not introduce improved products in the
future.
PRODUCT DEVELOPMENT
In January 1998, the Company announced it was developing an EVM for the
emerging Java-based embedded products marketplace. The new Jeode product is
based upon the Company's virtual machine technology and is geared toward
providing current embedded systems developers with a feature-rich EVM that is
supported by tools compatible with embedded system environments, such as
configuration and remote debugging tools. In November 1998, the Company
delivered beta versions of the Jeode product. The Company released Jeode in
March 1999. The Company intends to develop additional functionality for
Jeode in 1999, particularly to provide compatibility with additional
processor/operating platforms. Product development is subject to a number of
risks, including development delays, product definition, marketing and
competition. It is possible that development of the enhancements to the
Company's Jeode product will not be completed in a timely manner and, even if
they are developed, that the product line will not achieve or maintain
customer acceptance. The failure of the Company to commercialize its virtual
machine technology successfully and in a timely manner would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company must continually change and improve its products in response
to changes in operating systems, application software, computer hardware,
networking software, programming tools and computer language technology. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable.
For example, the Company has had to respond to the decline in the Macintosh
market. In addition, performance of the Company's SoftWindows products
depends upon the performance of the underlying hardware and software
platforms. If the performance of these underlying platforms does not improve
over time at a rate at least equal to the rate of performance improvements of
the platforms that the Company's products emulate, then the Company's
products may be rendered unmarketable.
The Company's success will depend upon its ability on a timely and
cost-effective basis to enhance its current products and to develop new
products that meet changing market conditions, which consist of changing
customer needs, new competitive product offerings, emerging industry
standards and changing technology. For example, the Company's performance
depends upon timely development and sale of its Jeode product line. There
can be no assurance that the Company will be successful in developing and
marketing, on a timely basis or at all, fully functional and compatible
product enhancements or new products that respond to changing market
conditions, or that its new products will be accepted by customers. In the
past, the Company has experienced material delays
10
<PAGE>
and materially increased expenses in adapting its compatibility software to
address specific changes in the operating systems, application software and
hardware platforms that the Company's products support. Any failure by the
Company to anticipate or respond adequately to changing market conditions, or
any significant delays in the development or introduction of additional
functionality for Jeode, would have a material adverse effect on the
Company's business, financial condition and results of operations.
In 1998, 1997 and 1996, the Company spent approximately $6.2 million,
$9.1 million and $10.6 million, respectively, on Company-sponsored research
and development. At December 31, 1998, the Company had 47 full-time
employees engaged in research and development, all of whom were located at
the Company's facility in the United Kingdom. The geographic distance
between the Company's engineering personnel in the United Kingdom on the one
hand and the Company's principal offices in California and its primary
markets in the United States on the other hand has in the past led and could
in the future lead to logistical and communication difficulties. To address
these issues, the Company has upgraded its communications infrastructure,
which includes high-speed data and telephone lines and improved e-mail and
other communications systems. There can be no assurance, however, that the
geographic and cultural differences between the Company's United States and
United Kingdom personnel and operations will not result in problems that
materially adversely affect the Company's business, financial condition and
results of operations. Further, because the Company's research and
development operations are located in the United Kingdom, its operations and
expenses are directly affected by economic and political conditions in the
United Kingdom.
Software products as complex as those offered by the Company may contain
undetected errors or failures when first introduced or when new versions are
released. There can be no assurance that, despite testing by the Company and
testing and use by current and potential customers, errors will not be found
in the Company's products after commencement of commercial shipments. The
occurrence of such errors, particularly with respect to Jeode, could result
in loss of or delay in market acceptance of the Company's products, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
ENGLISH CORPORATION
The Company is incorporated under English law. One of the Company's
executive officers and one of its directors reside in England. All or a
substantial portion of the assets of such persons, and a significant portion
of the assets of the Company, are located outside of the United States. As a
result, it may not be possible for investors to effect service of process
within the United States upon such persons or to enforce against them or
against the Company, in United States courts, judgments obtained in United
States courts predicated upon the civil liability provisions of the federal
securities laws of the United States. There is doubt as to the
enforceability in England, in original actions or in actions for enforcement
of judgments of United States courts, of civil liabilities predicated solely
upon United States securities laws. In addition, the rights of holders of
Ordinary Shares and, therefore, certain of the rights of ADS holders, are
governed by English law, including the Companies Act 1985, and by the
Company's Memorandum and Articles of Association. These rights differ in
certain respects from the rights of shareholders in typical United States
corporations.
EMPLOYEES
As of December 31, 1998, the Company employed 89 regular full-time
persons, comprising 18 in sales, marketing and related staff activities, 47
in research and development and 24 in management, manufacturing,
administration and finance. Of these, all research and development employees,
3 sales and marketing employees and 9 administration and finance employees
are located in the United Kingdom. None of the Company's employees is
represented by a labor union, and the Company has experienced no work
stoppages. The Company believes that its employee relations are good.
As part of the Company's disposal of its NTRIGUE technology in February
1998, 45 employees located in the United Kingdom were transferred to Citrix.
Of these, 43 were research and development employees and 2 were in
administration and finance.
11
<PAGE>
The Company's success depends to a significant degree upon the continued
contributions of members of the Company's senior management and other key
research and development, sales and marketing personnel. The loss of any of
such persons could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company believes that its
future success will depend upon its ability to attract and retain highly
skilled managerial, engineering, sales and marketing personnel, the
competition for whom is intense. In particular, the Company must recruit and
retain marketing and sales personnel with expertise in embedded systems.
There can be no assurance that the Company will be successful in attracting
and retaining such personnel, and the failure to attract and retain key
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations.
PROPRIETARY RIGHTS
The Company relies on a combination of copyright, trademark and trade
secret laws and confidentiality procedures to protect its proprietary rights.
The Company holds one United States patent and one European patent on its
SoftWindows technology and has filed in the United Kingdom an application for
innovative technologies incorporated into its Jeode platform. As part of its
confidentiality procedures, the Company generally enters into non-disclosure
agreements with its employees, consultants, distributors and corporate
partners, and limits access to and distribution of its software,
documentation and other proprietary information. Despite these precautions,
it may be possible for a third party to copy or otherwise to obtain and use
the Company's products or technology without authorization, or to develop
similar technology independently. In addition, effective protection of
intellectual property rights may be unavailable or limited in certain
countries. The Company licenses technology from Sun, Microsoft and various
other third parties.
The Company may, from time to time, receive communications in the future
from third parties asserting that the Company's products infringe, or may
infringe, on their proprietary rights. There can be no assurance that
licenses to disputed third-party technology would be available on reasonable
commercial terms, if at all. In addition, the Company may initiate claims or
litigation against third parties for infringement of the Company's
proprietary rights or to establish the validity of the Company's proprietary
rights. Litigation to determine the validity of any claims could result in
significant expense to the Company and divert the efforts of the Company's
technical and management personnel from productive tasks, whether or not such
litigation is determined in favor of the Company. In the event of an adverse
ruling in any such litigation, the Company may be required to pay substantial
damages, discontinue the use and sale of infringing products, expend
significant resources to develop non-infringing technology or obtain licenses
to infringing technology. In the event of a successful claim against the
Company and the failure of the Company to develop or license a substitute
technology, the Company's business, financial condition and results of
operations would be adversely affected. As the number of software products
in the industry increases and the functionality of these products further
overlaps, the Company believes that software developers may become
increasingly subject to infringement claims. Any such claims against the
Company, with or without merit, as well as claims initiated by the Company
against third parties, can be time consuming and expensive to defend or
prosecute and to resolve.
ITEM 2--FACILITIES
The Company's headquarters and principal management, sales and marketing
and support facility is located in Fremont, California, and consists of
approximately 18,400 square feet under a lease that will expire in February
2003. The Company's principal European sales, research and development and
administrative facility is located in High Wycombe, in the United Kingdom,
and consists of approximately 10,700 square feet under a lease that will
expire in August 2013. During 1998, the Company sub-let until March 2002
facilities it formerly occupied in the United Kingdom, on substantially the
same terms as those applied to the Company. The Company's lease on the
subleased premises expires in September 2017, except that with seven months'
notice the Company can terminate the lease in September 2002, 2007 and 2012.
During 1997, the Company vacated its Boston, Massachusetts facility. In
January 1998, the Company sublet this facility through August 2001, the month
the Company's lease on the facility expires. The Company also leases a sales
office in Issy-les-Moulineaux, France. The Company does not anticipate
expanding the size of its facilities in California, the United Kingdom or
France in the foreseeable future. The Company plans to lease a sales and
support office in Japan in 1999, specifically to meet the needs of potential
Japanese Jeode customers.
12
<PAGE>
ITEM 3--LEGAL PROCEEDINGS
None
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 4A--Executive Officers of the Registrant
The executive officers of the Company as of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard M. Noling.... 50 President, Chief Executive Officer, and Director
Stephen M. Ambler.... 39 Chief Financial Officer, Company Secretary and a
Senior Vice President
George Buchan........ 46 Senior Vice President of Engineering and UK
General Manager
Ronald C. Workman.... 44 Senior Vice President of Marketing
</TABLE>
Richard M. Noling was named President and Chief Executive Officer and a
director of the Company in March 1997. He also served as Chief Financial
Officer, Senior Vice President of Finance and Operations and Company
Secretary between April 19, 1996 and October 1, 1997 and Chief Operations
Officer between February and March 1997. From August 1995 to February 1996,
Mr. Noling was Vice President and Chief Financial Officer at Fast Multimedia,
Inc., a German-based computer software and hardware developer. From November
1994 to August 1995, he was Chief Financial Officer for DocuMagix Inc., a
personal paper management software company. From June 1991 to October 1994,
Mr. Noling served as Senior Vice President and Chief Financial Officer for
Gupta Corporation. He received a Bachelor of Arts degree in aerospace and
mechanical engineering science from the University of California (San Diego)
in 1970. He received an M.A. degree in theology from the Fuller Theological
Seminary in 1972, and an M.S. degree in business administration in 1979 from
the University of California (Irvine).
Stephen M. Ambler is Chief Financial Officer, Company Secretary and a
Senior Vice President of the Company. He joined the Company in April 1994 as
Director of Finance and Administration, Europe. In April 1997, he was
appointed Worldwide Corporate Controller and became Chief Financial Officer,
Company Secretary and a Vice President in October 1997. He became a Senior
Vice President in January 1999. Prior to joining the Company Mr. Ambler
served as Financial Controller and Company Secretary at Ampex Great Britain
Limited and before that served as Finance Director at Carlton Cabletime
Limited in Newbury, England between May 1988 and December 1992. Mr. Ambler
is a member of the Institute of Chartered Accountants in England and Wales.
George Buchan is Senior Vice President of Engineering and UK General
Manager for the Company. He joined the Company in September 1991 as
Development Manager, was appointed Vice President of Engineering in July 1992
and was appointed Senior Vice President and UK General Manager in September
1993. Before joining the Company, Mr. Buchan was with Prime Computer UK, a
computer systems company, as Manager of the customer support center from June
1980 to August 1991. Mr. Buchan has been involved in high technology
companies for more than 25 years in general and technical management
positions in the project management and UNIX areas. He graduated from
Aberdeen University, Scotland in 1974 with a Bachelors degree in pure
mathematics.
Ronald C. Workman is Senior Vice President of Marketing for the Company.
He joined the Company in July 1998. Before joining the Company, Mr. Workman
served as Vice President of Marketing from January 1998 to June 1998 at
Cygnus Systems, Inc., an embedded systems software tools company. From June
1989 to December 1997 Mr. Workman was employed at Mentor Graphics Inc., an
embedded systems software tools and real time operating company, serving in
several roles, including Vice President and Business Unit Manager of their
run time solutions business unit and Vice President VAR/OEM sales. Mr.
Workman has been involved in high technology companies for more than 20 years
in sales, marketing and engineering positions. He graduated from California
Polytechnic State University with a Bachelors degree in Biological Sciences
in 1977.
13
<PAGE>
PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF ORDINARY SHARES
The Company's American Depositary Shares ("ADSs"), each ADS representing
one Ordinary Share, have been traded on the Nasdaq National Market under the
symbol INSGY since the Company's initial public offering in November 1995.
The following table sets forth, for the periods indicated, the high and low
sales prices for the Company's ADSs as reported by Nasdaq:
<TABLE>
<CAPTION>
1997 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter $4.93 $1.68
Second Quarter $3.18 $1.43
Third Quarter $3.75 $2.00
Fourth Quarter $3.00 $2.00
1998 HIGH LOW
---- ---- ---
First Quarter $2.62 $1.00
Second Quarter $2.06 $0.94
Third Quarter $1.31 $0.50
Fourth Quarter $2.00 $0.56
</TABLE>
As of December 31, 1998, there were approximately 142 holders of record
of the Company's Ordinary Shares and ADSs, excluding holders of ADSs whose
ADSs are held in nominee or street name by brokers.
DIVIDENDS
The Company has not declared or paid any cash dividends on its ordinary
shares. The Company anticipates that it will retain any future earnings for
use in its business and does not anticipate paying any cash dividends in the
foreseeable future. Any payment of dividends would be subject, under English
law, to the Companies Act 1985, and to the Company's Articles of Association,
and may only be paid from the retained earnings of Insignia Solutions plc,
determined on a pre-consolidated basis. As at December 31, 1998 Insignia
Solutions plc had a deficit of $10,635,000 on a pre-consolidated basis.
14
<PAGE>
ITEM 6--SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenues $ 14,096 $ 38,869 $ 44,246 $ 55,095 $ 39,361
Cost of net revenues 9,375 17,062 17,415 14,912 11,260
------------ ------------ ----------- ----------- -----------
Gross profit 4,721 21,807 26,831 40,183 28,101
------------ ------------ ----------- ----------- -----------
Operating expenses:
Sales and marketing 7,946 15,804 21,782 19,118 12,540
Research and development 6,228 9,129 10,613 9,822 5,508
General and administrative 4,213 6,761 6,268 4,615 3,995
Restructuring - 1,995 - - -
------------ ------------ ----------- ----------- -----------
Total operating expenses 18,387 33,689 38,663 33,555 22,043
------------ ------------ ----------- ----------- -----------
Operating income (loss) (13,666) (11,882) (11,832) 6,628 6,058
Interest and other income (expense), net 15,871 504 1,396 882 (103)
------------ ------------ ----------- ----------- -----------
Income (loss) before income taxes 2,205 (11,378) (10,436) 7,510 5,955
Provision (benefit) for income taxes 1,783 (720) 330 2,253 1,200
------------ ------------ ----------- ----------- -----------
Net income (loss) $ 422 $ (10,658) $ (10,766) $ 5,257 $ 4,755
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
Net income (loss) per share:
Basic $ (0.03) $ (0.91) $ (0.95) $ 1.31 $ 2.48
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
Diluted $ (0.03) $ (0.91) $ (0.95) $ 0.45 $0.47
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
Weighted average shares and share equivalents
Basic 12,159 11,690 11,342 4,010 1,919
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
Diluted 12,378 11,690 11,342 11,635 10,189
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
BALANCE SHEET DATA AT DECEMBER 31, 1998 1997 1996 1995 1994
- -------------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
Cash, cash equivalents and short-term investments $ 16,334 $ 14,461 $ 21,772 $ 36,999 $ 14,218
Working capital 9,712 7,816 15,777 25,673 3,518
Total assets 21,011 25,457 34,571 47,782 19,491
Long-term obligations under capital leases - 111 259 307 387
Total shareholders' equity 11,418 10,523 20,215 30,398 6,508
</TABLE>
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT REFLECT THE
COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE MATTERS SUCH AS GROSS PROFIT,
GROSS MARGINS, SPENDING LEVELS, INTERNATIONAL OPERATIONS, RESTRUCTURING
BENEFITS AND CAPITAL NEEDS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS AND OUTCOMES DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES IN RESULTS AND OUTCOMES
INCLUDE WITHOUT LIMITATION THOSE DISCUSSED BELOW AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS REPORT.
15
<PAGE>
OVERVIEW
The Company, which commenced operations in 1986, develops, markets and
supports virtual machine technology which enables software applications and
operating systems to be run on various computer platforms.
In January 1998, the Company announced its intention to launch a new
product line. This product line, called Jeode, is based on the Company's EVM
technology. Jeode is the Company's implementation of Sun's Java technology
developed specifically for embedded systems. The Jeode platform is enabled by
the Company's EVM and is designed to enable software developers to create
reliable, efficient and predictable embedded products. In November 1998, the
Company delivered beta versions of the Jeode platform. The product is
available for sale and is expected to be the principal product line in 1999
and the foreseeable future.
In December 1993, the Company introduced its Windows product line,
SoftWindows, which enables Windows applications to run on Apple Macintosh
computers and most UNIX workstations. The SoftWindows product line has
accounted for a substantial portion of the Company's revenue. However,
revenue generated by SoftWindows has been diminishing since 1995 and future
substantial revenues are not expected. The following table lists the
SoftWindows product releases from 1993 through 1998.
<TABLE>
<CAPTION>
Year Product name: Emulation software for:
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
1993 SoftWindows 1.0 Macintosh and UNIX
1995 SoftWindows 2.0 Macintosh and UNIX
1996 SoftWindows 3.0 Power Macintosh
1996 SoftWindows95 Power Macintosh
1997 SoftWindows95 4.0 Power Macintosh and UNIX
1997 RealPC Power Macintosh
1998 SoftWindows95 5.0 Power Macintosh
1998 SoftWindows 98 Power Macintosh
</TABLE>
In December 1995, the Company introduced and started shipping NTRIGUE, a
Windows compatibility client/server product that supports multiple
X-terminals, workstation clients, Macintosh computers, PCs and network
computers from a Windows NT-based server. In February 1998, the Company
disposed of its NTRIGUE technology.
The Company's operations outside of the United States are primarily in
the United Kingdom, where the majority of the Company's research and
development operations and its European sales activities are located. The
Company distributes its SoftWindows product through independent distributors.
The Company's revenues from customers outside the United States are derived
primarily from Europe and Asia and are generally affected by the same factors
as its revenues from customers in the United States. The operating expenses
of the Company's operations outside the United States are mostly incurred in
Europe and relate to its research and development and European sales
activities. Such expenses consist primarily of ongoing fixed costs and
consequently do not fluctuate in direct proportion to revenues. The Company's
revenues and expenses outside the United States can fluctuate from period to
period based on movements in currency exchange rates. Historically, movements
in currency exchange rates have not had a material effect on the Company's
revenues.
The Company operates with the United States dollar as its functional
currency, with a majority of revenues and operating expenses denominated in
dollars. Although the Company engages in short-term currency option and
forward exchange contracts in order to hedge short-term pound sterling net
cash flows, pound sterling exchange rate fluctuations against the dollar can
cause European revenues and United Kingdom expenses, which are translated
into dollars for financial statement reporting purposes, to vary from
period-to-period.
16
<PAGE>
DISPOSAL OF NTRIGUE TECHNOLOGY
On February 5, 1998 the Company completed the disposal of its NTRIGUE
technology to Citrix for $17.687 million. As part of the disposal, the
Company transferred 45 employees to Citrix, of which 43 were development
engineers.
Under the terms of the disposal agreement $8.937 million was paid to the
Company in cash on February 5, 1998, and the remainder is being held in
escrow for the sole purpose of satisfying any obligations to Citrix arising
from or in connection with an event against which the Company would be
required to indemnify Citrix. Of this amount, Citrix released $2.5 million to
the Company in February 1999.
In January 1999 the Company received an indemnity claim from Citrix for
an amount estimated by Citrix to not exceed $6.25 million. The claim is based
on a declaratory relief action that Citrix filed against GraphOn Corp.
("GraphOn") in November 1998 in the United States District Court, Southern
District of Florida. Citrix' action against GraphOn seeks a declaratory
judgement that Citrix does not infringe any GraphOn proprietary rights and
that Citrix has not misappropriated any trade secrets or breached an
agreement to which GraphOn is a party. Citrix filed the action in response to
and to resolve unsubstantiated assertions first made by GraphOn, and
disclosed to Citrix in January 1998, that the Company used GraphOn
confidential information to develop certain of the Company's products,
possibly including products the Company sold to Citrix in February 1998.
GraphOn has not filed an action against either the Company or Citrix relating
to its assertions and the Company believes such assertions by GraphOn are
without merit or basis. Accordingly, the Company intends to contest Citrix'
indemnity claim.
REVENUES
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
License revenue $ 12,998 $ 36,744 $ 40,102
Service revenue 1,098 2,125 4,144
- --------------------------------------------------------------------------------------------------
Total revenues $ 14,096 $ 38,869 $ 44,246
- --------------------------------------------------------------------------------------------------
</TABLE>
The Company derives its revenues from the sale of packaged software
products and annual maintenance contracts, and in 1997 and 1996, from
royalties received from bundling agreements with OEMs and customer-funded
engineering activities under OEM contracts. Revenues from the sale of
packaged products and royalties received from OEMs are classified as license
revenue, while revenues from customer-funded engineering activities and
annual maintenance contracts are classified as service revenue.
In 1998, the Company shipped two principal product lines: SoftWindows
and NTRIGUE. Total revenues and license revenues declined 64% and 65%,
respectively in 1998 compared to 1997. In 1998, total revenues from
SoftWindows for Macintosh declined 40% compared to 1997 primarily as a result
of increased competition and resulting price reductions of the product and
declining market share for Apple Macintosh compatible computers. In 1998,
1997 and 1996, license revenue from the sale of the Company's products for
Macintosh computers accounted for 52%, 32% and 39% of total revenues,
respectively.
The Company expects its Jeode product line to generate revenue in 1999.
Revenue from the Jeode product line will initially be derived from three main
sources: the sale of a development license, the sale of annual maintenance
and support, and a commercial use royalty based on shipments of products that
include Jeode technology.
UNIX total revenues declined 55% in 1998 compared to 1997 as a result of
a decline in the number of large OEM transactions. In 1998, 1997 and 1996 total
revenues from the Company's product for UNIX computers accounted for 40%, 32%
and 34% of total revenues, respectively.
17
<PAGE>
Total NTRIGUE revenues declined 93% in 1998 compared to 1997 as a result
of the disposal of the product line. In 1998, 1997 and 1996 total revenues
from the Company's NTRIGUE products accounted for 7%, 34% and 16% of total
revenues, respectively.
Service revenues in 1998 declined 48% compared to 1997, primarily
because the Company performed fewer customer-funded engineering activities
than in the previous year. Similarly, in 1997, service revenues declined 49%
compared to 1996.
The Company distributes its SoftWindows and RealPC packaged products
within the United States and internationally through distributors and
resellers and, in 1997 and 1996, also through OEMs. The Company offers
certain return privileges to its customers including product exchange
privileges and price protection. The Company recognizes revenues from
packaged products upon shipment with provisions for estimated future returns,
exchanges and price protection being recorded as a reduction of total
revenues. A significant portion of the Company's revenue in 1997 and 1996 was
derived from large OEM customer transactions, particularly in the UNIX and
NT-related product lines.
Sales to distributors representing more than 10% of total revenue in
each period accounted for the following percentages of total revenue.
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ingram Micro 27% * *
Sun Microsystems 27% -% -%
Silicon Graphics -% 19% 14%
Mitsubishi 11% * 12%
- --------------------------------------------------------------------------------------------------
All Distributors 92% 42% 40%
- --------------------------------------------------------------------------------------------------
</TABLE>
*Less than 10%
Sales to customers outside the United States, derived mainly from
customers in Europe and Asia, represented approximately 24%, 27% and 31% of
total revenues in 1998, 1997 and 1996, respectively. Movements in currency
exchange rates did not have a material impact on total revenues in 1998, 1997
or 1996. However, there can be no assurance that movements in currency
exchange rates will not have a material adverse effect on the Company's
future revenues and results of operations.
COST OF REVENUES AND GROSS MARGIN
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
(In thousands, except percentages)
<S> <C> <C> <C>
Cost of license revenue $ 8,329 $ 15,068 $ 14,814
Gross margin: license revenue 36% 59% 63%
- ----------------------------------------------------------------------------------------------------
Cost of service revenue $ 1,046 $ 1,994 $2,601
Gross margin: service revenue 5% 6% 37%
- ----------------------------------------------------------------------------------------------------
Total cost of revenues $ 9,375 $ 17,062 $ 17,415
Gross margin: total revenues 33% 56% 61%
- ----------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
Cost of license revenue primarily includes Windows, PC-DOS and WinFrame
royalties paid to Microsoft, IBM and Citrix, respectively, and costs of
documentation, duplication and packaging. Cost of service revenue includes
costs associated with customer-funded engineering activities and end-user
support under maintenance contracts.
The Company's distribution agreement with Microsoft Corporation expired
on March 31, 1997, but was extended until September 30, 1998 on substantially
the same terms. The Company subsequently entered into a new distribution
agreement dated October 1, 1998 on substantially the same terms, effective
for one year. Termination or expiration without renewal of the Microsoft
Distribution Agreement would result in the inability of the Company to sell
its SoftWindows products.
The Company's gross margin for license revenue is significantly affected
by many factors, including pricing of the Company's products, royalties paid
to third parties, the mix of products licensed, the channels through which
the Company's products are distributed and product maturity. The Company's
gross margin for license revenue can also be affected in particular periods
by pricing strategies and return privileges employed in connection with new
product introductions and upgrades. License gross margins in 1998 declined to
36% from 59% in 1997 as a result of pricing strategies, increased third party
royalties, rebate programs, and obsolescence of inventory. License gross
margins in 1997 declined to 59% from 63% in 1996 as a result of lower prices
introduced in mid 1997 as a result of increased competition in the
SoftWindows for the Macintosh market and fewer high margin OEM customer
transactions.
The Company believes that the significant factors affecting the Jeode
gross margin will include pricing of the development license, pricing of the
unit usage and royalties to third parties such as Sun Microsystems. In early
1999, the Company signed a five-year agreement with Sun Microsystems under
which Sun established the Company as an authorized Virtual Machine provider.
Under this agreement the Company will pay Sun a per unit royalty on each
Jeode-enabled embedded product shipped by the Company's customers, plus a
royalty on all development licenses put in place between the Company and its
customers.
Gross margin for service revenue is impacted by the level of and pricing
terms of customer funded engineering activities, which can vary from customer
to customer, from contract to contract, the level of maintenance contracts
sold and the level of SoftWindows license revenue earned. In 1998 and 1997,
the Company earned little revenue from customer-funded engineering
acitivities, and saw a decline in UNIX maintenance agreements sold. This,
combined with the high cost of providing support under NTRIGUE maintenance
contracts, resulted in the Company achieving service revenue gross margins of
5% in 1998, and 6% in 1997. Gross margins in 1996 for service revenues were
37%.
Service revenue gross margins for 1999 are expected to increase due to
the required maintenance and upgrade contracts for each Jeode product sale.
19
<PAGE>
OPERATING EXPENSES
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
(In thousands, except percentages)
<S> <C> <C> <C>
Sales and marketing $ 7,946 $ 15,804 $ 21,782
Percentage of total revenues 56% 41% 49%
- ---------------------------------------------------------------------------------------------------
Research and development $ 6,228 $ 9,129 $ 10,613
Percentage of total revenues 44% 23% 24%
- ---------------------------------------------------------------------------------------------------
General and administrative $ 4,213 $ 6,761 $ 6,268
Percentage of total revenues 30% 17% 14%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Sales and marketing expenses include advertising and promotional
expenses, trade shows, personnel and related overhead costs, and salesperson
commissions. Sales and marketing expenses decreased in 1998 by 50% as a
result of reduced advertising and promotional expenditures, and a reduction
in personnel costs. In 1997, sales and marketing costs decreased by 27% over
1996 primarily due to reduced advertising and promotional expenditures, and a
reorganization of the sales force resulting in a reduction in personnel
costs. The Company anticipates sales and marketing expenses to increase in
1999 as the Company develops a marketing and direct sales organization for
its Jeode product line.
Research and development expenses consist primarily of personnel costs,
overhead costs relating to occupancy and equipment depreciation. Research and
development expenses decreased in 1998 by 32% over 1997 as a result of
reductions in personnel associated with the disposal of the NTRIGUE product
line. During the last half of 1998, the Company invested the majority of its
development expense in its Jeode technology to accelerate the release of this
product. Research and development costs decreased by 14% in 1997 over 1996 as
a result of reductions in personnel. In accordance with Statement of
Financial Accounting Standards No. 86, software development costs are
expensed as incurred until technological feasibility is established, after
which any additional costs are capitalized. In 1998, 1997 and 1996, no
development expenditures were capitalized. Development costs will increase in
1999 as the Company further develops its Jeode technology.
General and administrative expenses consist primarily of personnel and
related overhead costs for finance, information systems, human resources and
general management. General and administrative expenses decreased by 38% in
1998 over 1997 as a result of reduced headcount, reduced legal fees and
reduced facility costs. General and administrative expenses increased by 8%
in 1997 over 1996 as a result of significant legal expenses incurred in
defending certain legal actions taken against the Company. Offsetting such
fees were personnel cost reductions resulting from the Company reorganizing
its finance and administrative groups, and reduced facilities costs as a
result of the Company closing its Boston office. General and administrative
costs are not expected to change significantly in 1999 compared to 1998.
RESTRUCTURING
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
(In thousands, except percentages)
<S> <C> <C> <C>
Restructuring $- $ 1,995 $-
Percentage of total revenues - 5% -
- -----------------------------------------------------------------------------------------------------
</TABLE>
In 1997, the Company completed two restructurings. In the first
restructure, the Company reduced headcount by 11 persons and integrated
product development, product marketing and the sales organization into two
business units. In the second restructure, the Company combined the two sales
organizations into one unit, reducing
20
<PAGE>
headcount by 53 persons, reorganized the sales force such that direct sales
inquiries are now referred to distributors, and reduced the number of
facilities it operates from. Restructuring expenses, which represented 5% of
total revenues in 1997, consist principally of costs related to terminated
employees, including serverance payments and stock option related expenses,
and future rents on facilities no longer used by the Company. As a result
of the two restructurings, the Company saved approximately $3 million in 1998.
INTEREST INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
(In thousands, except percentages)
<S> <C> <C> <C>
Interest income, net $ 984 $ 667 $ 1,379
Percentage of total revenues 7% 2% 3%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Interest income, net increased in 1998 over 1997 due primarily to
increased interest income earned on the Company's cash, cash equivalents and
investments, which increased from $14.5 million at December 31, 1997 to $16.3
million at December 31, 1998. Interest income, net decreased in 1997 over
1996 due primarily to decreased interest income earned on the Company's cash,
cash equivalents and investments, which declined from $21.7 million at
December 31, 1996 to $14.5 million at December 31, 1997.
OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
(In thousands, except percentages)
<S> <C> <C> <C>
Other income (expense), net $ 14,887 $(163) $ 17
Percentage of total revenues 106% * *
- -----------------------------------------------------------------------------------------------------
</TABLE>
*Less than 1%
Other income (expense), net increased from an expense of $163,000 in
1997 to income of $14.887 million in 1998, of which 99% was the net gain on
the disposal of the Company's NTRIGUE product line and the majority of the
remainder was foreign exchange gains.
Over 80% of the Company's total revenues and approximately 50% of its
operating expenses are denominated in United States dollars. Most of the
remaining revenues and expenses of the Company are pound sterling denominated
and consequently the Company is exposed to fluctuations in pound sterling
exchange rates. To hedge against this currency exposure, the Company enters
into foreign currency options and forward exchange contracts for periods and
amounts consistent with the amounts and timing of its anticipated pound
sterling denominated operating cash flow requirements. Unrealized gains and
losses on foreign currency option contracts are deferred and were not
material at December 31, 1998 and December 31, 1997. There can be no
assurance that such fluctuations will not have a material effect on the
Company's results of operations in the future.
The Company has an investment portfolio of fixed income securities that
are classified as "available-for-sale-securities". These securities, like all
fixed income instruments, are subject to interest rate risk and will fall in
value if market interest rates increase. The Company attempts to limit this
exposure by investing primarily in short-term securities.
PROVISION (BENEFIT) FOR INCOME TAXES
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------
(In thousands, except percentages)
<S> <C> <C> <C>
Provision (benefit) for income taxes $ 1,783 $ (720) $330
Effective income tax rate 81% N/A N/A
- ------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
The Company recorded a tax provision in 1998 reflecting certain non-U.S.
taxes arising upon the disposal of the Company's NTRIGUE product line, net of
offsetting operating losses. The Company recorded a tax benefit in 1997
reflecting the utilization of United Kingdom operating tax losses against
prior year taxes paid. In 1996 the Company had a tax provision in spite of
its pretax loss, primarily due to foreign withholding taxes related to U.S.
royalties from Japanese customers. Normally, the Company receives a U.S.
federal tax credit to offset such foreign withholding taxes but could not do
so in 1996 due to being in a net operating loss tax position.
A more complete analysis of the differences between the federal
statutory rate and the Company's effective income tax rates is presented in
Note 5 to the Consolidated Financial Statements. At December 31, 1998, the
Company has recorded a full valuation allowance against all deferred tax
assets, primarily comprising net operating losses, on the basis that
significant uncertainty exists with respect to their realization.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash, cash equivalents and investments $ 16,334 $ 14,461 $ 21,772
- ---------------------------------------------------------------------------------------------------------
Working capital $ 9,712 $ 7,816 $ 15,777
- ---------------------------------------------------------------------------------------------------------
Net cash used in operating activities $(13,687) $ (7,371) $(13,810)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The Company is in the process of transitioning its product focus from
Windows emulation and Windows compatability products to its Jeode product
line based on the Company's EVM technology. This change in product focus has
resulted in a redirection of available resources from the Company's
historical revenue base towards the development and marketing efforts
associated with the Jeode platform, which was not released for general
availability until March 1999. As a result of this change in product strategy
and associated redirection of resources to new product development, the
Company's financial position weakened significantly during 1998.
At December 31, 1998, the Company's working capital totaled $9.712
million, of which $9.1 million was restricted and held in escrow, as compared
to working capital of $7.816 million at December 31, 1997. During 1998, cash
used in operating activities totaled $13.687 million and the principle source
of cash funding came from the sale in February 1998 of the NTRIGUE product
line for $17.687 million. $8.937 million of the NTRIGUE sales proceeds was
received in February 1998, $2.5 million was received in February 1999 and the
remaining $6.25 million is being held in escrow pending resolution of the
Citrix indemnity claim. Capital additions totaled $0.9 million, $0.8 million
and $2.0 million during the years ended December 31, 1998, 1997 and 1996,
respectively.
The Company continues to face significant risks associated with the
successful execution of its new product strategy. These risks include, but
are not limited to continued technology and product development, introduction
and market acceptance of new products, changes in the marketplace, liquidity,
competition from existing and new competitors which may enter the marketplace
and retention of key personnel. Due to the generally longer sales cycles
expected to be associated with the Jeode platform, the Company does not
currently have accurate visibility of future order rates and demand for its
products generally. There can be no assurance that Jeode platform products
will achieve market acceptance.
The Company believes that additional financing will be necessary before
December 31, 1999, as its existing cash and cash equivalents are insufficient
to meet the Company's operating and capital requirements for the next twelve
months. The Company to date has made no commitments nor agreed to any
arrangements to obtain additional financing, but is currently considering
various financing alternatives. There can be no assurance that the Company
will be able to obtain such funding when needed, on acceptable terms or at
all. The failure to raise additional funds on a timely basis and on
sufficiently favorable terms could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company's liquidity may be adversely affected in the future by
factors such as higher interest rates, inability to borrow without
collateral, availability of capital financing and continued operating losses.
Further, significant fluctuations in quarterly operating results has had and,
in the future, may continue to have a negative affect on the Company's
liquidity. Factors such as price reductions, the introduction and market
acceptance of new products and product returns have contributed to this
quarterly variability. Moreover, the Company's expense levels are based in
part on expectations of future sales levels, and a shortfall in expected
sales could therefore result in a disproportionate decrease in results of
operations. As such, the results of operations in some future period may be
below the expectations of investors, which would likely result in a
significant reduction in the market price of the Company's shares. A decline
in the market price of the Company's shares would have a negative effect on
the Company's ability to raise needed capital on terms and conditions
acceptable to management.
YEAR 2000 COMPLIANCE
It is generally anticipated that many organizations will experience
operational difficulties at the beginning of the Year 2000 as a result of the
fact that many currently installed computer systems, embedded systems, and
software products are coded to accept only two digit entries in the date code
field. Significant uncertainty exists in the software and other industries
concerning the scope and magnitude of problems associated with the century
change.
The Company's assessment of the impact of this issue has encompassed 1)
software held for resale; 2) internally utilized systems; 3) computerized
information and software provided by third parties which might be integral to
customer usage of the Company's products; 4) compliance issues related
entirely to the state of readiness by customers and vendors and 5) Year 2000
cost. Set forth below is the status of each review and the estimated impact,
to the extent management can determine at this time.
SOFTWARE HELD FOR RESALE
Based on the Company's assessment to date, the Company believes that all
versions of Jeode, SoftWindows 98 products, SoftWindows95 products, RealPC
and NTRIGUE, a product the Company no longer ships, are Year 2000 compliant.
Earlier versions of SoftWindows and all versions of Soft PC, a product the
Company no longer ships, are not Year 2000 compliant, but all such versions
are upgradable to Year 2000 compliant products.
22
<PAGE>
However, there can be no assurance that all of the Company's customers will
install the Year 2000 compliant version of the Company's products in a timely
manner, which could lead to failure of customer systems and product liability
claims against the Company. Even if the Company's products are Year 2000
compliant, the Company may in the future be subject to claims based on Year
2000 issues in the products of other companies, or issues arising from the
integration of multiple products within a system. The costs of defending and
resolving Year 2000 related disputes, and any liability of the Company for
Year 2000 damages, including consequential damages, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
INTERNAL SYSTEMS
The Company has carried out an assessment of its own internal systems
and believes that they are all Year 2000 compliant.
THIRD-PARTY SYSTEMS
The Company has reviewed its material third-party relationships such as
key suppliers and distributors. The Company believes all computerized
information and software provided by third parties that might be integral to
customer usage of the Company's products is Year 2000 compliant.
Although the Company believes that its internal critical processes are
Year 2000 ready, the Company also recognizes that it is vulnerable, as are
most organizations, to the inability of third-party external interface
suppliers, and utility organizations to achieve Year 2000 readiness. The most
reasonable worst case scenario could include failure of power and water
supplies, major transportation disruptions, and failures of communications
and financial systems - any one of which could have a major and material
effect on the Company's ability to produce its products and deliver services
to its customers. While the Company has contingency plans in place to address
most issues under its control, a problem outside its control could result in
a delay in product shipments depending on the nature and severity of the
problems.
CUSTOMERS AND VENDORS
The Company's products are generally used with systems and software
involving complicated software products developed by other vendors, which may
not be Year 2000 compliant. Failure of the information systems of the
Company's customers because of the failure of such noncompliant systems or
software or for any other reason, could also affect the perceived performance
of the Company's products, which could have a negative effect on the
Company's competitive position. In addition, the Company believes that the
purchasing patterns of customers and potential customers may be affected by
Year 2000 issues as companies expend significant resources to correct or
patch their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase software
products such as those offered by the Company, which could result in a
material adverse effect on the Company's business, financial condition and
results of operations.
YEAR 2000 COST
The total cost associated with preparation for the Year 2000 has not
been, and is not expected to be, material to the Company's business,
financial condition or results of operations. Nevertheless, the Company may
not timely identify and remediate all significant Year 2000 problems and
remedial efforts may involve significant time and expense. There can be no
assurance that any Year 2000 compliance problems of the Company or its
customers or suppliers will not have a material adverse effect on the
Company's business, financial condition and results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1997, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position No. 97-2 ("SOP 97-2"), "Software
Revenue Recognition", which the Company has adopted for transactions entered
into during the fiscal year beginning January 1, 1998. SOP 97-2 provides
guidance for recognizing revenue on software transactions and supersedes
Statement of Position No. 91-1, "Software Revenue
23
<PAGE>
Recognition". In March 1998, the AICPA issued Statement of Position No. 98-4
("SOP 98-4"), "Deferral of the Effective Date of a Provision of SOP 97-2,
Software Revenue Recognition". SOP 98-4 deferred, for one year, the
application of certain passages in SOP 97-2 which limit what is considered
vendor-specific objective evidence necessary to recognize revenue for
software licenses in multiple-element arrangements when undelivered elements
exist. In December 1998, the AICPA issued Statement of Position No. 98-9
("SOP 98-9"), "Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions". SOP 98-9 extends the effective date of SOP
98-4 and provides additional interpretive guidance. SOP 98-9 is effective for
fiscal years beginning after March 15, 1999. The Company will determine the
impact, if any, of SOP 98-9 on current revenue recognition practices when
adopted. Adoption of the remaining provisions of SOP 97-2 did not have a
material impact on revenue recognition during 1998.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. This statement becomes effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company will adopt FAS 133 in
2000. The Company expects that FAS 133 will not have a material impact on the
results of operations when adopted.
In March 1998, the AICPA issued Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use and is
effective for financial statements for fiscal years beginning after December
15, 1998. The Company will adopt SOP 98-1 in 1999. The Company expects that
SOP 98-1 will not have a material impact on the results of operations when
adopted.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's revenues, margins and operating results are subject to
quarterly and annual fluctuations due to a variety of factors, including
demand for the Company's products, acceptance and demand for Java technology
in the embedded products market, demand for Macintosh computers and UNIX
workstations, product life cycles, the introduction, acceptance and delivery
of new products and product enhancements by the Company, Apple, Microsoft,
UNIX workstation vendors or their competitors, customer order deferrals in
anticipation of new products, changes in the mix of distribution channels
through which the Company's products are offered, purchasing patterns of
distributors and retailers, quality control of products sold, competitive
conditions in the industry and economic conditions generally or in various
geographic areas. Although the Company's primary functional currency is the
United States dollar, a significant portion of the Company's operating
expenses are incurred by its United Kingdom operations and paid in pounds
sterling. The Company enters into short-term currency option and forward
exchange contracts to hedge the short-term impact of exchange rate
fluctuations on pound sterling net operating cash flows, but there can be no
assurance that such fluctuations will not have a material adverse effect on
the Company's business, financial condition or results of operations in the
future. A relatively high percentage of the Company's expenses is fixed over
the short term and, as a result, if anticipated revenues in any quarter do
not occur or are delayed, expenditure levels could be disproportionately high
as a percentage of total revenues and the Company's operating results for
that quarter would be adversely affected. The Company historically has
operated with little backlog because its products are generally shipped as
orders are received. As a result, revenues in any quarter are substantially
dependent on orders booked and shipped in that quarter and on sales by
distributors and other resellers. In addition, the Company has at times
recognized a substantial portion of its revenues from sales booked and
shipped in the last month of the quarter such that the magnitude of quarterly
fluctuations may not become evident until late in, or at the end of, a
particular quarter. Some orders for the Company's UNIX products are
significant in size and orders for the Company's Jeode product are expected
to be significant in size. If sales forecasted from a specific customer for a
particular quarter are not realized in that quarter, the Company is unlikely
to be able to generate revenue from alternate sources in time to compensate
for the shortfall. As a result, and due to the relatively large size of some
orders, a lost or delayed sale could have a material adverse effect on the
Company's quarterly operating
24
<PAGE>
results. Moreover, to the extent that significant sales occur earlier than
expected, operating results for subsequent quarters may be adversely
affected. There can be no assurance that the Company will be able to achieve
profitability on a quarterly or annual basis. The Company intends to make a
significant investment in its marketing, sales, customer support and research
and development infrastructure to support its Jeode product line. The timing
of this expansion and the rate at which Jeode generates revenue could cause
material fluctuations in the Company's results of operations. As a result,
the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. Although historically the Company's
business has not been subject to seasonal variations, sales of the Company's
products in certain international markets, such as Europe, are typically
slower in the summer months. Due to all of the foregoing factors, it is
possible that in some future quarters the Company's operating results will be
below the expectations of stock market analysts and investors. In such event,
the price of the Company's ADSs would likely be materially adversely affected.
FUTURE OPERATING RESULTS
Except for the historical information contained in this Annual Report,
the matters discussed herein are forward-looking statements. These
forward-looking statements concern matters which include, but are not limited
to, the development of new products, enhancements or technologies,
particularly the development of Jeode, the timing of the availability of
Jeode, the Jeode product and service offerings, the revenue model and market
for Jeode, the features, benefits and advantages of Jeode, international
sales, the availability of licenses to third-party proprietary rights,
business and sales strategies, matters relating to proprietary rights,
competition, Year 2000 compliance, facilities needs, exchange rate
fluctuations and the Company's liquidity and capital needs and other
statements regarding matters that are not historical are forward-looking
statements. These matters involve risks and uncertainties that could cause
actual results to differ materially from those in the forward looking
statements. In addition to the factors discussed above, among other factors
that could cause actual results to differ materially are the following: the
Company's ability to deliver on time, and market acceptance of Jeode or other
new products or upgrades of existing products; the timing of, or delay in,
large customer orders; continued availability of technology and intellectual
property license rights; product life cycles; the demand for Macintosh
computers and UNIX workstations; the introduction, acceptance and delivery of
hardware and/or operating systems by Macintosh and UNIX vendors, Microsoft
Corporation or their competitors; customer order deferrals in anticipation of
new products; changes in the mix of distribution channels through which the
Company's products are offered; purchasing patterns of distributors and
retailers; quality control of products sold; competitive conditions in the
industry; economic conditions generally or in various geographic areas; and
the risks listed from time to time in the reports that the Company files with
the U.S. Securities and Exchange Commission. There can be no assurance that
the Company will experience growth in revenues and net income in any
particular period when compared to prior periods. Any quarterly or annual
shortfall in net revenues and/or net income from the levels expected by
securities analysts and shareholders would result in a substantial decline in
the trading price of the Company's shares.
RESTATEMENT OF 1996 QUARTERLY RESULTS
The Company determined that certain individuals in its U.S. channel
sales organization violated Company policy by entering into unauthorized
agreements with certain distributors and resellers, and by failing to report
those agreements to the Company's finance department. In addition, the
Company discovered that certain individuals in its U.S. channel sales
organization did not accurately report to its finance department the amount
and status of unsold inventories of the Company's products at certain of the
Company's resellers. The individuals who were involved in these events were
disciplined or are no longer with the Company. At the direction of the Audit
Committee of its Board of Directors, the Company implemented additional
accounting and reporting controls to help prevent future breaches of Company
policies.
Upon the discovery of the aforementioned, the Company conducted a review
of the Company's compliance with its revenue recognition policy. As a result
of this review, the Company identified certain transactions in which revenue
and related expenses were recognized other than in accordance with its
accounting policies. As part of this review, the Company also reversed
certain sales to a new distributor that had been granted broad rights of
return. Accordingly, the Company restated its unaudited condensed
consolidated financial statements for the first and
25
<PAGE>
second quarters of 1996 to reflect these adjustments. All quarterly
information presented in this Annual Report reflect the restated quarterly
information for 1996.
ITEM 8--CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are set forth at the
pages indicated in Item 14 of Part IV of this Report on Form 10-K.
The following table provides selected quarterly consolidated financial
data (in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
1998:
Revenues $ 4,982 $ 2,334 $ 3,620 $ 3,160
Gross profit 2,063 410 1,296 952
Net income (loss) 7,632 (3,677) (667) (2,866)
Basic net income (loss) per share 0.63 (0.30) (0.05) (0.23)
Diluted net income (loss) per share 0.62 (0.30) (0.05) (0.23)
1997:
Revenues $ 9,221 $ 9,659 $ 13,377 $ 6,612
Gross profit 4,815 5,409 8,323 3,260
Net loss (4,689) (2,536) (641) (2,792)
Basic loss per share (0.41) (0.22) (0.05) (0.23)
Diluted loss per share (0.41) (0.22) (0.05) (0.23)
1996:
Revenues $ 13,063 $ 14,930 $ 9,081 $ 7,172
Gross profit 8,854 10,418 4,496 3,063
Net income (loss) (225) 569 (4,991 (6,119)
Basic net income (loss) per share (0.02) 0.05 (0.44) (0.53)
Diluted net income (loss) per share (0.02) 0.04 (0.44) (0.53)
</TABLE>
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
26
<PAGE>
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(A) DIRECTORS OF THE COMPANY
The names of the directors of the Company, and certain information about
them, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION SINCE
---------------- --- -------------------- --------
<S> <C> <C> <C>
Richard M. Noling 50 President and Chief Executive Officer 1997
Nicholas, Viscount Bearsted (1) 49 Chairman of the Board of the Company 1988
Albert E. Sisto (1) (2) 49 Independent Consultant 1997
Vincent S. Pino (2) 50 President of Alliance Imaging 1998
</TABLE>
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Richard M. Noling was named President and Chief Executive Officer and a
director of the Company in March 1997. He also served as Chief Financial
Officer, Senior Vice President of Finance and Operations and Company
Secretary between April 19, 1996 and October 1, 1997 and Chief Operations
Officer between February and March 1997. From August 1995 to February 1996,
Mr. Noling was Vice President and Chief Financial Officer at Fast Multimedia,
Inc., a German-based computer software and hardware developer. From November
1994 to August 1995, he was Chief Financial Officer for DocuMagix Inc., a
personal paper management software company. From June 1991 to October 1994,
Mr. Noling served as Senior Vice President and Chief Financial Officer for
Gupta Corporation. He received a Bachelor of Arts degree in aerospace and
mechanical engineering science from the University of California (San Diego)
in 1970. He received an M.A. degree in theology from the Fuller Theological
Seminary in 1972, and an M.S. degree in business administration in 1979 from
the University of California (Irvine).
Nicholas, Viscount Bearsted has served as Chairman of the Board of
Directors of the Company since March 1997 and as a director of the Company
since January 1988. He also served as Chairman of the Board from January 1988
to March 1995, and he was the Company's Chief Executive Officer from
September 1988 until September 1993. From January 1996 to May 1996, he served
as Chief Executive Officer and a director, and from April 1994 to January
1996, as Deputy Chief Executive Officer and a director, of Hulton Deutsch
Collection Ltd., a photographic content provider. He founded Alliance Imaging
Inc. in 1984 and served as a senior executive until 1987 and as a director
until 1988. Since 1980, he has been a corporate and computer consultant. He
received a Bachelors degree in chemistry from Oxford University in 1972. He
also serves as a Director of Mayborn Group plc.
Albert E. Sisto was appointed as a director of the Company in March
1997. He is currently an independent consultant. He served as Chief Operating
Officer of RSA Data Security, Inc., a wholly owned subsidiary of Securities
Dynamics Technologies, Inc., from December 1997 to February 1999. He served
as the President, Chief Executive Officer and Chairman of the Board of
Directors of DocuMagix Inc. from October 1994 until December 1997. From
September 1989 to September 1994, Mr. Sisto served as President and Chief
Executive Officer of PixelCraft, an imaging software and equipment company.
He received a B.E. degree in engineering from the Stevens Institute of
Technologies in 1971.
Vincent S. Pino was appointed a director of the Company in October 1998.
He has served as President of Alliance Imaging, Inc. since February 1998.
Mr. Pino began his association with Alliance in 1988 as Chief Financial
Officer. From 1991 through 1993 Mr. Pino held the position of Executive Vice
President and Chief Financial Officer. From 1986 to 1988, Mr. Pino was
President of Pacific Capital, where he provided financial consulting
27
<PAGE>
services to corporations and publicly registered real estate limited
partnerships. Prior to joining Pacific Capital, Mr. Pino held executive staff
positions with Petrolane Incorporated, a diversified services company. Mr.
Pino received an MBA and a B.S. degree in finance from the University of
Southern California in 1972 and 1970, respectively.
(B) EXECUTIVE OFFICERS
The information required by this Item with respect to the executive
officers of the Company is incorporated by reference from "Item 4A--Executive
Officers of the Registrant" in Part I of this Report.
(C) SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of the Company's Ordinary Shares
to file initial reports of ownership and reports of changes in ownership with
the SEC. Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms that they file. Based solely on its
review of the copies of such forms furnished to the Company and written
representations from the executive officers and directors, the Company
believes that all Section 16(a) filing requirements were met.
28
<PAGE>
ITEM 11--EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to or earned or
paid for services rendered in all capacities to the Company and its
subsidiaries during each of 1998, 1997 and 1996 by the Company's Chief
Executive Officer and each of the Company's other executive officers who were
serving as executive officers at the end of 1998, as well as the Company's
former Senior Vice President of Sales and Marketing who left the Company
during 1998 (the "Named Officers"). This information includes the dollar
values of base salaries and bonus awards, the number of shares subject to
options granted and certain other compensation, whether paid or deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS($)(1) COMPENSATION($) OPTIONS(#) COMPENSATION($)(2)
- ---------------------------- ---- --------- ----------- --------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Noling (3)........... 1998 $217,875 $75,171 $ -- 20,000 $1,080
President and Chief Executive 1997 203,947 93,184 -- 415,000 360
Officer 1996 128,792 9,800 -- 85,000 405
Stephen M. Ambler (4) .......... 1998 145,250 40,345 -- 20,000 --
Chief Financial Officer, Company 1997 122,556 8,889 19,777(5) 88,750 4,338
Secretary and Senior Vice President 1996 84,072 -- 8,932(6) 3,750 4,203
George Buchan .................. 1998 167,000 54,827 22,044(7) 20,000 16,700
Senior Vice President of 1997 158,650 51,671 20,265(7) 55,000 15,865
Engineering and UK General Manager 1996 141,300 13,168 12,740(7) -- 14,130
Ronald C. Workman (8)........... 1998 82,500 22,442 -- 100,000 405
Senior Vice President of Marketing
David B. Winterburn(9).......... 1998 59,006 25,734 57,000(10) 130,000 135
Former Senior Vice President of
Business Development and Chief
Technology Officer
Joseph A. Taglia (11)........... 1998 103,125 28,833 60,072(12) 10,000 495
Former Senior Vice President of 1997 108,811 26,747 -- 100,000 292
Sales and Marketing
</TABLE>
(1) Bonuses paid to the executive officers (other than the Chief Executive
Officer) are based on a target bonus set for each officer each
quarter, adjusted by the Company's operating results over plan and the
executive officer's performance against quarterly qualitative goals.
The Chief Executive Officer's bonus is at the discretion of the
Compensation Committee of the Board.
(2) Represents Company contributions to defined contribution employee
benefit plans.
(3) Mr. Noling joined the Company in April 1996 as Senior Vice President
of Finance and Operations, Chief Financial Officer and Company Secretary.
He was appointed President and Chief Executive Officer of the Company
in March 1997.
(4) Mr. Ambler joined the Company in April 1994 as Director of Finance and
Administration, Europe. He was appointed Chief Financial Officer, Company
Secretary and Vice President in October 1997. He became a Senior Vice
President in January 1999.
(5) $8,111 of this sum represents the incremental cost to the Company of the
use of a Company car and $11,666 represents a bonus for relocation to the
Company's United States facility.
(6) Represents the incremental cost to the Company of the use of a Company car.
(7) Represents the payment of a Company car allowance.
(8) Mr. Workman joined the Company in July 1998.
(9) Mr. Winterburn joined the Company in August 1998. He served as Senior Vice
President of Business Development and Chief Technology Officer until March
1999. Mr. Winterburn provided consultancy services to the Company between
June 1998 and August 1998.
(10) $15,000 of this sum represents a relocation reimbursement, and $42,000
represents amounts paid for consulting services provided immediately prior
to joining the Company.
(11) Mr. Taglia joined the Company in May 1997 as Senior Vice President and
General Manager of the SoftWindows Business Group. He was appointed Senior
Vice President of Sales and Marketing in October 1997, and left the
employment of the Company in June 1998.
29
<PAGE>
(12) Represents a payment upon severance of employment.
The following table sets forth further information regarding individual
grants of rights to purchase Ordinary Shares during 1998 to each of the Named
Officers. In accordance with the rules of the Securities and Exchange
Commission (the "SEC"), the table sets forth the hypothetical gains or
"option spreads" that would exist for the options at the end of their
respective ten-year terms. These gains are based on assumed rates of annual
compounded share price appreciation of 5% and 10% from the dates the options
were granted to the end of the respective option terms. Actual gains, if any,
on option exercises depend upon the future performance of the Ordinary Shares
and ADSs. There can be no assurance that the potential realizable values
shown in this table will be achieved.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES OF
SECURITIES TOTAL SHARE PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM(1)
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------------
NAME (#) 1998 ($/SH) DATE 5%($) 10%($)
- ---- --------------- --------------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Noling ... 10,000 (2) 0.1% $1.625 04/28/08 $ 10,219 $ 25,898
10,000 (2) 0.1% 0.688 10/19/08 4,327 10,965
Stephen M. Ambler.... 10,000 (2) 0.1% 1.625 04/28/08 10,219 25,898
10,000 (2) 0.1% 0.688 10/19/08 4,327 10,965
George Buchan........ 10,000 (2) 0.1% 1.625 04/28/08 10,219 25,898
10,000 (2) 0.1% 0.688 10/19/08 4,327 10,965
Ronald C. Workman.... 90,000 (3) 0.9% 1.000 07/06/08 56,600 143,436
10,000 (2) 0.1% 0.688 10/19/08 4,327 10,965
David B. Winterburn.. 120,000 (3) 1.2% 1.000 07/06/08 75,467 191,249
10,000 (2) 0.1% 0.688 10/19/08 4,327 10,965
Joseph A. Taglia..... 10,000 (2)(4) 0.1% 1.625 04/28/08 10,219 25,898
</TABLE>
(1) The 5% and 10% assumed annual compound rates of share price appreciation
are mandated by rules of the SEC and do not represent the Company's
estimate or projection of future Ordinary Share or ADS prices.
(2) These incentive options were granted pursuant to the Company's 1995
Incentive Stock Option Plan for U.S. employees. These options vest and
become exercisable at the rate of 2.0833% of the shares for each full
month that the optionee renders service to the Company. The option
exercise price is equal to the fair market value of the Company's Ordinary
Shares on the date of grant and the options expire ten years from the date
of grant, subject to earlier termination upon termination of employment.
25% of options granted will be subject to accelerated vesting upon
termination or constructive termination following a change of control of
the Company.
(3) These incentive options were granted pursuant to the Company's 1995
Incentive Stock Option Plan for U.S. Employees. These options vest and
become exercisable as to 25% of the shares on the first anniversary of the
date of grant and thereafter at the rate of 2.0833% of the shares for each
full month that the optionee renders services to the Company. The option
exercise price is equal to the fair market value of the Company's Ordinary
Shares on the date of grant and the options expire ten years from the date
of grant, subject to earlier termination upon termination of employment.
25% of options granted will be subject to accelerated vesting upon
termination or constructive termination following a change of control of
the Company.
(4) These options lapsed on September 28, 1998.
30
<PAGE>
The following table sets forth certain information concerning the
exercise of options by each of the Named Officers during 1998, including the
aggregate amount of gains on the date of exercise. In addition, the table
includes the number of shares covered by both exercisable and unexercisable
rights to acquire shares as of December 31, 1998. Also reported are values of
"in-the-money" options that represent the positive spread between the
respective exercise prices of outstanding rights to acquire shares and $2.00
per share, which was the closing price of the ADSs as reported on the Nasdaq
National Market on December 31, 1998.
AGGREGATED OPTION EXERCISES IN 1998 AND
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR-END (#) AT YEAR-END($)(2)
SHARES ACQUIRED VALUE REALIZED --------------------------- ---------------------------
NAME ON EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Noling..... -- -- 290,000 230,000 $ 5,628 $ 17,442
Stephen M. Ambler..... -- -- 38,198 78,052 $ 9,097 $ 21,575
George Buchan......... -- -- 111,979 50,521 $ 45,160 $ 15,698
Ronald C. Workman..... -- -- 417 99,583 $ 547 $ 102,573
David B. Winterburn... -- -- 417 129,583 $ 547 $ 132,573
Joseph A. Taglia...... -- -- -- -- -- --
</TABLE>
(1) "Value Realized" represents the fair market value of the shares underlying
the options on the date of exercise less the aggregate exercise price of
the options.
(2) For purposes of the table, all amounts in pounds sterling were converted
to U.S. dollars using $1.67 per pound sterling, the exchange rate in
effect as of December 31, 1998.
EMPLOYMENT AGREEMENTS
Effective March 25, 1997, Mr. Noling entered into an employment
agreement with the Company, which is terminable by either party upon six
month's notice and by the Company for cause at any time. In connection with
such agreement, Mr. Noling was granted options to purchase (i) 100,000
Ordinary Shares at an exercise price of $1.969, such options being 100%
vested and immediately exercisable, (ii) 100,000 Ordinary Shares at an
exercise price of $1.969, such options to vest and become exercisable at the
rate of 2.0833% of the shares on the first day of each month following the
date of grant and (iii) 200,000 Ordinary Shares on the day of the 1997 Annual
General Meeting, such options to vest and become exercisable at the rate of
2.0833% of the shares on the first day of each month following the date of
grant. The Annual General Meeting was held on May 29, 1997 and the options
were granted at an exercise price of $2.375. 100,000 of these options are
subject to accelerated vesting and exercisability should the Company meet
certain earnings per share ("EPS") targets as follows: (a) 25,000 options are
accelerated should the EPS exceed $0.07 for 2 consecutive quarters (b) 37,500
options are accelerated should the EPS exceed $0.14 for 2 consecutive
quarters and (c) 37,500 options are accelerated should the EPS exceed $0.21
for 2 consecutive quarters, with a maximum of one early vesting event per
quarter. These 100,000 options fully vest upon a takeover or merger of the
Company.
The employment agreement continues through May 31, 2001, and is
automatically extended for an additional year at the end of the term unless
either party gives notice six months prior to November 30, 2000 to terminate
effective upon the expiration of the then current term. In the event of any
business combination resulting in a change of control of the Company or in
the event of disposal of a majority of the assets of the Company, and the
termination or constructive termination of Mr. Noling's employment, Mr.
Noling shall receive his then current full salary for a period of twelve
months following such termination. In addition he shall be entitled to
continued vesting and exercisability of his options for a period of twelve
months after termination and shall be entitled to participate in the
Company's employee benefits on the same basis as if he were an employee.
31
<PAGE>
With effect from April 1, 1997, Nicholas, Viscount Bearsted, Chairman of
the Company, entered into a Consulting Agreement with the Company whereby he
acts as consultant to the Company providing advice and assistance as the
Board may from time to time request. Nicholas, Viscount Bearsted shall be
available to perform such services for at least thirteen days per quarter and
shall receive a fee of $1,000 for each day services are provided, subject to
a minimum thirteen days per quarter, plus reimbursement of reasonable
expenses. The agreement is terminable by either party upon six month's
advance written notice and by the Company for cause at any time. In the event
of any business combination resulting in a change of control of the Company
or in the event of disposal of a majority of the assets of the Company, and
termination or constructive termination of his consultancy, Nicholas,
Viscount Bearsted will be entitled to receive an additional twenty-six week's
consultancy fees.
In January 1993, Mr. Buchan entered into an employment agreement with
the Company, which may be terminated by either party upon six months' notice
and by the Company for cause at any time. In the event of any business
combination, change in control or disposal of a majority of the assets of the
Company, Mr. Buchan's employment may be terminated with three months' notice,
and upon such termination Mr. Buchan will be entitled to a payment equivalent
to his current annual salary plus estimated bonus for the year following
termination and all his outstanding share options will become exercisable.
In July 1998, the Company loaned Mr. Winterburn $70,000 to assist in the
purchase of a house. The loan is represented by a promissory note, and bears
interest at the prime rate. Provided Mr. Winterburn remains an employee of
the Company, the Company agreed to forgive 25% of unpaid principal on January
10, 1999 and 25% each January 10 thereafter up to and including January 10,
2002. Mr. Winterburn's employment terminated in March 1999, and the remaining
unpaid principal and interest is repayable to the Company within 30 days.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board (the "Committee") makes all
decisions involving the compensation of executive officers of the Company.
The Committee consists of the following non-employee directors: Vincent S.
Pino and Albert E. Sisto. Paul L. Borrill served on the Committee until he
resigned as a director in January 1999. John R. Johnston served on the
committee until he resigned as a director in July 1998.
The Company entered into a consulting agreement with Albert Sisto, dated
December 28, 1998, whereby Mr. Sisto will provide sales consulting, sales
training, advice and assistance as the Company may from time to time request
over a term of six months. Mr. Sisto shall receive a fee of $500 for each
half-day of service provided, subject to a maximum of $35,000. Mr. Sisto
shall also receive a bonus fee for each qualifying Jeode customer contract
signed in his assigned geographic region. A qualifying customer contract is
defined as a contract with a value in excess of $500,000 over two years after
signing by Insignia and the customer. The agreement is terminable by either
party upon ten days written notice and by the Company for any reason with
written notice.
DIRECTOR COMPENSATION
The Company pays each outside director $1,000 for every regular meeting
attended, $2,500 per quarter of service on the Board, $500 per quarter for
service on each committee, plus $500 for each committee meeting attended, and
reimburses outside directors for reasonable expenses in attending meetings of
the Board. The Chairman of the Board receives an additional $1,500 per
quarter. In addition, each new outside director will be granted an option to
purchase 15,000 shares and each outside director will be granted an option to
purchase 5,000 shares annually for so long as he serves as an outside
director. For information concerning the compensation of Mr. Noling and
Nicholas, Viscount Bearsted, see "Employment Agreements."
32
<PAGE>
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 8, 1999,
with respect to the beneficial ownership of the Company's Ordinary Shares by
(i) each shareholder known by the Company to be the beneficial owner of more
than 5% of the Company's Ordinary Shares, (ii) each director, (iii) each
Named Officer, and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
- ------------------------ ----------------------- ----------------
<S> <C> <C>
RIT Capital Partners plc (2).............................. 2,032,897 16.0%
Technology Venture Investors IV (3)....................... 1,438,808 11.3%
Nicholas, Viscount Bearsted (4)........................... 790,904 6.1%
Robert H. Siteman and Barbara L. Siteman (5).............. 641,500 5.0%
Richard M. Noling (6)..................................... 357,333 2.7%
George Buchan (7)......................................... 153,537 1.2%
Stephen M. Ambler (8) .................................... 47,354 *
Vincent S. Pino (9) ...................................... 23,000 *
Albert E. Sisto (10)...................................... 16,666 *
Ronald C. Workman (11).................................... 2,083 *
David B. Winterburn (12) ................................. 1,250 *
Joseph A. Taglia (13) .................................... - *
All directors and executive officers
as a group (8 persons)(14)................................
1,392,128 10.4%
</TABLE>
* Less than 1%
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable. Shares subject to options that are currently exercisable or
exercisable within 60 days of March 8, 1999 are deemed to be outstanding
and to be beneficially owned by the person holding such option for the
purpose of computing the percentage ownership of such person but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) The address of RIT Capital Partners plc is 27 St. James's Place, London
SW1A 1NR, United Kingdom.
(3) Represents 1,278,376 shares held by Technology Venture Investors-4, L.P.
("TVI"), 149,416 shares held by TVI Partners-4, L.P. and 11,016 shares
held by TVI Affiliates-4, L.P. The address of TVI is 2480 Sand Hill Road,
Suite 101, Menlo Park, California 94025.
(4) Includes 153,958 shares subject to options that were exercisable within
60 days of March 8, 1999. Nicholas, Viscount Bearsted is Chairman of the
Board of the Company. His address is 9 Acacia Road, London, NW8 6AB,
United Kingdom.
(5) Mr. & Mrs. Siteman's principal address is 1657 Wicklow Court, Westlake
Village, California.
(6) Includes 325,313 shares subject to options that were exercisable within
60 days of March 8, 1999. Mr. Noling is the President, Chief Executive
Officer, and a director of the Company.
(7) Includes 121,875 shares subject to options that were exercisable within
60 days of March 8, 1999. Mr. Buchan is Senior Vice President of
Engineering and UK General Manager of the Company.
(8) Represents shares subject to options that were exercisable within 60 days
of March 8, 1999. Mr. Ambler is Chief Financial Officer, Company
Secretary and a Senior Vice President of the Company.
(9) Mr. Pino is a director of the Company.
(10) Represents shares subject to options that were exercisable within 60 days
of March 8, 1999. Mr. Sisto is a director of the Company.
(11) Represents shares subject to options that were exercisable within 60 days
of March 8, 1999. Mr. Workman is Senior Vice President of Marketing.
33
<PAGE>
(12) Represents shares subject to options that were exercisable within 60 days
of March 8, 1999. Mr. Winterburn served as Senior Vice President of
Business Development and Chief Technology Officer of the Company from
August 1998 to March 1999.
(13) Mr. Taglia served as Senior Vice President of Sales and Marketing from
October 1997 to June 1998.
(14) Includes the shares indicated as included in footnotes (4) and (6)
through (11).
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1998, there has not been, nor is there currently
proposed, any transaction or series of transactions to which the Company or
any of its subsidiaries was or is to be a party in which the amount involved
exceeds $60,000 and in which any executive officer, director or holder of
more than 5% of the Company's Ordinary Shares had or will have a direct or
indirect material interest other than (i) normal compensation arrangements,
which are described under Item 11 above, (ii) the transactions described
under "Compensation Committee Interlocks and Insider Participation" in Item
11 above, and (iii) the transactions described under "Employment Agreements"
in Item 11 above.
34
<PAGE>
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following documents are filed as part of this Annual Report
on Form 10-K:
<TABLE>
<CAPTION>
DOCUMENT PAGE
-------- ----
<S> <C>
Consolidated Balance Sheet as of December 31, 1998 and 1997............. 38
Consolidated Statement of Operations for each of the three years in the
period ended December 31, 1998................................. 39
Consolidated Statement of Shareholders' Equity for each of the three
years in the period ended December 31, 1998.................... 40
Consolidated Statement of Cash Flows for each of the three years in the
period ended December 31, 1998................................. 41
Notes to Consolidated Financial Statements.............................. 42
Report of Independent Accountants....................................... 57
</TABLE>
2. Financial Statement Schedule
The following financial statement schedule is filed as a part of this
Annual Report on Form 10-K and should be read in conjunction with the
Financial Statements:
<TABLE>
<CAPTION>
DOCUMENT PAGE
-------- ----
<S> <C>
Schedule II--Valuation and Qualifying Accounts......................... 56
</TABLE>
All other schedules are omitted because they are not applicable, or
because the required information is included in the financial
statements or notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December
31, 1998.
35
<PAGE>
(c) Exhibits
The following exhibits are filed as part of this Report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -----------------------------------------------------------------
<S> <C>
2.01 --Asset Purchase Agreement dated as of January 10, 1998, by and
among Citrix Systems, Inc., Citrix Systems UK Limited and Insignia
Solutions plc. (7)**
2.02 --Amendment No. 1 to Asset Purchase Agreement dated as of February
5, 1998, by and among Citrix Systems, Inc., Citrix Systems UK
Limited and Insignia Solutions plc. (7)**
3.02 --Registrant's Articles of Association. (1)
3.04 --Registrant's Memorandum of Association. (1)
4.01 --Form of Specimen Certificate for Registrant's Ordinary Shares. (1)
4.02 --Registration Rights Agreement, dated as of June 5, 1992, as
amended. (1)
4.03 --Deposit Agreement between Registrant and The Bank of New York.
(2)
4.04 --Form of American Depositary Receipt (included in Exhibit 4.03).
(2)
10.01 --Registrant's 1986 Executive Share Option Scheme, as amended,
and related documents. (1)*
10.02 --Registrant's 1988 U.S. Stock Option Plan, as amended, and
related documents. (1)*
10.03 --Registrant's 1995 Incentive Stock Option Plan for U.S. Employees
and related documents. (6)*
10.05 --Insignia Solutions Inc. 401(k) Plan. (1)*
10.06 --Registrant's Small Self-Administered Pension Plan Definitive
Deed and Rules. (1)*
10.10 --Executive's Employment Agreement dated January 1, 1993 between
Registrant and George Buchan. (1)*
10.14 --Form of Indemnification Agreement entered into by Registrant
with each of its directors and executive officers. (1)*
10.15 --Lease Agreement between Insignia Solutions Inc. and Shoreline
Investments I dated March 10, 1993. (1)
10.16 --Lease between Registrant and The Standard Life Assurance
Company dated November 3, 1992 and related documents. (1)
10.17 --License Agreement between Insignia Solutions Inc. and Microsoft
Corporation dated January 1, 1991, as amended. (1)**
10.21 --Distribution Agreement between Insignia Solutions Inc. and
Micro D, Inc. dated October 27, 1988, as amended. (1)**
10.22 --Form of Indemnification Agreement entered into between Insignia
Solutions Inc. and each of Registrant's directors and executive
officers. (1)*
10.25 --Authorized International Master Distributor Agreement between
Insignia Solutions Inc. and Mitsubishi Corporation dated May 16,
1995, as amended. (2)**
10.27 --Microsoft Software Distribution License Agreement for Desktop
Operating Systems dated March 1, 1996, between Microsoft
Corporation and Insignia Solutions Inc. (4)**
10.28 --U.K. Employee Share Option Scheme 1996, as amended. (6)*
10.29 --License and Distribution Agreement effective February 24, 1995,
between Silicon Graphics, Inc. and Insignia Solutions Inc., as
amended. (3)**
10.30 --Amendment Number 1 and Amendment Number 2 to Microsoft OEM
License Agreement for Desktop Operating Systems between the
Company and Microsoft Corporation. (5)**
10.33 --Employment Agreement effective March 25, 1997 between Registrant
and Richard M. Noling. (6)*
10.34 --Consulting Agreement effective April 1, 1997 between Registrant
and Nicholas, Viscount Bearsted. (6)*
10.35 --Volume Purchase Agreement dated as of September 29, 1997 between
Registrant and Silicon Graphics, Inc. (6)
10.36 --Source Code License and Binary Distribution Agreement dated as
of September 29, 1997 between Registrant and Silicon Graphics,
Inc. (6)
10.37 --Amendment Number 4 dated March 15, 1998 to Microsoft OEM License
Agreement for Desktop Operating Systems between the Company and
Microsoft Corporation. (8)
10.38 --Lease Agreement between Insignia Solutions, Inc. and
Lincoln-Whitehall Pacific, LLC, dated December 22, 1997. (8)
36
<PAGE>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -----------------------------------------------------------------
10.39 --Trademark License between Insignia Solutions, Inc. and Microsoft
Corporation dated March 16, 1998. (8)
10.40 --Distribution Agreement between Insignia Solutions, Inc. and Sun
Microsystems, Inc. dated December 24, 1997. (8)**
10.41 --Microsoft License Agreement for Desktop Operating System Products
dated October 1, 1998 between Microsoft Licensing, Inc. and
Insignia Solutions, Inc. (9)**
10.42 --Registrant's 1995 Employee Share Purchase Plan, as amended. (9)*
10.43 --Promissory Note dated July 1, 1998 between Insignia Solutions,
Inc. and David Winterburn. (9)*
10.44 --Lease agreements(s) between Insignia Solutions plc and Comland
Industrial and Commercial Properties Limited dated August 12th,
1998 for the Apollo House premises and the Saturn House premises.
10.45 --Consulting agreement between Insignia Solutions Inc. and Albert
Sisto dated December 28, 1998. *
21.01 --List of Registrant's subsidiaries. (2)
23.01 --Consent of PricewaterhouseCoopers LLP, Independent Accountants.
27.01 --Financial Data Schedule.
</TABLE>
* Management contract or compensatory plan.
** Confidential treatment has been granted with respect to certain
portions of this agreement. Such portions were omitted from this
filing and filed separately with the Securities and Exchange
Commission.
(1) Incorporated by reference to the exhibit of the same number from
Registrant's Registration Statement on Form F-1 (File No. 33-98230)
declared effective by the Commission on November 13, 1995.
(2) Incorporated by reference to the exhibit of the same number from
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995.
(3) Incorporated by reference to the exhibit of the same number from
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996.
(4) Incorporated by reference to Exhibit 10.27 from Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996.
(5) Incorporated by reference to Exhibit 10.30 from Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.
(6) Incorporated by reference to the exhibit of the same number from
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997.
(7) Incorporated by reference to the exhibit of the same number from
Registrant's Current Report on Form 8-K dated February 5, 1998.
(8) Incorporated by reference to the exhibit of the same number from
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998.
(9) Incorporated by reference to the exhibit of the same number from
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
37
<PAGE>
INSIGNIA SOLUTIONS PLC
CONSOLIDATED BALANCE SHEET
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------------- ------------
<S> <C> <C>
A S S E T S
Current assets:
Cash and cash equivalents $ 6,798 $ 10,391
Short-term investments - 3,820
Restricted cash 186 -
Cash and cash equivalents held in escrow 9,100 -
Accounts receivable, net 1,706 6,754
Inventories 82 185
Prepaid expenses 990 608
Prepaid income taxes - 864
Deposits 443 -
------------- ------------
Total current assets 19,305 22,622
Property and equipment, net 1,074 2,175
Restricted cash 250 250
Other noncurrent assets 382 410
------------- ------------
$ 21,011 $ 25,457
------------- ------------
------------- ------------
L I A B I L I T I E S A N D S H A R E H O L D E R S ' E Q U I T Y
Current liabilities:
Accounts payable $ 1,608 $ 1,683
Accrued liabilities 2,265 2,685
Accrued royalties 4,309 8,874
Income taxes payable 994 -
Deferred revenue 262 843
Customer deposits 104 617
Current obligations under capital leases 51 104
------------- ------------
Total current liabilities 9,593 14,806
Long-term obligations under capital leases - 111
Noncurrent liabilities - 17
------------- ------------
9,593 14,934
------------- ------------
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred shares, L0.20 par value: 3,000,000 shares authorized;
no shares issued - -
Ordinary shares, L0.20 par value: 30,000,000 shares authorized;
12,590,316 shares and 11,971,213 shares issued and outstanding
in 1998 and 1997, respectively 4,164 3,954
Additional paid-in capital 34,725 34,462
Accumulated deficit (27,010) (27,432)
Accumulated other comprehensive loss (461) (461)
------------- ------------
Total shareholders' equity 11,418 10,523
------------- ------------
$ 21,011 $ 25,457
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
38
<PAGE>
INSIGNIA SOLUTIONS PLC
CONSOLIDATED STATEMENT OF OPERATIONS
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998 1997 1996
------------- -------------- --------------
<S> <C> <C> <C>
Net revenues:
License $ 12,998 $ 36,744 $ 40,102
Service 1,098 2,125 4,144
------------- -------------- --------------
Total net revenues 14,096 38,869 44,246
------------- -------------- --------------
Costs of net revenues:
License 8,329 15,068 14,814
Service 1,046 1,994 2,601
------------- -------------- --------------
Total cost of net revenues 9,375 17,062 17,415
------------- -------------- --------------
Gross profit 4,721 21,807 26,831
------------- -------------- --------------
Operating expenses:
Sales and marketing 7,946 15,804 21,782
Research and development 6,228 9,129 10,613
General and administrative 4,213 6,761 6,268
Restructuring - 1,995 -
------------- -------------- --------------
Total operating expenses 18,387 33,689 38,663
------------- -------------- --------------
Operating loss (13,666) (11,882) (11,832)
Interest income, net 984 667 1,379
Other income (expense), net 14,887 (163) 17
------------- -------------- --------------
Income (loss) before income taxes 2,205 (11,378) (10,436)
Provision (benefit) for income taxes 1,783 (720) 330
------------- -------------- --------------
Net income (loss) $ 422 $(10,658) $(10,766)
------------- -------------- --------------
------------- -------------- --------------
Net income (loss) per share:
Basic $ 0.03 $ (0.91) $ (0.95)
------------- -------------- --------------
------------- -------------- --------------
Diluted $ 0.03 $ (0.91) $ (0.95)
------------- -------------- --------------
------------- -------------- --------------
Weighted average shares and share equivalents:
Basic 12,159 11,690 11,342
------------- -------------- --------------
------------- -------------- --------------
Diluted 12,378 11,690 11,342
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
39
<PAGE>
INSIGNIA SOLUTIONS PLC
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
ACCUMULATED
ORDINARY SHARES ADDITIONAL OTHER TOTAL
--------------------- PAID-IN ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT LOSS EQUITY
----------- -------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 11,142,246 $ 3,706 $ 33,161 $ (6,008) $ (461) $ 30,398
Shares issued under employee
stock plans 335,790 89 494 - - 583
Net loss - - - (10,766) - (10,766)
----------- -------- ---------- ----------- ------------ -------------
Balance at December 31, 1996 11,478,036 3,795 33,655 (16,774) (461) 20,215
Shares issued under employee
stock plans 493,177 159 807 - - 966
Net loss - - - (10,658) - (10,658)
----------- -------- ---------- ----------- ------------ -------------
Balance at December 31, 1997 11,971,213 3,954 34,462 (27,432) (461) 10,523
Shares issued under employee
stock plans 619,103 210 263 - - 473
Net income - - - 422 - 422
----------- -------- ---------- ----------- ------------ -------------
Balance at December 31, 1998 12,590,316 $ 4,164 $ 34,725 $(27,010) $ (461) $ 11,418
----------- -------- ---------- ----------- ------------ -------------
----------- -------- ---------- ----------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
40
<PAGE>
INSIGNIA SOLUTIONS PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 422 $ (10,658) $ (10,766)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 767 2,239 2,165
Other (14,731) 206 206
Net changes in assets and liabilities:
Restricted cash (186) (250) -
Accounts receivable, net 5,048 183 (2,769)
Inventories 103 230 (81)
Prepaid expenses (382) (66) 687
Deposits (443) - -
Prepaid income taxes 864 (673) (2,207)
Other noncurrent assets 28 501 129
Accounts payable (75) (474) (968)
Accrued liabilities (420) (1,797) (36)
Customer deposits (513) 160 38
Accrued royalties (4,565) 5,084 1,535
Deferred revenue (581) (2,056) (1,534)
Income taxes payable 994 - -
Noncurrent liabilities (17) - (3)
------------- ------------- -------------
Net cash used in operating activities (13,687) (7,371) (13,810)
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from the sale of property and equipment 140 188 288
Purchases of property and equipment (937) (753) (1,985)
Sales (purchases) of short-term investments, net 3,820 2,411 18,819
Proceeds from sale of product line 15,862 - -
Product line sale proceeds held in escrow (9,100) - -
------------- ------------- -------------
Net cash provided by investing activities 9,785 1,846 17,122
------------- ------------- -------------
Cash flows from financing activities:
Payments made under capital leases (164) (385) (303)
Proceeds from issuance of shares, net of issuance costs 473 760 583
------------- ------------- -------------
Net cash provided by financing activities 309 375 280
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (3,593) (5,150) 3,592
Cash and cash equivalents at beginning of the year 10,391 15,541 11,949
------------- ------------- -------------
Cash and cash equivalents at the end of the year $ 6,798 $ 10,391 $ 15,541
------------- ------------- -------------
------------- ------------- -------------
Supplemental disclosure of cash flow information:
Income taxes paid $ 0 $ 0 $ 2,943
Interest paid $ 22 $ 55 $ 77
Non-cash investing and financing activities:
Equipment acquired under capital lease $ 0 $ 46 $ 259
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
41
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BUSINESS
Insignia Solutions plc (the "Company") is a public limited company
incorporated in England and Wales. The Company develops, markets and supports
virtual machine technology which enables software applications to be run on
various computer platforms.
The Jeode platform, the Company's new product line released in the first
quarter of 1999, is the Company's implementation of Sun's Java technology
specifically designed for embedded products intended to allow software
developers to create reliable, efficient and predictable embedded products
that are enabled by the Company's Embedded Virtual Machine ("EVM").
SoftWindows, the Company's current product line, enables Macintosh and
UNIX platforms to run substantially all Windows and DOS applications by
emulating the underlying hardware and peripherals of an x86-based PC and
incorporating a version of Windows and DOS optimized for use on these
platforms.
The Company sold its NTRIGUE product line to Citrix in February
1998 for $17.687 million. NTRIGUE was a Windows compatibility client/server
product that supported multiple X-terminals, workstation clients, Macintosh
computers, PCs, network computers and NetPCs from a Windows NT-based server.
The principal markets for the Company's products are North America,
Europe and Far East Asia. The Company distributes its products through
multiple distribution channels, including direct sales, distributors,
resellers and original equipment manufacturers.
BASIS OF PRESENTATION
The Company's consolidated financial statements have been presented on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of operations. During the
past two years, the Company has incurred an aggregate loss from operations
totaling $25.5 million. At December 31, 1998, the Company's working capital
totaled $9.712 million, of which $9.1 million was restricted and held in
escrow, as compared to working capital of $7.816 million at December 31, 1997.
The Company is in the process of transitioning its product focus from
Windows emulation and Windows compatibility products to its Jeode product
line based on the Company's EVM technology. This change in product focus has
resulted in a redirection of available resources from the Company's
historical revenue base towards the development and marketing efforts
associated with the Jeode platform, which was not released for general
availability until March 1999. As a result of this change in product strategy
and associated redirection of resources to new product development, the
Company's financial position weakened significantly during 1998.
The Company continues to face significant risks associated with the
successful execution of its new product strategy. These risks include, but
are not limited to continued technology and product development, introduction
and market acceptance of new products, changes in the marketplace, liquidity,
competition from existing and new competitors which may enter the marketplace
and retention of key personnel. Due to the generally longer sales cycles
expected to be associated with the Jeode platform, the Company does not
currently have accurate visibility of future order rates and demand for its
products generally. There can be no assurance that Jeode platform products
will achieve market acceptance.
The Company believes that additional financing will be necessary before
December 31, 1999, as its existing cash and cash equivalents are insufficient
to meet the Company's operating and capital requirements for the next twelve
months. The Company to date has made no commitments nor agreed to any
arrangements to obtain additional financing, but is currently considering
various financing alternatives. There can be no assurance that the Company
will be able to obtain such funding when needed, on acceptable terms or at
all. The failure to raise additional funds on a timely basis and on
sufficiently favorable terms could have a material adverse effect on the
Company's business, operating results and financial condition. The Company's
liquidity may also be adversely affected in the future by factors such as
higher interest rates, inability to borrow without collateral, availability
of capital financing and continued operating losses. Moreover, the Company's
expense levels are based in part on expectations of future sales levels, and
a shortfall in expected sales could therefore result in a disproportionate
decrease in results of operations.
The Company follows accounting policies that are in accordance with
principles generally accepted in the United States. The Company conducts most
of its business in U.S. dollars. All amounts included in the financial
statements and in the notes herein are in U.S. dollars unless designated "L",
in which case they are in pounds sterling. The exchange rates between the
U.S. dollar and the pound sterling were $1.67, $1.67 and $1.71 (expressed in
U.S. dollars per pound sterling) at December 31, 1998, 1997 and 1996,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Insignia
Solutions plc and its wholly owned subsidiaries. All intercompany accounts
and transactions have been eliminated.
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash, cash
equivalents, restricted cash and short-term investments at December 31, 1998
and 1997 comprise cash, restricted cash and certificates of deposit.
Restricted cash, including $9.1 million of cash and cash equivalents held in
escrow at December 31, 1998, aggregated $9.5 million and $0.2 million at
42
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
December 31, 1998 and 1997, respectively. Cash of $0.4 million and $0.3
million at December 31, 1998 and 1997, respectively, was restricted due to
obligations under service contracts. Of the $9.1 million of cash and cash
equivalents held in escrow at December 31, 1998, $2.5 million was released in
February 1999. The balance is scheduled to be released in August 1999,
pending resolution of the indemnity claim (see Note 10 to the Consolidated
Financial Statements). Certificates of deposit aggregated $4.2 million and
$6.2 million at December 31, 1998 and 1997, respectively.
The Company has classified all its securities as "available-for-sale."
The fair value of these securities, comprised primarily of certificates of
deposit with commercial banks, approximates cost. These securities mature
within one year.
REVENUE RECOGNITION
In October 1997, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position No. 97-2 ("SOP 97-2"), "Software
Revenue Recognition", which the Company has adopted for transactions entered
into during the fiscal year beginning January 1, 1998. SOP 97-2 provides
guidance for recognizing revenue on software transactions and supersedes
Statement of Position No. 91-1, "Software Revenue Recognition". In March
1998, the AICPA issued Statement of Position No. 98-4 ("SOP 98-4"), "Deferral
of the Effective Date of a Provision of SOP 97-2, Software Revenue
Recognition". SOP 98-4 deferred, for one year, the application of certain
passages in SOP 97-2 which limit what is considered vendor-specific objective
evidence necessary to recognize revenue for software licenses in
multiple-element arrangements when undelivered elements exist. In December
1998, the AICPA issued Statement of Position No. 98-9 ("SOP 98-9"),
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions". SOP 98-9 extends the effective date of SOP 98-4 and
provides additional interpretive guidance. SOP 98-9 is effective for fiscal
years beginning after March 15, 1999. The Company will determine the impact,
if any, of SOP 98-9 on current revenue recognition practices when adopted.
Adoption of the remaining provisions of SOP 97-2 did not have a material
impact on revenue recognition during 1998.
The Company's license revenues are derived from product licensing fees
relating to the sale of packaged software products and royalties from
distributors, original equipment manufacturers ("OEMs") and site licensees.
The Company's service revenues are derived from OEMs for customer funded
engineering and from annual maintenance contracts.
Product licensing fees are recognized upon shipment if no significant
vendor obligations remain and if collection of the resulting receivable is
deemed probable. The Company grants distributors and resellers certain rights
of return and price protection on unsold merchandise held by those
distributors and resellers. Accordingly, provisions for estimated future
returns, exchanges and credits for price protection are accrued upon product
shipment.
The Company has limited control over the extent to which products sold
to distributors and resellers are sold through to end users. Accordingly, a
portion of the Company's sales may from time to time result in increased
inventory at its distributors and resellers. The Company provides sales
returns allowances for distributor and reseller inventories. These allowances
are based on the Company's estimates of expected sell-through by distributors
and resellers of its products. Actual results could differ from these
estimates.
The Company provides a limited amount of free telephone technical
support to customers. These activities are generally considered insignificant
postcontract customer support obligations. Estimated costs of these
activities are accrued at the time of product shipment. Revenues from annual
maintenance contracts are recognized ratably over the term of the contract.
43
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Revenues from OEMs for customer-funded engineering are recognized on a
percentage of completion basis, which is computed using the input measure of
labor cost. Minimum guaranteed royalty revenues not subject to significant
future obligations are generally recognized upon shipment of the software.
Royalty revenues that are subject to significant future obligations are
recognized when earned. Royalty revenues that exceed the minimum guarantees
are recognized when reported.
Payments from OEMs and maintenance contracts received in advance of
revenue recognition are recorded as deferred revenue.
INVENTORIES
Inventories, principally finished software products, manuals and related
supplies, are stated at the lower of cost or market value. Cost is determined
using the first-in, first-out method. Provisions are made in each period for
excess and obsolete inventories.
EQUIPMENT AND DEPRECIATION
Property and equipment is recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives which range
from three to four years or the lease term if shorter.
FOREIGN CURRENCY TRANSLATION
The Company's primary functional currency for its non-U.S. operations is
the U.S. dollar. Non-U.S. dollar denominated monetary assets and liabilities
are remeasured using the exchange rate in effect at the balance sheet date,
while nonmonetary items are remeasured at historical rates. Revenues and
expenses are translated at the average exchange rates in effect during each
period, except for those expenses related to balance sheet amounts which are
translated at historical exchange rates. Remeasurement adjustments and
transaction gains or losses are recognized in the income statement during the
period of occurrence. During its early years of existence, the Company used
the pound sterling as the functional currency for its non-U.S. operations.
Accordingly, translation gains and losses recognized during such periods have
been included in the cumulative currency translation adjustments account.
FOREIGN CURRENCY FINANCIAL INSTRUMENTS
The Company enters into currency option contracts to hedge against
exchange risks associated with the pound sterling denominated operating
expenses of its U.K. operations. The gains and losses on these contracts are
generally included in the statement of operations when the related operating
expenses are recognized. At December 31, 1998 and 1997, currency options of
$0 and $2.0 million, respectively, were outstanding. Deferred gains and
losses on such agreements at December 31, 1997 were not material. All
contracts mature within one year of purchase. From time to time, the Company
also enters into short-term forward exchange contracts. The Company generally
does not use hedge accounting for the forward exchange contracts. Such
contracts are marked to market at period ends. No forward exchange contracts
were outstanding at December 31, 1998 or December 31, 1997.
44
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes internal software development costs incurred
after technological feasibility has been demonstrated. The Company defines
establishment of technological feasibility as the completion of a working
model. Such capitalized amounts are amortized commencing with the
introduction of that product at the greater of the straight-line basis
utilizing its estimated economic life, generally six months to one year, or
the ratio of actual revenues achieved to the total anticipated revenues over
the life of the product. At December 31, 1998 and 1997, capitalized software
development costs were fully amortized.
STOCK-BASED COMPENSATION
The Company accounts for its employee stock option plans and employee
stock purchase plan in accordance with provisions of the Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), but has made the disclosures required under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123") in these notes to consolidated financial statements.
INCOME TAXES
The Company accounts for income taxes under an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized
in the Company's financial statements or tax returns. In estimating future
tax consequences, the Company generally considers all expected future events
other than enactments of changes in the tax law or rates.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash, cash
equivalents, restricted cash, short-term investments and trade accounts
receivable. The Company places its cash, cash equivalents, restricted cash
and short-term investments primarily in bank accounts and certificates of
deposit with high credit quality financial institutions.
The Company sells its products primarily to distributors and original
equipment manufacturers. The Company performs ongoing credit evaluations of
its customers' financial condition and generally requires no collateral from
its customers. The Company maintains an allowance for uncollectible accounts
receivable based upon the expected collectibility of all accounts receivable.
At December 31, 1998, two customers accounted for 25% and 16%, respectively,
of gross trade receivables. At December 31, 1997, two customers accounted for
26% and 11%, respectively, of gross trade receivables.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share ("EPS") is presented on a basic and diluted
basis, and is based upon the weighted average number of ordinary and ordinary
equivalent shares outstanding during the period. Ordinary equivalent shares
consist of warrants and stock options (using the modified treasury stock
method). Under the Basic method of calculation of EPS, ordinary equivalent
shares are excluded from the computation. Under the Diluted method of
calculation of EPS, ordinary share equivalents are excluded from the
computation if their effect is anti-dilutive.
45
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 requires that
all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual statement that is displayed
with the same prominence as other annual financial statements. FAS 130 also
requires that an entity classify items of other comprehensive earnings by
their nature in an annual financial statement. The accumulated other
comprehensive loss at December 31, 1998 and 1997, related to cumulative
currency translation adjustments. There were no other comprehensive income
items in 1998, 1997 or 1996.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform
with the current period presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. This statement becomes effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company will adopt FAS 133 in
2000.
In March 1998, the AICPA issued Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use and is
effective for financial statements for fiscal years beginning after December
15, 1998. The Company will adopt SOP 98-1 in 1999. The Company expects that
SOP 98-1 will not have a material impact on the results of operations when
adopted.
46
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--BALANCE SHEET DETAIL:
The following table provides details of the major components of the
indicated balance sheet accounts (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Accounts receivables, net:
Trade accounts receivable, gross.................. $ 3,155 $ 9,572
Less allowance for doubtful accounts............ (459) (344)
Less allowance for sales returns................ (990) (2,474)
------------------ ------------------
$ 1,706 $ 6,754
------------------ ------------------
------------------ ------------------
Property and equipment, net:
Computers and other equipment..................... $ 2,700 $ 8,615
Leasehold improvements............................ 458 1,435
Furniture and fixtures............................ 108 810
------------------ ------------------
3,266 10,860
Less accumulated depreciation..................... (2,192) (8,685)
------------------ ------------------
$ 1,074 $ 2,175
------------------ ------------------
------------------ ------------------
Accrued liabilities:
Accrued legal and professional services........... $ 829 $ 574
Accrued compensation and payroll taxes............ 495 585
Accrued marketing programs........................ 165 437
Other............................................. 776 1,089
------------------ ------------------
$ 2,265 $ 2,685
------------------ ------------------
------------------ ------------------
</TABLE>
NOTE 3--STOCK PLANS:
The Company has four stock option plans, which provide for the issuance
of stock options to employees of the Company to purchase Ordinary shares of
L0.20 par value. At December 31, 1998 and 1997, respectively, approximately
453,011 and 245,290 Ordinary shares were available for future grants of stock
options. Stock options are generally granted at prices of not less than 100%
of the fair market value of the Ordinary shares on the date of grant, as
determined by the Board of Directors.
In March 1995, the Company's shareholders adopted the 1995 Employee
Share Purchase Plan (the "Purchase Plan") with 275,000 Ordinary shares
reserved for issuance thereunder. On July 21, 1998 the number of shares
reserved for issuance was increased to 525,000. The Purchase Plan became
effective November 17, 1995 and enables employees to purchase Ordinary shares
at approximately 85% of the fair market value of the Ordinary shares at the
beginning or end of each six month offering period. The Purchase Plan
qualifies as an "employee stock purchase plan" under section 423 of the U.S.
Internal Revenue Code. During 1998, 1997 and 1996 the Company issued 128,103,
116,053 and 94,229 shares under the Purchase Plan, respectively. At December
31, 1998 approximately 186,615 ordinary shares were reserved for future
Purchase Plan issuances.
47
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--STOCK PLANS: (CONTINUED)
The following table summarizes activity on stock options:
<TABLE>
<CAPTION>
1986 AND 1996 1988 AND 1995
U.K. U.S. WEIGHTED
SHARE OPTION STOCK OPTION AVERAGE
SCHEMES PLANS TOTAL EXERCISE PRICE
---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1995.... 1,217,343 1,096,976 2,314,319 $ 1.96
Granted in 1996..................... 72,125 344,225 416,350 $ 5.76
Exercised in 1996................... (155,953) (85,608) (241,561) $ 1.34
Lapsed in 1996...................... (27,267) (112,852) (140,119) $ 5.61
---------------- --------------- -------------- ---------------
Outstanding at December 31, 1996.... 1,106,248 1,242,741 2,348,989 $ 2.46
Granted in 1997..................... 187,000 1,671,925 1,858,925 $ 2.30
Exercised in 1997................... (74,756) (302,368) (377,124) $ 1.26
Cancelled/surrendered in 1997....... (141,375) (202,736) (344,111) $ 6.32
Lapsed in 1997...................... (50,598) (465,227) (515,825) $ 2.84
---------------- --------------- -------------- ---------------
Outstanding at December 31, 1997.... 1,026,519 1,944,335 2,970,854 $ 2.00
Granted in 1998..................... 143,250 888,750 1,032,000 $ 1.11
Exercised in 1998................... (396,000) (95,000) (491,000) $ 0.81
Lapsed in 1998...................... (205,977) (1,033,744) (1,239,721) $ 2.15
---------------- --------------- -------------- ---------------
Outstanding at December 31, 1998.... 567,792 1,704,341 2,272,133 $ 1.77
---------------- --------------- -------------- ---------------
---------------- --------------- -------------- ---------------
</TABLE>
Options granted under the Company's option plans generally vest over a
four year period. Options are exercisable until the tenth anniversary of the
date of grant unless they lapse before that date. Options to purchase 755,031
and 1,677,062 shares were exercisable at December 31, 1998 and 1997,
respectively.
48
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--STOCK PLANS: (CONTINUED)
The following table summarizes information about the Company's stock
options outstanding and exercisable at December 31, 1998:
Options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
NUMBER REMAINING AVERAGE EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE
- ---------------------------------- ---------------------- ---------------------- ----------------
<S> <C> <C> <C>
$0.01 - $2.00..................... 1,578,958 8.1 years $ 1.29
$2.01 - $4.00..................... 588,363 8.5 years $ 2.37
$4.01 - $6.00..................... 103,625 7.3 years $ 5.67
$6.01 - $11.00.................... 1,187 6.4 years $10.08
---------------------- ---------------------- --------------------
2,272,133 8.2 years $ 1.77
---------------------- ---------------------- --------------------
---------------------- ---------------------- --------------------
</TABLE>
Options exercisable at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE EXERCISE
RANGE OF EXERCISE PRICES EXERCISABLE PRICE
- ---------------------------------- ---------------------- ----------------
<S> <C> <C>
$0.01 - $2.00..................... 464,000 $ 1.58
$2.01 - $4.00..................... 221,725 $ 2.37
$4.01 - $6.00..................... 68,125 $ 5.69
$6.01 - $11.00.................... 1,181 $10.09
---------------------- ----------------------
755,031 $ 2.20
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
FAIR VALUE DISCLOSURES
Had the compensation cost for the Company's stock option plans and the
Purchase Plan been determined based on the fair value at the grant dates, as
prescribed in FAS 123, the net income (loss) and net income (loss) per share
would have been adjusted to the pro-forma amounts indicated below (in
thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996
------------------ ---------------------- -------------------
<S> <C> <C> <C>
Net income (loss):
As reported......................... $ 422 $ (10,658) $ (10,766)
Pro forma........................... (756) (11,495) (11,275)
Basic net income (loss) per share:
As reported......................... $ 0.03 $ (0.91) $ (0.95)
Pro forma........................... (.06) (0.98) (0.99)
Diluted net income (loss) per share:
As reported......................... $ 0.03 $ (0.91) $ (0.95)
Pro forma........................... (.06) (0.98) (0.99)
</TABLE>
49
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--STOCK PLANS: (CONTINUED)
In accordance with the disclosure provisions of FAS 123, the fair value
of employee stock options granted during fiscal 1998, 1997 and 1996 was
estimated at the date of grant using the Black-Scholes model and the
following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997 1996
----------------- ----------------- ------------------
<S> <C> <C> <C>
Volatility range........................... 171% 64.0% - 66.9% 63.2% - 64.3%
Risk-free interest rate range.............. 4.2% - 5.6% 5.7% - 6.7% 5.3% - 6.6%
Dividend yield............................. 0% 0% 0%
Expected option term....................... 4 yrs 4 yrs 4 yrs
</TABLE>
NOTE 4--RESTRUCTURING:
In 1997, the Company completed two reorganizations. In the first
reorganization the Company reduced headcount by 11 persons and integrated
product development, product marketing and the sales organization into two
business units. In the second reorganization, the Company combined the two
sales organizations into one unit, reducing headcount by 53 persons,
reorganized the sales force such that direct sales inquiries are now referred
to distributors, and reduced the number of facilities it operated from.
Restructuring expenses consist principally of costs related to terminated
employees, including serverance payments and stock option related expenses,
and future rents on facilities no longer used by the Company. At December
31, 1997, approximately $500,000 of the restructuring charge was included in
accrued expenses.
NOTE 5--INCOME TAXES:
The components of income (loss) before income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
United States................................ $(4,241) $ (2,286) $ (8,733)
United Kingdom and other countries........... 6,446 (9,092) (1,703)
------------ ------------ -----------
$ 2,205 $(11,378) $(10,436)
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
The components of the provision (benefit) for income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Current:
U.S. federal............................. $ (76) $ 174 $ (200)
U.S. state and local..................... 100 - -
United Kingdom and other countries....... 1,759 (894) 530
------------ ------------ -----------
Total current....................... 1,783 (720) 330
------------ ------------ -----------
Deferred:
U.S. federal............................. - - -
U.S. state and local..................... - - -
United Kingdom and other countries....... - - -
------------ ------------ -----------
Total deferred...................... - - -
------------ ------------ -----------
Total provision (benefit)......................... $ 1,783 $ (720) $ 330
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
50
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--INCOME TAXES: (CONTINUED)
A reconciliation of the Company's effective tax rate to the U.S. federal
statutory rate follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
U.S. federal statutory rate........................ (34.0)% (34.0)% (34.0)%
State and local taxes, net of U.S. federal benefit. 4.5 - -
Foreign income taxes at other than U.S. rate....... 86.4 (6.3) 3.2
Utilization of operating loss carryforwards........ (10.0) - -
Reserve for net deferred tax assets................ 34.0 34.0 34.0
------------ ------------ -----------
Effective tax rate............................ 80.9% (6.3)% 3.2%
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
Deferred tax assets were comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
Net operating loss carryforwards............................... $ 6,947 $ 4,342
Tax credit carryforwards....................................... 1,082 789
Sales return allowance......................................... 384 684
Accrued expenses, allowance and other temporary differences.... 657 1,584
------------ -----------
Net deferred tax assets before valuation allowance............. 9,070 7,399
Deferred tax asset valuation allowance......................... (9,070) (7,399)
------------ -----------
Net deferred taxes............................................. $ - $ -
------------ -----------
------------ -----------
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $18.6 million, $9.3 million and $1.8 million for U.S. Federal,
State and United Kingdom tax purposes, respectively. If unutilized, these net
operating loss carryforwards will completely expire in 2018, 2003 and
unlimited, respectively. Should the Company incur substantial changes in
ownership, the U.S. federal and state net operating losses may be subject to
an annual utilization limitation.
At December 31, 1998, the Company's deferred tax assets relate primarily
to its United States operations. Management believes that, based on such
factors as recent and potential fluctuations in operating results, it is more
likely than not that the United States operations will not generate
sufficient future taxable income, and thus a full valuation allowance has
been recorded at December 31, 1998. If the Company generates taxable income
in future years, the valuation allowance may be reduced, which
correspondingly may reduce the Company's tax provision.
NOTE 6--EMPLOYEE PENSION PLANS:
The Company has a 401(k) plan covering all of its U.S. employees and a
defined contribution pension plan covering all its United Kingdom employees.
Under both these plans, employees may contribute a percentage of their
compensation and the Company makes certain matching contributions. Both the
employees' and the Company's contributions are fully vested and
nonforfeitable at all times. The assets of both these plans are held
separately from those of the Company in independently managed and
administered funds. The Company's contributions to these plans aggregated
$182,000 in 1998, $315,000 in 1997 and $340,000 in 1996.
51
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--NET INCOME (LOSS) PER SHARE:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
------------- ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income (loss) $ 422 $ (10,658) $ (10,766)
------------- ------------- -------------
------------- ------------- -------------
CALCULATION OF BASIC NET INCOME (LOSS) PER SHARE:
Weighted average number of shares
outstanding used in computation 12,159 11,690 11,342
------------- ------------- -------------
------------- ------------- -------------
Basic net income (loss) per share $ 0.03 $ (0.91) $ (0.95)
------------- ------------- -------------
------------- ------------- -------------
CALCULATION OF DILUTED NET INCOME (LOSS) PER SHARE:
Weighted average number of shares
outstanding used in computation 12,159 11,690 11,342
Net effect of dilutive stock options
outstanding 219 - -
------------- ------------- -------------
Weighted average number of shares
and share equivalents 12,378 11,690 11,342
------------- ------------- -------------
------------- ------------- -------------
Diluted net income (loss) per share $ 0.03 $ (0.91) $ (0.95)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
NOTE 8--COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company is party to a number of noncancelable operating and capital
lease agreements.
Computer and other equipment under capital leases were as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
Computer and other equipment, at cost....................... $ 593 $ 769
Less accumulated amortization............................... (546) (561)
--------------- --------------
Computer and other equipment, net........................... $ 47 $ 208
--------------- --------------
--------------- --------------
</TABLE>
52
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Amortization of leased computers and other equipment under capital
leases was $50,000, $252,000 and $273,000 in 1998, 1997 and 1996,
respectively.
The following are future minimum payments under capital and operating
leases as of December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -------------
<S> <C> <C>
Year ending December 31,
1999.............................................. $ 55 $ 739
2000.............................................. - 642
2001.............................................. - 631
2002.............................................. - 995
2003.............................................. - 418
Thereafter........................................ - 2,175
----------- -------------
Total minimum lease payments...................... 55 $ 5,600
-------------
Less amount representing interest................. (4) -------------
-----------
Present value of minimum obligations under capital
leases.......................................... 51
Less current portion of obligations under capital
leases.......................................... (51)
-----------
Long-term obligations under capital
leases.......................................... $ -
-----------
-----------
</TABLE>
Operating lease commitments above are net of sublease income of
$832,000, $832,000, $792,000 and $188,000 in 1999, 2000, 2001 and 2002,
respectively. The rental expense under all operating leases was $791,000,
$921,000, and $1,770,000 in 1998, 1997 and 1996, respectively. Rental expense
was net of sublease rental income of $559,000 in 1998, $407,000 in 1997 and
$356,000 in 1996.
ROYALTY AGREEMENT
The Company has a non-exclusive, worldwide license from Microsoft
("Microsoft Distribution Agreement") to reproduce, adapt and distribute the
currently available versions of Windows and MS-DOS that are included as a
component of the Company's products. The Company pays Microsoft a per unit
royalty for copies of the Company's products sold that include a version of
Windows and MS-DOS. The current royalty amounts are based upon certain
estimates of the volume of the Company's sales of SoftWindows. The Microsoft
Distribution Agreement expired on March 31, 1997, but was extended until
September 30, 1998 on substantially the same terms. The Company subsequently
entered into a new distribution agreement dated October 1, 1998 on
substantially the same terms, effective for one year.
In January 1999, pursuant to this agreement, Microsoft began an audit of
the royalties paid in 1997 and 1998. The Company has not been notified of the
outcome of the audit. If Microsoft claims underpayment of royalties, under
this agreement, the Company may be subject to penalties in addition to the
repayment of the underpaid royalties.
EMPLOYMENT AGREEMENTS
The Company has entered into several employment agreements with key
executives which would require the Company to continue to pay salary for up
to one year if any of these employees is terminated under certain
circumstances as specified in the agreements.
53
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--SEGMENT INFORMATION:
In 1998, the Company adopted Statement of Financial Accounting Standards
131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"). FAS 131 supersedes FAS 14, "Financial Reporting for Segments of
a Business Enterprise", replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. FAS
131 also requires disclosures about products and services, geographic areas,
and major customers. The adoption of FAS 131 did not affect results of
operations but did affect the disclosure of segment information.
The Company operates in a single industry segment providing virtual
machine technology which enables software applications and operating systems
to be run on various computer platforms. In 1998, Ingram Micro U.S. and Sun
Microsystems Inc. each accounted for 27% of total revenues. In 1997, Silicon
Graphics, Inc. accounted for 19% of total revenues. In 1996, Silicon
Graphics, Inc. and Mitsubishi Corporation accounted for 14% and 12%,
respectively of total revenues. No other customer accounted for 10% or more
of the Company's total revenues during 1998, 1997 or 1996.
GEOGRAPHIC INFORMATION
Financial information by geographical region is summarized below (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
United States........................... $ 11,960 $ 32,458 $ 36,371
International........................... 2,136 6,411 7,875
------------ ------------ ------------
Consolidated................................. $ 14,096 $ 38,869 $ 44,246
------------ ------------ ------------
------------ ------------ ------------
Intercompany revenues:
United States........................... $ 1,637 $ 4,929 $ 913
International........................... 1,280 3,250 9,104
------------ ------------ ------------
Consolidated................................. $ 2,917 $ 8,179 $ 10,017
------------ ------------ ------------
------------ ------------ ------------
Operating loss:
United States........................... $ (4,168) $ (2,005) $ (8,666)
International........................... (9,498) (9,877) (3,166)
------------ ------------ ------------
Consolidated................................. $(13,666) $(11,882) $(11,832)
------------ ------------ ------------
------------ ------------ ------------
Identifiable assets:
United States........................... $ 4,366 $ 13,380 $ 9,982
International........................... 26,077 21,162 30,060
Intercompany items and eliminations..... (9,432) (9,085) (5,471)
------------ ------------ ------------
Consolidated................................. $ 21,011 $ 25,457 $ 34,571
------------ ------------ ------------
------------ ------------ ------------
Long-lived assets:
United States........................... $ 794 $ 1,573 $ 2,371
International........................... 10,344 10,347 7,814
Intercompany items and eliminations..... (9,432) (9,085) (5,471)
------------ ------------ ------------
Consolidated................................. $ 1,706 $ 2,835 $ 4,714
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
54
<PAGE>
All of the international revenues and substantially all of the
international identifiable assets relate to the Company's operations in the
United Kingdom. Intercompany sales are accounted for at prices intended to
approximate those that would be charged to unaffiliated customers.
Revenues from United States operations included export sales of
$1,290,000, $3,087,000 and $5,795,000 in 1998, 1997 and 1996, respectively,
which were primarily to customers in Asia and Australia.
Revenue reports based on geographic area were prepared for the first time
in fiscal 1998. Management believes that, given its systems' constraints, the
cost to develop comparative segment information for prior years would be
excessive. Accordingly, comparative information for all prior years will not
be presented.
Revenue by geographic area for the year ended December 31, 1998 is as
follows (in thousands):
<TABLE>
<CAPTION>
U.S. JAPAN EUROPE TOTAL
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Distributor $ 9,525 $ 1,306 $ 2,119 $12,950
End user 1,033 - 9 1,042
Other 96 - 8 104
-------------- --------------- -------------- ---------------
Total $10,654 $ 1,306 $ 2,136 $ 14,096
-------------- --------------- -------------- ---------------
-------------- --------------- -------------- ---------------
% of Total revenue 76% 9% 15% 100%
-------------- --------------- -------------- ---------------
-------------- --------------- -------------- ---------------
</TABLE>
There were no European countries that accounted for more than 10% of
total revenue.
NOTE 10--SUBSEQUENT EVENTS:
On January 29, 1999, the Company received an indemnity claim from Citrix
for an amount estimated by Citrix to not exceed $6.25 million. The claim was
made pursuant to the Asset Purchase Agreement between the Company and Citrix
under which Citrix purchased the Company's NTRIGUE product line in February
1998.
Citrix' indemnity claim is based on a declaratory relief action that
Citrix filed against GraphOn Corp. ("GraphOn") in November 1998 in the United
States District Court, Southern District of Florida. Citrix' action against
GraphOn seeks a declaratory judgement that Citrix does not infringe any
GraphOn proprietary rights and that Citrix has not misappropriated any trade
secrets or breached an agreement to which GraphOn is a party. Citrix filed
the action in response to and to resolve assertions first made by GraphOn,
and disclosed to Citrix in January 1998, that the Company used GraphOn's
confidential information to develop certain of the Company's products,
possibly including products the Company sold to Citrix in February 1998.
GraphOn has not filed an action against either the Company or Citrix relating
to its assertions and the Company believes such assertions by GraphOn are
without merit or basis. Accordingly, the Company intends to contest Citrix'
indemnity claim.
55
<PAGE>
INSIGNIA SOLUTIONS PLC
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING DEDUCTIONS BALANCE AT END
OF PERIOD ADDITIONS (WRITE-OFFS) OF PERIOD
----------------- ----------------- ---------------- -----------------
(in thousands)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1998 $344 $209 $ (94) $459
Year ended December 31, 1997 298 94 (48) 344
Year ended December 31, 1996 228 127 (57) 298
</TABLE>
56
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Insignia Solutions plc:
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14 (a) (1) and (2) of this Annual Report on Form
10-K present fairly, in all material respects, the financial position of
Insignia Solutions plc and its subsidiaries (the "Company") at December 31,
1998 and 1997 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
San Jose, California
March 30, 1999
57
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on March 30, 1999.
INSIGNIA SOLUTIONS PLC
By: /s/ Richard M. Noling
-------------------------------------
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Richard M. Noling President, Chief Executive March 30, 1999
- ------------------------------- Officer, and a Director
Richard M. Noling (Principal Executive Officer,
and Director)
/s/Stephen M. Ambler Chief Financial Officer, March 30, 1999
- ------------------------------- Company Secretary and Senior
Stephen M. Ambler Vice President (Principal
Financial Officer and Principal
Accounting Officer)
ADDITIONAL DIRECTORS:
/s/ Albert E. Sisto Director March 30, 1999
- -------------------------------
Albert E. Sisto
/s/ Vincent S. Pino Director March 30, 1999
- -------------------------------
Vincent S. Pino
/s/ Nicholas, Viscount Bearsted Director March 30, 1999
- -------------------------------
Nicholas, Viscount Bearsted
</TABLE>
58
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed as part of this Report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
-------- -----------------------------------------------------------------------
<S> <C>
2.01 --Asset Purchase Agreement dated as of January 10, 1998, by and
among Citrix Systems, Inc., Citrix Systems UK Limited and Insignia
Solutions plc. (7)**
2.02 --Amendment No. 1 to Asset Purchase Agreement dated as of February
5, 1998, by and among Citrix Systems, Inc., Citrix Systems UK
Limited and Insignia Solutions plc. (7)**
3.02 --Registrant's Articles of Association. (1)
3.04 --Registrant's Memorandum of Association. (1)
4.01 --Form of Specimen Certificate for Registrant's Ordinary Shares. (1)
4.02 --Registration Rights Agreement, dated as of June 5, 1992, as
amended. (1)
4.03 --Deposit Agreement between Registrant and The Bank of New York. (2)
4.04 --Form of American Depositary Receipt (included in Exhibit 4.03). (2)
10.01 --Registrant's 1986 Executive Share Option Scheme, as amended, and
related documents. (1)*
10.02 --Registrant's 1988 U.S. Stock Option Plan, as amended, and related
documents. (1)*
10.03 --Registrant's 1995 Incentive Stock Option Plan for U.S. Employees
and related documents. (6)*
10.05 --Insignia Solutions Inc. 401(k) Plan. (1)*
10.06 --Registrant's Small Self-Administered Pension Plan Definitive Deed
and Rules. (1)*
10.10 --Executive's Employment Agreement dated January 1, 1993 between
Registrant and George Buchan. (1)*
10.14 --Form of Indemnification Agreement entered into by Registrant with
each of its directors and executive officers. (1)*
10.15 --Lease Agreement between Insignia Solutions Inc. and Shoreline
Investments I dated March 10, 1993. (1)
10.16 --Lease between Registrant and The Standard Life Assurance Company
dated November 3, 1992 and related documents. (1)
10.17 --License Agreement between Insignia Solutions Inc. and Microsoft
Corporation dated January 1, 1991, as amended. (1)**
10.21 --Distribution Agreement between Insignia Solutions Inc. and Micro
D, Inc. dated October 27, 1988, as amended. (1)**
10.22 --Form of Indemnification Agreement entered into between Insignia
Solutions Inc. and each of Registrant's directors and executive
officers. (1)*
10.25 --Authorized International Master Distributor Agreement between
Insignia Solutions Inc. and Mitsubishi Corporation dated May 16,
1995, as amended. (2)**
10.27 --Microsoft Software Distribution License Agreement for Desktop
Operating Systems dated March 1, 1996, between Microsoft Corporation
and Insignia Solutions Inc. (4)**
10.28 --U.K. Employee Share Option Scheme 1996, as amended. (6)*
10.29 --License and Distribution Agreement effective February 24, 1995,
between Silicon Graphics, Inc. and Insignia Solutions Inc., as
amended. (3)**
10.30 --Amendment Number 1 and Amendment Number 2 to Microsoft OEM License
Agreement for Desktop Operating Systems between the Company and
Microsoft Corporation. (5)**
10.33 --Employment Agreement effective March 25, 1997 between Registrant
and Richard M. Noling. (6)*
10.34 --Consulting Agreement effective April 1, 1997 between Registrant
and Nicholas, Viscount Bearsted. (6)*
10.35 --Volume Purchase Agreement dated as of September 29, 1997 between
Registrant and Silicon Graphics, Inc. (6)
10.36 --Source Code License and Binary Distribution Agreement dated as
of September 29, 1997 between Registrant and Silicon Graphics,
Inc. (6)
10.37 --Amendment Number 4 dated March 15, 1998 to Microsoft OEM License
Agreement for Desktop Operating Systems between the Company and
Microsoft Corporation. (8)
<PAGE>
EXHIBIT
NUMBER EXHIBIT TITLE
-------- -----------------------------------------------------------------------
<S> <C>
10.38 --Lease Agreement between Insignia Solutions, Inc. and Lincoln-Whitehall
Pacific, LLC, dated December 22, 1997. (8)
10.39 --Trademark License between Insignia Solutions, Inc. and Microsoft
Corporation dated March 16, 1998. (8)
10.40 --Distribution Agreement between Insignia Solutions, Inc. and Sun
Microsystems, Inc. dated December 24, 1997. (8)**
10.41 --Microsoft License Agreement for Desktop Operating System Products dated
October 1, 1998 between Microsoft Licensing, Inc. and Insignia Solutions,
Inc. (9)**
10.42 --Registrant's 1995 Employee Share Purchase Plan, as amended. (9)*
10.43 --Promissory Note dated July 1, 1998 between Insignia Solutions, Inc. and
David Winterburn. (9)*
10.44 --Lease agreements(s) between Insignia Solutions plc and Comland Industrial
and Commercial Properties Limited dated August 12th, 1998 for the Apollo
House premises and the Saturn House premises.
10.45 --Consulting agreement between Insignia Solutions Inc. and Albert Sisto
dated December 28, 1998. *
21.01 --List of Registrant's subsidiaries. (2)
23.01 --Consent of PricewaterhouseCoopers LLP, Independent Accountants.
27.01 --Financial Data Schedule.
</TABLE>
* Management contract or compensatory plan.
** Confidential treatment has been granted with respect to certain
portions of this agreement. Such portions were omitted from this filing
and filed separately with the Securities and Exchange Commission.
(1) Incorporated by reference to the exhibit of the same number from
Registrant's Registration Statement on Form F-1 (File No. 33-98230)
declared effective by the Commission on November 13, 1995.
(2) Incorporated by reference to the exhibit of the same number from
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995.
(3) Incorporated by reference to the exhibit of the same number from
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996.
(4) Incorporated by reference to Exhibit 10.27 from Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996.
(5) Incorporated by reference to Exhibit 10.30 from Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.
(6) Incorporated by reference to the exhibit of the same number from
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997.
(7) Incorporated by reference to the exhibit of the same number from
Registrant's Current Report on Form 8-K dated February 5, 1998.
(8) Incorporated by reference to the exhibit of the same number from
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998.
(9) Incorporated by reference to the exhibit of the same number from
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
<PAGE>
DATED: 12th August 1998
COMLAND INDUSTRIAL AND COMMERCIAL
PROPERTIES LIMITED (1)
to
INSIGNIA SOLUTIONS PLC (2)
LEASE OF
APOLLO HOUSE MERCURY CENTRE
WYCOMBE LANE WOOBURN GREEN
HIGH WYCOMBE BUCKINGHAMSHIRE
[MANCHES LOGO]
Manches & Co 3 Worcester Street Oxford OX1 2PZ
<PAGE>
THIS LEASE is made the 12th day of August One thousand nine hundred and
ninety eight
BETWEEN
(1) COMLAND INDUSTRIAL AND COMMERCIAL PROPERTIES LIMITED
(Company Registration Number 2126351) whose registered office is at
Riverside House Riverside Holtspur Lane Wooburn Green High Wycombe
Buckinghamshire HP10 0TJ ("the Landlord")
(2) INSIGNIA SOLUTIONS Plc (Company Registration Number 01961960)
whose registered office is at Buckingham Court London Road High Wycombe
Buckinghamshire HP11 1JU ("the Tenant")
WITNESSETH as follows:-
1. INTERPRETATION
(1) In these Presents where the context so admits the following expressions
shall have the following meanings:-
(i) "the 1954 Act" means The Landlord and Tenant Act 1954
(ii) "Account Date" means 31st December in every year of the Term or
such other date as the Landlord may from time to time nominate
(iii) "adjoining or neighboring land or premises" includes any adjoining
or neighboring land or premises whether or not belonging to the
Landlord
(iv) "Building" means any building from time to time on the Demised
<PAGE>
[MAP]
<PAGE>
[MAP]
<PAGE>
2
Premises
(v) "Business Day" means a day (other than a Saturday or a Sunday) on
which banks are generally open in London for normal business
(vi) "Clearing Bank" means a bank which is a member of CHAPS and Town
Clearing Company Limited
(vii) "company" means a body corporate wheresoever incorporated
(viii) "Conducting Media" means tanks pipes cables wires lights and
light-fittings meters radiators drains sewers gutters and other
things (whether or not of a like nature) for the supply of
electricity telephone gas water soil and other services and
supplies
(ix) "the Demised Premises" means ALL THAT property known as Apollo
House The Mercury Centre Wycombe Lane Wooburn Green High
Wycombe Buckinghamshire forming part of the Estate and shown for
the purposes of identification only edged red on Plan A and each
and every part thereof including without prejudice to the foregoing
the Building and all entrances entrance-halls plant rooms heating
apparatus and other apparatus stairs and passageways and the
accessways yards open areas and the Conducting Media within or
exclusively serving the Demised Premises together with the
Landlord's fixtures and fittings from time to time therein and each
and every part thereof together with all alterations additions and
improvements to the Demised Premises
(x) "Estate" means the Landlord's estate of which the Demised Premises
<PAGE>
3
form part known as The Mercury Centre Wycombe Lane Wooburn
Green High Wycombe Buckinghamshire shown verged blue on Plan B
together with such additional land or excluding such land of lesser
area (but including the Demised Premises and the land over which it
enjoys rights granted by this Lease) as the Landlord may from time
to time specify and together with all buildings fixtures or
structures whatsoever from time to time thereon
(xi) "Estate Services" means the provision and carrying out by or on
behalf of the Landlord of such services as in the opinion of the
Landlord are:-
(a) necessary for the maintenance repair upkeep renewal
insurance security management cleanliness renewal and
replacement of items of plant equipment Conducting Media
landscaping roadways pavements forecourt car parks and/or
common areas and common facilities forming part of the
Estate and forming part of the land shown hatched black on
Plan B; or
(b) for the benefit of tenants of the Estate; or
(c) otherwise in keeping with the principles of good estate
management of the Estate
and the Landlord may from time to time withhold add to or extend
and vary or make any alteration in the nature of matters previously
performed as Estate Services if the Landlord considers it necessary
or in the interests of good estate management
(xii) "Estate Service Expenditure" means all expenditure incurred by the
<PAGE>
4
Landlord or which the Landlord reasonably anticipates is likely to
be incurred during the Term in providing all or any of the Estate
Services including (without prejudice to the generality of the
foregoing):-
(a) the cost of repairing resurfacing cleaning lighting maintaining
renewing replacing and improving the estate roads serving the
Estate and the forecourt car parking areas loading bays landscaped
areas boundary walls fences hedges gates entrances and signs now or
at any time during the Term constructed on the Estate including any
drains sewers pipes cables gutters inspection chambers or any other
services or fittings relating thereto over in or under the Estate
(b) the cost of retaining and providing the services of all staff
necessary for the efficient maintenance and management of the
Estate
(c) the cost of maintaining proper security in respect of the Estate
both during and outside normal working hours and at weekends
(d) the cost of the maintenance replacement renewal and improvement of
the drainage and sewerage system serving the Estate
(e) the cost of and incidental to compliance by the Landlord with every
notice regulation or order of any competent local or other
authority in relation to the Estate or its appurtenances
(f) (i) all reasonable fees charges expenses and commissions
properly incurred in the administration and management of
the Estate or payable to any solicitor accountant surveyor
valuer agent or architect or any of them whom the Landlord
may from time to time employ in connection with the
management or maintenance of the Estate including the cost
of preparing or causing to be prepared statements of the
said costs charges and expenses and auditing the same
<PAGE>
5
(ii) a charge equivalent to ten per centum of the aggregate costs
expenses and outgoings referred to in this clause
1(1)(xiii) (but excluding this sub-paragraph (f)(ii)) such
sum to be in respect of the general administration and
supervision costs of the Landlord relating to or in
connection with the matters specified or referred to in this
Clause 1(1)(xiii) or any of them PROVIDED that any sums
payable to a managing agent under the immediately preceding
sub-paragraph (f)(i) in respect of the management or
supervision of the Estate and which shall be included in the
calculation of the said aggregate costs expenses and
outgoings shall be deducted from the charge included by
virtue of this sub-paragraph
(g) the costs of effecting and maintaining in force an insurance policy
or policies against any and every liability of the Landlord for
injury to or death of any person (including every agent servant and
workman of the Landlord) and damage to or destruction of the
property by any such person arising out of the maintenance of the
Estate
(h) the cost of carrying out all other work or providing services of
any kind whatsoever which the Landlord may from time to time
reasonably consider necessary or desirable for the purpose of
maintaining or improving the Estate in the interests of the tenants
thereof
(i) such sums as the Landlord shall in its discretion think fit as
being a reasonable provision for expenditure likely to be incurred
during the Term in connection with the matters mentioned in this
and the preceding paragraphs
but excluding any expenditure on any part of the Estate for which any other
tenant shall be directly responsible and/or which shall be attributable
(whether directly or indirectly) to the construction by the Landlord of
Phase 2 of the Estate on that part of the Estate shown coloured orange on
Plan B but giving credit for any sums payable to the Landlord from any
owner or occupier of adjoining land towards the cost of provision of Estate
Services
<PAGE>
6
(xiii) "the Initial Rent" is One Hundred and Five Thousand Pounds
(L105,000) per annum
(xiv) "the Insured Risks" means the risks covered from time to time by
the insurance policy effected by the Landlord pursuant to its
covenant herein contained including a minimum of three years loss
of rent and risks in respect of fire lightning explosion storm
tempest flood aircraft and articles dropped therefrom impact storm
riot and civil commotion burst pipes and tanks and damage to or
failure of the boilers lifts lift apparatus plant rooms heating and
air conditioning apparatus and other apparatus plant and machinery
in the Demised Premises subsidence heave landslip and such other
risks or perils (if any) as the Landlord may from time to time deem
prudent to insure
(xv) "the Landlord" includes the person or persons for the time being
entitled to the reversion immediately expectant on the Term
(xvi) "Plan A" and "Plan B" means the plan or plans so marked annexed
hereto
(xvii) "the Planning Acts" means and includes the Town & Country Planning
Acts 1990 the Planning (Listed Buildings and Conservation Areas)
Act 1990 the Planning (Hazardous Substances) Act 1990 the Planning
(Consequential Provisions) Act 1990 the Environmental Protection
Act 1990 the Planning and Compensation Act 1991 and the Environment
Act 1995
(xviii) "Possession Date" means whichever is the earliest of the date
hereof or
<PAGE>
7
the date upon which the Tenant takes possession of the Demised
Premises or has access to the Demised Premises for the purposes of
commencing its fitting out works
(xix) "these Presents" means this Lease and the Schedules hereto and any
licences granted pursuant hereto and any deed of variation hereof
and any deed or other instrument made supplemental hereto
(xx) "Provisional Sum" in relation to each Service Period means an
amount calculated by the Landlord's managing agents acting as
experts and not arbitrators as their reasonable and proper estimate
of the likely Service Rent for the relevant Service Period
(xxi) "the Rent Commencement Date" means the day 12th August 1998
(xxii) "Review Date" means the 12th day of August 2003 and the 12th day of
August 2008
(xxiii) "Service Period" means the period:-
(a) from the Possession Date to (and including) the first
Account Date; and thereafter
(b) between two consecutive Account Dates (excluding the first
and including the second); and thereafter
(c) commencing immediately after the last Account Date of the
Term and ending on the expiration or sooner determination of
the Term
<PAGE>
8
(xxiv) "Service Rent" is the relevant proportion applicable to the Demised
Premises from time to time of the Estate Service Expenditure for
any relevant Service Period
(xxv) "the Tenant" includes the successors in title and assigns of the
Tenant(s)
(xxvi) "the Term" means a term of 15 years commencing on the 12th day of
August 1998 together with any holding over continuation or
extension thereof whether by agreement operation of law or
otherwise
(xxvii) "underlease" means any lease granted or agreed to be granted
(whether immediately or not) out of the Term and "underlessee"
means the lessee for the time being thereunder and "underletting"
means the grant of any underlease
(2) AND in these Presents unless there is something in the context inconsistent
therewith:-
(i) words importing the masculine gender shall include every gender and
vice versa and words importing the singular shall include the
plural and vice versa and words importing persons and all
references to persons shall include companies corporations and
firms and vice versa and references to a natural person include his
estate and personal representatives
(ii) if at any time two or more persons are included in the expression
"the Landlord" "the Tenant" or "the Surety" then covenants herein
contained or implied by or on the part of such persons shall be
deemed to be and
<PAGE>
9
shall be construed as covenants entered into by and binding on such
persons jointly and severally
(iii) any reference to any enactment (whether generally or specifically)
shall be construed as a reference to that enactment as amended
extended re-enacted or applied or consolidated by or under any
other enactment and shall include all instruments orders plans
regulations permissions and directions made or issued thereunder or
deriving validity therefrom
(iv) the clause and paragraph headings in this Lease are for ease of
reference only and shall not be taken into account in the
construction or interpretation of any covenant condition or proviso
to which they refer
(v) references in this Lease to a clause Schedule or paragraph are
references where the context so admits to a clause Schedule or
paragraph of this Lease and references to a paragraph of a Schedule
are (unless the context otherwise requires) references to a
paragraph of that Schedule in this Lease
(vi) any covenant by the Tenant or any underlessee not to do any act or
thing shall include a covenant not to permit or suffer the doing of
that act or thing
(vii) the perpetuity period applicable to this Lease shall be eighty
years from the date hereof and wherever in this Lease either party
is granted a future interest in property there shall be deemed to
be included in respect of every such grant a provision requiring
that future interest to
<PAGE>
10
vest within the stated period and for it to be void for remoteness
if it shall not have so vested
(viii) Clause headings shall not affect the construction of this Lease
2. THE DEMISE
The Landlord HEREBY DEMISES unto the Tenant the Demised Premises TOGETHER
with the particular rights in the First schedule hereto so far as the
Landlord has power to grant the same BUT EXCEPT AND RESERVING AND SUBJECT
to the particular rights and matters in the Second Schedule hereto AND
SUBJECT ALSO to and with the benefit of the matters referred to in the
Third Schedule hereto and to such other rights easements quasi-easements
and privileges as are enjoyed by any adjoining or neighbouring land or
premises in any manner affecting the Demised Premises TO HOLD the Demised
Premises unto the Tenant (together with but except and reserved and subject
as aforesaid) for the Term YIELDING AND PAYING therefor unto the Landlord
during the Term and so in proportion for any less time than a year without
any deductions therefrom whatsoever the following rents namely:-
(a) First from the Rent Commencement Date and during the remainder of
the Term the Initial Rent or such higher yearly rent as may become
payable pursuant to review under Clause 6 hereof such yearly rent
to be payable by equal quarterly payments in advance on the usual
quarter days in each year of which the first payment (being the due
proportion for the period commencing on the Rent Commencement Date
and ending on the day preceding the usual quarter day thereafter)
to be paid on or before the Rent Commencement Date
<PAGE>
11
(b) Secondly throughout the Term by way of additional rent all sums
(including the whole of any increase in any premium from time to
time as a result of or arising out of the manner or the purposes in
or for which the Demised Premises are kept used and occupied and
the cost of periodically revaluing but not more than once in any
year the Demised Premises for insurance purposes) incurred by the
Landlord in respect of the several insurances referred to in Clause
4(1) hereof each such sum to be paid by the Tenant forthwith on
demand therefor (but not earlier than one month before the next
renewal date) the first such payment in respect of the amounts
already so expended by the Landlord (being the due proportion
thereof for the period from the Possession Date to the next renewal
date or dates for such insurances) to be paid on or before the date
hereof and in the event of any dispute as to any such sum the same
shall be reasonably determined by the Landlord's surveyor (acting
as an independent expert and not as an arbitrator) whose
determination shall in the absence of manifest error be final and
binding on the parties save as to questions of law and
(c) Thirdly with effect from the Possession Date as additional yearly
rent the Service Rent (including the Provisional Sum on account)
payable in accordance with the provisions of clause 9 hereof
(d) Fourthly by way of additional rent all other sums payable by the
Tenant hereunder including (without prejudice to the generality of
the foregoing) interest collection charges costs and Value Added
Tax on the rents hereinbefore made payable such sums to be paid
upon demand
<PAGE>
12
3. TENANT'S COVENANTS
The Tenant to the intent that the obligations hereby created shall continue
throughout the whole of the Term HEREBY COVENANTS with the Landlord as
follows:-
(1) RENT
(a) To pay the rents hereby reserved at the times and in the manner
aforesaid and not to exercise or to seek any right or claim to
withhold rent or any right or claim to legal or equitable set-off
(b) If so required by the Landlord to make such payments by bankers
order or credit transfer to any bank account or other account in
the United Kingdom which the Landlord may from time to time
reasonably nominate
(2) OUTGOINGS
(a) To pay and keep the Landlord fully indemnified from and against all
liability for all general and other rates of whatever nature or
kind and all taxes charges duties levies assessments impositions
and outgoings whatever (whether parliamentary parochial local or of
any other description) which are now or may become payable in
respect of the Demised Premises whether by the owner tenant or
occupier thereof other than those which occur as a direct or
indirect result of any dealing by the Landlord in respect of its
reversionary interest or taxes imposed on the Landlord in respect
of the rents reserved in these Presents (save for VAT) and in
addition to indemnify the Landlord
<PAGE>
13
against any rates and outgoings payable by the Landlord after the
expiration or sooner determination of the Term through the
Landlord's inability to claim void rate relief for the maximum
period (commencing with the date of the expiration or sooner
determination of the Term) which would have been allowed had the
Demised Premises been occupied up to the date of the expiration or
sooner determination of the Term
(b) (i) To pay to the Landlord in addition to the rents and other
sums payable under this Lease amounts equal to any Value
Added Tax (or similar tax whether in substitution for or in
addition to it) chargeable on any supply made by the
Landlord to the Tenant under the terms of or in connection
with this Lease
(ii) To pay and to indemnify the Landlord against amounts equal
to any Value Added Tax (or similar tax as aforesaid)
chargeable by reference to any sum paid or payable by the
Landlord in respect whereof (or some part thereof) the
Tenant agrees under this Lease to reimburse or indemnify the
Landlord save where the Landlord is able to reclaim the same
as an input credit (unless the Landlord is required by law
to recharge the VAT to the Tenant)
(c) To pay all charges (including meter rents and standing charges) for
supplies of gas water and electricity consumed upon the Demised
Premises
(d) Not to agree or by default allow to be fixed the rateable value of
the Demised Premises or any part thereof without the prior written
<PAGE>
14
consent of the Landlord such consent not to be unreasonably
withheld and to co-operate with the Landlord at the joint cost of
the Landlord and the Tenant in any negotiations with the District
Valuer or in any appeal to the Court or to the Lands Tribunal in
respect of the rateable value of the Demised Premises
(3) REPAIR
At all times during the term to put and keep the Demised Premises and means
of escape therefrom in case of fire or other emergency and Conducting Media
forming part of and exclusively serving the Demised Premises in good and
substantial repair and condition and to amend rebuild renew and replace
whenever necessary in accordance with good modern practice the whole or any
part of the Demised Premises if the same is or becomes beyond repair and to
maintain decorate support and clean the Demised Premises and to repair and
to keep all yards and spaces not built upon clean tidy and free from refuse
and weeds and to keep the external fabric and stonework cleaned and
maintained as and when necessary and to keep the central heating and hot
water boilers apparatus and installations and all sanitary and water
apparatus for the time being of and serving the Demised Premises in good
and substantial repair and clean condition and at all times in good and
safe working condition (damage by the Insured Risks always excepted save to
the extent that the policy or policies of insurance shall be rendered void
or payment of the insurance moneys thereunder be refused in whole or in
part by reason of or arising out of any act omission neglect or default of
the Tenant or any underlessee or other person under the control of the
Tenant or any underlessee) and to clean the glass in the Demised Premises
inside at least once a month and the outside bi-monthly and (without
prejudice to the generality of the foregoing obligations of the
<PAGE>
15
Tenant):-
(a) in a good and workmanlike manner and to the satisfaction of the
Landlord in every third year of the Term calculated from the date
hereof and also in the last three months of the Term (however and
whenever it may terminate) to paint all the external woodwork
ironwork metalwork cement or stucco-work (if any) and all other
external parts of the Demised Premises which have been previously
painted or ought to be painted with at least two coats of good
quality paint of a colour (if different from that used previously)
first specified or approved in writing by the Landlord (such
approval not to be unreasonably withheld or delayed)
(b) in like manner and to the like satisfaction in every fifth year of
the Term calculated from the date hereof and also in the last three
months of the Term (however and whenever it may terminate) to paint
with at least two coats of good quality paint all interior parts of
the Demised Premises which have previously been or ought to be
painted and paper or otherwise suitably decorate or treat with good
quality materials as circumstances may require all parts of the
interior of the Demised Premises which have previously been or
ought to be so dealt with
(c) as often as may be necessary to maintain in good and substantial
condition and to clean and treat in a suitable manner all surfaces
fixtures and fittings not required to be decorated and so often as
it shall be necessary to repair maintain and renew any plant
machinery boilers equipment and fixtures and fittings
<PAGE>
16
(d) to comply with the requirements or recommendations of any
maintenance and operating manuals provided by the Landlord to the
Tenant
(e) to enter into contracts for the periodic and regular inspection
servicing and maintenance of the lifts lift shafts and lift
apparatus and the hot water boilers and central heating apparatus
and the air-conditioning and ventilation apparatus and any other
apparatus and installations machinery and equipment and all
sanitary and water apparatus and thereafter to keep the same on
foot and observe and perform the Tenant's obligations thereunder
and to produce to the Landlord on demand from time to time such
contracts and evidence that any payments due from the Tenant
thereunder are fully paid up-to-date
(4) COMPLIANCE WITH STATUTES
(a) In connection with the Defective Premises Act 1972 to notify the
Landlord in writing immediately the Tenant becomes aware of any
defect in the Demised Premises which may cause personal injury and
to indemnify the Landlord against any claims proceedings demands
costs and expenses incurred under Section 4 of the said Act by
reason of the Tenant's failure to erect and display prominently any
such notice or warning of relevant defects (within the meaning of
that Section) which the Landlord may request AND without prejudice
to the foregoing to permit the Landlord and its agents with or
without workmen and others at any time on reasonable notice to
enter upon the Demised Premises for any or all of the following
purposes namely erecting and exhibiting notices thereon and giving
warning of
<PAGE>
17
relevant defects within the meaning of Section 4 of the said Act in
the Demised Premises and installing lighting or any other reasonable
means of warning or protection against such defects
(b) To observe and perform all requirements of any Act of Parliament
local Act or bye-law and notices issued thereunder or of any public
local or other competent authority (whether or not required of the
Tenant itself) in any way affecting the Demised Premises or any
thing in or any activity carried on by persons residing at or
working or employed at the Demised Premises or the use and
occupation thereof within the time limited by law or the notice
requiring the same (or if no time is so limited then within a
reasonable time) and to indemnify and keep the Landlord fully
indemnified against all such requirements and all actions
proceedings costs claims demands expenses and liability whatever
arising out of or in connection with the non-observance or
non-performance thereof
(c) Comply with all requirements and regulations of the electricity and
gas supply authorities as to the electrical and gas installations
in the Demised Premises and not without the Landlord's written
consent (which shall not be unreasonably withheld or delayed) to
alter or extend the electrical or gas installations or electrical
wiring in the Demised Premises nor to use any apparatus which
overloads the electrical or gas installations in the Demised
Premises
(5) PARTY STRUCTURES
(To the extent that the same is not included in the Estate Service
Expenditure) on receipt of a written demand from or on behalf of the
<PAGE>
18
Landlord forthwith to pay a just proportion fairly attributable to the
Demised Premises of all expenses of making maintaining upholding repairing
rebuilding renewing scouring and cleansing any party walls fences gates and
railings and any path ways yards external means of escape in case of fire
or other emergency and Conducting Media and other structures which are
available for enjoyment and use by the occupiers of the Demised Premises
jointly with the occupiers of any adjoining or neighbouring land or
premises such proportion if in dispute to be reasonably determined by the
Landlord's surveyor (acting as an independent expert and not as an
arbitrator) whose determination shall be final and binding upon the
parties save as to questions of law or in the event of manifest error
(6) YIELD UP IN GOOD REPAIR AT THE END OF THE TERM
Quietly to surrender and yield up the Demised Premises to the Landlord
or as the Landlord may direct at the end or sooner determination of the
Term in a state and condition in all respects in accordance with the
covenants on the part of the Tenant herein contained Provided that if at
the expiration or sooner determination of the Term the Demised Premises
shall not be in such a state of repair and condition as shall be in
accordance with the Tenant's covenants and provisions herein contained
for or relating to the repair painting or the carrying out of any other
works on the Demised Premises by the Tenant then the Tenant shall pay to
the Landlord forthwith on demand a sum equivalent to the cost to the
Landlord of carrying out such repairs painting and works as shall be
necessary to put the Demised Premises in such a state of repair and
condition as aforesaid together with an amount representing the loss of
the rent first hereby reserved suffered by the Landlord for such
reasonable period to enable such repairs painting and works to be
carried out such sum in default of agreement to be certified by
<PAGE>
19
the Landlord's surveyor (acting as an independent expert and not as an
arbitrator) whose determination shall be final and binding upon the
parties save as to questions of law or in the event of manifest error
7. LANDLORD'S RIGHT OF INSPECTION AND RIGHT OF REPAIR
(a) To permit the Landlord and others authorised by the Landlord after
48 hours prior written notice at reasonable hours during the
daytime to enter upon the Demised Premises to view and inspect the
Demised Premises and ascertain how the same are being used and
occupied and the state and condition thereof and to take schedules
of all Landlord's fixtures and fittings and to estimate the current
value the Demised Premises for insurance mortgage or other purposes
(b) Whenever on any such inspection anything is found which constitutes
a breach non-performance or non-observance of the convenants on the
part of the Tenant herein contained and of which the Landlord gives
notice to the Tenant to remedy and make good the same within two
months of the date of such notice (or sooner if necessary) but if
the Tenant shall fail so to do to permit the Landlord if it so
desires (although the Landlord shall be under no obligation so to
do) without prejudice to the Landlord's right of re-entry
hereinafter contained or any other right or remedy of the Landlord
to enter upon the Demised Premises with contractors workmen and
others and all necessary equipment tools and materials and to
execute or complete such works and to pay to the Landlord on
written demand either during or on completion of such works as the
Landlord may require the costs and expenses thereby incurred by the
Landlord together with all solicitors' surveyors' and other
professional fees and expenses
<PAGE>
20
incurred by the Landlord in relation to such works such sums to be
recoverable as rent in arrear
(c) To permit the Landlord and others authorised by the Landlord and
the tenants owners or occupiers from time to time of any adjoining
or neighboring land or premises and their respective agents and
contractors to enter upon the Demised Premises with workmen and
others and all necessary equipment tools and materials after at
least 48 hours prior written notice (except in an emergency when no
prior notice need be given and if necessary to break into the
Demised Premises) in order to carry out repairs alterations
additions decorations or any other works to or on any adjoining or
neighbouring land or premises which cannot reasonably be carried
out without entry on to the Demised Premises PROVIDED ALWAYS that
the persons so entering shall cause thereby as little inconvenience
as possible to the Tenant or the other occupiers of the Demised
Premises and shall with the minimum of delay make good all physical
damage thereby caused to the Demised Premises
(8) LANDLORD'S COSTS AND EXPENSES
To pay on demand all costs charges and expenses (including solicitors'
costs architects' managing agents and surveyors' fees) payable by the
Landlord for the purposes of and incidental to:
(a) the preparation service or enforcement (whether by proceedings or
otherwise) of any notice under Section 146 or 147 of the Law of
Property Act 1925 requiring the Tenant to remedy a breach of any of
the Tenant's obligations hereunder notwithstanding forfeiture for
any
<PAGE>
21
such breach shall be avoided otherwise than by relief granted by
the Court
(b) the preparation service or enforcement (whether by proceedings or
otherwise) of any notice to repair or schedule of dilapidations
accrued at or prior to the end or sooner determination of the Term
whether or not served during the Term
(c) the collection of the rents and other amounts payable by the Tenant
hereunder
(d) the performance and observance of any other of the provisions of
this Lease
(e) any application by the Tenant to the Landlord for consent or
approval under the terms of this Lease and these Presents whether
such consent is given unconditionally or subject to conditions or
refused or the request for the same is withdrawn subject to such
costs being reasonable and proper
(9) INSURANCE AND PROVISIONS IN CASE OF FIRE ETC.
(a) If the Demised Premises or any part thereof shall be destroyed or
damaged as a result of any act omission neglect or default by or on
the part of the Tenant or any underlessee or any person under the
control of the Tenant or any underlessee whereby any policy of
insurance maintained by the Landlord is rendered void or payment of
the insurance money thereunder is refused in whole or in part to
pay to the Landlord on written demand or otherwise make good to the
<PAGE>
22
Landlord all loss damage and expense thereby incurred and to
indemnify the Landlord against all actions proceedings costs claims
demands and liability whatsoever resulting therefrom or arising
thereout including the cost of rebuilding reinstating replacing and
making good the Demised Premises
(b) To keep the Demised Premises supplied with such fire prevention and
fire fighting equipment as the insurers and Fire Authority may
require and to maintain the same to their satisfaction
(c) To comply with all requirements and reasonable recommendations of
the insurers and Fire Authorities as to fire precautions and fire
fighting equipment relating to the Demised Premises or the conduct
of persons using the Demised Premises
(d) In the event of the Demised Premises or any part thereof being
destroyed or damaged by any of the Insured Risks to give notice
thereof to the Landlord as soon as possible
(e) Not to leave the Demised Premises vacant or unoccupied for a period
in excess of 21 days without first giving the Landlord at least 21
days prior written notice of the intention so to do and without
first paying any additional or increased premium required by the
insurers and in the event the Demised Premises are left vacant
during the last three months of the Term (howsoever determined) to
indemnify the Landlord against any loss of empty rate relief he
would otherwise enjoy at the end of the Term
(f) Not to do or omit to do anything or bring onto the Demised Premises
<PAGE>
23
any explosive flammable or toxic or otherwise harmful chemicals or
materials or any other matter or thing of whatsoever nature which
shall or may cause the policy or policies for the insurance of the
Demised Premises or any adjoining or neighboring land or premises
to become void or voidable or any premium payable to be increased
above the ordinary or common rate for similar premises
(g) Forthwith to inform the Landlord in writing of any conviction
judgement or finding of any Court or Tribunal relating to the
Tenant (or any director or other officer or major shareholder of
the Tenant) of such nature as to be likely to affect the decision
of any insurer or underwriter to grant or to continue insurance of
any of the Insured Risks
(h) The Tenant warrants that prior to the execution of this Lease it
has disclosed to the Landlord in writing any conviction judgement
or finding of any Court or Tribunal relating to the Tenant (or any
director or other officer or major shareholder of the Tenant) of
such nature as to be likely to affect the decision of any insurer
or underwriter to grant or to continue insurance of any of the
Insured Risks
(i) Not to insure or effect any insurance in respect of the Demised
Premises or any plateglass therein insofar as the same are insured
by the Landlord from time to time
(j) In the event of a claim upon the Landlords Policy of insurance any
shortfall arising in the insurance monies due to the imposition of
an excess by the Insurers any such excess shall be borne by the
Tenant
<PAGE>
24
and paid to the Landlord upon demand
(10) USER
(a) The Demised Premises shall be kept used and occupied only as
business commercial or professional offices or subject to the prior
written consent of the Landlord (such consent not to be
unreasonably withheld or delayed) any other use within Class B1 of
the Town and Country Planning (Use Classes) Order 1987 (but not as
diplomatic offices or as a betting office or bookmaker's office as
a jobcentre or an office for the Department of Health and Social
Security) and not in any other manner or for any other purpose or
for any immoral or unlawful purpose or for any sale by auction or
for any residential purpose PROVIDED that the Tenant hereby
acknowledges and admits that notwithstanding the foregoing
provisions as to the use of the Demised Premises permitted to the
Tenant the Landlord does not thereby or in any way give or make any
representation or warranty that any such use is a permitted use
within the provisions of the Planning Acts nor shall any consent in
writing which the Landlord may hereafter give to any change of use
be taken as including any such representation or warranty and that
notwithstanding that any such use is not a permitted use within
such provisions the Tenant shall remain fully bound and liable to
the Landlord in respect of the obligations undertaken by the Tenant
by virtue of this Lease without any compensation recompense or
relief of any kind
(b) Neither the Tenant nor any underlessee nor any person under the
control of the Tenant or any underlessee shall overload any floor
of or lift in or serving the Demised Premises or pass or leave
anything of a
<PAGE>
25
harmful nature through or in the basins or toilets or Conducting
Media in or serving the Demised Premises (whether exclusively or
jointly with other premises) or do anything at the Demised Premises
which shall be or may become a nuisance (whether indictable or not)
or which shall cause any damage or disturbance to the Landlord or
the owners tenants or occupiers from time to time of any adjoining
or neighboring land or premises
(11) ALTERATIONS
(a) Save and except in order to comply with any of the Tenant's
obligations hereunder there shall be no reconstruction or
rebuilding or carrying-out of any structural alterations additions
or other structural works of or to the Demised Premises nor any
cutting maiming or injuring of the main walls or roof and floor
slabs of the Demised Premises nor any erecting of any new buildings
or erections thereon PROVIDED that if such works are to be carried
out by the Tenant to comply with its obligations in this Lease the
Tenant shall first obtain the written consent of the Landlord to
such works in the manner set out in sub-clause (b) below
(b) Save and except as aforesaid any non-structural alterations
additions and other works of or to the Demised Premises shall be
carried out only after there has first been obtained the written
consent thereto of the Landlord (such consent not to be
unreasonably withheld or delayed) and all necessary approvals
consents licences permits or permissions of any competent authority
body or person and then only strictly in accordance with the terms
and conditions thereof and only in accordance with drawings and
specifications of the relevant
<PAGE>
26
alterations additions or other works as the Landlord shall have
required and previously approved in writing (such approval not to
be unreasonably withheld or delayed) PROVIDED ALWAYS that the
Landlord may as a condition of giving such consent require the
Tenant to enter into such covenants with the Landlord as the
Landlord may reasonably require for the execution and supervision
of such works and the reinstatement of the Demised Premises at the
expiry or sooner determination of the Term (howsoever determined)
and such other covenants as the Landlord may reasonably require
(c) To permit the Landlord and others authorised by the Landlord to
enter upon the Demised Premises after reasonable prior notice at
reasonable hours during the daytime for the purpose of seeing that
all alterations additions and other works thereto are being or have
been carried out in all respects in conformity with this clause and
immediately upon being required to do so to remove any alterations
additions and other works of or to the Demised Premises which do
not so conform or in respect of which any such approvals consents
licences permits or permissions of any competent authority body or
person have been withdrawn or have lapsed and thereupon make good
all damage thereby caused to the Demised Premises and restore and
reinstate all parts of the Demised Premises affected thereby to the
reasonable satisfaction of the Landlord
(d) If so required in writing by the Landlord (but not otherwise) at
the expiry or earlier determination of the Term to remove all
alterations and additions made by the Tenant to the Demised
Premises during the Term or during any period of occupation prior
to the commencement of the Term
<PAGE>
27
(12) SIGNS
No fascia sign nameplate bill notice placard/ advertisement or similar
device shall be affixed to or displayed in or on any part of the Demised
Premises so as to be visible from the exterior thereof save such as
indicates the name of any occupier or occupiers for the time being and its
or their business and save such as has been previously approved by the
Landlord in writing (such consent not to be unreasonably withheld or
delayed)
(13) AERIALS
No television or wireless or other form of mast or aerial receiver dish
nor any flagpole shall be affixed to any part of the exterior of the
Demised Premises save such as has been previously approved by the Landlord
in writing (such consent not to be unreasonably withheld or delayed)
(14) PLANNING ACTS
(a) Without prejudice to the generality of clause 3(4) hereof to
observe and perform all the requirements of any Acts or regulations
relating to fire and the Planning Acts in respect of the Demised
Premises or the use thereof and all the requirements of any
approval consent licence permit or permission granted thereunder
which remain lawfully enforceable and affect the Demised Premises
and to indemnify and keep the Landlord fully indemnified from and
against all actions proceedings costs claims demands expenses and
liability whatsoever arising out of or in connection with any
non-observance or non-performance thereof
<PAGE>
28
(b) No application shall be made for any approval consent licence
permit permission certificate or determination under the Planning
Acts in respect of the Demised Premises without the prior written
consent of the Landlord (such consent not to be unreasonably
withheld or delayed)
(c) Unless the Landlord shall otherwise direct in writing to carry out
to the reasonable satisfaction of the Landlord during the Term
(however and whenever it may terminate) all works to the Demised
Premises which as a condition of any such approval consent licence
permit or permission obtained by and implemented by or on behalf of
the Tenant or any underlessee are required to be carried out at the
Demised Premises by a date after the Term (however and whenever it
may terminate)
(15) STATUTORY NOTICES
To give to the Landlord a copy of every notice of whatsoever nature
affecting or likely to affect the Demised Premises made given or issued by
or on behalf of the local planning authority or any other authority body or
person having lawful jurisdiction within fourteen days of its receipt by
the Tenant or any underlessee or sooner if requisite and to produce the
original thereof to the Landlord on written request AND if so required in
writing by or on behalf of the Landlord but at the joint cost of the
Landlord and the Tenant to make or join with the Landlord and any other
persons for the time being interested in the Demised Premises or any
adjoining or neighboring land or premises affected thereby in making such
objections or representations against or in respect of any such notice as
aforesaid as the
<PAGE>
29
Landlord may reasonably require
(16) ACCESS TO RE-LET
To permit the Landlord during the period of six months immediately
preceding the end or sooner determination of the Term (and at any time
during the Term in the event of any proposed disposal by the Landlord of
its interest in the Demised Premises) to affix and retain on any part of
the Demised Premises (but not so as thereby materially to interfere with
any trade or business carried on thereat or with reasonable access of light
and air thereto) notices and boards relating to any proposed disposal by
the Landlord of its interest in the Demised Premises or any part thereof or
for reletting or otherwise dealing with the same and to permit all persons
with written authority from the Landlord or the Landlord's agents to
inspect and view the Demised Premises at reasonable times of the day by
previous appointment
(17) ALIENATION
(a) Save as hereinafter permitted the Tenant shall not assign transfer
underlet part with or share possession or occupation mortgage or
charge or declare trusts over the whole or part only of the Demised
Premises and the Tenant shall not permit or suffer any such dealing
as aforesaid
(b) Not to part with possession or share occupation of the Demised
Premises or any part thereof other than by way of:-
(i) an assignment or charge permitted under sub-clause 3(17)(c);
<PAGE>
30
or
(ii) an underlease permitted under sub-clause 3(17)(e); or
(iii) sharing of occupation by a company in the same group as the
Tenant permitted under sub-clause 3(17)(f)
(c) Not to assign or charge the whole of the Demised Premises without
the Landlord's prior written consent which consent shall not be
unreasonably withheld or delayed but which in respect of a proposed
assignment may be subject to satisfaction of the conditions set out
in sub-clause 3(17)(d) below and to complete any such assignment
within twenty working days of the issue of the Landlord's consent
provided that nothing in this sub-clause shall prevent the Tenant
charging the Demised Premises pursuant to a floating charge over
its assets entered into prior to the date hereof
(d) The conditions referred to in sub-clause 3(17)(c) which are
specified for the purposes of Section 19(1A) of the Landlord and
Tenant Act 1927 are:-
(i) that the Tenant shall have entered into an authorised
guarantee agreement (as defined in Section 16 of the
Landlord and Tenant (Covenants) Act 1995) with the Landlord
in a form which the Landlord reasonably requires
(ii) that any guarantor of the Tenant's obligations under the
Lease shall have guaranteed to the Landlord that the Tenant
will comply with the terms and conditions of the agreement
<PAGE>
31
referred to in sub-clause 3(17)(d)(i) and in a form which
the Landlord reasonably requires
(iii) that any arrears of rent and any other payments due under
this Lease (including any outstanding balance due under the
terms of any rent deposit deed or bank guarantee) as at the
date of the Tenant's application for Licence to Assign has
been paid
(iv) that the Landlord reasonably determines that the proposed
assignee is capable of being able to comply with the
Tenant's covenants in this Lease and to continue to be such
a person following the assignment
(v) the Landlord is reasonably satisfied that the completion of
the assignment will not materiality adversely affect the
value of the Landlord's interest in the Demised Premises
(vi) the proposed assignee would in the reasonable opinion of the
Landlord be acceptable to a reasonable institutional
investor in the market taking into account any reasonable
and proper facts including but not limited to the financial
strength of the proposed assignee and any guarantor of the
proposed assignee's obligations and any rent deposit offered
by the assignee
(vii) the execution and delivery to the Landlord prior to the
assignment of a rent deposit deed or the provision of a bank
guarantee for such sum as the Landlord may reasonably
determine but not exceeding 12 months passing rent in a form
<PAGE>
32
reasonably acceptable to the Landlord and in substantially
the same form mutatis mutandis (save as the circumstances
require) as a rent deposit deed of even date herewith and
made between the parties hereto in the case of a rent
deposit deed together with the payment by way of cleared
funds of sums specified in the rent deposit deed
(viii) any intended assignee shall enter into a deed of covenant
with the Landlord in such a form as the Landlord shall
reasonably require to observe and perform all the covenants
and agreements on the part of the Tenant herein contained
during such period as the Tenant is bound by the Lease
covenants and in the case of a limited liability company
should the Landlord so reasonably require a guarantor or
guarantors reasonably acceptable to the Landlord shall join
in such deed of covenant to covenant with the Landlord
substantially in the same terms mutatis mutandis as clause 8
hereof
PROVIDED THAT the Landlord and the Tenant agree that the Landlord
may withhold its consent if any one or more of the following
circumstances exist in which case the Landlord shall not be
regarded as unreasonably withholding its consent:
(1) The proposed assignee is a company which is a member of the
same group (within the meaning of Section 42 of the Landlord
and Tenant Act 1954) as the Tenant unless the Tenant and the
proposed assignee become joint tenants
(2) The Landlord reasonably determines there is any subsisting
<PAGE>
33
material breach of any of the Tenant's covenants and conditions
in this Lease
(3) The proposed assignee or any proposed guarantor for the proposed
assignee (other than any guarantor under an authorised guarantee
agreement) is a corporation registered in or an individual
resident in a jurisdiction in which a judgment obtained in the
Courts of England and Wales will not necessarily be enforced
without any re-examination of the merits of the case
(4) The proposed assignee is a person firm company or other body
corporate or entity which has the right to claim diplomatic
immunity or exemption in relation to the observance and performance
of the covenants and conditions contained in this Lease
(5) That if any consent of a superior landlord and/or mortgagee is
required to the assignment that consent has not been obtained
before the assignment
(6) The proposed assignee fails to demonstrate that it has a
satisfactory current trading record to enable it to take on the
liabilities under this Lease
(e) PERMITTED UNDERLETTING
(i) The Tenant shall not underlet the whole or part of the Demised
Premises or agree to underlet the whole or part of the Demised
<PAGE>
34
Premises comprising one or more complete floors of the Demised
premises without the prior written consent of the Landlord such
consent not to be unreasonably withheld or delayed provided that
there shall not be more than two separate occupations of the
Demised Premises at any one time and provided further that all
underlettings of part of the Demised Premises shall have the
renewal provisions of the 1954 Act (as amended) excluded by Court
Order pursuant to Section 5 of the Law of Property Act 1969 and the
Tenant shall not underlet the whole or part of the Demised Premises
otherwise than by an underlease with provision for upwards only
review of the reserved rent as at each review date during the term
of the underlease in like manner (mutatis mutandis) as provided in
Clause 6 hereof and in accordance with sub-clause 3(17)(e)(iv)
hereof PROVIDED THAT the Tenant shall not underlet the whole or any
part of the Demised Premises at a fine or a premium and not
otherwise than at the Market Rent (as defined in Clause 6) or the
proportionate part of the Market Rent of the Demised Premises where
only part of the Demised Premises is underlet (such rent in all
cases to be approved by the Landlord such approval not to be
unreasonably withheld or delayed) and
(ii) any intended undertenant shall enter into a deed of covenant with
the Landlord in such form as the Landlord shall reasonably
require to observe and perform all the covenants and agreements on
the part of the tenant contained in the underlease and if the
Landlord so reasonably requires a guarantor or guarantors
reasonably acceptable to the Landlord
<PAGE>
35
shall join in such deed of covenant to covenant with the Landlord
in substantially the same terms mutatis mutandis as clause 8 hereof
(iii) in any permitted mediate or immediate underlease the rent shall be
payable no more than one quarter in advance and
(iv) any such underlease shall in all respects be consistent with the
provisions of this Lease including in particular (but without
prejudice to the generality of the foregoing) provisions as to rent
review which shall follow the provisions of this Lease and which
require a review of the rent payable under this Lease to the Market
Rent in accordance with the provisions and at the date of review of
the rent payable under this Lease and
(v) At all times to enforce compliance with the covenants and
conditions contained in all underleases (whether mediate or
immediate) of the Demised Premises and not to waive or vary any of
the same without the prior written consent of the Landlord and not
without the consent of the Landlord to accept a surrender of any
underlease of the Demised Premises or agree any reviewed rent with
an undertenant until the rent on rent review has been agreed or
determined as between the Landlord and the Tenant pursuant to
Clause 6 hereof and
(vi) Any further dealings with the Demised Premises thereby demised
which are permitted shall be subject to the prior written consent
of the Landlord (such consent not to be unreasonably withheld or
delayed) to a permitted dealing
<PAGE>
36
which would not result in a breach of any of the provisions of
this clause
(vii) Not upon a review of the rent reserved by an underlease of the
whole or any part of the Demised Premises to agree the amount of
any such reviewed rent without the prior consent of the Landlord
which consent shall not be unreasonably withheld or delayed
(viii) Without prejudice to paragraph 3(17)(e)(ii) the Tenant shall
procure that any intended undertenant covenants with the Landlord
not to assign the underlet premises without obtaining a deed of
covenant from the intended assignee in favour of the Landlord in
the same form (mutatis mutandis) as the deed referred to in
paragraph 3(17)(e)(ii) and if the Landlord so reasonably requires
one or more guarantors reasonably acceptable to the Landlord shall
join in such deed in favour of the Landlord guaranteeing the due
performance of all the obligations and liabilities of the intended
assignee the deed to be in substantially the same terms mutatis
mutandis as clause 8 hereof
(ix) In the case of an underlease of part of the Demised Premises the
form of the underlease shall be first approved by the Landlord
(such approval not to be unreasonably withheld or delayed) and such
form shall not demise any part of the structure or common parts of
the Building but shall contain provisions under which the
undertenant is liable to pay a fair proportion of the costs of
insuring repairing and redecoration
<PAGE>
37
of the structure and common parts and all other services relating
to the Building which benefit such part of the Demised Premises
directly or indirectly and not to differ from the terms of this
Lease except insofar as reasonably necessary to make it applicable
to such underletting of part
(f) Notwithstanding the foregoing provisions of this sub-clause the Tenant may
without the consent of the Landlord share occupation of the whole or any
part of the Demised Premises with a company that is a member of the same
group as the Tenant within the meaning of Section 42 of the 1954 Act for so
long only as such company remains a member of the group provided that (1)
the relationship of Landlord and Tenant is not thereby created (2) that any
such company shall vacate the Demised Premises forthwith upon vacation by
the Tenant (3) written notice is given to the Landlord prior to such
company taking occupation of the Demised Premises or any part thereof
(g) Within twenty-one days of every assignment or transfer (whether by deed
will or otherwise) and every permitted underlease of the Demised Premises
or any part thereof and every other disposition or transmission or
devolution of the Demised Premises (including all Orders of Court Probates
and Letters of Administration) notice thereof shall be given to the
Landlord's Solicitors stating the date and short particulars thereof and
the names and addresses of every party thereto and at the same time a
certified copy of the deed document or instrument creating or evidencing
the same shall be produced (properly stamped if required to be stamped) to
the Landlord's Solicitors for registration (with an additional certified
copy thereof for retention by the Landlord) and a reasonable solicitor's
fee for such
<PAGE>
38
registration shall be paid by the Tenant
(h) Within one month of the ascertainment of the yearly rent payable
under any underlease or remoter lease of the Demised Premises or
any part of it pursuant to the provisions in such deed for rent
review to give notice in writing to the Landlord of the yearly
rent so ascertained
(18) INFORMATION
Immediately on receiving a request for the same from the Landlord or its
agents (but not more than once a year) to give the following information to
the Landlord in writing:-
(a) full names and addresses of all persons in occupation of the
Demised Premises or any part of it
(b) the precise part of the Demised Premises which such persons occupy
(c) a true copy of the document or if none a written memorandum of the
agreement and parties to it whereby each such person is or claims
to be entitled to occupy any part of the Demised Premises
(d) full names and addresses of all persons entitled or claiming to be
entitled to an interest in the Demised Premises or any part of it
(whether at law or in equity)
(e) the precise part of the Demised Premises in which each such person
is or claims to be entitled to an interest
<PAGE>
39
(f) a true copy of the document or if none a written memorandum of the
agreement and parties to it whereby each such person is or claims
to be entitled to an interest in the Demised Premises or any part
of it
(g) the name home address and home telephone number of at least two
keyholders of the Demised Premises
(19) ACQUISITION OF RIGHTS ENCROACHMENTS ETC.
(a) Neither the Tenant nor any underlessee shall effect authorise or
permit any encroachment upon or acquisition of any right easement
quasi-right quasi-easement or privilege adversely affecting the
Demised Premises or any closing or obstruction of the access of
light or air to any windows or openings of the Demised Premises nor
shall the Tenant or any underlessee give any acknowledgment to any
third party that the enjoyment of access of light or air thereto is
with the consent of such third party nor give any consideration to
any third party nor enter into any agreement with any third party
for the purpose of inducing or binding such third party to abstain
from obstructing the access of light or air thereto
(b) If any such encroachment or acquisition or closing or obstruction
shall be threatened or attempted to give notice thereof to the
Landlord as soon as the same comes to the knowledge of the Tenant
and upon request by the Landlord to take immediate steps (in
conjunction with the Landlord and other interested persons if the
Landlord shall so require) at the joint cost of the Landlord and
the Tenant to adopt all such lawful means and do all such lawful
things
<PAGE>
40
as the Landlord may reasonably deem appropriate for preventing any
such encroachment or acquisition
(c) Not to stop up or obstruct any windows or light belonging to the
Demised Premises or to any other building belonging to the Landlord
nor permit any new window light opening doorway path drain or
encroachment or easement to be made into against or upon the
Demised Premises without the Landlord's consent and to give notice
to the Landlord of any such encroachment which shall be made or
attempted and which comes to the Tenant's notice and at the request
of the Landlord to adopt such means and take such steps at the
joint cost of the Landlord and the Tenant as may be reasonably
required by the Landlord to prevent the same
(20) MATTERS AFFECTING THE DEMISED PREMISES
(a) To observe and perform the agreements covenants and stipulations
contained or referred to in the Third Schedule hereto insofar as
the same are still subsisting and capable of being enforced against
the Demised Premises or the owner Landlord tenant or occupier
thereof and to keep the Landlord throughout the Term fully
indemnified against all actions proceedings costs claims demands
expenses and liability in any way relating thereto in so far as
they relate to the Demised Premises
(b) Not knowingly to do or permit or suffer any matter or thing which
may hinder or prevent the Landlord or its agents from observing and
performing all and singular the covenants conditions and agreements
on its part contained in this Lease
<PAGE>
41
(21) RUBBISH
Not to allow rubbish of any description to accumulate on any part of the
Demised Premises but to place all refuse or rubbish tidily in proper
receptacles therefor provided by the Tenant on the refuse area shown
coloured yellow on Plan A in accordance with the right in that behalf
contained in Paragraph 4 of the First Schedule hereto and not to hang or
place or to allow to be hung or placed any articles or other goods of any
description outside the Demised Premises or the entrance door thereof
whether on the forecourt or otherwise or from the windows of the Demised
Premises nor expose outside or from the windows of the Demised Premises any
clothes articles or other goods of any description
(22) LOADING
Not to load or unload nor to permit or suffer to be loaded or unloaded any
vehicle unless the vehicle shall be in the unloading area (if any) provided
from time to time by the Landlord for that purpose and in accordance with
the regulations (if any) made by the Landlord in this respect
(23) CARPETS AND DECORATION
To clean repair replace and renew as often as the Landlord may
reasonably consider necessary the fitted carpets within the Demised
Premises and at the end or sooner determination of the term at the
Tenant's own cost to deliver up the Demised Premises with new good
quality carpets and the walls redecorated to a good standard
<PAGE>
42
(24) APPOINTMENT OF NEW GUARANTOR
Within fourteen days of the death during the Term of the Surety (if any) or
if more than one any of them or of any surety hereunder or of any surety in
any underlease or of any such person becoming bankrupt or having a
bankruptcy petition presented against him or being a company passing a
resolution to wind up or entering into liquidation or having an
administrative receiver appointed or having an administration order made
against it to give notice of this to the Landlord and if so required by the
Landlord at the expense of the Tenant within twenty-eight days to procure
some other person acceptable to the Landlord to execute a guarantee in
respect of the Tenant's obligations contained in this Lease in the form set
out in clause 8
(25) APPLICATION FOR RELEASE
(a) The Tenant shall not unreasonably object to the release of the
Landlord or a former landlord from the Landlord's covenants in this
Lease to the extent (if any) as such covenants continue to bind the
Landlord assigning the reversion or a former landlord (as
appropriate) following an application made in accordance with
Section 8 of the Landlord and Tenant (Covenants) Act 1995 ("the
Act")
(b) If following a written notice from the Tenant objecting to such
release the Court makes a declaration that it is reasonable for the
Landlord or a former landlord to be released from the Landlord's
covenants in this Lease the Tenant shall indemnify the Landlord and
any former Landlord in respect of any loss damage costs and
expenses incurred or
<PAGE>
43
sustained as a result of the Tenant's objection
(26) REGULATIONS
To observe and perform all regulations made by the Landlord in the
interests of good estate management applicable to the Estate a copy of
which in their form current at the date of this Lease has been given to
the Tenant
4. LANDLORD'S COVENANTS
The Landlord HEREBY COVENANTS with the Tenant as follows:-
(1) INSURANCE
(a) To insure and (unless such insurance shall become void or payment
of the insurance monies shall be refused in whole or in part by
reason of any act omission neglect or default by or on the part of
the Tenant or any underlessee or other person under the control of
the Tenant or any underlessee) to keep insured or to procure such
insurance (save as aforesaid) and to pay promptly all premiums for
insuring and keeping insured the Demised Premises in the full
reinstatement cost (whether or not with any other premises) against
loss or damage by the Insured Risks together with insurance against
architects' surveyors' and other professional advisers' fees at the
usual scales current for the time being and the cost of demolition
and site clearance consequent upon rebuilding or reinstatement and
VAT in respect of all such costs and works and a minimum of 3 years
loss of the rent first hereby reserved
<PAGE>
44
(b) Subject to Clause 5(5) hereof to claim all monies due and to apply
all monies (except monies received in respect of loss of or damage
to any other premises or the fixtures and fittings therein or
liability to third parties or loss of rent) received by the
Landlord under or by virtue of such insurance and any monies
received from the Tenant pursuant to the Tenant's obligation
contained in Clause 3(9)(a) hereof in rebuilding or reinstating the
Demised Premises or such parts thereof as may have been damaged or
destroyed as expeditiously as possible (subject always to the
Landlord being able to obtain all necessary approvals consents
licences permits and permissions from any superior lessor or other
competent authority and all such materials and labour as may be
required for such rebuilding and reinstatement) making good any
deficiency in the insurance monies out of the Landlord's own
resources unless such deficiency arises due to the act or neglect
or default of the Tenant its servants agents licensees or
undertenants PROVIDED THAT if any damage or destruction shall
render the Demised Premises wholly or substantially unfit for
occupation and if the Demised Premises shall not have been
reinstated by the date 2 years nine months after the date of such
damage or destruction either the Landlord or the Tenant may by
giving to the other party three months prior notice in writing
determine this demise provided that any such notice shall cease to
have effect and the Term shall continue if the Demised Premises
shall have been reinstated by the third anniversary of the date of
damage or destruction and provided further that any such
determination shall be without prejudice to any claim by the
Landlord in respect of any antecedent breach of the Tenant's
covenants and conditions herein contained and in the event of
either the Landlord or the Tenant determining this Lease pursuant
to this proviso neither the Tenant
<PAGE>
45
nor anyone claiming through or under the Tenant shall object to the
payment to the Landlord or any superior lessor of any part of the
moneys (including monies in respect of professional fees demolition
site clearance shoring up and loss of rent) payable under any
policy of insurance in respect of the Demised Premises or any part
thereof
(c) (i) To produce to the Tenant on request (such request not to be
made more often than once in each calendar year) a copy of
the insurance policy and the last premium renewal receipt or
reasonable evidence of the terms of the policy and that the
last premium has been paid; and
(ii) To use its reasonable endeavors to procure that the interest
of the Tenant is noted or endorsed on the said insurance
policy or policies at all times
(d) The Landlords obligation to insure under clause 4(1)(a) shall be
limited to and subject to any excess exclusion or limitation or
other terms and conditions imposed by insurers
(e) The Landlord shall not be obliged to insure under clause 4(1)(a) if
and to the extent that insurance is not regularly available in the
London insurance market on reasonable commercial terms provided
that it shall notify the Tenant forthwith
(f) The Landlord may but shall not be obliged to insure against loss of
rent and if the Landlord is itself an insurance company it may
self-insure in which case it shall be deemed to be doing so at its
usual rates and on its standard terms
<PAGE>
46
(2) QUIET POSSESSION
That the Tenant paying the rents hereby reserved and all other monies
payable by the Tenant under these Presents and observing and performing
the several covenants and agreements on the Tenant's part and the
conditions and stipulations herein contained shall and may peaceably hold
and enjoy the Demised Premises during the Term according to these
Presents without any lawful interruption by the Landlord or any person
lawfully claiming through under or in trust for the Landlord
(3) PROVISION OF SERVICES
Subject to the payment of the rents hereby reserved the Landlord will
provide the Estate Services save as prevented by Insured Risks or acts
beyond its reasonable control provided that it shall use all reasonable
endeavours to restore the Estate Services in question as soon as
reasonably practicable
5. PROVISOS
PROVIDED ALWAYS AND IT IS HEREBY EXPRESSLY AGREED as follows: -
(1) Whenever the rent (whether formally or legally demanded or not) shall
remain unpaid after becoming due and payable or any other monies which
may become payable hereunder by the Tenant to the Landlord or any part
thereof shall remain unpaid 7 days after becoming due and payable then
the amount thereof or the balance for the time being unpaid shall
(without prejudice to the Landlord's right of re-entry hereinafter
contained or any
<PAGE>
47
other right or remedy of the Landlord) from the due date for payment
thereof and until the same is duly paid bear and carry interest (as well
after as before any judgment) at the rate of four per centum per annum
above the base rate for the time being of National Westminster Bank PLC
or (in the event of such rate ceasing to be published) at such equivalent
rate as the Landlord shall notify to the Tenant for the whole period from
the date upon which such sum ought to have been paid until the date of
payment Provided that if any such rent or payment of other monies as
aforesaid shall be declined by the Landlord so as not to waive any breach
of covenant the same shall be payable with interest thereon at the rate
aforesaid from the date the payment became due to the date upon which
payment is accepted by the Landlord AND the Tenant accordingly HEREBY
COVENANTS with the Landlord that in every such case the Tenant will pay
such interest thereon to the Landlord in addition to the rents and other
monies as aforesaid (as well after as before any judgment) at the
aforesaid rate
(2) If the rents hereby reserved or any part thereof shall remain unpaid for
fourteen days after becoming payable (whether formally demanded or not)
or if the Tenant or the Surety being a company unregistered company or
corporation shall be deemed to be unable to pay its debts within the
meaning of Section 123 of the Insolvency Act 1986 ("the 1986 Act") or
shall make a voluntary arrangement as referred to in Part I of the 1986
Act or shall hake a petition for an administration order presented under
Part II of the 1986 Act or shall go into liquidation as defined in
Section 247(2) of the 1986 Act (other than a voluntary winding-up solely
for the purpose of amalgamation or reconstruction while solvent) or shall
have a receiver or manager (including an administrative receiver)
appointed of all or any part of its assets or undertaking whether under
Part III of the 1986 Act or otherwise or if a provisional liquidator is
appointed under Section 135 of the
<PAGE>
48
1986 Act or if a proposal is made for a scheme of arrangement under
Section 425 of the Companies Act 1985 or if the Tenant or the Surety or
if more than one any of them being an individual an application is made
for an interim order or a proposal is made for a voluntary arrangement
under Part VIII of the 1986 Act or a Bankruptcy Petition is presented to
the Court or his circumstances are such that a Bankruptcy Petition could
be presented under Part IX of the 1986 Act or shall make any other
assignment for the benefit of or enter into any other arrangement with
his creditors or if the Tenant or the Surety or if more than one any of
them shall suffer any distress or execution to be levied on its goods at
the Demised Premises or if any covenant or condition on the part of the
Tenant or the Surety herein contained shall not be performed or observed
then and in any of the said events it shall be lawful for the Landlord at
any time thereafter to re-enter upon the Demised Premises or any part
thereof in the name of the whole and thereupon this demise shall
absolutely determine but without prejudice to any right of action or
remedy of the Landlord against the Tenant or the Surety in respect of any
arrears of rent or any breach of covenant or condition or the Tenant or
the Surety against the Landlord for breach of covenant
(3) If the Demised Premises or any material part thereof shall at any time or
times be destroyed or damaged by any of the Insured Risks so as to be
unfit for occupation and use then and in every such case (save as
provided in Clause 4(1)(a) hereof) the principal rent and the Service
Rent hereby reserved or a fair and just proportion thereof according to
the nature and extent of the damage sustained (as agreed between the
Landlord and the Tenant in writing within one month of such destruction
or damage) shall be suspended and cease to be payable until the Demised
Premises have been rebuilt or reinstated and made fit for occupation and
use or until the expiration of 3 years from the date of the damage or
destruction if earlier
<PAGE>
49
and failing such agreement or in case any dispute shall arise as to the
amount of such suspension and or such period the same shall be determined
by an independent Surveyor who shall act as an arbitrator in accordance
with the Arbitration Act 1996
(4) Notwithstanding the acceptance of or demand for rent or other monies
payable under this Lease and these Presents by or on behalf of the
Landlord with knowledge of a breach of any of the covenants on the part
of the Tenant in this Lease the Landlord's right to forfeit this Lease on
the ground of such breach shall remain in force and the Tenant shall not
in any proceedings for forfeiture be entitled to rely upon any such
acceptance or demand as a defence
(5) In any rebuilding or reinstatement of the Demised Premises following
damage or destruction by any of the Insured Risks the Landlord shall not
be obliged to lay out insurance moneys in rebuilding or reinstatement in
accordance with the previous sections elevations and specifications of
the Demised Premises but it shall be sufficient if they are restored so
as to provide the Tenant with premises reasonably equivalent to the
Demised Premises and thereafter all the covenants and conditions of this
deed shall apply to such accommodation mutatis mutandis as they applied
to the Demised Premises
(6) Nothing contained in or implied by this Lease shall give the Tenant the
benefit of or the right to enforce or to prevent the release or
modification of any covenant agreement or condition entered into by any
lessee of the Landlord in respect of any property not comprised in this
Lease
(7) If any dispute arises between the Tenant and the Landlord's tenants or
<PAGE>
50
occupiers of any adjoining or neighboring land or premises as to any
easement right or privilege in connection with the use of the Demised
Premises and the adjoining or neighboring land or premises or as to the
party or other walls separating the Demised Premises from the adjoining
or neighboring land or premises or as to the amount of any contribution
towards the expenses or services used in common with any other property
it shall be decided by the Landlord's surveyor or in such manner as the
Landlord's surveyor shall direct
(8) The operation of Section 62 of the Law of Property Act 1925 shall be
excluded from this Lease and the only rights granted to the Tenant are
those expressly set out in this Lease and the Tenant shall not by virtue
of this Lease be deemed to have acquired or be entitled to and the Tenant
shall not during the Term acquire or become entitled by any means
whatsoever to any easement from or over or affecting any other land or
premises now or at any time hereafter belonging to the Landlord and not
comprised in this Lease.
(9) The Landlord shall not be responsible to the Tenant or to anyone at the
Demised Premises expressly or by implication with the Tenant's authority
for any accident happening or injury suffered or for any damage to or
loss of any chattel sustained in the Demised Premises
(10) This Lease embodies the entire understanding of the parties relating to
the Demised Premises or to any of the matters dealt with by any of the
provisions of this Lease
(11) The Tenant acknowledges that this Lease has not been entered into in
reliance wholly or partly on any statement or representation made by or
on
<PAGE>
51
behalf of the Landlord except any such statement or representation that
is expressly set out in this Lease or in written replies from the
Landlord's solicitors to enquiries raised by the Tenant's solicitors
(12) Whilst the Landlord is a limited company or other corporation all
licences consents approvals and notices required or permitted to be given
by the Landlord shall be sufficiently given if given under the hand of a
director or the secretary or other duly authorised officer of the
Landlord or by the surveyor on behalf of the Landlord
(13) If after the Tenant has vacated the Demised Premises on the expiry of the
Term any property of the Tenant remains in or on the Demised Premises and
the Tenant fails to remove it within twenty one days after being
requested in writing by the Landlord so to do or after using its best
endeavours the Landlord is unable to make such a request to the Tenant
within fourteen days of first attempting so to do:-
(a) the Landlord may as the agent of the Tenant sell such property
provided that the Tenant will indemnify the Landlord against any
liability incurred by the Landlord to any third party whose
property shall have been sold by the Landlord in the bona fide
mistaken belief (which shall be presumed unless the contrary be
proved) that such property belonged to the Tenant
(b) if the Landlord having made reasonable efforts is unable to locate
the Tenant the Landlord shall be entitled to retain the said
proceeds of sale absolutely unless the Tenant shall claim the same
within six months of the date upon which the Tenant vacated the
Demised Premises and
<PAGE>
52
(c) the Tenant shall indemnify the Landlord against any damage
occasioned to the Demised Premises or any adjoining or neighboring
land or premises and any action claims proceedings costs expenses
and demands made against the Landlord caused by or related to the
presence of the Tenant's property in or on the Demised Premises
(14) Except where any statutory provision prohibits the Tenant's right to
compensation being reduced or excluded by agreement the Tenant shall not
be entitled to claim from the Landlord on quitting the Demised Premises
any compensation under the 1954 Act
(15) The Landlord shall not in any event be liable to the Tenant in respect of
any failure of the Landlord to perform any of its obligations to the
Tenant hereunder in respect of the Estate Services (other than insurance)
whether expressed or implied unless and until the Tenant has notified the
Landlord of the facts giving rise to the failure and the Landlord has
failed within a reasonable length of time to remedy the same and then in
such case the Landlord shall be liable to compensate the Tenant only for
loss or damage sustained by the Tenant after such reasonable time has
lapsed
(16) This Lease is granted without prejudice to the provisions of any previous
lease under which the Tenant has hitherto held the Demised Premises or
any part thereof or to the provisions of any licence for alterations or
works granted pursuant thereto which last mentioned provisions shall (so
far as remaining to be performed and observed) be read and construed as
if contained in a licence supplemental to this Lease and as if any
reference to the term granted by such Lease were a reference to the Term
granted by this
<PAGE>
53
Lease
(17) The parties to this Lease hereby agree and declare that:
(a) this is a new lease for the purposes of the Act
(b) any provisions in this Lease which are void pursuant to Section 25
of the Act shall be severed from all remaining provisions and such
remaining provisions shall be preserved
(c) to the extent that any provision in this Lease extends beyond the
limitations set by the said Section 25 of the Act but if it did not
so extend it would remain unaffected by the said Section 25 the
provisions shall be deemed to be varied so as not to extend beyond
the said limitations
(18) In the event of the Landlord (at the request of the Tenant) granting any
concession as a result of which the Tenant is entitled to defer the
payment of any monies due then for all purposes in connection with this
Lease (and in particular in relation to Section 17 of the Act such monies
shall be deemed to fall due on the subsequent date agreed between the
Landlord and Tenant pursuant to the concession in lieu of the earlier
date
6. RENT REVIEW
(1) With effect from each Review Date the rent first hereinbefore reserved
shall be the amount payable (but for any abatement of rent) immediately
prior to that Review Date or (if greater) the Market Rent as agreed or
determined pursuant to this Clause 6
<PAGE>
54
(2) The expression "the Market Rent" means the annual rack rent exclusive of
all outgoings which might reasonably be obtained in the open market
without the payment of a premium or a fine by a willing landlord from a
willing tenant for a lease of the whole of the Demised Premises with
vacant possession and fully fitted out and ready for occupation at the
commencement of the term for a term equal to the residue of the Term
remaining on the relevant Review Date or 5 years (whichever is the longer
period) (but commencing on the Review Date) upon the following
assumptions that:-
(A) all the provisions of this Lease on the part of the Tenant have
been duly observed and performed and on the assumption that the
user permitted by this Lease of all parts of the Demised Premises
complies with the Planning Acts
(B) on the relevant Review Date no damage to or destruction of the
Demised Premises or its services nor any damage to or destruction
of any part of the Demised Premises or with anything else in
respect of which the Tenant enjoys rights has occurred
(C) the Demised Premises are fit for immediate occupation and use and
that no work has been carried out on the Demised Premises by the
Tenant or its underlessees or their predecessors in title which has
diminished the rental value of the Demised Premises
(D) the Demised Premises may be used for all purposes falling within
the same Use Class or Use Classes under the Town and Country
Planning (Use Classes) Order 1987 (to which Clause 1(2)(iii) hereof
shall not
<PAGE>
55
apply) as the use permitted by these Presents and that all other
licences consents and permissions required to implement such use
have been obtained
(E) there has been a reasonable period in which to negotiate the terms
of the letting taking into account the nature of the Demised
Premises and the state of the market
(F) that the Demised Premises have been carpeted and decorated at the
cost of the Landlord to a high standard
there being disregarded (if otherwise applicable) any effect on rental
value by reason of:-
(i) the fact that the Tenant its underlessees or their respective
predecessors in title have been in occupation of the Demised
Premises and
(ii) any goodwill attached to the Demised Premises by reason of the
carrying-on thereat of the business of the Tenant or its
underlessees or their predecessors in title in their respective
businesses and
(iii) all improvements authorised by the Landlord or made by the Tenant
or its underlessees or their respective predecessors in title in
accordance with the terms of this Lease otherwise than at the cost
of or in pursuance of an obligation to the Landlord contained
herein or one imposed by the terms of this Lease and any such works
undertaken either (a) by the Tenant its underlessees or their
respective predecessors in title during any period of occupation
prior
<PAGE>
56
to the grant of this Lease or any previous lease arising out of an
agreement to grant such term or (b) by any lessee or underlessee of
the Demised Premises before the commencement of the Term hereby
granted so long as the Landlord or its predecessor in title has not
had vacant possession of the relevant part of the Demised Premises
since the improvement was carried out
(iv) (so far as may be permitted by law) all restrictions whatsoever
relating to rent or its recoverability and all provisions relating
to any method of determination of rent contained in any enactment
and such lease shall in all other respects contain the same terms and
conditions mutatis mutandis (except as to the amount of rent but
including similar provisions for review thereof as are contained in this
Clause 6) as this present Lease
(3) The Market Rent shall be determined by agreement between the Landlord and
the Tenant but if by the date which is three months before the relevant
Review Date they shall not have agreed the same the Market Rent shall be
determined by an independent chartered surveyor of recognised standing
being a member of a leading firm of surveyors having been in practice
continuously for at least ten years in England immediately prior to the
relevant Review Date and having substantial recent experience in valuing
premises of a kind and character similar to the Demised Premises to be
agreed upon in writing by the Landlord and the Tenant or in default of
such agreement by the date which is one month before the relevant Review
Date to be nominated by the President or other officer duly authorised
for that purpose of the Royal Institution of Chartered Surveyors on the
application of either the Landlord or the Tenant such surveyor to act as
an arbitrator in
<PAGE>
57
accordance with the Arbitration Act 1996 and the costs of such
determination shall be in the award of such surveyor (the Surveyor)
(4) If the Surveyor shall fail to determine the Market Rent in the manner
hereinbefore provided within four months of his appointment or if he
shall relinquish his appointment or die or if it shall become apparent
that for any reason he will be unable to complete his duties hereunder
within the said period of four months then the Landlord and the Tenant
may agree upon or either of them may apply to the said President or other
officer for a substitute to be appointed in his place which procedure may
be repeated as many times as necessary
(5) In the event of the Landlord and the Tenant not having reached agreement
or the Surveyor's award not having been published or the Surveyor or the
Landlord or the Tenant making application to the Court whether before or
after such publication and such application not having been finally
determined by the relevant Review Date for any reason whatever then in
respect of the period of time ("the interval") between the relevant
Review Date and ending on the date on which agreement is reached or such
award is published or such application is finally determined the Tenant
shall pay to the Landlord in the manner provided in this Lease the rent
payable immediately prior to the relevant Review Date ("the Current
Rent") PROVIDED THAT at the expiration of the interval there shall be due
as a debt payable by the Tenant to the Landlord on demand the amount by
which the Market Rent agreed upon by the Landlord and the Tenant or
determined by the said surveyor or the Court as the case may be exceeds
the Current Rent together with interest on such amount at two per cent
over the base rate of National Westminster Bank Plc or (in the event of
such rate ceasing to be published) at such comparable rate as the
Landlord shall notify
<PAGE>
58
to the Tenant but in respect of both the said excess and the said
interest on it duly apportioned on a daily basis in respect of the
interval
(6) If at any time the Tenant shall be obliged legally or otherwise to comply
with any enactment (which expression shall include any Act of Parliament
now or hereafter in force and any instrument regulation or order made
thereunder or deriving validity therefrom) dealing with the control of
rent and which shall restrict or modify the Landlord's right to increase
the rent in accordance with the foregoing provisions of this Clause or
which shall restrict the right of the Landlord to demand or accept
payment of the full amount of the yearly rent for the time being payable
hereunder then the Landlord shall on each occasion that any such
enactment is removed relaxed or modified be entitled on giving not less
that one month's notice in writing to the Tenant expiring after the date
of such removal relaxation or modification to introduce a rent review
date which shall be the date of expiration of such notice and from and
after such review date until the next Review Date the yearly rent then
payable hereunder shall be such as shall be agreed or determined in
accordance (mutatis mutandis) with the foregoing provisions of this
Clause 6 Provided that and for the avoidance of doubt it is hereby
declared that notwithstanding the date of a review as hereinbefore
provided the Market Rent under this present provision shall be calculated
as at the Review Date immediately preceding the date of the Landlord's
notice
(7) The revised rent agreed or determined pursuant to this Clause 6 shall be
endorsed by way of memorandum on this Lease and on the counterpart
thereof and signed by or on behalf of the Landlord and the Tenant
(8) In this clause time shall not be of the essence
<PAGE>
59
7. SERVICE OF NOTICES AND JURISDICTION
(1) THESE Presents shall incorporate the provisions as to notices contained
in Section 196 of the Law of Property Act 1925 as amended by the Recorded
Delivery Service Act 1962 except that Section 196 shall be deemed to be
amended as follows:-
(a) the final words of Section 196(4) "and that service... be
delivered" shall be deleted and there shall be substituted "...and
that service shall be deemed to be made on the third working day
after the registered letter has been posted "working day" meaning
any day from Monday to Friday (inclusive) other than Christmas Day,
Good Friday and any statutory bank holiday"
(b) any notice or document shall also be sufficiently served on a party
if served on solicitors who have acted for that party in relation
to this Lease or the Demised Premises at any time within the year
preceding the service of the notice or document or who have been
appointed by Clause 7(2)(c) or (d) below
(c) any notice or document shall also be sufficiently served if sent by
telex or fax to the party to be served (or its Solicitors where
paragraph (b) applies) and service in such case shall be deemed to
be made on the day of transmission if transmitted before 4 pm on a
working day but otherwise on the next following working day
(2) (a) The Landlord Tenant and the Surety respectively acknowledge and
declare that this Lease and the rights and obligations of the
Landlord Tenant and the Surety hereunder are governed by English
law
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60
(b) The Landlord Tenant and the Surety irrevocably and unconditionally
agree that any proceedings in relation to this Lease may and shall
be brought in the English Courts and submit to the jurisdiction of
the English Courts in respect of any such proceedings
8. GUARANTEE PROVISION
(1) The Surety (if any) covenants with the Landlord as primary obligor and
not merely by way of guarantee (for the benefit of the Landlord and of
the person in whom from time to time the reversion immediately expectant
upon the determination of the Term is vested without the need for any
express assignment) that
(a) during such period as the Tenant is bound by the Lease covenants
(including any period in respect of which the Tenant is liable to
perform the Lease covenants pursuant to any authorised guarantee
agreement entered into by the Tenant) the Tenant shall punctually
pay the rents hereby reserved and perform the covenants and other
provisions of the Lease and in case of default the Surety will pay
the rents hereby reserved and perform the covenants and provisions
in respect of which the Tenant is in default and make good to the
Landlord on demand and indemnify the Landlord against all losses
damages costs and expenses thereby arising or incurred by the
Landlord
(b) the liability of the Surety under Clause 8(1)(a) hereof shall not
be affected in any way by:
<PAGE>
61
(i) any neglect or forbearance of the Landlord in enforcing
payment of the rents hereby reserved or observance or
performance of the covenants and provisions of the Lease
(ii) any time or indulgence given to the Tenant by the Landlord
(iii) any refusal by the Landlord to accept rent from the Tenant
following a breach of covenant by the Tenant
(iv) any agreement with the Tenant any licence or consent granted
to the Tenant or any variation in the terms of the Lease
(v) the death of the Tenant (if an individual) or the
dissolution of the Tenant (if a company)
(vi) a surrender of part of the Demised Premises except that the
Surety will have no liability in relation to the surrendered
part in respect of any period following the date of
surrender
(vii) any other act matter or thing apart from the express release
in writing of the Surety
(c) if during the Term the Tenant (being a company) enters into
liquidation or (being an individual) becomes bankrupt and the
liquidator or the trustee in bankruptcy disclaims the Lease or if
during the Term the Tenant (being a company) is dissolved or ceases
to exist or is struck off the Register of Companies the Surety
shall upon written notice from the Landlord given within four
months after the date of disclaimer or dissolution or ceasing to
exist accept a
<PAGE>
62
new lease of the Demised Premises for a term equal to the residue
then remaining unexpired of the term hereby demised at the rents
then being paid under this Lease and otherwise subject to the same
covenants and provisions as in this Lease (without however
requiring any other person to act as surety) such new lease to take
effect from the date of disclaimer or dissolution or ceasing to
exist and to be granted at the cost of the Surety who shall execute
and deliver to the Landlord a counterpart of it
(d) if this Lease is disclaimed or the Tenant (being a company) is
dissolved or ceases to exist and for any reason the Landlord does
not require the Surety to accept a new lease pursuant to Clause
8(1)(c) hereof the Surety shall pay to the Landlord on demand an
amount equal to the difference between any money received by the
Landlord for the use or occupation of the Demised Premises and the
rents (if higher) which would have been payable had the Lease not
been disclaimed or the dissolution or ceasing to exist not occurred
for the period commencing with the date of disclaimer or
dissolution or ceasing to exist and ending upon the date nine
months after the date of disclaimer or dissolution or ceasing to
exist or (if earlier) the date upon which the Demised Premises are
re-let
(e) for the purposes of this clause references to the Tenant are to the
Tenant in relation to whom the Surety's guarantee is given but not
to a lawful assignee of that Tenant
9. SERVICE CHARGE
(1) The Landlord shall as soon as convenient after each Account Date prepare
<PAGE>
63
an account showing the Estate Service Expenditure for the Service Period
ended on that Account Date and containing a fair summary of the
expenditure referred to but giving credit for any sums payable to the
Landlord from any owner or occupier of adjoining land towards the cost of
provision of Estate Services and upon the account being certified by the
Landlord's managing agents it shall be conclusive evidence for the
purposes of this Lease of all matters of fact referred to except in case
of manifest error
(2) The Tenant shall pay the Landlord on account of Service Rent the
Provisional Sum in relation to each Service Period the first payment
(being a proportionate sum in respect of the period commencing on the
Possession Date and ending immediately before the quarter day next after
the date hereof) to be made on the date hereof and the subsequent
payments to be made by equal installments in advance on the usual quarter
days
(3) If the Service Rent for any Service Period:-
(a) exceeds the Provisional Sum for that Service Period the excess
shall be due to the Landlord on demand; or
(b) is less than the Provisional Sum for that Service Period the
overpayment shall be credited to the Tenant against subsequent
payments on account of Service Rent until the overpayment is
balanced or following the expiry of the Term shall be repaid to the
Tenant
(4) In respect of the Service Rent the relevant proportion applicable to the
Demised Premises shall be calculated primarily on a comparison at any
relevant time of
<PAGE>
64
(a) the net internal floor area as defined in the Code of Measuring
Practice 4th edition RICS\ISVA 1993 of the buildings on the Demised
Premises and
(b) the aggregate net internal floor area of the buildings on the
Estate
or such other method of calculation as the Landlord shall adopt and
notify to the Tenant in writing provided that if the Tenant objects to
such alternative method of calculation the matter shall be referred to an
independent expert jointly appointed by the Landlord and the Tenant or
failing agreement as to his appointment by the President or next
available officer of the Royal Institution of Chartered Surveyors and if
it shall appear that for whatever reason such expert shall be unable or
unwilling to give his decision within one month of his appointment then
either the Landlord or the Tenant may apply to the said President for
another expert to be appointed in his place and this procedure shall be
repeated as many times as shall be required and the costs of the expert
and of his appointment shall form part of the Service Expenditure
(5) The Tenant is entitled to inspect the service charge records and vouchers
and take copies thereof at its cost once a year after the service charge
accounts have been certified within one month of the Tenant receiving
such certified accounts
10. AGREEMENT FOR LEASE
It is hereby certified that there is no Agreement for Lease to which this
Lease gives effect
<PAGE>
65
IN WITNESS whereof the Landlord and the Tenant have executed this Deed the
day and year first before written
THE FIRST SCHEDULE
RIGHTS GRANTED
1. The right for the Tenant and its underlessees and occupiers for the time
being of the Demised Premises and their respective servants agents and
visitors in common with the Landlord and all others authorised by the
Landlord and all other persons so entitled to the free and uninterrupted
passage of water soil electricity gas telephone and other services and
supplies to and from the Demised Premises through the Conducting Media in
on or under the Estate and serving the Demised Premises
2. The right of way with or without vehicles at all times and for all proper
purposes in connection with the Tenant's use and enjoyment of the Demised
Premises over the estate roadway shown coloured brown on the Plan
3. The right of entry upon not less than 48 hours prior written notice (save
in case of emergency) onto the adjoining or neighboring land or premises
forming part of the Estate with or without contractors plant materials
and equipment to carry out works repairs and alterations to the Demised
Premises or the Conducting Media exclusively serving the same insofar as
such works cannot be conveniently carried out without such entry the
Tenant or the person exercising such rights making good all damage caused
and causing as little inconvenience and disturbance as possible
4. The right to place a paladin on the refuse area shown coloured yellow on
<PAGE>
66
Plan A subject to the Tenant complying with clause 3(21) hereof and the
Regulations relating thereto
THE SECOND SCHEDULE
EXCEPTIONS AND RESERVATIONS OUT OF THE DEMISE
The following rights and easements are excepted and reserved out of the Demised
Premises unto the Landlord and the owners and occupiers of the Estate and any
adjoining or neighboring land or premises and all other persons authorised by
the Landlord or having the like rights and easements
1. The free and uninterrupted passage of water soil electricity gas
telephone and other services and supplies to and from the Estate and/or
the adjoining or neighboring land or premises through the Conducting
Media serving the Demised Premises and the Estate and/or such adjoining
or neighboring land or premises now laid or during the Term to be laid in
on under or passing through the Demised Premises
2. The right for the Landlord and all authorised persons at all reasonable
times upon 48 hours prior notice (except in the case of emergency) to
enter into and upon the Demised Premises with or without servants
contractors agents plant and equipment for the purposes of assessing the
state and condition thereof and/or for the purpose of:
(a) surveying measuring or valuing the Demised Premises
(b) reading electricity water and other check meters installed within
the Demised Premises
<PAGE>
67
(c) for the preparation of a schedule of fixtures and fittings in or on
the Demised Premises
(d) maintaining renewing cleaning repairing or rebuilding any adjoining
or neighbouring land or premises in so far as such works cannot be
conveniently carried out without entering upon the Demised Premises
(e) remedying any breach of covenant by the Tenant after failure by the
Tenant to do so in accordance with the provisions of this Lease
(f) obtaining access to and egress from the electricity substation
shown coloured purple on Plan B
the Landlord or all persons exercising such rights making good all
physical damage thereby occasioned to the Demised Premises without
liability to pay any compensation to the Tenant
3. The right to build rebuild or execute any other works or alterations or
consent to any person building rebuilding or executing any other works or
alterations upon any adjoining or neighbouring land or premises
notwithstanding that the access of light or air to the Demised Premises
may be thereby restricted or interfered with including the right to erect
or construct any buildings on any adjoining or neighboring land or
premises the person or persons exercising such right making good all
physical damage thereby occasioned in such manner as the Landlord or the
person or persons exercising such right may think fit without any
compensation or damages being payable to the Tenant and without the
Tenant being entitled to make any claim or commence any proceedings in
respect thereof
<PAGE>
68
4. All rights of light air and other easements and rights (but without
prejudice to those expressly hereinbefore granted to the Tenant) now or
hereafter belonging to or enjoyed by the Demised Premises from or over
any adjoining or neighboring land or premises
5. The right of support shelter and protection and all other easements and
rights now or hereafter belonging to or enjoyed by all adjoining or
neighboring land or premises (if any)
6. The right at any time after giving not less than forty-eight hours'
notice (except in emergency) to enter and remain upon the Demised
Premises for the purpose of complying with the Landlord's covenants
herein contained and for the purpose of constructing repairing
maintaining altering cleansing examining or testing the Conducting Media
serving any adjoining or neighbouring land or premises the Landlord or
the person or persons exercising such right making good any physical
damage thereby caused to the Demised Premises but without liability to
pay any compensation to the Tenant
THE THIRD SCHEDULE
ENCUMBRANCES
<PAGE>
69
1. All matters contained or referred to in the Property and Charges
Registers of Title Numbers BM230909 and BM230905 as at the date hereof
other than financial charges
2. The covenants agreements stipulations rights exceptions and reservations
in a Deed of Exchange dated the 24th day of July 1997 made between the
Landlord (1) and Vishay Components (UK) Limited (2)
SIGNED as a Deed by COMLAND )
INDUSTRIAL AND COMMERCIAL )
PROPERTIES LIMITED) )
acting by [a Director and its )
Secretary] [two Directors] )
DIRECTOR: A. J. Ilsley
DIRECTOR/SECRETARY: R. Werth
<PAGE>
DATED: 12th August 1998
COMLAND INDUSTRIAL AND COMMERCIAL
PROPERTIES LIMITED (1)
to
INSIGNIA SOLUTIONS PLC (2)
LEASE OF
SATURN HOUSE MERCURY CENTRE
WYCOMBE LANE WOOBURN GREEN
HIGH WYCOMBE BUCKINGHAMSHIRE
[MANCHES LOGO]
Manches & Co 3 Worcester Street Oxford OX1 2PZ
<PAGE>
<TABLE>
<CAPTION>
Index to Clauses Clause Page
- ---------------- ------ ----
<S> <C> <C>
1- INTERPRETATION 1
2- THE DEMISE 10
3- TENANT'S COVENANTS 12
Main Covenants
Alienation 3(17) 29
Alterations 3(11) 25
Rent 3(1) 12
Repair 3(3) 14
User 3(10) 24
4- LANDLORD'S COVENANTS 43
5- PROVISOS 46
6- RENT REVIEW 53
7- SERVICE OF NOTICE 59
8- GUARANTEE PROVISION 60
9- SERVICE CHARGE 63
THE FIRST SCHEDULE - Rights granted to Tenant 65
THE SECOND SCHEDULE - Exceptions and Reservations 66
THE THIRD SCHEDULE - Encumbrances 68
</TABLE>
<PAGE>
THIS LEASE is made the 12th day of August One thousand nine hundred and
ninety eight
BETWEEN
(1) COMLAND INDUSTRIAL AND COMMERCIAL PROPERTIES LIMITED (Company
Registration Number 2126351) whose registered office is at Riverside
House Riverside Holtspur Lane Wooburn Green High Wycombe Buckinghamshire
HP10 0TJ ("the Landlord")
(2) INSIGNIA SOLUTIONS Plc (Company Registration Number 01961960)
whose registered office is at Buckingham Court London Road High Wycombe
Buckinghamshire HP11 1JU ("the Tenant")
WITNESSETH as follows:-
1. INTERPRETATION
(1) In these Presents where the context so admits the following expressions
shall have the following meanings:-
(i) "the 1954 Act" means The Landlord and Tenant Act 1954
(ii) "Account Date" means 31st December in every year of the Term or
such other date as the Landlord may from time to time nominate
(iii) "adjoining or neighboring land or premises" includes any
adjoining or neighboring land or premises whether or not
belonging to the Landlord
(iv) "Building" means any building from time to time on the Demised
<PAGE>
[MAP]
<PAGE>
[MAP]
<PAGE>
2
Premises
(v) "Business Day" means a day (other than a Saturday or a Sunday)
on which banks are generally open in London for normal business
(vi) "Clearing Bank" means a bank which is a member of CHAPS and Town
Clearing Company Limited
(vii) "company" means a body corporate wheresoever incorporated
(viii) "Conducting Media" means tanks pipes cables wires lights and
light-fittings meters radiators drains sewers gutters and other
things (whether or not of a like nature) for the supply of
electricity telephone gas water soil and other services and
supplies
(ix) the Demised Premises" means ALL THAT property known as Saturn
House The Mercury Centre Wycombe Lane Wooburn Green High Wycombe
Buckinghamshire forming part of the Estate and shown for the
purposes of identification only edged red on Plan A and each and
every part thereof including without prejudice to the foregoing
the Building and all entrances entrance-halls plant rooms
heating apparatus and other apparatus stairs and passageways and
the accessways yards open areas and the Conducting Media within
or exclusively serving the Demised Premises together with the
Landlord's fixtures and fittings from time to time therein and
each and every part thereof together with all alterations
additions and improvements to the Demised Premises
(x) "Estate" means the Landlord's estate of which the Demised Premises
<PAGE>
3
form part known as The Mercury Centre Wycombe Lane Wooburn Green
High Wycombe Buckinghamshire shown verged blue on Plan B
together with such additional land or excluding such land of
lesser area (but including the Demised Premises and the land
over which it enjoys rights granted by this Lease) as the
Landlord may from time to time specify and together with all
buildings fixtures or structures whatsoever from time to time
thereon
(xi) "Estate Services" means the provision and carrying out by or on
behalf of the Landlord of such services as in the opinion of the
Landlord are:-
(a) necessary for the maintenance repair upkeep renewal
insurance security management cleanliness renewal and
replacement of items of plant equipment Conducting Media
landscaping roadways pavements forecourt car parks and/or
common areas and common facilities forming part of the
Estate and forming part of the land shown hatched black on
Plan B; or
(b) for the benefit of tenants of the Estate; or
(c) otherwise in keeping with the principles of good estate
management of the Estate
and the Landlord may from time to time withhold add to or extend
and vary or make any alteration in the nature of matters
previously performed as Estate Services if the Landlord
considers it necessary or in the interests of good estate
management
(xii) "Estate Service Expenditure" means all expenditure incurred by the
<PAGE>
4
Landlord or which the Landlord reasonably anticipates is likely to be
incurred during the Term in providing all or any of the Estate
Services including (without prejudice to the generality of the
foregoing):-
(a) the cost of repairing resurfacing cleaning lighting maintaining
renewing replacing and improving the estate roads serving the Estate
and the forecourt car parking areas loading bays landscaped areas
boundary walls fences hedges gates entrances and signs now or at any
time during the Term constructed on the Estate including any drains
sewers pipes cables gutters inspection chambers or any other services
or fittings relating thereto over in or under the Estate
(b) the cost of retaining and providing the services of all staff
necessary for the efficient maintenance and management of the Estate
(c) the cost of maintaining proper security in respect of the Estate
both during and outside normal working hours and at weekends
(d) the cost of the maintenance replacement renewal and improvement of
the drainage and sewerage system serving the Estate
(e) the cost of and incidental to compliance by the Landlord with every
notice regulation or order of any competent local or other authority
in relation to the Estate or its appurtenances
(f) (i) all reasonable fees charges expenses and commissions properly
incurred in the administration and management of the Estate or
payable to any solicitor accountant surveyor valuer agent or
architect or any of them whom the Landlord may from time to
time employ in connection with the management or maintenance
of the Estate including the cost of preparing or causing to be
prepared statements of the said costs charges and expenses and
auditing the same
<PAGE>
5
(ii) a charge equivalent to ten per centum of the aggregate costs
expenses and outgoings referred to in this clause 1(1)(xiii)
(but excluding this sub-paragraph (f)(ii)) such sum to be in
respect of the general administration and supervision costs of
the Landlord relating to or in connection with the matters
specified or referred to in this Clause 1(1)(xiii) or any of
them PROVIDED that any sums payable to a managing agent under
the immediately preceding sub-paragraph (f)(i) in respect of
the management or supervision of the Estate and which shall be
included in the calculation of the said aggregate costs
expenses and outgoings shall be deducted from the charge
included by virtue of this sub-paragraph
(g) the costs of effecting and maintaining in force an insurance policy or
policies against any and every liability of the Landlord for injury to
or death of any person (including every agent servant and workman of
the Landlord) and damage to or destruction of the property by any
such person arising out of the maintenance of the Estate
(h) the cost of carrying out all other work or providing services of
any kind whatsoever which the Landlord may from time to time
reasonably consider necessary or desirable for the purpose of
maintaining or improving the Estate in the interests of the tenants
thereof
(i) such sums as the Landlord shall in its discretion think fit as
being a reasonable provision for expenditure likely to be incurred
during the Term in connection with the matters mentioned in this
and the preceding paragraphs
but excluding any expenditure on any part of the Estate for which any
other tenant shall be directly responsible and/or which shall be
attributable (whether directly or indirectly) to the construction by the
Landlord of Phase 2 of the Estate on that part of the Estate shown
coloured orange on Plan B but giving credit for any sums payable to the
Landlord from any owner or occupier of adjoining land towards the cost
of provision of Estate Services
<PAGE>
6
(xiii) "the Initial Rent" is One Hundred and Twenty One Thousand Pounds
(L121,000) per annum
(xiv) "the Insured Risks" means the risks covered from time to time by
the insurance policy effected by the Landlord pursuant to its
covenant herein contained including a minimum of three years
loss of rent and risks in respect of fire lightning explosion
storm tempest flood aircraft and articles dropped therefrom
impact storm riot and civil commotion burst pipes and tanks and
damage to or failure of the boilers lifts lift apparatus plant
rooms heating and air conditioning apparatus and other apparatus
plant and machinery in the Demised Premises subsidence heave
landslip and such other risks or perils (if any) as the Landlord
may from time to time deem prudent to insure
(xv) "the Landlord" includes the person or persons for the time being
entitled to the reversion immediately expectant on the Term
(xvi) "Plan A" and "Plan B" means the plan or plans so marked annexed
hereto
(xvii) "the Planning Acts" means and includes the Town & Country
Planning Acts 1990 the Planning (Listed Buildings and
Conservation Areas) Act 1990 the Planning (Hazardous Substances)
Act 1990 the Planning (Consequential Provisions) Act 1990 the
Environmental Protection Act 1990 the Planning and Compensation
Act 1991 and the Environment Act 1995
(xviii) "Possession Date" means whichever is the earliest of the date
hereof or
<PAGE>
7
the date upon which the Tenant takes possession of the Demised
Premises or has access to the Demised Premises for the purposes
of commencing its fitting out works
(xix) "these Presents" means this Lease and the Schedules hereto and
any licences granted pursuant hereto and any deed of variation
hereof and any deed or other instrument made supplemental hereto
(xx) "Provisional Sum" in relation to each Service Period means an
amount calculated by the Landlord's managing agents acting as
experts and not arbitrators as their reasonable and proper
estimate of the likely Service Rent for the relevant Service
Period
(xxi) "the Rent Commencement Date" means the 12th day of August 1998
(xxii) "Review Date" means the 12th day of August 2003 and the 12th day of
August 2008
(xxiii) "Service Period" means the period:-
(a) from the Possession Date to (and including) the first
Account Date; and thereafter
(b) between two consecutive Account Dates (excluding the first
and including the second); and thereafter
(c) commencing immediately after the last Account Date of the
Term and ending on the expiration or sooner determination
of the Term
<PAGE>
8
(xxiv) "Service Rent" is the relevant proportion applicable to the
Demised Premises from time to time of the Estate Service
Expenditure for any relevant Service Period
(xxv) "the Tenant" includes the successors in title and assigns of the
Tenant(s)
(xxvi) "the Term" means a term of 15 years commencing on the 12th day
of August 1998 together with any holding over continuation or
extension thereof whether by agreement operation of law or
otherwise
(xxvii) "underlease" means any lease granted or agreed to be granted
(whether immediately or not) out of the Term and "underlessee"
means the lessee for the time being thereunder and
"underletting" means the grant of any underlease
(2) AND in these Presents unless there is something in the context inconsistent
therewith:-
(i) words importing the masculine gender shall include every gender
and vice versa and words importing the singular shall include
the plural and vice versa and words importing persons and all
references to persons shall include companies corporations and
firms and vice versa and references to a natural person include
his estate and personal representatives
(ii) if at any time two or more persons are included in the
expression "the Landlord ("the Tenant" or "the Surety" then
covenants herein contained or implied by or on the part of such
persons shall be deemed to be and
<PAGE>
9
shall be construed as covenants entered into by and binding on
such persons jointly and severally
(iii) any reference to any enactment (whether generally or
specifically) shall be construed as a reference to that
enactment as amended extended re-enacted or applied or
consolidated by or under any other enactment and shall include
all instruments orders plans regulations permissions and
directions made or issued thereunder or deriving validity
therefrom
(iv) the clause and paragraph headings in this Lease are for ease of
reference only and shall not be taken into account in the
construction or interpretation of any covenant condition or
proviso to which they refer
(v) references in this Lease to a clause Schedule or paragraph are
references where the context so admits to a clause Schedule or
paragraph of this Lease and references to a paragraph of a
Schedule are (unless the context otherwise requires) references
to a paragraph of that Schedule in this Lease
(vi) any covenant by the Tenant or any underlessee not to do any act
or thing shall include a covenant not to permit or suffer the
doing of that act or thing
(vii) the perpetuity period applicable to this Lease shall be eighty
years from the date hereof and wherever in this Lease either
party is granted a future interest in property there shall be
deemed to be included in respect of every such grant a provision
requiring that future interest to
<PAGE>
10
vest within the stated period and for it to be void for
remoteness if it shall not have so vested
(viii) Clause headings shall not affect the construction of this Lease
2. THE DEMISE
The Landlord HEREBY DEMISES unto the Tenant the Demised Premises
TOGETHER with the particular rights in the First Schedule hereto so far as
the Landlord has power to grant the same BUT EXCEPT AND RESERVING
AND SUBJECT to the particular rights and matters in the Second Schedule
hereto AND SUBJECT ALSO to and with the benefit of the matters referred
to in the Third Schedule hereto and to such other rights easements
quasi-easements and privileges as are enjoyed by any adjoining or
neighboring land or premises in any manner affecting the Demised
Premises TO HOLD the Demised Premises unto the Tenant (together with
but except and reserved and subject as aforesaid) for the Term YIELDING
AND PAYING therefor unto the Landlord during the Term and so in
proportion for any less time than a year without any deductions therefrom
whatsoever the following rents namely:-
(a) First from the Rent Commencement Date and during the remainder of
the Term the Initial Rent or such higher yearly rent as may become
payable pursuant to review under Clause 6 hereof such yearly rent
to be payable by equal quarterly payments in advance on the usual
quarter days in each year of which the first payment (being the
due proportion for the period commencing on the Rent Commencement
Date and ending on the day preceding the usual quarter day
thereafter) to be paid on or before the Rent Commencement Date
<PAGE>
11
(b) Secondly throughout the Term by way of additional rent all sums
(including the whole of any increase in any premium from time to
time as a result of or arising out of the manner or the purposes in
or for which the Demised Premises are kept used and occupied and
the cost of periodically revaluing but not more than once in any
Year the Demised Premises for insurance purposes) incurred by the
Landlord in respect of the several insurances referred to in Clause
4(1) hereof each such sum to be paid by the Tenant forthwith on
demand therefor (but not earlier than one month before the next
renewal date) the first such payment in respect of the amounts
already so expended by the Landlord (being the due proportion
thereof for the period from the Possession Date to the next renewal
date or dates for such insurances) to be paid on or before the date
hereof and in the event of any dispute as to any such sum the same
shall be reasonably determined by the Landlord's surveyor (acting
as an independent expert and not as an arbitrator) whose
determination shall in the absence of manifest error be final and
binding on the parties save as to questions of law and
(c) Thirdly with effect from the Possession Date as additional yearly
rent the Service Rent (including the Provisional Sum on account)
payable in accordance with the provisions of clause 9 hereof
(d) Fourthly by way of additional rent all other sums payable by the
Tenant hereunder including (without prejudice to the generality of
the foregoing) interest collection charges costs and Value Added Tax
on the rents hereinbefore made payable such sums to be paid upon
demand
<PAGE>
12
3. TENANT'S COVENANTS
The Tenant to the intent that the obligations hereby created shall continue
throughout the whole of the Term HEREBY COVENANTS with the Landlord as
follows:-
(1) RENT
(a) To pay the rents hereby reserved at the times and in the manner
aforesaid and not to exercise or to seek any right or claim to
withhold rent or any right or claim to legal or equitable set-off
(b) If so required by the Landlord to make such payments by bankers
order or credit transfer to any bank account or other account in the
United Kingdom which the Landlord may from time to time
reasonably nominate
(2) OUTGOINGS
(a) To pay and keep the Landlord fully indemnified from and against all
liability for all general and other rates of whatever nature or
kind and all taxes charges duties levies assessments impositions
and outgoings whatever (whether parliamentary parochial local or of
any other description) which are now or may become payable in
respect of the Demised Premises whether by the owner tenant or
occupier thereof other than those which occur as a direct or
indirect result of any dealing by the Landlord in respect of its
reversionary interest or taxes imposed on the Landlord in respect
of the rents reserved in these Presents (save for VAT) and in
addition to indemnify the Landlord
<PAGE>
13
against any rates and outgoings payable by the Landlord after the
expiration or sooner determination of the Term through the
Landlord's inability to claim void rate relief for the maximum period
(commencing with the date of the expiration or sooner determination
of the Term) which would have been allowed had the Demised
Premises been occupied up to the date of the expiration or sooner
determination of the Term
(b) (i) To pay to the Landlord in addition to the rents and other sums
payable under this Lease amounts equal to any Value Added Tax
(or similar tax whether in substitution for or in addition to
it) chargeable on any supply made by the Landlord to the
Tenant under the terms of or in connection with this Lease
(ii) To pay and to indemnify the Landlord against amounts equal to
any Value Added Tax (or similar tax as aforesaid) chargeable
by reference to any sum paid or payable by the Landlord in
respect whereof (or some part thereof) the Tenant agrees under
this Lease to reimburse or indemnify the Landlord save where
the Landlord is able to reclaim the same as an input credit
(unless the Landlord is required by law to recharge the VAT to
the Tenant)
(c) To pay all charges (including meter rents and standing charges) for
supplies of gas water and electricity consumed upon the Demised
Premises
(d) Not to agree or by default allow to be fixed the rateable value of
the Demised Premises or any part thereof without the prior written
<PAGE>
14
consent of the Landlord such consent not to be unreasonably
withheld and to co-operate with the Landlord at the joint cost of
the Landlord and the Tenant in any negotiations with the District
Valuer or in any appeal to the Court or to the Lands Tribunal in
respect of the rateable value of the Demised Premises
3. REPAIR
At all times during the term to put and keep the Demised Premises and
means of escape therefrom in case of fire or other emergency and
Conducting Media forming part of and exclusively serving the Demised
Premises in good and substantial repair and condition and to amend
rebuild renew and replace whenever necessary in accordance with good
modern practice the whole or any part of the Demised Premises if the
same is or becomes beyond repair and to maintain decorate support and
clean the Demised Premises and to repair and to keep all yards and
spaces not built upon clean tidy and free from refuse and weeds and to
keep the external fabric and stonework cleaned and maintained as and
when necessary and to keep the central heating and hot water boilers
apparatus and installations and all sanitary and water apparatus for the
time being of and serving the Demised Premises in good and substantial
repair and clean condition and at all times in good and safe working
condition (damage by the Insured Risks always excepted save to the
extent that the policy or policies of insurance shall be rendered void
or payment of the insurance moneys thereunder be refused in whole or in
part by reason of or arising out of any act omission neglect or default
of the Tenant or any underlessee or other person under the control of
the Tenant or any underlessee) and to clean the glass in the Demised
Premises inside at least once a month and the outside bi-monthly and
(without prejudice to the generality of the foregoing obligations of the
<PAGE>
15
Tenant):-
(a) in a good and workmanlike manner and to the satisfaction of the
Landlord in every third year of the Term calculated from the date
hereof and also in the last three months of the Term (however and
whenever it may terminate) to paint all the external woodwork
ironwork metalwork cement or stucco-work (if any) and all other
external parts of the Demised Premises which have been previously
painted or ought to be painted with at least two coats of good
quality paint of a colour (if different from that used previously)
first specified or approved in writing by the Landlord (such
approval not to be unreasonably withheld or delayed)
(b) in like manner and to the like satisfaction in every fifth year of
the Term calculated from the date hereof and also in the last three
months of the Term (however and whenever it may terminate) to paint
with at least two coats of good quality paint all interior parts of
the Demised Premises which have previously been or ought to be
painted and paper or otherwise suitably decorate or treat with good
quality materials as circumstances may require all parts of the
interior of the Demised Premises which have previously been or
ought to be so dealt with
(c) as often as may be necessary to maintain in good and substantial
condition and to clean and treat in a suitable manner all surfaces
fixtures and fittings not required to be decorated and so often as
it shall be necessary to repair maintain and renew any plant
machinery boilers equipment and fixtures and fittings
<PAGE>
16
(d) to comply with the requirements or recommendations of any
maintenance and operating manuals provided by the Landlord to the
Tenant
(e) to enter into contracts for the periodic and regular inspection
servicing and maintenance of the lifts lift shafts and lift
apparatus and the hot water boilers and central heating apparatus
and the air-conditioning and ventilation apparatus and any other
apparatus and installations machinery and equipment and all
sanitary and water apparatus and thereafter to keep the same on
foot and observe and perform the Tenant's obligations thereunder
and to produce to the Landlord on demand from time to time such
contracts and evidence that any payments due from the Tenant
thereunder are fully paid up-to-date
(4) COMPLIANCE WITH STATUTES
(a) In connection with the Defective Premises Act 1972 to notify the
Landlord in writing immediately the Tenant becomes aware of any
defect in the Demised Premises which may cause personal injury and
to indemnify the Landlord against any claims proceedings demands
costs and expenses incurred under Section 4 of the said Act by
reason of the Tenant's failure to erect and display prominently any
such notice or warning of relevant defects (within the meaning of
that Section) which the Landlord may request AND without prejudice
to the foregoing to permit the Landlord and its agents with or
without workmen and others at any time on reasonable notice to
enter upon the Demised Premises for any or all of the following
purposes namely erecting and exhibiting notices thereon and giving
warning of
<PAGE>
17
relevant defects within the meaning of Section 4 of the said Act in
the Demised Premises and installing lighting or any other reasonable
means of warning or protection against such defects
(b) To observe and perform all requirements of any Act of Parliament
local Act or bye-law and notices issued thereunder or of any public
local or other competent authority (whether or not required of the
Tenant itself) in any way affecting the Demised Premises or any
thing in or any activity carried on by persons residing at or
working or employed at the Demised Premises or the use and
occupation thereof within the time limited by law or the notice
requiring the same (or if no time is so limited then within a
reasonable time) and to indemnify and keep the Landlord fully
indemnified against all such requirements and all actions
proceedings costs claims demands expenses and liability whatever
arising out of or in connection with the non-observance or
non-performance thereof
(c) Comply with all requirements and regulations of the electricity and
gas supply authorities as to the electrical and gas installations
in the Demised Premises and not without the Landlord's written
consent (which shall not be unreasonably withheld or delayed) to
alter or extend the electrical or gas installations or electrical
wiring in the Demised Premises nor to use any apparatus which
overloads the electrical or gas installations in the Demised
Premises
(5) PARTY STRUCTURES
(To the extent that the same is not included in the Estate Service
Expenditure) on receipt of a written demand from or on behalf of the
<PAGE>
18
Landlord forthwith to pay a just proportion fairly attributable to the
Demised Premises of all expenses of making maintaining upholding
repairing rebuilding renewing scouring and cleansing any party walls
fences gates and railings and any path ways yards external means of
escape in case of fire or other emergency and Conducting Media and other
structures which are available for enjoyment and use by the Occupiers of
the Demised Premises jointly with the occupiers of any adjoining or
neighbouring land or premises such proportion if in dispute to be
reasonably determined by the Landlord's surveyor (acting as an
independent expert and not as an arbitrator) whose determination shall
be final and binding upon the parties save as to questions of law or in
the event of manifest error
(6) YIELD UP IN GOOD REPAIR AT THE END OF THE TERM
Quietly to surrender and yield up the Demised Premises to the Landlord or
as the Landlord may direct at the end or sooner determination of the
Term in a state and condition in all respects in accordance with the
covenants on the part of the Tenant herein contained Provided that if at
the expiration or sooner determination of the Term the Demised Premises
shall not be in such a state of repair and condition as shall be in
accordance with the Tenant's covenants and provisions herein contained
for or relating to the repair painting or the carrying out of any other
works on the Demised Premises by the Tenant then the Tenant shall pay to
the Landlord forthwith on demand a sum equivalent to the cost to the
Landlord of carrying out such repairs painting and works as shall be
necessary to put the Demised Premises in such a state of repair and
condition as aforesaid together with an amount representing the loss of
the rent first hereby reserved suffered by the Landlord for such
reasonable period to enable such repairs painting and works to be
carried out such sum in default of agreement to be certified by
<PAGE>
19
the Landlord's surveyor (acting as an independent expert and not as an
arbitrator) whose determination shall be final and binding upon the parties
save as to questions of law or in the event of manifest error
(7) LANDLORD'S RIGHT OF INSPECTION AND RIGHT OF REPAIR
(a) To permit the Landlord and others authorised by the Landlord after
48 hours prior written notice at reasonable hours during the daytime
to enter upon the Demised Premises to view and inspect the Demised
Premises and ascertain how the same are being used and occupied
and the state and condition thereof and to take schedules of all
Landlord's fixtures and fittings and to estimate the current value of
the Demised Premises for insurance mortgage or other purposes
(b) Whenever on any such inspection anything is found which constitutes
a breach non-performance or non-observance of the covenants on the
part of the Tenant herein contained and of which the Landlord gives
notice to the Tenant to remedy and make good the same within two
months of the date of such notice (or sooner if necessary) but if
the Tenant shall fail so to do to permit the Landlord if it so
desires (although the Landlord shall be under no obligation so to
do) without prejudice to the Landlord's right of re-entry
hereinafter contained or any other right or remedy of the Landlord
to enter upon the Demised Premises with contractors workmen and
others and all necessary equipment tools and materials and to
execute or complete such works and to pay to the Landlord on
written demand either during or on completion of such works as the
Landlord may require the costs and expenses thereby incurred by the
Landlord together with all solicitors' surveyors' and other
professional fees and expenses
<PAGE>
20
incurred by the Landlord in relation to such works such sums to be
recoverable as rent in arrear
(c) To permit the Landlord and others authorised by the Landlord and
the tenants owners or occupiers from time to time of any adjoining
or neighboring land or premises and their respective agents and
contractors to enter upon the Demised Premises with workmen and
others and all necessary equipment tools and materials after at
least 48 hours prior written notice (except in an emergency when no
prior notice need be given and if necessary to break into the
Demised Premises) in order to carry out repairs alterations
additions decorations or any other works to or on any adjoining or
neighboring land or premises which cannot reasonably be carried out
without entry on to the Demised Premises PROVIDED ALWAYS that the
persons so entering shall cause thereby as little inconvenience as
possible to the Tenant or the other occupiers of the Demised
Premises and shall with the minimum of delay make good all physical
damage thereby caused to the Demised Premises
(8) LANDLORD'S COSTS AND EXPENSES
To pay on demand all costs charges and expenses (including solicitors'
costs architects' managing agents and surveyors' fees) payable by the
Landlord for the purposes of and incidental to:
(a) the preparation service or enforcement (whether by proceedings or
otherwise) of any notice under Section 146 or 147 of the Law of
Property Act 1925 requiring the Tenant to remedy a breach of any of
the Tenant's obligations hereunder notwithstanding forfeiture for
any
<PAGE>
21
such breach shall be avoided otherwise than by relief granted by the
Court
(b) the preparation service or enforcement (whether by proceedings or
otherwise) of any notice to repair or schedule of dilapidations
accrued at or prior to the end or sooner determination of the Term
whether or not served during the Term
(c) the collection of the rents and other amounts payable by the Tenant
hereunder
(d) the performance and observance of any other of the provisions of this
Lease
(e) any application by the Tenant to the Landlord for consent or
approval under the terms of this Lease and these Presents whether
such consent is given unconditionally or subject to conditions or
refused or the request for the same is withdrawn subject to such
costs being reasonable and proper
(9) INSURANCE AND PROVISIONS IN CASE OF FIRE ETC.
(a) If the Demised Premises or any part thereof shall be destroyed or
damaged as a result of any act omission neglect or default by or on
the part of the Tenant or any underlessee or any person under the
control of the Tenant or any underlessee whereby any policy of
insurance maintained by the Landlord is rendered void or payment of
the insurance money thereunder is refused in whole or in part to
pay to the Landlord on written demand or otherwise make good to the
<PAGE>
22
Landlord all loss damage and expense thereby incurred and to
indemnify the Landlord against all actions proceedings costs claims
demands and liability whatsoever resulting therefrom or arising
thereout including the cost of rebuilding reinstating replacing and
making good the Demised Premises
(b) To keep the Demised Premises supplied with such fire prevention
and fire fighting equipment as the insurers and Fire Authority may
require and to maintain the same to their satisfaction
(c) To comply with all requirements and reasonable recommendations of
the insurers and Fire Authorities as to fire precautions and fire
fighting equipment relating to the Demised Premises or the conduct
of persons using the Demised Premises
(d) In the event of the Demised Premises or any part thereof being
destroyed or damaged by any of the Insured Risks to give notice
thereof to the Landlord as soon as possible
(e) Not to leave the Demised Premises vacant or unoccupied for a period
in excess of 21 days without first giving the Landlord at least 21
days prior written notice of the intention so to do and without
first paying any additional or increased premium required by the
insurers and in the event the Demised Premises are left vacant
during the last three months of the Term (howsoever determined) to
indemnify the Landlord against any loss of empty rate relief he
would otherwise enjoy at the end of the Term
(f) Not to do or omit to do anything or bring onto the Demised Premises
<PAGE>
23
any explosive flammable or toxic or otherwise harmful chemicals or
materials or any other matter or thing of whatsoever nature which
shall or may cause the policy or policies for the insurance of the
Demised Premises or any adjoining or neighbouring land or premises
to become void or voidable or any premium payable to be increased
above the ordinary or common rate for similar premises
(g) Forthwith to inform the Landlord in writing of any conviction
judgement or finding of any Court or Tribunal relating to the
Tenant (or any director or other officer or major shareholder of
the Tenant) of such nature as to be likely to affect the decision
of any insurer or underwriter to grant or to continue insurance of
any of the Insured Risks
(h) The Tenant warrants that prior to the execution of this Lease it has
disclosed to the Landlord in writing any conviction judgement or
finding of any Court or Tribunal relating to the Tenant (or any
director or other officer or major shareholder of the Tenant) of such
nature as to be likely to affect the decision of any insurer or
underwriter to grant or to continue insurance of any of the Insured
Risks
(i) Not to insure or effect any insurance in respect of the Demised
Premises or any plateglass therein insofar as the same are insured by
the Landlord from time to time
(j) In the event of a claim upon the Landlords Policy of insurance any
shortfall arising in the insurance monies due to the imposition of
an excess by the Insurers any such excess shall be borne by the
Tenant
<PAGE>
24
and paid to the Landlord upon demand
(10) USER
(a) The Demised Premises shall be kept used and occupied only as
business commercial or professional offices or subject to the prior
written consent of the Landlord (such consent not to be
unreasonably withheld or delayed) any other use within Class B1 of
the Town and Country Planning (Use Classes) Order 1987 (but not as
diplomatic offices or as a betting office or bookmaker's office or
as a jobcentre or as an office for the Department of Health and
Social Security) and not in any other manner or for any other
purpose or for any immoral or unlawful purpose or for any sale by
auction or for any residential purpose PROVIDED that the Tenant
hereby acknowledges and admits that notwithstanding the foregoing
provisions as to the use of the Demised Premises permitted to the
Tenant the Landlord does not thereby or in any way give or make any
representation or warranty that any such use is a permitted use
within the provisions of the Planning Acts nor shall any consent in
writing which the Landlord may hereafter give to any change of use
be taken as including any such representation or warranty and that
notwithstanding that any such use is not a permitted use within
such provisions the Tenant shall remain fully bound and liable to
the Landlord in respect of the obligations undertaken by the Tenant
by virtue of this Lease without any compensation recompense or
relief of any kind
(b) Neither the Tenant nor any underlessee nor any person under the
control of the Tenant or any underlessee shall overload any floor
of or lift in or serving the Demised Premises or pass or leave
anything of a
<PAGE>
25
harmful nature through or in the basins or toilets or Conducting
Media in or serving the Demised Premises (whether exclusively or
jointly with other premises) or do anything at the Demised Premises
which shall be or may become a nuisance (whether indictable or not)
or which shall cause any damage or disturbance to the Landlord or
the owners tenants or occupiers from time to time of any adjoining or
neighboring land or premises
(11) ALTERATIONS
(a) Save and except in order to comply with any of the Tenant's
obligations hereunder there shall be no reconstruction or rebuilding
or carrying-out of any structural alterations additions or other
structural works of or to the Demised Premises nor any cutting
maiming or injuring of the main walls or roof and floor slabs of the
Demised Premises nor any erecting of any new buildings or erections
thereon PROVIDED that if such works are to be carried out by the
Tenant to comply with its obligations in this Lease the Tenant shall
first obtain the written consent of the Landlord to such works in the
manner set out in sub-clause (b) below
(b) Save and except as aforesaid any non-structural alterations
additions and other works of or to the Demised Premises shall be
carried out only after there has first been obtained the written
consent thereto of the Landlord (such consent not to be
unreasonably withheld or delayed) and all necessary approvals
consents licences permits or permissions of any competent authority
body or person and then only strictly in accordance with the terms
and conditions thereof and only in accordance with drawings and
specifications of the relevant
<PAGE>
26
alterations additions or other works as the Landlord shall have
required and previously approved in writing (such approval not to be
unreasonably withheld or delayed) PROVIDED ALWAYS that the
Landlord may as a condition of giving such consent require the
Tenant to enter into such covenants with the Landlord as the
Landlord may reasonably require for the execution and supervision
of such works and the reinstatement of the Demised Premises at the
expiry or sooner determination of the Term (howsoever determined)
and such other covenants as the Landlord may reasonably require
(c) To permit the Landlord and others authorised by the Landlord to
enter upon the Demised Premises after reasonable prior notice at
reasonable hours during the daytime for the purpose of seeing that
all alterations additions and other works thereto are being or have
been carried out in all respects in conformity with this clause and
immediately upon being required to do so to remove any alterations
additions and other works of or to the Demised Premises which do
not so conform or in respect of which any such approvals consents
licences permits or permissions of any competent authority body or
person have been withdrawn or have lapsed and thereupon make
good all damage thereby caused to the Demised Premises and restore
and reinstate all parts of the Demised Premises affected thereby to
the reasonable satisfaction of the Landlord
(d) If so required in writing by the Landlord (but not otherwise) at
the expiry or earlier determination of the Term to remove all
alterations and additions made by the Tenant to the Demised
Premises during the Term or during any period of occupation prior
to the commencement of the Term
<PAGE>
27
(12) SIGNS
No fascia sign nameplate bill notice placard/ advertisement or similar
device shall be affixed to or displayed in or on any part of the Demised
Premises so as to be visible from the exterior thereof save such as
indicates the name of any occupier or occupiers for the time being and
its or their business and save such as has been previously approved by
the Landlord in writing (such consent not to be unreasonably withheld or
delayed)
(13) AERIALs
No television or wireless or other form of mast or aerial receiver dish nor
any flagpole shall be affixed to any part of the exterior of the Demised
Premises save such as has been previously approved by the Landlord in
writing (such consent not to be unreasonably withheld or delayed)
(14) PLANNING ACTS
(a) Without prejudice to the generality of clause 3(4) hereof to
observe and perform all the requirements of any Acts or regulations
relating to fire and the Planning Acts in respect of the Demised
Premises or the use thereof and all the requirements of any
approval consent licence permit or permission granted thereunder
which remain lawfully enforceable and affect the Demised Premises
and to indemnify and keep the Landlord fully indemnified from and
against all actions proceedings costs claims demands expenses and
liability whatsoever arising out of or in connection with any
non-observance or non-performance thereof
<PAGE>
28
(b) No application shall be made for any approval consent licence
permit permission certificate or determination under the Planning
Acts in respect of the Demised Premises without the prior written
consent of the Landlord (such consent not to be unreasonably
withheld or delayed)
(c) Unless the Landlord shall otherwise direct in writing to carry out
to the reasonable satisfaction of the Landlord during the Term
(however and whenever it may terminate) all works to the Demised
Premises which as a condition of any such approval consent licence
permit or permission obtained by and implemented by or on behalf of
the Tenant or any underlessee are required to be carried out at the
Demised Premises by a date after the Term (however and whenever it
may terminate)
(15) STATUTORY NOTICES
To give to the Landlord a copy of every notice of whatsoever nature
affecting or likely to affect the Demised Premises made given or issued
by or on behalf of the local planning authority or any other authority
body or person having lawful jurisdiction within fourteen days of its
receipt by the Tenant or any underlessee or sooner if requisite and to
produce the original thereof to the Landlord on written request AND if
so required in writing by or on behalf of the Landlord but at the joint
cost of the Landlord and the Tenant to make or join with the Landlord
and any other persons for the time being interested in the Demised
Premises or any adjoining or neighbouring land or premises affected
thereby in making such objections or representations against or in
respect of any such notice as aforesaid as the
<PAGE>
29
Landlord may reasonably require
(16) ACCESS TO RE-LET
To permit the Landlord during the period of six months immediately
preceding the end or sooner determination of the Term (and at any time
during the Term in the event of any proposed disposal by the Landlord of
its interest in the Demised Premises) to affix and retain on any part of
the Demised Premises (but not so as thereby materially to interfere with
any trade or business carried on thereat or with reasonable access of
light and air thereto) notices and boards relating to any proposed
disposal by the Landlord of its interest in the Demised Premises or any
part thereof or for reletting or otherwise dealing with the same and to
permit all persons with written authority from the Landlord or the
Landlord's agents to inspect and view the Demised Premises at reasonable
times of the day by previous appointment
(17) ALIENATION
(a) Save as hereinafter permitted the Tenant shall not assign transfer
underlet part with or share possession or occupation mortgage or
charge or declare trusts over the whole or part only of the Demised
Premises and the Tenant shall not permit or suffer any such dealing
as aforesaid
(b) Not to part with possession or share occupation of the Demised
Premises or any part thereof other than by way of:-
(i) an assignment or charge permitted under sub-clause 3(17)(c);
<PAGE>
30
or
(ii) an underlease permitted under sub-clause 3(17)(e); or
(iii) sharing of occupation by a company in the same group as the
Tenant permitted under sub-clause 3(17)(f)
(c) Not to assign or charge the whole of the Demised Premises without
the Landlord's prior written consent which consent shall not be
unreasonably withheld or delayed but which in respect of a proposed
assignment may be subject to satisfaction of the conditions set out in
sub-clause 3(17)(d) below and to complete any such assignment
within twenty working days of the issue of the Landlord's consent
provided that nothing in this sub-clause shall prevent the Tenant
charging the Demised Premises pursuant to a floating charge over its
assets entered into prior to the date hereof
(d) The conditions referred to in sub-clause 3(17)(c) which are
specified for the purposes of Section 19(1A) of the Landlord and
Tenant Act 1927 are:-
(i) that the Tenant shall have entered into an authorised
guarantee agreement (as defined in Section 16 of the Landlord
and Tenant (Covenants) Act 1995) with the Landlord in a form
which the Landlord reasonably requires
(ii) that any guarantor of the Tenant's obligations under the Lease
shall have guaranteed to the Landlord that the Tenant will
comply with the terms and conditions of the agreement
<PAGE>
31
referred to in sub-clause 3(17)(d)(i) and in a form which the
Landlord reasonably requires
(iii) that any arrears of rent and any other payments due under
this Lease (including any outstanding balance due under the
terms of any rent deposit deed or bank guarantee) as at the
date of the Tenant's application for Licence to Assign has
been paid
(iv) that the Landlord reasonably determines that the proposed
assignee is capable of being able to comply with the
Tenant's covenants in this Lease and to continue to be such
a person following the assignment
(v) the Landlord is reasonably satisfied that completion of the
assignment will not materially adversely affect the value of
the Landlord's interest in the Demised Premises
(vi) the proposed assignee would in the reasonable opinion of the
Landlord be acceptable to a reasonable institutional
investor in the market taking into account any reasonable
and proper facts including but not limited to the financial
strength of the proposed assignee and any guarantor of the
proposed assignee's obligations and any rent deposit offered
by the assignee
(vii) the execution and delivery to the Landlord prior to the
assignment of a rent deposit deed or the provision of a bank
guarantee for such sum as the Landlord may reasonably
determine but not exceeding 12 months passing rent in a form
<PAGE>
32
reasonably acceptable to the Landlord and in substantially
the same form mutatis mutandis (save as the circumstances
require) as a rent deposit deed of even date herewith and
made between the parties hereto in the case of a rent
deposit deed together with the payment by way of cleared
funds of the sums specified in the rent deposit deed
(viii) any intended assignee shall enter into a deed of covenant
with the Landlord in such a form as the Landlord shall
reasonably require to observe and perform all the covenants
and agreements on the part of the Tenant herein contained
during such period as the Tenant is bound by the Lease
covenants and in the case of a limited liability company
should the Landlord so reasonably require a guarantor or
guarantors reasonably acceptable to the Landlord shall join
in such deed of covenant to covenant with the Landlord
substantially in the same terms mutatis mutandis as clause 8
hereof
PROVIDED THAT the Landlord and the Tenant agree that the Landlord
may withhold its consent if any one or more of the following
circumstances exist in which case the Landlord shall not be
regarded as unreasonably withholding its consent:
(1) The proposed assignee is a company which is a member of the
same group (within the meaning of Section 42 of the Landlord
and Tenant Act 1954) as the Tenant unless the Tenant and the
proposed assignee become joint tenants
(2) The Landlord reasonably determines there is any subsisting
<PAGE>
33
material breach of any of the Tenant's covenants and
conditions in this Lease
(3) The proposed assignee or any proposed guarantor for the
proposed assignee (other than any guarantor under an
authorised guarantee agreement) is a corporation registered in
or an individual resident in a jurisdiction in which a
judgment obtained in the Courts of England and Wales will not
necessarily be enforced without any re-examination of the
merits of the case
(4) The proposed assignee is a person firm company or other body
corporate or entity which has the right to claim diplomatic
immunity or exemption in relation to the observance and
performance of the covenants and conditions contained in this
Lease
(5) That if any consent of a superior landlord and/or mortgagee is
required to the assignment that consent has not been obtained
before the assignment
(6) The proposed assignee fails to demonstrate that it has a
satisfactory current trading record to enable it to take on
the liabilities under this Lease
(e) PERMITTED UNDERLETTING
(i) The Tenant shall not underlet the whole or part of the Demised
Premises or agree to underlet the whole or part of the Demised
<PAGE>
34
Premises comprising one or more complete floors of the Demised
Premises without the prior written consent of the Landlord
such consent not to be unreasonably withheld or delayed
provided that there shall not be more than two separate
occupations of the Demised Premises at any one time and
provided further that all underlettings of part of the Demised
Premises shall have the renewal provisions of the 1954 Act (as
amended) excluded by Court Order pursuant to Section 5 of the
Law of Property Act 1969 and the Tenant shall not underlet the
whole or part of the Demised Premises otherwise than by an
underlease with provision for upwards only review of the
reserved rent as at each review date during the term of the
underlease in like manner (mutatis mutandis) as provided in
Clause 6 hereof and in accordance with sub-clause 3(17)(e)(iv)
hereof PROVIDED THAT the Tenant shall not underlet the whole
or any part of the Demised Premises at a fine or a premium and
not otherwise than at the Market Rent (as defined in Clause 6)
or the proportionate part of the Market Rent of the Demised
Premises where only part of the Demised Premises is underlet
(such rent in all cases to be approved by the Landlord such
approval not to be unreasonably withheld or delayed) and
(ii) any intended undertenant shall enter into a deed of covenant
with the Landlord in such form as the Landlord shall
reasonably require to observe and perform all the covenants
and agreements on the part of the tenant contained in the
underlease and if the Landlord so reasonably requires a
guarantor or guarantors reasonably acceptable to the Landlord
<PAGE>
35
shall join in such deed of covenant to covenant with the
Landlord in substantially the same terms mutatis mutandis as
clause 8 hereof
(iii) in any permitted mediate or immediate underlease the rent
shall be payable no more than one quarter in advance and
(iv) any such underlease shall in all respects be consistent with
the provisions of this Lease including in particular (but
without prejudice to the generality of the foregoing)
provisions as to rent review which shall follow the
provisions of this Lease and which require a review of the
rent payable under this Lease to the Market Rent in
accordance with the provisions and at the date of review of
the rent payable under this Lease and
(v) At all times to enforce compliance with the covenants and
conditions contained in all underleases (whether mediate or
immediate) of the Demised Premises and not to waive or vary
any of the same without the prior written consent of the
Landlord and not without the consent of the Landlord to
accept a surrender of any underlease of the Demised Premises
or agree any reviewed rent with an undertenant until the rent
on rent review has been agreed or determined as between the
Landlord and the Tenant pursuant to Clause 6 hereof and
(vi) Any further dealings with the Demised Premises thereby
demised which are permitted shall be subject to the prior
written consent of the Landlord (such consent not to be
unreasonably withheld or delayed) to a permitted dealing
<PAGE>
36
which would not result in a breach of any of the provisions of
this clause
(vii) Not upon a review of the rent reserved by an underlease of
the whole or any part of the Demised Premises to agree the
amount of any such reviewed rent without the prior consent
of the Landlord which consent shall not be unreasonably
withheld or delayed
(viii) Without prejudice to paragraph 3(17)(e)(ii) the Tenant shall
procure that any intended undertenant covenants with the
Landlord not to assign the underlet premises without
obtaining a deed of covenant from the intended assignee in
favour of the Landlord in the same form (mutatis mutandis)
as the deed referred to in paragraph 3(17)(e)(ii) and if
the Landlord so reasonably requires one or more guarantors
reasonably acceptable to the Landlord shall join in such
deed in favour of the Landlord guaranteeing the due
performance of all the obligations and liabilities of the
intended assignee the deed to be in substantially the same
terms mutatis mutandis as clause 8 hereof
(ix) In the case of an underlease of part of the Demised Premises
the form of the underlease shall be first approved by the
Landlord (such approval not to be unreasonably withheld or
delayed) and such form shall not demise any part of the
structure or common parts of the Building but shall contain
provisions under which the undertenant is liable to pay a
fair proportion of the costs of insuring repairing and
redecoration
<PAGE>
37
of the structure and common parts and all other services
relating to the Building which benefit such part of the
Demised Premises directly or indirectly and not to differ from
the terms of this Lease except insofar as reasonably necessary
to make it applicable to such underletting of part
(f) Notwithstanding the foregoing provisions of this sub-clause the
Tenant may without the consent of the Landlord share occupation of
the whole or any part of the Demised Premises with a company that
is a member of the same group as the Tenant within the meaning of
Section 42 of the 1954 Act for so long only as such company remains
a member of the group provided that (1) the relationship of
Landlord and Tenant is not thereby created (2) that any such
company shall vacate the Demised Premises forthwith upon vacation
by the Tenant (3) written notice is given to the Landlord prior to
such company taking occupation of the Demised Premises or any part
thereof
(g) Within twenty-one days of every assignment or transfer (whether by
deed will or otherwise) and every permitted underlease of the
Demised Premises or any part thereof and every other disposition or
transmission or devolution of the Demised Premises (including all
Orders of Court Probates and Letters of Administration) notice
thereof shall be given to the Landlord's Solicitors stating the
date and short particulars thereof and the names and addresses of
every party thereto and at the same time a certified copy of the
deed document or instrument creating or evidencing the same shall
be produced (properly stamped if required to be stamped) to the
Landlord's Solicitors for registration (with an additional
certified copy thereof for retention by the Landlord) and a
reasonable solicitor's fee for such
<PAGE>
38
registration shall be paid by the Tenant
(h) Within one month of the ascertainment of the yearly rent payable
under any underlease or remoter lease of the Demised Premises or
any part of it pursuant to the provisions in such deed for rent review
to give notice in writing to the Landlord of the yearly rent so
ascertained
(18) INFORMATION
Immediately on receiving a request for the same from the Landlord or its
agents (but not more than once a year) to give the following information to
the Landlord in writing:-
(a) full names and addresses of all persons in occupation of the Demised
Premises or any part of it
(b) the precise part of the Demised Premises which such persons occupy
(c) a true copy of the document or if none a written memorandum of the
agreement and parties to it whereby each such person is or claims to
be entitled to occupy any part of the Demised Premises
(d) full names and addresses of all persons entitled or claiming to be
entitled to an interest in the Demised Premises or any part of it
(whether at law or in equity)
(e) the precise part of the Demised Premises in which each such person
is or claims to be entitled to an interest
<PAGE>
39
(f) a true copy of the document or if none a written memorandum of the
agreement and parties to it whereby each such person is or claims
to be entitled to an interest in the Demised Premises or any part
of it
(g) the name home address and home telephone number of at least two
keyholders of the Demised Premises
(19) ACQUISITION OF RIGHTS ENCROACHMENTS ETC.
(a) Neither the Tenant nor any underlessee shall effect authorise or
permit any encroachment upon or acquisition of any right easement
quasi-right quasi-easement or privilege adversely affecting the
Demised Premises or any closing or obstruction of the access of light
or air to any windows or openings of the Demised Premises nor shall
the Tenant or any underlessee give any acknowledgment to any third
party that the enjoyment of access of light or air thereto is with the
consent of such third party nor give any consideration to any third
party nor enter into any agreement with any third party for the
purpose of inducing or binding such third party to abstain from
obstructing the access of light or air thereto
(b) If any such encroachment or acquisition or closing or obstruction
shall be threatened or attempted to give notice thereof to the
Landlord as soon as the same comes to the knowledge of the Tenant
and upon request by the Landlord to take immediate steps (in
conjunction with the Landlord and other interested persons if the
Landlord shall so require) at the joint cost of the Landlord and the
Tenant to adopt all such lawful means and do all such lawful things
<PAGE>
40
as the Landlord may reasonably deem appropriate for preventing any
such encroachment or acquisition
(c) Not to stop up or obstruct any windows or light belonging to the
Demised Premises or to any other building belonging to the Landlord
nor permit any new window light opening doorway path drain or
encroachment or easement to be made into against or upon the
Demised Premises without the Landlord's consent and to give notice
to the Landlord of any such encroachment which shall be made or
attempted and which comes to the Tenant's notice and at the request
of the Landlord to adopt such means and take such steps at the joint
cost of the Landlord and the Tenant as may be reasonably required by
the Landlord to prevent the same
(20) MATTERS AFFECTING THE DEMISED PREMISES
(a) To observe and perform the agreements covenants and stipulations
contained or referred to in the Third Schedule hereto insofar as the
same are still subsisting and capable of being enforced against the
Demised Premises or the owner Landlord tenant or occupier thereof
and to keep the Landlord throughout the Term fully indemnified
against all actions proceedings costs claims demands expenses and
liability in any way relating thereto in so far as they relate to the
Demised Premises
(b) Not knowingly to do or permit or suffer any matter or thing which
may hinder or prevent the Landlord or its agents from observing and
performing all and singular the covenants conditions and agreements
on its part contained in this Lease
<PAGE>
41
(21) RUBBISH
Not to allow rubbish of any description to accumulate on any part of the
Demised Premises but to place all refuse or rubbish tidily in proper
receptacles therefor provided by the Tenant on the refuse area shown
coloured yellow on Plan A in accordance with the right in that behalf
contained in Paragraph 4 of the First Schedule hereto and not to hang or
place or to allow to be hung or placed any articles or other goods of any
description outside the Demised Premises or the entrance door thereof
whether on the forecourt or otherwise or from the windows of the Demised
Premises nor expose outside or from the windows of the Demised Premises
any clothes articles or other goods of any description
(22) LOADING
Not to load or unload nor to permit or suffer to be loaded or unloaded any
vehicle unless the vehicle shall be in the unloading area (if any) provided
from time to time by the Landlord for that purpose and in accordance with
the regulations (if any) made by the Landlord in this respect
(23) CARPETS AND DECORATION
To clean repair replace and renew as often as the Landlord may
reasonably consider necessary the fitted carpets within the Demised
Premises and at the end or sooner determination of the term at the
Tenant's own cost to deliver up the Demised Premises with new good
quality carpets and the walls redecorated to a good standard
<PAGE>
42
(24) APPOINTMENT OF NEW GUARANTOR
Within fourteen days of the death during the Term of the Surety (if any)
or if more than one any of them or of any surety hereunder or of any
surety in any underlease or of any such person becoming bankrupt or
having a bankruptcy petition presented against him or being a company
passing a resolution to wind up or entering into liquidation or having
an administrative receiver appointed or having an administration order
made against it to give notice of this to the Landlord and if so
required by the Landlord at the expense of the Tenant within
twenty-eight days to procure some other person acceptable to the
Landlord to execute a guarantee in respect of the Tenant's obligations
contained in this Lease in the form set out in clause 8
(25) APPLICATION FOR RELEASE
(a) The Tenant shall not unreasonably object to the release of the
Landlord or a former landlord from the Landlord's covenants in this
Lease to the extent (if any) as such covenants continue to bind the
Landlord assigning the reversion or a former landlord (as
appropriate) following an application made in accordance with
Section 8 of the Landlord and Tenant (Covenants) Act 1995 ("the
Act")
(b) If following a written notice from the Tenant objecting to such
release the Court makes a declaration that it is reasonable for the
Landlord or a former landlord to be released from the Landlord's
covenants in this Lease the Tenant shall indemnify the Landlord and
any former landlord in respect of any loss damage costs and expenses
incurred or
<PAGE>
43
sustained as a result of the Tenant's objection
(26) REGULATIONS
To observe and perform all regulations made by the Landlord in the
interests of good estate management applicable to the Estate a copy of
which in their form current at the date of this Lease has been given to
the Tenant
4. LANDLORD'S COVENANTS
The Landlord HEREBY COVENANTS with the Tenant as follows:-
(1) INSURANCE
(a) To insure and (unless such insurance shall become void or payment
of the insurance monies shall be refused in whole or in part by reason
of any act omission neglect or default by or on the part of the Tenant
or any underlessee or other person under the control of the Tenant or
any underlessee) to keep insured or to procure such insurance (save
as aforesaid) and to pay promptly all premiums for insuring and
keeping insured the Demised Premises in the full reinstatement cost
(whether or not with any other premises) against loss or damage by
the Insured Risks together with insurance against architects'
surveyors' and other professional advisers' fees at the usual scales
current for the time being and the cost of demolition and site
clearance consequent upon rebuilding or reinstatement and VAT in
respect of all such costs and works and a minimum of 3 years loss of
the rent first hereby reserved
<PAGE>
44
(b) Subject to Clause 5(5) hereof to claim all monies due and to apply
all monies (except monies received in respect of loss of or damage
to any other premises or the fixtures and fittings therein or
liability to third parties or loss of rent) received by the
Landlord under or by virtue of such insurance and any monies
received from the Tenant pursuant to the Tenant's obligation
contained in Clause 3(9)(a) hereof in rebuilding or reinstating the
Demised Premises or such parts thereof as may have been damaged or
destroyed as expeditiously as possible (subject always to the
Landlord being able to obtain all necessary approvals consents
licences permits and permissions from any superior lessor or other
competent authority and all such materials and labour as may be
required for such rebuilding and reinstatement) making good any
deficiency in the insurance monies out of the Landlord's own
resources unless such deficiency arises due to the act or neglect
or default of the Tenant its servants agents licensees or
undertenants PROVIDED THAT if any damage or destruction shall
render the Demised Premises wholly or substantially unfit for
occupation and if the Demised Premises shall not have been
reinstated by the date 2 years nine months after the date of such
damage or destruction either the Landlord or the Tenant may by
giving to the other party three months prior notice in writing
determine this demise provided that any such notice shall cease to
have effect and the Term shall continue if the Demised Premises
shall have been reinstated by the third anniversary of the date of
damage or destruction and provided further that any such
determination shall be without prejudice to any claim by the
Landlord in respect of any antecedent breach of the Tenant's
covenants and conditions herein contained and in the event of
either the Landlord or the Tenant determining this Lease pursuant
to this proviso neither the Tenant
<PAGE>
45
nor anyone claiming through or under the Tenant shall object to the
payment to the Landlord or any superior lessor of any part of the
moneys (including monies in respect of professional fees demolition
site clearance shoring up and loss of rent) payable under any policy
of insurance in respect of the Demised Premises or any part thereof
(c) (i) To produce to the Tenant on request (such request not to be
made more often than once in each calendar year) a copy of the
insurance policy and the last premium renewal receipt or
reasonable evidence of the terms of the policy and that the last
premium has been paid; and
(ii) To use its reasonable endeavours to procure that the interest
of the Tenant is noted or endorsed on the said insurance
policy or policies at all times
(d) The Landlords obligation to insure under clause 4(1)(a) shall be
limited to and subject to any excess exclusion or limitation or other
terms and conditions imposed by insurers
(e) The Landlord shall not be obliged to insure under clause 4(1)(a) if
and to the extent that insurance is not regularly available in the
London insurance market on reasonable commercial terms provided
that it shall notify the Tenant forthwith
(f) The Landlord may but shall not be obliged to insure against loss of
rent and if the Landlord is itself an insurance company it may
self-insure in which case it shall be deemed to be doing so at its
usual rates and on its standard terms
<PAGE>
46
(2) QUIET POSSESSION
That the Tenant paying the rents hereby reserved and all other monies
payable by the Tenant under these Presents and observing and performing
the several covenants and agreements on the Tenant's part and the
conditions and stipulations herein contained shall and may peaceably hold
and enjoy the Demised Premises during the Term according to these
Presents without any lawful interruption by the Landlord or any person
lawfully claiming through under or in trust for the Landlord
(3) PROVISION OF SERVICES
Subject to the payment of the rents hereby reserved the Landlord will
provide the Estate Services save as prevented by Insured Risks or acts
beyond its reasonable control provided that it shall use all reasonable
endeavours to restore the Estate Services in question as soon as reasonably
practicable
5. PROVISOS
PROVIDED ALWAYS AND IT IS HEREBY EXPRESSLY AGREED as follows:-
(1) Whenever the rent (whether formally or legally demanded or not) shall
remain unpaid after becoming due and payable or any other monies which
may become payable hereunder by the Tenant to the Landlord or any part
thereof shall remain unpaid 7 days after becoming due and payable then the
amount thereof or the balance for the time being unpaid shall (without
prejudice to the Landlord's right of re-entry hereinafter contained or any
<PAGE>
47
other right or remedy of the Landlord) from the due date for payment
thereof and until the same is duly paid bear and carry interest (as well
after as before any judgment) at the rate of four per centum per annum
above the base rate for the time being of National Westminster Bank PLC
or (in the event of such rate ceasing to be published) at such
equivalent rate as the Landlord shall notify to the Tenant for the whole
period from the date upon which such sum ought to have been paid until
the date of payment Provided that if any such rent or payment of other
monies as aforesaid shall be declined by the Landlord so as not to waive
any breach of covenant the same shall be payable with interest thereon
at the rate aforesaid from the date the payment became due to the date
upon which payment is accepted by the Landlord AND the Tenant
accordingly HEREBY COVENANTS with the Landlord that in every such case
the Tenant will pay such interest thereon to the Landlord in addition to
the rents and other monies as aforesaid (as well after as before any
judgment) at the aforesaid rate
(2) If the rents hereby reserved or any part thereof shall remain unpaid for
fourteen days after becoming payable (whether formally demanded or not)
or if the Tenant or the Surety being a company unregistered company or
corporation shall be deemed to be unable to pay its debts within the
meaning of Section 123 of the Insolvency Act 1986 ("the 1986 Act") or
shall make a voluntary arrangement as referred to in Part I of the 1986
Act or shall have a petition for an administration order presented under
Part II of the 1986 Act or shall go into liquidation as defined in
Section 247(2) of the 1986 Act (other than a voluntary winding-up solely
for the purpose of amalgamation or reconstruction while solvent) or
shall have a receiver or manager (including an administrative receiver)
appointed of all or any part of its assets or undertaking whether under
Part III of the 1986 Act or otherwise or if a provisional liquidator is
appointed under Section 135 of the
<PAGE>
48
1986 Act or if a proposal is made for a scheme of arrangement under
Section 425 of the Companies Act 1985 or if the Tenant or the Surety or
if more than one any of them being an individual an application is made
for an interim order or a proposal is made for a voluntary arrangement
under Part VIII of the 1986 Act or a Bankruptcy Petition is presented to
the Court or his circumstances are such that a Bankruptcy Petition could
be presented under Part IX of the 1986 Act or shall make any other
assignment for the benefit of or enter into any other arrangement with
his creditors or if the Tenant or the Surety or if more than one any of
them shall suffer any distress or execution to be levied on its goods at
the Demised Premises or if any covenant or condition on the part of the
Tenant or the Surety herein contained shall not be performed or observed
then and in any of the said events it shall be lawful for the Landlord
at any time thereafter to re-enter upon the Demised Premises or any part
thereof in the name of the whole and thereupon this demise shall
absolutely determine but without prejudice to any right of action or
remedy of the Landlord against the Tenant or the Surety in respect of
any arrears of rent or any breach of covenant or condition or the Tenant
or the Surety against the Landlord for breach of covenant
(3) If the Demised Premises or any material part thereof shall at any time or
times be destroyed or damaged by any of the Insured Risks so as to be unfit
for occupation and use then and in every such case (save as provided in
Clause 4(1)(a) hereof) the principal rent and the Service Rent hereby
reserved or a fair and just proportion thereof according to the nature and
extent of the damage sustained (as agreed between the Landlord and the
Tenant in writing within one month of such destruction or damage) shall be
suspended and cease to be payable until the Demised Premises have been
rebuilt or reinstated and made fit for occupation and use or until the
expiration of 3 years from the date of the damage or destruction if earlier
<PAGE>
49
and failing such agreement or in case any dispute shall arise as to the
amount of such suspension and or such period the same shall be determined
by an independent Surveyor who shall act as an arbitrator in accordance
with the Arbitration Act 1996
(4) Notwithstanding the acceptance of or demand for rent or other monies
payable under this Lease and these Presents by or on behalf of the
Landlord with knowledge of a breach of any of the covenants on the part
of the Tenant in this Lease the Landlord's right to forfeit this Lease
on the ground of such breach shall remain in force and the Tenant shall
not in any proceedings for forfeiture be entitled to rely upon any such
acceptance or demand as a defence
(5) In any rebuilding or reinstatement of the Demised Premises following
damage or destruction by any of the Insured Risks the Landlord shall not be
obliged to lay out insurance moneys in rebuilding or reinstatement in
accordance with the previous sections elevations and specifications of the
Demised Premises but it shall be sufficient if they are restored so as to
provide the Tenant with premises reasonably equivalent to the Demised
Premises and thereafter all the covenants and conditions of this deed shall
apply to such accommodation mutatis mutandis as they applied to the
Demised Premises
(6) Nothing contained in or implied by this Lease shall give the Tenant the
benefit of or the right to enforce or to prevent the release or
modification of any covenant agreement or condition entered into by any
lessee of the Landlord in respect of any property not comprised in this
Lease
(7) If any dispute arises between the Tenant and the Landlord's tenants or
<PAGE>
50
occupiers of any adjoining or neighbouring land or premises as to any
easement right or privilege in connection with the use of the Demised
Premises and the adjoining or neighbouring land or premises or as to the
party or other walls separating the Demised Premises from the adjoining or
neighbouring land or premises or as to the amount of any contribution
towards the expenses or services used in common with any other property it
shall be decided by the Landlord's surveyor or in such manner as the
Landlord's surveyor shall direct
(8) The operation of Section 62 of the Law of Property Act 1925 shall be
excluded from this Lease and the only rights granted to the Tenant are
those expressly set out in this Lease and the Tenant shall not by virtue
of this Lease be deemed to have acquired or be entitled to and the
Tenant shall not during the Term acquire or become entitled by any means
whatsoever to any easement from or over or affecting any other land or
premises now or at any time hereafter belonging to the Landlord and not
comprised in this Lease
(9) The Landlord shall not be responsible to the Tenant or to anyone at the
Demised Premises expressly or by implication with the Tenant's authority
for any accident happening or injury suffered or for any damage to or
loss of any chattel sustained in the Demised Premises
(10) This Lease embodies the entire understanding of the parties relating to the
Demised Premises or to any of the matters dealt with by any of the
provisions of this Lease
(11) The Tenant acknowledges that this Lease has not been entered into in
reliance wholly or partly on any statement or representation made by or on
<PAGE>
51
behalf of the Landlord except any such statement or representation that is
expressly set out in this Lease or in written replies from the Landlord's
solicitors to enquiries raised by the Tenant's solicitors
(12) Whilst the Landlord is a limited company or other corporation all
licences consents approvals and notices required or permitted to be
given by the Landlord shall be sufficiently given if given under the
hand of a director or the secretary or other duly authorised officer of
the Landlord or by the surveyor on behalf of the Landlord
(13) If after the Tenant has vacated the Demised Premises on the expiry of
the Term any property of the Tenant remains in or on the Demised
Premises and the Tenant fails to remove it within twenty one days after
being requested in writing by the Landlord so to do or after using its
best endeavors the Landlord is unable to make such a request to the
Tenant within fourteen days of first attempting so to do:-
(a) the Landlord may as the agent of the Tenant sell such property
provided that the Tenant will indemnify the Landlord against any
liability incurred by the Landlord to any third party whose property
shall have been sold by the Landlord in the bona fide mistaken belief
(which shall be presumed unless the contrary be proved) that such
property belonged to the Tenant
(b) if the Landlord having made reasonable efforts is unable to locate
the Tenant the Landlord shall be entitled to retain the said
proceeds of sale absolutely unless the Tenant shall claim the same
within six months of the date upon which the Tenant vacated the
Demised Premises and
<PAGE>
52
(c) the Tenant shall indemnify the Landlord against any damage
occasioned to the Demised Premises or any adjoining or neighbouring
land or premises and any action claims proceedings costs expenses
and demands made against the Landlord caused by or related to the
presence of the Tenant's property in or on the Demised Premises
(14) Except where any statutory provision prohibits the Tenant's right to
compensation being reduced or excluded by agreement the Tenant shall not
be entitled to claim from the Landlord on quitting the Demised Premises
any compensation under the 1954 Act
(15) The Landlord shall not in any event be liable to the Tenant in respect
of any failure of the Landlord to perform any of its obligations to the
Tenant hereunder in respect of the Estate Services (other than
insurance) whether expressed or implied unless and until the Tenant has
notified the Landlord of the facts giving rise to the failure and the
Landlord has failed within a reasonable length of time to remedy the
same and then in such case the Landlord shall be liable to compensate
the Tenant only for loss or damage sustained by the Tenant after such
reasonable time has lapsed
(16) This Lease is granted without prejudice to the provisions of any
previous lease under which the Tenant has hitherto held the Demised
Premises or any part thereof or to the provisions of any licence for
alterations or works granted pursuant thereto which last mentioned
provisions shall (so far as remaining to be performed and observed) be
read and construed as if contained in a licence supplemental to this
Lease and as if any reference to the term granted by such Lease were a
reference to the Term granted by this
<PAGE>
53
Lease
(17) The parties to this Lease hereby agree and declare that:
(a) this is a new lease for the purposes of the Act
(b) any provisions in this Lease which are void pursuant to Section 25 of
the Act shall be severed from all remaining provisions and such
remaining provisions shall be preserved
(c) to the extent that any provision in this Lease extends beyond the
limitations set by the said Section 25 of the Act but if it did not so
extend it would remain unaffected by the said Section 25 the
provisions shall be deemed to be varied so as not to extend beyond
the said limitations
(18) In the event of the Landlord (at the request of the Tenant) granting any
concession as a result of which the Tenant is entitled to defer the
payment of any monies due then for all purposes in connection with this
Lease (and in particular in relation to Section 17 of the Act such
monies shall be deemed to fall due on the subsequent date agreed between
the Landlord and Tenant pursuant to the concession in lieu of the
earlier date
6. RENT REVIEW
(1) With effect from each Review Date the rent first hereinbefore reserved
shall be the amount payable (but for any abatement of rent) immediately
prior to that Review Date or (if greater) the Market Rent as agreed or
determined pursuant to this Clause 6
<PAGE>
54
(2) The expression "the Market Rent" means the annual rack rent exclusive of
all outgoings which might reasonably be obtained in the open market
without the payment of a premium or a fine by a willing landlord from a
willing tenant for a lease of the whole of the Demised Premises with
vacant possession and fully fitted out and ready for occupation at the
commencement of the term for a term equal to the residue of the Term
remaining on the relevant Review Date or 5 years (whichever is the
longer period) (but commencing on the Review Date) upon the following
assumptions that:-
(A) all the provisions of this Lease on the part of the Tenant have been
duly observed and performed and on the assumption that the user
permitted by this Lease of all parts of the Demised Premises complies
with the Planning Acts
(B) on the relevant Review Date no damage to or destruction of the
Demised Premises or its services nor any damage to or destruction of
any part of the Demised Premises or with anything else in respect of
which the Tenant enjoys rights has occurred
(C) the Demised Premises are fit for immediate occupation and use and
that no work has been carried out on the Demised Premises by the
Tenant or its underlessees or their predecessors in title which has
diminished the rental value of the Demised Premises
(D) the Demised Premises may be used for all purposes falling within the
same Use Class or Use Classes under the Town and Country Planning
(Use Classes) Order 1987 (to which Clause 1(2)(iii) hereof shall not
<PAGE>
55
apply) as the use permitted by these Presents and that all other
licences consents and permissions required to implement such use
have been obtained
(E) there has been a reasonable period in which to negotiate the terms
of the letting taking into account the nature of the Demised
Premises and the state of the market
(F) that the Demised Premises have been carpeted and decorated at the
cost of the Landlord to a high standard
there being disregarded (if otherwise applicable) any effect on rental
value by reason of:-
(i) the fact that the Tenant its underlessees or their respective
predecessors in title have been in occupation of the Demised
Premises and
(ii) any goodwill attached to the Demised Premises by reason of the
carrying-on thereat of the business of the Tenant or its
underlessees or their predecessors in title in their respective
businesses and
(iii) all improvements authorised by the Landlord or made by the Tenant
or its underlessees or their respective predecessors in title in
accordance with the terms of this Lease otherwise than at the cost
of or in pursuance of an obligation to the Landlord contained
herein or one imposed by the terms of this Lease and any such
works undertaken either (a) by the Tenant its underlessees or
their respective predecessors in title during any period of
occupation prior
<PAGE>
56
to the grant of this Lease or any previous lease arising out of an
agreement to grant such term or (b) by any lessee or underlessee of
the Demised Premises before the commencement of the Term hereby
granted so long as the Landlord or its predecessor in title has not
had vacant possession of the relevant part of the Demised Premises
since the improvement was carried out
(iv) (so far as may be permitted by law) all restrictions whatsoever
relating to rent or its recoverability and all provisions relating
to any method of determination of rent contained in any enactment
and such lease shall in all other respects contain the same terms and
conditions mutatis mutandis (except as to the amount of rent but including
similar provisions for review thereof as are contained in this Clause 6) as
this present Lease
(3) The Market Rent shall be determined by agreement between the Landlord
and the Tenant but if by the date which is three months before the relevant
Review Date they shall not have agreed the same the Market Rent shall be
determined by an independent chartered surveyor of recognised standing
being a member of a leading firm of surveyors having been in practice
continuously for at least ten years in England immediately prior to the
relevant Review Date and having substantial recent experience in valuing
premises of a kind and character similar to the Demised Premises to be
agreed upon in writing by the Landlord and the Tenant or in default of such
agreement by the date which is one month before the relevant Review Date
to be nominated by the President or other officer duly authorised for that
purpose of the Royal Institution of Chartered Surveyors on the application
of either the Landlord or the Tenant such surveyor to act as an arbitrator
in
<PAGE>
57
accordance with the Arbitration Act 1996 and the costs of such
determination shall be in the award of such surveyor (the Surveyor)
(4) If the Surveyor shall fail to determine the Market Rent in the manner
hereinbefore provided within four months of his appointment or if he
shall relinquish his appointment or die or if it shall become apparent
that for any reason he will be unable to complete his duties hereunder
within the said period of four months then the Landlord and the Tenant
may agree upon or either of them may apply to the said President or
other officer for a substitute to be appointed in his place which
procedure may be repeated as many times as necessary
(5) In the event of the Landlord and the Tenant not having reached agreement
or the Surveyor's award not having been published or the Surveyor or the
Landlord or the Tenant making application to the Court whether before or
after such publication and such application not having been finally
determined by the relevant Review Date for any reason whatever then in
respect of the period of time ("the interval") between the relevant
Review Date and ending on the date on which agreement is reached or such
award is published or such application is finally determined the Tenant
shall pay to the Landlord in the manner provided in this Lease the rent
payable immediately prior to the relevant Review Date ("the Current
Rent") PROVIDED THAT at the expiration of the interval there shall be
due as a debt payable by the Tenant to the Landlord on demand the amount
by which the Market Rent agreed upon by the Landlord and the Tenant or
determined by the said surveyor or the Court as the case may be exceeds
the Current Rent together with interest on such amount at two per cent
over the base rate of National Westminster Bank Plc or (in the event of
such rate ceasing to be published) at such comparable rate as the
Landlord shall notify
<PAGE>
58
to the Tenant but in respect of both the said excess and the said
interest on it duly apportioned on a daily basis in respect of the
interval
(6) If at any time the Tenant shall be obliged legally or otherwise to
comply with any enactment (which expression shall include any Act of
Parliament now or hereafter in force and any instrument regulation or
order made thereunder or deriving validity therefrom) dealing with the
control of rent and which shall restrict or modify the Landlord's right
to increase the rent in accordance with the foregoing provisions of this
Clause or which shall restrict the right of the Landlord to demand or
accept payment of the full amount of the yearly rent for the time being
payable hereunder then the Landlord shall on each occasion that any such
enactment is removed relaxed or modified be entitled on giving not less
that one month's notice in writing to the Tenant expiring after the date
of such removal relaxation or modification to introduce a rent review
date which shall be the date of expiration of such notice and from and
after such review date until the next Review Date the yearly rent then
payable hereunder shall be such as shall be agreed or determined in
accordance (mutatis mutandis) with the foregoing provisions of this
Clause 6 Provided that and for the avoidance of doubt it is hereby
declared that notwithstanding the date of a review as hereinbefore
provided the Market Rent under this present provision shall be
calculated as at the Review Date immediately preceding the date of the
Landlord's notice
(7) The revised rent agreed or determined pursuant to this Clause 6 shall be
endorsed by way of memorandum on this Lease and on the counterpart
thereof and signed by or on behalf of the Landlord and the Tenant
(8) In this clause time shall not be of the essence
<PAGE>
59
7. SERVICE OF NOTICES AND JURISDICTION
(1) THESE Presents shall incorporate the provisions as to notices contained in
Section 196 of the Law of Property Act 1925 as amended by the Recorded
Delivery Service Act 1962 except that Section 196 shall be deemed to be
amended as follows:-
(a) the final words of Section 196(4) "and that service... be
delivered" shall be deleted and there shall be substituted "...and
that service shall be deemed to be made on the third working day
after the registered letter has been posted "working day" meaning
any day from Monday to Friday (inclusive) other than Christmas Day,
Good Friday and any statutory bank holiday"
(b) any notice or document shall also be sufficiently served on a party
if served on solicitors who have acted for that party in relation
to this Lease or the Demised Premises at any time within the year
preceding the service of the notice or document or who have been
appointed by Clause 7(2)(c) or (d) below
(c) any notice or document shall also be sufficiently served if sent by
telex or fax to the party to be served (or its Solicitors where
paragraph (b) applies) and service in such case shall be deemed to
be made on the day of transmission if transmitted before 4 pm on a
working day but otherwise on the next following working day
(2) (a) The Landlord Tenant and the Surety respectively acknowledge and
declare that this Lease and the rights and obligations of the
Landlord Tenant and the Surety hereunder are governed by English law
<PAGE>
60
(b) The Landlord Tenant and the Surety irrevocably and unconditionally
agree that any proceedings in relation to this Lease may and shall
be brought in the English Courts and submit to the jurisdiction of
the English Courts in respect of any such proceedings
8. GUARANTEE PROVISION
(1) The Surety (if any) covenants with the Landlord as primary obligor and
not merely by way of guarantee (for the benefit of the Landlord and of
the person in whom from time to time the reversion immediately expectant
upon the determination of the Term is vested without the need for any
express assignment) that
(a) during such period as the Tenant is bound by the Lease covenants
(including any period in respect of which the Tenant is liable to
perform the Lease covenants pursuant to any authorised guarantee
agreement entered into by the Tenant) the Tenant shall punctually
pay the rents hereby reserved and perform the covenants and other
provisions of the Lease and in case of default the Surety will pay the
rents hereby reserved and perform the covenants and provisions in
respect of which the Tenant is in default and make good to the
Landlord on demand and indemnify the Landlord against all losses
damages costs and expenses thereby arising or incurred by the
Landlord
(b) the liability of the Surety under Clause 8(1)(a) hereof shall not be
affected in any way by:
<PAGE>
61
(i) any neglect or forbearance of the Landlord in enforcing
payment of the rents hereby reserved or observance or
performance of the covenants and provisions of the Lease
(ii) any time or indulgence given to the Tenant by the Landlord
(iii) any refusal by the Landlord to accept rent from the Tenant
following a breach of covenant by the Tenant
(iv) any agreement with the Tenant any licence or consent granted
to the Tenant or any variation in the terms of the Lease
(v) the death of the Tenant (if an individual) or the dissolution
of the Tenant (if a company)
(vi) a surrender of part of the Demised Premises except that the
Surety will have no liability in relation to the surrendered
part in respect of any period following the date of surrender
(vii) any other act matter or thing apart from the express release in
writing of the Surety
(c) if during the Term the Tenant (being a company) enters into
liquidation or (being an individual) becomes bankrupt and the
liquidator or the trustee in bankruptcy disclaims the Lease or if
during the Term the Tenant (being a company) is dissolved or ceases
to exist or is struck off the Register of Companies the Surety shall
upon written notice from the Landlord given within four months
after the date of disclaimer or dissolution or ceasing to exist accept
a
<PAGE>
62
new lease of the Demised Premises for a term equal to the residue
then remaining unexpired of the term hereby demised at the rents
then being paid under this Lease and otherwise subject to the same
covenants and provisions as in this Lease (without however requiring
any other person to act as surety) such new lease to take effect from
the date of disclaimer or dissolution or ceasing to exist and to be
granted at the cost of the Surety who shall execute and deliver to the
Landlord a counterpart of it
(d) if this Lease is disclaimed or the Tenant (being a company) is
dissolved or ceases to exist and for any reason the Landlord does not
require the Surety to accept a new lease pursuant to Clause 8(1)(c)
hereof the Surety shall pay to the Landlord on demand an amount
equal to the difference between any money received by the Landlord
for the use or occupation of the Demised Premises and the rents (if
higher) which would have been payable had the Lease not been
disclaimed or the dissolution or ceasing to exist not occurred for
the period commencing with the date of disclaimer or dissolution or
ceasing to exist and ending upon the date nine months after the date
of disclaimer or dissolution or ceasing to exist or (if earlier) the
date upon which the Demised Premises are re-let
(e) for the purposes of this clause references to the Tenant are to the
Tenant in relation to whom the Surety's guarantee is given but not to
a lawful assignee of that Tenant
9. SERVICE CHARGE
(1) The Landlord shall as soon as convenient after each Account Date prepare
<PAGE>
63
an account showing the Estate Service Expenditure for the Service Period
ended on that Account Date and containing a fair summary of the
expenditure referred to but giving credit for any sums payable to the
Landlord from any owner or occupier of adjoining land towards the cost
of provision of Estate Services and upon the account being certified by
the Landlord's managing agents it shall be conclusive evidence for the
purposes of this Lease of all matters of fact referred to except in case
of manifest error
(2) The Tenant shall pay the Landlord on account of Service Rent the
Provisional Sum in relation to each Service Period the first payment (being
a proportionate sum in respect of the period commencing on the Possession
Date and ending immediately before the quarter day next after the date
hereof) to be made on the date hereof and the subsequent payments to be
made by equal installments in advance on the usual quarter days
(3) If the Service Rent for any Service Period:-
(a) exceeds the Provisional Sum for that Service Period the excess shall
be due to the Landlord on demand; or
(b) is less than the Provisional Sum for that Service Period the
overpayment shall be credited to the Tenant against subsequent
payments on account of Service Rent until the overpayment is
balanced or following the expiry of the Term shall be repaid to the
Tenant
(4) In respect of the Service Rent the relevant proportion applicable to the
Demised Premises shall be calculated primarily on a comparison at any
relevant time of
<PAGE>
64
(a) the net internal floor area as defined in the Code of Measuring
Practice 4th edition RICS/ISVA 1993 of the buildings on the Demised
Premises and
(b) the aggregate net internal floor area of the buildings on the Estate
or such other method of calculation as the Landlord shall adopt and
notify to the Tenant in writing provided that if the Tenant objects to
such alternative method of calculation the matter shall be referred to
an independent expert jointly appointed by the Landlord and the Tenant
or failing agreement as to his appointment by the President or next
available officer of the Royal Institution of Chartered Surveyors and if
it shall appear that for whatever reason such expert shall be unable or
unwilling to give his decision within one month of his appointment then
either the Landlord or the Tenant may apply to the said President for
another expert to be appointed in his place and this procedure shall be
repeated as many times as shall be required and the costs of the expert
and of his appointment shall form part of the Service Expenditure
(5) The Tenant is entitled to inspect the service charge records and vouchers
and take copies thereof at its cost once a year after the service charge
accounts have been certified within one month of the Tenant receiving such
certified accounts
10. AGREEMENT FOR LEASE
It is hereby certified that there is no Agreement for Lease to which this
Lease gives effect
<PAGE>
65
IN WITNESS whereof the Landlord and the Tenant have executed this Deed the
day and year first before written
THE FIRST SCHEDULE
RIGHTS GRANTED
1. The right for the Tenant and its underlessees and occupiers for the time
being of the Demised Premises and their respective servants agents and
visitors in common with the Landlord and all others authorised by the
Landlord and all other persons so entitled to the free and uninterrupted
passage of water soil electricity gas telephone and other services and
supplies to and from the Demised Premises through the Conducting Media
in on or under the Estate and serving the Demised Premises
2. The right of way with or without vehicles at all times and for all proper
purposes in connection with the Tenant's use and enjoyment of the Demised
Premises over the estate roadway shown coloured brown on the Plan
3. The right of entry upon not less than 48 hours prior written notice (save
in case of emergency) onto the adjoining or neighboring land or premises
forming part of the Estate with or without contractors plant materials and
equipment to carry out works repairs and alterations to the Demised
Premises or the Conducting Media exclusively serving the same insofar as
such works cannot be conveniently carried out without such entry the
Tenant or the person exercising such rights making good all damage caused
and causing as little inconvenience and disturbance as possible
4. The right to place a paladin on the refuse area shown coloured yellow on
<PAGE>
66
Plan A subject to the Tenant complying with clause 3(21) hereof and the
Regulations relating thereto
THE SECOND SCHEDULE
EXCEPTIONS AND RESERVATIONS OUT OF THE DEMISE
The following rights and easements are excepted and reserved out of the Demised
Premises unto the Landlord and the owners and occupiers of the Estate and any
adjoining or neighboring land or premises and all other persons authorised by
the Landlord or having the like rights and easements
1. The free and uninterrupted passage of water soil electricity gas telephone
and other services and supplies to and from the Estate and/or the adjoining
or neighbouring land or premises through the Conducting Media serving
the Demised Premises and the Estate and/or such adjoining or neighbouring
land or premises now laid or during the Term to be laid in on under or
passing through the Demised Premises
2. The right for the Landlord and all authorised persons at all reasonable
times upon 48 hours prior notice (except in the case of emergency) to
enter into and upon the Demised Premises with or without servants
contractors agents plant and equipment for the purposes of assessing the
state and condition thereof and/or for the purpose of:
(a) surveying measuring or valuing the Demised Premises
(b) reading electricity water and other check meters installed within the
Demised Premises
<PAGE>
67
(c) for the preparation of a schedule of fixtures and fittings in or on
the Demised Premises
(d) maintaining renewing cleaning repairing or rebuilding any adjoining
or neighbouring land or premises in so far as such works cannot be
conveniently carried out without entering upon the Demised
Premises
(e) remedying any breach of covenant by the Tenant after failure by the
Tenant to do so in accordance with the provisions of this Lease
(f) obtaining access to and egress from the electricity substation shown
coloured purple on Plan B
the Landlord or all persons exercising such rights making good all
physical damage thereby occasioned to the Demised Premises without
liability to pay any compensation to the Tenant
3. The right to build rebuild or execute any other works or alterations or
consent to any person building rebuilding or executing any other works or
alterations upon any adjoining or neighbouring land or premises
notwithstanding that the access of light or air to the Demised Premises may
be thereby restricted or interfered with including the right to erect or
construct any buildings on any adjoining or neighbouring land or premises
the person or persons exercising such right making good all physical
damage thereby occasioned in such manner as the Landlord or the person or
persons exercising such right may think fit without any compensation or
damages being payable to the Tenant and without the Tenant being entitled
to make any claim or commence any proceedings in respect thereof
<PAGE>
68
4. All rights of light air and other easements and rights (but without
prejudice to those expressly hereinbefore granted to the Tenant) now or
hereafter belonging to or enjoyed by the Demised Premises from or over any
adjoining or neighbouring land or premises
5. The right of support shelter and protection and all other easements and
rights now or hereafter belonging to or enjoyed by all adjoining or
neighbouring land or premises (if any)
6. The right at any time after giving not less than forty-eight hours' notice
(except in emergency) to enter and remain upon the Demised Premises for
the purpose of complying with the Landlord's covenants herein contained
and for the purpose of constructing repairing maintaining altering
cleansing examining or testing the Conducting Media serving any adjoining
or neighbouring land or premises the Landlord or the person or persons
exercising such right making good any physical damage thereby caused to
the Demised Premises but without liability to pay any compensation to the
Tenant
THE THIRD SCHEDULE
ENCUMBRANCES
<PAGE>
69
1. All matters contained or referred to in the Property and Charges Registers
of Title Numbers BM230909 and BM230905 as at the date hereof other than
financial charges
2. The covenants agreements stipulations rights exceptions and reservations in
a Deed of Exchange dated the 24th day of July 1997 made between the
Landlord (1) and Vishay Components (UK) Limited (2)
SIGNED as a Deed by COMLAND )
INDUSTRIAL AND COMMERCIAL )
PROPERTIES LIMITED) )
acting by [a Director and its )
Secretary] [two Directors] )
DIRECTOR: A. J. Ilsley
DIRECTOR/SECRETARY: R. Werth
<PAGE>
DATED: 12TH AUGUST 1998
COMLAND INDUSTRIAL AND COMMERCIAL
PROPERTIES LIMITED (1)
INSIGNIA SOLUTIONS PLC (2)
RENT DEPOSIT DEED
as additional Security for the
performance of the Tenant's
covenants contained in a lease of
Apollo House. The Mercury Centre
Wooburn Green High Wycombe
Buckinghamshire
[MANCHES LOGO]
Manches & Co 3 Worcester Street Oxford OX1 2PZ
<PAGE>
THIS DEED is made the 12th day of August One thousand nine hundred and
ninety-eight
BETWEEN
(1) COMLAND INDUSTRIAL AND COMMERCIAL PROPERTIES LIMITED whose registered
office is at Riverside House Riverside Holtspur Lane Wooburn Green High
Wycombe Buckinghamshire HP10 0TJ ("the Landlord") (Company Registration
Number 2126351) and
(2) INSIGNIA SOLUTIONS Plc whose registered office is at Buckingham Court
London Road High Wycombe Buckinghamshire HP11 1JU (Company Registration
Number 01961960) ("the Tenant")
NOW THIS DEED WITNESSES as follows:
1. DEFINITIONS AND INTERPRETATION
In this Clause and in this Deed the following expressions shall bear the
following meanings:
1.1 "the Lease" means a lease of even date herewith made between the Landlord
(1) and the Tenant (2) of the property known as Apollo House The Mercury
Centre Wycombe Lane Wooburn Green High Wycombe Buckinghamshire
1.2 "the Landlord" "the Tenant" and "the Term" shall carry the meanings
ascribed to them by the Lease
1.3 "the Landlord's Solicitors" mean Manches & Co 3 Worcester Street Oxford
OX1 2PZ
1.4 "the Initial Deposit" means L105,000 plus VAT deposited by the Tenant
as security for the performance of the obligations on its part contained
in the Lease
1.5 "the Deposit Account" means the interest earning deposit account opened by
the Landlord's Solicitors at Lloyds Bank Plc Law Courts Branch 222 Strand
London WC2R 1BB ("the Bank") on or before the date of this Deed and in
which the Landlord's Solicitors placed the Initial Deposit
<PAGE>
2
1.6 "the Deposit Balance" means the amount from time to time standing to the
credit of the Deposit Account
1.7 "default" means any failure by the Tenant to pay (whether or not any
formal demand has been made) the whole or any part of the rents reserved
by the Lease or any money (including interest) payable to the Landlord
pursuant to the Lease or any expense incurred by the Landlord or due to
the Landlord in consequence of any failure by the Tenant to observe and
perform the covenants obligations of and the conditions binding the
Tenant contained in the Lease or the liquidation of the Tenant or the
disclaimer of the Lease by the Tenant's liquidator
2. LANDLORD'S SOLICITORS INSTRUCTIONS
The Landlord and the Tenant irrevocably instruct the Landlord's
Solicitors by this Deed to act as stakeholders in the operation of the
Deposit Account in accordance with this Deed and in particular to act in
accordance with this Deed in:
2.1 the making of payments into the Deposit Account
2.2 the withdrawal of sums from the Deposit Account and
2.3 accounting to the Landlord and the Tenant for money due to either of them
from the Deposit Account
2.4 sending to the Tenant statements showing the Deposit Balance and any
interest accruing to the Deposit Account at intervals of not less than
once in each year of the term demised by the Lease
3. DURATION OF DEPOSIT ARRANGEMENTS
3.1 The Deposit Account shall be maintained until whichever is the earlier
of the following:
3.1.1 the date of expiration or sooner determination of the Term
(save by way of disclaimer or forfeiture) or
<PAGE>
3
3.1.2 the date upon which the Tenant shall assign the Lease with the
consent of the Landlord to an assignee acceptable to the
Landlord in accordance with Clause 3(17) of the Lease
3.1.3 the date 14 days after the Tenant has provided to the Landlord
unqualified Audited Accounts drawn up on the basis of UK
GAAP by the Tenant's auditors showing profits after tax of not
less than three times the rent first reserved in the Lease plus
VAT for three consecutive financial years each of not less than
twelve months duration
3.2 The Deposit Account shall be closed upon the happening of any of the
events mentioned in clauses 3.1.1 3.1.2 and 3.1.3 and the Deposit
Balance shall be released to the Tenant after first being applied by
payment to the Landlord in satisfaction of all claims made by the
Landlord against the Tenant arising out of default by the Tenant
4. CHARGE OF THE DEPOSIT ACCOUNT
4.1 The Tenant warrants to the Landlord that the Initial Deposit is free
from any charge or encumbrance save as mentioned in clause 4.2
4.2 The Tenant with full title guarantee charges its interest in the Deposit
Account and all money from time to time withdrawn from the Deposit
Account in accordance with this Deed
4.2.1 until such time as the Deposit Account shall be closed in
accordance with clause 3 or clause 9 and
4.2.2 as security for money payable to the Landlord in the event
of default
4.2.3 as security for any loss of mesne profits and other losses
arising in consequence of forfeiture or disclaimer of the Lease
4.3 The Tenant hereby covenants that it shall:-
<PAGE>
4
4.3.1 within 14 days of entry into this Deed procure registration of
the charge mentioned in Clause 4.2 pursuant to the Companies
Act 1985 (section 395) and
4.3.2 execute any document or take any action which the Landlord may
reasonably specify in order to perfect the security referred
to in clause 4.2
4.4 The security referred to in clause 4.2 is in addition to and shall not
be merged with or prejudice or affect or be affected by any other
security interest of the Landlord as regards the Tenant
5. REMEDIES OF THE LANDLORD
5.1 The Landlord shall be entitled at any time to require the Landlord's
Solicitors to draw upon the Deposit Account in payment to the Landlord
of any amount not exceeding any sum due to the Landlord arising out of
default by the Tenant if:
5.1.1 the Landlord shall have previously given to the Tenant not
less than 14 days notice in writing of the Landlord's
intention to procure any withdrawal from the Deposit Account
and the notice shall have specified the default to which the
withdrawal relates and
5.1.2 the Tenant shall not have remedied the default complained of
by the expiration of the notice
5.2 The Tenant by way of security for the proper performance of the Tenant's
covenants and obligations contained in this Deed hereby appoints the
Landlord (or delegates of the Landlord) to act as the Tenant's attorney
to take any action in the name of the Tenant or otherwise which the
Landlord may reasonably and properly specify for the purposes of
ensuring such performance
6. MAINTENANCE OF THE INITIAL DEPOSIT
6.1 The Tenant covenants that if the Landlord shall before the date of
closure of the Deposit Account in accordance with clause 3 receive a
payment from the
<PAGE>
5
Deposit Account in accordance with clause 5 then the Tenant shall within
21 days pay to the Landlord's Solicitors an amount equal to the sum so
received by the Landlord for the Landlord's Solicitors to deposit in the
Deposit Account
6.2 If and whenever a review of rent pursuant to the Lease shall take place
the Tenant will within seven days of the date of ascertainment of the
amount of the increased rent make a payment to the Landlord for the
credit of the Deposit Account of a sum equivalent to the difference
between the annual rate of rent prior to such review and the annual
rate of rent as reviewed plus VAT and the sum so paid by the Tenant
shall form part of the Deposit Balance and be treated for the purposes
of this Deed as such
7. INTEREST
7.1 The interest accruing upon the Deposit Balance shall be left in the Deposit
Account and form part of the Deposit Account
7.2 The Tenant (acting on its own behalf or by its Solicitors) shall at
reasonable intervals (of not less then 6 months) following the date of
this Deed be entitled by notice in writing to require the Landlord's
Solicitors to draw upon the Deposit Account in payment to the Tenant of
an amount equal to the net interest which at the date of such notice has
accrued to the Deposit Balance save that no such payment shall be made:
7.2.1 if there shall at such date be any subsisting default by the
Tenant or
7.2.2 to the extent that such payment would cause the Deposit
Balance to be less than the Initial Deposit plus any payment
made by the Tenant pursuant to clause 6.2 hereof
7.3 It is agreed that without limiting clause 7.2 the Landlord's Solicitors
may within their entire discretion and as a matter of convenience for so
long as there shall be no dispute between the Landlord and the Tenant
affecting the operation of this Deed make arrangements with the
solicitors acting for the Tenant for interest to be paid out of the
Deposit Account in a manner different to that prescribed by Clause 7.2
<PAGE>
6
8. DECLARATIONS
8.1 The liability of neither the Landlord nor the Tenant nor of any guarantor
pursuant to the Lease from time to time shall be limited to the Deposit
Balance
8.2 The rights of the Landlord under this Deed are given without limitation
of the rights of the Landlord pursuant to the Lease
8.3 The proviso for re-entry contained in the Lease shall be exercisable as
well upon any breach of any covenant or obligation contained in this
Deed as on the happening of any of the events mentioned in the Lease
9. FORFEITURE OR DISCLAIMER
If the Lease shall be forfeited or disclaimed the Deposit Balance shall
continue to be available to the Landlord in the manner hereinbefore
provided until it shall be exhausted in accordance with the terms of
this Deed or until there shall be no further liability of the Tenant to
the Landlord or until the date eighteen months after the date of
forfeiture or disclaimer (whichever is the earlier) whereupon as soon as
reasonably practicable any remaining balance in the Deposit Account
shall be repaid to the Tenant
10. ASSIGNMENT OF REVERSION
The Landlord shall not be liable to the Tenant under this deed after the
Landlord shall have parted with its reversion to the Lease provided that
the assignee enters into a Deed in substantially the same terms mutatis
mutandis to this Deed with the Tenant (save as to the parties).
Accordingly if the Landlord disposes of its reversion to the Lease as
aforesaid then the Deposit Balance shall forthwith be paid to the
Solicitors acting for the assignee of the reversion to hold upon the
terms of this deed and the liability of the Landlord under this deed
shall thereupon cease and determine and the Landlord shall within 14
days of such payment give notice to the Tenant of the details of the
solicitors for the assignee and of the change in the details of the
Deposit Account
<PAGE>
7
IN WITNESS whereof the Landlord and the Tenant have caused their respective
Common Seals to be affixed to this Deed the day and year first hereinbefore
written
SIGNED as a Deed by COMLAND )
INDUSTRIAL AND COMMERCIAL )
PROPERTIES LIMITED acting by )
[a Director and its Secretary] )
[two Directors]
A. J. Ilsley DIRECTOR
R. Werth DIRECTOR/SECRETARY
<PAGE>
DATED: 12TH AUGUST 1998
COMLAND INDUSTRIAL AND
COMMERCIAL PROPERTIES LIMITED (1)
INSIGNIA SOLUTIONS Plc (2)
----------------------
COLLATERAL WARRANTY
RELATING TO
APOLLO HOUSE THE MERCURY CENTRE
WYCOMBE LANE WOOBURN GREEN
HIGH WYCOMBE BUCKINGHAMSHIRE
----------------------
[MANCHES LOGO]
Manches & Co 3 Worcester Street Oxford OX1 2PZ
<PAGE>
THIS DEED is made the 12th day of August One thousand nine hundred and
ninety-eight
BETWEEN
(1) COMLAND INDUSTRIAL AND COMMERCIAL PROPERTIES LIMITED whose registered
office is at Riverside House Riverside Holtspur Lane Wooburn Green High
Wycombe Buckinghamshire HP10 0TJ ("the Landlord") (Company Registration
Number 2126351) and
(2) INSIGNIA SOLUTIONS Plc whose registered office is at Buckingham Court
London Road High Wycombe Buckinghamshire HP11 1JU (Company Registration
Number 01961960) ("the Tenant")
NOW THIS DEED WITNESSES as follows:
1. DEFINITIONS AND INTERPRETATION
In this Clause and in this Deed the following expressions shall bear the
following meanings:
1.1 "the Lease" means a lease of even date herewith made between the Landlord
(1) and the Tenant (2) of the property known as Saturn House The Mercury
Centre Wycombe Lane Wooburn Green High Wycombe Buckinghamshire
1.2 "the Landlord" "the Tenant" and "the Term" shall carry the meanings
ascribed to them by the Lease
1.3 "the Landlord's Solicitors" mean Manches & Co 3 Worcester Street Oxford
OX1 2PZ
1.4 "the Initial Deposit" means L121,000 plus VAT deposited by the Tenant as
security for the performance of the obligations on its part contained in
the Lease
1.5 "the Deposit Account" means the interest earning deposit account opened by
the Landlord's Solicitors at Lloyds Bank Plc Law Courts Branch 222 Strand
London WC2R 1BB ("the Bank") on or before the date of this Deed and in
which the Landlord's Solicitors placed the Initial Deposit
<PAGE>
2
1.6 "the Deposit Balance" means the amount from time to time standing to the
credit of the Deposit Account
1.7 "default" means any failure by the Tenant to pay (whether or not any formal
demand has been made) the whole or any part of the rents reserved by the
Lease or any money (including interest) payable to the Landlord pursuant to
the Lease or any expense incurred by the Landlord or due to the Landlord in
consequence of any failure by the Tenant to observe and perform the
covenants obligations of and the conditions binding the Tenant contained in
the Lease or the liquidation of the Tenant or the disclaimer of the Lease
by the Tenant's liquidator
2. LANDLORD'S SOLICITORS INSTRUCTIONS
The Landlord and the Tenant irrevocably instruct the Landlord's
Solicitors by this Deed to act as stakeholders in the operation of the
Deposit Account in accordance with this Deed and in particular to act in
accordance with this Deed in:
2.1 the making of payments into the Deposit Account
2.2 the withdrawal of sums from the Deposit Account and
2.3 accounting to the Landlord and the Tenant for money due to either of them
from the Deposit Account
2.4 sending to the Tenant statements showing the Deposit Balance and any
interest accruing to the Deposit Account at intervals of not less than
once in each year of the term demised by the Lease
3. DURATION OF DEPOSIT ARRANGEMENTS
3.1 The Deposit Account shall be maintained until whichever is the earlier
of the following:
3.1.1 the date of expiration or sooner determination of the Term
(save by way of disclaimer or forfeiture) or
<PAGE>
3
3.1.2 the date upon which the Tenant shall assign the Lease with the
consent of the Landlord to an assignee acceptable to the
Landlord in accordance with Clause 3(17) of the Lease
3.1.3 the date 14 days after the Tenant has provided to the Landlord
unqualified Audited Accounts drawn up on the basis of UK GAAP
by the Tenant's auditors showing profits after tax of not less
than three times the rent first reserved in the Lease plus VAT
for three consecutive financial years each of not less than
twelve months duration
3.2 The Deposit Account shall be closed upon the happening of any of the events
mentioned in clauses 3.1.1 3.1.2 and 3.1.3 and the Deposit Balance shall be
released to the Tenant after first being applied by payment to the Landlord
in satisfaction of all claims made by the Landlord against the Tenant
arising out of default by the Tenant
4. CHARGE OF THE DEPOSIT ACCOUNT
4.1 The Tenant warrants to the Landlord that the Initial Deposit is free
from any charge or encumbrance save as mentioned in clause 4.2
4.2 The Tenant with full title guarantee charges its interest in the Deposit
Account and all money from time to time withdrawn from the Deposit
Account in accordance with this Deed
4.2.1 until such time as the Deposit Account shall be closed in
accordance with clause 3 or clause 9 and
4.2.2 as security for money payable to the Landlord in the event of
default
4.2.3 as security for any loss of mesne profits and other losses
arising in consequence of forfeiture or disclaimer of the Lease
4.3 The Tenant hereby covenants that it shall:-
<PAGE>
4
4.3.1. within 14 days of entry into this Deed procure registration of
the charge mentioned in Clause 4.2 pursuant to the Companies
Act 1985 (section 395) and
4.3.2 execute any document or take any action which the Landlord may
reasonably specify in order to perfect the security referred
to in clause 4.2
4.4 The security referred to in clause 4.2 is in addition to and shall not
be merged with or prejudice or affect or be affected by any other
security interest of the Landlord as regards the Tenant
5. REMEDIES OF THE LANDLORD
5.1 The Landlord shall be entitled at any time to require the Landlord's
Solicitors to draw upon the Deposit Account in payment to the Landlord
of any amount not exceeding any sum due to the Landlord arising out of
default by the Tenant if:
5.1.1 the Landlord shall have previously given to the Tenant not
less than 14 days notice in writing of the Landlord's
intention to procure any withdrawal from the Deposit Account
and the notice shall have specified the default to which the
withdrawal relates and
5.1.2 the Tenant shall not have remedied the default complained of
by the expiration of the notice
5.2 The Tenant by way of security for the proper performance of the Tenant's
covenants and obligations contained in this Deed hereby appoints the
Landlord (or delegates of the Landlord) to act as the Tenant's attorney
to take any action in the name of the Tenant or otherwise which the
Landlord may reasonably and properly specify for the purposes of
ensuring such performance
6. MAINTENANCE OF THE INITIAL DEPOSIT
6.1 The Tenant covenants that if the Landlord shall before the date of
closure of the Deposit Account in accordance with clause 3 receive a
payment from the
<PAGE>
5
Deposit Account in accordance with clause 5 then the Tenant shall within
21 days pay to the Landlord's Solicitors an amount equal to the sum so
received by the Landlord for the Landlord's Solicitors to deposit in the
Deposit Account
6.2 If and whenever a review of rent pursuant to the Lease shall take place
the Tenant will within seven days of the date of ascertainment of the
amount of the increased rent make a payment to the Landlord for the
credit of the Deposit Account of a sum equivalent to the difference
between the annual rate of rent prior to such review and the annual rate
of rent as reviewed plus VAT and the sum so paid by the Tenant shall
form part of the Deposit Balance and be treated for the purposes of this
Deed as such
7. INTEREST
7.1 The interest accruing upon the Deposit Balance shall be left in the Deposit
Account and form part of the Deposit Account
7.2 The Tenant (acting on its own behalf or by its Solicitors) shall at
reasonable intervals (of not less than 6 months) following the date of
this Deed be entitled by notice in writing to require the Landlord's
Solicitors to draw upon the Deposit Account in payment to the Tenant of
an amount equal to the net interest which at the date of such notice has
accrued to the Deposit Balance save that no such payment shall be made:
7.2.1 if there shall at such date be any subsisting default by the
Tenant or
7.2.2 to the extent that such payment would cause the Deposit
Balance to be less than the Initial Deposit plus any payment
made by the Tenant pursuant to clause 6.2 hereof
7.3 It is agreed that without limiting clause 7.2 the Landlord's Solicitors
may within their entire discretion and as a matter of convenience for so
long as there shall be no dispute between the Landlord and the Tenant
affecting the operation of this Deed make arrangements with the
solicitors acting for the Tenant for interest to be paid out of the
Deposit Account in a manner different to that prescribed by Clause 7.2
<PAGE>
6
8. DECLARATIONS
8.1 The liability of neither the Landlord nor the Tenant nor of any guarantor
pursuant to the Lease from time to time shall be limited to the Deposit
Balance
8.2 The rights of the Landlord under this Deed are given without limitation
of the rights of the Landlord pursuant to the Lease
8.3 The proviso for re-entry contained in the Lease shall be exercisable as
well upon any breach of any covenant or obligation contained in this
Deed as on the happening of any of the events mentioned in the Lease
9. FORFEITURE OR DISCLAIMER
If the Lease shall be forfeited or disclaimed the Deposit Balance shall
continue to be available to the Landlord in the manner hereinbefore
provided until it shall be exhausted in accordance with the terms of
this Deed or until there shall be no further liability of the Tenant to
the Landlord or until the date eighteen months after the date of
forfeiture or disclaimer (whichever is the earlier) whereupon as soon as
reasonably practicable any remaining balance in the Deposit Account
shall be repaid to the Tenant
10. ASSIGNMENT OF REVERSION
The Landlord shall not be liable to the Tenant under this deed after the
Landlord shall have parted with its revision to the Lease provided that
the assignee enters into a Deed in substantially the same terms mutatis
mutandis to this Deed with the Tenant (save as to the parties).
Accordingly if the Landlord disposes of its reversion to the Lease as
aforesaid then the Deposit Balance shall forthwith be paid to the
Solicitors acting for the assignee of the reversion to hold upon the
terms of this deed and the liability of the Landlord under this deed
shall thereupon cease and determine and the Landlord shall within 14
days of such payment give notice to the Tenant of the details of the
solicitors for the assignee and of the change in the details of the
Deposit Account
<PAGE>
7
IN WITNESS whereof the Landlord and the Tenant have caused their respective
Common Seals to be affixed to this Deed the day and year first hereinbefore
written
SIGNED as a Deed by COMLAND )
INDUSTRIAL AND COMMERCIAL )
PROPERTIES LIMITED acting by )
[a Director and its Secretary] )
[two Directors] )
A. J. Ilsley DIRECTOR
R. Werth DIRECTOR/SECRETARY
<PAGE>
DATED: 12TH AUGUST 1998
COMLAND INDUSTRIAL AND
COMMERCIAL PROPERTIES LIMITED (1)
INSIGNIA SOLUTIONS Plc (2)
--------------------
COLLATERAL WARRANTY
Relating to
Apollo House The Mercury Centre
Wycombe Lane Wooburn Green
High Wycombe Buckinghamshire
--------------------
[MANCHES LOGO]
Manches & Co 3 Worcester Street Oxford 0X1 2PZ
<PAGE>
THIS DEED OF WARRANTY is made the 12th day of August One thousand nine
hundred and ninety-eight BETWEEN COMLAND INDUSTRIAL AND COMMERCIAL PROPERTIES
LIMITED (Company Registration Number 2126351) whose registered office is
situate at Riverside House Riverside Holtspur Lane Wooburn Green High
Wycombe Buckinghamshire HP10 0TJ ("the Contractor") of the one part and
INSIGNIA SOLUTIONS Plc (Company Registration Number 01961960) whose
registered office is situate at Buckingham Court London Road High Wycombe
aforesaid ("the Tenant") of the other part
WHEREAS:-
(1) By a Lease ("the Lease") dated the 12th day of August 1998 between the
Contractor (1) and the Tenant (2) the property known or to be known as
Apollo House The Mercury Centre Wycombe Lane Wooburn Green High Wycombe
aforesaid ("the Development") demised to the Tenant for a term of 15
years from the 12th day of August 1998 subject to the rents covenants
and conditions therein contained
(2) The Contractor has constructed the Development
(3) The Contractor has agreed in consideration of the Tenant agreeing to enter
into the Lease to enter into this Deed in favour of the Tenant
NOW THIS DEED WITNESSETH as follows:-
1. The Contractor warrants to and undertakes with the Tenant that:-
(a) It has carried out the Development in a good and workmanlike manner
in accordance with all planning and other consents obtained in
connection with the Development
(b) In the design of the Development insofar (if at all) as the
Development has been designed by it and in the selection of
materials and goods for the Development insofar as such materials
and goods have been selected by it it has exercised all reasonable
skill and care
<PAGE>
2
(c) The Contractor will use all reasonable endeavours to maintain in
force sufficient professional indemnity insurance (without any
unusual exclusions) with reputable insurers carrying on business in
the United Kingdom to cover any liabilities of the Contractor which
may arise out of this Deed up to a limit in respect of each and
every claim of not less than L2,000,000 The Contractor will use all
reasonable endeavours to maintain such insurance for a period of
twelve years from the date hereof and will produce such evidence as
the Tenant may reasonably require (but not more than once in any 12
months period) to satisfy itself that the terms of this Clause have
been complied with
2. The Contractor hereby further warrants and undertakes with the Tenant
that it has not specified or knowingly authorised the use in connection
with the Development of any:-
(a) high alumina cement in structural elements
(b) wood slab in permanent formwork to concrete or in structural
elements
(c) calcium chloride in admixtures for use in reinforced concrete
(d) naturally occurring aggregates for use in reinforced concrete which
do not comply with the requirements of British Standards 882
(1983) and naturally occurring aggregates for use in concrete which
do not comply with the relevant provisions of British Standard
8110 (1985)
(e) calcium silicate bricks or tiles
(f) asbestos or asbestos-based products
(g) lead or any products containing lead for use in connection with
drinking water
<PAGE>
3
(h) urea formaldehyde foam
(i) other substance which have been publicised in the Building
Research Establishment Digest as being deleterious to health and
safety or to the durability of the property in the particular
circumstances in which they are used
3. The Tenant shall be entitled at any time to assign the benefit of this Deed
three times by way of absolute legal assignment to such person or persons
as the Lease shall be assigned in accordance with clause 3(17) of the Lease
without the consent of the Contractor provided that written notice of such
assignment is given to the Contractor within 28 days of the date thereof
4. Any notice provided for in accordance with this Deed shall be deemed to
be duly given if delivered by hand or sent by registered or pre-paid post
or by facsimile transmission to the party named therein at the address of
such party shown herein or such other address as such party may by
notice in writing nominate for the purpose of service and if sent by post
shall be deemed to have been received no later than forty-eight hours after
the same shall have been posted
5. The Tenant hereby agrees and undertakes to claim against the
Commercial Union Assurance Latent Defects Insurance Policy to be
incepted by the Contractor in the event of any inherent or latent defect in
the design or construction or the materials used in the construction of the
Development arising and only in the case of a shortfall in the insurance
cover or upon the expiry of such cover will a claim be made by the Tenant
pursuant to the provisions of this Deed
6. The Contractor agrees to notify any claim made hereunder to its insurers
in accordance with the terms of such insurances
<PAGE>
4
IN WITNESS whereof the Contractor and the Tenant have caused their
respective Common Seals to be affixed to this Deed the day and year first before
written
THE COMMON SEAL of COMLAND )
INDUSTRIAL AND COMMERCIAL ) [SEAL]
PROPERTIES LIMITED was affixed to )
this Deed in the Presence of:- )
DIRECTOR: A. J. Ilsley
SECRETARY: R. Werth
THE COMMON SEAL of INSIGNIA )
SOLUTIONS Plc was affixed to this ) [SEAL]
Deed in the presence of:- )
DIRECTOR: Richard M. Noling
SECRETARY: S. M. Ambler
<PAGE>
DATED: 12TH AUGUST 1998
COMLAND INDUSTRIAL AND
COMMERCIAL PROPERTIES LIMITED (1)
INSIGNIA SOLUTIONS Plc (2)
----------------------
COLLATERAL WARRANTY
Relating to
Saturn House The Mercury Centre
Wycombe Lane Wooburn Green
High Wycombe Buckinghamshire
----------------------
[MANCHES LOGO]
Manches & Co 3 Worcester Street Oxford 0X1 2PZ
<PAGE>
THIS DEED OF WARRANTY is made the 12th day of August One thousand nine
hundred and ninety-eight BETWEEN COMLAND INDUSTRIAL AND COMMERCIAL PROPERTIES
LIMITED (Company Registration Number 2126351) whose registered office is
situate at Riverside House Riverside Holtspur Lane Wooburn Green High Wycombe
Buckinghamshire HP10 0TJ ("the Contractor") of the one part and INSIGNIA
SOLUTIONS Plc (Company Registration Number 01961960) whose registered office
is situate at Buckingham Court London Road High Wycombe aforesaid ("the
Tenant") of the other part
WHEREAS:-
(1) By a Lease ("the Lease") dated the 12th day of August 1998 between the
Contractor (1) and the Tenant (2) the property known or to be known as
Saturn House The Mercury Centre Wycombe Lane Wooburn Green High Wycombe
aforesaid ("the Development") was demised to the Tenant for a term of
15 years from the 12th day of August 1998 subject to the rents covenants
and conditions therein contained
(2) The Contractor has constructed the Development
(3) The Contractor has agreed in consideration of the Tenant agreeing to enter
into the Lease to enter into this Deed in favour of the Tenant
NOW THIS DEED WITNESSETH as follows:-
1. The Contractor warrants to and undertakes with the Tenant that:-
(a) It has carried out the Development in a good and workmanlike
manner in accordance with all planning and other consents
obtained in connection with the Development
(b) In the design of the Development insofar (if at all) as the
Development has been designed by it and in the selection of
materials and goods for the Development insofar as such materials
and goods have been selected by it it has exercised all reasonable
skill and care
<PAGE>
2
(c) The Contractor will use all reasonable endeavours to maintain in
force sufficient professional indemnity insurance (without any
unusual exclusions) with reputable insurers carrying on business in
the United Kingdom to cover any liabilities of the Contractor which
may arise out of this Deed up to a limit in respect of each and every
claim of not less than L2,000,000 The Contractor will use all
reasonable endeavours to maintain such insurance for a period of
twelve years from the date hereof and will produce such evidence
as the Tenant may reasonably require (but not more than once in
any 12 months period) to satisfy itself that the terms of this Clause
have been complied with
2. The Contractor hereby further warrants and undertakes with the Tenant
that it has not specified or knowingly authorised the use in connection
with the Development of any:-
(a) high alumina cement in structural elements
(b) wood slab in permanent formwork to concrete or in structural
elements
(c) calcium chloride in admixtures for use in reinforced concrete
(d) naturally occurring aggregates for use in reinforced concrete which
do not comply with the requirements of British Standards 882
(1983) and naturally occurring aggregates for use in concrete which
do not comply with the relevant provisions of British Standard
8110 (1985)
(e) calcium silicate bricks or tiles
(f) asbestos or asbestos-based products
(g) lead or any products containing lead for use in connection with
drinking water
<PAGE>
3
(h) urea formaldehyde foam
(j) other substance which have been publicised in the Building
Research Establishment Digest as being deleterious to health and
safety or to the durability of the property in the particular
circumstances in which they are used
3. The Tenant shall be entitled at any time to assign the benefit of this Deed
three times by way of absolute legal assignment to such person or persons
as the Lease shall be assigned in accordance with clause 3(17) of the Lease
without the consent of the Contractor provided that written notice of such
assignment is given to the Contractor within 28 days of the date thereof
4. Any notice provided for in accordance with this Deed shall be deemed to
be duly given if delivered by hand or sent by registered or pre-paid post
or by facsimile transmission to the party named therein at the address of
such party shown herein or such other address as such party may by
notice in writing nominate for the purpose of service and if sent by post
shall be deemed to have been received no later than forty-eight hours after
the same shall have been posted
5. The Tenant hereby agrees and undertakes to claim against the
Commercial Union Assurance Latent Defects Insurance Policy to be
incepted by the Contractor in the event of any inherent or latent defect in
the design or construction or the materials used in the construction of the
Development arising and only in the case of a shortfall in the insurance
cover or upon the expiry of such cover will a claim be made by the Tenant
pursuant to the provisions of this Deed
6. The Contractor agrees to notify any claim made hereunder to its insurers
in accordance with the terms of such insurances
<PAGE>
4
IN WITNESS whereof the Contractor and the Tenant have caused their
respective Common Seals to be affixed to this Deed the day and year first before
written
THE COMMON SEAL of COMLAND )
INDUSTRIAL AND COMMERCIAL ) [SEAL]
PROPERTIES LIMITED was affixed to )
this Deed in the presence of: )
DIRECTOR: A. J. Ilsley
SECRETARY: R. Werth
THE COMMON SEAL of INSIGNIA )
SOLUTIONS Plc was affixed to this ) [SEAL]
Deed in the presence of:- )
DIRECTOR: Richard M. Noling
SECRETARY: S. M. Ambler
<PAGE>
WARRANTY AGREEMENT CoWa/P&T
(In Scotland, leave blank THIS AGREEMENT
For applicable date see
Testing Clause on page 4) is made the 12th day of August 1998
------------ ---------
BETWEEN:-
(insert name of
the Consultant) (1) Powell Tolner & Associates
---------------------------------------------
of/whose registered office is situated at
Beverley House, 132 High Street,
---------------------------------------------
Chesham, Buckinghamshire HP5 1EF
---------------------------------------------
("the Firm"), and
(insert name of
the Purchaser/the Tenant) (2) Insignia Solutions Plc
---------------------------------------------
whose registered office is situated at
Buckingham Court, London Road,
---------------------------------------------
High Wycombe, Bucks HP11 1JU
---------------------------------------------
(delete as appropriate) ("the Tenant" which term shall include all
permitted assignees under this Agreement).
WHEREAS:-
(delete as appropriate) A. The Tenant has entered into an agreement to
lease with
Comland Industrial & Commercial Properties
---------------------------------------------
Ltd, Riverside House, Riverside,
---------------------------------------------
HoltspurLane, Wooburn Green, High Wycombe,
---------------------------------------------
Buckinghamshire HP10 0AU ("the Client")
------------------------------
relating to
insert
description of ---------------------------------------------
the premises) UNITS 1 and 2 - The Mercury Centre
---------------------------------------------
("the Premises")
-----------------------------
(delete as appropriate) [forming part of The RHM Bakery Site
-----------------------------
Wooburn Green
(insert ---------------------------------------------
description of High Wycombe, Buckinghamshire
the Development) ---------------------------------------------
at
(insert address -------------------------------------------
of the development) "the Development").]
-------------------------
(delete as appropriate) ["The Premises" are also referred to as "the
Development" in this Agreement.]
(insert date B. By a contract ("the Appointment") dated
of appointment) the Client has appointed the Firm as -----
(delete/complete [consulting structural engineers] in
as appropriate) connection with the Development.
C. The Client has entered into a contract ("the
Building Contract") with
(insert name of A building contractor selected by the Client
building contractor ---------------------------------------------
or "a building
contractor to be ---------------------------------------------
selected by the
Client") ---------------------------------------------
for the construction of the Development.
Page 1
<PAGE>
NOW IN CONSIDERATION OF THE PAYMENT OF ONE POUND
(L1) THE TENANT TO THE FIRM (RECEIPT OF WHICH THE
FIRM ACKNOWLEDGES) IT IS HEREBY AGREED as
follows:-
(delete as appropriate 1. The Firm warrants that it has exercised and
to reflect terms of the will continue to exercise reasonable skill
Appointment) [and care] in the performance of its services
to the Client under the Appointment. In the
event of any breach of this warranty:
(a) subject to paragraphs (b) and (c) of this
clause, the Firm shall be liable for the
reasonable costs of repair renewal and/or
reinstatement of any part or parts of the
Development to the extent that
- the Tenant incurs such costs and/or
- the Tenant is or becomes liable either
directly or by way of financial
contribution for such costs.
The Firm shall not be liable for other
losses incurred by the Tenant.
(b) the Firm's liability for costs under this
Agreement shall be limited to that
proportion of such costs which it would be
just and equitable to require the Firm to
pay having regard to the extent of the
Firm's responsibility for the same and on
the basis that
Graham Langley Architects
-------------------------------------------
(insert the names and other consultants/contractors providing
of other intended -------------------------------------------
warrantors) a design input to the development.
-------------------------------------------
-------------------------------------------
shall
--------------------------------------
be deemed to have provided contractual
undertakings on terms no less onerous
than this Clause 1 to the Tenant in
respect of the performance of their
services in connection with the
Development and shall be deemed to have
paid to the Tenant such proportion which
it would be just and equitable for them
to pay having regard to the extent of
their responsibility;
(c) the Firm shall be entitled in any action
or proceedings by the Tenant to rely on
any limitation in the Appointment and to
raise the equivalent rights in defence
of liability as it would have against
the Client under the Appointment;
(d) the obligations of the Firm under or
pursuant to this Clause 1 shall not be
released or diminished by the
appointment of any person by the Tenant
to carry out any independent enquiry
into any relevant matter.
2. [Without prejudice to the generality of Clause
(delete where 1, the Firm further warrants that it has
the Firm is exercised and will continue to exercise
the quantity reasonable skill and care to see that, unless
surveyor) authorised by the Client in writing or, where
such authorisation is given orally, confirmed
by the Firm to the Client in writing, none of
the following has been or will be specified by
the Firm for use in the construction of those
parts of the Development to which the
Appointment relates:-
(a) high alumina cement in structural elements;
(b) wood wool slabs in permanent formwork to
concrete;
(c) calcium chloride in admixtures for use in
reinforced concrete;
(d) asbestos products;
(e) naturally occurring aggregates for use in
reinforced concrete which do not comply
with British Standard 882: 1983 and/or
naturally occurring aggregates for use in
concrete which do not comply with British
Standard 8110: 1985.
(further
specific (f) See Appendix I attached.
materials
may be added
by agreement) In the event of any breach of this warranty
the provisions of Clauses 1a, b, c and d
shall apply.]
CoWa/P&T 2nd Edition
-C- BPF, ACE, RIAS, RICS, RIBA 1993 Page 2
<PAGE>
APPENDIX I
ADDITIONAL DELETERIOUS MATERIALS - SEE 2 (f).
f(i) calcium silicate bricks or tiles
f(ii) lead or any products containing lead for use in connection with
drinking water
f(iii) urea formaldehyde foam
f(iv) Crocidolite
f(v) other substances which have been publicised in the Building
Research Establishment Digest as being deleterious to health and
safety or to the durability of the property in the particular
circumstances in which they are used
<PAGE>
3. The Firm acknowledges that the Client has
paid all fees and expenses properly due
and owing to the Firm under the
Appointment up to the date of this
Agreement.
4. The Tenant has no authority to issue any
direction or instruction to the Firm in
relation to the Appointment.
5. The copyright in all drawings, reports,
models, specifications, bills of
quantities, calculations and other
documents and information prepared by or
on behalf of the Firm in connection with
the Development (together referred to in
this Clause 5 as "the Documents") shall
remain vested in the Firm but, subject to
the Firm having received payment of any
fees agreed as properly due under the
Appointment, the Tenant and its appointee
shall have a licence to copy and use the
Documents and to reproduce the designs and
content of them for any purpose related to
the Premises including, but without
limitation, the construction, completion,
maintenance, letting, promotion,
advertisement, reinstatement,
refurbishment and repair of the Premises,
Such licence shall enable the Tenant and
its appointee to copy and use the
Documents for the extension of the
Premises but such use shall not include a
licence to reproduce the designs contained
in them for any extension of the Premises.
The Firm shall not be liable for any use
by the Tenant or its appointee of any of the
Documents for any purpose other than that
for which the same were prepared by or on
behalf of the Firm.
6. The Firm shall maintain professional
indemnity insurance in an amount of not
(insert amount) less than One million Five Hundred
Thousand pounds (L1,500,000) for any one
occurrence or series of occurrences
arising out of any one event for a period
(insert period) of 12 years from the date hereof, provided
always that such insurance is available at
commercially reasonable rates. The Firm
shall immediately inform the Tenant if
such insurance ceases to be available at
commercially reasonable rates in order
that the Firm and the Tenant can discuss
means of best protecting the respective
positions of the Purchaser/the Tenant and
the Firm in the absence of such insurance.
As and when it is reasonably requested to
do so by the Tenant or its appointee the
Firm shall produce for inspection
documentary evidence that its professional
indemnity insurance is being maintained.
(insert number [7. This Agreement may be assigned three times by
of times) the Tenant by way of absolute legal
assignment to another person taking an
(delete if under assignment of the Tenant's interest in the
Scots law) Premises without the consent of the
Client or the Firm being required and such
assignment shall be effective upon written
notice thereof being given to the Firm.]
(insert number of times)
(delete if under
English law)
8. Any notice to be given by the Firm
hereunder shall be deemed to be duly given
if it is delivered by hand at or sent by
registered post or recorded delivery to
the Tenant at its registered office and
any notice given by the Tenant hereunder
shall be deemed to be duly given if it is
addressed to "The Senior Partner" and
delivered by hand at or sent by registered
post or recorded delivery to the
above-mentioned address of the Firm or to
the principal business address of the Firm
for the time being and, in the case of any
such notices, the same shall if sent by
registered post or recorded delivery be
deemed to have been received forty eight
hours after being posted.
9. No action or proceedings for any breach of
this Agreement shall be commenced against the
(complete as Firm after the expiry of 12 years from the
appropriate) date hereof.
CoWa/P&T 2nd Edition Page 3
<PAGE>
delete if under [10. The construction validity and performance of
Scots law) this Agreement shall be governed by English
law and the parties agree to submit to the
non-exclusive jurisdiction of the English
Courts.
(alternatives
delete as
appropriate)
(for Agreement
executed under hand and
NOT as a Deed)
]
[IN WITNESS WHEREOF this Agreement was
executed as a Deed and delivered the day and
(this must only year first before written.
apply if the
Appointment
is executed BY THE FIRM
as a Deed)
J. Sestak EQUITY PARTNER
---------------------------------------------
---------------------------------------------
J. Rowe SECRETARY
---------------------------------------------
120 WHITE HILL CHESHAM HP5 1AR
---------------------------------------------
BY THE PURCHASER/THE TENANT
S. M. Ambler - COMPANY SECRETARY
---------------------------------------------
1158 Quail Creek Circle
---------------------------------------------
California, CA 95120
---------------------------------------------
USA
-------------------------------------------]]
(delete if under
English law)
<PAGE>
WARRANTY AGREEMENT
between
LANGLEY HALL ASSOCIATES LIMITED
and
INSIGNIA SOLUTIONS PLC
In respect of
UNITS 1 AND 2, THE MERCURY CENTRE
WOOBURN GREEN
Dated 12th August 1998
------------
<PAGE>
THIS AGREEMENT is made the 12th day of August 1998
BETWEEN
(1) LANGLEY HALL ASSOCIATES LIMITED of 31 Braybrooke Road, Wargrave, Berkshire,
RG10 8DU ("the Firm"), and
(2) INSIGNIA SOLUTIONS PLC whose registered office is situated at Buckingham
Court, London Road, High Wycombe, Bucks, HP11 1JU ("the Tenant" which
term shall include all permitted assignees under this agreement)
WHEREAS:-
A. The tenant has entered into a lease with Comland Industrial & Commercial
Properties Ltd ("the Client") relating to Units 1 and 2 ("the Premises")
Forming part of The Mercury Centre, Wycombe Lane, Wooburn Green ("the
Development")
B. By a contract ("the Appointment") dated 3 February 1997 the Client has
appointed the Firm as Architect in connection with the Development.
NOW IN CONSIDERATION OF THE PAYMENT OF ONE POUND (L1) BY THE TENANT TO THE FIRM
(RECEIPT OF WHICH THE FIRM ACKNOWLEDGES) IT IS HEREBY AGREED as follows:-
1. The Firm warrants that it has exercised and will continue to exercise
reasonable skill care and diligence in the performance of its services to
the Client under the Appointment. In the event of any breach of this
warranty:-
(a) subject to paragraphs (b) and (c) of this clause, the Firm shall be
liable for reasonable costs of repair/renewal and/or reinstatement of
any part or parts of the Development to the extent that the Tenant is
liable either directly or by way of financial contribution for the
same. The Firm shall not be liable for other losses incurred by the
Tenant
(b) The Firm's liability for costs under this Agreement shall be limited
to that proportion of such cost which it would be just and equitable
to require the Firm to pay having regard to the
<PAGE>
extent of the Firm's responsibility for the same and on the basis that
POWELL TOLNER shall be deemed to have provided contractual
undertakings on terms no less onerous than this Clause 1 to the Tenant
in respect of the performance of their services in connection with the
Development and shall be deemed to have paid to the Tenant such
proportion which it would be just and equitable for them to pay having
regard to the extent of their responsibility.
(c) the Firm shall be entitled in any action or proceedings by the Tenant
to rely on any limitation in the Appointment and to raise the
equivalent rights in defence of liability as it would have against the
Client under the Appointment.
2. Without prejudice to the generality of Clause 1, the Firm further warrants
that it has exercised and will continue to exercise reasonable skill and
care to see that, unless authorised by the Client in writing or, where such
authorisation is given orally, confirmed by the Firm to the Client in
writing, none of the following has been or will be specified by the Firm
for use in the construction of those parts of the Development to which the
Appointment relates:-
(a) high alumina cement in structural elements;
(b) wood wool slabs in permanent formwork to concrete,
(c) calcium chloride in admixtures for use in reinforced concrete,
(d) asbestos products;
(e) naturally occurring aggregates for use in reinforced concrete which do
not comply with British Standard 882: 1983 and/or naturally occurring
aggregates for use in concrete which do not comply with British
Standard 8110: 1985;
(f) urea formaldehyde foam;
(g) other substances generally known in the consultant's profession at the
time of specification or incorporation in the Development, as
appropriate, to be deleterious to the structural integrity of the
Development or to Health and Safety.
3. The Firm acknowledges that the Client has paid all fees and expenses
properly due and owing to the Firm under the Appointment up to date of this
Agreement.
4. The Tenant has no authority to issue any direction or instruction to the
Firm in relation to the Appointment.
5. The copyright in all drawings, reports, models, specifications, bills of
quantities, calculations and other documents and information prepared by or
on behalf of the Firm in connection with the Development (together referred
to in this clause 5 as "the Documents") shall remain vested in the Firm
but, subject
<PAGE>
to the Firm having received payment of any fees agreed as properly due
under the Appointment, the Tenant and its appointee shall have a licence to
copy and use the Documents and to reproduce the designs and content of them
for any purpose related to the Premises including, but without limitation,
the construction, completion, maintenance, letting, promotion,
advertisement, reinstatement, refurbishment and repair of the Premises.
Such licence shall enable the Tenant and its appointee to copy and use the
Documents for the extension of the Premises but such use shall not include
a licence to reproduce the designs contained in them for any extension of
the Premises. The Firm shall not be liable for any such use by the Tenant
or its appointee of any of the Documents for any purpose other than that
for which the same were prepared by or on behalf of the Firm.
6. The Firm shall maintain professional indemnity insurance in an amount of
not less than One Million Pounds (L1,000,000) for any one occurrence or
series of occurrences arising out of any one event for a period of 12 years
from the date hereof, provided always that such insurance is available at
commercially reasonable rates. The Firm shall immediately inform the Tenant
if such insurance ceases to be available at commercially reasonable rates
in order that the Firm and the Tenant can discuss means of best protecting
the respective positions of the Tenant and the Firm in the absence of such
insurance. As and when it is reasonably requested to do so by the Tenant or
its appointee the Firm shall produce for inspection documentary evidence
that its professional indemnity insurance is being maintained.
7. This Agreement may be assigned 3 times by the Tenant by way of absolute
legal assignment to another person taking an assignment of the Tenant's
interest in the Premises without the consent of the Client or the Firm
being required and such assignment shall be effective upon written notice
thereof being given to the Firm. No further assignment shall be permitted.
8. Any notice to be given by the Firm hereunder shall be deemed to be duly
given if it is delivered by hand at or sent by registered post or recorded
delivery to the Tenant at its registered office and any notice given by the
Tenant hereunder shall be deemed to be duly given if it is addressed to
"The Senior Partner" and delivered by hand at or sent by registered post or
recorded delivery to the above mentioned address of the Firm or to the
principal business address of the Firm for the time being and, in the case
of any such notices, the same shall if sent by registered post or recorded
delivery be deemed to have been received forty eight hours after being
posted.
9. No action or proceedings for any breach of this Agreement shall be
commenced against the Firm after the expiry of 12 years from the date
hereof.
10. The construction validity and performance of this Agreement shall be
governed by English law and the parties agree to submit to the non-
exclusive jurisdiction of the English Courts.
<PAGE>
IN WITNESS whereof the parties hereto have executed this Agreement as a Deed and
delivered the same the day and year first before written.
EXECUTED as a deed by the said )
LANGLEY HALL ASSOCIATES )
LIMITED acting by )
Director G. Langley
Director R. Hall
SIGNED BY )
Director for and on behalf of ) Richard M. Noling
INSIGNIA SOLUTIONS PLC )
SIGNED BY )
Secretary for and on behalf of ) S. M. Ambler
INSIGNIA SOLUTIONS PLC )
<PAGE>
Comland
Comland Industrial and Commercial Properties Limited
Dated: 12th August 1998
Insignia Solutions Plc
2 Buckingham Court
Kingsmead Business Park
London Road
High Wycombe
Bucks, HP11 1JU
Dear Sirs
Re: Phase 2, The Mercury Centre, Wycombe Lane, Wooburn Green,
High Wycombe, Bucks
We confirm that when we consider it appropriate, we shall invite you to
make an offer to lease or purchase Phase 2 before proceeding to let or sell
Phase 2 to any other party. For the avoidance of doubt we also confirm
that:-
(1) This letter is not intended to create any legal relationship between us
in relation to Phase 2 nor is it intended to bind our successors in title
or benefit yours.
(2) This letter does not bind us to accept any offer which you may be minded to
make to lease or purchase Phase 2 and once we have invited you to make a
offer and either we have received and considered your offer or the period
of 14 days has expired since the date of our invitation without our having
received an offer from you, we will be free to consider and proceed with
offers by other parties.
(3) If we accept your offer we shall be free to consider other offers and to
proceed with other parties if you fail to perform in our agreed time
scale.
(4) We will have regard to your financial circumstances in general and your
ability to perform the Lease covenants in particular when considering any
offer which you may be minded to make.
A. J. Ilsley
- --------------------------------
For and on behalf of
Comland Industrial and Commercial Properties Limited
<PAGE>
CONSULTING AGREEMENT
This Agreement is made as of December 28, 1998, (the "Effective
Date") by and between Insignia Solutions, a corporation ("Company"), and
Albert Sisto ("Consultant").
R E C I T A L
Consultant desires to perform, and Company desires to have Consultant
perform, consulting services as an independent contractor to Company.
NOW, THEREFORE, the parties agree as follows:
1. SERVICES.
(a) REQUEST. From time to time during the Period of
Consultancy (as defined below), Company may request
Consultant to provide certain services to Company.
However, Company has no obligation to request Consultant
to perform any services, and if such a request is made
by Company, Consultant has no obligation to agree to
perform such services. Company's request will specify
the services to be performed and the specific results to
be achieved (the "SERVICES") by use of the form attached
hereto as Exhibit A (the "PROJECT DESCRIPTION").
(b) PERFORMANCE. Upon agreement between Consultant and
Company to the Services, compensation and completion
date terms of the Project Description, Consultant will
perform the Services. Consultant agrees to use best
efforts to perform the Services during the Period of
Consultancy.
(c) PERIOD OF CONSULTANCY. The "Period of Consultancy" will
commence on the Effective Date and will terminate on
June 30, 1999, unless at that time Services are being
performed pursuant to a Project Description which
specifies a later completion date, in which case the
Period of Consultancy will terminate on such completion
date.
(d) PAYMENT. As sole compensation for the performance of the
Services, Company will pay Consultant the hourly
consulting rate stated in the Project Description, up to
the maximum fee stated. Any expenses incurred by
Consultant in performing the Services will be the sole
responsibility of Consultant. Consultant will invoice
Company on a monthly basis for the number of hours spent
in performing the Services. Company will pay each such
invoice no later than thirty (30) days after its
receipt. Consultant will receive no royalty or other
remuneration on the production or distribution of any
products developed by Company or by Consultant in
connection with or based upon the Services ("PRODUCTS").
2. RELATIONSHIP OF PARTIES.
(a) INDEPENDENT CONTRACTOR. Consultant is an independent
contractor and is not an agent or employee of, and has
no authority to bind, Company by contract or otherwise.
Consultant will perform the Services under the
<PAGE>
general direction of Company, but Consultant will
determine, in Consultant's sole discretion, the manner
and means by which the Services are accomplished,
subject to the requirement that Consultant shall at
all times comply with applicable law. Company has no
right or authority to control the manner or means by
which the Services are accomplished.
(b) EMPLOYMENT TAXES AND BENEFITS. Consultant will report as
self-employment income all compensation received by
Consultant pursuant to this Agreement. Consultant will
indemnify Company and hold it harmless from and against
all claims, damages, losses and expenses, including
reasonable fees and expenses of attorneys and other
professionals, relating to any obligation imposed by law
on Company to pay any withholding taxes, social
security, unemployment or disability insurance, or
similar items in connection with compensation received
by Consultant pursuant to this Agreement. Consultant
will not be entitled to receive any vacation or illness
payments, or to participate in any plans, arrangements,
or distributions by Company pertaining to any profit
sharing, insurance or similar benefits for Company's
employees. Consultant will be entitled to receive stock
options as determined by the Compensation Committee of
Company, and bonus as specified in Exhibit A (6).
(c) LIABILITY INSURANCE. Consultant will maintain adequate
insurance to protect Consultant from the following: (a)
claims under worker's compensation and state disability
acts; (b) claims for damages because of bodily injury,
sickness, disease or death which arise out of any
negligent act or omission of Consultant; and (c) claims
for damages because of injury to or destruction of
tangible or intangible property, including loss of use
resulting therefrom, which arise out of any negligent
act or omission of Consultant.
3. PROPERTY OF COMPANY.
(a) DEFINITION. For the purposes of this Agreement, "DESIGNS
AND MATERIALS" shall mean all designs, discoveries,
inventions, products, computer programs, procedures,
improvements, developments, drawings, notes, documents,
information and materials made, conceived or developed
by Consultant alone or with others which result from or
relate to the Services.
(b) ASSIGNMENT OF OWNERSHIP. Consultant hereby irrevocably
transfers and assigns any and all of its right, title,
and interest in and to Designs and Materials, including
but not limited to all copyrights, patent rights, trade
secrets and trademarks, to Company. Designs and
Materials will be the sole property of Company and
Company will have the sole right to determine the
treatment of any Designs and Materials, including the
right to keep them as trade secrets, to file and execute
patent applications on them, to use and disclose them
without prior patent application, to file registrations
for copyright or trademark on them in its own name, or
to follow any other procedure that Company deems
appropriate. Consultant
<PAGE>
agrees: (a) to disclose promptly in writing to Company
all Designs and Materials; (b) to cooperate with and
assist Company to apply for, and to execute any
applications and/or assignments reasonably necessary
to obtain, any patent, copyright, trademark or other
statutory protection for Designs and Materials in
Company's name as Company deems appropriate; and (c)
to otherwise treat all Designs and Materials as
"Confidential Information", as defined below. These
obligations to disclose, assist, execute and keep
confidential will survive any expiration or termination
of this Agreement.
(c) MORAL RIGHTS WAIVER. "MORAL RIGHTS" means any right to
claim authorship of a work, any right to object to any
distortion or other modification of a work, and any
similar right, existing under the law of any country in
the world, or under any treaty. Consultant hereby
irrevocably transfers and assigns to Company any and all
Moral Rights that Consultant may have in any Services,
Designs and Materials or Products. Consultant also
hereby forever waives and agrees never to assert against
Company, its successors or licensees any and all Moral
Rights Consultant may have in any Services, Designs and
Materials or Products, even after expiration or
termination of the Period of Consultancy.
4. CONFIDENTIAL INFORMATION. Consultant acknowledges that
Consultant will acquire information and materials from Company
and knowledge about the business, products, programming
techniques, experimental work, customers, clients and suppliers
of Company and that all such knowledge, information and
materials acquired, the existence, terms and conditions of this
Agreement, and the Designs and Materials, are and will be the
trade secrets and confidential and proprietary information of
Company (collectively "CONFIDENTIAL INFORMATION"). Confidential
Information will not include, however, any information which is
or becomes part of the public domain through no fault of
Consultant or that Company regularly gives to third parties
without restriction on use or disclosure. Consultant agrees to
hold all such Confidential Information in strict confidence, not
to disclose it to others or use it in any way, commercially or
otherwise, except in performing the Services, and not to allow
any unauthorized person access to it, either before or after
expiration or termination of this Agreement. Consultant further
agrees to take all action reasonably necessary and satisfactory
to protect the confidentiality of the Confidential Information
including, without limitation, implementing and enforcing
operating procedures to minimize the possibility of unauthorized
use or copying of the Confidential Information.
5. TERMINATION AND EXPIRATION.
(a) BREACH. Either party may terminate this Agreement in the
event of a breach by the other party of this Agreement
if such breach continues uncured for a period of ten
(10) days after written notice.
(b) AT WILL. Company may terminate this Agreement at any
time, for any reason or no reason, by written notice to
Consultant.
<PAGE>
(c) EXPIRATION. Unless terminated earlier, this Agreement
will expire at the end of the Period of Consultancy.
(d) NO ELECTION OF REMEDIES. The election by Company to
terminate this Agreement in accordance with its terms
shall not be deemed an election of remedies, and all
other remedies provided by this Agreement or available
at law or in equity shall survive any termination.
6. EFFECT OF EXPIRATION OR TERMINATION. Upon the expiration or
termination of this Agreement for any reason:
(a) each party will be released from all obligations to the
other arising after the date of expiration or
termination, except that expiration or termination of
this Agreement will not relieve Consultant of its
obligations under Sections 2(b), 3,4,7,8(c) and 9, nor
will expiration or termination relieve Consultant or
Company from any liability arising from any breach of
this Agreement; and
(b) Consultant will promptly notify Company of all
Confidential Information, including but not limited to
the Designs and Materials, in Consultant's possession
and, at the expense of Consultant and in accordance with
Company's instructions, will promptly deliver to Company
all such Confidential information.
7. LIMITATION OF LIABILITY. IN NO EVENT SHALL COMPANY BE LIABLE FOR
ANY SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF
ANY KIND IN CONNECTION WITH THIS AGREEMENT, EVEN IF COMPANY HAS
BEEN INFORMED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES.
8. COVENANTS.
(a) COMPETITIVE ACTIVITIES. Consultant will not during the
term of this Agreement, directly or indirectly, in any
individual or representative capacity, engage or
participate in or provide services to any business that
is competitive with the types and kinds of business
being conducted by Company.
(b) PRE-EXISTING OBLIGATIONS. Consultant represents and
warrants that Consultant is not under any pre-existing
obligation inconsistent with the provisions of this
Agreement.
(c) SOLICITATION OF EMPLOYMENT. Because of the trade secret
subject matter of Company's business, Consultant agrees
that it will not solicit the services of any of the
employees, consultants, suppliers or customers of
Company for the Period of Consultancy and for six (6)
months thereafter.
<PAGE>
9. GENERAL.
(a) ASSIGNMENT. Consultant may not assign Consultant's
rights or delegate Consultant's duties under this
Agreement either in whole or in part without the prior
written consent of Company. Any attempted assignment or
delegation without such consent will be void.
(b) EQUITABLE REMEDIES. Because the Services are personal
and unique and because Consultant will have access to
Confidential Information of Company, Company will have
the right to enforce this Agreement and any of its
provisions by injunction, specific performance or other
equitable relief without prejudice to any other rights
and remedies that Company may have for a breach of this
Agreement.
(c) ATTORNEY'S FEES. If any action is necessary to enforce
the terms of this Agreement, the substantially
prevailing party will be entitled to reasonable
attorneys' fees, costs and expenses in addition to any
other relief to which such prevailing party may be
entitled.
(d) GOVERNING LAW; SEVERABILITY. This Agreement will be
governed by and construed in accordance with the laws of
the State of California excluding that body of law
pertaining to conflict of laws. If any provision of this
Agreement is for any reason found to be unenforceable,
the remainder of this Agreement will continue in full
force and effect.
(e) NOTICES. Any notices under this Agreement will be sent
by certified or registered mail, return receipt
requested, to the address specified below or such other
address as the party specifies in writing. Such notice
will be effective upon its mailing as specified.
(f) COMPLETE UNDERSTANDING; MODIFICATION. This Agreement,
together with each version of Exhibit A executed by the
parties, constitutes the complete and exclusive
understanding and agreement of the parties and
supersedes all prior understanding and agreements,
whether written or oral, with respect to the subject
matter hereof. Any waiver, modification or amendment of
any provision of this Agreement will be effective only
if in writing and signed by the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
Effective Date.
COMPANY CONSULTANT:
By: /s/ Richard M. Noling By: /s/ Albert E. Sisto
--------------------------------- ---------------------------------
Title: CEO Title: Director
------------------------------ -------------------------------
- ------------------------------------ Federal Tax I.D. Number:
###-##-####
- ------------------------------------ -------------------------------------
Address: 41300 Christy St. Address: 1105 Via Roble
---------------------------- -----------------------------
Fremont, CA 94538 Lafayette, CA 94549
- ------------------------------------ -------------------------------------
- ------------------------------------ -------------------------------------
<PAGE>
EXHIBIT A
PROJECT DESCRIPTION
This Project Description is issued under and subject to all of the terms and
conditions of the Consulting Agreement dated as of December 28, 1998 by and
between Company and Albert Sisto.
1. Services to be performed and results to be achieved:
Sales consulting, Sales training, Sales contacts and such
other duties as are from time to time agreed to.
2. Half-Day Consulting Rate: $500
3. Maximum Number of Days: Seventy (70)
4. Maximum Consulting Fee: $35,000
5. Start Date: 12/28/98
6. Sales Bonus: Q1 1999 - $5,000 for each qualifying
customer contract* signed in the assigned
geographic region (rate doubles for 3
plus contracts)
Q2 1999 - $2,000 for each qualifying
customer contract* signed in the
assigned geographic region (rate
doubles for 8 plus contracts)
AGREED AS OF 12/28 , 19 98
---------------- ----
COMPANY:
By: /s/ Richard M. Noling
---------------------------------
Title: C.E.O
------------------------------
CONSULTANT:
By: /s/ Albert E. Sisto
---------------------------------
Title: Director
------------------------------
*Qualifying customer contract defined as a contract with a value in excess of
$500,000 over the 2 years after signing by Insignia and the customer.
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-99296 and 33-99542) of Insignia
Solutions plc of our report dated March 30, 1999, appearing in this Annual
Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------------
San Jose, California
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1998
<CASH> 16,334
<SECURITIES> 0
<RECEIVABLES> 3,155
<ALLOWANCES> (1,449)
<INVENTORY> 82
<CURRENT-ASSETS> 19,305
<PP&E> 3,266
<DEPRECIATION> (2,192)
<TOTAL-ASSETS> 21,011
<CURRENT-LIABILITIES> 9,593
<BONDS> 0
0
0
<COMMON> 4,164
<OTHER-SE> 7,254
<TOTAL-LIABILITY-AND-EQUITY> 11,418
<SALES> 12,998
<TOTAL-REVENUES> 14,096
<CGS> 8,329
<TOTAL-COSTS> 27,762
<OTHER-EXPENSES> (15,871)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,205
<INCOME-TAX> 1,783
<INCOME-CONTINUING> 422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 422
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
