<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
PSW TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 74-2796054
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
6300 BRIDGEPOINT PARKWAY, BUILDING 3, SUITE 200, AUSTIN, TEXAS 78730
(512) 343-6666
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------------
DR. W. FRANK KING
CHIEF EXECUTIVE OFFICER
6300 BRIDGEPOINT PARKWAY, BUILDING 3, SUITE 200
AUSTIN, TEXAS 78730
(512) 343-6666
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD R. PLUMRIDGE, ESQ. R.W. SMITH, JR., ESQ.
MICHAEL A. CONZA, ESQ. STEPHEN A. RIDDICK, ESQ.
BROBECK, PHLEGER & HARRISON LLP PIPER & MARBURY L.L.P.
1633 BROADWAY 36 SOUTH CHARLES STREET
NEW YORK, NEW YORK 10019 BALTIMORE, MARYLAND 21202-3010
(212) 581-1600 (410) 539-2530
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____________________________________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE(2)
<S> <C> <C>
Common stock, par value $.01 per share...................................... $45,885,000 $13,905
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
(2) Calculated pursuant to Rule 457(a) based on an estimate of the maximum
offering price.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
FEBRUARY 11, 1997
2,850,000 SHARES
[LOGO]
COMMON STOCK
---------
All of the 2,850,000 shares of Common Stock offered hereby are being sold by
PSW Technologies, Inc. ("PSW" or the "Company"). Prior to this offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial offering price will be between $12.00 and $14.00 per
share. See "Underwriting" for information relating to the factors to be
considered in determining the initial public offering price. Application has
been made to list the Common Stock for quotation on the Nasdaq National Market
("Nasdaq") under the trading symbol "PSWT."
--------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6 HEREOF.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS TO
PUBLIC AND COMMISSIONS COMPANY(1)
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total(2)........................................... $ $ $
</TABLE>
(1) Before deducting expenses of this offering estimated at $900,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
427,500 additional shares of Common Stock on the same terms and conditions
as the securities offered hereby, solely to cover over-allotments, if any.
To the extent the option is exercised, the Underwriters will offer the
additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
--------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1997.
ALEX. BROWN & SONS J.P. MORGAN & CO.
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
[Graph of Technology Life Cycle with photograph of ocean wave in background. A
textual quote, three boxes of text and additional text overlaying graph. Line
with arrow pointing from Box 1 to Box 2. Dotted lines border graph. Curve is
marked on graph by dots.
<TABLE>
<S> <C>
Vertical Graph Axis: Business End-User, Technology Vendor
Horizontal Graph Development, Early Adoption, High Growth, Maturity
Axis:
Textual Quote: "Lack of in-house technical skills is by far the most important
reason that companies look for external help when implementing an IT
project." International Data Corp. 1996.
Additional Text: PSW Technologies Provides High-Value Solutions By Exploiting The
Technology Life-Cycle.
Text Box 1: SOFTWARE TECHNOLOGY EXPERTISE -- Technical expertise GAINED by
helping technology vendors get product to market.
Text Box 2: BUSINESS SYSTEMS EXPERTISE -- Technical expertise APPLIED by helping
business end-users accelerate development of critical business
systems.
Text Box 3: GENOVA -- Technical expertise ACCUMULATED through formal
methodologies, courseware and object libraries.]
</TABLE>
------------------------
"Genova" and "PSW Technologies, Inc." are trademarks of the Company. This
Prospectus also includes trademarks and trade names of companies other than the
Company.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THIS PROSPECTUS CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS
AND THAT ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH
STATEMENTS, PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS
FACTORS IDENTIFIED IN THIS PROSPECTUS, INCLUDING THE MATTERS SET FORTH UNDER THE
CAPTION "RISK FACTORS," WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. THE FOLLOWING SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
PSW Technologies, Inc. is a software services firm that provides high value
solutions to technology vendors and business end-users by mastering and applying
critical emerging technologies. These critical technologies include distributed
computing, object-oriented development, advanced operating systems and systems
management technologies. The Company conducts its business through its two
business units: the Software Technology Unit and the Business Systems Unit.
PSW's Software Technology Unit provides joint project-based development,
porting and testing services to selected technology vendor clients. PSW services
enable these companies to improve the quality and speed to market of their
products which, PSW believes, often result in an earlier flow of revenue and
increased revenues over the long term for such technology vendor clients. The
Company's services also enable these clients to focus on their core
competencies, limit their permanent headcount and relieve temporary workload
spikes. PSW targets companies that are developing technologies which it believes
will be important to, and likely to be widely deployed by, its current and
potential business end-user clients. Through these engagements, PSW often gains
an early and comprehensive understanding of critical emerging technologies and
is therefore well positioned to service the continued needs of these and other
technology vendors, as well as the needs of the business end-user community.
The Company's Business Systems Unit applies PSW's technical expertise to the
design and development of high value, mission critical enterprise business
systems for its Fortune 1000 end-user clients. These systems, which support
multiple functions within the enterprise, typically are long-term strategic
information technology ("IT") solutions designed to enable business end-users to
improve the quality of the services they provide to their customers through
enhanced information capture and control, increased accuracy and efficiency and
decreased costs and response times. The Company focuses on enterprise solutions
due to their greater value to the client than departmental systems, and the
corresponding potential for longer-term relationships.
The Company has developed, and continues to develop, proprietary
methodologies and object libraries which formalize the knowledge and expertise
derived from its research and development projects with key technology vendors
and from its business system design and development projects with business
end-users. These methodologies and object libraries enable PSW to retain and
distribute its institutional knowledge throughout the Company and to achieve
improvements in cost, quality and speed on client projects.
The Company is flexible in structuring the terms of its client engagements,
favoring a time-and-materials pricing model with set project milestones, but
employing a fixed price model per phase in certain circumstances. The Company
works in partnership with its clients at the client site or at PSW's facilities,
as appropriate. This flexible, joint development approach, together with the
Company's utilization of proprietary methodologies, is designed to reduce risks
to PSW and its clients, maximize client satisfaction and allow PSW to transfer
expertise to its clients. In addition, PSW believes that its comprehensive
technical expertise in critical emerging technologies enables it to generate
high levels of repeat business by attracting clients that provide the
opportunity for multi-year, ongoing relationships.
3
<PAGE>
The Company was incorporated in Delaware in August 1996. In October 1996,
Pencom Systems Incorporated, a privately held corporation ("Pencom"),
contributed certain assets and associated liabilities of its software division
and a portion of a software contract that had previously been allocated to other
operations of Pencom to the Company in exchange for all of the outstanding
Common Stock of the Company, which Common Stock was immediately distributed to
Pencom's shareholders. The Company's executive offices are located at 6300
Bridgepoint Parkway, Building 3, Suite 200, Austin, Texas 78730, and its
telephone number is (512) 343-6666.
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby.................. 2,850,000 shares
Common Stock outstanding after the
offering................................... 8,396,463 shares(1)
Use of proceeds.............................. To repay indebtedness, to pay certain
corporate income tax obligations of the
Company and to pay dividends to existing
stockholders of the Company in amounts
estimated to approximate certain of their
1997 income tax obligations, and for working
capital and other general corporate purposes.
The Company may also use a portion of the net
proceeds to fund acquisitions of
complementary businesses or technologies,
although no such transaction is currently
contemplated. See "Use of Proceeds" and
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations--Net Charge Resulting from S
Corporation Termination."
Proposed Nasdaq National Market symbol....... PSWT
</TABLE>
- ------------------------
(1) Excludes 1,071,516 shares of Common Stock issuable upon the exercise of
stock options outstanding as of December 31, 1996, at a weighted average
exercise price of $2.02 per share, and warrants to purchase 507,654 shares
of Common Stock at $.04 per share.
4
<PAGE>
SUMMARY FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
STATEMENTS OF INCOME DATA:
Revenue..................................................... $ 6,562 $ 8,725 $ 12,318 $ 21,147 $ 31,274
Total operating expenses.................................... 6,660 9,939 12,022 18,924 29,943
Income (loss) from operations............................... (98) (1,214) 296 2,223 1,331(2)
Pro forma net income (loss)(3).............................. (173) (957) 138 1,326 720(2)
Pro forma net income (loss) per share(4).................... $ (.02) $ (.14) $ .02 $ .19 $ .10(2)
Weighted average common shares and equivalents
outstanding(4)............................................ 6,954 6,954 6,954 6,954 6,995
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(5)
--------- --------------
BALANCE SHEET DATA:
Working capital........................................................................ $ 1,648 $ 34,446
Total assets........................................................................... 11,943 39,909
Total stockholders' equity............................................................. 3,444 35,897
</TABLE>
- ------------------------
(1) Prior to October 1, 1996, the Company conducted its business and operations
as the software division of Pencom. The information presented above reflects
the financial position and results of operations of the Company and its
predecessor, the software division of Pencom, and such information does not
necessarily reflect what the financial position and results of operations of
the Company would have been had the Company been operated as a separate,
stand-alone company.
(2) After deducting special compensation expense of $2,193,000 ($1,360,000 net
of estimated tax benefit of $833,000, in the case of pro forma net income
and $.19 per share in the case of pro forma net income per share)
attributable to stock-based compensation in connection with the grants of
replacement options to employees who had participated in a Pencom option
plan and compensation related to the cancellation of a note issued by an
officer of the Company to Pencom (see Note 13 of Notes to Financial
Statements).
(3) After deducting interest and pro forma provision for income taxes as
described in Note 12 of Notes to Financial Statements.
(4) Computed on the basis described in Note 2 of Notes to Financial Statements.
(5) Adjusted to reflect (i) the sale of 2,850,000 shares of Common Stock offered
hereby at an assumed initial offering price of $13.00 per share and the
application of the net proceeds thereof, (ii) the issuance of 8,000 shares
of Common Stock at $6.25 per share pursuant to a commitment dated as of
January 1, 1997, (iii) repayment of the note payable under the Company's
credit facility, together with accrued interest, of $5,141,000, (iv) the
effect of a nonrecurring tax charge of $1,054,000 (see Note 12 of Notes to
Financial Statements), and (v) payment of a dividend of $500,000 to the
Company's stockholders of record prior to completion of this offering for
taxes payable on 1997 taxable income allocated to them, net of a tax benefit
of $400,000 to the Company. See "Capitalization," "Use of Proceeds" and Note
12 of Notes to Financial Statements.
------------------------
EXCEPT AS OTHERWISE SPECIFIED, (I) THE INFORMATION CONTAINED IN THIS
PROSPECTUS REFLECTS AN 11,250-FOR-1 FORWARD SPLIT OF THE COMPANY'S ISSUED AND
OUTSTANDING SHARES OF COMMON STOCK EFFECTED ON DECEMBER 18, 1996 AND AN 8-FOR-13
REVERSE SPLIT OF THE COMPANY'S ISSUED AND OUTSTANDING SHARES OF COMMON STOCK TO
BE EFFECTED PRIOR TO COMPLETION OF THIS OFFERING AND ASSUMES THAT THE
OVER-ALLOTMENT OPTION GRANTED TO THE UNDERWRITERS IS NOT EXERCISED, AND (II)
REFERENCES TO THE "COMPANY" OR "PSW" INCLUDE THE HISTORICAL OPERATING RESULTS
AND ACTIVITIES OF, AND ASSETS AND LIABILITIES ASSIGNED TO, THE BUSINESS AND
OPERATIONS WHICH COMPRISE THE COMPANY.
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED BY THIS PROSPECTUS.
CLIENT AND INDUSTRY CONCENTRATION; DEPENDENCE ON LARGE PROJECTS. The
Company has derived, and believes that it will continue to derive, a significant
portion of its revenue from a limited number of large clients. The Company's
five largest clients in each of 1994, 1995 and 1996 accounted for approximately
77%, 88% and 82% of its revenues in each of those years. The Company's largest
client, International Business Machines Corp. (together with its subsidiaries,
"IBM"), accounted for approximately 52% of its revenue in 1996. The volume of
work performed for specific clients is likely to vary from year to year, and a
major client in one year may not use the Company's services in a subsequent
year. The loss of, or reduction in PSW services required by, any large client
could have a material adverse effect on the Company's business, financial
condition and results of operations. Most of the Company's contracts are
terminable by the client following limited notice and without penalty to the
client. In addition, the Company's standard terms and conditions contract with
IBM expired on December 31, 1996, and although this contract is typically
renewed each year, there can be no assurance that the Company will be able to
extend or otherwise negotiate a successor contract with favorable terms, or at
all. Further, the level of investment by the Company's clients in IT projects
can be adversely affected by a number of factors, including changes or
developments in the general technology landscape and the internal budget cycles
of such clients. The cancellation of a large project or a significant reduction
in the scope of any such project could have a material adverse effect on the
Company's business, financial condition and results of operations, and in the
past the cancellation of large projects has adversely impacted the Company's
earnings.
The Company has derived and believes it will continue to derive a
significant portion of its revenue from the technology vendor industry. As a
result, the Company's business, financial condition and results of operations
are influenced by economic and other conditions affecting such industry, such as
economic downturns which could lead to a reduction in spending on IT projects,
which in turn could lead to fewer new research and development outsourcing
projects being undertaken. Further, several of the Company's client contracts
limit its ability to provide services to competitors of such clients, thereby
restricting the field of potential future clients. In addition, as a result of
the dynamic nature of the technology vendor industry, the Company may lose
clients due to the acquisition, merger or consolidation of existing clients with
entities which are not current clients of the Company. The occurrence of any of
the foregoing could have a material adverse effect on the Company's business,
financial condition and results of operations.
FIXED-PRICE CONTRACTS AND OTHER PROJECT RISKS. During 1996, approximately
12% of the Company's revenue was generated on a fixed price,
fixed-delivery-schedule ("fixed price") basis, rather than on a time-
and-materials basis. The Company's failure to accurately estimate the resources
required for a fixed price project or its failure to complete its contractual
obligations in a timely manner consistent with the project plan upon which its
fixed price contract is based could have a material adverse effect on the
Company's business, financial condition and results of operations. In the past,
the Company has found it necessary to revise project plans after commencement of
the project and commit unanticipated additional resources to complete certain
projects, which have negatively affected the profitability of such projects. The
Company may experience similar situations in the future, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company may establish contract prices
before the project design specifications are finalized, which could result in a
fixed price that proves to be too low and therefore adversely affects the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
Many of the Company's engagements involve projects which are critical to the
operations of its clients' businesses and which provide benefits that may be
difficult to quantify. The Company's failure to meet a client's expectations in
the performance of its services could damage the Company's reputation and
6
<PAGE>
adversely affect its ability to attract new business, and may have a material
adverse effect upon its business, financial condition and results of operations.
The Company has undertaken, and may in the future undertake, projects in which
the Company guarantees performance based upon defined operating specifications
or guaranteed delivery dates. Unsatisfactory performance or unanticipated
difficulties or delays in completing such projects may result in client
dissatisfaction and a reduction in payment to, or payment of damages by, PSW,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be able to limit its liability to clients, including liability
arising from the Company's failure to meet clients' expectations in the
performance of services, through contractual provisions, insurance or otherwise.
MANAGEMENT OF GROWTH. The Company's growth has placed significant demands
on its management and other resources. For example, the Company's staff
increased from 167 full-time employees at December 31, 1994 to 375 full-time
employees at December 31, 1996, and further significant increases are expected.
The Company's ability to manage its growth effectively will require it to
continue to develop and improve its operational, financial and other internal
systems, as well as its business development capabilities, and to continue to
attract, train, retain, motivate and manage its employees. In addition, the
Company's future success will depend in large part on its ability to continue to
maintain high rates of employee utilization, set fixed price fees accurately,
maintain project quality and meet delivery dates, all as the Company seeks to
increase the number of projects in which it is engaged. If the Company is unable
to manage its growth and projects effectively, such inability would have a
material adverse effect on the quality of the Company's services, its ability to
retain key personnel and its business, financial condition and results of
operations. No assurance can be given that the Company's growth will continue to
be achieved, or if achieved, will be maintained or that the Company will be
successful in managing any such growth.
RECENT ORGANIZATION; ABSENCE OF OPERATING HISTORY AS AN INDEPENDENT
BUSINESS; LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION. Prior to
October 1996, the Company conducted its business and operations as the software
division of Pencom. Accordingly, the Company has only a limited independent
operating history upon which an evaluation of the Company and its prospects can
be based. Prior to October 1996, the Company also had limited accounting
capability and depended upon Pencom for most accounting functions. By October 1,
1996, the Company had assumed responsibility for most internal accounting
functions, but continued to depend upon Pencom for limited accounting support in
connection with the Company's year-end audit through January 31, 1997. There can
be no assurance that the Company will be successful in taking control of these
functions from Pencom. The Company has also relied upon, and will continue to
rely upon, Pencom for certain legal services and recruiting functions. See
"Certain Transactions -- Pencom Relationship." The Company's management has only
limited experience operating the Company as a stand-alone company, separate and
apart from Pencom. Except as otherwise described under the caption "Certain
Transactions -- Pencom Relationship," Pencom has no obligation to provide
financial or management assistance to the Company and has no plans to do so. The
inability of the Company to operate successfully as an entity independent from
Pencom would have a material adverse effect on the Company's business, financial
condition and results of operations.
The financial information included herein does not reflect the changes that
will occur in the funding and operations of the Company as a result of this
offering, nor does it necessarily reflect what the results of operations,
financial position and cash flows of the Company would have been had the Company
been operated as a separate, stand-alone business during the periods presented.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company's revenue and
operating results may fluctuate from quarter to quarter based on a number of
factors, including the number, size and scope of projects in which the Company
is engaged, the contractual terms and degree of completion of such projects, any
delays incurred in connection with a project, the Company's success in earning
bonuses or other contingent
7
<PAGE>
payments, employee hiring and utilization rates, the adequacy of provisions for
losses, the accuracy of estimates of resources required to complete ongoing
projects and general economic conditions. A high percentage of the Company's
operating expenses, particularly personnel and rent, are fixed in advance of any
particular quarter. For example, while the number of professional staff the
Company employs may be adjusted to reflect active projects, such adjustments
take time and the Company must maintain a sufficient number of senior
professionals to oversee existing client engagements and to focus on securing
new client engagements. As a result, unanticipated variations in the number or
progress toward completion of the Company's projects or in employee utilization
rates may cause significant variations in operating results in any particular
quarter and could result in adverse changes to the Company's business, financial
condition and results of operations. Any shortfall in revenue or earnings from
expected levels or other failures to meet expectations of securities analysts or
the market in general regarding results of operations could have an immediate
and material adverse effect on the market price of the Company's Common Stock.
Given the possibility of such quarterly fluctuations in revenue or earnings, the
Company believes that comparisons of its quarterly results of operations are not
necessarily meaningful and that such results for one quarter should not be
relied upon as an indication of future performance. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Quarterly
Results."
NEED TO ATTRACT AND RETAIN PROFESSIONAL STAFF. The Company's success will
depend in large part upon its ability to attract, train, retain, motivate and
manage highly skilled employees, particularly project managers and other senior
technical personnel. Significant competition exists for employees with the
skills required to perform the services offered by the Company, and the Company
requires that a significant number of such employees travel to client sites to
perform services on its behalf, which may make a position with the Company less
attractive to potential employees. Qualified project managers, software
architects and senior technical and professional staff are in great demand
worldwide and are likely to remain a limited resource for the foreseeable
future. Furthermore, there is a high rate of attrition among such personnel.
There can be no assurance that a sufficient number of highly skilled employees
will continue to be available to the Company, that potential employees will be
willing to travel to client sites, or that the Company will be successful in
training, retaining and motivating current or future employees. The Company's
inability to attract, train and retain skilled employees or the Company's
employees' inability to achieve expected levels of performance could impair the
Company's ability to adequately manage and staff its existing projects and to
bid for or obtain new projects, which in turn would have a material adverse
effect on the Company's business, financial condition and results of operations.
RAPID TECHNOLOGICAL ADVANCES; RISK OF TARGETING EMERGING TECHNOLOGIES. The
Company has derived, and will continue to derive, a substantial portion of its
revenue from projects based on client/server systems. The client/server systems
market is continuing to develop and is subject to rapid technological change.
The Company's future success will also depend in part on its ability to develop
IT solutions which keep pace with continuing changes in information processing
technology, evolving industry standards and changing client preferences. There
can be no assurance that the Company will be successful in addressing these
developments in a timely manner or that if addressed, the Company will be
successful in the marketplace. The Company's delay or failure to address these
developments could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, there can be no
assurance that products or technologies developed, or services offered, by third
parties will not render the Company's services noncompetitive or obsolete. The
Company's Software Technology Unit also seeks to identify emerging technologies
which it believes will develop into critical technologies with broad application
and longevity. Once identified, the Company may commit substantial resources to
provide services to the developers of such technologies. No assurance can be
given that the technologies identified by the Company will develop into critical
technologies with broad application and longevity. The failure of the Company to
align itself with such critical emerging technologies would have a material
adverse affect on its business, financial condition and results of operations.
See "Business -- Industry Background" and "-- PSW's Strategy."
8
<PAGE>
CONTROL BY SHAREHOLDERS OF PENCOM; POTENTIAL CONFLICTS OF
INTEREST. Immediately following this offering, the current shareholders of
Pencom will own approximately 59% of the outstanding shares of Common Stock (56%
if the Underwriters' over-allotment option is exercised in full). In addition,
as of December 31, 1996, the shareholders of Pencom collectively held warrants
to purchase 200,016 shares of Common Stock of the Company at an exercise price
of $0.04 per share (in excess of 2% of the outstanding Common Stock after giving
effect to the sale of the shares of Common Stock offered hereby). As a result,
the current shareholders of Pencom will retain the voting power required to
elect all directors and otherwise control the management and affairs of the
Company, including any determinations with respect to acquisitions,
dispositions, borrowings, issuances of Common Stock or other securities or the
declaration and payment of any dividends on the Common Stock. This concentration
of ownership and voting control may have the effect of delaying or preventing a
change in control of the Company, or causing a change in control of the Company
that may not be favored by the Company's other stockholders. There can be no
assurance that such ability to prevent or cause a change in control of the
Company will not have a material adverse effect on the price of the Common
Stock. See "Principal Stockholders" and "Description of Capital Stock." There
can be no assurance that conflicts of interest between Pencom and the Company
will not arise in a number of areas relating to their past and ongoing
relationships, or that any such conflict of interest will be resolved in a
manner favorable to the Company, including potential competitive business
activities, indemnity arrangements, registration rights, sales or distributions
by the shareholders of Pencom of their shares of Common Stock and the exercise
by the shareholders of Pencom of their ability to control the management and
affairs of the Company. Any adverse change in the Company's relationship with
Pencom or with the Company's existing stockholders could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Certain Transactions -- Pencom Relationship."
The Company and Pencom have entered into a number of agreements for the
purpose of defining certain relationships between them. The Company and Pencom
may also enter into material transactions and agreements in the future. As a
result of the ownership interest in the Company of Pencom's shareholders, the
terms of such agreements were not, and the terms of any future amendments to
those agreements or future agreements may not be, the result of arm's-length
negotiations. In evaluating the terms of any material transactions between the
Company and Pencom or its affiliates, the Company's Board of Directors will
utilize such procedures as it deems appropriate in light of its fiduciary duties
under Delaware law. Three of the seven directors of the Company are also
directors of Pencom. Directors of the Company who are also directors of Pencom
will have conflicts of interest with respect to matters involving or affecting
the Company and Pencom, such as acquisitions, financings and other corporate
opportunities that may be suitable for both the Company and Pencom. There are no
contractual or other restrictions on Pencom's ability to compete with the
Company. Accordingly, circumstances could arise in which Pencom would engage in
activities in competition with the Company. There can be no assurance that such
conflicts or competition will be resolved in favor of the Company. In addition,
there can be no assurance that potential clients and vendors will not be
deterred by the existence of these relationships or by the historical ties
between the Company and Pencom. See "Certain Transactions -- Pencom
Relationship."
COMPETITION. The markets for the Company's services are highly competitive.
The Company believes that it currently competes principally with the internal
information systems and development groups of its prospective clients, as well
as with consulting and software integration firms and other hardware and
application software vendors. In addition, there are a number of systems
integrators who serve similar markets or provide similar services with whom the
Company competes or may compete in the future. Many of these companies have
significantly greater financial, technical and marketing resources than the
Company, generate greater revenues and have greater name recognition than the
Company. There are relatively low barriers to entry into the Company's markets
and the Company has faced and expects to continue to face additional competition
from new entrants into its markets.
9
<PAGE>
The Company believes that the principal competitive factors in its markets
include reputation, project management expertise, industry expertise, speed of
development and implementation, technical expertise and the ability to deliver
on a fixed price as well as a time-and-materials basis. The Company believes
that its ability to compete also depends in part on a number of competitive
factors outside of its control, including the ability of its clients or
competitors to hire, retain and motivate project managers and other senior
technical staff; the ownership by competitors of software used by potential
clients; the development by others of products and services that are competitive
with the Company's services; the price at which others offer comparable
services; the ability of its clients to perform the services themselves; and the
extent of its competitors' responsiveness to client needs. There can be no
assurance that the Company will be able to compete effectively on pricing or
other requirements with current and future competitors or that competitive
pressures faced by the Company will not cause the Company's revenue or income to
decline or otherwise materially adversely affect its business, financial
condition and results of operations. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL. The Company's future success will depend in
part upon the continued services of a number of key management employees,
particularly Dr. W. Frank King, Patrick D. Motola, Brian E. Baisley and William
C. Cason, and a number of key technical employees. The loss of the services of
any of the Company's key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company's credit facility prohibits material changes in management. The
Company does not maintain key-person life insurance on any of its employees. In
addition, if one or more of the Company's key employees resigns from the Company
to join a competitor or to form a competing company, any resulting loss of
existing or potential clients to any such competitor could have a material
adverse effect on the Company's business, financial condition and results of
operations. In the event of the loss of any such personnel, there can be no
assurance that the Company would be able to prevent the unauthorized disclosure
or use of its technical knowledge, practices or procedures by such personnel.
SYSTEM INTERRUPTION AND SECURITY RISKS; POTENTIAL LIABILITY AND LACK OF
INSURANCE. The Company's operations are dependent on its ability to protect its
intranet from interruption by damage from telecommunications failure, fire,
earthquake, power loss, unauthorized entry or other events beyond the Company's
control. Most of the Company's computer equipment, including its processing
equipment, is currently located at a single site. There can be no assurance that
unanticipated problems will not cause any significant system outage or data
loss. Despite the implementation of security measures, the Company's
infrastructure may also be vulnerable to computer viruses, hackers or similar
disruptive problems caused by Internet users. Persistent problems continue to
affect public and private data networks. For example, it is common for Internet
service providers to experience system interruptions which cause the Company to
lose access to the Internet, the means by which the Company posts internal
information and provides e-mail and time sheet query and entry. Any damage or
failure that causes interruptions in the Company's operations could have a
material adverse effect on the Company's business, financial condition or
results of operations.
INTELLECTUAL PROPERTY RIGHTS. The Company's future success is dependent in
part upon the maintenance and protection of its intellectual property rights
and, to a lesser extent, upon its ability to license technology from its
clients. The Company relies on a combination of copyrights, trade secrets and
trademarks to protect its intellectual property. There can be no assurance that
the steps taken by the Company to protect its intellectual property rights will
be adequate, that competitors will not be able to develop similar or
functionally equivalent methodologies or products or that the Company will be
able to license technology from its clients in the future. Furthermore,
effective copyright and trade secret protection may be unavailable or limited in
certain foreign countries, and no assurance can be given that foreign copyright
and trade secret laws will adequately protect the Company's intellectual
property rights. Litigation may be necessary to enforce the Company's
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the intellectual property rights of others,
10
<PAGE>
including the Company's clients, or to defend against claims of infringement.
Such litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, financial
condition and results of operations. No assurance can be given that infringement
or invalidity claims (or claims for indemnification resulting from infringement
claims against third parties, such as clients) will not be asserted against the
Company or that any such assertions would not have a material adverse effect on
the Company's business, financial condition or results of operations. If
infringement or invalidity claims are asserted against the Company or any of its
licensees, litigation may be necessary to defend the Company or such licensees
against such claims, and in certain circumstances, the Company may choose to
seek to obtain a license under the third party's intellectual property rights.
There can be no assurance that such licenses will be available on terms
acceptable to the Company, if at all. See "Business -- Intellectual Property
Rights."
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE. Prior to this
offering, there has been no public market for the Company's Common Stock.
Although application has been made to list the Company's Common Stock for
quotation on Nasdaq, no assurance can be given that an active public market for
the Common Stock will develop or be sustained after this offering or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price will be determined by
negotiation among the Company and representatives of the Underwriters. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
The market for securities of early-stage companies has been highly volatile
in recent years as a result of factors often unrelated to a company's
operations. In addition, the Company believes factors such as quarterly
variations in operating results, announcements of technological innovations or
new products or services by the Company or its competitors, general conditions
in the IT industry or the industries in which PSW's clients compete and changes
in earnings estimates by securities analysts, could contribute to the volatility
of the price of the Company's Common Stock. These factors, as well as general
economic conditions such as recessions or changes in interest rates, could
adversely affect the market price of the Common Stock. Furthermore, in the past,
following periods of volatility in the market price of a company's securities,
securities class action claims have been brought against the issuing company.
There can be no assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, and any adverse determination
in such litigation could also subject the Company to significant liabilities,
all of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering, the
Company will have outstanding 8,396,463 shares of Common Stock (not including
shares issuable upon exercise of outstanding stock options and warrants). The
2,850,000 shares offered hereby will be eligible for immediate sale in the
public market without restriction. All of the shares of Common Stock currently
outstanding are "restricted securities" as defined in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"). Of such shares,
5,538,463 and 8,000 shares will become eligible for sale upon the expiration of
certain holding periods under Rule 144, subject to certain restrictions,
beginning in October 1998 and February 1999, respectively. The Securities and
Exchange Commission has proposed certain amendments to Rule 144 that would
reduce by one year the holding periods required for shares subject to Rule 144
to become eligible for resale in the public market. This proposal, if adopted,
would permit earlier resale of shares of Common Stock than described above. No
assurance can be given concerning whether or when the proposal will be adopted
by the Securities and Exchange Commission. Following completion of this
offering, the Company intends to register under the Securities Act an aggregate
of 2,115,000 shares of Common Stock reserved for issuance under the Company's
employee benefit plans, which shares will then be freely tradeable upon
issuance. Finally, beginning 180 days after the completion of this offering, the
holders of an aggregate of 5,546,463 shares of Common Stock and warrants to
purchase an additional 507,654 shares of Common Stock have the right to require
the Company to register such shares under the Securities Act for sale to the
11
<PAGE>
public. Sales of substantial amounts of Common Stock in the public market, or
the perception that such sales may occur, could adversely affect the prevailing
market price of the Common Stock or the ability of the Company to raise capital
through a public offering of its equity securities. See "Description of Capital
Stock -- Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
DISCRETION AS TO USE OF PROCEEDS. The Company has not yet identified
specific uses of a significant portion of the net proceeds from this offering.
The Company's management will retain broad discretion to allocate the net
proceeds from this offering to uses that the stockholders may not deem
desirable, and there can be no assurance that the proceeds can or will yield a
significant return. It is currently anticipated that the net proceeds will be
used for the repayment of indebtedness, the payment of certain income tax
obligations, and for working capital and other general corporate purposes. See
"Use of Proceeds."
EFFECT OF CERTAIN ANTITAKEOVER PROVISIONS. The Company's Board of Directors
has the authority to issue shares of Preferred Stock and to determine the
designations, preferences and rights and the qualifications or restrictions of
those shares without any further vote or action by the stockholders. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. In addition, the Company will, upon consummation of this
offering, be subject to the antitakeover provisions of Section 203 of the
Delaware General Corporation Law (the "DGCL"). In general, this statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Furthermore, certain other provisions of the Company's Amended and Restated
Certificate of Incorporation and Amended and Restated Bylaws may have the effect
of discouraging, delaying or preventing a merger, tender offer or proxy contest,
which could adversely affect the market price of the Company's Common Stock. See
"Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Common Stock offered
hereby will suffer an immediate and substantial dilution of the net tangible
book value per share of the Common Stock of $8.72 from the initial offering
price. See "Dilution."
DIVIDEND POLICY. Upon completion of this offering, the Company's status as
a Subchapter S corporation will terminate and the Company will change its method
of tax accounting from the cash to the accrual method. Subsequent to completion
of this offering, the Company will pay a cash dividend to its stockholders of
record immediately prior to completion of this offering in an amount estimated
to approximate the 1997 income tax that such stockholders will be required to
pay on the 1997 taxable income allocated to them. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Net Charge
Resulting from S Corporation Termination." Thereafter, the Company currently
intends to retain any earnings for the operation and expansion of the Company's
business and does not anticipate paying any cash dividends in the foreseeable
future. In addition, upon completion of this offering, the Company's credit
facility will prohibit the payment of any other cash dividends. Any future
determination to pay cash dividends on the Common Stock will be at the sole
discretion of the Board of Directors and will depend upon the Company's
earnings, financial condition, cash requirements, future prospects, contractual
restrictions and other factors deemed relevant by the Board of Directors.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,850,000 shares of
Common Stock offered hereby are estimated to be approximately $33.6 million
($38.7 million if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $13.00 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses. The Company intends to use a portion of the net proceeds of this
offering to (i) repay the principal amount outstanding under the Company's
credit facility, as amended (the "Credit Facility"), with Texas Commerce Bank
National Association, a subsidiary of The Chase Manhattan Corporation ("TCB"),
together with the interest accrued thereon, (ii) pay an income tax obligation
which will be incurred in connection with the conversion of the Company from a
cash basis to an accrual basis method of tax accounting upon completion of this
offering, and (iii) pay a cash dividend to its existing stockholders in respect
of their estimated 1997 income tax obligations as described in Note 12 of Notes
to Financial Statements. The Credit Facility expires on November 8, 1997, and
loans thereunder bore interest at a rate of 8.25% at January 31, 1997. The
outstanding principal amount of the Credit Facility at January 31, 1997 was $2.1
million. The proceeds of the Credit Facility were short term borrowings used for
working capital. Amounts repaid under the Credit Facility may be reborrowed by
the Company from time to time. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." The remainder of the net proceeds of this offering will be used for
working capital and other general corporate purposes. The Company may also use a
portion of the net proceeds to fund acquisitions of complementary businesses or
technologies, although no such transaction is currently contemplated.
Pending such uses of the net proceeds, the Company intends to invest such
funds in short-term, interest-bearing investment grade securities, certificates
of deposit or obligations issued or guaranteed by the United States government.
DIVIDEND POLICY
After completion of this offering, the Company currently intends to retain
any earnings for the operation and expansion of the Company's business and does
not anticipate paying any cash dividends in the foreseeable future, other than
the cash dividend to its existing stockholders described under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Net Charge Resulting from S Corporation Termination." In addition,
after completion of this offering, the Credit Facility will prohibit the payment
of any other cash dividends. Any future determination to pay cash dividends on
the Common Stock will be at the sole discretion of the Board of Directors and
will depend upon the Company's earnings, financial condition, cash requirements,
future prospects, contractual restrictions and other factors deemed relevant by
the Board of Directors.
13
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1996, the capitalization
of the Company (i) on an actual basis, (ii) on a pro forma basis giving effect
to the items set forth in footnotes (1) and (2) to the table and (iii) on a pro
forma as adjusted basis to give effect to the Company's Amended and Restated
Certificate of Incorporation which will be filed prior to completion of this
offering and to the sale of 2,850,000 shares of Common Stock offered hereby at
an assumed initial public offering price of $13.00 per share, and application of
the estimated net proceeds therefrom as described in footnote (3) to the table.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA(1)(2) AS ADJUSTED(3)
--------- --------------- --------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Note payable to bank.................................................. $ 5,125 $ 1,943 $ --
Dividend payable to stockholders...................................... -- 500 --
Stockholders' equity:
Preferred Stock, $.01 par value; none authorized, actual and pro
forma, 1,000,000 authorized, pro forma as adjusted; none issued
and outstanding................................................... -- -- --
Common Stock, $.01 par value; 11,250,000 shares authorized, actual
and pro forma, 34,000,000 shares authorized, pro forma as
adjusted; 5,538,463 shares issued and outstanding, actual,
5,546,463 shares issued and outstanding, pro forma, and 8,396,463
shares issued and outstanding, pro forma as adjusted(4)........... 55 55 84
Additional paid-in capital............................................ 4,187 3,580 37,108
Deferred compensation................................................. (641) (641) (641)
Accumulated deficit................................................... (157) (654) (654)
--------- ------- -------
Total stockholders' equity.......................................... 3,444 2,340 35,897
--------- ------- -------
Total capitalization............................................ $ 8,569 $ 4,783 $ 35,897
--------- ------- -------
--------- ------- -------
</TABLE>
- ------------------------
(1) Adjusted to reflect (i) the issuance of 8,000 shares at $6.25 per share
pursuant to a commitment dated as of January 1, 1997, (ii) use of cash at
December 31, 1996 of $3,182,000 to repay a portion of the note payable to
bank, (iii) the elimination of the accumulated deficit against additional
paid-in capital, and (iv) the effect of a nonrecurring tax charge of
$1,054,000 (see Note 12 of Notes to Financial Statements).
(2) Adjusted to reflect the accrual of a dividend to the stockholders of record
prior to this offering for taxes payable on 1997 taxable income allocated to
them. Such amount has been currently estimated at $500,000. However, the
actual amount will vary and will depend upon the Company's 1997 results of
operations and the timing of this offering (see Note 12 of Notes to
Financial Statements). If the taxes payable by the stockholders on 1997
taxable income allocated to them are equal to the currently estimated
$500,000, actual income tax payable by the Company due to the conversion
from an S corporation would be reduced by approximately $400,000.
(3) Adjusted to reflect the (i) issuance of 2,850,000 shares at an assumed
initial public offering price of $13.00 per share and the receipt of the
estimated net proceeds therefrom, (ii) repayment of the note payable to bank
of $1,943,000, and (iii) payment of the dividend to the stockholders of
$500,000.
(4) Excludes 1,071,516 shares of Common Stock issuable upon the exercise of
stock options outstanding as of December 31, 1996, at a weighted average
exercise price of $2.02 per share, and warrants to purchase 507,654 shares
of Common Stock at $.04 per share.
14
<PAGE>
DILUTION
As of December 31, 1996, after giving pro forma effect to (i) the proceeds
from 8,000 shares of Common Stock issuable pursuant to a commitment dated as of
January 1, 1997 at $6.25 per share, (ii) the effect of a nonrecurring tax charge
to the Company of $1,054,000 and (iii) the accrual of a dividend, currently
estimated to be $500,000, payable to the stockholders of record prior to this
offering for taxes payable on 1997 taxable income allocated to them (see Note 12
of Notes to Financial Statements), the pro forma net tangible book value of the
Company was approximately $2.3 million, or $.42 per share of Common Stock. Pro
forma net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in
this offering and the pro forma tangible book value per share immediately after
completion of this offering. Net tangible book value is defined as total assets
less deferred offering and other intangible costs less total liabilities. After
giving effect to the sale of the 2,850,000 shares of Common Stock offered hereby
(at an assumed initial offering price of $13.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses), the
adjusted pro forma net tangible book value of the Company as of December 31,
1996 would have been $35.9 million, or $4.28 per share, representing an
immediate increase in pro forma net tangible book value of $3.86 per share to
existing stockholders and immediate dilution of $8.72 per share to new investors
purchasing shares in this offering. The following table illustrates the per
share dilution with respect to the shares offered hereby:
<TABLE>
<S> <C> <C>
Assumed public offering price per share...................... $ 13.00
Pro forma net tangible book value per share prior to this
offering................................................. $ .42
Increase per share attributable to new investors........... 3.86
---------
Adjusted pro forma net tangible book value per share after
this offering.............................................. 4.28
---------
Dilution per share to new investors.......................... $ 8.72
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1996, the number of shares of Common Stock issued by the Company, the total
consideration paid, and the average price per share paid by existing
stockholders and by new investors in this offering (at an assumed initial public
offering price of $13.00 per share).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................ 5,546,463 66.1% $ 2,006,000(1) 5.1% $ .36
New investors.................................... 2,850,000 33.9 37,050,000 94.9 $ 13.00
---------- ----- ------------- -----
Total...................................... 8,396,463 100.0% $ 39,056,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
The foregoing is based on the number of shares outstanding at December 31,
1996 plus 8,000 shares issuable pursuant to a commitment dated as of January 1,
1997, and excludes an aggregate of 1,071,516 shares issuable upon the exercise
of options outstanding as of December 31, 1996 with a weighted average exercise
price of $1.10 per share, of which options for 363,540 shares of Common Stock
were exercisable as of such date, and warrants to purchase 507,654 shares of
Common Stock at $.04 per share. Additional dilution will occur upon the exercise
of outstanding options and warrants. As of December 31, 1996, options to
purchase an additional 643,484 shares of Common Stock were available for
issuance under the Company's stock option plan. See "Management -- 1996 Stock
Option/Stock Issuance Plan."
- ------------------------
(1) Represents net book value of assets contributed by Pencom allocated to
Common Stock issued of 5,538,463 plus consideration to be received for the
8,000 shares issued pursuant to a commitment as of January 1, 1997.
15
<PAGE>
SELECTED FINANCIAL DATA
PSW commenced operations as a corporation effective October 1, 1996. Prior
to that date, the Company conducted its business and operations as the software
division of Pencom. The selected financial data presented below have been
derived from the financial statements of the Company and its predecessor and
include the portion of a software contract that had previously been allocated to
Pencom. The financial statements of the Company's predecessor as of December 31,
1992, 1993 and 1994 and for each of the three years in the period ended December
31, 1994 have been audited by Margolin, Winer & Evens LLP, independent
accountants, and the financial statements of the Company and its predecessor as
of December 31, 1995 and 1996 and for the years then ended have been audited by
Ernst & Young LLP, independent auditors. The information presented below
reflects the financial condition and results of operations of the Company and
its predecessor, and does not necessarily reflect what the financial position
and results of operations of the Company would have been had the Company been
operated as a separate, stand-alone company for the periods presented prior to
October 1, 1996. The following should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF INCOME DATA:
Revenue.................................................... $ 6,562 $ 8,725 $ 12,318 $ 21,147 $ 31,274
Operating expenses:
Technical staff.......................................... 4,003 6,167 7,385 11,193 16,444
Selling and administrative staff......................... 1,211 1,873 2,320 3,755 5,622
Other expenses........................................... 1,446 1,899 2,317 3,976 5,684
Special compensation expense(1).......................... -- -- -- -- 2,193
--------- --------- --------- --------- ---------
Total operating expenses............................... 6,660 9,939 12,022 18,924 29,943
--------- --------- --------- --------- ---------
Income (loss) from operations.............................. (98) (1,214) 296 2,223 1,331
Interest expense........................................... 181 329 74 84 170
--------- --------- --------- --------- ---------
Net income (loss).......................................... $ (279) $ (1,543) $ 222 $ 2,139 $ 1,161
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Unaudited pro forma information:
Historical income (loss) before provision for income
taxes.................................................. (279) (1,543) 222 2,139 1,161
Pro forma provision (benefit) for income taxes(2)........ (106) (586) 84 813 441
--------- --------- --------- --------- ---------
Pro forma net income (loss).............................. $ (173) $ (957) $ 138 $ 1,326 $ 720
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net income per share(3)........................ $ (.02) $ (.14) $ .02 $ .19 $ .10
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares and equivalents
outstanding(3)........................................... 6,954 6,954 6,954 6,954 6,995
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................................ $ 990 $ 1,526 $ 1,933 $ 2,756 $ 1,648
Total assets............................................... 1,660 2,533 3,538 4,982 11,943
Total stockholders' equity................................. 1,544 2,302 2,675 3,684 3,444
</TABLE>
- ------------------------
(1) See Note 13 of Notes to Financial Statements for an explanation of special
compensation expense.
(2) Computed on the basis described in Note 12 of Notes to Financial Statements.
(3) Computed on the basis described in Note 2 of Notes to Financial Statements.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS
AND THAT ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH
STATEMENTS, PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS
FACTORS IDENTIFIED IN THIS PROSPECTUS, INCLUDING THE MATTERS SET FORTH UNDER THE
CAPTION "RISK FACTORS," WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.
OVERVIEW
PSW Technologies, Inc. is a software services firm that provides high value
solutions to technology vendors and business end-users by mastering and applying
critical emerging technologies. These critical technologies include distributed
computing, object-oriented development, advanced operating systems and systems
management technologies. Technology vendors primarily consist of software
companies who utilize the Company's services to help bring their products to
market faster. Business end-users generally utilize the Company's services to
help define, develop and complete high value, mission critical enterprise
software systems for internal use.
The Company was founded as a separate division of Pencom in 1989 to take
advantage of the large number of subcontractors placed by Pencom with IBM's AIX
organization in Austin, Texas. As these subcontractors completed their
assignments, the most talented were recruited to become part of the permanent
technical staff of the Company. The Company's mission was to seek project
oriented assignments to complement Pencom's existing recruiting and staff
supplementation business.
Dr. W. Frank King was hired in 1992 as the President of the Company to
continue its growth, establish profitability and develop the infrastructure that
would eventually enable it to operate as a separate company. In addition, in
1993, Dr. King focused resources to provide application development services to
address the needs of business end-users.
The Company established a formal sales function in 1994, and began the
GENOVA initiative with an emphasis on the business development methodology. The
Company first became profitable in 1994. In 1995, the Company improved
profitability and initiated its own recruiting function independent of Pencom.
At the end of 1995, the Company organized into its current business unit
structure to provide for more emphasis on each of the two markets served by the
Company.
In 1996, the Company continued its growth and profitability (before special
compensation expense), formalized the GENOVA initiative, completed the licensing
of the GENOVA OBJECT LIBRARIES and established the GENOVA ACADEMY training. On
October 1, 1996, the Company was formed as PSW Technologies, Inc., at which time
the Company assumed responsibility for its own accounting and finance operations
but continued to depend upon Pencom for limited accounting support in connection
with the Company's year-end audit through January 31, 1997.
To date, revenue has been generated principally from time-and-materials
contracts for the Company's software services. Revenue from time-and-materials
contracts is recognized during the period in which the services are provided.
The Company also enters into fixed price contracts for its software services.
Revenue from fixed price contracts is recognized using the
percentage-of-completion method over the term of the client contract, measured
by the labor incurred as a percentage of the estimated total labor used at
completion. Fixed price contract revenue represented approximately 12% of the
Company's revenue in 1996. The cumulative impact of revisions in percentage of
completion estimates is reflected in the period in which the revisions are made.
Provisions for estimated losses on uncompleted contracts are made on a contract
by contract basis and are recognized in the period in which such losses are
determined. There can be no assurance of the accuracy of the Company's future
work completion estimates, and operating results may be adversely affected by
inaccurate estimates of contract related labor.
17
<PAGE>
The Company has derived, and believes it will continue to derive, a
significant portion of its revenue from a limited number of large clients. One
client, IBM, accounted for 52% of revenue in 1996. The Company's relationship
with IBM includes engagements with IBM Kirkland, IBM Austin, Tivoli and Lotus.
The technologies involved in these engagements include Windows 95, Windows NT,
AIX, system management software and Lotus Notes workgroup software. None of
these engagements accounted for more than 20% of the Company's 1996 revenue.
The information presented herein reflects the financial position, results of
operations and cash flows of the Company and its predecessor, the software
division of Pencom, and such information does not necessarily reflect what the
financial position, results of operations and cash flows of the Company would
have been had the Company been operated as a separate, stand-alone business for
the periods presented prior to October 1, 1996.
NET CHARGE RESULTING FROM S CORPORATION TERMINATION
Since its commencement of operations on October 1, 1996, the Company has
elected to operate as an S corporation under Subchapter S of the Internal
Revenue Code of 1986, as amended (the "Code"). As such, the Company's taxable
income was included in the individual income tax returns of its stockholders
(with certain exceptions under state and local income tax laws). Upon completion
of this offering, the S status will terminate and the Company will be subject to
corporate income taxes. Additionally, upon completion of this offering, the
Company will be required to change its method of tax accounting from the cash to
the accrual method. The current and deferred tax effect of these changes will be
recorded at the time this offering is completed. The Company's 1997 taxable
income, including the effect of the change in the method of accounting, will be
allocated between the S corporation period and the subsequent period based upon
the number of days in each period. The Company will be obligated to pay the
income taxes related to the taxable income allocated to the subsequent period
and will pay a dividend to the S corporation stockholders in an amount estimated
to approximate the tax that the S corporation stockholders will be required to
pay on the 1997 taxable income allocated to them. The actual charge to earnings
and the dividend to the S corporation stockholders will be based upon the
Company's results of operations in 1997 and the amount of the 1997 taxable
income allocated to the S corporation stockholders (see Note 12 of Notes to
Financial Statements).
SPECIAL COMPENSATION EXPENSE
Special compensation expense consists of stock-based compensation in
connection with the grants of replacement options to the Company's employees who
participated in the Pencom stock option plan (see Note 8 of Notes to Financial
Statements) and compensation related to the cancellation of a note issued by an
officer of the Company to Pencom (see Note 10 of Notes to Financial Statements),
which, in the aggregate, totaled $2.2 million for the year ended December 31,
1996.
PRO FORMA INCOME TAXES
Pro forma income taxes reflect the estimated corporate income tax expense
that the Company would have recognized had it not elected S corporation status
(see Note 12 of Notes to Financial Statements).
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenue of certain items
included in the Company's statements of income for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----- ----- -----
Revenue...................................................................... 100% 100% 100%
Operating expenses:
Technical staff............................................................ 60 53 53
Selling and administrative staff........................................... 19 18 18
Other expenses............................................................. 19 19 18
Special compensation expense............................................... -- -- 7
--- --- ---
Total operating expenses............................................... 98 90 96
--- --- ---
Income from operations....................................................... 2 10 4
Pro forma provision for income taxes......................................... 1 4 1
--- --- ---
Pro forma net income......................................................... 1% 6% 2%
--- --- ---
--- --- ---
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUE
Revenue consists primarily of fees for software services provided. Revenue
was $31.3 million in 1996, an increase of 48% over 1995 revenue of $21.1
million, principally due to increases in the scope and number of client
projects. Revenue attributable to software services rendered to technology
vendors was $20.4 million and $14.0 million in 1996 and 1995, respectively, an
increase of 45% in 1996 compared to 1995. Revenue attributable to software
services rendered to business end-users was $10.9 million and $7.1 million in
1996 and 1995, respectively, an increase of 54% in 1996 compared to 1995.
Two clients, including their subsidiaries, accounted for 66% and 76% of
total revenue in 1996 and 1995, respectively. No other client accounted for more
than 10% of total revenue in 1996 or 1995.
TECHNICAL STAFF
Technical staff consists of the cost of salaries, payroll taxes, health
insurance and workers' compensation for technical staff personnel assigned to
client projects and unassigned technical staff personnel, and fees paid to
subcontractors for work performed in connection with a client project. Technical
staff costs were $16.2 million in 1996, an increase of 45% over 1995 technical
staff costs of $11.2 million. The increase in technical staff costs was
primarily due to the addition of personnel necessary to service growth in the
number and size of client projects. The cost of technical staff was 53% of
revenue in both 1996 and 1995.
SELLING AND ADMINISTRATIVE STAFF
Selling and administrative staff consists of the cost of salaries, payroll
taxes, health insurance and workers' compensation for selling and administrative
personnel, all commissions and bonuses, and the cost of technical staff
personnel assigned to development projects or performing selling, recruiting or
training related tasks. Selling and administrative staff costs were $5.6 million
in 1996, up 50% from $3.8 million in 1995. The increase in selling and
administrative staff costs was primarily due to the addition of personnel
necessary to support the Company's growth, including increases in sales and
recruiting personnel, and increases in personnel working on the Company's GENOVA
initiative. Selling and administrative staff costs were 18% of revenue in both
1996 and 1995.
19
<PAGE>
OTHER EXPENSES
Other expenses consist of all non-staff related costs, such as occupancy
costs, travel, business insurance, business development, recruiting, training
and depreciation. Other expenses were $5.9 million in 1996, an increase of 48%
over other expenses of $4.0 million in 1995. Other expenses declined to 18% of
revenue in 1996 from 19% in 1995, primarily as a result of the significant
increase in revenue in 1996.
SPECIAL COMPENSATION EXPENSE
Special compensation expense consists of stock-based compensation and
compensation related to the cancellation of a note payable (see Note 13 of Notes
to Financial Statements). Special compensation expense was $2.2 million, or 7%
of revenue in 1996.
INCOME FROM OPERATIONS
Income from operations decreased $892,000 to $1.3 million in 1996 from $2.2
million in 1995. If income from operations were adjusted to exclude special
compensation expense, referred to above, income from operations would have grown
59% in 1996 compared with 1995. Income from operations declined to 4% of revenue
in 1996 from 11% in 1995 primarily as a result of special compensation expense
in 1996. If income from operations were adjusted to exclude special compensation
expense, income from operations would have been 11.3% of revenue in 1996,
compared to 10.5% in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUE
Revenue was $21.1 million in 1995, an increase of 72% over 1994 revenue of
$12.3 million, principally due to increases in the scope and number of client
projects. Revenue attributable to software services rendered to technology
vendors was $14.1 million and $8.9 million in 1995 and 1994, respectively, an
increase of 58% in 1995 over 1994. Revenue attributable to software services
rendered to business end-users was $7.1 million and $3.4 million in 1995 and
1994, respectively, an increase of 109% in 1995 over 1994.
In 1994, one client accounted for 54% of revenue. No other client accounted
for more than 10% of total revenue in 1994.
TECHNICAL STAFF
Technical staff costs were $11.2 million in 1995, an increase of 52% over
1994 technical salaries of $7.4 million. The increase in technical staff cost
was primarily due to the addition of personnel necessary to service growth in
the number and size of client projects. The cost of the Company's technical
staff declined to 53% of revenue in 1995 from 60% in 1994, primarily as a result
of improved pricing and higher utilization of the technical staff.
SELLING AND ADMINISTRATIVE STAFF
Selling and administrative staff costs were $3.8 million in 1995, up 62%
from $2.3 million in 1994. The increase in selling and administrative staff
salaries was primarily due to the addition of personnel necessary to support the
Company's growth. The cost of selling and administrative staff declined to 18%
of revenue in 1995 from 19% in 1994, primarily as a result of the significant
increase in revenue in 1995.
OTHER EXPENSES
Other expenses were $4.0 million in 1995, an increase of 72% over other
expenses of $2.3 million in 1994. Other expenses were 19% of revenue in both
1995 and 1994.
20
<PAGE>
INCOME FROM OPERATIONS
Income from operations increased to $2.2 million, or 11% of revenue in 1995,
from $296,000, or 2% of revenue, in 1994.
QUARTERLY RESULTS
The following table presents certain unaudited quarterly results of
operations of the Company for each of the quarters in the two-year period ended
December 31, 1996. In the opinion of management, this information has been
prepared on the same basis as the audited financial statements of the Company
and all necessary adjustments, consisting only of normal recurring adjustments,
have been included in the amounts stated below to present fairly the quarterly
information when read in conjunction with the Company's audited financial
statements and notes thereto included elsewhere in this Prospectus. The results
of operations for any quarter are not necessarily indicative of the results
expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
Revenue.................................. $ 4,444 $ 5,012 $ 5,631 $ 6,060 $ 6,537 $ 6,950 $ 7,737
Operating expenses:
Technical staff........................ 2,379 2,708 2,887 3,219 3,556 3,741 4,287
Selling and administrative staff....... 773 899 992 1,091 1,171 1,257 1,299
Other expenses......................... 882 912 1,039 1,143 1,177 1,240 1,417
Special compensation expense........... -- -- -- -- -- -- 655
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses............. 4,034 4,519 4,918 5,453 5,904 6,238 7,658
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations............ 410 493 713 607 633 712 79
Interest expense (income)................ 43 (13) 44 10 27 17 59
Pro forma provision for income taxes..... 140 192 254 227 230 264 8
----------- ----------- ----------- ----------- ----------- ----------- -----------
Pro forma net income (loss).............. $ 227 $ 314 $ 415 $ 370 $ 376 $ 431 $ 12
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
<S> <C>
DEC. 31,
1996
-----------
Revenue.................................. $ 10,050
Operating expenses:
Technical staff........................ 4,860
Selling and administrative staff....... 1,895
Other expenses......................... 1,850
Special compensation expense........... 1,538
-----------
Total operating expenses............. 10,143
-----------
Income (loss) from operations............ (93)
Interest expense (income)................ 66
Pro forma provision for income taxes..... (60)
-----------
Pro forma net income (loss).............. $ (99)
-----------
-----------
</TABLE>
The following table sets forth certain financial data expressed as a
percentage of revenue:
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
------------- ----------- ----------- ----------- ------------- -----------
Revenue.................................. 100% 100% 100% 100% 100% 100%
Operating expenses:
Technical staff........................ 54 54 51 53 54 54
Selling and administrative staff....... 17 18 18 18 18 18
Other expenses......................... 20 18 18 19 18 18
Special compensation expense........... -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Total operating expenses............. 91 90 87 90 90 90
----- ----- ----- ----- ----- -----
Income (loss) from operations............ 9 10 13 10 10 10
Interest expense (income)................ 1 -- 1 -- -- --
Pro forma provision for income taxes..... 3 4 5 4 4 4
----- ----- ----- ----- ----- -----
Pro forma net income (loss).............. 5% 6% 7% 6% 6% 6%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
<CAPTION>
<S> <C> <C>
SEPT. 30, DEC. 31,
1996 1996
----------- -----------
Revenue.................................. 100% 100%
Operating expenses:
Technical staff........................ 55 48
Selling and administrative staff....... 17 19
Other expenses......................... 18 18
Special compensation expense........... 9 16
----- -----------
Total operating expenses............. 99 101
----- -----------
Income (loss) from operations............ 1 (1)
Interest expense (income)................ 1 1
Pro forma provision for income taxes..... -- (1)
----- -----------
Pro forma net income (loss).............. -- (1)%
----- -----------
----- -----------
</TABLE>
During 1996, the Company was engaged in projects which entitled the Company
to earn bonuses which were contingent on future events. Generally Accepted
Accounting Principles require that revenue in connection with these bonuses not
be recognized until the resolution of those events, which occurred in the fourth
quarter of 1996 and resulted in the recognition of revenue totaling $622,000.
Income from operations excluding special compensation expense would have been
$1.4 million, or 14% of revenue, in
21
<PAGE>
the quarter ended December 31, 1996. This increase over prior quarters was due
in large part to the recognition of these bonuses.
The Company's revenue may fluctuate from quarter to quarter based on such
factors as number, size and timing of projects in which the Company is engaged,
the contractual terms and percentage of completion for fixed price contracts,
delays incurred in connection with a project, the Company's success in earning
bonuses or other contingent payments, availability of technical staff and
technical staff utilization rates, the adequacy of provisions for losses and the
accuracy of estimates of labor required to complete ongoing fixed price projects
and general economic conditions. A high percentage of the Company's expenses,
particularly technical and administrative staff costs, are fixed in advance of
any particular quarter. Unanticipated variations in the number, size or timing
of the Company's projects can adversely affect employee utilization rates.
Accordingly, revenue fluctuations may cause significant variations in operating
results in any particular quarter and could result in an adverse effect on the
Company's business, financial condition and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Since commencement of its operations as a separate company on October 1,
1996, the Company has maintained its own cash accounts. Available cash balances
have generally been used to reduce bank borrowings and amounts due to Pencom. At
December 31, 1996, the Company had cash of $3.2 million as a result of
significant remittances from clients on that date, which was subsequently used
to reduce bank borrowings and amounts due to Pencom. Prior to its incorporation,
the Company participated in Pencom's centralized cash management system while it
conducted its business and operations as the software division of Pencom. In
1994, a cash deficit of $151,000 was financed by contributions from Pencom. In
1995, cash was used to repay $1.1 million of contributions by Pencom. In 1996,
the Company repaid $2.9 million of contributions from Pencom.
The Company has a revolving line of credit with TCB providing for borrowings
of up to $6.5 million. Borrowings under the Credit Facility, which expires on
November 8, 1997, are secured by the Company's accounts receivable and bear
interest at the greater of TCB's prime rate or the federal funds rate plus .25
of one percent or, at the election of the Company, a formula based upon the
London Interbank Offered Rate. The Credit Facility includes covenants relating
to the maintenance of certain financial amounts and ratios, including a minimum
tangible net worth and a maximum funded liabilities to earnings before interest,
taxes, depreciation and amortization ratio. Available borrowings under the
Credit Facility are based upon a percentage of the Company's eligible accounts
receivable. As of December 31, 1996, $5.1 million was outstanding under the
Credit Facility. The Company intends to use a portion of the net proceeds of
this offering to repay the then outstanding borrowings under the Credit
Facility.
At December 31, 1996, the Company had commitments related to the relocation
of its Texas office for the purchase and/or construction of property and
equipment totaling approximately $700,000. The Company currently plans to make
investments in property and equipment of approximately $2.1 million in 1997,
principally for leasehold improvements, furniture, software, personal computers
and other technology equipment.
The Company anticipates that its existing capital resources, including cash
provided by operating activities and available bank borrowings, together with
the anticipated net proceeds from this offering, will be adequate to fund the
Company's operations for at least the next 12 months. There can be no assurance
that changes will not occur that would consume available capital resources
before such time. The Company's capital requirements depend on numerous factors,
including potential acquisitions, the timing of the receipt of accounts
receivable, employee growth, and the percentage of projects performed at PSW
facilities. There can be no assurance that additional funding, if necessary,
will be available on favorable terms, if at all.
22
<PAGE>
BUSINESS
OVERVIEW
PSW Technologies, Inc. is a software services firm that provides high value
solutions to technology vendors and business end-users by mastering and applying
critical emerging technologies. These critical technologies include distributed
computing, object-oriented development, advanced operating systems and systems
management technologies. The Company seeks to incorporate the knowledge and
expertise derived from its client projects into proprietary methodologies,
thereby enabling PSW to retain and distribute its institutional knowledge
throughout the Company and achieve improvements in cost, quality and speed on
client projects. The Company conducts its business through its two business
units: the Software Technology Unit and the Business Systems Unit.
PSW's Software Technology Unit provides joint project-based development,
porting, and testing services to selected technology vendor clients. PSW
services enable these companies to improve the quality and speed to market of
their products which, PSW believes, often result in an earlier flow of revenue
and increased revenues over the long term for such technology vendor clients.
The Company's services also enable these clients to focus on their core
competencies, limit their permanent headcount and relieve temporary workload
spikes. PSW targets companies that are developing technologies which it believes
will be important to, and likely to be widely deployed by, its current and
potential business end-user clients. Through these engagements, PSW often gains
an early and comprehensive understanding of critical emerging technologies and
is therefore well positioned to service the continued needs of these and other
technology vendors, as well as the needs of the business end-user community.
The Company's Business Systems Unit applies PSW's technical expertise to the
design and development of high value, mission critical enterprise business
systems for its Fortune 1000 end-user clients. These systems, which support
multiple functions within the enterprise, typically are long-term strategic IT
solutions designed to enable business end-users to improve the quality of the
services they provide to their customers through enhanced information capture
and control, increased accuracy and efficiency and decreased costs and response
times. The Company focuses on enterprise solutions due to their greater value to
the client than departmental systems, and the corresponding potential for
longer-term relationships.
The Company is flexible in structuring the terms of its client engagements,
favoring a time-and-materials pricing model with set project milestones, but
employing a fixed price model per phase in certain circumstances. The Company
works in partnership with its clients at the client site or at PSW's facilities,
as appropriate. This flexible, joint development approach, together with the
Company's utilization of proprietary methodologies, is designed to reduce risks
to PSW and its clients, maximize client satisfaction and allow PSW to transfer
expertise to its clients. In addition, PSW believes that its comprehensive
technical expertise in critical emerging technologies enables it to generate
high levels of repeat business by attracting clients that provide the
opportunity for multi-year, ongoing relationships.
INDUSTRY BACKGROUND
The growing worldwide demand for IT services has been driven by the
increasing reliance on IT as a strategic tool for addressing critical business
issues. Deregulation, globalization and technological innovation are
accelerating the rate of change in business, resulting in a more complex and
intensely competitive business environment. Organizations face constant
pressures to improve the quality of products and services, reduce cost and time
to market, improve operating efficiencies and strengthen customer relationships.
These pressures are increasingly causing business managers to utilize IT to seek
to improve the quality of the services they provide to their customers through
enhanced information capture and control, increased accuracy and efficiency and
decreased costs and response times. In order to achieve these objectives,
organizations are modifying their business processes and improving the
responsiveness and flexibility of their information systems which enable and
support the modified processes. These trends,
23
<PAGE>
together with rapid advances in technology, are primarily driving the move from
traditional host-based legacy computing systems to more flexible and functional
technologies, including client/server architectures, object-oriented programming
languages and tools, distributed database management systems and the latest
networking and communications technologies, such as the Internet.
In order to compete in this business environment, IT departments of Fortune
1000 companies often must deploy custom designed software applications capable
of integrating and managing multiple operating systems, databases, programming
languages and networking protocols throughout the enterprise. At the same time,
competitive conditions and cost pressures are increasingly forcing such
companies to focus on core competencies and reduce or limit the growth of their
IT workforce. According to the International Data Corporation ("IDC"), the U.S.
market for product implementation and systems integration services exceeded $22
billion in 1996, with a projected cumulative annual growth rate of 12.4% through
the year 2000. This market segment is fragmented, with no company having more
than a 5% market share in 1995, according to IDC.
In addition to the increasing demand for more responsive technologies to
address these business challenges, technology as a whole is becoming more
complex and individual technology life-cycles are shortening at a faster rate.
The foregoing has placed increasing pressure on technology vendors to bring new
products and new versions of proven products to market faster and simultaneously
to ensure that those products operate with an increasing number of platforms and
middleware. IDC estimates that research and development expenditures by U.S.
software vendors exceeded $5 billion in 1996. IDC expects the software
applications market to grow at a cumulative annual rate of approximately 15%
through 1999 and anticipates that research and development expenditure growth
will remain strong through that period. Although the Company is not aware of the
percentage of such expenditures that are outsourced, the Company believes that
the software research and development outsourcing market has significant
potential.
The convergence of these trends is resulting in (i) an increasing movement
of Fortune 1000 companies toward joint projects with software service firms that
have a high level of expertise in critical emerging technologies, rather than
relying on their internal resources for the design and implementation of
enterprise business systems and (ii) an increasing need within the research and
development departments of key vendors of critical emerging technologies to
outsource to software service firms a portion of the development, porting and
testing of their existing and new products. In a recent IDC survey, a majority
of respondents stated that the lack of in-house technical expertise was their
primary reason for engaging an external services provider in connection with the
implementation of an IT project. Accordingly, a growing number of business
end-users and technology vendors are seeking the help of software services firms
with strong technical expertise in critical emerging technologies and the
ability to implement high value solutions on a cost-effective and prompt basis.
THE PSW SOLUTION
PSW is a software services firm that provides high value solutions to
technology vendors and business end-users by mastering and applying critical
emerging technologies, including distributed computing, object-oriented
development, advanced operating systems and systems management technologies. The
Company incorporates the knowledge and expertise derived from each of its client
projects into its proprietary methodologies, enabling PSW to retain and
distribute its institutional knowledge throughout the Company and to achieve
improvements in cost, quality and speed on client projects. The Company conducts
its business through two business units: the Software Technology Unit and the
Business Systems Unit.
SOFTWARE TECHNOLOGY EXPERTISE
The Company's Software Technology Unit provides software research and
development services that enable its technology vendor clients to improve the
quality and speed to market of their products and,
24
<PAGE>
PSW believes, to achieve an earlier flow of revenue and increased revenues over
the long term. PSW's services also enable these clients to focus on their core
competencies, limit their permanent headcount and relieve temporary workload
spikes.
Drawing upon its strong technical expertise and proven methodologies, PSW
enters into joint projects with the research and development departments of key
technology vendors, many of whom are defining the direction of the IT market.
PSW has accumulated significant experience with several critical emerging
technologies, including Windows NT, object technology and the Internet through
clients such as IBM, Compaq Computer Corporation ("Compaq") and Tivoli Systems,
Inc. ("Tivoli"), and relationships with companies such as Microsoft Corp.
("Microsoft"), NeXT Software, Inc. ("NeXT") and Transarc Corporation
("Transarc"). The Company believes that joint projects with technology vendors
enable it to acquire expertise in such new technologies ahead of, and in more
depth than, its competitors. Senior management and senior technical consultants
from the Company's Software Technology Unit and Business Systems Unit meet
regularly to assess the technology landscape in order to target emerging
opportunities that will be beneficial to both business units.
The Company's experience with, and knowledge of, technology vendors'
products often leads to significant follow-on work in related projects with
these vendors, other technology vendors and business end-users. At the same
time, PSW's experience with business end-users allows it to assist its
technology vendor clients as they seek to achieve wide-spread adoption of their
technologies and enables PSW to give valuable feedback to such technology
vendors regarding the most appropriate business use for their respective
technologies.
BUSINESS SYSTEMS EXPERTISE
The Company's Business Systems Unit develops high value, mission critical
enterprise business systems designed to enable its Fortune 1000 end-user clients
to improve the quality of the services they provide to their customers through
enhanced information capture and control, increased accuracy and efficiency and
decreased costs and response times. The Company offers services ranging from
business end-user consulting to full system deployments, including
documentation, training, help desk support and ongoing system maintenance.
PSW's technology vendor clients often recommend PSW to business end-users.
Such recommendations, together with PSW's comprehensive knowledge of the
vendor's technology, help to establish PSW's credibility with potential business
end-user clients and often result in a shortened sales cycle and higher sales
productivity. The Company focuses on long-term, strategic enterprise solutions
due to their greater value to the client than departmental systems, and the
corresponding potential for longer-term relationships. In addition, enterprise
system projects are typically larger and more technically complex than
departmental system projects, thereby creating a barrier to entry for most
smaller services firms and increasing the importance of the breadth and depth of
PSW's technical expertise when competing with other firms regardless of their
size.
METHODOLOGY DEVELOPMENT AND KNOWLEDGE ACCUMULATION
The Company seeks to increase the value of its services by achieving
improvements in the cost, quality and speed of client projects through the use
of methodologies and object libraries. GENOVA, PSW's knowledge accumulation
initiative encompasses methodologies, courseware and training, and object
libraries. These assets can be licensed by clients as part of an engagement. In
addition, PSW provides methodology training to clients and to PSW technical
staff. As a result, the methodologies not only directly benefit the project in
question, but also allow the client to maintain and extend its system investment
despite eventual changes in project personnel.
25
<PAGE>
PSW'S STRATEGY
PSW's objective is to become the leading provider of software services to
technology vendors and business end-users. To accomplish this objective, the
Company will continue to implement the following strategic initiatives:
MAINTAIN AND LEVERAGE LEADERSHIP IN CRITICAL EMERGING TECHNOLOGIES. The
Company seeks to maintain a leadership position in critical emerging
technologies by pursuing joint projects with the research and development
departments of key technology vendors who are defining the direction of the IT
market, and by leveraging its knowledge of the client/server market through
engagements with business end-users. The Company assesses the technology
landscape in order to target emerging opportunities that will be beneficial to
both of its business units. In addition, the Company focuses on the training and
development of its technical professionals to ensure that its technical
expertise extends to multiple levels within the Company.
EXPAND PRESENCE IN THE SOFTWARE RESEARCH AND DEVELOPMENT JOINT PROJECTS
MARKET. The Company seeks to expand its business with its current technology
vendor clients and aggressively pursues new software research and development
joint projects with additional industry-defining technology vendors. Such joint
projects are expected to enable PSW to continue to build its library of
technology skills and its software methodologies.
FOCUS ON THE MISSION CRITICAL, ENTERPRISE BUSINESS SYSTEMS MARKET. The
Company focuses on providing the higher value services associated with the
mission critical, enterprise systems segment of the business systems market. In
order to maintain its competitive position in this market segment, the Company
aggressively leverages its expertise with Windows NT, system management
technologies, object-oriented development and the Internet and develops
additional technical expertise through current and new software research and
development joint projects.
LEVERAGE TECHNOLOGY VENDOR RELATIONSHIPS. The Company's experience with,
and knowledge of, technology vendors' products often leads to significant
follow-on work in related projects with such vendors and other technology
vendors. In addition, technology vendors often recommend PSW to business end-
users. For example, PSW intends to leverage the relationship it has developed
with Tivoli by working closely with Tivoli to offer PSW services to Tivoli
business end-user clients who require consulting, architecture and design of
enterprise system management solutions.
LEVERAGE DIRECT SALES TO DEVELOP REPEAT BUSINESS. The Company focuses on
the development of high levels of repeat business. The Company's direct sales
and marketing activities are targeted toward the development of new clients that
provide the opportunity for repeat business through multi-year,
partnership-oriented projects and/or multiple projects through ongoing
relationships.
DEVELOP, REFINE AND UTILIZE THE GENOVA INITIATIVE. The Company seeks to
achieve quality and speed improvements and provide its clients with high value
software solutions on a cost-effective basis by continuing to develop, refine,
utilize and expand its GENOVA initiative.
PSW SERVICE OFFERINGS
GENERAL
PSW provides IT consulting and software development services to technology
vendors and business end-users. Services are typically provided on a project or
mission basis. In project-based engagements, PSW is retained to complete a
specifically defined set of tasks, such as porting a specific version of client
software to a new release of an operating system. In mission-based engagements,
PSW is retained to manage, on an ongoing basis, a specific mission within the
client organization, such as responsibility for all testing functions for a
client organization. Mission engagements involve multiple projects and releases
which generally come up for renewal on an annual or other periodic basis.
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The Company is flexible in structuring the terms of its client engagements,
favoring a time-and-materials pricing model with set project milestones, but
employing a fixed-price model per phase in certain circumstances. The Company
works in partnership with its clients at the client site or at PSW's facilities,
as appropriate. This flexible, joint development approach, together with the
Company's utilization of proprietary methodologies, is designed to reduce risks
to PSW and its clients, maximize client satisfaction and allow PSW to transfer
expertise to its clients.
SUMMARY OF SERVICES PROVIDED BY PSW TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
- -----------------------------------------------------------
MARKET SERVICE DESCRIPTION REPRESENTATIVE CLIENTS(1)
<S> <C> <C> <C>
Testing Testing the client's source IBM (Windows NT/95)
and/or binary code to verify IBM (AIX Graphics)
it conforms to specifications Compaq
and compatibility requirements
Porting Modifying and testing the Tivoli
client's source code to make Lotus Development Corp.
its products function in a Pervasive Software Inc.
different operating
environment
Technology Development Defining requirements, writing SystemSoft Corp.
Vendors specifications, designing, Symbios Logic, Inc.
developing, and testing the
software
Support Specialized, complex support Northern Telecom, Inc.
of software developers or IBM (AIX Developers)
sophisticated end-users SystemSoft Corp.
Advisory Assessment of the client's Scientific Atlanta, Inc.
existing development efforts IBM (AS/400 Notes Port)
or a short-term engagement to
develop a detailed proposal
for a larger project
Object-Oriented Phased development of custom Canon Computer Systems Incorporated
Application enterprise business systems Embarcadero Systems Corporation
Development including requirements, AT&T Wireless Services, Inc.
analysis, design,
implementation, testing, and
deployment
Business Distributed Architecture, development, General Reinsurance Corporation
End-Users Computing integration and testing of J.P. Morgan Securities Inc.
Development middleware for enterprise
systems
Enterprise Assessment of the client's Ameritech Communications, Inc.
Consulting business systems projects Canon Computer Systems Incorporated
including skills,
organization, development
processes, schedule and
resources
</TABLE>
- ------------------------
(1) Represents certain clients for whom work has been performed during 1996 or
1997.
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TECHNOLOGY VENDOR SERVICES
The Company's Software Technology Unit enters into joint projects with the
research and development departments of key technology vendors, many of whom are
defining the direction of the IT market. These technology vendor clients include
systems developers (such as IBM and Scientific Atlanta, Inc. ("Scientific
Atlanta")), software companies (such as Tivoli, Lotus and SystemSoft Corp.
("SystemSoft")), and peripheral manufacturers (such as 3COM Corp. ("3COM")). PSW
project personnel typically interface with the client's Vice President of
Research and Development as well as other senior executives and product
marketing personnel. These joint projects often foster close working
relationships between the Company and these clients, frequently resulting in the
formation of long-term relationships which the Company believes provide
opportunities for repeat business. Further, the Company's joint projects with
technology vendor clients often enable the Company to establish relationships
with other technology vendors. For example, the Company has formed a
relationship with Microsoft as a result of the Windows NT porting services that
PSW provides to its technology vendor clients.
The Company offers the following suite of services to its technology vendor
clients:
Testing Services
The Company assists clients in test planning, test suite development and
test execution. System verification testing involves the design of tests to
ensure that products adhere to the specifications and standards demanded by the
client. Compatibility testing verifies that specific programs and devices work
with new operating system software. Standards compliance testing involves the
development of test suites to verify binary or source code compatibility with
published standards. Current engagements include the Company's system and
compatibility testing of Windows NT and Windows 95 software on IBM computers for
a division of IBM and testing of high end graphics software for the IBM AIX
operating system for another division of IBM.
Porting Services
The Company assists clients in the porting of their software products to
other computing platforms. PSW has extensive operating system experience with
Solaris, AIX, Windows NT, Windows 95, HP/UX and NEXTSTEP, as well as with the
compilers and development tools required to port software. The Company performs
the porting, testing and documentation of the client product to the specified
operating environments. The Company utilizes its GENOVA porting methodology to
efficiently assess the portability of software to Windows NT and other operating
environments, to determine the best approach for completing ports in a timely
manner and for improving future software portability.
The Company is in the process of formalizing its GENOVA porting methodology
to enhance its visibility in future marketing efforts. This process consists of
fully documenting the methodology, developing appropriate sales materials and
targeting specific porting markets such as ports from Unix to Windows NT. For
example, PSW is porting Tivoli's system management software to more than 10
operating environments, including those developed by Silicon Graphics Inc., Sun
Microsystems, Inc., Sequent Computer Systems, Inc., Novell, Inc. and Data
General Corporation. Additionally, the Company has performed AIX ports for Lotus
and is currently responsible for ports to a second operating environment.
Development Services
The Company assists clients in the development of products, the addition of
new capabilities to existing products and the development of specialized
software for clients' customers. PSW's experience in computer architecture,
system performance, operating systems, device drivers and middleware as well as
its software development methodology position the Company to enable its clients
to deliver critical software to the marketplace in a timely fashion. As an
example of a recent development services engagement, SystemSoft chose PSW for
its Windows NT expertise to develop new PC Card software to allow PC Card
devices to "plug and play" and be "hot-swapped" in the Windows NT environment.
Rapid time to market
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was critical to SystemSoft due to the surge in interest in Windows NT as a
desktop operating environment and the need for SystemSoft to provide its
software in advance of similar software expected to be provided within the
operating system.
Support Services
The Company provides customized technical support for complex systems to
software developers or users. Support is provided on-site, on-line and by
telephone. The Company's services include help desk, defect correction and
critical situation support. In its current engagement with Northern Telecom,
Inc., the Company provides support for Northern Telecom HP/UX users worldwide.
Advisory Services
The Company provides advisory services to assess development, porting,
testing, or support projects from a technical, process and project management
viewpoint. The Company utilizes its GENOVA methodology and prior experience to
identify areas of improvement and make recommendations. In addition, assessment
services are often used to allow for the necessary research and evaluation to
develop a more extensive proposal for a client. As an example, Scientific
Atlanta retained the Company to assist in the set-up of build, test, and source
code control procedures. Subsequently, Scientific Atlanta retained the Company
to help organize and plan the overall software activities for one of their
operating divisions.
BUSINESS END-USER SERVICES
The Company's Business Systems Unit focuses on delivering enterprise
solutions for the Company's business end-user clients. These systems, typically
developed by the Company in partnership with the client, are long-term strategic
IT solutions which support multiple functions within the enterprise and which
provide increased flexibility to respond to the client's changing business
needs. The Company offers services ranging from business end-user consulting to
full system deployments, including documentation, training, help desk support
and on-going system maintenance. The Company provides enterprise solutions in a
wide variety of computing environments utilizing leading technologies, including
client/server architectures, object-oriented programming languages and tools,
distributed database management systems and the latest networking and
communications technologies.
The Company offers the following suite of services to its business end-user
clients:
Object-Oriented Application Development Services
PSW provides services to design, construct and deploy custom enterprise
business systems. The GENOVA BUSINESS SYSTEMS DEVELOPMENT METHODOLOGY is used to
define business objectives, gather requirements and perform analysis, and then
design, implement, test and deploy the system. The project team for a typical
engagement consists of PSW personnel and client personnel, with PSW providing
project management and overall technical leadership. Engagement durations
typically last several years and involve deployment of multiple versions of the
business system.
A current example of object-oriented application development services is the
Company's engagement by Embarcadero Systems Corporation ("ESC"), a firm
specializing in the management of shipping container terminals. ESC deemed the
automation of its terminal operations to be a key strategic initiative to
compete in the future. PSW competed with several other software services firms
for the project to develop the entire system, and was chosen on the basis of its
technical expertise, strong relationship with NeXT and GENOVA, which was
reviewed in depth by key executives at ESC. The Company has completed the
project's requirements and design phases and is currently in the implementation
and test phase. PSW's project team includes the project manager, the lead
software architect and object-oriented analyst. This team works on-site in
conjunction with ESC personnel who include test personnel, the user liaison and
a software architect. The project is being implemented in three stages, with ESC
assuming greater responsibility with each stage. To accelerate the development
of the project, ESC licensed the GENOVA SYSTEM
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OBJECT LIBRARIES, which provided the basic system framework for the development
of enterprise applications.
Distributed Computing Services
The Company offers distributed computing services, which typically focus on
the middleware architecture required to support a large enterprise system.
Object-oriented application development projects typically include this as part
of the engagement to build a complete business system. However, some clients
seek the Company's expertise to advise on or help construct and integrate the
underlying architecture, middleware and tools upon which applications will be
developed. The GENOVA methodology is also used for these engagements.
The Company's Orion project with General Reinsurance Corporation ("GenRe")
is a current example of the Company's distributed computing services. This
project provides a high productivity, object-oriented set of developer services
to allow the rapid development of business applications within a cohesive
enterprise system architecture. Services include user interface, security, data
access, exception handling and communications. Technologies used include
Microsoft Visual C++, Microsoft foundation classes, Persistence object storage
for relational databases and Sybase database technology. The architecture
supports a multi-tier implementation with Windows clients and HP/UX servers.
Enterprise Consulting Services
The Company offers enterprise consulting services to assist clients with the
assessment, monitoring and management of projects. PSW utilizes its GENOVA
ASSESSMENT METHODOLOGY, which involves a seven step process to define the focus
of the assessment, conduct the required research, analyze the findings and
provide specific actions and recommendations to the client. The GENOVA BUSINESS
SYSTEMS DEVELOPMENT METHODOLOGY is also used as a benchmark to determine missing
components or deliverables in the client's project or process. The deliverable
in an enterprise consulting engagement consists of a report identifying a
project's strengths and weaknesses, assessing schedule and resource plans and
recommending specific actions. A summary report is typically presented to the
client management sponsoring the assessment.
Current engagements of enterprise consulting services include the Company's
engagement with Ameritech Communications, Inc. ("Ameritech"). The Company
performed at least one assessment per month during 1996 of various Ameritech
projects, including evaluation of the project management for a mainframe
project, and the architectural evaluation of several client/server projects.
THE GENOVA INITIATIVE
GENOVA is a formal PSW initiative to increase the value of its services by
achieving improvements in the cost, quality and speed of client projects. GENOVA
is also a sales and marketing initiative whereby the benefits of GENOVA are
communicated to clients and PSW sales personnel through sales training,
marketing materials, public relations and other programs (such as trade events).
GENOVA currently consists of methodologies, courseware and object library
assets, all of which can be licensed by PSW clients.
Methodologies are fully documented and provide the philosophy, phases,
deliverables, procedures and description of tasks to complete a specific type of
project. In addition, the methodology documentation includes a description of
the team structure, roles and responsibilities of both PSW and client personnel.
Finally, the methodology includes templates, samples, tools, tips and techniques
for completing the defined deliverables. GENOVA methodologies are documented in
HTML so they can be accessed on-line over an intranet.
Courseware consists of the curriculum, charts, exercises, examples and
required systems for various courses targeted to different audiences. For
example, the GENOVA BUSINESS SYSTEMS DEVELOPMENT ACADEMY courseware can be
adapted to project managers, architects, developers, testers or technical
writers. Courses can be customized to last from one day to six weeks. Both the
methodology and courseware are largely independent of any specific development
technology.
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The GENOVA object libraries consist of production level software which has
been developed in client projects using the GENOVA methodology. Applicable
portions of these libraries can be licensed by the client to eliminate portions
of the design, implementation and testing work associated with a project.
Licensing is on a source code basis. The current libraries are designed for
OPENSTEP and are therefore applicable to the Windows NT, Solaris and NEXTSTEP
environments.
SUMMARY OF THE GENOVA INITIATIVE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
TYPE OF ASSET NAME DESCRIPTION
<S> <C> <C>
Methodology GENOVA ON-LINE The Web based reference documentation
of GENOVA methodologies accessible on
PSW's intranet
Methodology GENOVA BUSINESS SYSTEMS The methodology for the requirements
DEVELOPMENT METHODOLOGY gathering, analysis, design,
implementation, testing and deployment
of custom business systems using an
object-oriented approach
Methodology GENOVA ASSESSMENT The seven step methodology to perform
METHODOLOGY an assessment of a software project
Methodology GENOVA PORTING METHODOLOGY The methodology to assess the
(formalization scheduled portability of a technology to a new
for mid-1997) operating environment, perform the port
and improve the portability of the
technology for future ports
Courseware/Training GENOVA BUSINESS SYSTEMS The courseware associated with the
DEVELOPMENT ACADEMY GENOVA BUSINESS SYSTEMS DEVELOPMENT
METHODOLOGY used to train project
managers, architects, developers,
testers and technical writers
Courseware/Training GENOVA NT CERTIFICATION PSW developed courseware to prepare
ACADEMY technical professionals to pass the
Microsoft Windows NT Certification
exams
Object Libraries GENOVA SYSTEM OBJECT Libraries which allow project teams to
LIBRARIES focus on developing business
functionality rather than system
capabilities
Object Libraries GENOVA BUSINESS OBJECT Production level business objects and
LIBRARIES more than 25 business applications
ranging from order entry to warehouse
management to billing
</TABLE>
PROJECT MANAGEMENT
Software development, testing, delivery and deployment is a complex process.
Consequently, PSW employs a number of methods to lower the risk of project
overruns or client dissatisfaction.
The Company believes that successful software projects require a well
designed approach, development process and underlying procedures to organize the
project team to efficiently accomplish numerous interrelated tasks. PSW's GENOVA
methodologies achieve this by defining the specific deliverables required at
each phase of the development process, the tasks required to develop them,
examples and templates. In addition, because the methodologies provide a common
structure between projects, PSW team members can tap the experience, ideas,
measurements and estimates of other teams who have worked on similar
engagements. Technical staff members can get the latest information about
technologies being used on the
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project from PSW professionals who are working on projects with the technology
vendors who develop and support that technology.
GENOVA methodologies have several common elements that help align client
expectations with the project objectives. All the methodologies consist of a
thorough definition phase where client objectives and user or marketplace
requirements are defined. The definition phase of a project emphasizes
specifications which can be positively verified during the testing phase. GENOVA
methodologies also emphasize proper up front design prior to implementation to
minimize the risk of design flaws. The implementation phase of each methodology
includes a complete testing plan, one of the frequently underestimated parts of
a project.
When a fixed price arrangement is to be used for a large project, PSW prices
the project by phase. For example, a fixed price will be quoted for the
requirements phase only. Once the requirements phase has been completed and the
requirements are well defined, PSW will quote a fixed price for the design
phase. Once the design phase has been completed, the price for the
implementation phase will be quoted. For large business end-user projects, PSW's
experience to date has been that the dynamic, enterprise nature of the project
has resulted in both parties preferring a time and materials arrangement by the
time a project reaches the implementation phase. The phased approach is used
even in time and materials arrangements to provide the client with cost/benefit
checkpoints. The GENOVA assessment process is beginning to be used to internally
assess large projects at key project checkpoints.
On major projects, a PSW executive serves as a contact to key client
executives. Typically the PSW executive will conduct periodic reviews with the
client to get feedback on projects' progress. In addition, the client is
encouraged to call the PSW executive for any problem which transcends or
directly involves the PSW project manager. PSW's senior management team reviews
project reports on a monthly basis to identify and take action on projects which
are experiencing delays or cost overruns.
PSW CASE STUDIES
PSW's business strategy is to identify key future technologies, gain
technical expertise through projects with technology vendors who are defining
the use of such technologies, apply that technical expertise to new projects and
capture the knowledge gained in these engagements through methodologies or other
initiatives. Following are examples of the Company's business strategy as
applied to various client engagements.
OBJECT-ORIENTED TECHNOLOGY
In 1992, PSW management identified the object-oriented approach to software
development as a critical technical capability. The Company targeted NeXT as the
company it felt had the best object-oriented development tools on the market
(NEXTSTEP). PSW gained experience with NeXT by developing an X windows product
for the NEXTSTEP environment, developing NEXTSTEP device drivers for NeXT and
others, utilizing NeXT internally within the Company and becoming a NeXT
authorized training provider.
In 1993, PSW began to work with NeXT's field personnel to perform projects
with PSW's business end-users. Most of these early projects were prototyping and
proof of concept projects. At the end of 1993, PSW management assembled the
initial framework for the GENOVA BUSINESS SYSTEMS DEVELOPMENT METHODOLOGY which
was specifically intended to incorporate the object-oriented approach to
developing business systems. In early 1994, NeXT referred Canon Computer Systems
Incorporated ("Canon Computer Systems") to PSW. Canon Computer Systems selected
PSW over a larger firm due in part to PSW's knowledge of object-oriented
programming and its methodology framework.
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Canon Computer Systems' Object 21 project is a major initiative undertaken
by PSW to automate Canon Computer Systems' core business functions, eliminate
Canon Computer Systems' dependence on mainframe technology, and significantly
improve the efficiency of the business and the accuracy and timeliness of the
information required to manage the business. The project with Canon Computer
Systems as well as other projects resulted in further definition and refinement
of GENOVA. In 1996, PSW licensed the Object 21 technology from Canon Computer
Systems. This technology forms the basis for the GENOVA SYSTEM OBJECT LIBRARIES
and GENOVA BUSINESS OBJECT LIBRARIES.
TRANSACTION MANAGEMENT & DISTRIBUTED COMPUTING
In 1993, PSW management identified distributed computing as a long-term
technology that would be critical to the development of enterprise business
systems. The Company focused primarily on the leading technologies at the time
that were being developed to solve the complex problems involved in distributed
systems, including OSF Distributed Computing Environment ("DCE") and the Encina
transaction management software developed by Transarc. PSW worked closely with
Transarc as a client, helping adapt Encina to several different development
environments. Most notably, Transarc and Powersoft Corporation engaged PSW to
develop EncinaBuilder in 1994, a complete product which allowed PowerBuilder
developers to utilize the capabilities of Encina for Windows.
In 1994, PSW also began to work closely with Transarc's field organization
to provide the software services required to design systems where Encina and DCE
might be required. These efforts developed into the distributed computing
services practice of the Business Systems Unit. PSW has actively worked with
Transarc at clients such as GenRe and J.P. Morgan Securities Inc. In addition,
PSW has actively participated as a Gold Sponsor at Transarc's annual Decorum
conference which has long served as an industry forum for executives and senior
technical professionals involved in distributed computing technologies.
OPERATING SYSTEMS
PSW has significant expertise in the Unix marketplace, having developed
device drivers, standards test suites and other system software associated with
Unix operating systems since 1990. In 1994, PSW sought to expand this expertise
to Microsoft's Windows NT initiative which embodies most of the advanced
operating system concepts that are in Unix systems. As a result of these
efforts, IBM asked PSW to provide test and support personnel in Kirkland,
Washington to help in the effort to port Windows NT to IBM PowerPC computers.
Over time, PSW's role expanded to manage the entire testing mission at IBM
Kirkland and has also expanded to include Windows 95 testing, IBM Intel based
computers and some porting activities for Windows NT Tools.
PSW opened its Bellevue, Washington facility in close proximity to IBM's
Kirkland facility and to Microsoft, to focus primarily on Windows NT work for
other clients. This focus resulted in PSW being selected by Microsoft to develop
and conduct the entire series of presentations, or "track," on Unix to Windows
NT porting for the Fall 1996 Microsoft Developers Conference. The Company has
also been engaged by several new Windows NT clients including SystemSoft and
Tandem Computers Incorporated ("TCI"). In late 1995, PSW began developing
courses to prepare technical professionals to pass Microsoft Windows NT
certification tests. This effort has evolved into the GENOVA WINDOWS NT ACADEMY.
In addition, the Business Systems Unit has utilized PSW's Windows NT
expertise to help several clients migrate to or develop systems for the Windows
NT environment. As Windows NT continues to evolve it is becoming increasingly
applicable to engagements in the distributed computing arena due to various
Microsoft initiatives such as DCOM, Viper, and Wolfpack. PSW expects to use its
knowledge of these technologies to serve clients seeking Windows NT distributed
computing services.
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INTERNET TECHNOLOGY
PSW has established and is leveraging relationships with technology vendors
at the forefront of Internet technology. PSW's work for Lotus involved porting
the Notes Domino technology which has been rapidly adopted to exploit and
leverage the Internet. In addition, PSW has utilized NeXT's Web Objects product
to build dynamic Web pages for clients. Within PSW's GENOVA OBJECT LIBRARY teams
and GENOVA BUSINESS SYSTEMS DEVELOPMENT ACADEMY class, Java is being introduced
and utilized.
PSW business end-user projects with Canon Computer Systems, ESC, U.S.
Bancorp, Compaq and Associates Bancorp, Inc. will all utilize Internet
technology as part of the overall system design. For example, with Compaq, PSW
is putting Compaq technical support information, previously available only on
compact disc, on the Web so it can be updated more frequently and made more
accessible.
SYSTEM MANAGEMENT
More recently, PSW has targeted system management as critical to the
successful deployment of enterprise systems. As a result of the Company's Unix
expertise and project management capabilities, Tivoli engaged PSW to port
Tivoli's software to a wide variety of Unix computing platforms on an ongoing
basis. PSW intends to work closely with Tivoli to offer PSW services to Tivoli
customers who require consulting, architecture, and design of system management
solutions for enterprise systems.
MARKETING AND SALES
MARKETING
Strategic market planning is performed by the executive staff of the
Company, which actively seeks guidance from a number of sources to make
strategic decisions. These sources include PSW clients, senior technical staff
members, sales personnel and numerous executive contacts throughout the
industry. The executive staff meets off-site quarterly to discuss strategic
issues and actions. Action items are identified and tracked between meetings.
Senior technical staff members meet twice a year at the PSW Technology Forum to
share their views and produce a set of strategic actions for themselves and for
the executive staff to pursue business opportunities resulting from changes in
the technology landscape.
Corporate marketing controls and promotes key corporate messages, consistent
marketing programs and materials and ongoing public relations. This is
accomplished by working in coordination with business unit initiatives and
through a program of regular communication of newsworthy items to key press and
industry analysts. Public relations is the primary vehicle used to promote
corporate image through the use of client case studies and placement of
technical articles by senior technical staff.
Service marketing is performed individually by the two business units and
primarily supports the sales process by producing qualified leads. Both business
units focus on implementing a "value chain" that seeks to align all the
resources of the unit to the communication and delivery of the highest value
services possible to the client. This includes marketing, sales, project
management, methodologies, recruiting, training and any other initiatives
required to deliver consistent, high quality service. The marketing emphasis is
on communicating the value of the service to the client and demonstrating PSW's
capabilities to deliver the service effectively.
Each business unit conducts its own marketing programs to identify and
qualify potential clients. These programs emphasize relationships with
technology vendors to shorten the sales cycle and increase the productivity of
PSW's sales resources. The Software Technology Unit is pursuing Windows NT
porting opportunities by targeting specific technology vendors who support Unix
but do not yet have Windows NT products, by working closely with Microsoft and
by communicating PSW's porting and Windows NT expertise. The Business Systems
Unit works closely with the sales forces of both NeXT and Transarc and is often
recommended by these companies to their clients. For example, Canon Computer
Systems and ESC were referred to PSW by NeXT, and GenRe was referred to PSW by
Transarc. PSW works closely with
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these companies during the sales process to present a unified proposal to the
client. At the same time, PSW does not resell hardware or software products of
these or any other technology vendor, maintaining its independence to recommend
the appropriate solution to each of its clients.
The Company believes there is a significant need to architect, design,
implement, and integrate system management solutions for business end-user
clients. Accordingly, PSW's Business Systems Unit expects to leverage the
Company's expertise with the Tivoli Management Environment software and the
Software Technology Unit's existing relationship with Tivoli to implement field
programs designed to significantly increase the productivity of the PSW sales
force in identifying and closing Tivoli-related business.
A significant part of the Company's marketing strategy is to continue to
formalize and improve its GENOVA methodologies and to make GENOVA a more
integral part of its marketing programs. For example, the Software Technology
Unit is developing sales materials to be used with the first formal version of
the GENOVA porting methodology in conjunction with its porting services
marketing efforts. In addition, GENOVA will continue to be central to the
marketing programs of the Business Systems Unit.
SALES
PSW's sales force consists of Business Development Managers and Senior
Managers under the direction of the individual business units. Business
Development Managers identify appropriate business opportunities and client
needs. Senior Managers provide high level technical consulting early in the
client relationship to thoroughly explore the client's needs and to propose
solutions. These solutions often result in PSW projects involving project
managers and technical professionals, in which case the Senior Manager will help
set up and oversee the project and serve as the primary account manager.
Business Development Managers are paid a commission based on the gross
margin of business they obtain. This payment structure is designed to motivate
Business Development Managers to identify and obtain high value business. Senior
Managers are salaried and receive an incentive bonus based on two factors: the
amount of revenue they book based on proposals they have written; and the amount
of personal billings achieved. Both business units utilize a formal proposal
process to identify engagements in which the Company's technical skills and
project management capabilities are well suited to meet the needs of prospective
clients. The proposal process also involves reviews with the client, which are
designed to ensure that the engagement is based upon a jointly developed
proposal. In some cases, the client pays for an assessment to analyze the
project and make a detailed proposal. Time schedules and cost estimates are
prepared by the Senior Manager and project manager responsible for execution of
the project. A pricing model is used to determine whether the engagement will
meet or exceed the business unit's margin targets for new business. Pricing for
fixed price projects or projects involving a commission must be approved by the
Senior Vice President in charge of the business unit.
PSW serves clients throughout the United States. The Software Technology
Unit seeks to establish sites in those areas that have a high concentration of
technology vendors. Current sites include Austin, Boston, and Seattle. Each site
has a site manager and sales resources to grow the Company's business and base
of clients. The Business Systems Unit deploys its sales personnel geographically
under the direction of three regional managers, but currently centralizes
technical skills in Austin until an engagement is started. Once started, key
personnel travel or relocate to the project site and new personnel are added by
both local and national recruiting efforts. The Business Systems regional
offices are located in Seattle, Austin and Jersey City.
EMPLOYEES
PSW's workforce has grown significantly over the past two years, increasing
from 167 full-time employees at December 31, 1994 to 375 full-time employees at
December 31, 1996. PSW believes that attracting and retaining superior and
innovative technical professionals, project managers and executive management is
a critical element in its ability to deliver high quality services to its
clients. Accordingly,
35
<PAGE>
PSW focuses on identifying and recruiting highly qualified technical
professionals at all levels within the Company. In order to retain these
professionals, the Company maintains a culture and implements numerous programs
that emphasize the importance of its employees, including training, career
development and incentive programs.
None of the Company's employees is covered by a collective bargaining
agreement. Substantially all of the Company's employees have executed an
invention assignment and confidentiality agreement. In addition, the Company
requires that all new employees execute such agreements as a condition of
employment by the Company. Management considers its relations with its employees
to be good.
SELECTION AND RECRUITING
Prior to October 1995, the Company relied significantly upon the recruiting
services of Pencom for its technical staff hires. Since that time, the Company
has decreased its reliance on Pencom by building its internal recruiting
infrastructure for technical staff hires, with Pencom accounting for less than
15% of the Company's hires in 1996. Currently, the Company is a party to
recruiting agency agreements with Pencom and several other outside recruiting
firms.
Because recruiting is critical to achieving the differing business
objectives of PSW's two business units, each unit is responsible for its own
recruiting needs. Within its Software Technology Unit, the Company utilizes
recruiting administrators to assist site managers and project managers in the
recruiting process. Within its Business Systems Unit, the Company utilizes
regional PSW recruiters to support its regional managers in identifying,
staffing and building pipelines for the skill types required to meet the unit's
selling efforts. Each business unit implements a comprehensive interview and
evaluation process, which typically includes a full day of technical interviews.
In addition, PSW has established an employee referral program pursuant to
which existing employees receive a cash incentive for each person they refer who
becomes a PSW employee. This referral program has provided the Company with a
cost-effective means of identifying and recruiting high quality employees.
TRAINING
The Company has developed strong internal training programs for its
technical employees, including its Windows NT certification program for
technical professionals working with the Windows NT operating environment, and
the GENOVA BUSINESS SYSTEMS DEVELOPMENT ACADEMY coursework, which trains
employees in object-oriented business systems development using the GENOVA
methodology. In addition, the Company offers several management training
programs to its senior employees, including Communications & Leadership,
Overview of Management, Interviewing Effectively and Legally, Performance
Reviews, and Progressive Discipline and Termination. Finally, PSW conducts
semi-annual Technology Forums and Business Forums to increase communications and
sharing among both business units and across all locations and disciplines
within the Company.
CAREER DEVELOPMENT
The Company has developed a separate Plans and Controls department within
each business unit which is designed, among other things, to ensure that project
assignments are consistent with each employee's career aspirations and that each
employee receives meaningful quarterly and annual performance reviews. In
addition, the Company's "technical career ladder" enables highly qualified
technical professionals to reach the level of ARCHITECT, a position which
entails substantial professional authority. Finally, the Company typically
offers redeployment and/or relocation to employees upon business changes, such
as the expiration of an engagement.
INCENTIVES
The Company implements a number of compensation and other incentive programs
designed to promote employee retention. Technical professionals are compensated
in accordance with the Company's
36
<PAGE>
merit pay program, which is based on competitive salary ranges and is designed
to reward employees based on their individual job level and their performance in
that job level. In addition, the Company implements a "battle pay" program to
compensate employees for extended on-site work away from home. The Company also
issues Common Stock options to all PSW employees, with senior management and
technical personnel receiving options at levels intended to build a significant
and long-term commitment to the Company. Finally, the Company provides a
competitive and comprehensive benefits program which includes health care,
escalating vacation time and life insurance.
COMPETITION
The markets for the Company's services are highly competitive. The Company
believes that it currently competes principally with the internal information
systems and development groups of its prospective clients, as well as with
consulting and software integration firms and other hardware and application
software vendors. In addition, there are a number of systems integrators who
serve similar markets or provide similar services with whom the Company competes
or may compete in the future. Many of these companies have significantly greater
financial, technical and marketing resources than the Company, generate greater
revenues and have greater name recognition than the Company. There are
relatively low barriers to entry into the Company's markets and the Company has
faced and expects to continue to face additional competition from new entrants
into its markets.
The Company believes that the principal competitive factors in its markets
include reputation, project management expertise, industry expertise, speed of
development and implementation, technical expertise and ability to deliver on a
fixed-price as well as a time and materials basis. The Company believes that its
ability to compete also depends in part on a number of competitive factors
outside its control, including the ability of its clients or competitors to
hire, retain and motivate project managers and other senior technical staff; the
ownership by competitors of software used by potential clients; the development
by others of products and services that are competitive with the Company's
services; the price at which others offer comparable services; the ability of
its clients to perform the services themselves; and the extent of its
competitors' responsiveness to client needs. There can be no assurance that the
Company will be able to compete effectively on pricing or other requirements
with current and future competitors or that competitive pressures faced by the
Company will not cause the Company's revenue or income to decline or otherwise
materially adversely affect its business, financial condition and results of
operations. See "Risk Factors -- Competition."
INTELLECTUAL PROPERTY RIGHTS
The Company's future success is dependent in part upon the maintenance and
protection of its intellectual property rights and, to a lesser extent, upon its
ability to license technology from its clients. The Company relies on a
combination of copyrights, trade secrets and trademarks to protect its
intellectual property. There can be no assurance that the steps taken by the
Company to protect its intellectual property rights will be adequate, that
competitors will not be able to develop similar or functionally equivalent
methodologies or products or that the Company will be able to license technology
from its clients in the future. Furthermore, effective copyright and trade
secret protection may be unavailable or limited in certain foreign countries,
and no assurance can be given that foreign copyright and trade secret laws will
adequately protect the Company's intellectual property rights. Litigation may be
necessary to enforce the Company's intellectual property rights, to protect the
Company's trade secrets, to determine the validity and scope of the intellectual
property rights of others, including the Company's clients, or to defend against
claims of infringement. Such litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on the Company's
business, financial condition and results of operations. No assurance can be
given that infringement or invalidity claims (or claims for indemnification
resulting from infringement claims against third parties, such as clients) will
not be asserted against the Company or that any such assertions would not have a
material adverse effect on the
37
<PAGE>
Company's business, financial condition or results of operations. If
infringement or invalidity claims are asserted against the Company or any of its
licensees, litigation may be necessary to defend the Company or such licensees
against such claims, and in certain circumstances the Company may choose to seek
to obtain a license under the third party's intellectual property rights. There
can be no assurance that such licenses will be available on terms acceptable to
the Company, if at all. See "Risk Factors -- Intellectual Property Rights."
FACILITIES
The Company's executive offices and primary facility are located in Austin,
Texas, in a leased facility of approximately 36,300 square feet. The lease for
the Austin facility includes an additional 10,000 square feet of space in an
adjoining building which is expected to become available in the first half of
1998. This lease expires on December 31, 2003 with respect to both premises and
is renewable at the option of the Company for an additional five-year term. The
Company also has a right of first refusal on additional space in such facilities
exercisable during the primary term of the lease. The Austin facility is located
in the high tech center of Austin near other leading technology firms, and
includes sophisticated laboratory, network and server facilities to support
PSW's operations and project work on a variety of computing platforms.
PSW has approximately 6,700 square feet of additional office space in
Bellevue, Washington, strategically located near Microsoft and the IBM Kirkland
Programming Center. This facility primarily provides office and laboratory space
for the Company's Windows NT porting center, and also supports sales. PSW also
has space in Jersey City, New Jersey. This facility houses Eastern Region sales,
recruiting, and senior consultants for the Business Systems Unit.
PSW employees are also located at client sites throughout the United States,
including Chicago, Raleigh, Atlanta, Costa Mesa, Dallas, Boston and Stamford.
Additional office expansion is anticipated in 1997. The Company believes that
its existing facilities are adequate to meet its current needs and that suitable
additional or alternative space will be available in the future on commercially
reasonable terms, if and as needed.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
38
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES
The executive officers, directors and certain other significant employees of
the Company and their ages as of January 31, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- -----------------------------------------------------------
<S> <C> <C>
Dr. W. Frank King(1)........................... 57 President, Chief Executive Officer and Director
Patrick D. Motola.............................. 42 Senior Vice President of Operations, Chief Financial
Officer and Secretary
William C. Cason............................... 48 Senior Vice President, Business Systems Services
Brian E. Baisley............................... 54 Senior Vice President, Software Technology Services
Keith D. Thatcher.............................. 38 Vice President of Finance and Treasurer
William S. Wimberley, Jr....................... 43 Vice President, Business Systems -- Central Region
Julie M. Kirk.................................. 46 Vice President, Human Resources
Dennis P. Thompson............................. 41 Vice President, Software Technology Sales and Marketing
Michael G. McCown.............................. 35 Vice President, Business Systems Marketing
Wade E. Saadi(1)(2)............................ 47 Chairman of the Board of Directors
Edward C. Ateyeh, Jr.(2)....................... 44 Director
Thomas A. Herring(3)........................... 46 Director
Kevin B. Kurtzman(3)........................... 49 Director
Michael J. Maples(2)........................... 53 Director
Jonathan D. Wallace, Esq.(3)................... 42 General Counsel and Director
</TABLE>
- ------------------------
(1) Member of the Pricing Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Dr. King has served as President, Chief Executive Officer and a Director of
PSW since October 1, 1996. From 1992 to October 1, 1996, Dr. King served as
President of the Company. From 1988 to 1992, Dr. King was Senior Vice President
of the Software Business group of Lotus, a software publishing company. Prior to
joining Lotus, Dr. King was with IBM, a technology company, for 19 years, where
his last position was Vice President of Development for the Personal Computing
Division. Dr. King earned a doctorate in electrical engineering from Princeton
University, a master's degree in electrical engineering from Stanford
University, and a bachelor's degree in electrical engineering from the
University of Florida. He serves on the boards of directors of State of the Art,
Inc., Excalibur Technologies Corporation, SystemSoft and Auspex Systems Inc.
Mr. Motola has served as the Senior Vice President of Operations, Chief
Financial Officer and Secretary of PSW since October 1, 1996. From May 1993 to
October 1, 1996, Mr. Motola served as Vice President and General Manager of the
Company. From January 1992 to May 1993, Mr. Motola served as
39
<PAGE>
Vice President of Marketing at Software Publishing Corp., a PC software company.
Prior thereto, Mr. Motola was Vice President of Business Development at Metaphor
Computer Systems, a software and systems company, from April 1989 to December
1991. Mr. Motola also held various positions at IBM from 1976 to 1989 within the
Personal Systems and Workstation Divisions, including System Manager of OS/2
Extended Edition and AIX Development Manager in the original RISC/UNIX system
project. Mr. Motola earned a master's degree in management science from Stanford
University, a master's degree in computer science from the University of Texas
at Austin, and a bachelor's degree in electrical engineering and computer
science from the University of California at Berkeley.
Mr. Cason has served as the Senior Vice President, Business Systems Services
of PSW since October 1, 1994. From October 1994 to October 1996, Mr. Cason was a
Vice President, and from September 1993 to October 1994, he was Director of
Transaction Systems, of the Company. From May 1986 to September 1993, he served
at Soft Switch Inc., an electronic mail software product company, with roles
including Vice President of UNIX Development, Vice President of Business
Development and Vice President of Operations. Prior thereto, Mr. Cason was at
IBM's Development Lab in Austin, Texas for nine years. Mr. Cason earned a
bachelor's degree in electrical engineering from the University of Texas at
Austin and has completed post-graduate coursework toward a master's degree in
electrical engineering.
Mr. Baisley has served as the Senior Vice President, Software Technology
Services of PSW since October 1, 1996. From October 1994 to October 1996, Mr.
Baisley was a Vice President, and from October 1993 to October 1994, he was
Director of Technical Support Services, of the Company. From 1963 to September
1993, Mr. Baisley held a variety of positions with IBM, including Senior Manager
of the IBM National Technical Support Center in Dallas, Texas. While at IBM, Mr.
Baisley was also involved in providing consulting services to software companies
that were migrating products to IBM systems.
Mr. Thatcher has served as the Vice President of Finance and Treasurer of
PSW since October 1, 1996. From October 1994 to June 1996, Mr. Thatcher was
Chief Financial Officer, Secretary and Treasurer of Tanisys Technology, Inc., a
technology start-up company involved in developing commercial applications for
capacitive touch technology. Prior thereto, Mr. Thatcher served as Vice
President and Treasurer for Kinetic Concepts, Inc., a medical services and
products company, from 1987 to 1994. From 1985 to 1987, Mr. Thatcher was
employed by Peat Marwick Main & Co. as an audit manager. Mr. Thatcher earned a
bachelor's degree in accountancy from Northern Arizona University.
Mr. Wimberley has served as Vice President, Business Systems -- Central
Region of PSW since October 1, 1996. From July 1993 to October 1996, he served
as a Vice President of the Company. From July 1990 to July 1993, Mr. Wimberley
was Vice President of the Southwest Regional Operations of AGS Information
Service, a software consulting company. Prior thereto, Mr. Wimberley was with
Cap Gemini America Inc., a software consulting company, for seven years, holding
positions of Senior Sales Representative, Regional Sales Manager, Branch Manager
- -- Energy Industry Branch, and for the last four years of his tenure, Branch
Manager of the Dallas, Texas-based Commercial Branch. Mr. Wimberley earned a
bachelor's degree in marketing and advertising from the University of Texas at
Austin.
Ms. Kirk has served as Vice President, Human Resources and Administration of
PSW since December 1996. From December 1995 to December 1996, Ms. Kirk was the
Director of Human Resources and Administration, and from May 1992 to December
1995, she was the Manager of Human Resources, of the Company. Prior to joining
the Company, Ms. Kirk was with Union Pacific Corporation for 17 years and held
various human resource positions in the Personnel and Purchasing and Materials
Departments.
Mr. Thompson has served as Vice President, Software Technology Sales and
Marketing of PSW since October 1, 1996. From September 1994 to October 1996, he
was a Business Development Manager for the Company. From 1988 to 1994, Mr.
Thompson was the Director of Field Sales at Revelation Technologies, Inc., a
software development company which publishes application development tools.
Prior thereto, Mr. Thompson served as a consultant to the petroleum industry in
the use of personal computers for the
40
<PAGE>
exploration and production of oil and gas. Mr. Thompson earned a bachelor's
degree in communications from Bethany College.
Mr. McCown has served as Vice President, Business Systems Marketing of PSW
since January 1997. From May 1996 to January 1997, Mr. McCown served as Senior
Manager of the Company and was responsible for the Business Systems element of
Genova. From July 1995 to April 1996, Mr. McCown was President of Objective
Insight, Inc., a software consulting company. Prior thereto, Mr. McCown held
various positions with GTE Government Systems Corporation, a telecommunications
company, and the United States Department of Defense. Mr. McCown earned a
bachelor's degree in electrical engineering and computer science from the
University of California at Berkeley.
Mr. Saadi has served on the Board of Directors of PSW since October 1, 1996.
He is the founder of Pencom, and has served as its President and Chief Executive
Officer since its inception in 1973. Under Mr. Saadi's direction, Pencom grew
from a two-person enterprise to a company with over 800 employees, including
PSW. In 1996, Mr. Saadi won the Technology Entrepreneur of the Year
Award-Registered Trademark- in New York City. Mr. Saadi is a governor of the
board of the Collectors Club and a regional vice president of the United States
Philatelic Classics Society. Mr. Saadi attended the Polytechnic Institute of
Brooklyn where he majored in chemical engineering.
Mr. Ateyeh has served on the Board of Directors of PSW since October 1,
1996. He is presently the Executive Vice President of Pencom, where he has been
employed since 1977. Mr. Ateyeh served as President of Pencom's software
division from 1989 to 1992. He also founded Pencom's System Administration
division in 1994 and serves as its President. Mr. Ateyeh earned a bachelor of
science degree from the University of Notre Dame. Mr. Ateyeh received the
UniForum Pioneers of UNIX Award and chaired the UNIX EXPO Advisory Board and
Conference Committee from 1984 to 1990. He is presently a member of the IT
Conference Board, IEEE, Usenix and UniForum.
Mr. Herring has served on the Board of Directors of PSW since January 1997.
From May 1996 to the present, Mr. Herring has served as Chief Executive Officer
of Numega Technologies, Inc., a developer of automatic error detection and
advanced Windows debugging tools. From July 1995 to May 1996, Mr. Herring was
Vice President of Corporate Marketing of Sybase, Inc., a software company. Prior
thereto, he served as Vice President of Worldwide Marketing and Business
Development for Powersoft Corporation, a developer of client/server development
tools, from June 1990 to July 1995. Mr. Herring earned a bachelor's degree in
marketing and a master's degree in statistics, economics and mathematics from
Texas Technical University. Mr. Herring was selected as the 1995 Software
Industry Sales and Marketing Executive of the Year by Upside Magazine. He serves
on the Steering Committee on Information Management of the Graduate School of
Business of the University of Texas at Austin, and on the board of directors of
Wayfarer Communications, an Internet software company.
Mr. Kurtzman has served on the Board of Directors of PSW since December
1996. Mr. Kurtzman has been with Margolin, Winer & Evens LLP, a certified public
accounting firm, since 1972 and is a Partner and a member of its executive
committee and an Audit and Business Advisory Partner. Mr. Kurtzman is a former
officer and director of CPA Associates International. Mr. Kurtzman received a
bachelor's degree in accounting from Queens College of the City University of
New York.
Mr. Maples has served on the Board of Directors of PSW since December 1996.
Mr. Maples held several positions with Microsoft, a technology company, from
1988 through July 1995, where his last position was Executive Vice President of
Worldwide Products. Prior thereto, Mr. Maples held various positions with IBM
over the course of 23 years, the last of which was Director of Software
Strategy. Mr. Maples sits on the educational advisory boards of the Engineering
Coalition of Schools for Excellence in Education and Leadership, the Engineering
School at the University of Oklahoma and the College of Engineering at the
University of Texas at Austin, and on the board of directors of Lexmark
International Inc., a global printer manufacturer.
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<PAGE>
Mr. Wallace has served as PSW's General Counsel and as a member of its Board
of Directors since October 1, 1996. He has served as Pencom's Vice President of
Operations and legal counsel from February 1990 to the present. Prior thereto,
he was engaged in the private practice of law for 10 years, specializing in
computer-related legal matters. Mr. Wallace earned a bachelor's degree from
Columbia University and graduated from Harvard Law School.
BOARD OF DIRECTORS AND COMMITTEES
At each annual stockholder meeting commencing with the 1998 annual meeting,
the successors to the Directors whose terms expire are elected to serve from the
time of their election and qualification until the next annual meeting of
stockholders following their election and until a successor has been duly
elected and qualified. There are no family relationships among any of the
directors and executive officers of the Company.
The Pricing Committee of the Board of Directors will approve the final terms
and form of the Underwriting Agreement to be entered into in connection with
this offering, and in connection with this offering, will determine the number
of shares of Common Stock to be sold by the Company, the public offering price
per share and the Underwriters' discount.
The Compensation Committee of the Board of Directors determines the salaries
and incentive compensation of the officers of the Company and provides
recommendations for the salaries and incentive compensation of the other
employees and the consultants of the Company. The Compensation Committee also
administers various incentive compensation, stock and benefit plans.
The Audit Committee of the Board of Directors reviews, acts on and reports
to the Board of Directors with respect to various auditing and accounting
matters, including the selection of the Company's auditors, the scope of the
annual audits, fees to be paid to the auditors, the performance of the Company's
independent auditors and the accounting practices of the Company.
The Board of Directors may from time to time establish certain other
committees to facilitate the management of the Company.
DIRECTOR COMPENSATION
The Nonemployee Board Members are paid $3,750 per calendar quarter, which
may be in the form of Common Stock options or cash at the discretion of each
eligible director. Nonemployee Board Members are members of the Board of
Directors who are not employees of PSW or of Pencom.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by PSW and Pencom for
1996 to the Company's Chief Executive Officer and each of the four other most
highly compensated executive officers of the Company who received compensation
in excess of $100,000 in respect of services performed on behalf of the Company
during 1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- -------------
OTHER ANNUAL OPTIONS/
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) SARS(#)
- -------------------------------------------------------- ---------- ---------- ---------------- -------------
<S> <C> <C> <C> <C>
Dr. W. Frank King 313,976 363,226 654,907 212,308
Chief Executive Officer(1)............................
Patrick D. Motola 161,630 40,000 -- 133,848
Chief Financial Officer...............................
Brian E. Baisley 134,500 30,000 -- 61,540
Senior Vice President, Software Technology Services...
William C. Cason 134,500 30,000 -- 61,540
Senior Vice President, Business Systems Services......
William S. Wimberley, Jr. Vice President, Business 134,322 33,600 -- 21,539
Systems--Central Region...............................
</TABLE>
- ------------------------
(1) Dr. King's bonus consists of an amount paid to him pursuant to his
employment agreement with Pencom dated October 19, 1992. Dr. King's other
annual compensation consists of the forgiveness of a promissory note,
including interest thereon, from Dr. King to Pencom. See Note 10 of Notes to
Financial Statements.
43
<PAGE>
STOCK OPTION INFORMATION
The following table sets forth certain information regarding option grants
made pursuant to the Company's 1996 Stock Option/Stock Issuance Plan during 1996
to each of the Named Executive Officers, including options granted in
substitution for options issued by Pencom pursuant to the Pencom stock option
plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
PERCENTAGE
NUMBER OF OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF STOCK PRICE
UNDERLYING GRANTED EXERCISE APPRECIATION FOR OPTION TERM(2)
OPTIONS TO EMPLOYEES PRICE EXPIRATION ------------------------------------
NAME GRANTED (#) IN 1996(1) ($/SH) DATE 0% ($) 5% ($) 10% ($)
- ----------------------------- ------------ ------------- ----------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dr. W. Frank King............ 212,308 20.5% 3.90 10/02/06 -- 520,726 1,319,621
Patrick D. Motola............ 133,848 12.9 .04 10/02/06 516,653 844,941 1,348,598
Brian E. Baisley............. 24,616 2.4 .04 10/02/06 95,018 155,394 248,020
12,308 1.2 .43 10/02/06 42,708 72,896 119,210
12,308 1.2 2.58 10/02/06 16,247 46,434 92,748
12,308 1.2 3.90 10/02/06 -- 30,188 76,502
William C. Cason............. 24,616 2.4 .04 10/02/06 95,018 155,394 248,020
12,308 1.2 .43 10/02/06 42,708 72,896 119,210
12,308 1.2 2.58 10/02/06 16,247 46,434 92,748
12,308 1.2 3.90 10/02/06 -- 30,188 76,502
William S. Wimberley, Jr..... 12,308 1.2 .04 10/02/06 47,509 77,697 124,010
9,231 0.9 .43 10/02/06 32,032 54,672 89,408
</TABLE>
- ------------------------
(1) Based on an aggregate of 1,035,485 options granted to employees in fiscal
1996, including options granted to the Named Executive Officers.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the 10-year option term. The assumed 0%, 5%
and 10% rates of stock appreciation are mandated by rules of the Securities
and Exchange Commission and do not represent the Company's estimate of the
future market price of the Common Stock. These amounts do not take into
account any other appreciation in the price of the Common Stock from the
date of grant to the current date.
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<PAGE>
No options were exercised by the Named Executive Officers in 1996. The
following table sets forth for each of the Named Executive Officers certain
information concerning the value of unexercised options at the end of 1996:
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1996 (#) AT DECEMBER 31, 1996(1)($)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Dr. W. Frank King......................................... -- 212,308 -- 501,047
Patrick D. Motola......................................... 68,324 65,524 424,294 407,558
Brian E. Baisley.......................................... 24,616 36,924 150,465 148,496
William C. Cason.......................................... 24,616 36,924 150,465 148,496
William S. Wimberley, Jr.................................. 8,462 13,077 51,647 78,640
</TABLE>
- ------------------------
(1) Based on an estimated fair value of the Company's Common Stock at December
31, 1996 ($6.25 per share), as determined by the Company's Board of
Directors, less the exercise price payable for such shares.
1996 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's 1996 Stock Option/Stock Issuance Plan (the "1996 Plan") was
adopted by the Board of Directors and approved by the stockholders effective
October 1, 1996. 1,715,000 shares of Common Stock have been authorized for
issuance under the 1996 Plan, of which 643,484 are currently available for
grant. In no event may any one participant in the 1996 Plan receive option
grants or direct stock issuances for more than 750,000 shares in the aggregate
per calendar year.
The 1996 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
Common Stock at an exercise price determined by the Plan Administrator, (ii) the
Stock Issuance Program under which such individuals may, in the Plan
Administrator's discretion, be issued shares of Common Stock directly, through
the purchase of such shares at a price determined by the Plan Administrator or
as a bonus tied to the performance of services, and (iii) the Automatic Option
Grant Program under which option grants will automatically be made at periodic
intervals to eligible Board members to purchase shares of Common Stock at an
exercise price equal to 100% of their fair market value on the grant date.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances, the time or times
when such option grants or stock issuances are to be made, the number of shares
subject to each such grant or issuance, the status of any granted option as
either an incentive stock option or a non-statutory stock option under the
Federal tax laws, the vesting schedule to be in effect for the option grant or
stock issuance and the maximum term for which any granted option is to remain
outstanding.
Upon an acquisition of the Company by merger or asset sale, each outstanding
option and unvested stock issuance will be subject to accelerated vesting under
certain circumstances.
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<PAGE>
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made, at
the sole direction of the Plan Administrator, in cash or in shares of Common
Stock.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program in return for
the grant of new options for the same or different number of option shares with
an exercise price per share based upon the fair market value of the Common Stock
on the new grant date.
Under the Automatic Option Grant Program, each individual who becomes a
Nonemployee Board Member on or after the date hereof will receive a 16,000 share
option grant on the date such individual joins the Board, provided such
individual has not been in the prior employ of the Company. In addition, at each
Annual Stockholders Meeting, beginning with the 1998 Annual Meeting, each
individual who is to continue to serve as a Nonemployee Board Member after the
meeting and has served as a Nonemployee Board Member for at least six months
will receive an additional option grant to purchase 4,000 shares of Common Stock
whether or not such individual has been in the prior employ of the Company.
Each automatic grant will have a term of 10 years, subject to earlier
termination following the optionee's cessation of Board service. Each automatic
option will be immediately exercisable; however, any shares purchased upon
exercise of the option will be subject to repurchase should the optionee's
service as a nonemployee Board member cease prior to vesting in the shares. The
initial 16,000 share grant will vest in four equal and successive annual
installments over the optionee's period of Board service. Each additional 4,000
share grant will vest upon the optionee's completion of one year of Board
service measured from the grant date. However, each outstanding option will
immediately vest upon (i) certain changes in the ownership or control of the
Company or (ii) the death or disability of the optionee while serving as a Board
member.
The Board may amend or modify the 1996 Plan at any time. The 1996 Plan will
terminate on October 1, 2006, unless sooner terminated by the Board or pursuant
to certain other provisions of the Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted
by the Board of Directors on February 3, 1997 and will be submitted to the
stockholders for approval prior to the completion of this offering. The Purchase
Plan is designed to allow eligible employees of the Company to purchase shares
of Common Stock, at semi-annual intervals, through periodic payroll deductions
under the Purchase Plan, and a reserve of 400,000 shares of Common Stock has
been established for this purpose.
The Purchase Plan will be implemented in a series of successive purchase
periods, each generally with a duration of six months. The initial purchase
period will begin on the date hereof and will end on the last business day in
October 1997. Thereafter, purchase periods will begin on the first business day
in November and May of each year and will end on the last business day of April
and October, respectively. Shares of Common Stock will be purchased for each
participant at the end of each purchase period.
Payroll deductions may not exceed 15% of base salary for each purchase
period, and each employee's purchases are limited to 500 shares per purchase
period. The purchase price per share will be 85% of the lower of (i) the fair
market value of the Common Stock on the start date of the purchase period or
(ii) the fair market value on the semi-annual purchase date.
The Purchase Plan will terminate on the last business day in April, 2007.
46
<PAGE>
EXECUTIVE BONUS PLAN
The Company's annual Executive Bonus Plan generally awards cash and/or
Common Stock options to executive officers of the Company according to a formula
based upon specified pre-tax profit levels.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company has entered into an employment agreement with Dr. W. Frank King
dated October 1, 1996 (the "King Agreement"). Pursuant to the King Agreement,
the Company agreed to pay Dr. King an annual base salary of $350,000 and to
provide customary fringe benefits. In addition, the Company agreed to issue to
Dr. King options under the 1996 Plan to purchase an aggregate of 212,308 shares
of Common Stock at $3.90 per share. 80,000 of such options vest on December 31,
1997. The remaining 132,308 of such options vest on December 31, 2002, subject
to partial or full acceleration of vesting to December 31, 1998 based upon the
Company's 1998 performance measured against certain specified financial goals.
The King Agreement terminates on September 30, 1998.
The Company has entered into employment agreements with no defined
termination dates with each of Messrs. Motola, Baisley, Cason and Wimberley
dated July 1, 1993, October 19, 1993, September 27, 1993 and July 18, 1994,
respectively (the "Executive Agreements"). Pursuant to the Executive Agreements,
the Company agreed to pay Messrs. Motola, Baisley, Cason and Wimberley annual
base salaries of $140,000, $60,000, $120,000 and $125,000, respectively, and to
provide customary fringe benefits.
The Executive Agreements contain provisions for the protection of the
Company's confidential information, the assignment to the Company of inventions
conceived by the employee during his employment and to prevent solicitation of
other employees of the Company and the Company's clients by the employee and the
solicitation of the employee by the Company's clients. Pursuant to the terms of
the Executive Agreements, either party may terminate the employment relationship
without cause upon two weeks' prior written notice to the other party. The
Company may terminate the employment relationship in its sole discretion without
cause, effective immediately, upon payment of two weeks' salary to the employee
or immediately with cause upon written notice.
The Compensation Committee as Plan Administrator of the 1996 Plan will have
the authority to provide for the accelerated vesting of outstanding options held
by the Chief Executive Officer and any other executive officer or the shares of
Common Stock subject to direct issuances held by such individual, in connection
with certain changes in control of the Company or the subsequent termination of
the officer's employment following the change in control event.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
PSW did not have a Compensation Committee of the Board of Directors in 1996.
Dr. King and Messrs. Wade E. Saadi, Ateyeh and Wallace participated in
deliberations of PSW's Board of Directors concerning executive officer
compensation during 1996. Dr. King also served as a director of Pencom in 1996
and Mr. Wade E. Saadi, an executive officer of Pencom, participated in
deliberations of PSW's Board of Directors concerning executive officer
compensation during 1996.
Messrs. Wade E. Saadi, Ateyeh, Edgar G. Saadi and Wallace served as
directors of Pencom in 1996, and Dr. King was an executive officer of Pencom
during 1996 and served on PSW's Board of Directors at such time.
KEY-PERSON LIFE INSURANCE
The Company does not maintain key-person life insurance policies on the
lives of any of its executive officers.
47
<PAGE>
LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS
The Company's Certificate of Incorporation provides that, except to the
extent prohibited by the DGCL, its directors shall not be personally liable to
the Company or its stockholders for monetary damages for any breach of fiduciary
duty as directors of the Company. Under Delaware law, the directors have a
fiduciary duty to the Company that is not eliminated by this provision of the
Certificate of Incorporation and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available. In addition, each director will continue to be subject to liability
under Delaware law for breach of the director's duty of loyalty to the Company,
for acts or omissions which are found by a court of competent jurisdiction to be
not in good faith or involving intentional misconduct, for knowing violations of
law, for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
prohibited by Delaware law. This provision also does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws or
state or Federal environmental laws. If commercially feasible, the Company
intends to obtain liability insurance for its officers and directors.
The Certificate of Incorporation also provides that the Company shall
indemnify, to the fullest extent permitted by Section 145 of the DGCL, all of
its present and former officers and directors, and any party agreeing to serve
as an officer, director or trustee of any entity at the Company's request, in
connection with any civil or criminal proceeding threatened or instituted
against such party by reason of actions or omissions while serving in such
capacity. Indemnification by the Company includes payment of expenses in defense
of the indemnified party in advance of any proceeding or final disposition
thereof. The rights to indemnification provided in this provision do not
preclude the exercise of any other indemnification rights by any party pursuant
to any law, agreement or vote of the stockholders or the disinterested directors
of the Company.
Section 145 of the DGCL generally allows the Company to indemnify the
parties described in the preceding paragraph for all expenses, judgments, fines
and amounts in settlement actually paid and reasonably incurred in connection
with any proceedings so long as such party acted in good faith and in a manner
reasonably believed to be in or not opposed to the Company's best interests and,
with respect to any criminal proceedings, if such party had no reasonable cause
to believe his or her conduct to be unlawful. Indemnification may only be made
by the Company if the applicable standard of conduct set forth in Section 145
has been met by the indemnified party upon a determination made (i) by the Board
of Directors by a majority vote of the directors who are not parties to such
proceedings (even though less than a quorum), or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders.
48
<PAGE>
CERTAIN TRANSACTIONS
PENCOM RELATIONSHIP
OWNERSHIP OF COMMON STOCK
In October 1996, Pencom contributed certain assets and associated
liabilities of its software division and a portion of a software contract that
had previously been allocated to other operations of Pencom to the Company in
exchange for all of the outstanding Common Stock of the Company (the
"Spin-Off"), which Common Stock was immediately distributed to Pencom's
shareholders.
ACCOUNTING SUPPORT
Prior to October 1, 1996, the Company had limited accounting capability and
depended upon Pencom for most accounting functions. By October 1, 1996, the
Company had assumed responsibility for most internal accounting functions, but
continued to depend upon Pencom for limited accounting support in connection
with the Company's year-end audit through January 31, 1997.
CONTRACTUAL ARRANGEMENTS
In connection with the Spin-Off, in September 1996, Pencom forgave
promissory notes from Dr. W. Frank King and Jonathan D. Wallace in the aggregate
principal amounts of $591,107 and $186,247, respectively, plus accrued interest,
issued to Pencom in connection with Dr. King's and Mr. Wallace's annual
purchases of common stock of Pencom.
The Company and Pencom have entered into an Accounts Receivable Agreement
dated October 1, 1996 whereby Pencom transferred a 26.67% interest in the
proceeds of certain accounts receivable to the Company in connection with the
Spin-Off.
The Company and Pencom have entered into a letter agreement whereby Pencom
agreed to provide certain accounting, personnel and legal services to PSW from
October 1, 1996 to April 30, 1997 for a fee of $7,000 per month.
The Company and Pencom have entered into a Recruiting Services Agreement
dated January 20, 1997 whereby Pencom provides certain recruiting services to
the Company (the "Recruiting Agreement"). The term of the Recruiting Agreement
is one year and it may be terminated by either party upon 10 days' written
notice. The total fee payable by the Company to Pencom under the Recruiting
Agreement for the placement of a candidate ranges from 17% to 25% of the
candidate's first year's compensation based upon the position level of the
candidate and the number of successful hires for which a fee has been paid to
Pencom in 1997. The Company believes that such fee arrangement is in accordance
with industry standards.
On October 31, 1996, the Company entered into a lease for its office space
in Austin, Texas, with Investors Life Insurance Company of North America, which
lease was guaranteed by Pencom. Pencom's guarantee of the lease will be released
upon the occurrence of certain events, including the Company's satisfaction of
certain financial conditions and the failure of the Company to be in default
under the Credit Facility. The Company anticipates that this guarantee will be
released upon completion of this offering. This lease provides for annual rent
of approximately $717,000 in 1997.
The Company entered into an agreement with Pencom effective as of January
31, 1997 whereby the Company guaranteed Tivoli's obligations under Pencom's
sublease agreement with Tivoli. Such sublease agreement expires on September 30,
2000 and provides for annual rent of approximately $333,000 in 1997.
49
<PAGE>
STOCKHOLDERS AGREEMENT
The Company is party to a Stockholders Agreement dated October 1, 1996 with
Dr. King and Messrs. Wade E. Saadi, Edgar G. Saadi, Ateyeh and Wallace pursuant
to which such stockholders have agreed to certain restrictions and conditions on
the transfer of the Common Stock held by them, including rights of first offer,
tag-along and drag-along rights. Unless earlier terminated upon the agreement of
the Company and a two-thirds majority of such stockholders, the Stockholders
Agreement will terminate on September 30, 2001.
REGISTRATION RIGHTS AGREEMENT
The Company has entered into an agreement with each of its existing
stockholders and the warrantholders pursuant to which such stockholders and
warrantholders were granted certain registration rights. See "Description of
Capital Stock -- Registration Rights."
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with all of its executive
officers. See "Management -- Employment Agreements."
SECURITIES ISSUANCES AND PURCHASES
Pursuant to a Stock Subscription agreement dated October 1, 1996 between the
Company and Pencom, the Company issued 5,538,463 shares of Common Stock to
Pencom in consideration of the contribution by Pencom to the Company of certain
assets and associated liabilities of Pencom's software division and a portion of
a software contract that had previously been allocated to other operations of
Pencom, which net assets amounted to approximately $2.1 million.
In October 1996, Pencom distributed 1,615,385, 1,615,385, 1,615,385, 415,384
and 138,462 shares of Common Stock to Wade E. Saadi, Edgar G. Saadi, Edward C.
Ateyeh, Jr., Dr. W. Frank King and Jonathan D. Wallace, respectively. On such
date, Pencom distributed on additional 138,462 shares of Common Stock to Dr.
King in exchange for the 60 shares of the common stock of Pencom owned by Dr.
King. Wade E. Saadi is the Chairman of the Board of Directors of the Company.
Mr. Ateyeh is a Director of the Company. Dr. King is the President, Chief
Executive Officer and a Director of the Company. Mr. Wallace is the General
Counsel and a Director of the Company.
Pursuant to an agreement dated as of January 1, 1997, the Company committed
to sell, and Michael J. Maples committed to purchase, 8,000 shares of Common
Stock at a price of $6.25 per share. Mr. Maples is a Director of the Company.
From October 2, 1996 through January 31, 1997, the Company granted executive
officers and directors options to purchase a total of 555,392 shares of Common
Stock with exercise prices ranging from $.04 per share to $7.96 per share and a
weighted average exercise price of $2.61 per share.
On October 2, 1996, the Company issued warrants to purchase 507,654 shares
of Common Stock to Pencom and certain employees of Pencom at an exercise price
of $.04 per share. The warrants issued to Pencom were thereafter distributed to
Pencom's shareholders.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of January 31, 1996 and as
adjusted to reflect the completion of this offering with respect to the
following: (i) each person or entity known by the Company to be the beneficial
owner of more than five percent of the Common Stock, (ii) each of the Company's
directors, (iii) each of the Named Executive Officers, and (iv) all directors
and executive officers of the Company as a group. Except as indicated in the
footnotes to the table, the persons and entities named in the table have sole
voting and investment power with respect to all shares beneficially owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING (1) OFFERING (1)
--------------------- ---------------------
NUMBER PERCENT NUMBER PERCENT
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Wade E. Saadi(2)(3)............................................... 1,680,390 29.9% 1,680,390 19.9%
Edgar G. Saadi(2)(3).............................................. 1,680,390 29.9 1,680,390 19.9
Edward C. Ateyeh, Jr(2)(3)........................................ 1,680,390 29.9 1,680,390 19.9
Dr. W. Frank King(4).............................................. 553,846 10.0 553,846 6.6
Jonathan D. Wallace, Esq.(5)...................................... 143,463 2.6 143,463 1.7
Michael J. Maples(6).............................................. 8,000 * 8,000 *
Patrick D. Motola(7).............................................. 81,786 1.5 81,786 1.0
Brian E. Baisley(8)............................................... 24,616 * 24,616 *
William C. Cason(9)............................................... 24,616 * 24,616 *
William S. Wimberley, Jr.(10)..................................... 8,462 * 8,463 *
Kevin B. Kurtzman................................................. * * * *
Thomas A. Herring................................................. * * * *
All directors and executive officers as a group (11 persons)...... 4,205,569 72.2% 4,205,569 48.5%
</TABLE>
- ------------------------
* Represents less than 1% of outstanding Common Stock or voting power.
(1) Shares beneficially owned and percentage of ownership are based on 5,546,463
shares of Common Stock outstanding before this offering and 8,396,463 shares
of Common Stock outstanding after completion of this offering. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or disposition power with
respect to securities.
(2) The address of Messrs. Wade E. Saadi, Edgar G. Saadi and Ateyeh is c/o
Pencom Systems Incorporated, 40 Fulton Street, New York, New York 10038.
(3) Includes 65,005 shares issuable upon exercise of warrants held by each of
Messrs. Wade E. Saadi, Edgar G. Saadi and Ateyeh that are exercisable within
the 60-day period following January 31, 1997.
(4) The address of Dr. King is the address of the Company's principal executive
offices.
(5) Includes 5,001 shares issuable upon exercise of warrants held by Mr. Wallace
that are exercisable within the 60-day period following January 31, 1997.
(6) Consists of shares of Common Stock that Mr. Maples has committed to purchase
from the Company.
(7) Includes 81,786 shares issuable upon exercise of options held by Mr. Motola
that are exercisable within the 60-day period following January 31, 1997.
(8) Includes 24,616 shares issuable upon exercise of options held by Mr. Baisley
that are exercisable within the 60-day period following January 31, 1997.
(9) Includes 24,616 shares issuable upon exercise of options held by Mr. Cason
that are exercisable within the 60-day period following January 31, 1997.
(10) Includes 8,462 shares issuable upon exercise of options held by Mr.
Wimberley that are exercisable within the 60-day period following January
31, 1997.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Upon completion of this offering, the Company will be authorized to issue
34,000,000 shares of Common Stock, $.01 par value. Each holder of Common Stock
is entitled to one vote for each share held. Following this offering, the
holders of Common Stock, voting as a single class, will be entitled to elect all
of the directors of the Company. In all matters other than the election of
directors, when a quorum is present at any stockholders' meeting, the
affirmative vote of the majority of shares present in person or represented by
proxy shall decide any question before such meeting. Directors are elected by a
plurality of the votes of the shares present in person or represented by proxy
at a stockholders' meeting. The holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock would be entitled to share in
the Company's assets remaining after the payment of liabilities and the
satisfaction of any liquidation preference granted to the holders of any
outstanding shares of Preferred Stock. Holders of Common Stock have no
preemptive or other subscription rights. The shares of Common Stock are not
convertible into any other security. The outstanding shares of Common Stock are,
and the shares being offered hereby will be, upon issuance and sale fully paid
and nonassessable.
At December 31, 1996, there were outstanding 5,538,463 shares of Common
Stock, held of record by six stockholders, options to purchase an aggregate of
1,071,516 shares of Common Stock at a weighted average exercise price of $2.02
per share and warrants to purchase 507,654 shares of Common Stock at $.04 per
share. See "Management -- 1996 Stock Option/Stock Issuance Plan."
PREFERRED STOCK
Upon completion of this offering, the Company will be authorized to issue up
to 1,000,000 shares of Preferred Stock, $.01 par value, with such voting rights,
designations, preferences and rights, and such qualifications, limitations or
restrictions thereof, as may be determined by the Board of Directors providing
for such series. Although the Company has no current plans to issue any shares
of Preferred Stock, the issuance of Preferred Stock or of rights to purchase
Preferred Stock could be used to discourage an unsolicited acquisition proposal.
In addition, the possible issuance of Preferred Stock could discourage a proxy
contest, make more difficult the acquisition of a substantial block of the
Company's Common Stock or limit the price that investors might be willing to pay
in the future for shares of the Company's Common Stock.
The Company believes that the Preferred Stock will provide the Company with
increased flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs that might arise. Having such
authorized shares available for issuance will allow the Company to issue shares
of Preferred Stock without the expense and delay of a special stockholders'
meeting. The authorized shares of Preferred Stock, as well as shares of Common
Stock, will be available for issuance without further action by stockholders,
unless such action is required by applicable law or the rules of any stock
exchange on which the Company's securities may be listed.
REGISTRATION RIGHTS
After this offering, the holders of 5,546,463 shares of Common Stock and
warrants to purchase 507,654 shares of Common Stock (the "Registrable
Securities") will be entitled to certain demand rights with respect to the
registration of such Common Stock under the Securities Act. Under the terms of a
Registration Rights Agreement between the Company and the holders of the
Registrable Securities, subject to certain restrictions, at any time after 180
days after the date of this Prospectus the holders of more than 50% of the
Registrable Securities are entitled to demand that the Company register their
52
<PAGE>
Registrable Securities under the Securities Act. The Company is not required to
effect more than three such registrations pursuant to such demand registration
rights. In addition, under such agreement, if the Company proposes to register
any of its securities under the Securities Act, either for its own account or
for the account of other security holders, subject to certain restrictions, such
holders of Registrable Securities are entitled to notice of such registration
and are entitled to include their Registrable Securities therein. The Company is
required to include any Registrable Securities in an unlimited number of such
registrations. Once the Company is eligible to use a Form S-3 registration
statement to register shares of Common Stock, subject to certain restrictions,
holders of 30% of the Registrable Securities are also entitled to require the
Company on two separate occasions in any 12-month period to file a Form S-3
registration statement under the Securities Act at the Company's expense with
respect to their Registrable Securities. Registration of Registrable Securities
pursuant to any of the foregoing rights would result in such shares becoming
freely tradable without restriction under the Securities Act immediately upon
the effectiveness of such registration.
DELAWARE ANTITAKEOVER STATUTE
The Company is subject to Section 203 of the DGCL which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the Board of Directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
(x) by persons who are directors and also officers and (y) by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the Board of Directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is
.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
8,396,463 shares of Common Stock. Of these shares, the 2,850,000 shares offered
hereby (plus up to 427,500 additional shares if the Underwriters exercise their
over-allotment option) will be freely tradeable without restriction or further
registration (except by affiliates of the Company or persons acting as
underwriters) under the Securities Act. All of the remaining 5,546,463 shares of
Common Stock (the "Restricted Shares") may not be sold unless they are
registered under the Securities Act or are sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144 promulgated under the
Securities Act.
In general, commencing 90 days after the completion of this offering, Rule
144, as currently in effect, allows a person who has beneficially owned
Restricted Shares for at least two years, including persons who may be deemed
affiliates of the Company, to sell, within any three-month period, up to the
number of Restricted Shares that does not exceed the greater of (i) one percent
of the then outstanding shares of Common Stock, and (ii) the average weekly
trading volume during the four calendar weeks preceding the date on which notice
of the sale is filed with the Securities and Exchange Commission. A person who
is not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale and who has beneficially owned his or her Restricted
Shares for at least three years would be entitled to sell such Restricted Shares
without regard to the volume limitations described above and the other
conditions of Rule 144. Upon the completion of this offering, none of the
Restricted Shares will be immediately eligible for sale in the public market
without restriction pursuant to Rule 144 of the Securities Act. The Company's
existing stockholders will have beneficially owned such shares for two years
beginning in October 1998, at which time such stockholders may sell such shares
under Rule 144, subject to the volume and other limitations contained in that
Rule. The Securities and Exchange Commission has proposed certain amendments to
Rule 144 that would reduce by one year the holding periods required for shares
subject to Rule 144 to become eligible for resale in the public market. This
proposal, if adopted, would permit earlier resale of shares of Common Stock
currently subject to holding periods under Rule 144. No assurance can be given
concerning whether or when the proposal will be adopted by the Securities and
Exchange Commission.
Notwithstanding the foregoing, the Company and its directors, executive
officers and stockholders, who in the aggregate own all of the 5,546,463
Restricted Shares, have agreed with the Underwriters not to directly or
indirectly make or cause any offering, sale or other disposition of any shares
of Common Stock for a period of 180 days after the date of this Prospectus
without the written consent of Alex. Brown & Sons Incorporated, which may be
granted at any time without notice. See "Underwriting." In addition, the Company
intends to file a registration statement on Form S-8 to register 2,115,000
shares subject to the Company's 1996 Plan and Purchase Plan upon completion of
this offering. Market sales of a substantial number of shares of Common Stock,
or the availability of such shares for sale in the public market, could
adversely affect prevailing market prices of the Common Stock.
In addition, after this offering, the holders of 5,546,463 shares of Common
Stock and warrants to purchase 507,654 shares of Common Stock will be entitled
to certain rights with respect to registration of such Common Stock under the
Securities Act. Registration of such Restricted Shares under the Securities Act
would result in such shares becoming freely tradeable without restriction under
the Securities Act immediately upon the effectiveness of such registration. See
"Description of Capital Stock -- Registration Rights."
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated and J.P. Morgan Securities Inc. have severally
agreed to purchase from the Company the following respective numbers of shares
of Common Stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------------------------------------------------------------------- -------------
<S> <C>
Alex. Brown & Sons Incorporated....................................................................
J.P. Morgan Securities Inc.........................................................................
-------------
Total........................................................................................ 2,850,000
-------------
-------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares are
purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the initial public offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession of not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After
the initial public offering, the public offering price and other selling terms
may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 427,500
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 2,850,000, and the Company will be
obligated pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,850,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
among the Underwriters and the Company against certain civil liabilities,
including liabilities under the Securities Act.
The Company and its directors, executive officers and stockholders, who in
the aggregate own 5,546,463 shares of Common Stock, have agreed not to directly
or indirectly make or cause any offering,
55
<PAGE>
sale or other disposition of any such Common Stock beneficially owned by them
for a period of 180 days after the date of this Prospectus without the prior
written consent of Alex. Brown & Sons Incorporated.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock offered hereby will be determined by negotiation between the Company and
the Representatives of the Underwriters. Among the factors to be considered in
such negotiations are the prevailing market conditions, the results of
operations of the Company in recent periods, the market capitalizations and
stages of development of other companies which the Company and the
Representatives of the Underwriters believe to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, New York, New York. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Piper & Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The financial statements of the Company at December 31, 1995 and 1996 and
for the years then ended, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, and for
the year ended December 31, 1994, by Margolin, Winer & Evens LLP, independent
auditors, as set forth in their respective reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firms as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Certain items are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is hereby made to the Registration Statement, including
exhibits, schedules and reports filed as part thereof. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of the Registration Statement
may be obtained from the Commission at prescribed rates from the Public
Reference Section of the Commission at such address, and at the Commission's
regional offices located at 7 World Trade Center, 13th Floor, New York, New York
10048, and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, registration statements and certain other
filings made with the Commission through its Electronic Data Gathering, Analysis
and Retrieval ("EDGAR") system are publicly available through the Commission's
site on the Internet's World Wide Web, located at http: // www.sec.gov. The
Registration Statement, including all exhibits thereto and amendments thereof,
have been filed with the Commission through EDGAR.
In addition, the Company intends to furnish its stockholders with annual
reports containing audited financial statements examined by an independent pubic
accounting firm.
56
<PAGE>
PSW TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors--Ernst & Young LLP.......................................................... F-2
Report of Independent Accountants--Margolin, Winer & Evens LLP............................................. F-3
Balance Sheets as of December 31, 1995 and 1996............................................................ F-4
Statements of Income for the years ended December 31, 1994, 1995 and 1996.................................. F-5
Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996.................... F-6
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996.............................. F-7
Notes to Financial Statements.............................................................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
of PSW Technologies, Inc.
We have audited the accompanying balance sheets of PSW Technologies, Inc. as
of December 31, 1995 and 1996, and the related statements of income,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PSW Technologies, Inc. at
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
February 3, 1997, except for paragraph 2
of Note 3, as to which the date is March , 1997
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion of
the restatement of capital accounts described in Note 3 to the financial
statements.
ERNST & YOUNG LLP
New York, New York
February 3, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
PSW Technologies, Inc.
We have audited the accompanying statements of income, stockholders' equity,
and cash flows of PSW Technologies, Inc. for the year ended December 31, 1994.
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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of PSW
Technologies, Inc. for the year ended December 31, 1994 in conformity with
generally accepted accounting principles.
MARGOLIN, WINER & EVENS LLP
Garden City, New York
May 31, 1995
F-3
<PAGE>
PSW TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash....................................................................................... $ 34 $ 3,182
Accounts receivable, net of allowance for doubtful accounts of $45 and $120 in 1995 and
1996..................................................................................... 3,849 6,118
Due from related party (Note 10)........................................................... -- 323
Unbilled revenue under customer contracts.................................................. 100 244
Prepaid expenses and other current assets.................................................. 71 280
--------- ---------
Total current assets......................................................................... 4,054 10,147
Property and equipment, net.................................................................. 928 1,796
--------- ---------
Total assets................................................................................. $ 4,982 $ 11,943
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank....................................................................... $ -- $ 5,125
Due to related party (Note 10)............................................................. -- 581
Accounts payable and accrued expenses...................................................... 1,298 2,566
Deferred revenue........................................................................... -- 227
--------- ---------
Total current liabilities.................................................................... 1,298 8,499
Commitments and contingencies (Note 11)
Stockholders' equity (Notes 1 and 3):
Preferred stock, par value $.01 per share, 1,000,000 shares authorized and none issued and
outstanding at December 31, 1995 and 1996................................................ -- --
Common stock, par value $.01 per share, 34,000,000 shares authorized and 5,538,463 shares
issued and outstanding at December 31, 1995 and 1996..................................... 55 55
Additional paid-in capital................................................................. 4,947 4,187
Deferred compensation...................................................................... -- (641)
Accumulated deficit........................................................................ (1,318) (157)
--------- ---------
Total stockholders' equity................................................................... 3,684 3,444
--------- ---------
Total liabilities and stockholders' equity................................................... $ 4,982 $ 11,943
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-4
<PAGE>
PSW TECHNOLOGIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenue.................................................................... $ 12,318 $ 21,147 $ 31,274
Operating expenses:
Technical staff.......................................................... 7,385 11,193 16,444
Selling and administrative staff......................................... 2,320 3,755 5,622
Other expenses, including related party transactions of $532, $1,018 and
$910 (Note 10)......................................................... 2,317 3,976 5,684
Special compensation expense (Note 13)................................... -- -- 2,193
--------- --------- ---------
Total operating expenses................................................... 12,022 18,924 29,943
--------- --------- ---------
Income from operations..................................................... 296 2,223 1,331
Interest expense, including related party transactions of $74, $84 and $104
(Note 10)................................................................ 74 84 170
--------- --------- ---------
Net income................................................................. $ 222 $ 2,139 $ 1,161
--------- --------- ---------
--------- --------- ---------
Unaudited pro forma information (Note 12):
Historical income before provision for income taxes...................... $ 222 $ 2,139 $ 1,161
Pro forma provision for income taxes..................................... 84 813 441
--------- --------- ---------
Pro forma net income..................................................... $ 138 $ 1,326 $ 720
--------- --------- ---------
--------- --------- ---------
Pro forma net income per share........................................... $ .02 $ .19 $ .10
--------- --------- ---------
--------- --------- ---------
Weighted average common shares and equivalents outstanding................. 6,954 6,954 6,995
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-5
<PAGE>
PSW TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
(NOTES 1 AND 3)
<TABLE>
<CAPTION>
COMMON STOCK
$.01 PAR VALUE ADDITIONAL TOTAL
----------------------- PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNTS CAPITAL COMPENSATION DEFICIT EQUITY
---------- ----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993............... 5,538,463 $ 55 $ 5,926 $ -- $ (3,679) $ 2,302
Capital contributions, net................. -- -- 151 -- -- 151
Net income................................. -- -- -- -- 222 222
---------- --- ----------- ------------- ------------ ------------
Balance at December 31, 1994............... 5,538,463 55 6,077 -- (3,457) 2,675
Distributions, net......................... -- -- (1,130) -- -- (1,130)
Net income................................. -- -- -- -- 2,139 2,139
---------- --- ----------- ------------- ------------ ------------
Balance at December 31, 1995............... 5,538,463 55 4,947 -- (1,318) 3,684
Distributions, net......................... -- -- (2,939) -- -- (2,939)
Deferred compensation related to stock
options (Note 8)......................... -- -- 2,179 (2,179) -- --
Amortization of deferred compensation (Note
8)....................................... -- -- -- 1,538 -- 1,538
Net income................................. -- -- -- -- 1,161 1,161
---------- --- ----------- ------------- ------------ ------------
Balance at December 31, 1996............... 5,538,463 $ 55 $ 4,187 $ (641) $ (157) $ 3,444
---------- --- ----------- ------------- ------------ ------------
---------- --- ----------- ------------- ------------ ------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
PSW TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................................................ $ 222 $ 2,139 $ 1,161
Adjustments to reconcile net income to net cash provided by operating activities:
Special compensation.......................................................... -- -- 2,193
Depreciation and amortization................................................. 271 288 424
Bad debt expense.............................................................. 43 52 75
Changes in operating assets and liabilities:
Accounts receivable......................................................... (1,073) (1,181) (2,344)
Due from related party...................................................... -- -- (323)
Unbilled revenue under customer contracts................................... -- (100) (144)
Prepaid expenses and other current assets................................... -- (45) (864)
Other assets................................................................ 2 -- --
Due to related party........................................................ -- -- 581
Accounts payable and accrued expenses....................................... 404 648 1,154
Deferred revenue............................................................ 214 (214) 227
--------- --------- ---------
Net cash provided by operating activities......................................... 83 1,587 2,140
--------- --------- ---------
INVESTING ACTIVITIES
Acquisition of property and equipment............................................. (220) (444) (1,247)
--------- --------- ---------
Net cash used in investing activities............................................. (220) (444) (1,247)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from line of credit...................................................... -- -- 5,125
Capital contributions (distributions), net........................................ 151 (1,130) (2,870)
--------- --------- ---------
Net cash provided by (used in) financing activities............................... 151 (1,130) 2,255
--------- --------- ---------
Net increase in cash.............................................................. 14 13 3,148
Cash, beginning of year........................................................... 7 21 34
--------- --------- ---------
Cash, end of year................................................................. $ 21 $ 34 $ 3,182
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid..................................................................... $ 74 $ 84 $ 154
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-7
<PAGE>
PSW TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF BUSINESS
PSW Technologies, Inc. ("PSW" or the "Company") is a software services firm,
in one industry segment, that provides high value solutions to technology
vendors and business end-users by mastering and applying critical emerging
technologies. These critical technologies include distributed computing, object-
oriented development, advanced operating systems and systems management
technologies. The Company conducts its business through its two business units:
the Software Technology Unit and the Business Systems Unit. PSW's Software
Technology Unit provides joint project-based development, porting and testing
services to selected technology vendor clients. The Company's Business Systems
Unit applies PSW's technical expertise to the design and development of high
value, mission critical enterprise business systems for its Fortune 1000
end-user clients.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Pencom Systems Incorporated ("Pencom") provided software services via a
separate division (the "Software Division") that commenced operations in October
1989. In addition, a portion of a software services contract was allocated
between the other operations of Pencom and the Software Division. Effective
October 1, 1996, Pencom contributed to PSW the business of the Software
Division, including the portion of the software contract that had previously
been allocated to the other operations of Pencom (see Note 3). In exchange for
the net assets contributed, Pencom received all of the then issued and
outstanding shares of PSW and, PSW issued warrants to Pencom and to certain
Pencom employees to purchase an aggregate of 507,654 shares of PSW's common
stock at $.04 per share. The shares and warrants issued to Pencom were
immediately thereafter distributed to Pencom shareholders. This exchange has
been accounted for in a manner similar to a pooling of interests and,
accordingly, the accompanying financial statements include the operations of the
Software Division and the aforementioned portion of the software services
contract allocated to other operations of Pencom for all periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, including estimates to complete contracts, that affect the reported
amounts in the financial statements and accompanying notes. Actual results could
differ from those estimates.
SHARE INFORMATION
All outstanding share amounts included in the accompanying financial
statements have been adjusted to reflect an 11,250-for-1 forward stock split on
December 18, 1996 and, the 8-for-13 reverse stock split described in Note 3.
REVENUE RECOGNITION
Revenue from time and materials contracts is recognized during the period in
which the services are provided.
F-8
<PAGE>
PSW TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue from fixed price contracts is recognized using the
percentage-of-completion method, measured by the percentage of units of labor
incurred to the date of measurement relative to the estimated total units of
labor at completion. The cumulative impact of revisions in estimates of the
percentage to complete is reflected in the period in which the revisions are
made. Provisions for estimated losses on uncompleted contracts are made on a
contract by contract basis and are recognized in the period in which such losses
are determined. Revenue earned in excess of billings is classified as unbilled
revenue under customer contracts. Billings in excess of earned revenue are
classified as deferred revenue. Revenue excludes reimbursable expenses.
COST AND EXPENSES
Technical staff consists of the cost of (i) salaries, payroll taxes, health
insurance and workers' compensation for technical staff personnel assigned to
client projects, (ii) unassigned technical staff personnel and (iii) fees paid
to subcontractors for work performed in connection with customer projects.
Selling and administrative staff consists of (i) the cost of salaries,
payroll taxes, health insurance and workers' compensation for selling and
administrative personnel, (ii) all commissions and bonuses and (iii) the cost of
technical staff personnel assigned to development projects or performing
selling, recruiting or training related tasks.
Pencom allocated certain expenses to the Software Division, including
corporate and officers' salaries, interest and rent. Interest was allocated
based upon interest incurred by Pencom on its secured debt (see Note 6).
Corporate and officers' salaries were allocated based upon the percentage of
time expended by certain individuals on Software Division matters. Rent was
allocated based on square footage and/or employee head count.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash balances and trade accounts
receivable. The Company invests its excess cash in highly liquid investments
(short-term bank deposits). At December 31, 1996, substantially all cash was
held in one bank. The Company does not require collateral from its customers.
The Company maintains allowances for potential credit losses and such losses
were not material for any of the periods presented. The Company's customers are
headquartered primarily in North America.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed based on the cost of the related
assets, using the straight-line method over the estimated useful lives of the
assets which range from five to seven years. Leasehold improvements are
amortized over the term of the related lease or estimated life of the leasehold
improvements, whichever is shorter.
F-9
<PAGE>
PSW TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 is effective for fiscal years beginning
after December 31, 1995 and prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company intends to continue to account for its stock based
compensation plans in accordance with the provisions of APB 25.
PRO FORMA NET INCOME PER SHARE
Pro forma net income per share is based upon pro forma net income divided by
weighted average number of shares of common stock outstanding during the
respective periods, retroactively adjusted to reflect the stock splits. The
weighted average number of common shares outstanding has been computed in
accordance with Staff Accounting Bulletin 83 ("SAB 83") of the Securities and
Exchange Commission. SAB 83 requires that shares of common stock and options,
issued within a one-year period prior to the initial filing of a registration
statement relating to an initial public offering (see Note 14) at amounts below
the public offering price, be considered outstanding for all periods presented
in the Company's Registration Statement. In October and December 1996, the
Company issued options and warrants to purchase 1,579,170 shares of common stock
at prices ranging from $.04 to $6.25 per share including 759,451 replacement
options (see Note 8). Effective January 1, 1997, the Company entered into a
commitment to issue 8,000 shares of common stock at $6.25 per share.
Accordingly, for purposes of calculating pro forma net income per share amounts,
such options, warrants and shares have been considered outstanding for all
periods presented. In addition, weighted average common shares and equivalents
outstanding for the year ended December 31, 1996 include the number of shares
that would be sold by the Company to pay a dividend to the stockholders of
record prior to the completion of the public offering to pay income taxes (see
Note 12). For purposes of calculating pro forma net income per share, the
initial public offering price was assumed to be $13 per share.
The effect on pro forma net income per share for the year ended December 31,
1996 of the estimated number of shares assumed to be sold by the Company
(160,711) to repay the note payable to bank (net of the cash balance at December
31, 1996) of approximately $1,943,000 would result in such supplementary pro
forma net income per share increasing to $.11 per share.
3. STOCKHOLDERS' EQUITY
Effective October 1, 1996, in connection with the contribution of the
business of the Software Division, the Company issued 5,538,463 shares of common
stock and warrants to purchase an aggregate of 507,654 shares of common stock at
$.04 per share. All warrants were exercisable upon issuance. In exchange for the
shares and warrants issued, PSW received an assignment of a 26.67% interest in
the proceeds to be received from the accounts receivable as of September 30,
1996 and substantially all the
F-10
<PAGE>
PSW TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
other assets and liabilities of the Software Division. The net assets
contributed amounted to approximately $2,100,000.
On February 3, 1997, the Company's Board of Directors approved an 8-for-13
reverse stock split and a change in the Company's authorized capital stock to
34,000,000 shares of common stock of $.01 par value and 1,000,000 shares of
preferred stock of $.01 par value. The foregoing changes will be effected prior
to the completion of the initial public offering (see Note 14).
Pencom had initially funded operating deficits and working capital needs of
the Software Division. The net capital contribution in 1994 represents such
funding. In 1995 and 1996, net distributions were made to Pencom.
COMMON STOCK RESERVED FOR ISSUANCE
At February 3, 1997, the Company has reserved approximately 2,700,000 shares
of its common stock for issuance in connection with warrants outstanding, shares
issuable under the Company's stock purchase and stock option plans and the
commitment to issue 8,000 shares to a director.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Furniture and fixtures..................................................... $ 225 $ 521
Computer equipment......................................................... 1,356 2,251
Computer software.......................................................... 205 266
Leasehold improvements..................................................... 41 59
--------- ---------
1,827 3,097
Less accumulated depreciation and amortization............................. 899 1,301
--------- ---------
$ 928 $ 1,796
--------- ---------
--------- ---------
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Trade payables............................................................. $ 352 $ 945
Accrued vacation........................................................... 195 307
Accrued bonuses............................................................ 453 600
Payroll and other taxes payable............................................ 199 161
Other accounts payable and accrued expenses................................ 99 553
--------- ---------
$ 1,298 $ 2,566
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
PSW TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (CONTINUED)
6. NOTE PAYABLE TO BANK
In November 1996, the Company obtained a revolving line of credit from a
bank providing for borrowings of up to $6.5 million. Borrowings under this line
of credit, which expires on November 8, 1997, are secured by the Company's
accounts receivable and bear interest at the greater of the bank's prime rate or
the federal funds rate plus .25 of one percent or, at the election of the
Company, a formula based upon the London Interbank Offered Rate ("LIBOR"), as
defined (a weighted average rate of approximately 8% at December 31, 1996). The
line of credit includes covenants relating to the maintenance of certain
financial amounts and ratios, including a minimum tangible net worth, as
defined, and funded liabilities to earnings, as defined. The line of credit also
includes a prohibition on the payment of dividends except for the payment of a
dividend to stockholders of record prior to the offering for payment of their
income taxes (see Note 12). Available borrowings under the line of credit are
based upon a percentage of the Company's eligible accounts receivable. As of
December 31, 1996, $5.1 million was outstanding under the line of credit.
Interest expense includes interest allocated by Pencom through September 30,
1996. The allocation represented the Software Division's share of interest
payments paid by Pencom under its line of credit and was based on the ratio of
the monthly balance of the Software Division's accounts receivable to total
accounts receivable of the Software Division and Pencom. This line of credit was
secured by all accounts receivable and fixed assets of Pencom and bore interest
at a rate based on the bank's prime rate or alternative LIBOR pricing, based on
LIBOR plus 2.5% (8.25% at September 30, 1996).
7. SIGNIFICANT CUSTOMERS
One customer and two of its recently acquired subsidiaries accounted for
approximately 54%, 59% and 52% of total revenue for the years ended December 31,
1994, 1995 and 1996, respectively. Another customer accounted for approximately
9%, 17% and 14% of total revenue for the years ended December 31, 1994, 1995 and
1996, respectively. These customers accounted for approximately 38% and 8%,
respectively, of accounts receivable at December 31, 1996 (approximately 47% and
19% at December 31, 1995). No other customer accounted for more than 10% of
revenue in 1994, 1995 or 1996.
8. STOCK OPTION AND STOCK PURCHASE PLANS
Pencom had a stock option plan for the benefit of its employees including
Software Division employees ("Pencom Option Plan"). Under the terms of that
plan, all options granted prior to an initial public offering of Pencom common
stock were exercisable for an "assumed" number of shares. All options were
exercisable at the later of an initial public offering or the employees' fourth
anniversary as an employee and expired on the tenth anniversary of the grant.
Also under the terms of the plan, if the Software Division was incorporated into
a separate entity and adopted a stock option plan or similar plan, this Pencom
Option Plan and all options granted under it could be terminated. Because the
measurement date and option exercise price were contingent upon future events,
no charge was reported for financial statement purposes.
Effective October 1, 1996, the Company's Board of Directors and stockholders
approved and adopted the PSW Technologies, Inc. 1996 Stock Option/Stock Issuance
Plan (the "1996 Plan"). The aggregate number of shares issuable under the 1996
Plan has been increased, subject to stockholders' approval, to 1,715,000 shares
of the Company's common stock for issuance to employees, directors and
consultants of the Company. Incentive stock options as defined in Section 422A
of the Internal Revenue Code of 1986
F-12
<PAGE>
PSW TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (CONTINUED)
8. STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED)
and nonqualified stock options may be issued under the 1996 Plan. The exercise
price for incentive stock options may not be less than fair market value on the
date of grant, or such greater amount necessary to qualify as an incentive stock
option.
Pursuant to the organization of the Company and the contribution of net
assets of the Software Division, the Company granted replacement options for
shares of its common stock under the 1996 Plan to its employees who participated
in the Pencom Option Plan and the Pencom Option Plan was terminated. The
replacement options were granted for the same number of shares and at the same
exercise price as those shares granted to the employees under the Pencom Option
Plan. The grant date determining vesting was the original grant date under the
Pencom Option Plan. Under APB 25, the difference between the estimated fair
market value of the Company's common stock and the options' exercise price on
the date of issuance was determined to be approximately $2,179,000. This charge
is being amortized for financial reporting purposes over the vesting period of
the options and the amount recognized as expense during the year ended December
31, 1996 amounting to approximately $1,538,000 is included in special
compensation expense (see Note 13).
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value of the options was estimated at the date of grant using a Black-
Scholes option pricing model with the following assumptions for vested and
non-vested options:
<TABLE>
<CAPTION>
NON-
ASSUMPTION VESTED VESTED
- ------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Risk-free interest rate.................................................. 5.93% 6.23%
Dividend yield........................................................... 0% 0%
Volatility factor of the expected market price of the Company's common
stock.................................................................. .374 .374
Average life............................................................. 3 years 6 years
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options under SFAS 123 is amortized to expense over the options' vesting period.
For the year ended December 31, 1996, pro forma net income and pro forma net
income per share under SFAS 123 amounted to approximately $658,000 and $.09,
respectively.
F-13
<PAGE>
PSW TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (CONTINUED)
8. STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED)
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
ASSUMED
SHARES UNDER
PENCOM OPTION
PLAN 1996 PLAN
------------- -----------
<S> <C> <C>
Outstanding December 31, 1993.................................. 179,385 --
Granted during the year........................................ 245,585 --
------------- -----------
Outstanding December 31, 1994.................................. 424,970 --
Granted during the year........................................ 166,739 --
------------- -----------
Outstanding December 31, 1995.................................. 591,709 --
Granted during the year........................................ 167,742 1,078,563
Cancelled/replaced during the year............................. (759,451) (7,047)
------------- -----------
Balance at December 31, 1996................................... -- 1,071,516
------------- -----------
------------- -----------
Exercisable at December 31, 1996............................... -- 363,540
------------- -----------
------------- -----------
</TABLE>
The weighted average exercise price of options granted/outstanding under the
1996 Plan during and as of the year ended December 31, 1996 was $2.02 per share.
The weighted average price of options exercisable at December 31, 1996 was $.12
per share. Exercise prices for options outstanding as of December 31, 1996
ranged from $.04 to $6.25 per share. The options outstanding under the 1996 Plan
generally vest in four equal annual installments commencing on the first
anniversary of the grant and expire 10 years after the date of grant. The
weighted-average fair value of options granted during the year amounted to
$2.80.
EMPLOYEE STOCK PURCHASE PLAN
On February 3, 1997, the Board of Directors adopted, subject to
stockholders' approval, the Company's Employee Stock Purchase Plan (the
"Purchase Plan") that allows eligible employees to purchase shares of common
stock, at semi-annual intervals, through periodic payroll deductions under the
Purchase Plan, and a reserve of 400,000 shares of common stock has been
established for this purpose.
The Purchase Plan will be implemented in a series of successive offering
periods, each generally with a duration of six months. The initial purchase
period began on February 3, 1997 and will end on the last business day in
October 1997. Thereafter, purchase periods will begin on the first business day
in November and May of each year and will end on the last business day of April
and October, respectively. Shares of common stock will be purchased for each
participant at the end of each purchase period.
Payroll deductions may not exceed 15% of base salary for each purchase
period and each employee's purchases are limited to 500 shares per purchase
period. The purchase price per share will be eighty-five percent of the lower of
(i) the fair market value of the common stock on the start date of the purchase
period or (ii) the fair market value at the end of the semi-annual purchase
period. The Purchase Plan will terminate on the last business day of April,
2007.
F-14
<PAGE>
PSW TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (CONTINUED)
9. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution plan (the "Plan") pursuant to
Section 401(k) of the Internal Revenue Code for employees who are at least 21
years of age. Eligible employees can elect to reduce their current compensation
up to the statutory prescribed limit and have the amount of such reduction
contributed to the Plan. The Plan also allows for the Company to make
contributions on behalf of eligible employees. A similar plan in which employees
of the Software Division were eligible to participate is maintained by Pencom.
No contributions were made to the plans in 1994, 1995 or 1996 by the Software
Division or PSW.
10. RELATED PARTY TRANSACTIONS
The Company utilizes non-exclusive recruiting services provided by Pencom.
Management believes that the terms and fees paid in connection with such
recruiting services are comparable to agreements maintained by the Company with
other unrelated recruiting firms. In addition, certain expenses were allocated
by Pencom to the Software Division. Management believes that the allocations
were reasonable. Services provided and expenses allocated to PSW were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Services performed by related party:
Recruiting services............................................. $ 60 $ 447 $ 316
Legal and accounting............................................ -- -- 21
Allocated Expenses:
Rent............................................................ 254 329 448
Corporate and officers' salaries................................ 218 242 125
--------- --------- ---------
Total expenses included in other expenses................... 532 1,018 910
Interest........................................................ 74 84 104
--------- --------- ---------
Total related party expenses...................................... $ 606 $ 1,102 $ 1,014
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company will continue to use these recruiting services on a
non-exclusive basis pursuant to an agreement entered into with Pencom. The
Company has also entered into an agreement with Pencom for certain accounting
and legal services for the period October 1, 1996 through April 30, 1997 at a
fee of $7,000 per month.
In recognition of establishing an independent, profitable company, in 1996,
the Software Division cancelled a note receivable, including unpaid interest,
due from an officer and shareholder of the Company that resulted in a charge
against income of $655,000 which has been included in special compensation
expense.
Assets contributed by Pencom on October 1, 1996 included an assignment of a
26.67% interest in the proceeds to be received from the accounts receivable of
the Software Division as of September 30, 1996. "Due from related party" as of
December 31, 1996, represents the amount due in connection with this agreement.
"Due to related party" includes approximately $309,000 that relates to a payment
received on behalf of Pencom which was transferred to Pencom subsequent to year
end. Other amounts due to related party represent expenses paid on the Company's
behalf by Pencom.
F-15
<PAGE>
PSW TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
The Company leases its office space through noncancellable operating lease
arrangements including a lease for its office in Texas which was entered into on
October 31, 1996. PSW's obligations under this lease are guaranteed by Pencom.
Other than for the lease related to the Texas office, the other leases are held
by Pencom and will be assigned to PSW. Future minimum rental commitments
(including amounts payable under leases held by Pencom) are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31 (IN THOUSANDS):
- -------------------------------------------------------------------------------------
<S> <C>
1997............................................................................... $ 897
1998............................................................................... 1,064
1999............................................................................... 1,108
2000............................................................................... 1,125
2001............................................................................... 1,113
Thereafter......................................................................... 2,173
---------
Total................................................................................ $ 7,480
---------
---------
</TABLE>
The premises previously occupied by the Company in Texas were leased by
Pencom. In connection with the office relocation, the Company transferred
leasehold improvements with a net book value of approximately $69,000 to Pencom.
Pencom has sub-leased these premises. However, the Company will enter into an
agreement with Pencom to guarantee Pencom's sub-lease income. Future minimum
sub-lease rental income that the Company will guarantee is as follows:
<TABLE>
<S> <C>
YEARS ENDING DECEMBER 31 (IN THOUSANDS):
- -------------------------------------------------------------------------------------
1997............................................................................... $ 283
1998............................................................................... 366
1999............................................................................... 380
2000............................................................................... 285
---------
Total................................................................................ $ 1,314
---------
---------
</TABLE>
Rent expense, including rent allocated by Pencom, for the years ended
December 31, 1994, 1995 and 1996 was approximately $254,000, $329,000 and
$601,000, respectively.
As of December 31, 1996, the Company had commitments related to the
relocation of its Texas office for the purchase and/or construction of property
and equipment totaling approximately $700,000.
The Company has entered into an employment agreement with its President and
Chief Executive Officer dated October 1, 1996. Pursuant to the agreement, the
Company agreed to pay an annual base salary of $350,000, and to provide
customary fringe benefits. In addition, the Company agreed to issue options
under the 1996 Plan to purchase an aggregate of 212,308 shares of common stock
at $3.90 per share. 80,000 of such options vest on December 31, 1997. The
remaining 132,308 of such options vest on December 31, 2002, subject to partial
or full acceleration to December 31, 1998 based upon the Company's 1998
performance measured against certain specified financial goals. The agreement
terminates on September 30, 1998.
F-16
<PAGE>
PSW TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (CONTINUED)
12. INCOME TAXES
Pencom and PSW have elected to be treated as S Corporations under Subchapter
S of the Internal Revenue Code for federal income tax purposes. Consequently,
PSW is not subject to federal income taxes because its stockholders include
PSW's income in their personal income tax returns.
Upon completion of the public offering, PSW will terminate its Subchapter S
status and the Company will be subject to federal income taxes. Additionally,
the Company will be required to change its method of accounting from the cash
basis to the accrual basis for income tax reporting purposes. The current and
deferred tax effects of these changes will be recorded at the time the offering
is completed.
Had the Company changed its method of accounting and ceased to operate as an
S Corporation on December 31, 1996, approximately $4,300,000 of additional
income would have been subject to current income taxes on the accrual basis of
accounting. Such income would have been taxable in equal installments over four
taxable periods. At an effective tax rate of 38%, the additional income tax
payable would have been approximately $1,634,000. In addition, a deferred tax
asset would have been recorded for compensatory stock options (see Note 8) which
would have been deductible for income tax purposes upon the exercise of the
options. Such deferred tax benefit would have amounted to approximately
$580,000.
The provision for pro forma income taxes on net income using an effective
tax rate of 38% differs from the amounts computed by applying the applicable
federal statutory rates (34%) due to state and local taxes.
The Company's stockholders will be obligated to pay the 1997 income taxes
related to the period through the completion date of closing of the offering.
The Company will declare a dividend to its stockholders of record immediately
prior to the completion of the public offering for an amount estimated to
approximate the 1997 income taxes payable by the stockholders. Such dividend has
currently been estimated to be approximately $500,000 and may be paid in cash or
notes prior to or after the offering. Such estimate is based upon numerous
assumptions including taxable income for 1997, date of completion of the public
offering, elections made by the stockholders and the income attributable to the
conversion from the cash to accrual method of accounting at the date of
completion of the offering. The actual dividend could vary significantly from
the currently estimated amount. If the taxes payable by the stockholders on the
portion of 1997 taxable income allocated to them is equal to the currently
estimated $500,000, the actual additional income tax payable by the Company due
to the conversion from an S Corporation, will be reduced by approximately
$400,000.
13. SPECIAL COMPENSATION EXPENSE
As described in Notes 8 and 10, charges to income were made related to the
Replacement Options issued to employees and the cancellation of a note from an
officer and stockholder of the Company which totaled $2,193,000 for the year
ended December 31, 1996. These transactions reduced income from operations, pro
forma net income and pro forma net income per share for the year ended December
31, 1996 as follows (in thousands, except per share data):
<TABLE>
<S> <C>
Operating income................................................... $ (2,193)
Pro forma net income............................................... (1,360)
Pro forma net income per share..................................... (.19)
</TABLE>
F-17
<PAGE>
PSW TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (CONTINUED)
13. SPECIAL COMPENSATION EXPENSE (CONTINUED)
Deferred compensation as of December 31, 1996 of approximately $641,000 will
be amortized over the remaining vesting periods during 1997 and 1998.
14. INITIAL PUBLIC OFFERING
The Company intends to enter into an Underwriting Agreement for an initial
public offering of 2,850,000 shares of its common stock.
F-18
<PAGE>
[Photograph of five persons in office, two of which are viewing a computer
terminal. Shaded rectangle underlying to photograph.
Shaded language in background large font: return on investment.
<TABLE>
<S> <C>
Text: Genova(-TM-) A set of PSW resources to enable improvements in the cost,
quality and speed of client projects.
Text: Heading -- Methodology (1-circled). The ability to apply technology in a
manner that consistently produces predictable, high-quality
results is, itself, a technical discipline. Genova project
methodologies document the means by which PSW's client
engagements produce new enterprise business systems, assess the
risks of an existing IT project, and port software to new system
platforms.
Text: Heading -- Training & Courseware (2-circled). The Genova Academy allows both
PSW and its clients to gain valuable technical and methodology
experience. The Academy includes an array of on-line and
classroom courseware which provide training for the members of
business system development projects, as well as engineers
seeking Microsoft Windows NT-Registered Trademark- certification.
Text: Heading -- Reusable Software (3-circled) Genova object libraries enable
clients to shorten project schedules by taking advantage of
software developed through previous PSW engagements. Using the
libraries and other Genova software tools, PSW increases its
efficiency by not having to recreate software for each new
project.]
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Capitalization............................................................ 14
Dilution.................................................................. 15
Selected Financial Data................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 17
Business.................................................................. 23
Management................................................................ 39
Certain Transactions...................................................... 49
Principal Stockholders.................................................... 51
Description of Capital Stock.............................................. 52
Shares Eligible for Future Sale........................................... 54
Underwriting.............................................................. 55
Legal Matters............................................................. 56
Experts................................................................... 56
Additional Information.................................................... 56
Index to Financial Statements............................................. F-1
</TABLE>
--------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,850,000 SHARES
[LOGO]
COMMON STOCK
-------------
PROSPECTUS
-------------
ALEX. BROWN & SONS
INCORPORATED
J..P MORGAN & CO.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee.............................................................. $ 13,905
NASD filing fee................................................................... 5,089
Nasdaq National Market listing fee................................................ 38,491
Printing and engraving............................................................ *
Legal fees and expenses........................................................... *
Accounting fees and expenses...................................................... *
Blue sky fees and expenses........................................................ 5,000
Transfer agent fees............................................................... *
Miscellaneous..................................................................... *
----------
Total......................................................................... $ 900,000
----------
----------
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). Article of the Registrant's Amended and Restated
Certificate of Incorporation provides for indemnification of its directors and
officers and permissible indemnification of employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. Reference is
also made to Section 8 of the Underwriting Agreement contained in Exhibit 1.1
hereto, which sets forth certain indemnification provisions. If commercially
feasible, the Registrant intends to obtain liability insurance for its officers
and directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities during the past
three years (all information gives effect to an 11,250-for-1 forward split of
the Registrant's issued and outstanding shares of Common Stock effected on
December 18, 1996 and an 8-for-13 reverse split of the Registrant's issued and
outstanding Common Stock to be effected prior to completion of this offering):
(a) ISSUANCES OF COMMON STOCK
On October 1, 1996, the Registrant issued 5,538,463 shares of Common Stock
to Pencom Systems Incorporated ("Pencom") in consideration of the contribution
by Pencom to the Registrant of certain assets and associated liabilities of
Pencom's software division and a portion of a software contract that had
previously been allocated to other operations of Pencom, which net assets
amounted to approximately $2.1 million.
On January 1, 1997, the Registrant committed to issue 8,000 shares of Common
Stock to Michael J. Maples at a price of $6.25 per share.
II-1
<PAGE>
(b) OPTION ISSUANCES TO EMPLOYEES AND DIRECTORS
From October 2, 1996 to December 31, 1996, the Registrant granted options to
purchase a total of 1,071,516 shares of Common Stock at exercise prices ranging
from $.04 to $6.25 per share to employees and directors of the Registrant.
(c) WARRANT ISSUANCES
On October 2, 1996, the Registrant issued warrants to purchase 507,654
shares of Common Stock to Pencom and certain Pencom employees at an exercise
price of $.04 per share in connection with the Spin-Off.
The above securities were offered and sold by the Registrant in reliance
upon an exemption from registration under either (i) Section 4(2) of the
Securities Act as transactions not involving any public offering or (ii) Rule
701 under the Securities Act. No underwriters were involved in connection with
the sales of securities referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
* 1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended.
* 3.2 Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed prior to
completion of the public offering.
3.3 Bylaws of the Registrant.
* 3.4 Form of Amended and Restated Bylaws of the Registrant to be effective upon the completion of the public
offering.
* 4.1 Specimen Common Stock Certificate.
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the Certificate of Incorporation and Bylaws of the
Registrant defining rights of holders of Common Stock of the Registrant.
* 5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Bridgepoint Lease Agreement dated October 31, 1996 between the Registrant and Investors Life Insurance
Company of North America.
10.2 Lease Guarantee effective January 31, 1997 between the Registrant and Pencom Systems Incorporated.
10.3 Office Lease dated April 25, 1996 between G&W Investment Partners and Pencom Systems Incorporated, as
amended.
10.4 Agreement of Lease dated May 13, 1996 between Newport L.G.-I, Inc. and Pencom Systems Incorporated.
+10.5 Software Development Agreement having an effective date of March 9, 1994 between the Registrant and
Canon Computer Systems, Inc., as amended.
+10.6 Software Licensing Agreement having an effective date of June 13, 1996 between the Registrant and Canon
Computer Systems Incorporated.
10.7 Service Agreement No. 200.504 dated as of November 26, 1990 between the Registrant and International
Business Machines Corporation, as amended.
+10.8 Software Task Order Agreement dated as of November 20, 1995 between the Registrant and Tivoli Systems,
Inc., as amended.
10.9 Loan Agreement dated November 16, 1995 between Tivoli Systems Inc. and Pencom Software.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
+10.10 Software & Methodology Licensing Agreement dated as of November 4, 1996 between the Registrant and
Embarcadero Systems Corporation.
10.11 Reseller Agreement dated November 4, 1996 between the Registrant and Embarcadero Systems Corporation.
*10.12 Credit Agreement dated November 8, 1996 between the Registrant and Texas Commerce Bank National
Association, as amended.
10.13 Promissory Note dated November 8, 1996 from the Registrant to Texas Commerce Bank National Association.
10.14 Accounts Receivable Agreement dated October 1, 1996 between the Registrant and Pencom Systems
Incorporated.
10.15 Letter Agreement dated October 2, 1996 between the Registrant and Pencom Systems Incorporated.
10.16 Recruiting Services Agreement dated January 20, 1997 between the Registrant and Pencom Systems
Incorporated.
*10.17 Stockholders Agreement dated October 1, 1996 between the Registrant and certain stockholders of the
Registrant.
*10.18 Registration Rights Agreement dated October 1, 1996 between the Registrant and certain stockholders and
warrantholders of the Registrant.
10.19 Promissory Note dated October 19, 1995 from Dr. William Frank King to Pencom Systems Incorporated.
10.20 Employment Agreement dated October 19, 1992 between Dr. William Frank King and Pencom Systems
Incorporated.
*10.21 Employment Agreement dated October 1, 1996 between Dr. W. Frank King and the Registrant.
10.22 Employment Agreement dated July 1, 1993 between Pencom Systems Incorporated and Patrick Motola.
10.23 Employment Agreement dated September 27, 1993 between Pencom Systems Incorporated and William Cason.
10.24 Employment Agreement dated October 19, 1993 between Pencom Systems Incorporated and Brian Baisley.
10.25 Employment Agreement dated July 18, 1994 between Pencom Systems Incorporated and William Sutton
Wimberley, Jr.
*10.26 1996 Stock Option/Stock Issuance Plan.
*10.27 Employee Stock Purchase Plan.
10.28 PSW Profit Sharing Plan.
10.29 Description of Executive Bonus Plan.
*10.30 Stock Purchase Agreement dated January 1, 1997 between Michael J. Maples and the Registrant.
11.1 Computation of pro forma net income per share.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Margolin, Winer & Evens LLP.
*23.3 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24. Power of Attorney is contained on the signature page of this Registration Statement (see page II-5).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
27.4 Financial Data Schedule.
27.5 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ The Company has applied for confidential treatment with respect to certain
portions of these documents.
(b) Financial Statement Schedules
Financial Statement Schedules have been omitted because the information
required to be set forth therein is not applicable or not required under the
instructions contained in Regulation S-X or because the information is included
elsewhere in Financial Statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1993 may be permitted to directors, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1993, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424 (b) (1) or
(4) or 497 (h) under the Securities Act of 1993 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1993, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN, STATE OF TEXAS,
ON THIS 10TH DAY OF FEBRUARY, 1997.
PSW TECHNOLOGIES, INC.
By: /s/ DR. W. FRANK KING
-----------------------------------------
Dr. W. Frank King
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of PSW Technologies, Inc., hereby
severally constitute and appoint Dr. W. Frank King and Jonathan D. Wallace, and
each of them singly, our true and lawful attorneys, with full power to them and
each of them singly, to sign for us in our names in the capacities indicated
below, all pre-effective and post-effective amendments to this registration
statement, as well as any registration statement filed pursuant to Rule 462(b)
of the Securities Act of 1933, as amended, and generally to do all things in our
names and on our behalf in such capacities to enable PSW Technologies, Inc. to
comply with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON FEBRUARY 10, 1997:
SIGNATURE TITLE
--------------------------------- ------------------------------------------
By: /s/ DR. W. FRANK KING President, Chief Executive Officer and
------------------------------ Director
Dr. W. Frank King (Principal Executive Officer)
By: /s/ PATRICK D. MOTOLA Senior Vice President of Operations,
------------------------------ Chief Financial Officer and Secretary
Patrick D. Motola (Principal Financial Officer)
By: /s/ KEITH D. THATCHER Vice President of Finance and Treasurer
------------------------------ (Principal Accounting Officer)
Keith D. Thatcher
By: /s/ WADE E. SAADI Chairman of the Board of Directors
------------------------------
Wade E. Saadi
By: /s/ EDWARD C. ATEYEH, JR. Director
------------------------------
Edward C. Ateyeh, Jr.
By: /s/ JONATHAN D. WALLACE, Director
ESQ.
------------------------------
Jonathan D. Wallace, Esq.
By: /s/ KEVIN B. KURTZMAN Director
------------------------------
Kevin B. Kurtzman
II-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
--------------------------------- ------------------------------------------
By: Director
------------------------------
Michael J. Maples
By: /s/ THOMAS A. HERRING Director
------------------------------
Thomas A. Herring
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
* 1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended.
* 3.2 Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed prior to
completion of the public offering.
3.3 Bylaws of the Registrant.
* 3.4 Form of Amended and Restated Bylaws of the Registrant to be effective upon the completion of the
public offering.
* 4.1 Specimen Common Stock Certificate.
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the Certificate of Incorporation and Bylaws
of the Registrant defining rights of holders of Common Stock of the Registrant.
* 5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Bridgepoint Lease Agreement dated October 31, 1996 between the Registrant and Investors Life
Insurance Company of North America.
10.2 Lease Guarantee effective January 31, 1997 between the Registrant and Pencom Systems
Incorporated.
10.3 Office Lease dated April 25, 1996 between G&W Investment Partners and Pencom Systems
Incorporated, as amended.
10.4 Agreement of Lease dated May 13, 1996 between Newport L.G.-I, Inc. and Pencom Systems
Incorporated.
+10.5 Software Development Agreement having an effective date of March 9, 1994 between the Registrant
and Canon Computer Systems, Inc., as amended.
+10.6 Software Licensing Agreement having an effective date of June 13, 1996 between the Registrant and
Canon Computer Systems Incorporated.
10.7 Service Agreement No. 200.504 dated as of November 26, 1990 between the Registrant and
International Business Machines Corporation, as amended.
+10.8 Software Task Order Agreement dated as of November 20, 1995 between the Registrant and Tivoli
Systems, Inc., as amended.
10.9 Loan Agreement dated November 16, 1995 between Tivoli Systems Inc. and Pencom Software.
+10.10 Software & Methodology Licensing Agreement dated as of November4, 1996 between the Registrant and
Embarcadero Systems Corporation.
10.11 Reseller Agreement dated November 4, 1996 between the Registrant and Embarcadero Systems
Corporation.
*10.12 Credit Agreement dated November 8, 1996 between the Registrant and Texas Commerce Bank National
Association, as amended.
10.13 Promissory Note dated November 8, 1996 from the Registrant to Texas Commerce Bank National
Association.
10.14 Accounts Receivable Agreement dated October 1, 1996 between the Registrant and Pencom Systems
Incorporated.
10.15 Letter Agreement dated October 2, 1996 between the Registrant and Pencom Systems Incorporated.
10.16 Recruiting Services Agreement dated January 20, 1997 between the Registrant and Pencom Systems
Incorporated.
*10.17 Stockholders Agreement dated October 1, 1996 between the Registrant and certain stockholders of
the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
*10.18 Registration Rights Agreement dated October 1, 1996 between the Registrant and certain
stockholders and warrantholders of the Registrant.
10.19 Promissory Note dated October 19, 1995 from Dr. William Frank King to Pencom Systems
Incorporated.
10.20 Employment Agreement dated October 19, 1992 between Dr. William Frank King and Pencom Systems
Incorporated.
*10.21 Employment Agreement dated October 1, 1996 between Dr. W. Frank King and the Registrant.
10.22 Employment Agreement dated July 1, 1993 between Pencom Systems Incorporated and Patrick Motola.
10.23 Employment Agreement dated September 27, 1993 between Pencom Systems Incorporated and William
Cason.
10.24 Employment Agreement dated October 19, 1993 between Pencom Systems Incorporated and Brian
Baisley.
10.25 Employment Agreement dated July 18, 1994 between Pencom Systems Incorporated and William Sutton
Wimberley, Jr.
*10.26 1996 Stock Option/Stock Issuance Plan.
*10.27 Employee Stock Purchase Plan.
10.28 PSW Profit Sharing Plan.
10.29 Description of Executive Bonus Plan.
*10.30 Stock Purchase Agreement dated January 1, 1997 between Michael J. Maples and the Registrant.
11.1 Computation of pro forma net income per share.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Margolin, Winer & Evens LLP.
*23.3 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24. Power of Attorney is contained on the signature page of this Registration Statement (see page
II-5).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
27.4 Financial Data Schedule.
27.5 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ The Company has applied for confidential treatment with respect to certain
portions of these documents.
<PAGE>
Exhibit 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:00 PM 08/23/1996
960247590 - 2656550
CERTIFICATE OF INCORPORATION
OF
PSW TECHNOLOGIES, INC.
(Under Section 102 of the General Corporation Law)
The undersigned, being a natural person and acting as incorporator of the
corporation hereby being formed under the General Corporation Law, certifies
that:
FIRST: The name of the corporation (hereinafter called the "Corporation")
is PSW TECHNOLOGIES, INC.
SECOND: The address, including street number, city and county, of the
registered office of the Corporation in the State of Delaware is Corporation
Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle
19801, and the name of the registered agent of the Corporation in the State of
Delaware at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful business,
to promote any lawful purpose, and to engage in any lawful act or activity for
which corporations may be organized under the Delaware General Corporation Law.
FOURTH: The aggregate number of shares which the Corporation shall have
the authority to issue is 1,500, all of which shall be without par value and
shall be designated "Common Shares."
FIFTH: No director shall be personally liable to the Corporation or any
stockholder for monetary damages for breach of fiduciary duty as a director,
except for any matter in respect of which such director shall be liable under
Section 174 of Title 8 of the Delaware Code (relating to the Delaware General
Corporation Law) or any amendment thereto or successor provision thereto or
shall be liable by reason that, in addition to any and all other requirements
for such liability, such director (i) shall have breached his or her duty of
loyalty to the Corporation or its stockholders, (ii) shall not have acted in
good faith or in failing to act, shall not have acted in good faith, (iii) shall
have acted in a manner involving intentional misconduct or a knowing violation
of law or (iv) shall have derived an improper personal benefit. Neither the
amendment nor repeal of this Article FIFTH, nor the adoption of any provision of
the Certificate of Incorporation inconsistent with this Article FIFTH, shall
eliminate or reduce the effect of this Article FIFTH in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article
FIFTH, would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
SIXTH: Election of directors need not be by written ballot.
SEVENTH: The Board of Directors is authorized to adopt, amend or repeal
by-laws of the Corporation.
EIGTH: (a) Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
<PAGE>
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation or any of its direct or indirect
subsidiaries or is or was serving at the request of the Corporation as a
director, officer, employee or agent of any other corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including, without
limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties,
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith, and such indemnification shall continue as
to an indemnitee who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the indemnitee's heirs, executors and
administrators; provided, however, that, except as provided in paragraph (c) of
this Article EIGHTH with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such Indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
(b) The right to indemnification conferred in paragraph (a) of this
Article EIGHTH shall include the right to be paid by the Corporation the
expenses incurred in defending any proceeding for which such right to
indemnification is applicable in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Article EIGHTH or otherwise.
(c) The rights to indemnification and to the advancement of expenses
conferred in paragraphs (a) and (b) of this Article EIGHTH shall be contract
rights. If a claim under paragraph (a) or (b) of this Article EIGHTH is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
-2-
<PAGE>
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by an indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such advancement of
expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or stockholders) that the indemnitee has
not met such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article EIGHTH or otherwise, shall be on the
Corporation.
(d) The rights to indemnification and to the advancement of expenses
conferred in this Article EIGHTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, this certificate of
incorporation, by-law, agreement, vote of stockholders or disinterested
directors, or otherwise.
(e) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
(f) The Corporation's obligation, if any, to indemnify any person who was
or is serving as a director, officer, employee or agent of any direct or
Indirect subsidiary of the Corporation or, at the request of the Corporation, of
any other corporation or of a partnership; joint venture, trust or other
enterprise shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust,
or other enterprise.
(g) Any repeal or modification of the foregoing provisions of this Article
EIGHTH shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification.
NINTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
-3-
<PAGE>
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, or this Corporation, as the case may be,
and also on this Corporation.
TENTH: The name and address of the incorporator are as follows:
NAME MAILING ADDRESS
Peter W. Smith c/o Squadron Ellenoff, Plesent &
Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
/s/ Peter W. Smith
Signed on: August 23, 1996 ----------------------------------
Peter W. Smith, Incorporator
-4-
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/18/1996
960373512 - 2656550
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PSW TECHNOLOGIES, INC.
I, the undersigned, being the Secretary of PSW Technologies, Inc., a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Corporation"),
DO HEREBY CERTIFY:
FIRST: That the Fourth Article of the Certificate of Incorporation
be, and it hereby is, amended to read in its entirety as follows:
"The aggregate number of shares which
the Corporation shall have the authority
to issue is 11,250,000, par value of
$.01 per share, all of which shall be
designated 'Common Shares.'"
SECOND: That this amendment was duly adopted in accordance with the
provisions of section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, I have signed this certificate this 6th day of
December, 1996.
/s/ Patrick Motola
---------------------------------
Patrick Motola, Secretary
<PAGE>
Exhibit 3.3
BY-LAWS
of
PSW TECHNOLOGIES, INC.
As adopted August 23, 1996
<PAGE>
PSW TECHNOLOGIES, INC.
A Delaware Corporation
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting.
An annual meeting of stockholders for the purposes of electing directors
and of transacting such other business as may come before it shall be held on
such date and time as shall be designated from time to time by the Board of
Directors or the President, either within or without the State of Delaware, as
may be specified by the Board of Directors.
Section 1.2 Special Meetings.
Except as otherwise provided for in the Amended and Restated Certificate
of Incorporation, special meetings of stockholders for any purpose or purposes
may be held at any time upon call of the Chairman of the Board, if any, the
Chief Executive Officer, the President, the Secretary, or a majority of the
Board of Directors, at such time and place either within or without the State of
Delaware as may be stated in the notice. A special meeting of stockholders shall
be called by the President or the Secretary upon the written request, stating
time, place, and the purpose or purposes of the meeting, of stockholders who
together own of record 25% of the outstanding stock of all classes entitled to
vote at such meeting.
- 2 -
<PAGE>
Section 1.3 Notice of Meetings.
Written notice of stockholders meetings, stating the place, date, and hour
thereof, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given by the Chairman of the Board, if
any, the President, any Vice President, the Secretary, or an Assistant
Secretary, to each stockholder entitled to vote thereat at least ten days but
not more than sixty days before the date of the meeting, unless a different
period is prescribed by laws.
Section 1.4 Quorum.
Except as otherwise provided by law or in the Certificate of Incorporation
or these By-Laws, at any meeting of stockholders, the holders of a majority of
the outstanding shares of each class of stock entitled to vote at the meeting
shall be present or represented by proxy in order to constitute a quorum for the
transaction of any business. In the absence of a quorum, a majority in interest
of the stockholders present or the chairman of the meeting may adjourn the
meeting from time to time in the manner provided in Section 1.5 of these By-Laws
until a quorum shall attend.
Section 1.5 Adjournment.
Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
- 3 -
<PAGE>
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
Section 1.6 Organization.
The Chairman of the Board, if any, or in his absence the President, or in
their absence any Vice President, shall call to order meetings of stockholders
and shall act as chairman of such meetings. The Board of Directors or, if the
Board fails to act, the stockholders may appoint any stockholder, director, or
officer of the Corporation to act as chairman of any meeting in the absence of
the Chairman of the Board, the President, and all Vice Presidents.
The Secretary of the Corporation shall act as secretary of all meetings of
stockholders, but, in the absence of the Secretary, the chairman of the meeting
may appoint any other person to act as secretary of the meeting.
Section 1.7 Voting.
Except as otherwise provided by law or in the Certificate of Incorporation
or these By-Laws and except for the election of directors, at any meeting duly
called and held at which a quorum is present, a majority of the votes cast at
such meeting upon a given question by the holders of outstanding shares of stock
of all classes of stock of the Corporation entitled to vote thereon who are
present in person or by proxy shall decide such question. At any meeting duly
called and held for the election of directors at which a quorum is present,
those directors receiving a plurality of the votes cast by the holders (acting
as such) of shares of any class or series entitled to elect directors as a class
shall be elected.
- 4 -
<PAGE>
Section 1.8 Action Without a Meeting.
The stockholders may take any action required or permitted to be taken by
them without a meeting unless otherwise prohibited by law or the Certificate of
Incorporation.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office.
The business, property, and affairs of the Corporation shall be managed by
or under the direction of a board of at least one director; provided, however,
that the Board, by resolution adopted by vote of a majority of the then
authorized numbers of directors, may increase or decrease the number of
directors. The directors shall be elected by the holders of shares entitled to
vote thereon at the annual meeting of stockholders, and each shall serve
(subject to the provisions of Article IV) until the next succeeding annual
meeting of stockholders and until his respective successor is elected and
qualified.
Section 2.2 Chairman of the Board.
The directors may elect one of their members to be Chairman of the Board
of Directors. The Chairman shall be subject to the control of and may be removed
by the Board of Directors. He shall perform such duties as may from time to time
be assigned to him by the Board.
Section 2.3 Meetings.
Regular meetings of the Board of Directors may be held without notice at
such time and place as shall from time to time be determined by the Board.
- 5 -
<PAGE>
Special meetings of the Board of Directors shall be held at such time and
place as shall be designated in the notice of the meeting whenever called by the
Chairman of the Board, if any, the President, or by a majority of the directors
then in office.
Section 2.4 Notice of Special Meetings.
The Secretary, or, in his absence, any other office of the Corporation,
shall give each director notice of the time and place of holding of special
meetings of the Board of Directors by mail at least five days before the
meeting, or by telex, telecopy, telegraph, cable or overnight courier at least
three days before the meeting. Unless otherwise stated in the notice thereof,
any and all business may be transacted at any meeting without specification of
such business in the notice.
Section 2.5 Quorum and Organization of Meetings.
A majority of the total number of members of the Board of Directors as
constituted from time to time shall constitute a quorum for the transaction of
business, but, if at any meeting of the Board of Directors (whether or not
adjourned from a previous meeting) there shall be less than a quorum present, a
majority of those present may adjourn the meeting to another time and place, and
the meeting may be held as adjourned without further notice or waiver. Except as
otherwise provided by law or in the Certificate of Incorporation or these
By-Laws, a majority of the directors present at any meeting at which a quorum is
present may decide any question brought before such meeting. Meetings shall be
presided over by the Chairman of the Board, if any, or in his absence, by the
President, or in the absence of both by such other person as the directors may
select. The Secretary of the Corporation shall act as secretary
- 6 -
<PAGE>
of the meeting, but in his absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 2.6 Committees.
The Board of Directors may, by resolution passed by a majority of the
whole Board, designate one or more committees, each committee to consist of
one or more of the directors of the Corporation. The Board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence
or disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the
power and authority of the Board of Directors in the management of the
business, property, and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but
no such committee shall have power or authority in reference to amending the
Certificate of Incorporation of the Corporation (except that a committee may,
to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors pursuant to
authority expressly granted to the Board of Directors by the Corporation's
Certificate of Incorporation, fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation, or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the
same or any other class or classes of stock of the
- 7 -
<PAGE>
Corporation), adopting an agreement of merger or consolidation under Section 251
or 252 of the General Corporation Law of the State of Delaware, recommending to
the stockholders the sale, lease, or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of dissolution, or amending these
By-Laws; and, unless the resolution expressly so provided, no such committee
shall have the power or authority to declare a dividend, to authorize the
issuance of stock, or to adopt a certificate of ownership and merger pursuant to
Section 253 of the General Corporation Law of the State of Delaware. Each
committee which may be established by the Board of Directors pursuant to these
By-Laws may fix its own rules and procedures. Notice of meetings of committees,
other than of regular meetings provided for by the rules, shall be given to
committee members. All action taken by committees shall be recorded in minutes
of the meetings.
Section 2.7 Action Without Meeting.
The Board of Directors or any committee designated by the Board may take
any action required or permitted to be taken by them without a meeting unless
otherwise prohibited by law or the Certificate of Incorporation.
Section 2.8 Telephone Meetings.
Nothing contained in these By-laws shall be deemed to restrict the power
of members of the Board of Directors, or any committee designated by the Board,
to participate in a meeting of the Board, or committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other.
- 8 -
<PAGE>
ARTICLE III
OFFICERS
Section 3.1 Executive Officers.
The executive officers of the Corporation shall be a Chief Executive
Officer, a President, one or more Vice Presidents, a Treasurer, and a Secretary,
each of whom shall be elected by the Board of Directors. The Board of Directors
may elect or appoint such other officers (including a Controller and one or more
Assistant Treasurers and Assistant Secretaries) as it may deem necessary or
desirable. Each officer shall hold office for such term as may be prescribed by
the Board of Directors from time to time. Any person may hold at one time two or
more offices.
Section 3.2 Powers and Duties.
The Chairman of the Board, if any, or, in his absence, the Chief Executive
Officer, or in his absence, the President, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chief Executive Officer shall be
the chief executive officer of the Corporation. In the absence of the Chief
Executive Officer, the President and, in the absence of the President, a Vice
President appointed by the President or, if the President fails to make such
appointment, by the Board, shall perform all the duties of the Chief Executive
Officer. The officers and agents of the Corporation shall each have such powers
and authority and shall perform such duties in the management of the business,
property and affairs of the Corporation as generally pertain to their respective
offices, as well as such powers and authorities and such duties as from time to
time may be prescribed by the Board of Directors.
- 9 -
<PAGE>
ARTICLE IV
RESIGNATIONS, REMOVALS, AND VACANCIES
Section 4.1 Resignations.
Any director or officer of the Corporation, or any member of any
committee, may resign at any time by giving written notice to the Board of
Directors, the Chief Executive Officer, the President, or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time be not specified therein, then upon receipt thereof. The
acceptance of such resignation shall not be necessary to make it effective.
Section 4.2 Removals.
The Board of Directors, by a vote of not less than a majority of the
entire Board, at any meeting thereof, or by written consent, at any time, may,
to the extent permitted by law, remove with or without cause, from office or
terminate the employment of any officer or member of any committee and may, with
or without cause, disband any committee.
Any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares entitled at the time
to vote at an election of directors.
Section 4.3 Vacancies.
Any vacancy in the office of any director or officer through death,
resignation, removal, disqualification, or other cause, and any additional
directorship resulting from any increase in the number of directors, may be
filled at any time by a majority of the directors then in office (even though
less than a quorum remains) or, in the case of any vacancy in the office of any
director, by the stockholders, and, subject to the provisions of this Article
IV, the person so chosen shall hold office until his successor shall have been
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elected and qualified; or, if the person so chosen is a director elected to fill
a vacancy, he shall (subject to the provisions of this Article IV) hold office
for the unexpired term of his predecessor.
ARTICLE V
CAPITAL STOCK
Section 5.1 Stock Certificates.
The certificates for shares of the capital stock of the Corporation shall
be in such form as shall be prescribed by law and approved, from time to time,
by the Board of Directors.
Section 5.2 Transfer of Shares.
Shares of the capital stock of the Corporation may be transferred on the
books of the Corporation only by the holder of such shares or by his duly
authorized attorney, upon the surrender to the Corporation or its transfer agent
of the certificate representing such stock properly endorsed.
Section 5.3 Fixing Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which, unless
otherwise provided by law, shall not be more than sixty nor less than ten days
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before the date of such meeting, nor more than sixty days prior to any other
action.
Section 5.4 Lost Certificates.
The Board of Directors or any transfer agent of the Corporation may direct
a new certificate or certificates representing stock of the Corporation to be
issued in place of any certificate or certificates theretofore issued by the
Corporation, alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate to be lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors (or any transfer agent of the Corporation
authorized to do so by a resolution of the Board of Directors) may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to give the Corporation a bond in such sum as the Board of
Directors (or any transfer agent so authorized) shall direct to indemnify the
Corporation against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed or
the issuance of such new certificates, and such requirement may be general or
confined to specific instances.
Section 5.5 Regulations.
The Board of Directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning the issue, transfer,
registration, cancellation, and replacement of certificates representing stock
of the Corporation.
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ARTICLE VI
MISCELLANEOUS
Section 6.1 Corporate Seal.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words "Corporate Seal" and
"Delaware".
Section 6.2 Fiscal Year.
The fiscal year of the Corporation shall be determined by resolution of
the Board of Directors.
Section 6.3 Notices and Waivers Thereof.
Wherever any notice whatever is required by law, the Certificate of
Incorporation, or these By-Laws to be given to any stockholder, director, or
officer, such notice, except as otherwise provided by law, may be given
personally, or by mail, telex, telecopy, telegraph, cable or overnight courier
addressed to such address as appears on the books of the Corporation. Any notice
given by telex, telecopy, telegraph or cable shall be deemed to have been given
when it shall have been delivered for transmission, and any notice given by mail
or overnight courier shall be deemed to have been given when it shall have been
deposited in the United States mail with postage thereon prepaid or given to
such courier service, as applicable.
Whenever any notice is required to be given by law, the Certificate of
Incorporation, or these By-Laws, a written waiver thereof, signed by the person
entitled to such notice, whether before or after the meeting or the time stated
therein, shall be deemed equivalent in all respects to such notice to the full
extent permitted by law.
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Section 6.4 Stock of Other Corporations or Other Interests.
Unless otherwise ordered by the Board of Directors, the Chief Executive
Officer, the President, the Secretary, and such attorneys or agents of the
Corporation as may be from time to time authorized by the Board of Directors,
the Chief Executive Officer, or the President, shall have full power and
authority on behalf of the Corporation to attend and to act and vote in person
or by proxy at any meeting of the holders of securities of any corporation or
other entity in which the Corporation owns or holds shares or other securities,
and at such meetings shall possess and may exercise all the rights and powers
incident to the ownership of such shares or other securities which the
Corporation, as the owner or holder thereof, might have possessed and exercised
if present. The Chief Executive Officer, the President, the Secretary, or such
attorneys or agents, may also execute and deliver on behalf of the Corporation
powers of attorney, proxies, consents, waivers, and other instruments relating
to the shares or securities owned or held by the Corporation.
ARTICLE VII
AMENDMENTS
The holders of shares entitled at the time to vote for the election of
directors shall have power to adopt, amend, or repeal the By-laws of the
Corporation by vote of not less than a majority of such shares, and except as
otherwise provided by law, the Board of Directors shall have power equal in all
respects to that of the stockholders to adopt, amend, or repeal the By-Laws by
vote of not less than a majority of the entire Board. However, any By-Law
adopted by the Board may be amended or repealed by vote of the holders of a
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majority of the shares entitled at the time to vote for the election of
directors.
ARTICLE VIII
PROVISIONS OF LAW
The By-Laws shall be subject to such provisions of the statutory and
common laws of the State of Delaware as may be applicable to corporations
organized under the laws of the State of Delaware. References herein to
provisions of law shall be deemed to be references to the aforesaid provisions
of law unless otherwise explicitly stated. All references in the By-Laws to such
provisions of law shall be construed to refer to such provisions as from time to
time amended.
ARTICLE IX
CERTIFICATE OF INCORPORATION
The By-Laws shall be subject to the Certificate of Incorporation of the
Corporation. All references in the By-Laws to the Certificate of Incorporation
shall be construed to mean the Certificate of Incorporation of the Corporation
as from time to time amended.
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Exhibit 10.1
BRIDGEPOINT LEASE AGREEMENT
By and Between
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
("Landlord")
and
PSW TECHNOLOGIES, INC.
("Tenant")
<PAGE>
BRIDGEPOINT LEASE AGREEMENT
This Lease is entered into as of the date of execution set forth below,
between INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA, a Washington
corporation ("Landlord"), whose address for purposes of notice hereunder is 6300
Bridgepoint Parkway, Building One, Suite 325, Austin, Texas, 78730 and PSW
TECHNOLOGIES, INC., a Delaware corporation ("Tenant"), whose address prior to
the Commencement Date (defined in Section 2.01 hereof) is 9050 Capitol of Texas
Highway, Suite 300, Austin, Texas 78759, and whose address after the
Commencement Date shall be 6300 Bridgepoint Parkway, Building Three, Suite
______, Austin, Texas, 78730.
W I T N E S S E T H:
ARTICLE 1
1.01 PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, for the rent and subject to the provisions of this Lease, the
following premises: (i) approximately 36,319 rentable square feet ("Three
Bridgepoint Premises") located on floors one, two and three in Three Bridgepoint
Square ("Three Bridgepoint"), as reflected on the floor plans attached as
Exhibit "A" hereto, located at 6300 Bridgepoint Parkway, Building Three, Austin,
Travis County, Texas, and being all of the rentable square feet contained in
Three Bridgepoint not covered by that certain lease ("Motorola Lease") dated
March 19, 1996, between Landlord and Motorola, Inc. ("Motorola"), and (ii)
approximately 10,000 rentable square feet ("One Bridgepoint Premises") located
in One Bridgepoint Square ("One Bridgepoint"), such One Bridgepoint Premises to
be a portion of the space currently occupied by National Instruments, Inc. in
One Bridgepoint, and to be reflected on the floor plans to be attached as
Exhibit "B" hereto once National Instruments, Inc. vacates such space, and
located at 6300 Bridgepoint Parkway, Building One, Austin, Travis County, Texas
[Three Bridgepoint and One Bridgepoint, together with Two Bridgepoint, Four
Bridgepoint and Five Bridgepoint (collectively the "Bridgepoint Buildings"), the
ground-level open areas and walkways appurtenant to the Bridgepoint Buildings,
any parking areas and garages serving the Bridgepoint Buildings, any other
structure or improvement utilized in the operation or maintenance of the
Bridgepoint Buildings, and the land (the "Land") on which all such improvements
are located, said Land being more particularly described on Exhibit "C" attached
hereto and made a part hereof for all purposes, and any present or future
associated underground or elevated pedestrian tunnels or walkways located on the
Land are hereinafter collectively referred to as the "Project".] Landlord and
Tenant hereby agree that the Three Bridgepoint Premises contain approximately
36,319 square feet of rentable area and that Three Bridgepoint contains
approximately 80,576 square feet of rentable area. All of the remaining rentable
area in Three Bridgepoint is leased to Motorola by virtue of the Motorola Lease.
Landlord and Tenant hereby agree that the One Bridgepoint Premises contain
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approximately 10,000 square feet of rentable area and that One Bridgepoint
contains approximately 84,723 square feet of rentable area. The Three
Bridgepoint Premises and the One Bridgepoint Premises are hereinafter sometimes
collectively referred to as the "Premises".
ARTICLE 2
2.01 TERM. Subject to the other provisions hereof, and any exhibits hereto,
this Lease, as same relates to Three Bridgepoint, shall be for a term of
approximately seven (7) years commencing on the Three Bridgepoint Commencement
Date as defined in Section 2.02, and expiring on December 31, 2003 (the
"Expiration Date"). Subject to the other provisions hereof, and any exhibits
hereto, this Lease, as same relates to One Bridgepoint, shall be for a term of
approximately seventy-one (71) months commencing on the One Bridgepoint
Commencement Date as defined in Section 2.03, and expiring on the Expiration
Date. Such lease term, as it may be modified, is herein called the "Term."
2.02 THREE BRIDGEPOINT COMMENCEMENT DATE. As used herein, "Three
Bridgepoint Commencement Date" means a date which is the earlier of (a) the date
when the Three Bridgepoint Tenant Improvements (as defined in Exhibit "D") are
substantially completed (as hereinafter defined), which the parties anticipate
will be approximately January 31, 1997, (b) the date Tenant occupies all or any
part of the Three Bridgepoint Premises or (c) the date the Three Bridgepoint
Tenant Improvements would have been substantially completed but for (i) the
failure of Tenant to comply with the schedule set forth in Exhibit "D", (ii)
change orders requested by Tenant to the Three Bridgepoint Tenant Improvements
(as hereinafter defined) for the Three Bridgepoint Premises, or (iii) any other
act of the Tenant causing delay in completion of the Three Bridgepoint Tenant
Improvements for the Three Bridgepoint Premises (the "Tenant Delay").
"Substantial completion" shall mean that Landlord has received a temporary or
permanent certificate of occupancy from the City of Austin and that the only
items remaining to be completed are "punch list" items, which Landlord agrees to
complete within thirty (30) days after written notification as set forth in
Exhibit "D". Within five (5) days after the Three Bridgepoint Commencement Date
and at any time thereafter upon the request of Landlord, Tenant shall execute
and deliver to Landlord a declaration (in the form of Exhibit "E-l" hereto)
specifying, among other things, the date upon which the same occurred.
2.03 ONE BRIDGEPOINT COMMENCEMENT DATE. As used herein, "One Bridgepoint
Commencement Date" means a date which is earlier of (a) the date when the One
Bridgepoint Tenant Improvements (as defined in Exhibit "D") are substantially
completed (as hereinafter defined), which the parties anticipate will be
approximately forty-five (45) days after National Instruments, Inc. vacates the
One Bridgepoint Premises (National Instruments is scheduled to vacate the One
Bridgepoint Premises no later than February 28, 1998, as set forth in the Second
Amendment to Lease Agreement dated October 1, 1996, between Landlord and
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National Instruments, Inc.), (b) the date Tenant occupies all or any part of the
One Bridgepoint Premises or (c) the date the One Bridgepoint Tenant Improvements
would have been substantially completed but for the failure of Tenant to comply
with the schedule set forth in Exhibit "D", change orders requested by Tenant to
the One Bridgepoint Tenant Improvements (as hereinafter defined) for the One
Bridgepoint Premises, or any other act of the Tenant causing delay in completion
of the One Bridgepoint Tenant Improvements for the One Bridgepoint Premises (the
"Tenant Delay"). "Substantial completion" shall mean that Landlord has received
a temporary or permanent certificate of occupancy from the City of Austin and
that the only items remaining to be completed are "punch list" items, which
Landlord agrees to complete within thirty (30) days after written notification
as set forth in Exhibit "D". Within five (5) days after the One Bridgepoint
Commencement Date and at any time thereafter upon the request of Landlord,
Tenant shall execute and deliver to Landlord a declaration (in the form of
Exhibit "E-2" hereto) specifying, among other things, the date upon which the
same occurred.
2.04 RENEWAL OPTIONS. Landlord hereby gives and grants to Tenant one (1)
option to renew this Lease for a period of five (5) years on the terms and
conditions set forth in Exhibit "F". The Renewal Term shall commence on the
expiration of the Term.
2.05 RIGHT OF FIRST REFUSAL. Landlord hereby grants Tenant a right of first
refusal with respect to the existing National Instruments Refusal Space in One
Bridgepoint, additional space in One Bridgepoint, and the Motorola Refusal Space
in Three Bridgepoint, as set forth in "Exhibit "G". This right of first refusal
is in effect only during the Primary Term and terminates on the expiration of
the Primary Term.
ARTICLE 3
3.01 BASE RENT. Tenant, in consideration for this Lease, agrees to pay to
Landlord a base rental ("Base Rent") for each square foot of rentable area
agreed by Landlord and Tenant to be within the Premises, for each calendar year
during this Lease as follows:
1997 - $19.75 per rentable square foot
1998 - $19.75 per rentable square foot
1999 - $21.25 per rentable square foot
2000 - $22.25 per rentable square foot
2001 - $22.25 per rentable square foot
2002 - $23.25 per rentable square foot
2003 - $23.25 per rentable square foot
The Base Rent shall be payable in equal monthly installments determined by
dividing the total rent for each respective calendar year by twelve (12), at
Landlord's address herein provided in legal
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tender of the United States of America, without notice, demand, counterclaim,
set-off or abatement, in advance on the first day of each calendar month
throughout the Term, except that the first such monthly installment is due upon
the date of execution of this Lease by Tenant. The Base Rent for the Three
Bridgepoint Premises shall commence on the Three Bridgepoint Commencement Date,
and the Base Rent for the One Bridgepoint Premises shall commence on the One
Bridgepoint Commencement Date. In the event the Three Bridgepoint Commencement
Date or the One Bridgepoint Commencement Date occurs other than on the first day
of the month, the rent for the applicable first month shall be prorated from
such applicable Commencement Date until the end of such month.
3.02 RENTAL ADJUSTMENT. Tenant's pro rata share of all Operating Expenses
(defined in Section 3.03 hereof) for purposes of rental adjustment is agreed to
be forty six and 85/100ths percent (46.85%) for the Three Bridgepoint Premises,
and eleven and 80/100ths percent (11.80%) for the One Bridgepoint Premises
("Tenant's Pro Rata Share"). On or before the applicable Commencement Date and
thereafter on or before the first day of each calendar year of the Term,
Landlord shall provide to Tenant the Estimated Operating Expense (defined in
Section 3.03 hereof) for the upcoming year for both Three Bridgepoint and One
Bridgepoint. In addition to the Base Rent, Tenant shall pay in advance on the
first day of each calendar month in each calendar year following the Base Year
throughout the Term, installments equal to one-twelfth (1/12) of Tenant's Pro
Rata Share of the excess of the Estimated Operating Expense for the current year
over the Actual Operating Expense (defined in Section 3.03 hereof) for the Base
Year (such excess being referred to herein as the "Annual Rental Adjustment")
for both the Three Bridgepoint Premises and the One Bridgepoint Premises, as
applicable. The Base Year is calendar year 1997. Within one hundred twenty (120)
days after the end of each calendar year during the Term, Landlord shall furnish
to Tenant a statement certified by Landlord of the Actual Operating Expense for
the immediately preceding calendar year, which statement shall specify the
various types of Operating Expenses. If Tenant's Pro Rata Share of the Annual
Rental Adjustment paid to Landlord during the previous calendar year exceeds
Tenant's Pro Rata Share of the excess of the Actual Operating Expense for such
year over the Actual Operating Expense for the Base Year, then Landlord shall
refund the difference to Tenant at the time Landlord furnishes the statement of
the Actual Operating Expense. Otherwise, within thirty (30) days after Landlord
furnishes such statement to Tenant, Tenant shall make a lump sum payment to
Landlord equal to the positive difference between (a) Tenant's Pro Rata Share of
the excess of the Actual Operating Expense for the preceding calendar year over
the Actual Operating Expense for the Base Year and (b) the Annual Rental
Adjustment theretofore paid by Tenant. As used in this Lease the term "Rent"
shall refer collectively to the Base Rent and all rental adjustments. If the
Term commences on a day other than the first day of the month or calendar year,
or terminates on a day other than the last day of a month or calendar year, then
Tenant shall be required to pay only a pro rata portion of the installments and
adjustments of Rent due for such month or year.
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3.03 OPERATING EXPENSES. "Operating Expenses" shall mean and include all
amounts, expenses, and costs of whatsoever nature incurred because of or in
connection with the ownership, management, operation, repair, maintenance or
security of the Project, all additional facilities which may be added to the
Project, and Landlord's personal property which may be utilized in connection
therewith. The property management fee that will be included in Operating
Expenses shall be four percent (4%) of gross rent, and shall be paid to FIC
Property Management Services, Inc., an affiliate of Landlord. Operating
Expenses shall not include capital improvements, depreciation, interest and
principal payments on mortgage and other non-operating debts of Landlord, costs
of marketing the Project for lease, and specific costs for special items or
services billed to and paid by specific tenants. Operating Expenses shall,
however, include the amortization of capital improvements which are primarily
for the purpose of reducing Operating Expenses or which are required by
governmental or quasi-governmental authorities. Operating Expenses shall be
determined on an accrual basis in accordance with generally accepted accounting
principles consistently applied. The "Estimated Operating Expense" shall equal
the Landlord's estimate of Operating Expenses for the applicable calendar year.
Landlord's statement of the Estimated Operating Expense shall control for the
year specified in such statement and for each succeeding year during the Term
until Landlord provides a new statement of the Estimated Operating Expense. The
"Actual Operating Expense" shall equal the operating expenses actually incurred
for the applicable calendar year. Notwithstanding any provision contained herein
to the contrary, if less than 95% of the total square feet of rentable area in
Three Bridgepoint or One Bridgepoint, as the case may be, is occupied by tenants
or Landlord is not supplying services to 95% of the total square feet of
rentable area of the applicable Building at any time during any calendar year,
Operating Expenses for such calendar year shall be determined to be an amount
equal to the like expense which would normally be expected to be incurred had
such occupancy been 95% of the Building's total square feet of rentable area and
had Landlord been supplying services to 95% of the Building's total square feet
of rentable area throughout such calendar year.
Upon not less than two (2) days' prior written notice from Tenant to
Landlord, Landlord agrees to provide to Tenant reasonable access to supporting
information for Landlord's computation of Operating Expenses. Access to such
supporting information shall be provided to Tenant on a timely basis during
normal business hours at Landlord's management office in the Building or at such
other location as Landlord regularly maintains such supporting information. At
Tenant's sole cost and expense, except as otherwise provided in Section 3.03, at
Tenant's option, Tenant or any other person or entity retained by Tenant shall
be entitled to audit such supporting information relating to Operating Expenses.
Tenant shall provide Landlord with a copy of the signed audit within five (5)
days after Tenant's receipt thereof. If Tenant's audit of the supporting
information relating to Operating Expenses determines that Landlord's statement
delivered to Tenant pursuant to Section 3.02 hereof with regard to Actual
Operating Expense incurred during the prior year overstates such Operating
Expenses by more than ten percent (10%) of the total Actual Operating Expenses,
unless Landlord disagrees with the results of such audit
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and performs Landlord' own audit which determines that Tenant's audit is
incorrect, Landlord shall reimburse Tenant for all reasonable costs and expenses
reasonably incurred by Tenant in performing such audit.
3.04 ELECTRICITY. Tenant acknowledges and agrees that the Premises will be
separately metered for electricity, and Tenant shall be solely responsible for
the payment of Tenant's electricity bills. Electric charges for common areas
shall be included in Operating Expenses.
3.05 TENANT IMPROVEMENTS. Prior to the applicable Commencement Date,
Landlord shall, on the terms and conditions set forth in Exhibit "D" construct
the improvements desired by Tenant to complete the Premises for Tenant's
occupancy ("Tenant Improvements").
3.06 COMPLETION OF TENANT IMPROVEMENTS. Subject to any Tenant Delay,
Landlord agrees that the Tenant Improvements for Three Bridgepoint should be
completed by January 31, 1997. Landlord acknowledges that Tenant plans to
sublease the space the Tenant currently occupies. To the extent that Tenant's
sublessee incurs any holdover rent, penalties and costs at its current lease
space as a result of it being unable to occupy Tenant's current leased premises
because Tenant is unable to occupy the Three Bridgepoint Premises by January 31,
1997, then, as long as there has been no Tenant Delay, Landlord will pay to
Tenant the amount of Tenant's sublessee's actual holdover rent, penalties and
costs incurred by Tenant, not to exceed $1,000.00 per day for each day the Three
Bridgepoint Premises are not substantially completed after January 31, 1997, not
to exceed $60,000.00.
ARTICLE 4
4.01 USE. Tenant shall use and occupy the Premises only for general office
purposes and software consulting or contracting business, and for no other
purposes. Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein that will in any way increase the
existing rate of or affect any fire or other insurance upon the Project or any
of its contents, or cause cancellation of any insurance policy covering the
Project or any part thereof or any of its contents. Tenant shall not do or
permit anything to be done in or about the Premises that will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Project or injure or annoy them or tend to lower the first class character of
the Bridgepoint Buildings or create unreasonable elevator loads or otherwise
interfere with standard Bridgepoint Buildings operations. Tenant shall not
permit any nuisance in, on or about the Premises. Tenant shall not commit or
suffer to be committed any waste in or upon the Premises. Tenant shall not use
the Premises or permit anything to be done in or about the Premises that will in
any way conflict with any private restrictive covenant, law, statute, ordinance
or any rule or regulation of
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Landlord or any governmental or quasi-governmental authority now in force or
that may hereafter be enacted or promulgated.
Landlord agrees that as long as this Lease is in existence, or any renewals
thereof, Landlord will not enter into any new leases (other than renewal leases
with existing tenants) with new tenants for Three Bridgepoint that engage in the
computer software consulting or software contracting business without the prior
written approval of Tenant, which approval shall not be unreasonably withheld or
delayed. Notwithstanding the foregoing, Landlord has currently entered into
leases with National Instruments, Advance Micro Devices Sales Office as tenants
of One Bridgepoint, and Motorola, Inc. as a tenant in Three Bridgepoint and Four
Bridgepoint, all of whom are involved in computer related businesses.
ARTICLE 5
5.01 LANDLORD'S SERVICES. Provided Tenant is not in default hereunder,
Landlord shall, at Landlord's expense, except as provided to the contrary in
this Lease, furnish to Tenant the following services:
(a) Subject to curtailment as required by governmental laws, rules or
regulations, air conditioning and central heat, in season, at such
temperatures and in such amounts as are deemed by Landlord to be standard
for first class office buildings in Austin, Texas, during normal
Bridgepoint Buildings hours, which are presently scheduled to be 7:00 a.m.
through 6:00 p.m. on weekdays and 8:00 a.m. through 12:00 p.m. on
Saturdays, exclusive of normal business holidays. Normal business holidays
for purposes of this Lease shall include, without limitation, New Year's
Day, Martin Luther King Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, the Friday following Thanksgiving Day and
Christmas Day. If in the case of any holiday described herein a different
day shall be observed than the respective day described, then the day which
constitutes the day observed by national banks in Austin, Texas, on account
of such holiday shall constitute the holiday under this Lease.
(b) Janitorial services in the Premises and public portions of the
Bridgepoint Buildings for all days except Saturdays, Sundays, and normal
business holidays.
(c) Water at those points of supply provided for drinking, toilet,
and lavatory purposes.
(d) Normal and customary routine maintenance for all public,
structural, and exterior portions of the Project according to Landlord's
standards.
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(e) Electric lighting service for all public portions of the Project
in the manner and to the extent deemed by Landlord to be in keeping with
the standards of a first class office building in Austin, Texas.
(f) Reasonably adequate, non-exclusive automatic passenger elevator
service at all times for access to and egress from the Premises. Freight
elevator service, in common with other tenants, shall be provided during
reasonable business hours as prescribed by Landlord, exclusive of
Saturdays, Sundays, and normal business holidays.
(g) Electric energy that Tenant shall require for normal office
equipment such as typewriters, dictation machines, calculators, other
machines of a similar low electrical consumption, and Building Standard
(defined in Exhibit "D" attached hereto) lighting in the Premises. Without
Landlord's prior written consent, Tenant shall not be entitled to employ
lighting on the Premises that consumes electrical current in excess of
Building Standard lighting nor utilize any office equipment that consumes
more than 0.5 kilowatts per hour at rated capacity or requires a voltage
other than 120 volts single phase.
(h) Bridgepoint Buildings security to encourage compliance with the
Rules and Regulations (defined in Section 15.09 hereof) and to limit after-
hour access to the Building; provided, however, Landlord shall have no
responsibility to prevent, and shall not be liable to Tenant for, and shall
be indemnified by Tenant against, liability or loss to Tenant, its agents,
employees and visitors arising out of losses due to theft, burglary, or
damage or injury to persons or property caused by persons having or gaining
access to the Bridgepoint Buildings or the Premises, whether or not caused
by Landlord's negligence, and Tenant hereby releases Landlord from all
liability relating thereto; provided, however, Tenant shall not indemnify
Landlord from Landlord's gross negligence or wilful misconduct.
(i) Window washing services for the outside portions of the
Bridgepoint Buildings at least one (1) time per calendar year.
5.02 ADDITIONAL SERVICE COST. Tenant shall pay Landlord, upon demand, such
additional amounts as are necessary to recover additional costs incurred by
Landlord in performing or providing janitorial, maintenance, security, or other
services or requirements of Tenant (and in paying additional taxes) as to any
non-Building Standard installations in the Premises. Tenant shall pay Landlord,
upon demand, monthly as billed charges for providing off-hour and nonstandard
air conditioning, heating and electricity. Tenant shall be entitled to after
hours heating, air conditioning and electricity subject to Tenant providing
"reasonable notice" of such requirements. For purposes of this Section 5.02,
"reasonable notice" shall mean two hours advance notice. Notwithstanding the
foregoing, Tenant shall be obligated to pay Landlord any
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and all of Landlord's costs related to providing after hours heating, air
conditioning or electricity, including a factor reasonably determined by
Landlord attributable to the depreciation of Landlord's heating and air
conditioning equipment. Landlord estimates that Landlord's current costs for
such after hours utility services are approximately $25.00 per hour per zone.
For purposes of this Lease, Landlord and Tenant acknowledge and agree that a
"zone" shall constitute one floor in the Building, or in the case the Premises
do not cover an entire floor, the "zone" for such partial floor shall be the
portion of the Premises located on such partial floor. Landlord shall make
reasonable efforts to accommodate Tenant's extra electrical needs; provided,
however, Tenant's excessive use or consumption of heating, air conditioning
and/or electrical services in violation of Section 5.01 hereof, without
Landlord's prior written consent, which consent shall not be unreasonably
withheld, shall constitute a default under this Lease.
5.03 SERVICE INTERRUPTION. To the extent any of the services described
above require electricity, gas, water or other services supplied by public
utilities, Landlord's covenants hereunder shall impose on Landlord only the
obligation to use its good faith efforts to cause the applicable public
utilities to furnish the same. Any failure or defect in the services described
above shall not be construed as an eviction of Tenant nor entitle Tenant to any
reduction, abatement, offset, or refund of Rent or to any damages from Landlord.
Landlord shall not be in breach or default under this Lease, provided Landlord
uses reasonable diligence during normal business hours to restore any such
failure or defect after Landlord receives written notice thereof.
ARTICLE 6
6.01 ALTERATIONS. Tenant shall not make or allow to be made any
alterations, installations, additions or improvements in or to the Premises, or
place safes, vaults or other heavy furniture or equipment within the Premises,
without Landlord's prior written consent. All alterations, installations,
additions or improvements, other than movable furniture and movable trade
fixtures, made by Tenant to the Premises shall remain upon and be surrendered
with the Premises and become the property of Landlord at the expiration or
termination of this Lease or the termination of Tenant's right to possession of
the Premises; provided, however, that Landlord may require Tenant, at Tenant's
cost, to remove any or all of such items that are not Building Standard upon the
expiration or termination of this Lease or the termination of Tenant's right to
possession of the Premises. Tenant, at its sole cost and prior to the expiration
or termination of this Lease, shall remove all of Tenant's property from the
Premises and make, or reimburse Landlord for the cost of, all repairs to the
Premises and/or Project for damage resulting from such removal. All work shall
be completed promptly and in a good and workmanlike manner and shall be
performed in such a manner that no mechanic's, materialman's or other similar
liens shall attach to Tenant's leasehold estate, and in no event shall Tenant
permit, or be authorized to permit, any such liens or other claims to be
asserted against Landlord or Landlord's rights, estate and interests with
respect to the Project or this Lease. For any improvements, additions, or
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alterations estimated to cost in excess of $10,000.00, Landlord may require, at
Tenant's sole cost and expense, a lien and completion bond in an amount equal to
the estimated cost of any improvements, additions or alterations in the
Premises.
6.02 TENANT REPAIRS. By taking possession of the Premises, Tenant shall be
deemed to have accepted the Premises as being in good, sanitary order and
condition. Tenant shall, at Tenant's sole cost and expense, keep the Premises in
good condition, damage thereto from causes beyond the reasonable control of
Tenant and ordinary wear and tear damage excepted. Any injury or damage to the
Premises or Project, or the appurtenances or fixtures thereof, caused by or
resulting from the act, omission or neglect of Tenant or Tenant's employees,
servants, agents, invitees, assignees, or subtenants shall be repaired or
replaced by Tenant, or at Landlord's option by Landlord, at the expense of
Tenant. If Tenant fails to maintain the Premises or fails to repair or replace
any damage to the Premises or Project resulting from the negligence or
intentional act of Tenant, its employees, servants, agents, invitees, assignees
or subtenants, Landlord may, but shall not be obligated to, cause such
maintenance, repair or replacement to be done, as Landlord deems necessary, and
Tenant shall immediately pay to Landlord all costs related thereto plus a charge
for overhead of 15% of such costs.
6.03 LANDLORD REPAIRS. Unless otherwise stipulated herein, Landlord shall
not be required to make any improvements to or repairs of any kind or character
to the Premises during the Term, except such repairs to Building Standard
improvements as may be deemed necessary by Landlord for normal maintenance
operations; provided, however, non-Building Standard leasehold improvements
will, at Tenant's written request, be maintained by Landlord at Tenant's
expense, at a cost or charge equal to the costs incurred in such maintenance
plus an additional charge of 10%. Notwithstanding any provisions of this Lease
to the contrary, all repairs, alterations or additions to the base Bridgepoint
Buildings or its systems (as opposed to those involving only Tenant's leasehold
improvements), and all repairs, alterations or additions to Tenant's non-
Building Standard leasehold improvements which affect the Building's structural
components or major mechanical, electrical or plumbing systems in the Building,
to be made by or for or on behalf of Tenant, shall be made by Landlord or its
contractor only, and, except as otherwise provided in Exhibit "D" attached
hereto, shall be paid for by Tenant in an amount equal to Landlord's costs plus
an additional charge of 10%.
ARTICLE 7
7.01 LANDLORD INSURANCE. Landlord shall insure the Project and shall
maintain liability and other insurance in such amounts as may be required by
Landlord's mortgagee, or in such greater amounts as Landlord, in its sole
discretion, may deem appropriate. The cost of such insurance, including any
deductible paid thereunder by Landlord, shall be an "Operating Expense" as
defined in Section 3.03 hereof. Such insurance shall be for the sole benefit of
Landlord and,
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if required, Landlord's mortgagee. If the annual premiums to be paid by Landlord
exceed the standard rates because of Tenant's operations within or contents of
the Premises or because improvements to the Premises are beyond Building
Standard, Tenant shall promptly pay the excess amount of the premium upon
request by Landlord (and if necessary, Landlord may allocate the insurance costs
of the Bridgepoint Buildings to give effect to this sentence).
7.02 TENANT INSURANCE. Tenant shall, at Tenant's expense, fully insure its
property located in the Premises against fire and other casualty and shall
maintain comprehensive general liability insurance insuring Landlord and Tenant
against any liability arising out of ownership, use, occupancy or maintenance of
the Premises and all areas appurtenant thereto, including contractual liability
insurance (with respect to Section 7.04 hereof), with insurance companies
approved by Landlord and with limits of liability of at least $2,000,000 in each
occurrence for Bodily Injury and Property Damage combined and $2,000,000 general
aggregate for Bodily Injury and Property Damage combined with the endorsement of
comprehensive general liability CG-2504. Tenant shall cause Landlord to be named
as an additional insured under such policies and shall, not less than twenty
(20) days prior to (a) the Three Bridgepoint Commencement Date, and (b) the
expiration of old policies, furnish Landlord with certificates of insurance with
loss payable clauses satisfactory to Landlord. The limit of such insurance shall
not, however, limit the liability of Tenant hereunder. Tenant may carry such
insurance under a blanket policy, provided such insurance has a Landlord's
protective liability endorsement attached thereto. If Tenant fails to procure
and maintain said insurance, Landlord may, but shall not be required to, procure
and maintain same, but at the expense of Tenant. No policy shall be cancelable
or subject to reduction of coverage except after thirty (30) days prior written
notice to Landlord.
7.03 WAIVER OF SUBROGATION. Whenever (a) any loss, cost, damage or expense
resulting from fire, explosion or any other casualty or occurrence is incurred
by either of the parties to this Lease in connection with the Premises or the
Project, and (b) such party is then covered (or is required under this Lease to
be covered) in whole or in part by insurance with respect to such loss, cost,
damage or expense, then the party so insured hereby releases the other party
from any liability it may have on account of such loss, cost, damage or expense
to the extent of any amount recovered by reason of such insurance, and waives
any right of subrogation which might otherwise exist on account thereof,
provided that such release of liability and waiver of the right to subrogation
shall not be operative in any case where the effect thereof is to invalidate
such insurance coverage or increase the cost thereof (provided, that in the case
of increased cost, the other party shall have the right, within thirty (30) days
following written notice, to pay such increased costs, thereupon keeping such
release and waiver in full force and effect). Landlord and Tenant shall use
their respective best efforts to obtain such a release and waiver of subrogation
from their respective insurance carriers and shall obtain any special
endorsements, if required by their insurer, to evidence compliance with the
aforementioned waiver.
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7.04 INDEMNITY. Tenant hereby indemnifies and holds Landlord harmless from
and against any and all claims arising from Tenant's use of the Premises for the
conduct of its business or from any activity, work or other thing done,
permitted or suffered by Tenant on or about the Project and shall further
indemnify and hold harmless Landlord from and against any and all claims arising
from any breach or default in the performance of any obligation on Tenant's part
to be performed under the terms of this Lease, or arising from any act or
omission of, or due to the negligence of, the Tenant, or any officer, agent,
employee, guest or invitee of Tenant, and from and against all costs, attorney's
fees, expenses and liabilities incurred in or related to any such claim or any
action or proceeding brought thereon. Tenant as a material part of the
consideration to Landlord, hereby assumes all risk of damage to property or
injury to persons including death in, upon or about the Premises, from any
cause, including without limitation, Landlord's negligence, but except for such
damage or injury caused solely by Landlord's negligence or by Landlord's gross
negligence or wilful misconduct, and Tenant hereby waives all claims in respect
thereof against Landlord. The liability of Landlord to Tenant for any default by
Landlord under the terms of this Lease shall be limited to the interest of
Landlord in the Building, it being intended that Landlord, its officers,
directors and employees shall not be personally liable for any judgment or
deficiency. Notwithstanding the foregoing, Landlord shall be personally liable
to Tenant for damages that Tenant sustains as the result of the gross negligence
or willful misconduct of Landlord, its employees, agents or representatives.
ARTICLE 8
8.01 CASUALTY. Tenant shall give Landlord written notice of any fire or
other casualty occurring within the Premises on the next business day following
such occurrence or Tenant's knowledge thereof, whichever is later. If the
Premises or Project (provided such damage to the Project would constitute an
interference with Tenant's quiet enjoyment of the Premises), or any portion of
either, shall be damaged by fire or other casualty covered by the insurance
carried by Landlord hereunder and the cost of repairing such damage shall not be
greater than 10% of the then full replacement cost thereof, then, subject to the
following provisions of this Article, Landlord shall repair the Premises and/or
Project. If the Premises or Project shall be damaged (a) by fire or other
casualty not covered by insurance carried by Landlord hereunder, (b) by fire or
other casualty covered by insurance carried by Landlord hereunder and Landlord's
mortgagee requires that such insurance proceeds be used to retire the mortgage
debt, or (c) to an extent greater than 10% of the then full replacement cost of
any Building in which the Premises are located, then Landlord shall have the
option (i) to repair or reconstruct the damaged Premises or Project to
substantially the same condition as immediately prior to such fire or other
casualty, or (ii) to terminate this Lease by so notifying Tenant within ninety
(90) days after the date of such fire or other casualty, such termination to be
effective as of the date of such fire or other casualty. The Rent required to be
paid hereunder shall be abated in proportion to the portion of the Premises, if
any, which is rendered untenantable by fire or other casualty hereunder until
repairs
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of the Premises are completed, or if the Premises are not repaired, until the
Expiration Date hereunder. Other than such rental abatement, no damages,
compensation or claims shall be payable by Landlord for loss of the use of the
whole or any part of the Premises, Tenant's personal property, or any
inconvenience, loss of business, or annoyance arising from any such repair and
reconstruction. If the damage results from the fault or negligence of Tenant,
its agents, employees, licensees or invitees, Tenant shall not be entitled to
any abatement or reduction of any Rent or other sums due hereunder, and such
damage shall be repaired by Tenant, or at Landlord's option by Landlord, at
Tenant's expense. If this Lease is terminated as provided in (c)(ii) above, all
Rent shall be apportioned and paid up to the date of such termination. Landlord
shall not be required to repair or replace any furniture, furnishings, or other
personal property that Tenant may be entitled to remove from the Premises or any
property constructed and installed by or for Tenant pursuant to Section 6.01
hereof or any installations in excess of Building Standard.
8.02 END OF TERM CASUALTY. Notwithstanding anything to the contrary in this
Article, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Premises or the Project when the damage resulting
from any casualty covered under this Article occurs during the last twelve (12)
months of the Term or any extension thereof.
ARTICLE 9
9.01 CONDEMNATION. If more than 20% of the Premises should be taken for any
public or quasi-public use, by right of eminent domain or otherwise, or should
be sold in lieu of condemnation, then either party hereof shall have the right,
at its option, to terminate this Lease as of the date when physical possession
of the Premises is taken by the condemning authority. If 20% or less of the
Premises is so taken or sold or if this Lease is not terminated upon any taking
or sale of greater than 20% of the Premises, the Rent payable hereunder shall be
abated in proportion to the portion of the Premises which is rendered
untenantable by such condemnation, and Landlord shall, to the extent Landlord
deems feasible and if permitted by Landlord's mortgagee, ground lessor or other
secured party, restore the Premises to substantially its former condition, but
Landlord shall not in any event be required to spend for such work an amount in
excess of the amount received by Landlord as compensation for such taking. If
any part of the Project other than the Premises may be so taken or sold,
Landlord shall have the right at its option to terminate this Lease as of the
date when physical possession of such part of the Project is taken by the
condemning authority. All amounts awarded upon taking of any part or all of the
Project or the Premises shall belong to Landlord and Tenant shall not be
entitled to, and expressly assigns all claims, rights and interests to, any such
compensation to Landlord.
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ARTICLE 10
10.01 ENTRY. Landlord, its agents, employees and representatives, shall
have the right to enter the Premises at any time upon "reasonable notice" to
Tenant under the circumstances (which notice may be oral and not in compliance
with Section 15.08 hereof, but no notice shall be required in the case of
routine maintenance or an emergency) to show the Premises to prospective tenants
or purchasers or for any purpose that Landlord may reasonably deem necessary for
the operation and maintenance of the Project. For purposes of this Section
10.01, "reasonable notice" shall mean two hours advance notice. In addition,
except for routine maintenance or an emergency, Landlord agrees that
representatives of Landlord shall be accompanied by a Tenant staff member.
Tenant hereby waives any claim for damages or for any injury or inconvenience to
or interference with Tenant's business, any loss of occupancy or quiet enjoyment
of the Premises, and any other loss occasioned thereby. For each of the
aforesaid purposes, Landlord shall at all times have and retain a key with which
to unlock all of the doors in, upon and about the Premises, excluding Tenant's
vaults, safes, desks, filing cabinets and files. Landlord shall have the right
to use any and all means which Landlord may deem proper to open the doors in,
upon and about the Premises in an emergency in order to obtain entry to the
Premises without liability to Tenant, except for any failure to exercise due
care for Tenant's property. Landlord agrees that Tenant and its officers,
directors, and employees shall have 24 hour access to the Premises.
ARTICLE 11
11.01 SUBORDINATION. This Lease is and shall be subject and subordinate
to any and all ground or similar leases affecting the Project, and to all
mortgages, deeds of trust, and security agreements that may now or hereafter
encumber or affect the Project or any interest of Landlord therein and/or the
contents of the Building, and to any advances made on the security thereof and
to any and all increases, renewals, modifications, consolidations, replacements
and extensions of any such leases, mortgages, deeds of trust and/or security
agreements. This clause shall be self-operative and no further instrument of
subordination need be required by any owner or holder of such ground lease,
mortgage, deed of trust or security agreement. Notwithstanding the foregoing,
Landlord represents to Tenant that at the time of the execution of this Lease,
the Project is not subject to a mortgage or deed of trust. Tenant agrees to
execute and return any estoppel certificate, consent or agreement reasonably
requested by any such lessor, mortgagee, trustee or secured party in connection
with this Section within a reasonable period of time, not to exceed fifteen (15)
days after receipt of same. In the event Tenant fails to respond within such
period, Tenant shall be in default under this Lease. Tenant shall furnish any
mortgagee of Landlord secured by a lien on the Project, any lessor to Landlord
under a ground lease of the Project, or any secured party under a security
agreement encumbering the interest of Landlord,
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with written notice of any default or breach by Landlord at least sixty (60)
days prior to the exercise by Tenant of any rights and/or remedies of Tenant
hereunder arising out of such default or breach.
11.02 ATTORNMENT. If any ground or similar such lease, mortgage, deed of
trust or security agreement is enforced by the ground lessor, the mortgagee, the
trustee, or the secured party, Tenant shall, upon request, attorn to the lessor
under such lease or the mortgagee or purchaser at such foreclosure sale, or any
person or party succeeding to the interest of Landlord as a result of such
enforcement, as the case may be, and execute instrument(s) confirming such
attornment; provided however, that if this Lease was approved and accepted in
writing by such lessor, mortgagee, trustee or secured party, Tenant's attornment
shall be conditioned upon the agreement by such successor to Landlord's interest
not to disturb Tenant's possession hereunder during the Term so long as Tenant
performs its obligations under this Lease. In the event of such enforcement and
upon Tenant's attornment as aforesaid, Tenant will automatically become the
tenant of the successor to Landlord's interest without change in the terms or
provisions of this Lease; provided, however, that such successor to Landlord's
interest shall not be bound by (a) any payment of Rent for more than one month
in advance (except prepayments for security deposits, if any), (b) any
amendments or modifications of this Lease made without the prior written consent
of such lessor or mortgagee, or (c) any credits, offsets, defenses or claims
which Tenant may have against Landlord.
11.03 QUIET ENJOYMENT. Tenant, on paying the Rent and keeping and
performing the conditions and covenants herein contained, shall and may
peaceably and quietly enjoy the Premises for the Term, subject to the aforesaid
underlying leases, mortgages, deeds of trust and security agreements, all
applicable laws and other governmental and legal requirements, applicable
insurance requirements and regulations, and the provisions of this Lease. It is
understood and agreed that this covenant and any and all other covenants of
Landlord contained in this Lease shall be binding upon Landlord and its
successors only with respect to breaches occurring during its and their
respective ownership of the Landlord's interest hereunder.
ARTICLE 12
12.01 ASSIGNMENT AND SUBLETTING. Tenant shall not, voluntarily, by
operation of law, or otherwise, assign, transfer, mortgage, pledge, or encumber
this Lease or sublease the Premises or any part thereof, or suffer any person
other than Tenant, its employees, agents, servants and invitees to occupy or use
the Premises or any portion thereof, without the express prior written consent
of Landlord. Any attempt to do any of the foregoing without such written consent
shall be null and void and of no effect, and shall further constitute a material
default under this Lease. If Tenant so requests Landlord's consent, said request
shall be in writing specifying the identity of the proposed transferee, the
duration of said desired sublease or assignment, the
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date same is to occur, the exact location of the space affected thereby and the
proposed rentals on a square foot basis chargeable thereunder, and shall be
submitted to Landlord at least thirty (30) days in advance of the date on which
Tenant desires to make such assignment or sublease or allow such occupancy or
use. Upon such request Landlord may (a) grant such consent subject to Landlord's
approval of the assignee, transferee, subtenant, or mortgagee, or (b) deny such
consent. If Landlord does not give such consent in writing within fifteen (15)
days of the date such consent is requested, then Landlord's consent shall be
deemed to have been denied. In no event may Tenant assign this Lease or sublease
the Premises or any portion thereof to any party whose operations in the Project
would not be in keeping with, or would detract from, the operations of other
tenants in the Project.
Landlord's consent shall not be unreasonably withheld to any proposed
assignment or subletting by Tenant; provided, however, Landlord shall not be
required to give its consent to a sublease or assignment that would result in a
breach by Landlord of any of its lease obligations to other tenants of the
Project. In no event may Tenant assign this Lease or sublease the Premises or
any portion thereof to any party whose operations in the Project would not be in
keeping with, or would detract from, the operations of other tenants in the
Project.
In any situation in which Landlord consents to an assignment or sublease
hereunder, Tenant shall promptly deliver to Landlord a fully executed copy of
the final sublease agreement or assignment instrument and all ancillary
agreements relating thereto. No assignment shall be effective unless the
assignee has agreed within the assignment instrument to assume the obligations
of Tenant hereunder and to be personally bound by all of the covenants, terms
and conditions hereof on the part of Tenant to be performed or observed
hereunder.
Notwithstanding the foregoing, Tenant shall have the right to assign or
sublease the Premises or any part thereof to any subsidiary or affiliate of
Tenant without Landlord's consent; provided, however, in the event of any such
assignment or sublease, Tenant must give Landlord written notice within thirty
(30) day of any such assignment or sublease of the name of the subsidiary or
affiliate to which all or a portion of the Premises has been assigned or
subleased, and the portion of the Premises so assigned or subleased.
12.02 CONTINUED LIABILITY. Tenant shall, despite any permitted assignment
or sublease, remain directly and primarily liable for the performance of all of
the covenants, duties, and obligations of Tenant hereunder, and Landlord shall
be permitted to enforce the provisions of this Lease against Tenant or any
assignee or sublessee (including a subsidiary or affiliate assignee or
sublessee) without demand upon or proceeding in any way against any other
person.
12.03 CONSENT. Consent by Landlord to a particular assignment or sublease
shall not be deemed a consent to any other or subsequent transaction. If this
Lease is assigned or if the
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Premises are subleased without the permission of Landlord, then Landlord may
nevertheless collect Rent from the assignee or sublessee and apply the net
amount collected to the Rent payable hereunder, but no such transaction or
collection of Rent or application thereof by Landlord shall be deemed a waiver
of any provision hereof or a release of Tenant from the performance of the
obligations of the Tenant hereunder.
12.04 PROCEEDS. All cash or other proceeds of any assignment, sale or
sublease of Tenant's interest in this Lease, whether consented to by Landlord or
not, shall be paid to Landlord notwithstanding the fact that such proceeds
exceed the Rent called for hereunder, and Tenant hereby assigns all rights it
might have or ever acquire in any such proceeds to Landlord.
ARTICLE 13
13.01 DEFAULT. Each of the following shall constitute a "Default" by
Tenant:
(a) The failure of Tenant to pay the Rent or any part thereof when
due and the continuation of such failure for five (5) days after Tenant is
notified thereof; provided, however, that if Tenant fails to make any
payment required by this Lease when due two (2) or more times in any Lease
Year, then notwithstanding that such defaults have been cured by Tenant,
any further similar failure shall be deemed a Default without notice or
opportunity to cure;
(b) Tenant shall become insolvent or unable to pay its debts as they
become due, or Tenant notifies Landlord that it anticipates either
condition;
(c) Tenant defaults in the terms of its working capital credit
facility at Texas Commerce Bank-Austin (the "TCB Credit Facility"), or any
other credit facility which represents more than one-half of Tenant's bank
indebtedness. Tenant agrees to give Landlord written notice of any actual
or asserted default in any such credit facility, or any event which, with
the passage of time, will constitute a default in any such credit facility.
(d) Tenant takes any action to, or notifies Landlord that Tenant
intends to, file a petition under any section or chapter of the United
States Bankruptcy Code, as amended from time to time, or under any similar
law or statute of the United States or any state thereof; or a petition
shall be filed against Tenant under any such statute or Tenant notifies
Landlord that it knows such a petition will be filed; or the appointment of
a receiver or trustee to take possession of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease; or
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this
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Lease; unless the application of this subsection 13.01(c) shall contravene
any applicable law;
(e) Tenant shall fail to fulfill or perform, in whole or in part, any
of its covenants or obligations under this Lease (other than the payment of
Rent), including, but not limited to, the specific covenants set forth in
Section 14.03 of this Lease, and such failure or nonperformance shall
continue for a period of twenty (20) days after written notice thereof has
been given by Landlord to Tenant;
(f) Any material representation or warranty by Tenant in this Lease
or in any certificate, statement or other document furnished pursuant to or
under this Lease, including, without limitation, financial statements,
proves to be or becomes incorrect in any material respect; or
(h) There is a default under the Lease Guaranty, a copy of which is
attached hereto as Exhibit "J".
13.02 RIGHTS UPON DEFAULT. If a Default by Tenant occurs and Tenant fails
to cure such Default within any applicable cure period set forth in Section
13.01, then Landlord, with or without any further notice or demand, may exercise
any and all rights and remedies available to Landlord under this Lease, at law
or in equity, including without limitation, termination of this Lease and
termination of Tenant's right to possession without terminating the Lease. If
Tenant is in Default for nonpayment of Rent and if Tenant fails to pay same in
full within five (5) days after Landlord hand delivers to the Premises written
notice of Landlord's intent to exercise its lockout rights, then Landlord shall
be entitled to change or modify door locks on all entry doors of the Premises
and Tenant shall not be entitled to a key to re-enter the Premises until all
delinquent Rent is paid in full; provided, however, Landlord shall immediately
thereafter post a notice on an entry door to the Premises, stating that Landlord
has exercised such lockout rights. The preceding sentence shall supersede any
conflicting provisions of Section 93.002 of the Texas Property Code or any
successor statute. In the event of a Default by Tenant and Tenant fails to cure
such Default within any applicable cure period set forth in Section 13.01,
Landlord may, without additional notice and without court proceedings, re-enter
and repossess the Premises and remove all persons and property therefrom, and
Tenant hereby agrees to surrender possession of the Premises, waives any claim
arising by reason thereof or by reason of issuance of any distress warrant or
writ of sequestration, and agrees to hold Landlord harmless from any such
claims. If Landlord elects to terminate this Lease, it may treat the default as
an entire breach of this Lease and Tenant shall immediately become liable to
Landlord for damages equal to the total of (a) the cost of recovering,
reletting, including, without limitation, the cost of leasing commissions
attributable to the unexpired portion of the Term of this Lease, and remodeling
the Premises, (b) all unpaid Rent and other amounts earned or due through such
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termination, including interest thereon at the rate specified in Section
13.04 hereof, plus (c) the present value (discounted at the rate of 8% per
annum) of the balance of the Rent for the remainder of the Term less the
present value (discounted at the same rate) of the fair market rental value
of the Premises for said period and (d) any other sum of money and damages
owed by Tenant to Landlord. If Landlord elects to terminate Tenant's right to
possession of the Premises without terminating this Lease, Landlord may (but
shall not be obligated to) rent the Premises or any part thereof for the
account of Tenant to any person or persons for such rent and for such terms
and conditions as Landlord deems appropriate, and Tenant shall be liable to
Landlord for the amount, if any, by which the Rent for the unexpired balance
of the Term exceeds the net amount, if any, received by Landlord from such
reletting, being the gross amount so received by Landlord less the costs of
repossession, reletting, remodeling, and other expenses incurred by Landlord.
Such sum or sums shall be paid by Tenant in monthly installments on the first
day of each month of the Term. In such event, Landlord agrees to use
reasonable business judgment in its attempts to re-lease the Premises.
However, Landlord shall not be liable for failure to relet the Premises or to
collect the rent due under such reletting, and in no event shall Tenant be
entitled to more than 50% of any excess rents received by Landlord. All
rights and remedies of Landlord shall be cumulative and not exclusive.
13.03 COSTS. If a Default by Tenant occurs, then Tenant shall reimburse
Landlord on demand for all costs reasonably incurred by Landlord in connection
therewith including, but not limited to, reasonable attorney's fees, court
costs, and related costs, plus interest thereon from the date such costs are
paid by Landlord until Tenant reimburses Landlord, at the rate specified in
Section 13.04 hereof.
13.04 INTEREST. All late payments of Rent, costs or other amounts due from
Tenant under this Lease shall bear interest from the date due until paid at the
rate of 18% per annum; provided, however, in no event shall the rate of interest
hereunder exceed the maximum non-usurious rate of interest (the "Maximum Rate")
permitted by the applicable laws of the State of Texas or the United States of
America, whichever shall permit the higher non-usurious rate, and as to which
Tenant could not successfully assert a claim or defense of usury, and to the
extent that the Maximum Rate is determined by reference to the laws of the State
of Texas, the Maximum Rate shall be the indicated rate ceiling (as defined and
described in Texas Revised Civil Statutes, Article 5069-1.04, as amended) at the
applicable time in effect.
13.05 LANDLORD'S LIEN. Landlord reserves (and is hereby granted) a first
and superior lien and security interest (which shall be in addition to and not
in lieu of the statutory landlord's lien) on all fixtures, equipment, and
tangible personal property (excluding however, intangibles and Tenants
computers) now or hereafter placed by Tenant in or on the Premises to secure all
sums due by Tenant hereunder, which lien and security interest may be enforced
by Landlord in any manner provided by law, including, without limitation, under
and in accordance
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with the Texas Uniform Commercial Code. The provisions of this Section shall
constitute a security agreement under the Texas Uniform Commercial Code and, at
Landlord's request, Tenant shall execute and file, where appropriate, all
documents required to perfect the security interest herein granted in accordance
with the Texas Uniform Commercial Code. Landlord may at its election at any time
file a copy of this Lease as a financing statement. Unless otherwise provided by
law and for the purpose of exercising any right pursuant to this Section,
Landlord and Tenant agree that reasonable notice shall be met if such notice is
given by five days' written notice, certified mail, return receipt requested, to
Landlord or Tenant at the address specified herein. Notwithstanding anything in
this Lease to the contrary, the lien granted to Landlord herein and the
statutory landlord's lien granted to Landlord pursuant to the Texas Property
Code shall be subject and subordinate to any and all purchase money security
interests in and to any fixtures, equipment and personal property of Tenant.
Alternatively, at Tenant's option, Tenant shall have the right to deliver to
Landlord a security deposit in the amount of one month's rent due under this
Lease. In the event Tenant delivers to Landlord such security deposit, Landlord
agrees to waive all of Landlord's rights to a landlord's lien as set forth in
this Section 13.05.
13.06 NON-WAIVER. The failure of Landlord or Tenant to seek redress for
violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease shall not prevent a subsequent act or omission that
would have originally constituted a violation of this Lease from having all the
force and effect of an original violation. The receipt by Landlord of Rent with
or without knowledge of the breach of any provision of this Lease shall not be
deemed a waiver of such breach, shall not reinstate this Lease or Tenant's right
of possession if either or both have been terminated, and shall not otherwise
affect any notice, election, action, or suit by Landlord. No provision of this
Lease shall be deemed to have been waived unless such waiver is in writing
signed by the waiving party. No act or thing done by Landlord during the Term
shall be deemed an acceptance of a surrender of the Premises and no agreement to
accept such surrender shall be valid, unless express and in writing signed by
Landlord.
ARTICLE 14
14.01 FINANCIAL STATEMENTS. Within sixty (60) days after the end of each
fiscal year of Tenant, or as may be requested from time to time by Landlord,
Tenant shall deliver to Landlord current financial statements, including,
without limitation, balance sheets, profit and loss statements, reconciliations
of capital and surplus, changes in financial condition, schedules of sources and
applications of funds, and operating statements with respect to the business of
Tenant, all of which shall, at the request of Landlord, be certified by an
independent certified public accountant.
14.02 CORPORATE RESOLUTIONS. If Tenant is a corporation, Tenant shall,
simultaneously with the execution and delivery of this Lease, deliver a fully
executed Certificate
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of the Secretary with attached Resolutions of the Corporate Board substantially
in the form attached hereto as Exhibit "H".
14.03 TENANT'S REPRESENTATIONS, WARRANTIES AND COVENANTS: To induce
Landlord to enter into the Lease with the Tenant, Tenant represents, warrants
and agrees that:
(a) Tenant's Financial Condition. As of the date hereof, and after
giving effect to this Lease and the contingent obligations evidenced
hereby, Tenant is, and will be, solvent, and has and will have assets
which, fairly valued, exceed its obligations, liabilities and debts, and
has and will have property and assets in the State of Texas sufficient to
satisfy and repay its obligations and liabilities.
(b) Tenant's Current Debt. Tenant is free of debt other than trade
payables and Tenant's contemplated $5,000,000.00 credit facility with Texas
Commerce Bank (the "TCB Credit Facility").
(c) Financial Covenants. In the event Tenant has not obtained the TCB
Credit Facility, Tenant agrees to comply with the following financial
covenants:
(i) Tenant shall maintain a ratio of total debt divided by
EBITDA (earnings before interest, taxes, depreciation and
amortization) of 2.00x or less (1.75x or less effective after March
31, 1997) tested quarterly; and
(ii) Tenant will not have total indebtedness which exceeds ten
percent (10%) of shareholders' equity;
(iii) Tenant will not have liens against any of its assets,
except with respect to the Lease and in connection with other allowed
indebtedness; and
(iv) Tenant's borrowings will not exceed 85% of Tenant's adjusted
accounts receivable.
Tenant agrees to give Landlord written notice of any breach of any of the
foregoing financial covenants, or any event which, with the passage of
time, will constitute a default in any such financial covenants.
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(d) Negative Covenants. Tenant hereby agrees that as long as this
Lease is in effect, Tenant will not:
(i) dispose of or transfer any of its assets, other than in the
ordinary course of business, to or for the benefit of Tenant's
Affiliated Parties (as that term is defined herein), or
(ii) except as otherwise specifically provided herein, declare or
make any dividend or distribution, other than in the ordinary course
of business, or take any other action that would reduce the
shareholders equity of Tenant below $10,000,000.00, or
(iii) enter into any transaction with or for the direct or
indirect benefit of any of Tenant's Affiliated Parties, except for (a)
an arms length transaction in the ordinary course of business, or (b)
so long as Tenant is treated for federal income tax purposes as an S
Corporation, distributions to Tenant's shareholders of an amount equal
to the shareholder's federal, state and local income taxes
attributable to the Tenant's income for federal income tax purposes,
or
(iv) allow any of Tenant's Affiliated Parties, to exercise any
rights or powers over Tenant, or as a shareholder of Tenant, or in any
other capacity, whether directly or indirectly, which would approve,
consent to or require Tenant take any of the actions set forth in
subsections (i), (ii) or (iii) of this Section 14.03c.
For purposes of this Section 14.03, the term "Tenant's Affiliated Parties"
shall mean the shareholders and directors of Tenant, any subsidiary or
affiliate of Tenant, the shareholders and directors of Guarantor, and any
subsidiary or affiliate of Guarantor.
ARTICLE 15
15.01 AMENDMENT. Any agreement hereafter made between Landlord and Tenant
shall be ineffective to modify, release, or otherwise affect this Lease, in
whole or in part, unless such agreement is in writing and signed by the parry to
be bound thereby.
15.02 SEVERABILITY. If any term or provision of this Lease shall, to any
extent, be held invalid or unenforceable by a final judgment of a court of
competent jurisdiction, the remainder of this Lease shall not be affected
thereby.
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15.03 ESTOPPEL LETTERS. Tenant shall promptly upon request from Landlord
execute and acknowledge a certificate containing such information as may be
reasonably requested for the benefit of Landlord, any prospective purchaser or
any current or prospective mortgagee of all or any portion of the Project.
15.04 LANDLORD'S LIABILITY AND AUTHORITY. The liability of Landlord to
Tenant for any default by Landlord under the terms of this Lease shall be
limited to the interest of Landlord in the Project, it being intended that
Landlord, its officers, directors and employees shall not be personally liable
for any judgment or deficiency. Whenever in this Lease there is imposed upon
Landlord the obligation to use its best efforts, reasonable efforts, diligence
or act in good faith, Landlord shall be required to do so only to the extent the
same is economically feasible and otherwise will not impose upon Landlord
extreme financial or other burdens.
15.05 HOLDOVER. If Tenant shall remain in possession of the Premises after
the Expiration Date or earlier termination of this Lease, then Tenant shall be
deemed a tenant-at-will whose tenancy is terminable at any time. In such event,
Tenant shall pay Rent at one hundred twenty five percent (125%) of the daily
rental rate prevailing on the date of such termination or expiration, but
otherwise shall be subject to all of the obligations of Tenant under this Lease.
Additionally, Tenant shall pay to Landlord all damages sustained by Landlord on
account of such holding over by Tenant.
15.06 SURRENDER. Upon the expiration or earlier termination of the Term,
Tenant shall peaceably quit and surrender the Premises in good order and
condition, excepting ordinary wear and tear, but subject to Sections 6.01 and
6.02 hereof. All obligations of Tenant for the period of time prior to the
expiration or earlier termination of the Term shall survive such expiration or
termination.
15.07 PARTIES AND SUCCESSORS. Subject to the limitations and conditions
set forth elsewhere herein, this Lease shall bind and inure to the benefit of
the respective heirs, legal representatives, successors, and permitted assigns
and/or sublessee of the parties hereto. The term "Landlord", as used in this
Lease, so far as the performance of any covenants or obligations on the part of
Landlord under this Lease are concerned, shall mean only the owner of the
Project at the time in question, so that in the event of any transfer of title
to the Project, the party by whom any such transfer is made shall be relieved of
all liability and obligations of the Landlord arising under this Lease from and
after the date of such transfer. Landlord shall have the right to transfer,
sell, assign, mortgage or encumber, in whole or in part, all of its rights and
obligations hereunder and in the Building, the Land, the Project and other
property of Landlord referred to herein.
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15.08 NOTICE. Except as otherwise provided herein, any statement, notice,
or other communication that Landlord or Tenant may desire or be required to give
to the other shall be deemed sufficiently given or rendered if hand delivered,
or if sent by registered or certified mail, return receipt requested, addressed
at the address(es) first hereinabove given or at such other addresses(es) as the
other party shall designate from time to time by prior written notice, and such
notice shall be effective when the same is received or mailed as herein
provided.
15.09 RULES AND REGULATIONS. Tenant, its servants, employees, agents,
visitors, invitees, and licensees, shall observe faithfully and comply strictly
with the Rules and Regulations set forth in Exhibit "I" hereto, and shall abide
by and conform to such further Rules and Regulations as Landlord may from time
to time reasonably make, amend or adopt, after Tenant receives a copy thereof.
15.10 CAPTIONS. The captions in this Lease are inserted only as a matter
of convenience and for reference and they in no way define, limit, or describe
the scope of this Lease or the intent of any provision hereof.
15.11 NUMBER AND GENDER. All genders used in this Lease shall include the
other genders, the singular shall include the plural, and the plural shall
include the singular, whenever and as often as may be appropriate.
15.12 GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of the State of Texas.
15.13 INABILITY TO PERFORM. Notwithstanding Section 15.18 hereof, whenever
a period of time is herein prescribed for the taking of any action by Landlord,
Landlord shall not be liable or responsible for, and there shall be excluded
from the computation of such period of time, any delays due to strikes, riots,
acts of God, shortages of labor or materials, war, governmental laws,
regulations or restrictions, or any other cause whatsoever beyond the control of
Landlord, and such nonperformance or delay in performance by Landlord shall not
constitute a breach or default by Landlord under this Lease nor give rise to any
claim against Landlord for damages or constitute a total or partial eviction,
constructive or otherwise.
15.14 USE OF NAME. Tenant shall not, except to designate Tenant's business
address (and then only in a conventional manner and without emphasis or
display), use the name or mark "One Bridgepoint Office Square" for any purpose
whatsoever.
15.15 BROKER. Tenant represents and warrants that Tenant has dealt with,
and only with Charles Dixon and Volney Campbell, with CB Commercial, as
broker(s) in connection with this Lease and that, insofar as Tenant knows, no
other broker(s) negotiated this Lease or are
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entitled to any commission in connection herewith. Tenant shall indemnify and
hold harmless Landlord from and against all claims (and costs of defending
against and investigating such claims) of any other broker(s) or similar parties
claiming under Tenant in connection with this Lease.
15.16 MEMORANDUM OF LEASE. Without the prior written consent of Landlord
(which may be granted or withheld in Landlord's sole discretion), Tenant shall
not record this Lease or any memorandum or other instrument with respect to this
Lease.
15.17 ENTIRE AGREEMENT. This Lease, including all Exhibits attached hereto
(which Exhibits are hereby incorporated herein and shall constitute a portion
hereof), contains the entire agreement between Landlord and Tenant with respect
to the subject matter hereof. Tenant hereby acknowledges and agrees that neither
Landlord nor Landlord's agents or representatives have made any representations,
warranties, or promises with respect to the Project, the Premises, Landlord's
services, or any other matter or thing except as herein expressly set forth, and
no rights, easements, or licenses are acquired by Tenant by implication or
otherwise except as expressly set forth in this Lease. The taking of possession
of the Premises by Tenant shall be conclusive evidence, as against Tenant, that
Tenant accepts the Premises and the Project, and that same were in good and
satisfactory condition at the time such possession was so taken. Further, the
terms and provisions of this Lease shall not be construed against or in favor of
a party hereto merely because such party is the "Landlord" or the "Tenant"
hereunder or such party or its counsel is the draftsman of this Lease.
15.18 TIME OF ESSENCE. Time is of the essence of this Lease and each and
all of its provisions in which performance is a factor.
15.19 PARKING. Landlord agrees to provide to Tenant, in common with other
tenants in the Bridgepoint Buildings, the privilege to use one (1) unreserved
parking space per 279 rentable square feet contained in the Premises. Such
parking spaces shall be located in the either of the two parking garages located
on Lot 1, Hidden Valley, Phase B, Travis County, Texas, that serve One
Bridgepoint, Two Bridgepoint, Three Bridgepoint and Four Bridgepoint. In
addition, Tenant shall have a right of first refusal to lease sixty (60)
additional parking spaces at a cost of $50.00 per space per month. Tenant shall
comply with all traffic, security, safety and other rules and regulations
promulgated from time to time by Landlord. Tenant shall indemnify and hold
harmless Landlord from and against all claims, losses, liabilities, damages,
costs and expenses (including, but not limited to, attorneys' fees and court
costs) arising or alleged to arise out of Tenant's use of any such parking
spaces, whether or not caused or alleged to be caused by Landlord's negligence.
In the event any parking spaces are or become unavailable at any time or from
time to time throughout the Term, whether due to casualty or any other cause,
this Lease shall continue in full force and effect.
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15.20 TENANT TAXES. Tenant shall pay, or cause to be paid, before
delinquency, any and all taxes levied or assessed and which become payable
during the Term upon all of Tenant's leasehold improvements, equipment,
furniture, fixtures and personal property located in the Premises; except such
property which has been paid for by Landlord and is the standard of the
Building. Tenant shall have the right to timely contest any tax assessment.
15.21 ATTORNEY'S FEES. In the event Tenant defaults in the performance of
any of the terms, agreements or conditions contained in this Lease and Landlord
places the enforcement of this Lease, or any part thereof, or the collection of
any rent due or to become due hereunder, or recovery of the possession of the
Premises, in the hands of any attorney who files suit upon the same, the Tenant
shall pay the Landlord's reasonable attorney's fees.
15.22 LANDLORD ALTERATIONS OR MODIFICATIONS. Notwithstanding anything
herein to the contrary, Landlord expressly reserves the right in its sole
discretion to temporarily or permanently change the location of, close, block or
otherwise alter any entrances, corridors, skywalks, tunnels, doorways, or
walkways leading to or providing access to the Bridgepoint Buildings or any part
thereof or otherwise restrict the use of same provided such acts do not
unreasonably impair Tenant's access to the Premises. Landlord shall not incur
any liability whatsoever to Tenant as a consequence thereof and such acts shall
not be deemed to be a breach of any of Landlord's obligations hereunder.
Landlord agrees to exercise good faith in notifying Tenant within a reasonable
time in advance of any alterations, modification or other acts of Landlord under
this Section.
15.23 NAME CHANGE. Landlord and Tenant covenant and agree that Landlord
hereby reserves and shall have the right at any time and from time to time to
change the name of the Bridgepoint Buildings as Landlord may deem advisable, and
Landlord shall not incur any liability whatsoever to Tenant as a consequence
thereof.
15.24 SIGNS. Tenant acknowledges that the name of the Bridgepoint
Buildings shall always be as currently designated, or such other name determined
by Landlord. The Bridgepoint Buildings shall have exterior signs indicating such
respective names. However, Landlord and Tenant shall mutually agree to an
exterior sign on a monument on Three Bridgepoint identifying Tenant to be the
occupant of Three Bridgepoint. Tenant shall not, without Landlord's prior
written consent, which shall not be unreasonably withheld or delayed, place any
exterior sign on the Premises or the Project. The design and location of all
exterior signs shall be approved in writing by Landlord, must comply with the
all applicable sign ordinances of the City of Austin, or any other governmental
authority having jurisdiction over signs, and must comply with all restrictions
of the Hidden Valley Subdivision - Commercial Association. Prior to the Three
Bridgepoint Commencement Date, Tenant shall submit to landlord working drawings
of any and all proposed exterior signs. No exterior sign shall be installed
unless and until Landlord's written
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approval of such exterior sign and its location has been obtained by Tenant.
Tenant, at Tenant's sole cost and expense, shall maintain all such signs
installed by Tenant in good condition and in proper operating order at all
times. Tenant, at Tenant's sole cost and expense, shall repair or cause to be
repaired all damage done to any party of the Bridgepoint Buildings or the
Premises in connection with the installation, repair or removal of any signs.
Landlord shall have the right to temporarily remove any sign or signs in order
to make any repairs or alterations deemed reasonable and necessary by Landlord.
15.25 COMPLIANCE WITH LAWS. Landlord and Tenant agree to comply with all
applicable laws, ordinances, rules and regulations of any governmental authority
having jurisdiction over the Project, including, but not limited to, the
Americans With Disabilities Act.
15.26 LEASE GUARANTY. The obligations of the Tenant under this Lease are
guaranteed by Tenant's parent company, PENCOM SYSTEMS, INC., pursuant to the
terms of the Lease Guaranty attached hereto as Exhibit "J" attached hereto and
made a part hereof for all purposes.
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EXECUTED as of this 31st day of October, 1996.
LANDLORD:
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA
By: /s/James M. Grace
--------------------------------
Printed Name: James M. Grace
Title: Executive Vice President
Assistant Secretary
TENANT:
PSW TECHNOLOGIES, INC.
By: /s/[Illegible]
--------------------------------
Printed Name:
Title:
EXHIBITS:
EXHIBIT A: THREE BRIDGEPOINT FLOOR-PLANS
EXHIBIT B: ONE BRIDGEPOINT FLOOR-PLANS
EXHIBIT C: LEGAL DESCRIPTION
EXHIBIT D: TENANT IMPROVEMENTS
EXHIBIT E-1: THREE BRIDGEPOINT COMMENCEMENT DATE DECLARATION
EXHIBIT E-2: ONE BRIDGEPOINT COMMENCEMENT DATE DECLARATION
EXHIBIT F RENEWAL OPTION
EXHIBIT G: RIGHT OF FIRST REFUSAL
EXHIBIT H: CERTIFICATE OF THE SECRETARY OF TENANT
EXHIBIT I: RULES AND REGULATIONS
EXHIBIT J: LEASE GUARANTY
EXHIBIT K: CERTIFICATE OF SECRETARY OF GUARANTOR
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EXHIBIT A
TO LEASE BETWEEN INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA AS LANDLORD
AND PSW TECHNOLOGIES, INC., AS TENANT
THREE BRIDGEPOINT FLOOR-PLANS
INITIALED FOR IDENTIFICATION BY LANDLORD [Illegible] AND TENANT [Illegible]
A-1
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EXHIBIT B
TO LEASE BETWEEN INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA AS LANDLORD
AND PSW TECHNOLOGIES, INC., AS TENANT
ONE BRIDGEPOINT FLOOR-PLANS
INITIALED FOR IDENTIFICATION BY LANDLORD [Illegible] AND TENANT [Illegible]
B-1
<PAGE>
EXHIBIT C
TO LEASE BETWEEN INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA AS LANDLORD
AND PSW TECHNOLOGIES, INC., AS TENANT
LEGAL DESCRIPTION
ONE BRIDGEPOINT, TWO BRIDGEPOINT, THREE BRIDGEPOINT AND FOUR BRIDGEPOINT: Lot
One (1), HIDDEN VALLEY, PHASE B, a subdivision in Travis County, Texas,
according to the map or plat thereof, recorded in Volume 85, Page(s) 44D and 45A
of the Plat Records of Travis County, Texas.
FIVE BRIDGEPOINT: Lot Two (2), HIDDEN VALLEY, PHASE B, a subdivision in Travis
County, Texas, according to the map or plat thereof, recorded in Volume 84,
Page(s) 117D of the Plat Records of Travis County, Texas.
INITIALED FOR IDENTIFICATION BY LANDLORD [Illegible] AND TENANT [Illegible]
C-1
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EXHIBIT D
TO LEASE BETWEEN INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA AS LANDLORD
AND PSW TECHNOLOGIES, INC., AS TENANT
CONSTRUCTION OF BUILDING SHELL, TENANT IMPROVEMENTS
TENANT IMPROVEMENT ALLOWANCE AND ADDITIONAL
TENANT IMPROVEMENT ALLOWANCE
A. Three Bridgepoint Premises
1. Building Shell. Landlord shall, at its sole cost and expense,
construct the Building Shell for Three Bridgepoint. The Three Bridgepoint
Building Shell is specifically described in the Three Bridgepoint Shell Plans.
The Three Bridgepoint Building Shell includes the foundation, structural walls,
exterior facade, exterior glass, roof, mechanical equipment and systems,
electrical systems, plumbing systems, atrium, elevator shafts, cabs and lobbies,
rest rooms, corridors required by code for building access, and certain Three
Bridgepoint Building Shell finishes as set forth below. The Three Bridgepoint
Building Shell and Three Bridgepoint Building Shell finishes shall include the
following:
Floor: Exposed structural concrete slab.
Walls: The interior of exterior walls and partitions
separating tenant spaces from public spaces shall be
taped and floated, but not finished on the Tenant side.
Exposed concrete shear walls will exist where they
occur.
Columns: Columns containing building electrical and plumbing
risers shall have gypsum board furring enclosures, with
taped and floated finish. All other columns shall be
left exposed.
Ceiling: A 1" white 24" x 48" suspended grid installed
throughout the Three Bridgepoint Building.
Lighting: Lighting only in public areas, no lighting in Tenant
spaces.
Exit Corridors: Code required exit corridors.
Riser Sleeves: Sleeves will be provided at most interior columns for
use by Tenant for electrical/plumbing risers, or other
uses as necessary (refer to Three Bridgepoint Building
Shell Plans and Specifications for locations).
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Mechanical: VAV boxes sized to handle normal Tenant loads will be
positioned throughout the Three Bridgepoint Building
Shell. Diffusers will be provided at Three Bridgepoint
Building Shell Perimeter within the Tenant space.
Plumbing use Risers: There will be some water and wastewater risers
installed for tenant throughout the Three Bridgepoint
Building Shell (refer to Shell Plans for locations).
Doors: Doors and door hardware for doors that are visible from
public spaces shall be provided in accordance with the
specifications contained in the Three Bridgepoint Shell
Plans.
Electrical: Circuits will be provide throughout the Three
Bridgepoint Building Shell sized to handle normal
occupant loads with j-boxes. Two electrical rooms will
be provided on each floor.
Communications: One communications closet will be installed on each
floor for telephone service.
Emergency System: The base building emergency system will be provided.
Tenant will be responsible for code compliant life
safety system in Tenant Improvements.
Sprinklers: A code compliant sprinkler system will be installed in
the Three Bridgepoint Building Shell. Modifications to
the base system shall be by Tenant as part of Tenant
Improvements and shall be required to meet all codes.
Structural: The Three Bridgepoint Building Shell is designed for a
nominal live load of 50 psf along the Three Bridgepoint
Building Shell perimeter and a nominal live load of 80
psf in the Three Bridgepoint Building Shell interior.
Elevators: Two passenger and one service elevator will be provided
and finished.
2. Three Bridgepoint Tenant Improvements. Prior to the Three Bridgepoint
Commencement Date, Landlord shall, at its sole cost and expense (except as
limited below), construct the improvements desired by Tenant to complete the
Three Bridgepoint Premises for Tenant's occupancy ("Three Bridgepoint Tenant
Improvements"). The cost of the Three Bridgepoint Tenant Improvements shall be
advanced by Landlord for the benefit of Tenant, to be repaid by Tenant in the
form of Base Rent, but only to the extent that the aggregate cost of
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furnishing the Three Bridgepoint Tenant Improvements does not exceed $20.00 per
rentable square foot contained in Three Bridgepoint Premises (the "Three
Bridgepoint Tenant Improvement Allowance"). The Three Bridgepoint Tenant
Improvement Allowance shall include architectural, engineering and design work
in preparation of the Three Bridgepoint Tenant Improvement plans. Landlord shall
keep accurate books and records related to all costs, expenses or fees related
to the construction of the Three Bridgepoint Tenant Improvements.
3. Additional Tenant Improvement Allowance. As set forth in Section A2
above, the Three Bridgepoint Tenant Improvement Allowance is $20.00 per rentable
square foot for the Three Bridgepoint Premises. All costs incurred in the design
or construction of the Three Bridgepoint Tenant Improvements in excess of such
amounts shall be paid by Tenant. Notwithstanding the foregoing, in the event
Tenant requests additional allowances for moving expenses or additional Three
Bridgepoint Tenant Improvements in excess of the Three Bridgepoint Tenant
Improvement Allowance, Landlord will provide a reasonable increase in the Three
Bridgepoint Tenant Improvement Allowance, not to exceed an additional $10.00 per
rentable square foot in the Three Bridgepoint Premises ("Three Bridgepoint
Additional Tenant Improvement Allowance"); provided, however, the Three
Bridgepoint Additional Tenant Improvement Allowance, plus interest thereon at
the rate of ten percent (10%), shall be added to the Base Rent and amortized
over the Term of the Lease. If Tenant desires to request the Three Bridgepoint
Additional Tenant Improvement Allowance, Tenant shall give Landlord written
notice thereof. Once the total cost of the Three Bridgepoint Additional Tenant
Improvement Allowance is determined, Landlord shall calculate the revised Base
Rent and give Tenant written notice thereof. Upon completion of the Three
Bridgepoint Tenant Improvements and the issuance of a certificate of occupancy
for same by the City of Austin, Landlord shall provide to Tenant an accounting
of all costs, expenses and fees related to the construction of the Three
Bridgepoint Tenant Improvements. In the event the total cost of the Three
Bridgepoint Tenant Improvements exceeds the Three Bridgepoint Tenant Improvement
Allowance and the Three Bridgepoint Additional Tenant Improvement Allowance,
Tenant shall pay to Landlord the excess within thirty (30) days from the date
such accounting is delivered to Tenant. Tenant, at its expense, shall have the
right to examine all of the books and records of Landlord, Landlord's contractor
or the Architect in order to verify the total cost of the Three Bridgepoint
Tenant Improvements.
4. Building Standard. For purposes of this Lease, "Building Standard"
shall mean those improvements and other items as approved by Landlord as
standard for build out purposes on initial space and for expansion and
additional space in the Building. The improvements set forth as Building
Standard are part of the Three Bridgepoint Tenant Improvements and shall be
charged against the Three Bridgepoint Tenant Improvement Allowance. The
following shall apply unless otherwise specified in this Lease:
a. Ceiling System: 2' X 4" suspended lay-in acoustical ceiling.
Ceiling tile is regular edged and is cut to resemble 1' X 1'.
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b. HVAC System: A multi-zoned heating, ventilating, and air
conditioning system is provided with perimeter slot diffusers, light
fixture mounted supply troffers and ceiling mounted supply and return air
grilles. Main duct runs and mixing boxes are provided on each floor for
spin-in connections to supply points. Each zone is individually controlled
by a wall mounted thermostat. Landlord's central plant will provide heat
and conditioned air to each floor in quantities necessary to support
typical office use occupancy during ordinary business hours as set forth in
this Lease.
c. Window Wall: Window blinds in Landlord selected color will be
provided at each exterior window. Interior window blinds will be provided
to Tenant if they are determined by Landlord to be appropriate for the
project.
d. Public Restroom: Complete men's and women's restroom facilities
are provided on each floor. All restrooms meet current handicap
requirements.
e. Interior Partition: One (1) linear foot of latex flat painted
partition with rubber base per twelve (12) square feet of rentable area.
Measurement will be through door openings.
f. Demising Partitions: One-half (1/2) the total length of demising
partitions separating tenants on multi-tenant floors will be added to
interior partition footage.
g. Interior Doors: One (1) solid core wood veneer door with hollow
metal frame and latchset will be provided per three hundred (300) square
feet of rentable area.
h. Entry Doors: Front and rear entry doors will be provided with a
building standard lockset and closer. Two (2) keys will be supplied with
each lockset.
i. Light Fixtures: One (1) 2' X 4' parabolic lay-in fluorescent
light fixture will be provided for each ninety (90) square feet of rentable
area. Light fixtures are capable of receiving saddle type air troffer for
supply air or adjustable slots for return air.
j. Light Switches: One (1) single pole wall switch for lighting
control will be provided for each three hundred twenty five (325) square
feet of rentable area.
k. Duplex Outlets: One (1) 120 volt house circuited duplex wall
outlet will be provided for each one hundred twenty five (125) square feet
of rentable area.
l. Telephone Outlets: One (1) wall mounted telephone pull string
will be provided for each two hundred twenty (220) square feet of rentable
area.
m. Flooring: Building standard flooring will be 32 ounce carpet
glued directly to the concrete slab.
D-4
<PAGE>
Standard line VCT can be installed in lieu of carpet at no additional cost.
In order to ensure that the Landlord is able to maintain and monitor the
quality of the building construction, the design intent of the systems,
including warranties, guarantees, etc. and to further protect the unit prices
established for the Building Standard items, it shall be understood that all
Work will be performed by Landlord's contractor unless otherwise provided
herein. The cost of the Work shall include a charge of 5% of the total expenses
and costs otherwise chargeable for the Work, for Landlord's overhead (exclusive
of and in addition to the general contractor's overhead and profit), whether the
Work is performed by Landlord's contractor or others. It shall be understood
that all mechanical, structural, electrical, plumbing and fire sprinkler
engineering required to develop Tenant's improvements through modifications to
Building Standard requested by Tenant and approved by Landlord to accommodate
Tenant's layout will be done by the Landlord's engineers at Tenant's expense.
5. Three Bridgepoint Drawings. Landlord shall provide, in consultation
with Tenant, architectural construction drawings for the Three Bridgepoint
Tenant Improvements (hereinafter called "Three Bridgepoint Drawings"), the cost
of which will be applied against the Three Bridgepoint Tenant Improvement
Allowance. The Three Bridgepoint Drawings shall include partition and door
location drawings, telephone and electric drawings and reflect ceiling drawings,
and include any specifications required by Tenant including, but not limited to,
paint colors, finish details, and non-standard construction work to be performed
within the Three Bridgepoint Premises by Landlord's contractors. Tenant has
delivered to Landlord the completed Drawings for Three Bridgepoint. Landlord
will have mechanical (sprinkler, air conditioning, heating, electric and
plumbing) drawings prepared by Landlord's mechanical engineer or contractor
covering, and limited to, the mechanical elements of the work as shown on the
Three Bridgepoint Drawings as the work relates specifically to Building Standard
installations as set forth in Section A4 above. The cost of the Three
Bridgepoint Drawings relating to the Three Bridgepoint Tenant Improvements shall
be paid by Tenant and shall be part of the Three Bridgepoint Tenant Improvements
Allowance.
6. Turn-Key Project. Landlord and Tenant acknowledge and agree that the
design and construction of the Three Bridgepoint Tenant Improvements shall be a
"turn-key" project, which means that the total cost of the design and
construction of the Three Bridgepoint Tenant Improvements shall be a fixed cost,
approved by Landlord, Tenant and Landlord's contractor, Constructors, Inc.
("Constructors") and shall be subject to a fixed price contract between Landlord
and Constructors, except for change orders either requested by Tenant or as a
result of inadequacies in the Three Bridgepoint Drawings. Once the Three
Bridgepoint Drawings have been completed, Landlord will obtain a bid from
Constructors for the construction of the Three Bridgepoint Tenant Improvements
and Landlord will provide Tenant with a copy of the Constructors bid. If Tenant
is not satisfied with the Constructors bid, Tenant shall have the right to
delete various options set forth in the Three Bridgepoint Drawings to reduce the
total cost of the Three Bridgepoint Tenant Improvements. Once Landlord, Tenant
and Constructors have agreed on the final Three Bridgepoint Drawings and the
final cost of the Three Bridgepoint Tenant
D-5
<PAGE>
Improvements, Landlord will enter into a fixed price construction contract (the
"Three Bridgepoint TI Construction Contract") with Constructors for the
construction of the Three Bridgepoint Tenant Improvements. The total cost of the
Three Bridgepoint Tenant Improvements (the "Total Three Bridgepoint TI Cost")
shall be (i) the amount reflected in the Three Bridgepoint TI Construction
Contract, which amount shall have been approved by Tenant (the "Three
Bridgepoint Construction Cost") and (ii) the total cost incurred in connection
the preparation of the Three Bridgepoint Drawings, including all design and
architectural fees and costs (the "Three Bridgepoint Drawings Cost"). Total
Three Bridgepoint TI Cost shall not include the cost of any change orders either
requested by Tenant after the execution of the Three Bridgepoint TI
Construction Contract or caused by any inadequacies in the Three Bridgepoint
Drawings. The Total Three Bridgepoint TI Cost shall be allocated between the
Three Bridgepoint Tenant Improvement Allowance as set forth in Section A2 above,
the Three Bridgepoint Additional Tenant Improvement Allowance as set forth in
Section A3 above, and any amounts in excess the Three Bridgepoint Additional
Tenant Improvement Allowance as set forth in Section A3 above. Any change orders
requested by Tenant after the execution of the Three Bridgepoint TI Construction
Contract shall be at the sole cost and expense of Tenant and shall not be
included in either the Three Bridgepoint Tenant Improvement Allowance or the
Three Bridgepoint Additional Tenant Improvement Allowance.
7. Schedule. In order for the Three Bridgepoint Premises to be completed
by the Three Bridgepoint Commencement Date, Landlord and Tenant acknowledge and
agree that it is imperative that the parties adhere to the following schedule:
October 31, 1996 - Three Bridgepoint Drawings, including mechanical,
electrical and plumbing plans and specifications, all
in a form and content suitable for construction
bidding, must be completed and delivered to
Constructors for bidding. The Three Bridgepoint
Drawings should include approximately ten optional
items, one or more of which could be deleted if the
Three Bridgepoint Construction Cost bid exceeds an
amount acceptable to Tenant.
November 4, 1996 - Constructors will provide the Three Bridgepoint
Construction Cost bid to Tenant based on the Three
Bridgepoint Drawings.
November 6, 1996 - By midnight on November 6, 1996, Tenant must approve a
final Three Bridgepoint Construction Cost, based on the
Three Bridgepoint Construction Cost bid submitted by
Constructors, as adjusted, negotiated and finally
approved, based on the Three Bridgepoint Drawings, less
any optional items deleted in order to obtain an
acceptable Three Bridgepoint Construction Cost.
November 7, 1996 - Landlord and Constructors execute the Three Bridgepoint
Construction Contract which contains the final approved
Three Bridgepoint Construction Cost which has been
approved by Tenant.
D-6
<PAGE>
If the Three Bridgepoint Construction Cost is not finally approved by midnight
on November 6, 1996, the Three Bridgepoint Commencement Date as set forth in
Section 2.02 of the Lease shall be automatically extended for the number of days
between November 6, 1996 and the day the Tenant approves the Three Bridgepoint
Construction Cost. The Three Bridgepoint Commencement Date shall also be
extended by the number of days necessary to accomplish any change orders either
requested by Tenant or as a result of any inadequacies in the Three Bridgepoint
Drawings.
8. Punch List. Tenant shall have the right to designate to Landlord those
items of incomplete or erroneous construction of the Three Bridgepoint Tenant
Improvements in a written "punch list" to be submitted by Tenant to Landlord
within ten (10) days after the Landlord tenders possession of the Three
Bridgepoint Premises to Tenant. Landlord shall use diligent effort to complete
or correct any incomplete or erroneous construction items not less than thirty
(30) days after the delivery of the "punch list" to Landlord.
9. Extra Work. Except as set forth above, Landlord has no other agreement
with Tenant and has no other obligation to do any other work with respect to the
Three Bridgepoint Premises. Any other work in the Three Bridgepoint Premises
that may be permitted by Landlord pursuant to the terms and conditions of this
Lease shall be done at Tenant's sole cost and expense and in accordance with
said terms and conditions. If Landlord agrees to perform, at Tenant's request
and upon submission by Tenant (at Tenant's sole cost and expense) of all
necessary drawings, plans and specifications (the "Extra Work Drawings"), any
other work in addition to the Work (the "Extra Work"), such Extra Work will be
done at Tenant's sole cost and expense. Landlord shall submit to Tenant written
estimates of the cost of Extra Work. Such estimate shall include a charge of 15%
of the total expenses and costs otherwise chargeable for the Extra Work, for
Landlord's overhead (exclusive of and in addition to the general contractor's
overhead and profit), whether the Extra Work is to be performed by Landlord or
others. If Tenant shall fail to approve said estimates within seven (7) days
from the receipt thereof, the same shall be deemed disapproved in all respects
by Tenant and Landlord shall not be authorized to proceed thereon. Upon
Landlord's approval of the Extra Work Drawings, Tenant agrees to pay 50% of the
cost of the Extra Work to Landlord and the balance of the cost upon being billed
therefor by Landlord at any time and from time to time thereafter. Landlord
shall not be liable for any damages, nor shall the applicable Commencement Date
be delayed, nor any Rent abated, as a result of the construction or performance
of any Extra Work or any delay in such construction or performance.
10. Tenant's Right of Entry Prior to Occupancy. Landlord, at Landlord's
discretion, may permit Tenant and Tenant's agents to enter the Three Bridgepoint
Premises prior to the Three Bridgepoint Commencement Date in order that Tenant
may do such other work as may be required by Tenant to make the Three
Bridgepoint Premises ready for Tenant's use and occupancy thereof. If Landlord
permits such entry prior to commencement of the Term, then such permission is
conditioned upon Tenant and Tenant's agents, contractors, workmen, mechanics,
suppliers and invitees, working in harmony and not interfering with Landlord and
Landlord's agents in doing Landlord's work in the Three Bridgepoint Premises or
for other tenants and occupants of the
D-7
<PAGE>
Three Bridgepoint Building. If at any time such entry shall cause or threaten to
cause such disharmony or interference, Landlord shall have the right to withdraw
such permission upon twenty-four (24) hours written notice to Tenant. Tenant
agrees that any such entry into and occupation of the Three Bridgepoint Premises
shall be deemed to be under all of the terms, covenants, conditions and
provisions of this Lease except as to the covenant to pay Rent, and further
agrees Landlord shall not be liable in any way for any injury, loss or damage
that may occur to any of Tenant's work and installations made in the Three
Bridgepoint Premises or to properties placed therein prior to the Three
Bridgepoint Commencement Date, the same being at Tenant's sole risk.
11. Default. Tenant agrees that in the event Tenant shall have:
(a) failed, by the time set forth in Section A7, to furnish to
Landlord any and all necessary information to prepare the Three Bridgepoint
Drawings, or
(b) failed to approve the mechanical drawings and/or cost estimate
and make the payment as described in Section A7 hereof within the time
specified therein, or
(c) ordered or requested materials, finishes or installations other
than Building Standard, or
(d) caused changes to be made in the Three Bridgepoint Drawings after
they have been prepared by Landlord or in the mechanical drawings and/or
specifications thereof or work or improvements required thereby
(notwithstanding Landlord's approval of such changes), or
(e) failed to perform timely any work to be performed by Tenant, or
any person, firm or corporation employed by Tenant, or
(f) directly, or indirectly through any person, firm or corporation
employed by Tenant, unreasonably interfered with or delayed the work of
Landlord's contractor, or
(g) caused any delay in Landlord's completion of the Three
Bridgepoint Premises through any fault or negligence of Tenant or its
agents,
thereby delaying Tenant's occupancy of the Three Bridgepoint Premises, Tenant
shall commence payment of Rent on the Three Bridgepoint Commencement Date
specified in Section 2.02 of this Lease.
D-8
<PAGE>
B. One Bridgepoint Premises
1. One Bridgepoint Building Shell. Tenant acknowledge and agrees that the
One Bridgepoint Building was constructed prior to Landlord acquiring the
Project. The One Bridgepoint Building Shell will not be modified by Landlord,
and Tenant accepts same "AS IS".
2. One Bridgepoint Tenant Improvements. Prior to the One Bridgepoint
Commencement Date, Landlord shall, at its sole cost and expense (except as
limited below), construct the improvements desired by Tenant to complete the One
Bridgepoint Premises for Tenant's occupancy ("One Bridgepoint Tenant
Improvements"). The cost of the One Bridgepoint Tenant Improvements shall be
advanced by Landlord for the benefit of Tenant, to be repaid by Tenant in the
form of Base Rent, but only to the extent that the aggregate cost of furnishing
the One Bridgepoint Tenant Improvements does not exceed $7.50 per rentable
square foot contained in One Bridgepoint Premises (the "One Bridgepoint Tenant
Improvement Allowance"). The One Bridgepoint Tenant Improvement Allowance shall
include architectural, engineering and design work in preparation of the One
Bridgepoint Tenant Improvement plans. Landlord shall keep accurate books and
records related to all costs, expenses or fees related to the construction of
the One Bridgepoint Tenant Improvements.
3. Additional Tenant Improvement Allowance. As set forth in Section B2
above, the One Bridgepoint Tenant Improvement Allowance is $7.50 per rentable
square foot for the One Bridgepoint Premises. All costs incurred in the design
or construction of the One Bridgepoint Tenant Improvements in excess of such
amounts shall be paid by Tenant. Notwithstanding the foregoing, in the event
Tenant requests additional allowances for moving expenses or additional One
Bridgepoint Tenant Improvements in excess of the One Bridgepoint Tenant
Improvement Allowance, Landlord will provide a reasonable increase in the One
Bridgepoint Tenant Improvement Allowance, not to exceed an additional $3.00 per
rentable square foot in the One Bridgepoint Premises ("One Bridgepoint
Additional Tenant Improvement Allowance"); provided, however, the One
Bridgepoint Additional Tenant Improvement Allowance, plus interest thereon at
the rate of ten percent (10%), shall be added to the Base Rent and amortized
over the Term of the Lease. If Tenant desires to request the One Bridgepoint
Additional Tenant Improvement Allowance, Tenant shall give Landlord written
notice thereof. Once the total cost of the One Bridgepoint Additional Tenant
Improvement Allowance is determined, Landlord shall calculate the revised Base
Rent and give Tenant written notice thereof. Upon completion of the One
Bridgepoint Tenant Improvements and the issuance of a certificate of occupancy
for same by the City of Austin, Landlord shall provide to Tenant an accounting
of all costs, expenses and fees related to the construction of the One
Bridgepoint Tenant Improvements. In the event the total cost of the One
Bridgepoint Tenant Improvements exceeds the One Bridgepoint Tenant Improvement
Allowance and the One Bridgepoint Additional Tenant Improvement Allowance,
Tenant shall pay to Landlord the excess within thirty (30) days from the date
such accounting is delivered to Tenant. Tenant, at its expense, shall have the
right to examine all of the books and records of Landlord, Landlord's contractor
or the Architect in order to verify the total cost of the One Bridgepoint Tenant
Improvements.
D-9
<PAGE>
4. One Bridgepoint Drawings. Landlord shall provide, in consultation with
Tenant, architectural construction drawings for the One Bridgepoint Tenant
Improvements (hereinafter called "One Bridgepoint Drawings"), the cost of which
will be applied against the One Bridgepoint Tenant Improvement Allowance. The
One Bridgepoint Drawings shall include partition and door location drawings,
telephone and electric drawings and reflect ceiling drawings, and include any
specifications required by Tenant including, but not limited to, paint colors,
finish details, Building Standard and any non-standard construction work to be
performed within the One Bridgepoint Premises by Landlord's contractors. Tenant
covenants and agrees to deliver to Landlord all information necessary to cause
the One Bridgepoint Drawings to be completed by December 15, 1997. The cost of
the One Bridgepoint Drawings shall be paid by Tenant shall be paid by Tenant and
shall be part of the One Bridgepoint Tenant Improvements Allocance.
5. Turn-Key Project. Landlord and Tenant acknowledge and agree that the
design and construction of the One Bridgepoint Tenant Improvements shall be a
"turn-key" project, which means that the total cost of the design and
construction of the One Bridgepoint Tenant Improvements shall be a fixed cost,
approved by Landlord, Tenant and Landlord's contractor ("Contractor"), and shall
be subject to a fixed price contract between Landlord and Contractor, except for
change orders either requested by Tenant or as a result of inadequacies in the
One Bridgepoint Drawings. Once the One Bridgepoint Drawings have been completed,
Landlord will obtain a bid from Contractor for the construction of the One
Bridgepoint Tenant Improvements and Landlord will provide Tenant with a copy of
the Contractor's bid. If Tenant is not satisfied with the Contractor's bid,
Tenant shall have the right to delete various options set forth in the One
Bridgepoint Drawings to reduce the total cost of the One Bridgepoint Tenant
Improvements. Once Landlord, Tenant and Contractor have agreed on the final One
Bridgepoint Drawings and the final cost of the One Bridgepoint Tenant
Improvements, Landlord will enter into a fixed price construction contract (the
"One Bridgepoint TI Construction Contract") with Contractor for the construction
of the One Bridgepoint Tenant Improvements. The total cost of the One
Bridgepoint Tenant Improvements (the "Total One Bridgepoint TI Cost") shall be
(i) the amount reflected in the One Bridgepoint TI Construction Contract, which
amount shall have been approved by Tenant (the "One Bridgepoint Construction
Cost") and (ii) the total cost incurred in connection the preparation of the One
Bridgepoint Drawings, including all design and architectural fees and costs (the
"One Bridgepoint Drawings Cost"). Total One Bridgepoint TI Cost shall not
include the cost of any change orders either requested by Tenant after the
execution of the One Bridgepoint TI Construction Contract or caused by any
inadequacies in the One Bridgepoint Drawings. The Total One Bridgepoint TI Cost
shall be allocated between the One Bridgepoint Tenant Improvement Allowance as
set forth in Section B2 above, the One Bridgepoint Additional Tenant Improvement
Allowance as set forth in Section B3 above, and any amounts in excess the One
Bridgepoint Additional Tenant Improvement Allowance as set forth in Section B3
above. Any change orders requested by Tenant after the execution of the One
Bridgepoint TI Construction Contract shall be at the sole cost and expense of
Tenant and shall not be included in either the One Bridgepoint Tenant
Improvement Allowance or the One Bridgepoint Additional Tenant Improvement
Allowance.
D-10
<PAGE>
6. Schedule. In order for the One Bridgepoint Premises to be completed
by the One Bridgepoint Commencement Date, Landlord and Tenant acknowledge and
agree that it is imperative that the parties adhere to the following schedule:
December 15, 1997 - One Bridgepoint Drawings, including mechanical,
electrical and plumbing plans and specifications, all
in a form and content suitable for construction
bidding, must be completed and delivered to Contractor
for bidding. The One Bridgepoint Drawings should
include approximately ten optional items, one or more
of which could be deleted if the One Bridgepoint
Construction Cost bid exceeds an amount acceptable to
Tenant.
January 2, 1998 - Contractor will provide the One Bridgepoint
Construction Cost bid to Tenant based on the One
Bridgepoint Drawings.
January 10, 1998 - Tenant must approve a final One Bridgepoint
Construction Cost, based on the One Bridgepoint
Construction Cost bid submitted by Contractor, as
adjusted, negotiated and finally approved, based on the
One Bridgepoint Drawings, less any optional items
deleted in order to obtain an acceptable One
Bridgepoint Construction Cost.
January 11, 1998 - Landlord and Contractor execute the One Bridgepoint
Construction Contract which contains the final approved
One Bridgepoint Construction Cost which has been
approved by Tenant. Construction will commence within
three (3) business days after National Instruments
vacates the One Bridgepoint Premises.
If the One Bridgepoint Construction Cost is not finally approved by the date
National Instruments vacates the One Bridgepoint Premises, the One Bridgepoint
Commencement Date as set forth in Section 2.02 of the Lease shall be
automatically extended for the number of days between the date National
Instruments vacates the One Bridgepoint Premises and the day the Tenant approves
the One Bridgepoint Construction Cost.
7. Punch List. Tenant shall have the right to designate to Landlord
those items of incomplete or erroneous construction of the One Bridgepoint
Tenant Improvements in a written "punch list" to be submitted by Tenant to
Landlord within ten (10) days after the Landlord tenders possession of the One
Bridgepoint Premises to Tenant. Landlord shall use diligent effort to complete
or correct any incomplete or erroneous construction items not less than thirty
(30) days after the delivery of the "punch list" to Landlord.
D-11
<PAGE>
8. Extra Work. Except as set forth above, Landlord has no other agreement
with Tenant and has no other obligation to do any other work with respect to the
One Bridgepoint Premises. Any other work in the One Bridgepoint Premises that
may be permitted by Landlord pursuant to the terms and conditions of this Lease
shall be done at Tenant's sole cost and expense and in accordance with said
terms and conditions. If Landlord agrees to perform, at Tenant's request and
upon submission by Tenant (at Tenant's sole cost and expense) of all necessary
drawings, plans and specifications (the "Extra Work Drawings"), any other work
in addition to the Work (the "Extra Work"), such Extra Work will be done at
Tenant's sole cost and expense. Landlord shall submit to Tenant written
estimates of the cost of Extra Work. Such estimate shall include a charge of 15%
of the total expenses and costs otherwise chargeable for the Extra Work, for
Landlord's overhead (exclusive of and in addition to the general contractor's
overhead and profit), whether the Extra Work is to be performed by Landlord or
others. If Tenant shall fail to approve said estimates within seven (7) days
from the receipt thereof, the same shall be deemed disapproved in all respects
by Tenant and Landlord shall not be authorized to proceed thereon. Upon
Landlord's approval of the Extra Work Drawings, Tenant agrees to pay 50% of the
cost of the Extra Work to Landlord and the balance of the cost upon being billed
therefor by Landlord at any time and from time to time thereafter. Landlord
shall not be liable for any damages, nor shall the applicable Commencement Date
be delayed, nor any Rent abated, as a result of the construction or performance
of any Extra Work or any delay in such construction or performance.
9. Tenant's Right of Entry Prior to Occupancy. Landlord, at Landlord's
discretion, may permit Tenant and Tenant's agents to enter the One Bridgepoint
Premises prior to the One Bridgepoint Commencement Date in order that Tenant may
do such other work as may be required by Tenant to make the One Bridgepoint
Premises ready for Tenant's use and occupancy thereof. If Landlord permits such
entry prior to commencement of the Term, then such permission is conditioned
upon Tenant and Tenant's agents, contractors, workmen, mechanics, suppliers and
invitees, working in harmony and not interfering with Landlord and Landlord's
agents in doing Landlord's work in the One Bridgepoint Premises or for other
tenants and occupants of the One Bridgepoint Building. If at any time such entry
shall cause or threaten to cause such disharmony or interference, Landlord shall
have the right to withdraw such permission upon twenty-four (24) hours written
notice to Tenant. Tenant agrees that any such entry into and occupation of the
One Bridgepoint Premises shall be deemed to be under all of the terms,
covenants, conditions and provisions of this Lease except as to the covenant to
pay Rent, and further agrees Landlord shall not be liable in any way for any
injury, loss or damage that may occur to any of Tenant's work and installations
made in the One Bridgepoint Premises or to properties placed therein prior to
the One Bridgepoint Commencement Date, the same being at Tenant's sole risk.
10. Default. Tenant agrees that in the event Tenant shall have:
(a) failed, by the time set forth in Section B6, to furnish to
Landlord any and all necessary information to prepare the One Bridgepoint
Drawings, or
D-12
<PAGE>
(b) failed to approve the mechanical drawings and/or cost estimate
and make the payment as described in Section B6 hereof within the time
specified therein, or
(c) ordered or requested materials, finishes or installations other
than Building Standard, or
(d) caused changes to be made in the One Bridgepoint Drawings after
they have been prepared by Landlord or in the mechanical drawings and/or
specifications thereof or work or improvements required thereby
(notwithstanding Landlord's approval of such changes), or
(e) failed to perform timely any work to be performed by Tenant, or
any person, firm or corporation employed by Tenant, or
(f) directly, or indirectly through any person, firm or corporation
employed by Tenant, unreasonably interfered with or delayed the work of
Landlord's contractor, or
(g) caused any delay in Landlord's completion of the One Bridgepoint
Premises through any fault or negligence of Tenant or its agents,
thereby delaying Tenant's occupancy of the One Bridgepoint Premises, Tenant
shall commence payment of Rent on the One Bridgepoint Commencement Date
specified in Section 2.02 of this Lease.
INITIALED FOR IDENTIFICATION BY LANDLORD [Illegible] AND TENANT [Illegible]
D-13
<PAGE>
EXHIBIT E-1
TO LEASE BETWEEN INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA AS LANDLORD
AND PSW TECHNOLOGIES, INC., AS TENANT
COMMENCEMENT DATE DECLARATION
THREE BRIDGEPOINT PREMISES
This declaration is executed with respect to that certain Lease Agreement
(the "Lease") dated _______________, 19___ by and between Investors Life
Insurance Company of North America, a Washington corporation ("Landlord"), and
PSW Technologies, Inc., a __________ corporation ("Tenant"), covering
approximately 37,751 rentable square feet ("Three Bridgepoint Premises") located
on floors one, two and three in Three Bridgepoint Square ("Three Bridgepoint"),
located at 6300 Bridgepoint Parkway, Building Three, Austin, Travis County,
Texas. Capitalized terms used but not defined herein shall have the meanings
given to them in the Lease.
By their respective execution below, Landlord and Tenant each hereby
stipulates and agrees that:
(1) The Three Bridgepoint Commencement Date (as defined in Section 2.02 of
the Lease) occurred on _________, 19___ and the Expiration Date is
December 31, 2003.
(2) The Premises contain 37,751 rentable square feet.
(3) Tenant's Pro Rata Share for purposes of calculating rental adjustments
based on payment of Operating Expenses is ____________%.
(4) Base Rent is ______________ per year payable in equal monthly
installments of ____________ starting on _____________, with the
following adjustments, if any.
(5) All construction work per the Drawings is complete with the exceptions
outlined in the attached "punch list". Landlord agrees to remedy the
items on the punch list within ______ (______)days of the date hereof.
This declaration may be relied upon by any person having or acquiring an
interest in the Lease or the Building, without notice to or consent of Landlord
or Tenant.
E-1-1
<PAGE>
EXECUTED on this ____________ day of _____________, 19___.
LANDLORD:
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA
By: _________________________________
Printed Name: _______________________
Title: ______________________________
TENANT:
PSW TECHNOLOGIES, INC.
By: _________________________________
Printed Name: _______________________
Title: ______________________________
INITIALED FOR IDENTIFICATION BY LANDLORD [Illegible] AND TENANT [Illegible]
E-1-2
<PAGE>
EXHIBIT E-2
TO LEASE BETWEEN INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA AS LANDLORD
AND PSW TECHNOLOGIES, INC., AS TENANT
COMMENCEMENT DATE DECLARATION
ONE BRIDGEPOINT PREMISES
This declaration is executed with respect to that certain Lease Agreement
(the "Lease") dated ________________, 19___ by and between Investors Life
Insurance Company of North America, a Washington corporation ("Landlord"), and
PSW Technologies, Inc., a __________ corporation ("Tenant"), covering
approximately 10,000 rentable square feet ("One Bridgepoint Premises") located
on floors ________ in One Bridgepoint Square ("One Bridgepoint"), located at
6300 Bridgepoint Parkway, Building One, Austin, Travis County, Texas.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Lease.
By their respective execution below, Landlord and Tenant each hereby
stipulates and agrees that:
(1) The One Bridgepoint Commencement Date (as defined in Section 2.02 of
the Lease) occurred on ________, 19___ and the Expiration Date is
December 31, 2003.
(2) The Premises contain 10,000 rentable square feet.
(3) Tenant's Pro Rata Share for purposes of calculating rental adjustments
based on payment of Operating Expenses is ____________%.
(4) Base Rent is ________________ per year payable in equal monthly
installments of ____________ starting on ____________, with the
following adjustments, if any.
(5) All construction work per the Drawings is complete with the exceptions
outlined in the attached "punch list". Landlord agrees to remedy the
items on the punch list within _______ (____) days of the date hereof.
This declaration may be relied upon by any person having or acquiring an
interest in the Lease or the Building, without notice to or consent of Landlord
or Tenant.
E-2-1
<PAGE>
EXECUTED on this ____________ day of _____________, 19___.
LANDLORD:
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA
By: _________________________________
Printed Name: _______________________
Title: ______________________________
TENANT:
PSW TECHNOLOGIES, INC.
By: _________________________________
Printed Name: _______________________
Title: ______________________________
INITIALED FOR IDENTIFICATION BY LANDLORD [Illegible] AND TENANT [Illegible]
E-2-2
<PAGE>
EXHIBIT F
TO LEASE BETWEEN INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA AS LANDLORD
AND PSW TECHNOLOGIES, INC., AS TENANT
RENEWAL OPTION
Provided that a Default by Tenant has not occurred and is continuing,
Tenant shall have the right to renew and extend this Lease with respect to all
of the Premises for one (1) renewal term of five (5) years commencing upon the
expiration of the initial Term by giving Landlord written notice thereof at
least one (1) year prior to the expiration of the initial Term. In the event of
such renewal, the "Term" shall include such renewal term and such renewal shall
be upon the same provisions as for the initial Term except that:
1. Tenant shall pay during the renewal term Base Rent to Landlord in
monthly installments in an amount equal to ninety-five percent (95%) the then
prevailing market rate for comparable space in first-class office buildings in
comparable locations in Austin, Texas as of the commencement of the renewal term
(the "Market Rate") as designated by Landlord within thirty (30) days after
Landlord receives Tenant's renewal notice; provided, however, the Base Rent for
the first two years of the renewal term shall be $23.25 per rentable square
foot. In addition, during such renewal term, Tenant shall pay all other Rent and
other amounts due under this Lease, including without limitation all rental
adjustments pursuant to Article 3 of this Lease, provided that any expense caps
or similar limitations shall not be renewed or carried forward unless the Market
Rate contemplates that such limitations be continued during the renewal term. If
Tenant not does agree with Landlord's designation of Market Rate for purposes of
computing Base Rent or other Rent for the renewal term, then Tenant may either
(i) withdraw its election to renew, or (ii) request arbitration of such Market
Rate in accordance with the following procedure. Landlord and Tenant each shall
select one qualified (MAI) appraiser and inform the other as to its selection
within five (5) business days after the date Tenant receives Landlord's
designation of Market Rate (the "Designation Date"). Those two appraisers shall
select a third qualified (MAI) appraiser within five (5) business days after the
Designation Date. In order to be "qualified," each of said appraisers shall have
at least three (3) years of experience appraising leasehold interests under
commercial leases in downtown Austin, Texas. Landlord and Tenant shall each bear
the cost of its appraiser and one-half (1/2) of the cost of the third appraiser.
Said three appraisers shall determine the Market Rate in accordance with the
parameters set forth herein by mutual agreement within thirty (30) business days
after the Designation Date. If all of said appraisers fail to agree on the
Market Rate within thirty (30) business days after the Designation Date, but two
of said appraisers can so agree, then the Market Rate as determined by such two
appraisers shall be controlling. If none of said appraisers can agree on the
Market Rate within such time period, then
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an average shall be taken of the two closest determinations thereof and such
average shall be controlling (except that if the median of the three rates
provided by the appraisers is also the average of the three, it shall be
controlling). Tenant shall have fifteen (15) days to accept or reject in writing
the Market Rate as determined by said arbitration procedure. If such Market Rate
is not agreed to by Tenant as determined by said arbitration procedure on or
before the end of said fifteen (15) day period, then Tenant shall pay all of
Landlord's costs associated with obtaining the aforementioned appraisals and the
exercise of the applicable option to renew and all rights of Landlord and Tenant
under this option to renew shall immediately terminate and all terms and
conditions of this option to renew shall be of no further force and effect.
Except as noted above in case of a failure to agree on Market Rate, Tenant may
not revoke its election to renew after such election has been made.
2. Landlord shall not be obligated to make any alterations or
improvements to the Premises.
3. Tenant shall have no further right to renew this Lease.
INITIALED FOR IDENTIFICATION BY LANDLORD [Illegible] AND TENANT [Illegible]
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EXHIBIT G
TO LEASE BETWEEN INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA, AS LANDLORD,
AND PSW TECHNOLOGIES, INC., AS TENANT
RIGHT OF FIRST REFUSAL
1. National Instruments Refusal Space. Landlord hereby grants to Tenant a
right of first refusal exercisable as hereinafter set forth, covering
approximately 10,000 rental square feet of area in One Bridgepoint, same being
the remaining space in One Bridgepoint occupied by National Instruments, Inc.
more particularly described on Exhibit "B" (the "National Instruments Refusal
Space"). Tenant acknowledges that National Instruments has the existing right
under its lease to renew its existing lease for the National Instruments Refusal
Space. In the event National Instruments exercises its renewal option, this
right of first refusal on the National Instruments Refusal Space shall terminate
and be of no further force and effect. In the event National Instruments does
not exercise its option to renew its lease on the National Instruments Refusal
Space, then Tenant's right of first refusal shall be as follows:
(a) Prior to leasing any portion of the National Instruments Refusal Space
to any third party, Landlord shall notify the Tenant in writing of the
availability of the National Instruments Refusal Space and the date
upon which the Refusal Space is expected to be made available to
Tenant (the "Notice"). Tenant may exercise the right of first refusal
and include the National Instruments Refusal Space under this Lease,
upon the terms and conditions of this Lease, including the Base Rent,
by delivering to Landlord written notice of Tenant's election on or
before the fifth (5th) calendar day after the date of Tenant's receipt
of the Notice.
(b) In the event Landlord does not receive notice of Tenant's election to
lease the National Instruments Refusal Space described in the Notice
within the period provided herein, then Landlord shall be free to
lease such space to one or more third parties.
(c) All National Instruments Refusal Space leased pursuant to the Right of
First Refusal shall be for a term which is coterminous with the
initial Term and any renewal or extension thereof.
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(d) The term Premises, as used in this Lease, shall include all expansions
thereof that may occur from time to time pursuant to this right of
first refusal.
(e) In the event Tenant exercises the right of first refusal pursuant to
the terms hereof, Landlord shall do the work necessary to furnish and
install within the National Instruments Refusal Space, in accordance
with drawings to be prepared by Tenant and approved in writing by
Landlord, the Building Standard tenant improvements and other
additional tenant improvements provided for in the drawings. The cost
of the work shall be advanced by Landlord for the benefit of Tenant,
to be repaid by Tenant in the form of Base Rent, but only to the
extent that the aggregate cost of furnishing the Building Standard
improvements and such additional improvements provided for in the
drawings does not exceed $7.50 per rentable square foot leased, less
an amount, rounded up or down to the nearest cent, equal to (X) $7.50
per rentable square foot leased, times (Y) seventy-one (71) minus the
number of months remaining in the Term (excluding all renewals, unless
such renewals have been unrevocably exercised by Tenant).
(f) Upon the exercise of the refusal option pursuant to the terms hereof,
Landlord and Tenant shall execute, at the request of either, an
instrument delineating and describing the National Instruments Refusal
Space added thereby.
2. One Bridgepoint Refusal Space. Landlord hereby grants to Tenant a
right of first refusal exercisable as hereinafter set forth, covering the
remainder of One Bridgepoint that is contiguous to the One Bridgepoint Premises
(the "One Bridgepoint Refusal Space"). All rights of Tenant to lease the One
Bridgepoint Refusal Space pursuant to the right of first refusal shall be
applicable to the entire One Bridgepoint Refusal Space or to any portion thereof
which may become available from time to time. The right of first refusal shall
be as follows:
(a) Prior to leasing any portion of the One Bridgepoint Refusal Space to
any third party (except for renewals of existing leases held by
tenants occupying the Refusal Space under leases effective as of the
Commencement Date), Landlord shall notify the Tenant in writing of the
availability of such portion of the One Bridgepoint Refusal Space and
the date upon which such portion of the One Bridgepoint Refusal Space
is expected to be made available to Tenant (the "Notice"). Tenant may
exercise the right of first refusal and include such portion of the
One Bridgepoint Refusal Space
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under this Lease, upon the terms and conditions of this Lease,
including, but not limited to, the Base Rent, by delivering to
Landlord written notice of Tenant's election on or before the fifth
(5th) calendar day after the date of Tenant's receipt of the Notice.
(b) In the event Landlord does not receive notice of Tenant's election to
lease such portion of the One Bridgepoint Refusal Space described in
the Notice within the period provided herein, then Landlord shall be
free to lease such space to one or more third parties.
(c) All One Bridgepoint Refusal Space leased pursuant to the right of
first refusal shall be for a term which is coterminous with the
initial Term and any renewal or extension thereof.
(d) The term Premises, as used in this Lease, shall include all expansions
thereof that may occur from time to time pursuant to this right of
first refusal.
(e) In the event Tenant exercises the right of first refusal pursuant to
the terms hereof, Landlord shall do the work necessary to furnish and
install within the One Bridgepoint Refusal Space, in accordance with
drawings to be prepared by Tenant and approved in writing by Landlord,
the Building Standard tenant improvements and other additional tenant
improvements provided for in the drawings. The cost of the work shall
be advanced by Landlord for the benefit of Tenant, to be repaid by
Tenant in the form of Base Rent, but only to the extent that the
aggregate cost of furnishing the Building Standard improvements and
such additional improvements provided for in the drawings does not
exceed $7.50 per rentable square foot leased, less an amount, rounded
up or down to the nearest cent, equal to (X) $7.50 per rentable square
foot leased, times (Y) seventy-one (71) minus the number of months
remaining in the Term (excluding all renewals, unless such renewals
have been unrevocably exercised by Tenant).
(f) Upon the exercise of the refusal option pursuant to the terms hereof,
Landlord and Tenant shall execute, at the request of either, an
instrument delineating and describing the One Bridgepoint Refusal
Space added thereby.
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(g) Landlord will endeavor to consolidate space in One Bridgepoint and
provide contiguous space whenever possible.
3. Three Bridgepoint Refusal Space. Landlord hereby grants to Tenant a
right of first refusal exercisable as hereinafter set forth, covering
approximately the remaining space in Three Bridgepoint to be occupied by
Motorola, Inc. more particularly described on Exhibit A (the "Motorola Refusal
Space"). Tenant acknowledges that Motorola, Inc. has the existing right under
its lease to renew its existing lease for the Motorola Refusal Space. In the
event Motorola exercises its renewal option, this right of first refusal on the
Motorola Refusal Space shall terminate and be of no further force and effect. In
the event Motorola does not exercise its option to renew its lease on the
Motorola Refusal Space, then Tenant's right of first refusal shall be as
follows:
(a) Prior to leasing any portion of the Motorola Refusal Space to any
third party, Landlord shall notify the Tenant in writing of the
availability of the Motorola Refusal Space and the date upon which the
Refusal Space is expected to be made available to Tenant (the
"Notice"). Tenant may exercise the right of first refusal and include
the Motorola Refusal Space under this Lease, upon the terms and
conditions of this Lease, including the Base Rent, by delivering to
Landlord written notice of Tenant's election on or before the fifth
(5th) calendar day after the date of Tenant's receipt of the Notice.
(b) In the event Landlord does not receive notice of Tenant's election to
lease the Motorola Refusal Space described in the Notice within the
period provided herein, then Landlord shall be free to lease such
space to one or more third parties.
(c) All Motorola Refusal Space leased pursuant to the Right of First
Refusal shall be for a term which is coterminous with the initial Term
and any renewal or extension thereof.
(d) The term Premises, as used in this Lease, shall include all expansions
thereof that may occur from time to time pursuant to this right of
first refusal.
(e) In the event Tenant exercises the right of first refusal pursuant to
the terms hereof, Landlord shall do the work necessary to furnish and
install within the Motorola Refusal Space, in accordance with drawings
to be prepared by Tenant and approved in writing by Landlord, the
Building Standard
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tenant improvements and other additional tenant improvements provided
for in the drawings. The cost of the work shall be advanced by
Landlord for the benefit of Tenant, to be repaid by Tenant in the form
of Base Rent, but only to the extent that the aggregate cost of
furnishing the Building Standard improvements and such additional
improvements provided for in the drawings does not exceed $7.50 per
rentable square foot leased, less an amount, rounded up or down to the
nearest cent, equal to (X) $7.50 per rentable square foot leased,
times (Y) seventy-one (71) minus the number of months remaining in the
Term (excluding all renewals, unless such renewals have been
unrevocably exercised by Tenant).
(f) Upon the exercise of the refusal option pursuant to the terms hereof,
Landlord and Tenant shall execute, at the request of either, an
instrument delineating and describing the Motorola Refusal Space added
thereby.
INITIALED FOR IDENTIFICATION BY LANDLORD [Illegible] AND TENANT [Illegible]
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<PAGE>
EXHIBIT H
TO LEASE BETWEEN INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA AS LANDLORD
AND PSW TECHNOLOGIES, INC., AS TENANT
CERTIFICATE OF THE SECRETARY OF TENANT
The undersigned, Secretary of PSW Technologies, Inc., a ____________
corporation (the "Corporation"), hereby certifies that attached is a true and
correct copy of the resolutions duly adopted by unanimous consent dated _______,
19___, of all directors of the Board of Directors of the Corporation and that
the same have not been amended, altered or rescinded and are now in full force
and effect; that the Corporation is duly organized and existing under the laws
of the State of ________; that all franchise and other taxes, if any, required
to maintain the corporate existence of the Corporation have been paid when due
and that no such taxes are delinquent; that no proceedings are pending for the
forfeiture of the Certificate of Incorporation of the Corporation or for its
dissolution, voluntary or involuntary; that the Corporation is duly qualified to
do business in the State of Texas and is in good standing in such state; that
there is no provision of the Articles of Incorporation or Bylaws of the
Corporation limiting the powers of the Board of Directors to pass or consent to
the resolutions set out in the instrument attached hereto and that said
resolutions are in conformity with the provisions of said Articles of
Incorporation and Bylaws; and that the Secretary is the keeper of the records
and minutes of the proceedings of the Board of Directors of the Corporation.
This is to further certify that the persons named below are the duly
elected and qualified officers of the Corporation, holding the respective
offices set forth opposite their names, that they continue to hold these offices
at the present time, and that the respective signatures set opposite their names
are the genuine, original signatures of each respectively:
Name Title Signature
____________________ President ______________________________
____________________ Vice President ______________________________
____________________ Secretary ______________________________
____________________ Treasurer ______________________________
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<PAGE>
IN WITNESS WHEREOF I have hereunto affixed my name as Secretary and have
caused the corporate seal of the Corporation to be hereto affixed this ______
day of _______________, 19___.
______________________________
Secretary
The undersigned, __________________________, President of the Corporation,
hereby certifies that __________________________ is the duly elected and
qualified Secretary of the Corporation, that the signature above is his (her)
genuine signature, that attached is a true and correct copy of the resolutions
duly adopted by the Board of Directors of the Corporation, which are now in full
force and effect; and that the foregoing certificate is true and correct.
______________________________
President
RESOLUTIONS OF CORPORATE BOARD
RESOLVED: That PSW Technologies, Inc. (this "Corporation") enter into the Lease
Agreement (the "Lease") dated _______________, 19___, with Investors Life
Insurance Company of North America, a Washington corporation ("Landlord"),
covering premises located on the ____ floor of One Bridgepoint Office Square
(the "Building").
FURTHER RESOLVED: That the Lease shall be in form and substance satisfactory to
Landlord and in form and substance approved by the officer of this Corporation
executing the same, his approval of each such instrument to be conclusively
evidenced by his execution thereof.
FURTHER RESOLVED: That the President or any Vice President of this Corporation
be and each hereby is severally authorized and directed for and on behalf, and
as the act and deed of this Corporation to execute and deliver to Landlord the
Lease and any addenda, amendments and supplements thereto, and to take such
other action in the consummation of the transaction herein
H-2
<PAGE>
contemplated as the officer acting shall deem to be necessary or desirable,
without the necessity of attestation by the secretary or any other officer of
this Corporation and with or without the seal of this Corporation; any and all
acts heretofore taken by the President or any Vice President of this Corporation
to such end are hereby expressly ratified and confirmed as the acts and deeds of
this Corporation.
INITIALED FOR IDENTIFICATION BY LANDLORD [Illegible] AND TENANT [Illegible]
H-3
<PAGE>
EXHIBIT I
TO LEASE BETWEEN INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA AS LANDLORD
AND PSW TECHNOLOGIES, INC., AS TENANT
RULES AND REGULATIONS
The following standards shall be observed by Tenant for the mutual safety,
cleanliness and convenience of all occupants of the Building. These rules are
subject to change from time to time, as specified in the Lease.
1. Tenant shall not use the Premises or the Building to sell any items or
services at retail price or cost without the prior written consent of Landlord.
Stenography, typewriting, blueprinting, duplicating services of any kind, food
and beverage services, and similar businesses, shall not be conducted from or
within the Premises or Building for the service or accommodation of occupants of
the Building without the prior written consent of Landlord.
2. Sidewalks, halls, passageways, fire exits, roof access, and stairwells
shall not be obstructed or used by Tenant for a purpose other than ingress and
egress to and from the Premises and Building.
3. Flammable, explosive or other hazardous liquids and materials shall not be
brought on the Premises or into the Building without the prior written consent
of Landlord. All holiday decorations shall be made of flame retardant materials
and are limited to the interior of the Building.
4. All contractors and technicians performing work for Tenant within the
Building shall be referred to Landlord for approval before performing such work.
All work, including, but not limited to, installation of telephone and telegraph
equipment, electrical and electronic devices and attachments, and all
installations affecting floors, walls, windows, doors, ceilings or any other
physical feature of the Building, shall not commence prior to written approval
by Landlord.
5. Tenant shall not conduct any auction on the Premises nor store goods, wares
or merchandise on the Premises, except for Tenant's own personal use.
6. Movement into or out of the Building of freight, furniture, office
equipment or other material for dispatch or receipt by Tenant which requires
movement through public corridors or lobbies or entrances to the Building shall
be limited to the use of service elevators only and shall be done at hours and
in a manner approved by Landlord for such purposes from time to time.
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<PAGE>
Only licensed, commercial movers shall be used for the purpose of moving
freight, furniture or office equipment to and from the Premises and Building.
All hand trucks shall be equipped with rubber tires and rubber side guards.
7. Requests by Tenant for building services, maintenance or repair shall be
made in writing to the office of the Landlord or its management agent, if any.
8. Tenant shall not change locks or install additional locks on doors without
prior written consent of Landlord. Tenant shall not make or cause to be made
duplicates of keys procured from Landlord without the prior approval of
Landlord. All keys to the Premises shall be surrendered to Landlord upon
termination of tenancy.
9. Tenant shall give prompt notice to the office of the Landlord or its
management agent, if any, of any damage to or defects in plumbing, electrical
fixtures or heating and cooling equipment. Liquids, or other materials or
substances which will cause injury to the plumbing, shall not be put into the
lavatories, water closets or other plumbing fixtures, by Tenant, its agents,
employees or invitees.
10. Tenant shall not place, install or operate on the Premises, or in any part
of the Building or Project, any stoves or cooking equipment without the prior
written approval of Landlord.
11. Large files, safes, electronic data processing equipment and other heavy
equipment shall not be moved into the Building or installed in the Premises
without the prior written approval of Landlord.
12. Tenant shall not lay floor covering within the Premises without the prior
written approval of Landlord. The use of cement or other similar adhesive
materials not easily removed with water is expressly prohibited.
13. Tenant agrees to cooperate and assist Landlord in the prevention of
canvassing, soliciting and peddling within the Building.
14. Nails, screws or picture hangers shall not be driven into the walls or wood
finish of any room without the prior written consent of Landlord. Animals or
birds shall not be kept in or about the Premises or the Building.
15. All plants within the Tenant Suite should be maintained by professional
plant management companies. Any infestation as a result of the plants is the
responsibility of the Tenant.
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16. No sign, advertisement, notice or handbill shall be exhibited, distributed,
painted or affixed by Tenant on, about or from any part of the Premises or the
Building without prior written consent of the Landlord.
17. Landlord reserves the right to exclude from the Building, between the hours
of 6:00 p.m. and 7:00 a.m. on weekdays and at all hours on Saturday, Sunday and
legal holidays, all persons who are not known to the Building watchman, if any,
and who do not present a pass to the Building signed by Tenant. Each Tenant
shall be responsible for all persons for whom he supplies a pass or key to the
Building or Premises.
18. No smoking is allowed inside the Building. Smoking is restricted to the
exterior West end of the Building. Tenant shall be responsible for each
employee.
19. Tenant will use all caution when driving and parking in the garage.
Landlord is NOT responsible for any lost, stolen, or damage done to persons or
property of Tenant and/or its employees as result of parking on the Project.
Parking around the Building is limited to handicapped and 30-minute visitor
parking only. There is no parking on the streets. Violating vehicles will be
towed at owner's expense.
INITIALED FOR IDENTIFICATION BY LANDLORD [Illegible] AND TENANT [Illegible]
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<PAGE>
EXHIBIT J
TO LEASE BETWEEN INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA AS LANDLORD
AND PSW TECHNOLOGIES, INC., AS TENANT
LEASE GUARANTY
THIS GUARANTY entered into on October __________, 1996, by PENCOM SYSTEMS,
INC. (hereinafter referred to as the "Guarantor") in favor of INVESTORS LIFE
INSURANCE COMPANY OF NORTH AMERICA (hereinafter referred to as the "Landlord"):
WHEREAS, Landlord proposes to lease to PSW TECHNOLOGIES, INC. (hereinafter
referred to as the "Tenant") premises known as Three Bridgepoint, Austin, Texas
(hereinafter referred to as the "Premises") to be evidenced by a Bridgepoint
Lease Agreement (hereinafter referred to as the "Lease"); and,
WHEREAS, Guarantor will directly benefit from Landlord's leasing the
Premises to Tenant; and,
WHEREAS, Landlord is not willing to lease the Premises to Tenant unless the
Guarantor unconditionally guarantees payment of all rent and unconditionally
guarantees the performance of all other obligations of Tenant contained in the
Lease:
NOW THEREFORE, as a necessary inducement to Landlord to lease the Premise
to Tenant and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and confessed, the Guarantor hereby
agrees, represents and warrants as follows:
1. Guaranty Obligation. The Guarantor hereby irrevocably and unconditionally
guarantees to the Landlord and its successors and assigns, the due and punctual
payment of financial obligations and performance of all other obligations of the
Tenant imposed in the Lease now or hereafter arising hereunder.
2. The Guaranteed Obligations. As used herein, the term "Guaranteed
Obligations" shall mean:
(a) All rent, reasonable attorney's fees, deposits, liabilities for costs
and expenses and other obligations and liabilities of the Tenant to the Landlord
at any time arising, whether by termination of the Lease, lapse of time or
otherwise, under the Lease; and,
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(b) Any and all other liabilities, obligations and duties of every kind or
character, that are now or at any time or times hereafter may be or become owing
from the Tenant to the Landlord, howsoever evidenced, whether due or to become
due, whether by lapse of time or otherwise, termination of the Lease or
otherwise, together with any and all renewals, amendments, and extensions of any
thereof; and,
(c) All costs, expenses and fees, including without limitation, court
costs and attorney's fees, arising in connection with the collection of any and
all amounts, obligations and liabilities of the Tenant to the Landlord whether
collection or performance is sought by suit, through bankruptcy proceedings or
through any other judicial proceeding or by any other formal or informal
procedures, as well as any other costs incurred by the Landlord in enforcing or
protecting any of the Landlord's rights, remedies or recourses hereunder.
3. No Limitation. It is understood that the enumeration of specific types of
obligations herein is made for purposes of illustration only and shall not be
constructed as a limitation upon the obligations included in the definition of
Guaranteed Obligations and which are guaranteed hereby.
4. Nature of Guaranty. It is specifically agreed that:
(a) This Guaranty is a continuing, unconditional irrevocable guaranty of
payment and not a guaranty of collection;
(b) This Guaranty may not be revoked by Guarantor and shall continue to be
effective with respect to the Guaranteed Obligations arising or created
after any attempted revocation by Guarantor and shall be binding upon the
Guarantor and the respective legal representatives, executors,
administrators and successors of the Guarantor; and
(c) If the Guarantor becomes liable for any Guaranteed Obligations owing
by the Tenant to the Landlord, by endorsement or otherwise than under this
Guaranty, such liability shall not be in any manner impaired or reduced
hereby but shall have all and the same force and effect it would have had
if this Guaranty had not existed.
5. Exoneration of Landlord. Guarantor specifically agrees that Guarantor
shall not have any recourse or action against Landlord by reason of any action
the Landlord may take or omit to take with respect to the Guaranteed
Obligations, or this Guaranty, including but not limited to the collection of
any sums mentioned therein, or in connection with any security or other guaranty
now or hereafter existing therefor.
6. Waiver of Notices and Acceptance. The Guarantor specifically waives notice
of (i) acceptance of this guaranty by the Landlord, (ii) any extension,
modification or renewal of the Lease or the Guaranteed Obligations, (iii) any
indulgences allowed by Landlord with
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respect to the Lease or the Guaranteed Obligations, this Guaranty or any part or
parts thereof or any nonpayment, nonperformance, breach or default thereon, (iv)
eviction; (v) any other grace, demand, protest, presentment and notice of
demand, (vi) the amount or nature of the Guaranteed Obligations outstanding at
any time, and (vii) generally all other notices of every kind in connection with
the provisions of this Guaranty and any other documents or agreements evidencing
or relating to the Guaranteed Obligations.
7. Payments. All payments made upon or performance of the Guaranteed
Obligations at any time shall be deemed to have been paid or performed by the
Tenant unless express written notice is given to the Landlord at the time of
payment or performance by the Guarantor that such payment is paid by said
Guarantor.
8. Payment By Guarantor. In each event whenever any of the Guaranteed
Obligations shall become due and remain unpaid or any other Guaranteed
Obligations become performable and remain unperformed, the Guarantor shall, upon
demand, pay the amount due thereon to the Landlord or perform such unperformed
Guaranteed Obligations, without notice having been given to Guarantor previous
to such demand of the acceptance by the Landlord of this Guaranty or of the
creating or incurring of such obligation, and without presentment, protest,
notice of protest, notice of non-payment, or any other notice whatsoever.
9. Place of Payment. All amounts becoming payable by Guarantor to the Landlord
under this Guaranty shall be payable at the Landlord's principal place of
business in the City of Austin, Travis County, Texas.
10. Application of Security, Proceeds. Guarantor expressly waives any right to
the benefit of or to require or control application of any security or property
or the proceeds of any security or property now existing or hereafter obtained
by the Landlord as security for the Guaranteed Obligations, or any part thereof,
and agrees that the Landlord shall have no duty insofar as the Guarantor is
concerned to apply upon any of the Guaranteed Obligations any monies, payments
or other property at any time received by or paid to or in the possession of the
Landlord, except as the Landlord shall determine in its sole discretion.
11. Effect of Bankruptcy. This Guaranty shall continue to be effective or
reinstated, as the case may be, if at any time any payment to the Landlord of
all or part of the Guaranteed Obligations are rescinded or must otherwise be
restored or refunded by the Landlord pursuant to any insolvency, bankruptcy,
reorganization, receivership or other debtor relief proceeding involving the
Tenant. In the event that the Landlord must rescind or restore any payment
received by the Landlord in satisfaction of any of the Guaranteed Obligations as
set forth herein, any prior release or discharge under the terms of this
Guaranty given to any Guarantor by the Landlord shall be without effect, and
this Guaranty shall remain in full force and effect.
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12. No Duty to Pursue Others. The Guarantor agrees:
(a) that it shall not be necessary or required that the Landlord (and the
Guarantor hereby waives any rights which it may have to so require
Landlord), in order to enforce any obligations under this Guaranty, must
first (i) make demand for payment upon the Tenant or any other person
liable on the Guaranteed Obligations or present same for payment thereto or
make protest or give notice thereto of the nonperformance or non-payment
thereof; (ii) proceed to obtain or assert a claim for personal judgment or
otherwise institute suit or exhaust its remedies against Tenant, others
liable on the Guaranteed Obligations or any other person, (iii) assert or
institute claim or suit against the assets or estate of the Tenant, or
others liable on the Guaranteed Obligations, (iv) enforce its rights
against any security which shall ever have been given to secure the
Guaranteed Obligations, (v) join Tenant or any others liable on the
Guaranteed Obligations in any action seeking to enforce this Guaranty, or
(vi) resort to any other means of obtaining payment of the Guaranteed
Obligations; and,
(b) that Landlord shall not be required to mitigate damages or take any
other action to reduce, collect or enforce the Guaranteed Obligations.
13. Discharge of Obligations. Guarantor agrees that the fact that at any time
or from time to time the Guaranteed Obligations may be increased, reduced or
fully discharged shall not release, discharge or reduce the obligations of the
Guarantor with respect to any obligations thereafter incurred in connection with
the Guaranteed Obligations. It is the intention of the Landlord and Guarantor
that Guarantor's obligations hereunder shall not be discharged except by
Guarantor's performance of such obligations and then only to the extent of such
performance, unless otherwise expressly agreed in writing by Landlord or as
might otherwise be provided in this Guaranty.
14. Rights of Landlord. The Guarantor agrees that the rights of the Landlord
and any of the obligations and liabilities of the Guarantor created hereunder
shall not in any manner whatsoever be reduced, discharged, diminished, impaired
or affected by any or more of the events, circumstances or occurrences described
in paragraphs a through e inclusive.
(a) Extensions, Modifications and Adjustments. Any renewal, extension,
modification, alteration or any indulgence, delay, adjustment, forbearance
or compromise that might be granted or given by Landlord to the Tenant or
the Guarantor with respect to the Guaranteed Obligations (including but not
limited to any maturity(ies) thereof) or any part or parts hereof, or any
other agreement, contract or instrument between Tenant and Landlord or any
other person or party, pertaining to the Guaranteed Obligations; or,
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(b) Release of Obligors. Any full or partial release of the Tenant or any
other person or entity now or hereafter liable, whether primarily or
secondarily, jointly and/or severally, to pay, perform or guarantee payment
of the Guaranteed Obligations or any part thereof, it being acknowledged
and agreed by Guarantor that Guarantor may be required to pay the
Guaranteed Obligations in full without the support or assistance of any
other party, and Guarantor has not been induced to enter into this Guaranty
on the basis of a belief, understanding or agreement that other parties
will at all times be liable to perform the Guaranteed Obligations, or that
Landlord will look to other parties to perform the Guaranteed Obligations;
or
(c) Other Security. The taking or accepting of any other security,
collateral or guaranty or other assurance of payment, for all or any part
of the Guaranteed Obligations; or
(d) Invalidity of the Guaranteed Obligations. The invalidity, illegality
or unenforceability of all or any part of the Guaranteed Obligations, or
any document or agreement executed in connection therewith, for any reason
whatsoever, including without limitation, the fact(s) that,
(i) the act of creating or guaranteeing the Guaranteed Obligations or
any part thereof, is ultra vires,
(ii) the officers, agents, attorneys-in-fact or other representatives
creating or guaranteeing the Guaranteed Obligations or any part
thereof, acted without any or in excess of their authority,
(iii) the Lease or any document, instrument or agreement pertaining to
the Guaranteed Obligations have been forged or otherwise are irregular
or not genuine or authentic,
(iv) any other facts which for any other reason would render the
Guaranteed Obligations unenforceable or uncollectible against the
Tenant; or
(e) Condition of Tenant or Guarantor. The insolvency, bankruptcy,
arrangement, adjustment, composition, liquidation, disability, dissolution
or lack of power of Tenant or any other party at any time liable for the
payment of all or part of the Guaranteed Obligations; or any dissolution of
Tenant or Guarantor; or any sale, lease or transfer of any or all of the
assets of Tenant or Guarantor; or any reorganization or reincorporation of
Tenant or Guarantor (even though rendering the Guaranteed Obligations or
any part or parts thereof void or uncollectible as against the Tenant).
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15. Guarantor's Rights of Contribution and Subrogation. It is expressly agreed
and acknowledged that Guarantor has not and does not hereby waive or release
(expressly or impliedly) any rights of subrogation, reimbursement, or
contribution which it may have after payment in full of the Guaranteed
Obligations against others who are liable for or have also guaranteed the
Guaranteed Obligations or any part thereof, or as against any collateral or
property or security held by any person or party in order to secure the
Guaranteed Obligations or any part thereof; provided, however, that Guarantor's
rights of subrogation and reimbursement are and shall be subordinate to the
rights and claims of the Landlord and all of the Guaranteed Obligations shall be
paid in full before Guarantor shall receive payment or performance of any sums
due Guarantor under the provisions hereof.
16. Guarantor's Representations, Warranties and Covenants: To induce
Landlord to enter into the Lease with the Tenant, the Guarantor represents,
warrants and agrees that:
(a) Benefit. Guarantor has received, or will receive, direct or indirect
benefit from the Landlord entering into the Lease with Tenant and the making of
this Guaranty. Specifically, but not by way of limitation, Guarantor represents
that Tenant has previously been a division of Guarantor, that Guarantor and
Tenant continue to share key employees, that Guarantor and Tenant have similar
business interests and business relationships, and that Tenant's ability to
enter into the Lease affords Tenant the opportunity for continued growth and
success which will provide substantial economic and practical benefits to
Guarantor.
(b) No Representation by Creditor. Neither Landlord nor any other party has
made any representation, warranty or statement to the Guarantor in order to
induce the Guarantor to execute this Guaranty.
(c) Guarantor's Financial Condition. As of the date hereof, and after
giving effect to this Guaranty and the contingent obligations evidenced hereby,
Guarantor is, and will be, solvent, and has and will have assets which, fairly
valued, exceed its obligations, liabilities and debts, and has and will have
property and assets in the State of Texas sufficient to satisfy and repay its
obligations and liabilities.
(d) Guarantor's Dealings with Tenant. Guarantor has disclosed to Landlord
that all of the shareholders and some of the directors of Guarantor are also
shareholders and directors of Tenant. Guarantor hereby agrees that as long as
this Guaranty Agreement is in effect, neither Guarantor nor any of Guarantor's
Affiliated Parties, as that term is defined herein, shall exercise any of the
rights or powers as a shareholder of Tenant or in any other capacity, whether
directly or indirectly, to approve, consent to or require Tenant:
(i) to dispose of or transfer any of its assets, other than in the
ordinary course of business, to or for the benefit of Guarantor
or Guarantor's Affiliated Parties, or
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(ii) except as otherwise specifically provided herein, to declare or
make any dividend or distribution, other than in the ordinary
course of business, or to enter into any transaction with or for
the direct or indirect benefit of Guarantor or any of Guarantor's
Affiliated Parties, or any person controlled by or under common
control with Guarantor, or any of Guarantor's Affiliated Parties,
except for (a) an arms length transaction in the ordinary course
of business, or (b) so long as Tenant is treated for federal
income tax purposes as an S Corporation, distributions to
Tenant's shareholders of an amount equal to the shareholder's
federal, state and local income taxes attributable to the
Tenant's income for federal income tax purposes.
For purposes of this Section 16, the term "Guarantor's Affiliated Parties"
shall mean the shareholders and directors of Guarantor, any subsidiary or
affiliate of Tenant, and any subsidiary or affiliate of Guarantor. Guarantor
acknowledges and agrees that a default by Guarantor under this Guaranty shall
constitute a default under the Lease.
The representations, warranties, and agreements of Guarantor set forth in
this Section 16 shall not survive the termination of this Guaranty.
Notwithstanding anything to the contrary contained in this Guaranty Agreement,
the liability and obligations of the Guarantor to perform and observe the
obligations contained in this Guaranty Agreement are strictly the obligations of
the Guarantor. Under no circumstances whatsoever shall any past, present or
future partner, officer, director or shareholder of Guarantor be personally
liable for any money judgment or any other action brought by Landlord against
Guarantor to enforce the provisions of this Guaranty Agreement, it being
expressly and understood that Landlord agrees to look solely to the Guaranty for
enforcement of Guarantor's liabilities and obligations under this Guaranty
Agreement.
17. Transfer or Assignment by Landlord. This Guaranty is intended for and shall
inure to the benefit of the Landlord, its successors or assigns, and each and
every other person who shall from time to time be or become the owner of the
property that is the subject of the Lease.
18. Transfer or Assignment by Guarantor. It is hereby agreed that Guarantor may
not, without the express prior written consent of Landlord acknowledged by an
officer thereof, transfer or assign any of its rights, powers, duties or
obligations thereunder.
19. Waiver. No failure to exercise, and no delay in exercising, on the part of
Landlord, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any other right. The rights of Landlord hereunder
shall be in addition to all other rights provided by law. No modification or
waiver of any provision of this Guaranty, nor consent to departure therefrom,
shall be effective unless in writing and no such consent or waiver shall extend
beyond the particular case and purpose involved. No notice or demand given in
any
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case shall constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand.
20. Release of Guaranty. Notwithstanding anything contained in this Guaranty to
the contrary, and provided further that a Default by Tenant has not occurred and
is continuing, it is specifically agreed that this Guaranty will be canceled,
shall become null and void, and returned to Guarantor upon the happening of
EITHER of the following events:
(a) Event No. 1 (includes all of the following items):
(1) Tenant's audited balance sheet, or as filed with the United
States Securities and Exchange Commission, reflects shareholders'
equity of not less than $10,000,000.00;
(2) Tenant's common stock is approved for listing on the NASDAQ
National Market System, New York Stock Exchange or American Stock
Exchange;
(3) at the time that Tenant's common stock is approved for listing as
set forth in 20(a)(2) above, Tenant is free of debt other than
trade payables and Tenant's contemplated $5,000,000.00 credit
facility with Texas Commerce Bank (the "TCB Credit Facility");
and
(4) Tenant is not in default under the TCB Credit Facility, and no
event has occurred which, with the passage of time, will
constitute a default under the TCB Credit Facility, or, in the
event Tenant has not obtained the TCB Credit Facility, Tenant is
in compliance with the following financial covenants:
(i) Tenant is maintaining a ratio of total debt divided by
EBITDA (earnings before interest, taxes, depreciation and
amortization) of 2.00x or less (1.75x or less effective
after March 31, 1997) tested quarterly; and
(ii) Tenant does not have total indebtedness which exceeds ten
percent (10%) of shareholders' equity;
(iii) Tenant does not have liens against any of its assets,
except with respect to the Lease and in connection with
other allowed indebtedness; and
(iv) Tenant's borrowings do not exceed 85% of Tenant's adjusted
accounts receivable.
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(b) Event No. 2 (includes all of the following items):
(1) Tenant audited balance sheet reflects shareholders' equity of not
less than $10,000,000.00, net of any anticipated distributions
that would reduce shareholders' equity below $10,000,000.00;
(2) Tenant is free of debt other than trade payables and the TCB
Credit Facility; and
(3) Tenant is not in default under the TCB Credit Facility, and no
event has occurred which, with the passage of time, will
constitute a default under the TCB Credit Facility, or, in the
event Tenant has not obtained the TCB Credit Facility, Tenant is
in compliance with the following financial covenants:
(i) Tenant is maintaining a ratio of total debt divided by
EBITDA (earnings before interest, taxes, depreciation and
amortization) of 2.00x or less (1.75x or less effective
after March 31, 1997) tested quarterly; and
(ii) Tenant does not have total indebtedness which exceeds ten
percent (10%) of shareholders' equity;
(iii) Tenant does not have liens against any of its assets,
except with respect to the Lease and in connection with
other allowed indebtedness; and
(iv) Tenant's borrowings do not exceed 85% of Tenant's adjusted
accounts receivable.
21. Notices. It is agreed that:
(a) Any notice or demand to the Guarantor hereunder or in connection
herewith may be given and shall conclusively be deemed and considered to have
been given and received upon the third day after the deposit thereof, in
writing, in the United States mail, duly stamped and addressed to the Guarantor
at the address of the Guarantor as shown below (whether actually received or
not), but actual notice, however given or received, shall always be effective.
The last preceding sentence shall not be construed in anyway to affect or impair
any waiver of notice or demand herein provided or to require giving of notice or
demand to or upon the Guarantor in any situation or for any reason.
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Guarantor: Pencom Systems, Inc.
40 Fulton Street, 28th Floor
New York, NY 10038
Facsimile No. (212) 406-4560
Landlord: Investors Life Insurance Company of North America
6300 Bridgepoint Parkway, Building One, Suite 325
Austin, Texas 78730
Facsimile No. (512) 404-5212
(b) Any notice which Guarantor may or shall give to the Landlord shall be
personally delivered or mailed by prepaid certified or registered mail, return
receipt requested, delivery restricted to addressee only at the address of the
Landlord as shown above.
(c) In the event that Landlord or Guarantor changes its mailing address,
notice shall be given to the other party in the manner described in (a) and (b)
of paragraph 26.
22. Invalid Provisions. If any provision of this Guaranty is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term of this Guaranty, such provision shall be fully severable and this
Guaranty shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Guaranty, and the
remaining provisions of this Guaranty shall, to the extent permitted by law,
remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision.
23. Governing Law, Jurisdiction. The substantive laws of the State of Texas
shall govern the validity, construction, enforcement and interpretation of this
Guaranty. For purposes of this Guaranty and the resolution of disputes
hereunder, Guarantor hereby irrevocably submits and consents to, and waives any
objection to, the non-exclusive jurisdiction of the state and federal courts
located in Travis County, Texas.
24. Numerical and Personal References. As used herein and when required by the
context, each number (singular and plural) shall include all numbers, and each
gender shall include all genders, and unless the context otherwise requires the
word "person" or "party" shall include "person, corporation, firm, partnership,
joint venture or association."
25. Headings. Section headings are for convenience of reference only and shall
in no way affect the interpretation of this Guaranty.
26. Rights and Remedies. The exercise by Landlord of any right or remedy
hereunder or under any other instrument, or at law or in equity, shall not
preclude the concurrent or subsequent exercise of any other right or remedy.
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PENCOM SYSTEMS, INC.
By: _________________________________
Printed Name: _______________________
Title: ______________________________
DATE: October _____, 1996.
INITIALED FOR IDENTIFICATION BY LANDLORD [Illegible] AND TENANT [Illegible]
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<PAGE>
EXHIBIT K
TO LEASE BETWEEN INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA AS LANDLORD
AND PSW TECHNOLOGIES, INC., AS TENANT
CERTIFICATE OF THE SECRETARY OF GUARANTOR
The undersigned, Secretary of Pencom Systems, Inc., a _____________
corporation (the "Corporation"), hereby certifies that attached is a true and
correct copy of the resolutions duly adopted by unanimous consent dated _______,
19___, of all directors of the Board of Directors of the Corporation and that
the same have not been amended, altered or rescinded and are now in full force
and effect; that the Corporation is duly organized and existing under the laws
of the State of ________; that all franchise and other taxes, if any, required
to maintain the corporate existence of the Corporation have been paid when due
and that no such taxes are delinquent; that no proceedings are pending for the
forfeiture of the Certificate of Incorporation of the Corporation or for its
dissolution, voluntary or involuntary; that the Corporation is duly qualified to
do business in the State of Texas and is in good standing in such state; that
there is no provision of the Articles of Incorporation or Bylaws of the
Corporation limiting the powers of the Board of Directors to pass or consent to
the resolutions set out in the instrument attached hereto and that said
resolutions are in conformity with the provisions of said Articles of
Incorporation and Bylaws; and that the Secretary is the keeper of the records
and minutes of the proceedings of the Board of Directors of the Corporation.
This is to further certify that the persons named below are the duly
elected and qualified officers of the Corporation, holding the respective
offices set forth opposite their names, that they continue to hold these offices
at the present time, and that the respective signatures set opposite their names
are the genuine, original signatures of each respectively:
Name Title Signature
____________________ President ______________________________
____________________ Vice President ______________________________
____________________ Secretary ______________________________
____________________ Treasurer ______________________________
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<PAGE>
IN WITNESS WHEREOF I have hereunto affixed my name as Secretary and have
caused the corporate seal of the Corporation to be hereto affixed this ______
day of ______________, 19___.
______________________________
Secretary
The undersigned, ________________________, President of the Corporation,
hereby certifies that _________________________ is the duly elected and
qualified Secretary of the Corporation, that the signature above is his (her)
genuine signature, that attached is a true and correct copy of the resolutions
duly adopted by the Board of Directors of the Corporation, which are now in full
force and effect; and that the foregoing certificate is true and correct.
______________________________
President
RESOLUTIONS OF CORPORATE BOARD
RESOLVED: That PSW Technologies, Inc. ("PSW"), an affiliate of Pencom Systems,
Inc. (this "Corporation") is entering into a Lease Agreement (the "Lease") dated
October __, 1996, with Investors Life Insurance Company of North America, a
Washington corporation ("Landlord"), covering premises located in Three
Bridgepoint Office Square (the "Building").
FURTHER RESOLVED: That one of the Landlord's requirements of the Lease is for
the Corporation to guarantee PSW's obligations as the Tenant under the Lease.
FURTHER RESOLVED: That the execution of the Lease by PSW will benefit, directly
or indirectly, the Corporation, and therefore, the Corporation has agreed to
guarantee PSW's obligations as the Tenant under the Lease.
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<PAGE>
FURTHER RESOLVED: The Lease Guaranty shall be in form and substance satisfactory
to Landlord and in form and substance approved by the officer of this
Corporation executing the same, his approval of each such instrument to be
conclusively evidenced by his execution thereof.
FURTHER RESOLVED: That the President or any Vice President of this Corporation
be and each hereby is severally authorized and directed for and on behalf, and
as the act and deed of this Corporation to execute and deliver to Landlord the
Lease Guaranty and to take such other action in the consummation of the
transaction herein contemplated as the officer acting shall deem to be necessary
or desirable, without the necessity of attestation by the secretary or any other
officer of this Corporation and with or without the seal of this Corporation;
any and all acts heretofore taken by the President or any Vice President of this
Corporation to such end are hereby expressly ratified and confirmed as the acts
and deeds of this Corporation.
INITIALED FOR IDENTIFICATION BY LANDLORD [Illegible] AND TENANT [Illegible]
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Exhibit 10.2
LEASE GUARANTY
THIS GUARANTY entered into effective January 31, 1997, by PSW Technologies,
Inc., a Delaware corporation (hereinafter referred to as the "Guarantor") in
favor of Pencom Systems Incorporated, a Delaware corporation (hereinafter
referred to as the "Sublessor"):
1. RECITALS.
1.1 Landmark Associates of Austin II, a Texas limited partnership
("Landlord"), as landlord, and Sublessor, as tenant therein, entered into a
lease dated March 28, 1990 (the "Lease") for office space in the building
located at 9050 Capitol of Texas Highway North, Austin, Texas 78759 (the
"Building"). The Lease was amended by First Amendment of Lease Contract ("First
Amendment") dated June 11, 1990, by Second Amendment of Lease Contract ("Second
Amendment") dated December 5, 1990, and by a Third Amendment of Lease Contract
("Third Amendment") dated July 17, 1991; by a Fourth Amendment of Lease Contract
("Fourth Amendment") dated February 20, 1992; by a Fifth Amendment of Lease
Contract ("Fifth Amendment") dated January 27, 1993; by a Sixth Amendment of
Lease Contract ("Sixth Amendment") dated February 7, 1995; by a Seventh
Amendment of Lease Contract ("Seventh Amendment") dated December 14, 1995; and
by an Eighth Amendment of Lease Contract ("Eighth Amendment") dated February 4,
1997; As used herein, the term "Master Lease" is defined to include the Lease
and the First, Second, Third, Fourth, Fifth, Sixth, Seventh and Eighth
Amendments.
1.2 Guarantor occupies and has previously agreed to assume responsibility
for 21,371 rentable square feet (the "Sublease Premises") out of the total area
covered by the Master Lease, which Sublease Premises are more particularly
described on the floor plan attached to the Sublease as Exhibit "A". Guarantor
has now relocated its offices from the Sublease Premises to a new location but
has made arrangements to have the Sublease Premises subleased from Sublessor by
Tivoli Systems Subsidiary, Inc. (hereinafter referred to as "Sublessee").
1.3 Sublessor has agreed to sublease the Sublease Premises to Sublessee,
and Sublessee desires to sublease the Sublease Premises from Sublessor, all in
accordance with the provisions of this Sublease.
1.4 Sublessor is not willing to sublease the Sublease Premises to
Sublessee unless the Guarantor unconditionally guarantees payment of all rent
and unconditionally guarantees the performance of all other obligations of
Sublessee contained in the Sublease.
NOW THEREFORE, as a necessary inducement to Sublessor to lease the Sublease
Premise to Sublessee and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged and confessed, the Guarantor
hereby agrees, represents and warrants as follows:
1. Guaranty Obligation. The Guarantor hereby irrevocably and unconditionally
guarantees to the Sublessor and its successors and assigns, the due and punctual
payment of financial obligations and performance of all other obligations of the
Sublessee imposed in the Sublease now or hereafter arising hereunder.
2. The Guaranteed Obligations. As used herein, the term "Guaranteed
Obligations" shall mean:
(a) All rent, reasonable attorney's fees, deposits, liabilities for costs
and expenses and other obligations and liabilities of the Sublessee to the
Sublessor at any time arising, whether by termination of the Sublease, lapse of
time or otherwise, under the Sublease; and,
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(b) Any and all other liabilities, obligations and duties of every kind or
character, that are now or at any time or times hereafter may be or become owing
from the Sublessee to the Sublessor, howsoever evidenced, whether due or to
become due, whether by lapse of time or otherwise, termination of the Sublease
or otherwise, together with any and all renewals, amendments, and extensions of
any thereof; and,
(c) All costs, expenses and fees, including without limitation, court
costs and attorney's fees, arising in connection with the collection of any and
all amounts, obligations and liabilities of the Sublessee to the Sublessor
whether collection or performance is sought by suit, through bankruptcy
proceedings or through any other judicial proceeding or by any other formal or
informal procedures, as well as any other costs incurred by the Sublessor in
enforcing or protecting any of the Sublessor's rights, remedies or recourses
hereunder.
3. No Limitation. It is understood that the enumeration of specific types of
obligations herein is made for purposes of illustration only and shall not be
constructed as a limitation upon the obligations included in the definition of
Guaranteed Obligations and which are guaranteed hereby.
4. Nature Of Guaranty. It is specifically agreed that:
(a) This Guaranty is a continuing, unconditional irrevocable guaranty
of payment and not a guaranty of collection;
(b) This Guaranty may not be revoked by Guarantor and shall continue
to be effective with respect to the Guaranteed Obligations
arising or created after any attempted revocation by Guarantor
and shall be binding upon the Guarantor and the respective legal
representatives, executors, administrators and successors of the
Guarantor; and
(c) If the Guarantor becomes liable for any Guaranteed Obligations
owing by the Sublessee to the Sublessor, by endorsement or
otherwise than under this Guaranty, such liability shall not be
in any manner impaired or reduced hereby but shall have all and
the same force and effect it would have had if this Guaranty had
not existed.
5. Exoneration Of Sublessor. Guarantor specifically agrees that Guarantor
shall not have any recourse or action against Sublessor by reason of any action
the Sublessor may take or omit to take with respect to the Guaranteed
Obligations, or this Guaranty, including but not limited to the collection of
any sums mentioned therein, or in connection with any security or other guaranty
now or hereafter existing therefor.
6. Waiver Of Notices And Acceptance. The Guarantor specifically waives notice
of (i) acceptance of this guaranty by the Sublessor, (ii) any extension,
modification or renewal of the Sublease of the Guaranteed Obligations, (iii) any
indulgences allowed by Sublessor with respect to the Sublease or the Guaranteed
Obligations, this Guaranty or any part or parts thereof or any nonpayment, non
performance, breach or default thereon, (iv) eviction; (v) any other grace,
demand, protest, presentment, and notice of demand, (vi) the amount or nature of
the Guaranteed Obligations outstanding at any time, and (vii) generally all
other notices of every kind in connection with the provisions of this Guaranty
and any other documents or agreements evidencing or relating to the Guaranteed
Obligations.
7. Payments. All payments made upon or performance of the Guaranteed
Obligations at any time shall be deemed to have been paid or performed by the
Sublessee unless express written notice is given to the Sublessor at the time of
payment or performance by the Guarantor that such payment is paid by said
Guarantor.
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8. Payment By Guarantor. In each event whenever any of the Guaranteed
Obligations shall become due and remain unpaid or any other Guaranteed
Obligations become performable and remain unperformed, the Guarantor shall, upon
demand, pay the amount due thereon to the Sublessor or perform such unperformed
Guaranteed Obligations, without notice having been given to Guarantor previous
to such demand of the acceptance by the Sublessor of this Guaranty or of the
creating or incurring of such obligation, and without presentment, protest,
notice of protest, notice of non-payment, or any other notice whatsoever.
9. Place Of Payment. All amounts becoming payable by Guarantor to the
Sublessor under this Guaranty shall be payable at the Sublessor's principal
place of business in the City of Austin, Travis County, Texas.
10. Application Of Security, Proceeds. Guarantor expressly waives any right to
the benefit of or to require or control application of any security or property
or the proceeds of any security or property now existing or hereafter obtained
by the Sublessor as security for the Guaranteed Obligations, or any part
thereof, and agrees that the sublessor shall have no duty insofar as the
Guarantor is concerned to apply upon any of the Guaranteed Obligations any
monies, payments or other property at any time received by or paid to or in the
possession of the sublessor, expect as the Sublessor shall determine in its sole
discretion.
11. Effect of Bankruptcy. This Guaranty shall continue to be effective or
reinstated, as the case may be, if at any time any payment to the Sublessor of
all or part of the Guaranteed Obligations are rescinded or must otherwise be
restored or refunded by the Sublessor pursuant to any insolvency, bankruptcy,
reorganization, receivership or other debtor relief proceeding involving the
Sublessee. In the event that the Sublessor must rescind or restore any payment
received by the Sublessor in satisfaction of any of the Guaranteed Obligations
as set forth herein, any prior release or discharge under the terms of this
Guaranty given to any Guarantor by the sublessor shall be without effect, an
this Guaranty shall remain in full force and effect.
12. No Duty to Pursue Others. The Guarantor agrees:
(a) that it shall not be necessary or required that the Sublessor
(and the Guarantor hereby waives any rights which it may have to so
require Sublessor), in order to enforce any obligations under this
Guaranty, must first (i) make demand for payment upon the Sublessee or
any other person liable on the Guaranteed Obligations or present same
for payment thereto or make protest or give notice thereto of the
nonperformance or non-payment thereof; (ii) proceed to obtain or
assert a claim for personal judgment or otherwise institute suit or
exhaust its remedies against Sublessee, others liable on the
Guaranteed Obligations or any other person, (iii) assert or institute
claim or suit against the assets or estate of the Sublessee, or others
liable on the Guaranteed Obligations, (iv) enforce its rights against
any security which shall ever have been given to secure the Guaranteed
Obligations, (v) join Sublessee or any others liable on the Guaranteed
Obligations in any action seeking to enforce this Guaranty, or (vi)
resort to any other means to obtaining payment of the Guaranteed
Obligations; and,
(b) that Sublessor shall not be required to mitigate damages or take
any other action to reduce, collect or enforce the Guaranteed
Obligations.
13. Discharge of Obligations. Guarantor agrees that the fact that at any time
or from time to time the Guaranteed Obligations may be increased, reduced or
fully discharged shall not release, discharge or reduce the obligations of the
Guarantor with respect to any obligations thereafter incurred in connection with
the Guaranteed Obligations. It is the intention of the Sublessor and Guarantor
that Guarantor's obligations hereunder shall not be discharged except by
Guarantor's performance of such obligations and then only to the extent of such
performance, unless
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otherwise expressly agreed in writing by Sublessor or as might otherwise be
provided in this Guaranty.
14. Rights of Sublessor. The Guarantor agrees that the rights of the Sublessor
and any of the obligations and liabilities of the Guarantor created hereunder
shall not in any manner whatsoever be reduced, discharged, diminished, impaired
or affected by any or more of the events, circumstances or occurrences described
in paragraphs a through e inclusive.
(a) Extensions, Modifications and Adjustments. Any renewal,
extension, modification, alteration or any indulgence, delay,
adjustment, forbearance or compromise that might be granted or given
by Sublessor to the Sublessee or the Guarantor with respect to the
Guaranteed Obligations (including but not limited to any maturity(ies)
thereof) or any part or parts hereof, or any other agreement, contract
or instrument between Sublessee and Sublessor or any other person or
party, pertaining to the Guaranteed Obligations; or,
(b) Release of Obligors. Any full or partial release of the
Sublessee or any other person or entity now or hereafter liable,
whether primarily or secondarily, jointly and/or severally, to pay,
perform or guarantee payment of the Guaranteed Obligations or any part
thereof, it being acknowledged and agreed by Guarantor that Guarantor
may be required to pay the Guaranteed Obligations in full without the
support or assistance of any other party, and Guarantor has not been
induced to enter into this Guaranty on the basis of a belief,
understanding or agreement that other parties will at all times be
liable to perform the Guaranteed Obligations, or that Sublessor will
look to other parties to perform the Guaranteed Obligations; or
(c) Other Security. The taking or accepting of any other security,
collateral or guaranty or other assurance of payment, for all or any
part of the Guaranteed Obligations; or
(d) Invalidity of the Guaranteed Obligations. The invalidity,
illegality or unenforceabilty of all or any part of the Guaranteed
Obligations, or any document or agreement executed in connection
therewith, for any reason whatsoever, including without limitation,
the fact(s) that,
(i) the act of creating or guaranteeing the Guaranteed
Obligations or any part thereof, is ultra vires,
(ii) the officers, agents, attorneys-in-fact or other
representatives creating or guaranteeing the Guaranteed
Obligations or any part thereof, acted without any or
in excess of their authority,
(iii) the Sublease or any document, instrument or agreement
pertaining to the Guaranteed Obligations have been
forged or otherwise are irregular or not genuine or
authentic,
(iv) any other facts which for any other reason would render
the Guaranteed Obligations unenforceable or
uncollectible against the Sublessee; or
(e) Condition of Sublessee or Guarantor. The insolvency, bankruptcy,
arrangement, adjustment, composition, liquidation, disability,
dissolution or lack of power of Sublessee or any other party at any
time liable for the payment of all or part of the Guaranteed
Obligations; or any dissolution of Sublessee or Guarantor; or any
sale, lease or transfer of any or all of the assets of Sublessee or
Guarantor; or any reorganization or
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reincorporation of Sublessee or Guarantor (even though rendering the
Guaranteed Obligations or any part or parts thereof void or
uncollectible as against the Sublessee).
15. Guarantor's Rights of Contribution and Subrogation. It is expressly agreed
and acknowledged that Guarantor has not and does not hereby waive or release
(expressly or impliedly) any rights of subrogation, reimbursement, or
contribution which it may have after payment in full of the Guaranteed
Obligations against others who are liable for or have also guaranteed the
Guaranteed Obligations or any part thereof, or as against any collateral or
property or security held by any person or party in order to secure the
Guaranteed Obligations or any part thereof; provided, however, that Guarantor's
rights of subrogation and reimbursement are and shall be subordinate to the
rights and claims of the Sublessor and all of the Guaranteed Obligations shall
be paid in full before Guarantor shall receive payment or performance of any
sums due Guarantor under the provisions hereof.
16. Guarantor's Representations, Warranties and Covenants. To induce Sublessor
to enter into the Sublease with the Sublessee, the Guarantor represents,
warrants and agrees that:
(a) Benefit. Guarantor has received, or will receive, direct or indirect
benefit from the Sublessor entering into the Sublease with Sublessee and the
making of this Guaranty. Specifically, but not by way of limitation, Guarantor
represents that Sublessee has previously been a division of Guarantor, that
Guarantor and Sublessee continue to share key employees, that Guarantor and
Sublessee have similar business interests and business relationships, and that
Sublessee's ability to enter into the Sublease affords Sublessee the opportunity
for continued growth and success which will provide substantial economic and
practical benefits to Guarantor.
(b) No Representation by Creditor. Neither Sublessor nor any other party
has made any representation, warranty or statement to the Guarantor in order to
induce the Guarantor to execute this Guaranty.
(c) Guarantor's Financial Condition. As of the date hereof, and after
giving effect to this Guaranty and the contingent obligations evidenced hereby,
Guarantor is, and will be, solvent, and has and will have assets which, fairly
valued, exceed its obligations, liabilities and debts, and has and will have
property and assets in the State of Texas sufficient to satisfy and repay its
obligations and liabilities.
17. Transfer or Assignment by Sublessor. This Guaranty is intended for and
shall inure to the benefit of the Sublessor, its successors or assigns, and
each and every other person who shall from time to time be or become the owner
of the property that is the subject of the Sublease.
18. Transfer or Assignment by Guarantor. It is hereby agreed that Guarantor
may not, without the express prior written consent of Sublessor acknowledged by
an officer thereof, transfer or assign any of its rights, powers, duties or
obligations thereunder.
19. Waiver. No failure to exercise, and no delay in exercising, on the part of
Sublessor, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any other right. The rights of Sublessor
hereunder shall be in addition to all other rights provided by law. No
modification or waiver of any provision of this Guaranty, nor consent to
departure therefrom, shall be effective unless in writing and no such consent or
waiver shall extend beyond the particular case and purpose involved. No notice
or demand given in any case shall constitute a waiver of the right to take other
action in the same, similar or other instances without such notice or demand.
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<PAGE>
20. Release of Guaranty. This Guaranty will be canceled, shall become null and
void, and returned to Guarantor when Sublessee completely satisfies its
financial obligations and completes the performance of all other obligations of
the Sublessee imposed under the Sublease.
21. Notices. It is agreed that:
(a) Any notice or demand to the Guarantor hereunder or in connection
herewith may be given and shall conclusively be deemed and considered to have
been given and received upon the third day after the deposit thereof, in
writing, in the United States mail, duly stamped and addressed to the Guarantor
at the address of the Guarantor as shown below (whether actually received or
not), but actual notice, however given or received, shall always be effective.
The last preceding sentence shall not be construed in anyway to affect or impair
any waiver of notice or demand herein provided or to require giving of notice or
demand to or upon the Guarantor in any situation or for any reason.
Guarantor: PSW Technologies, Inc.
Attention: Frank King
6300 Bridgepoint Pkwy.
Building 3, Suite 200
Austin, Texas 78730
Sublessor: Pencom Systems, Incorporated
Attention: Jonathan Wallace
40 Fulton Street, 28th Floor
New York, New York 10038
(b) Any notice which Guarantor may or shall give to the Sublessor shall be
personally delivered or mailed by prepaid certified or registered mail, return
receipt requested, delivery restricted to addressee only at the address of the
Sublessor or shown above.
(c) In the event that Sublessor or Guarantor changes its mailing address,
notice shall be given to the other party in the manner described in (a) and (b)
of this paragraph 21.
22. Invalid Provisions. If any provision of this Guaranty is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term of this Guaranty, such provision shall be fully severable and this
Guaranty shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Guaranty, and the
remaining provisions of this Guaranty shall, to the extent permitted by law,
remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision.
23. Governing Law, Jurisdiction. The substantive laws of the State of Texas
shall govern the validity, construction, enforcement and interpretation of this
Guaranty. For purposes of this Guaranty and the resolution of disputes
hereunder, Guarantor hereby irrevocably submits and consents to, and waives any
objection to, the non-exclusive jurisdiction of the state and federal courts
located in Travis County, Texas.
24. Numerical and Personal References. As used herein and when required by the
context, each number (singular and plural) shall include all numbers, and each
gender shall include all genders, and unless the context otherwise requires the
word "person" of "party" shall include "person, corporation, firm, partnership,
joint venture or association."
25. Headings. Section headings are for convenience of reference only and shall
in no way affect the interpretation of this Guaranty.
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<PAGE>
26. Rights and Remedies. The exercise by Sublessor of any right or remedy
hereunder or under any other instrument, or at law or in equity, shall not
preclude the concurrent or subsequent exercise of any other right or remedy.
PSW TECHNOLOGIES, INC.
By: /s/ W. Frank King, President
-------------------------------
Frank King, President
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<PAGE>
Exhibit 10.3
OFFICE LEASE
BY AND BETWEEN
G & W INVESTMENT PARTNERS,
A NINI KUMIA FORMED UNDER THE LAWS OF JAPAN,
LANDLORD,
AND
PENCOM SYSTEMS, INC.,
A NEW YORK CORPORATION
DBA PSW TECHNOLOGIES
TENANT
<PAGE>
TABLE OF CONTENTS
Section
Page
Number Title Number
- ---------------------------------------------------------------------
I. TERMS AND DEFINITIONS 1
II. PROPERTY LEASED 2
A. Premises 2
B. Common Areas 2
C. Minor Variations In Area 2
D. Substitution of Space 2
III. COMMENCEMENT OF TERM AND POSSESSION OF PREMISES 3
A. Lease Commencement Date 3
B. Completion of Tenant Improvements and
Possession of Premises 3
C. Extension of Lease Commencement Date 3
D. Acceptance and Suitability 3
IV. RENT 4
A. Monthly Rental 4
B. Consumer Price Index Increases 4
C. Additional Rent 5
V. REIMBURSEMENT OF COMMON EXPENSES 5
A. Definitions 5
B. Reimbursement 6
C. Rebate or Additional Charges 7
D. Control of Common Areas 7
VI. SECURITY DEPOSIT 7
VII. TENANT'S TAXES 8
VIII. USE OF PREMISES 8
A. Permitted Uses 8
B. Compliance with Laws 9
C. Hazardous Materials 9
D. Landlord's Rules and Regulations 10
IX. SERVICE AND UTILITIES 11
A. Standard Building Services
and Reimbursement by Tenant 11
B. Limitation on Landlord's Obligations 12
C. Excess Service 12
D. Security Services 12
X. MAINTENANCE AND REPAIRS 12
A. Landlord's Obligations 12
B. Tenant's Obligations 12
C. Landlord's Right to Make Repairs 13
D. Condition of Premises Upon Surrender 13
XI. ENTRY BY LANDLORD 13
XII. ALTERATIONS, ADDITIONS AND TRADE FIXTURES 14
XIII. MECHANIC'S LIENS 15
(I)
<PAGE>
XIV. INSURANCE 15
A. Tenant 15
B. Landlord 16
XV. INDEMNITY 16
A. Tenant 16
B. Landlord 17
C. Limitation on Recovery for Property Damage 17
D. Limitation of Landlord's Liability,
Release of Trustees, Officers and
Partners of Landlord 18
XVI. ASSIGNMENT AND SUBLETTING BY TENANT 18
XVII. TRANSFER OF LANDLORD'S INTEREST 21
XVIII. DAMAGE AND DESTRUCTION 21
A. Minor Insured Damage 21
B. Major or Uninsured Damage 21
C. Abatement of Rent 22
XIX. CONDEMNATION 22
A. Total or Partial Taking 22
B. Award 23
C. Abatement in Rent 23
D. Temporary Taking 23
E. Transfer of Landlord's Interest to Condemnor 24
XX. DEFAULT 24
A. Tenant's Default 24
B. Remedies 25
XXI. LATE PAYMENTS/INTEREST AND LATE CHARGES 26
A. Interest 27
B. Late Charges 27
C. Consecutive Late Payment of Rent 27
D. No Waiver 27
XXII. LIEN FOR RENT 28
XXIII. HOLDING OVER 28
XXIV. ATTORNEYS' FEES 28
XXV. MORTGAGEE PROTECTION 28
A. Subordination; Nondisturbance 29
B. Attornment 29
XXVI. ESTOPPEL CERTIFICATE/FINANCIAL STATEMENTS 29
A. Estoppel Certificate 29
B. Furnishing of Financial Statements 30
XXVII. PARKING 30
XXVIII. SIGNS; NAME OF BUILDING 31
XXIX. QUIET ENJOYMENT 32
XXX. BROKERS AND AGENTS 32
(II)
<PAGE>
XXXI. NOTICES 32
XXXII. NOTICE AND CURE TO LANDLORD AND MORTGAGEE 32
XXXIII. GENERAL 33
A. Paragraph Headings 33
B. Incorporation of Prior Agreements; Amendments 33
C. Waiver 33
D. Short Form or Memorandum of Lease 33
E. Time of Essence 33
F. Examination of Lease 33
G. Severability 33
H. Surrender of Lease Not Merger 34
I. Corporate Authority 34
J. Governing Law 34
K. Force Majeure 34
L. Use of Language 34
M. Successors 34
N. No Reduction of Rental 34
0. No Partnership 35
P. Exhibits 35
Q. Indemnities 35
XXXIV. EXECUTION 36
EXHIBIT A SITE PLAN FOR THE PROJECT 37
EXHIBIT B FLOOR PLAN OF THE PREMISES 38
EXHIBIT C CONSTRUCTION WORK LETTER 39
EXHIBIT D RENT SCHEDULE 40
EXHIBIT E RULES AND REGULATIONS 41
EXHIBIT F AMENDMENT OF LEASE COMMENCEMENT DATE 44
(III)
<PAGE>
OFFICE LEASE
THIS LEASE is entered into by and between Landlord and Tenant effective as of
this 25th day of April, l996 ("Effective Date").
SECTION I. TERMS AND DEFINITIONS
The following terms as used herein shall have the meanings as set forth below:
A. "Landlord" means G&W INVESTMENT PARTNERS, a nini kumia formed under
the laws of Japan and its successors and assigns.
B. "Tenant" means Pencom Systems Inc., a New York Corporation DBA PSW
Technologies.
C. "Building" means the building in which the Premises are located,
which Building has approximately 41,941 net rentable square feet and
is located at 3055 - 112th Avenue NE in the City of Bellevue,
Washington.
D. "Project" means the Corporate Campus East - Buildings A, B & C
located in the City of Bellevue, Washington, in which Project the
Building is located as shown on the site plan attached hereto as
Exhibit A.
E. "Premises" means suite(s) 202 located on the second floor of the
Building and consisting of approximately four thousand six hundred
twenty three (4,623) net rentable square feet, as more particularly
shown on Exhibit B attached hereto and incorporated herein by this
reference.
F. "Term" means three (3) years.
G. "Lease Commencement Date" means May 1, 1996; provided, however, that
if the Lease Commencement Date stated in this subsection is extended
pursuant to Section III. C. below, Landlord and Tenant shall execute
and attach hereto as a new Exhibit F, an Amendment of Lease
Commencement Date, in form of that attached hereto as Exhibit F,
which shall specify such amended Lease Commencement Date and, if
applicable, an amended Expiration Date.
H. "Expiration Date" means April 30, 1999 unless amended as provided in
an Amendment of Lease Commencement Date executed as provided above.
I. "Monthly Rental" means the amounts specified in Section IV below and
in the Rent Schedule attached hereto as Exhibit D and incorporated
herein, subject to adjustments as set forth in Section IV. B. below.
J. "Base Operating Expense" means the actual amount for the calendar
year 1996 (as defined in Section V below) which shall be paid by
Landlord and not Tenant.
K. "Security Deposit" means seven thousand one hundred twenty seven
Dollars ($7,127.00)
L. "Permitted Use" means General Office Use
M. "Broker" means CB Commercial Real Estate Group, Inc.
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N. "Landlord's Address for Notice" means ARES Realty Capital Inc., 3055
112th Avenue NE, Suite 211, Bellevue, WA 98004, With a copy to:
Asset Management, ARES Realty Capital Inc., 7600 East Eastman
Avenue, Suite 300, Denver, Colorado 80231.
0. "Tenant's Address for Notice" means 3055 - 112th Avenue NE, Suite
202, Bellevue, Washington.
P. "Tenant's Proportionate Share" for Tenant's reimbursement of Common
Operating Costs and other expenses to be pro-rated hereunder means
11% which is the quotient obtained by dividing the total number of
square feet of net rentable floor area in the Building into the
total number of square feet of net rentable floor area within the
Premises.
Q. "Tenant's Parking Spaces" means seventeen (17) total parking spaces
located in such areas of the Project as landlord determines and
divided as follows: two (2) covered and fifteen (15) non-covered or
surface, all of which shall be non-exclusive, unassigned.
R. "Monthly Parking Rent" means fifteen dollars ($15) per month, per
stall payable by Tenant for Tenant's fifteen (15) covered parking
spaces. Such Monthly Parking Rent shall be considered Additional
Rent and shall be due and payable without notice or demand, on or
before the first day of each calendar month.
SECTION II. PROPERTY LEASED
A. Premises
Upon and subject to the terms, covenants and conditions hereinafter set
forth, Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises.
B. Common Areas
Subject to the terms, covenants and conditions of this Lease, Tenant shall
have the right, for the benefit of Tenant and its employees, suppliers,
shippers, customers and invitees, to the non-exclusive use of all of the
Common Areas as hereinafter defined.
C. Minor Variations In Area
The area of the Premises contained in Section I. is agreed to be the area
of the Premises regardless of minor variations resulting from construction
or remodeling of the Building and/or tenant improvements.
D. Substitution of Space (Intentionally Deleted)
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SECTION III. COMMENCEMENT OF TERM AND POSSESSION OF PREMISES
A. Lease Commencement Date
The Term of the Lease shall commence on the Lease Commencement Date (as
extended only pursuant to Section III. C. below, if applicable), and shall
continue, subject to earlier termination as provided herein, until the
Expiration Date (as extended only pursuant to subsection C. below).
B. Completion of Tenant Improvements and Possession of Premises
Upon execution of this Lease by the parties, Landlord shall proceed to
complete the tenant improvements in the Premises described as "Landlord's
Work" in the "Construction Work Letter" attached hereto and incorporated
herein as Exhibit C. At the time such work has been substantially
completed in accordance with the Construction Work Letter, except for
minor decorative or other "punch list" items as contemplated in subsection
D. below, and the Premises has been approved for occupancy under the
applicable building code (which together shall constitute "Substantial
Completion" hereunder), Landlord shall notify Tenant thereof and Tenant
shall take possession of the Premises on or after the Lease Commencement
Date. In the event permission is given to Tenant to enter or occupy all or
a portion of the Premises prior to the Lease Commencement Date, such
occupancy shall be subject to all of the terms and conditions of this
Lease. All tenant improvements constructed in the Premises, whether by
Landlord or by (or on behalf of) Tenant and whether at Landlord's or
Tenant's expense, shall become part of the Premises and shall be and
remain the property of Landlord unless Landlord specifically agrees
otherwise in writing.
C. Extension of Lease Commencement Date
If the Premises are not Substantially Completed on the original Lease
Commencement Date specified in Section I. due to one or more delays caused
by Landlord or caused by matters beyond the control of Landlord, this
Lease and the obligations of Landlord and Tenant hereunder shall
nevertheless continue in full force and effect. However, in such event
Landlord and Tenant shall agree on an amendment of the original Lease
Commencement Date to reflect such delay or delays and shall, in each
instance, execute and attach hereto an amendment in the form of that
attached as Exhibit F hereto stating such amended Lease Commencement Date
and, if applicable, an amended Expiration Date and no rental shall be
payable by Tenant hereunder until the amended Lease Commencement Date. The
delay in commencement of the Term and in Tenant's obligation to pay rent
described in the foregoing sentence shall constitute full settlement of
all claims that Tenant might otherwise have by reason of the Premises not
being Substantially Completed on the original Lease Commencement Date
specified in Section I. above.
If the Premises are not Substantially Completed on the Lease Commencement
Date due to one or more delays caused by Tenant, or anyone acting under or
for Tenant, Landlord shall have no liability for such delay and the Lease
Commencement Date shall nevertheless begin as of the Lease Commencement
Date stated in Section I. (as extended only because of Landlord's delay
pursuant to this subsection C., if applicable).
D. Acceptance and Suitability
Within fifteen (15) days following the date Tenant takes possession of the
Premises, Tenant may provide Landlord with a "punch list" which sets forth
an itemization of any reasonable corrective work
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to be performed by Landlord with respect to the Landlord's Work as set
forth in the Construction Work Letter; provided, however, that Tenant's
obligation to pay Monthly Rental as provided below shall not be affected
thereby. If Tenant fails to submit such "punch list" to Landlord within
such fifteen (15) day period, Tenant agrees that by taking possession of
the Premises it will conclusively be deemed to have inspected the Premises
and found the Premises in satisfactory condition. Tenant acknowledges that
neither Landlord, nor any agent, employee or servant of Landlord, has made
any representation with respect to the Premises or the Project, or with
respect to the suitability of them to the conduct of Tenant's business,
nor has Landlord agreed to undertake any modifications, alterations, or
improvements of the Premises or Project, except as specifically provided
in this Lease.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, LANDLORD HEREBY
DISCLAIMS, AND TENANT WAIVES THE BENEFIT OF, ANY AND ALL IMPLIED
WARRANTIES, INCLUDING IMPLIED WARRANTIES OF HABITABILITY, FITNESS OR
SUITABILITY FOR PURPOSE, OR THAT THE PROJECT (OTHER THAN THE IMPROVEMENTS
CONSTRUCTED BY LANDLORD IN THE PREMISES) HAVE BEEN CONSTRUCTED IN A GOOD
AND WORKMANLIKE MANNER. TENANT EXPRESSLY ACKNOWLEDGES THAT LANDLORD DID
NOT CONSTRUCT OR APPROVE THE QUALITY OF CONSTRUCTION OF THE BUILDING.
SECTION IV. RENT
A. Monthly Rental
Commencing on the Lease Commencement Date Tenant shall pay to Landlord
during the Term, rental for the entire Term in the total amount as set
forth in the "Rental Schedule" attached hereto as Exhibit D payable in
monthly installments (the "Monthly Rental") in the amount also set forth
in Exhibit D, (subject, however, to any modifications or adjustments
specified hereinbelow and/or in Exhibit D. The Monthly Rental shall be
payable by Tenant on or before the first day of each month, in advance,
without further notice, at the address specified for Landlord in Section
I., or such other place as Landlord shall designate, without any prior
demand therefor and without any abatement, deduction or set off
whatsoever. Notwithstanding the foregoing, Monthly Rental for the first
full month shall be paid upon the execution hereof. If the Lease
Commencement Date should occur on a day other than the first day of a
calendar month, or the Expiration Date should occur on a day other than
the last day of a calendar month, then the rental for such fractional
month shall be prorated on a daily basis upon a thirty (30) day calendar
month.
B. Consumer Price Index Increases (Intentionally Deleted)
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C. Additional Rent
As used in this Lease, the term "rent" shall mean the Monthly Rental plus
all "additional rent", which shall mean all other amounts payable by
Tenant to Landlord pursuant to this Lease other than Monthly Rental,
including without limitation, Tenant's Proportionate Share of Common
Operating Costs and Monthly Parking Rent. All Monthly Rental and
additional rent shall be paid in lawful money of the United States which
shall be legal tender at the time of payment. Where no other time is
stated herein for payment, payment of any amount due from Tenant to
Landlord hereunder shall be made within ten (10) days after Tenant's
receipt of Landlord's invoice or statement therefor.
SECTION V. REIMBURSEMENT OF COMMON EXPENSES
A. Definitions
(1) "Common Areas" means all areas, space, equipment and special
services provided by Landlord for the common or joint use and
benefit of the tenants, their employees, agents, servants,
suppliers, customers and other invitees, including, by way of
illustration, but not limitation, retaining walls, fences,
landscaped areas, parks, curbs, sidewalks, private roads, restrooms,
stairways, elevators, lobbies, hallways, patios, service quarters,
parking areas, all common areas and other areas within the exterior
of the Building and in the Project or as shown on the site plan
attached to this Lease as Exhibit A.
(2) "Taxes" shall mean all real property taxes, personal property taxes,
improvement bonds, and other charges and assessments which are
levied or assessed upon or with respect to the Building and Project
and the land on which the Building and Project are located and any
improvements, fixtures and equipment and all other property of
Landlord, real or personal, located in the Building and Project and
used in connection with the operation of the Building and Project
and the land on which the Building and Project are located,
including any increase in such taxes, whether resulting from a
reassessment of the value of the land, the Building or the Project,
personal property, or for any other reason, imposed by any
governmental authority, and any tax which shall be levied or
assessed in addition to or in lieu of such real or personal property
taxes and any license fees, commercial rental tax, or other tax upon
Landlord's business of leasing the Building and the Project, but
shall not include any federal or state income tax, or any franchise,
capital stock, estate, inheritance, succession, transfer and excess
profit taxes imposed upon Landlord, and shall also include any tax
consultant fee or other costs incurred by Landlord to review or
contest any tax assessed against the Premises, Building, or Project.
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<PAGE>
(3) "Common Operating Costs" shall mean the aggregate of all costs and
expenses payable by Landlord in connection with the operation and
maintenance of the Premises, Building, Project, and Common Areas,
including, but not limited to, (a) the cost of landscaping,
repaving, resurfacing, repairing, replacing, painting, lighting,
cleaning, removing trash, janitorial services, security services and
other similar items;(c) all Taxes; (d) the cost of any insurance
obtained by Landlord in connection with the Building and Project,
including, but not limited to, the insurance required to be obtained
by Landlord pursuant to this Lease; (e) the cost of operating,
repairing and maintaining the mechanical, electrical, plumbing, life
safety, and access systems; (f) the cost of monitoring services, if
provided by Landlord, including, without limitation, any monitoring
or control devices used by Landlord in regulating the parking areas;
(g) the cost of water, electricity, gas and any other utilities; (h)
legal, accounting and consulting fees and expenses; (i) compensation
(including employment taxes and fringe benefits) of all persons who
perform duties connected with the operation, maintenance and repair
of the Premises, Project, Building or Common Areas but in no event
will this cost include executive personnel beyond the level of the
property manager, additionally, as long as the current management
agreement is in effect, neither will the cost of persons include
that of the Property Manager or any accounting personnel; (j) energy
allocation, energy use surcharges, or environmental charges; (k)
municipal inspection fees or charges; (l) the costs incurred by
Landlord to provide management services for the Building or Project;
(m) the amortized cost, including financing costs if applicable, of
any equipment, device or other capital improvement installed by
Landlord in the Premises, Building or Project which achieve
economies in the operation, maintenance and/or repair thereof; and
(n) any other costs or expenses incurred by Landlord under this
Lease which are not otherwise reimbursed directly by tenants. The
computation of Common Operating Costs shall be made in accordance
with generally accepted accounting principles.
(4) In the event during all or any portion of any calendar year the
Building is not at least ninety-five percent (95%) rented and
occupied, Landlord may elect to make an appropriate adjustment to
the Common Operating Costs for such year, employing sound accounting
and management principles, to determine the Common Operating Costs
that would have been paid or incurred by Landlord had the Building
been ninety-five percent (95%) rented and occupied and the amount so
determined shall be deemed to have been the Common Operating Costs
for such year.
B. Reimbursement
Within a reasonable time before the commencement of each calendar year
during the Term, Landlord shall deliver to Tenant a reasonable estimate of
the Common Operating Costs Landlord will incur for the forthcoming
calendar year. Commencing on the Lease Commencement Date, and continuing
on the first day of each calendar month thereafter, Tenant shall pay to
Landlord, as additional rental, an amount equal to one-twelfth (1/12th) of
the product obtained by multiplying (i) the remainder obtained by
deducting the Base Operating Expense, if any, from the then estimated
Common Operating Costs for the applicable calendar year of the Lease Term,
times (ii) Tenant's Proportionate Share; provided, however, that such
amount shall not be less than zero dollars ($0). The total of such
additional monthly payments to be paid by Tenant for such calendar year
shall be called "Tenant's Estimated Operating Cost". Upon
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Notice to Tenant, Tenant's Estimated Operating Cost may be adjusted
periodically by Landlord during the calendar year on the basis of
Landlord's reasonably revised estimate of Common Operating Costs for such
calendar year. Any major expenditure by Landlord (e.g. resurfacing of
parking areas, painting buildings, refurbishing landscaping or walkways
and similar items) during the year which was not included in determining
the estimated Common Operating Costs, may be billed separately to Tenant
according to Tenant's Proportionate Share.
C. Rebate of Excess Charges or Payment of Additional Charges
Within a reasonable time after the end of each calendar year, Landlord
shall furnish Tenant with a statement showing the Common Operating Costs
actually paid or incurred by Landlord for such year less the Base
Operating Expense, if any, and Tenant's Proportionate Share thereof
("Tenant's Actual Operating Cost"), which shall in no event be less than
zero dollars ($0). If the amount of Tenant's Estimated Operating Cost paid
by Tenant for such calendar year exceeds Tenant's Actual Operating Cost
for that year, Landlord shall refund such excess to Tenant within thirty
(30) days after such determination or Landlord may, at its sole option,
apply such excess to any outstanding amounts due Landlord. If Tenant's
Estimated Operating Cost actually paid by Tenant is less than Tenant's
Actual Operating Cost, Tenant shall pay such shortfall to Landlord, as
additional rent, within thirty (30) days after receipt of Landlord's
statement showing the amount due. If the Lease commences on a date other
than on the first day of a calendar year or expires or otherwise
terminates, on a date other than on the last day of a calendar year, the
foregoing payments shall be prorated accordingly.
D. Control of Common Areas
Tenant's use of the Common Areas shall be subject to the provisions of
this Lease and Landlord's rights, hereby reserved, to (a) restrain the use
of the Common Areas by unauthorized persons, (b) utilize from time to time
any portion of the Common Areas for promotional and related matters, (c)
temporarily close any portion of the Common Areas for repairs,
improvements or alterations, (d) change the shape and size of the Common
Areas or change the location of improvements within the Common Areas,
including, without limitation, parking areas, roadways and curb cuts, and,
(e) prohibit access to or use of Common Areas that are designated for the
storage of supplies or operation of equipment necessary to operate the
Project or Building. In addition, Landlord may determine the nature, size
and extent of the Common Areas as well as make changes to the Common Areas
and take such other actions in connection therewith from time to time
which, in its opinion, are deemed desirable.
SECTION VI. SECURITY DEPOSIT
Upon execution of this Lease, Tenant shall deposit with Landlord the Security
Deposit defined in Section I. above, which shall be held for Landlord as
security for the performance by Tenant of all terms, covenants and conditions of
this Lease. It is expressly understood and agreed that such deposit is not an
advance rental payment or a measure of Landlord's damages in case of Tenant's
default. If Tenant defaults with respect to any provision of this Lease,
including, but not limited to, the provisions relating to the payment of rent or
the obligation to repair and maintain the Premises or to perform any other term,
covenant or condition contained herein, Landlord may (but shall not be required
to), without prejudice to any other remedy provided herein or provided by law
and without notice to Tenant, use the Security Deposit, or any portion of it, to
cure the default or to compensate Landlord for all damages sustained by Landlord
resulting from Tenant's default. Tenant shall immediately on demand pay to
Landlord a sum equivalent to the portion of the Security Deposit so expended or
applied by Landlord as
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provided in this paragraph so as to maintain the Security Deposit in the sum
initially required to be deposited with Landlord. Although the Security Deposit
shall be deemed the property of Landlord, if Tenant is not in default at the
expiration or earlier termination of this Lease, Landlord shall return the
Security Deposit to Tenant within thirty (30) days of the termination of this
Lease. Landlord shall not be required to keep the Security Deposit separate from
its general funds and Landlord, not Tenant, shall be entitled to all interest,
if any, accruing on any such deposit. Upon any sale or transfer of its interest
in the Building, Landlord shall transfer the Security Deposit to its successor
in interest and thereupon, Landlord shall be released from any liability or
obligation with respect thereto.
SECTION VII. TENANT'S TAXES
To the extent not covered as a Common Operating Expense, Tenant shall be liable
for any tax (now or hereafter imposed by any governmental entity) applicable to
or measured by or levied on the rents or any other charges payable by Tenant
under this Lease, including (but not limited to) any gross income tax, gross
receipts tax or excise tax payable with respect to the receipt of such rent or
other charges or the possession, leasing or operation, use or occupancy of the
Premises, but not including any net income, franchise, capital stock, estate or
inheritance taxes payable by Landlord. If any such tax is required to be paid to
the governmental taxing entity directly by Landlord, then Landlord shall pay the
amount due and, upon demand, shall be fully reimbursed by Tenant for such
payment.
Tenant shall also be liable for all taxes levied against the leasehold held by
Tenant or against any personal property, leasehold improvements, additions,
alterations and fixtures placed by or for Tenant in, on or about the Premises,
Building and Project or constructed by Landlord for Tenant in the Premises,
Building or Project; and if any such taxes are levied against Landlord or
Landlord's property, or if the assessed value of such property is increased
(whether by special assessment or otherwise) by the inclusion therein of value
placed on such leasehold, personal property, leasehold improvements, additions,
alterations and fixtures, and Landlord pays any such taxes (which Landlord shall
have the right to do regardless of the validity thereof), Tenant, upon demand,
shall fully reimburse Landlord for the taxes so paid by Landlord or for the
proportion of such taxes resulting from such increase in any assessment.
SECTION VIII. USE OF PREMISES
A. Permitted Uses
Tenant shall use the Premises and Common Areas solely for the Permitted
Use specified in subsection I.L. above, and for no other use. Tenant
shall, at its own cost and expense, obtain any and all licenses and
permits necessary for any such use. Tenant shall not do or permit anything
to be done in or about the Premises, Common Areas, Building or Project
which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Project or injure or annoy them. Tenant shall
not use or allow the Premises to be used for any unlawful purpose, nor
shall Tenant cause, maintain or permit any nuisance in, on or about the
Premises and Common Areas. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises, Common Areas, Building or
Project. Tenant shall not do or permit anything to be done in or about the
Premises, Common Areas, Building or Project which may render the insurance
thereon void or increase the insurance risk or cost thereon. If an
increase in any fire and extended coverage insurance premiums paid by
Landlord for the Building and Project is caused by Tenant's use and
occupancy of the Premises, then Tenant shall pay, as additional rental,
the amount of such increase to Landlord.
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B. Compliance with Laws
Tenant shall not use the Premises, Building, Project or Common Areas in
any way (or permit or suffer anything to be done in or about the same)
which will conflict with any law, statute, ordinance or governmental rule
or regulation or any covenant, condition or restriction (whether or not of
public record) affecting the Premises, Project or Building, now in force
or which may hereafter be enacted or promulgated including, but not
limited to, the provisions of any city or county zoning codes regulating
the use thereof. Tenant shall, at its sole cost and expense, promptly
comply with (a) all laws, statutes, ordinances, and governmental rules and
regulations, now in force or which may hereafter be in force, (b) all
requirements, and other covenants, conditions and restrictions, now in
force or which may hereafter be in force, which affect the Premises, and
(c) all requirements, now in force or which may hereafter be in force, of
any board of fire underwriters or other similar body now or hereafter
constituted relating to or affecting the condition, use or occupancy of
the Premises, Building or Project. The judgment of any court of competent
jurisdiction or the admission by Tenant in any action against Tenant,
whether Landlord be a party thereto or not, that Tenant has violated any
such law, statute, ordinance, governmental rule or regulation or any
requirement, covenant, condition or restriction shall be conclusive of the
fact as between Landlord and Tenant. Tenant agrees to fully indemnify
Landlord against any liability, claims or damages arising as a result of a
breach of the provisions of this Subsection by Tenant, and against all
costs, expenses, fines or other charges arising therefrom, including,
without limitation, reasonable attorneys' fees and related costs incurred
by Landlord in connection therewith, which indemnity shall survive the
expiration or earlier termination of this Lease.
C. Hazardous Materials
Tenant shall not cause or permit any Hazardous Material (as defined below)
to be brought upon, kept, or used in or about the Premises, Building or
Project by Tenants, its agents, employees, contractors, or invitees,
without the prior written consent of Landlord (which Landlord shall not
unreasonably withhold as long as Tenant demonstrates to Landlord's
reasonable satisfaction that such Hazardous Material is necessary or
useful to Tenant's business and will be used, kept, stored and disposed of
in a manner that complies with all laws regulating any such Hazardous
Material so brought upon or used or kept in or about the Premises,
Building and Project, and such storage will not create an undue risk to
other tenants of the Building and Project, giving consideration to the
nature of the Project and Building). If Tenant breaches the obligations
stated in the preceding sentence, or if the presence of Hazardous Material
on the Premises, Building or Project caused or permitted by Tenant results
in contamination of the Premises, the Building or the Project, or if
contamination of the Premises, the Building or the Project, by Hazardous
Material otherwise occurs for which Tenant is legally liable to Landlord
for damage resulting therefrom, then Tenant shall indemnify, defend and
hold Landlord harmless from any and all claims, judgments, damages,
penalties, fines, costs, liabilities, or losses (other than consequential
damages) which arise during or after the Lease Term as a result of such
contamination. This indemnification of Landlord by Tenant includes,
without limitation, the obligation to reimburse Landlord for costs
incurred in connection with any investigation of site conditions or any
cleanup, remedial, removal or restoration work required by any federal,
state, or local governmental agency or political
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subdivision because of Hazardous Material present in, on, or about the
Premises, Building or Project or in the soil or ground water on or under
the Premises, the Building or the Project. Without limiting the foregoing,
if the presence of any Hazardous Material in, on or about the Premises,
Building or Project caused or permitted by Tenant results in any
contamination of the Premises, the Building or the Project, Tenant shall
promptly take all actions at its sole expense as are necessary to return
the Premises, the Building or the Project to the condition existing prior
to the introduction of any such Hazardous Material thereto; provided that
Landlord's approval of such actions shall first be obtained, which
approval shall not be unreasonably withheld so long as such actions would
not potentially have any material adverse long-term or short-term effect
on the Premises, Building or Project or exposes Landlord to any liability
therefor and such actions are undertaken in accordance with all applicable
laws, rules and regulations and accepted industry practices.
"Hazardous Material" is used in this Lease in its broadest sense and shall
mean any petroleum based products, pesticides, paints and solvents,
polychlorinated biphenyl, lead, cyanide, DDT, acids, ammonium compounds
and other chemical products and any substance or material defined or
designated as hazardous or toxic, or other similar term, by any federal,
state or local environmental statute, regulation, or ordinance affecting
the Premises, Building or Project presently in effect or that may be
promulgated in the future, as such statutes, regulations and ordinances
may be amended from time to time, including but not limited to the
statutes listed below:
Resource Conservation and Recovery Act of 1976, 42 U.S.C. ss. 6901 et seq.
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, 40 U.S.C. ss. 1801 et seq.
Clean Air Act, 42 U.S.C. ss.ss. 7401-7626.
Water Pollution Control Act (Clean Water Act of 1977), 33 U.S.C. ss. 1251
et seq.
Insecticide, Fungicide, and Rodenticide Act (Pesticide Act of 1987), 7
U.S.C. ss. 135 et seq.
Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq.
Safe Drinking Water Act, 42 U.S.C. ss. 300(f) et seq.
National Environmental Policy Act (NEPA) 42 U.S.C. ss. 4321 et seq.
Refuse Act of 1899, 33 U.S.C. ss. 407 et seq.
D. Landlord's Rules and Regulations
Tenant shall, and Tenant agrees to cause its agents, servants, employees,
invitees, and licensees to observe and comply fully and faithfully with
the rules and regulations attached hereto as Exhibit E or such reasonable
rules and regulations which may hereafter be adopted by Landlord (the
"Rules") for the care, protection, cleanliness, and operation of the
Premises, Building and Project, and any reasonable modifications or
additions to the Rules adopted by Landlord, provided that, Landlord shall
give written notice thereof to Tenant and, Tenant's Permitted Use of the
Project's not unreasonably affected. Landlord shall not be responsible to
Tenant for failure of any other tenant or occupant of the Building or
Project to observe or comply with any of the Rules. To the best of its
ability Landlord will apply the Rules equally to all tenants and will not
discriminate in the application of the Rules.
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SECTION IX. SERVICE AND UTILITIES
A. Standard Building Services and Reimbursement by Tenant
Landlord agrees to furnish to the Premises, between the hours of 7:00 a.m.
and 6:00 p.m. on Monday through Friday and between 8:00 a.m. and 12 noon
on Saturday (Sunday and legal holidays excepted) (hereinafter "Building
Hours"), heat and air conditioning (hereinafter "HVAC"), required in
Landlord's judgment for the comfortable use and occupation of the Premises
for general office purposes and at a level which is usual and customary in
similar office buildings in the area where the Project is located, all of
which shall be subject to the Rules of the Building as well as any
governmental requirements or standards relating to, among other things,
energy conservation. Standard water, electrical and elevator (if
applicable) service shall be supplied to the Premises at all times at
Landlord's cost, which cost is subject to the provisions of Section V
herein. Tenant agrees to pay, as a Common Operating Expense except as
provided below, the full cost of all utilities supplied to the Premises,
together with any taxes thereon, as part of Tenant's Proportionate Share
of Common Operating Costs except for separately metered and excess service
as provided below. If any such service or utilities are separately metered
to the Premises, Tenant shall pay the cost thereof in a timely manner
directly to the utility company providing such service. Tenant's
obligations in this Section regarding utilities include, but are not
limited to initial connection charges, all charges for gas, water and
electricity used on the Premises, and for all electric light lamps or
tubes. Tenant shall be required to pay any increased cost, as additional
rent, of any utilities and services, including, without limitation, water,
electricity and HVAC, resulting from any use of the Premises at any time
other than the above scheduled Building Hours or any use beyond what
Landlord agrees to furnish as described above, or resulting from special
electrical, cooling and ventilating needs created in certain areas by
telephone equipment, computers and other similar equipment or uses. Tenant
agrees to pay the cost of operating the HVAC at any time other than the
above scheduled Building Hours, which cost may include the operation of
the HVAC for space located outside the Premises when such space is
serviced concurrently with the operation of the HVAC for the benefit of
the Premises. Landlord estimates the cost of such HVAC service to be
$25.00 per hour.
B. Limitation on Landlord's Obligations
Landlord shall not be liable for and Tenant entitled to any abatement or
reduction of rent by reason of, Landlord's failure to furnish any of the
foregoing when such failure is caused by accidents, breakage, repairs,
strikes, brownouts, blackouts, lockouts or other labor disturbances or
labor disputes of any character, or by any other cause, similar or
dissimilar, beyond the reasonable control of Landlord, nor shall such
failure under such circumstances be construed as a constructive or actual
eviction of Tenant. Notwithstanding any of the foregoing, Landlord shall
not be liable under any circumstances for loss or injury to the property
or business of Tenant, however occurring, through or in connection with or
incidental to Landlord's furnishing or failure to furnish any of said
service or utilities.
C. Excess Service
Tenant shall not, without the written consent of Landlord, use any
apparatus or device in the Premises, including, without limitation,
electronic data processing machines, punch card machines or machines using
in excess of one hundred twenty (120) volts or which consumes more
electricity than is usually furnished or supplied for the Permitted Use of
the Premises, as reasonably determined by Landlord. Tenant shall not
consume water or electric current in excess of that usually furnished or
supplied for the Permitted Use of the Premises
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(as reasonably determined by Landlord), without first procuring the
written consent of Landlord, which Landlord may refuse. The excess cost
for such water and electric current shall be established by an estimate
made by a utility company or independent engineer hired by Landlord at
Tenant's expense and Tenant shall pay such excess costs as additional rent
each month with the Monthly Rental.
D. Security Services
Certain security measures (both by electronic equipment and personnel) may
be provided by Landlord in connection with the Building and Common Areas.
However, Tenant hereby acknowledges that any such security is intended to
be solely for the benefit of the Landlord in protecting its property from
fire, theft, vandalism and similar perils and while certain incidental
benefits may accrue to the Tenant therefrom, any such security is not for
the purpose of protecting either the property of Tenant or the safety of
its officers, employees, servants or invitees. By providing such security,
Landlord assumes no obligation to Tenant and shall have no liability
arising therefrom. Landlord reserves the right to either commence, expand,
reduce or discontinue the providing of any such security at any time
without notice to Tenant.
SECTION X. MAINTENANCE AND REPAIRS
A. Landlord's Obligations
Except for special or non-standard systems and equipment installed for
Tenant's exclusive use, Landlord shall, at Landlord's initial cost and
expense subject to reimbursement by Tenant of Tenant's Proportionate Share
of such cost and expense, keep in good condition and repair the heating,
ventilating and air conditioning and other mechanical systems which
service the Premises as well as other premises within the Building; the
foundations, exterior walls, structural condition of interior bearing
walls, and roof of the Premises and Building; and the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations
and other Common Areas of the Project. Landlord shall not be in breach of
its obligations under this Section unless Landlord fails to make any
repairs or perform maintenance which it is obligated to perform hereunder
and such failure persists for an unreasonable time after written notice of
a need for such repairs or maintenance is given to Landlord by Tenant.
Landlord shall not be required to make any repairs that are the obligation
of any tenant or occupant within the Building or Project or repairs for
damage caused by any negligent or intentional act or omission of Tenant or
any person claiming through or under Tenant or any of Tenant's employees,
suppliers, shippers, customers or invitees, in which event Tenant shall,
with the consent and under the direction of Landlord, repair such damage
at its sole cost and expense. Tenant hereby waives and releases any right
it may have to make repairs to the Premises, Building or Project at
Landlord's expense under any law, statute, ordinance, rules and
regulations now or hereafter in effect in any jurisdiction in which the
Project is located.
B. Tenant's Obligations
Tenant shall, at its sole cost and expense, make all maintenance, repairs
and replacements in the manner and when Landlord reasonably deems
necessary to preserve in good working order and condition the following
items, and every part thereof: plumbing that is both within and servicing
the Premises; special or supplementary heating, ventilating and air
conditioning systems installed for the exclusive use of the Premises;
non-standard electrical, lighting and other utility systems, facilities
and equipment located within the Premises and; all trade fixtures,
interior walls, interior surfaces of exterior walls, ceilings, windows,
doors, cabinets, draperies, window coverings, carpeting and other floor
coverings, plate glass
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and skylights located within the Premises. Tenant shall not commit or
permit any waste in or about the Premises, the Building or the Project.
Tenant shall, at its sole cost and expense, make all repairs to the
Premises, Building and Project which are required, in the reasonable
opinion of Landlord, as a result of any misuse, neglect, negligent or
intentional act or omission committed or permitted by Tenant or by any
subtenant, agent, employee, supplier, shipper, customer, invitee or
servant of Tenant.
C. Landlord's Right to Make Repairs
In the event that Tenant fails to maintain the Premises, Building and
Project in good and sanitary order, condition and repair as required by
this Lease, then, following written notification to Tenant (except in the
case of an emergency, in which case no prior notification shall be
required), Landlord shall have the right, but not the obligation, to enter
the Premises and to do such acts and expend such funds at the expense of
Tenant as are required to place the Premises, Building and Project in
good, safe and sanitary order, condition and repair. Any amount so
expended by Landlord shall be paid by Tenant promptly upon demand as
additional rent.
D. Condition of Premises Upon Surrender
Except for reasonable wear and tear and as otherwise provided in this
Lease, Tenant shall, upon the expiration or earlier termination of the
Term, surrender the Premises to Landlord broom clean and in the same
condition as on the date Tenant took possession. All appurtenances,
fixtures, improvements, additions and other property attached to or
installed in the Premises whether by Landlord or by or on behalf of
Tenant, and whether at Landlord's expense or Tenant's expense, shall be
and remain the property of Landlord unless Landlord specifically agrees
otherwise in writing. Any furnishings and personal property of Tenant
located in the Premises, whether the property of Tenant or leased by
Tenant, and any fixtures, improvements and other items agreed, in writing,
by Landlord to belong to the Tenant as provided in the preceding sentence,
shall be and remain the property of Tenant and shall be removed by Tenant
at Tenant's sole cost and expense at the expiration of the Term. Tenant
shall promptly repair any damage to the Premises or the Building resulting
from such removal. Any of Tenant's property not removed from the Premises
prior to or upon the Expiration Date shall, at Landlord's option, either
become the property of Landlord or may be removed by Landlord, in which
case Tenant shall pay to Landlord the cost of such removal within ten (10)
days after delivery of a bill therefor or Landlord, at its option, may
deduct such amount from the Security Deposit. Any damage to the Premises,
including any structural damage, resulting from Tenant's use or from the
removal of Tenant's fixtures, furnishings and equipment shall be repaired
by Tenant at Tenant's expense.
SECTION XI. ENTRY BY LANDLORD
Landlord reserves and shall at any and all times have the right to enter the
Premises at reasonable times to inspect the same to determine whether Tenant is
complying with its obligations hereunder; to supply any service to be provided
by Landlord hereunder; to supply janitorial service and any other service to be
provided by Landlord to Tenant hereunder; to exhibit, upon reasonable notice to
Tenant the Premises to prospective purchasers, mortgagees or prospective
tenants; to post notices of nonresponsibility; and to alter, improve or repair
the Premises and any portion of the Building and Project, without abatement of
rent, in which case Landlord may erect scaffolding and other necessary
structures that are reasonably required by the character of the work to be
performed by Landlord, provided that the business of Tenant shall not be
interfered with unreasonably. In order to enter the Premises for each of the
aforesaid purposes, Landlord shall at all times have and retain a key
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with which to unlock all of the doors in, upon and about the Premises, excluding
Tenant's vaults and safes. Further, Landlord shall have the right to use any and
all means which Landlord may deem proper to open such doors in the event of an
emergency. Any entry to the Premises or portions thereof obtained by Landlord by
any of said means, or otherwise, shall not under any circumstances be construed
or deemed to be a forcible or unlawful entry into, or a detainer of, the
Premises, or an eviction, actual or constructive, of Tenant from the Premises,
or any portion thereof.
SECTION XII. ALTERATIONS, ADDITIONS AND TRADE FIXTURES
Tenant shall not make any alterations, additions or improvements to the
Premises, or any part thereof, whether structural or nonstructural (hereafter
"Alterations"), without Landlord's prior, final written consent. In order to
obtain Landlord's preliminary consent, which preliminary consent may be given or
denied in Landlord's sole discretion, Tenant shall submit such information as
Landlord may require, including, without limitation plans and specifications for
the Alterations. If Landlord gives its preliminary consent for the Alterations,
in order to obtain Landlord's final consent (which final consent may not be
unreasonably withheld after preliminary consent is given), Tenant shall then
submit (i) all necessary permits, licenses, bonds, and the construction
contract, all in conformance with the plans and specifications preliminarily
approved by Landlord; (ii) evidence of insurance coverage in such types and
amounts and from such insurers as Landlord deems satisfactory; and (iii) such
other information and documentation as Landlord deems reasonably necessary
including, but not limited to, evidence of Tenant's financial ability to pay for
the Alterations. Notwithstanding the foregoing Landlord will make reasonable
efforts to render it's preliminary consent within five (5) working days after
receipt of request for consent from Tenant.
The construction contract for the Alterations shall, at the minimum, require the
general contractor and all subcontractors to obey the rules and regulations of
the Building and Project. All Alterations shall be done in a good workmanlike
manner by qualified and licensed contractors or mechanics, as approved by
Landlord. In no event shall any Alterations affect the structure of the Building
or its exterior appearance. All Alterations made by or for Tenant (other than
Tenant's moveable trade fixtures), shall, unless Landlord expressly requires or
agrees otherwise in writing, immediately become the property of Landlord,
without compensation to Tenant, but Landlord shall have no obligation to repair,
maintain or insure those Alterations. Carpeting, shelving and cabinetry shall be
considered improvements of the Premises and not movable trade fixtures,
regardless of how or where affixed. No Alterations shall be removed by Tenant
from the Premises either during or at the expiration or earlier termination of
the Term, and they shall be surrendered as a part of the Premises unless
Landlord has agreed or required otherwise in writing, in Landlord's discretion,
in which case the Alterations shall be removed by Tenant at Tenant's sole cost
and expense. Upon any such removal, Tenant shall repair any damage caused to the
Premises thereby, and shall return the Premises to the condition they were in
prior to installation of the Alterations so removed.
Tenant shall indemnify, defend and keep Landlord free and harmless from and
against all liability, loss, damage, cost, attorneys' fees and any other expense
incurred on account of claims by any person performing work or furnishing
materials or supplies for Tenant or any person claiming under Tenant. Landlord
may require Tenant to provide Landlord, at Tenant's sole cost and expense, a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such improvements, to insure Landlord against any liability
for mechanic's liens and to insure completion of the work. Landlord shall have
the right at all times to post on the Premises any notices permitted or required
by law, or that Landlord shall deem proper, for the protection of Landlord, the
Premises, the Building and the Project, and any other party having an interest
therein, from mechanics' and materialmen's liens. Tenant shall
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give to Landlord written notice of the commencement of any construction in or on
the Premises at least thirty (30) business days prior thereto. Prior to the
commencement of any such construction, Landlord shall be furnished certificates
of insurance, naming Landlord as an additional insured, evidencing that each
contractor performing work has insurance acceptable to Landlord including but
not limited to general liability insurance of not less that $1,000,000 and
worker's compensation insurance in the statutorily required amount.
SECTION XIII. MECHANIC'S LIENS
Tenant shall keep the Premises, the Building and the Project free from any liens
arising out of any work performed, material furnished or obligation incurred by
or for Tenant or any person or entity claiming through or under Tenant. In the
event that Tenant shall not, within ten (10) days following the imposition of
any such lien, cause the same to be released of record by payment or posting of
a proper bond, Landlord shall have, in addition to all other remedies provided
herein and by law, the right, but not the obligation, to cause such lien to be
released by such means as Landlord deems proper, including payment of the claim
giving rise to such lien. All such sums paid and all expenses incurred by
Landlord in connection therewith shall be due and payable to Landlord by Tenant
on demand.
SECTION XIV. INSURANCE
A. Tenant
During the Term hereof, Tenant shall keep in full force and effect the
following insurance and shall provide appropriate insurance certificates
evidencing such coverage to Landlord prior to the Lease Commencement Date
and annually thereafter before the expiration of each policy:
(1) Commercial general liability insurance for the benefit of Tenant and
Landlord as an additional insured, with a limit of not less than One
Million Dollars ($1,000,000.00) combined single limit per
occurrence, against claims for personal injury liability including,
without limitation, bodily injury, death or property damage
liability and covering (i) the business(es) operated by Tenant and
by any subtenant of Tenant on the Premises, (ii) operations of
independent contractors engaged by Tenant for services or
construction on or about the Premises, and (iii) contractual
liability;
(2) Fire, extended coverage, vandalism and malicious mischief insurance,
insuring the personal property, furniture, furnishings and fixtures
belonging to Tenant located on the Premises for not less than one
hundred percent (100%) of the actual replacement value thereof; and
(3) Business interruption or loss of income insurance in amounts
satisfactory to Landlord, with a rental interruption rider assuring
Landlord that the rent due hereunder will be paid for a period of
not less than twelve (12) months if the Premises are destroyed or
rendered inaccessible by a risk insured against by a policy of all
risk insurance.
Each insurance policy obtained by Tenant pursuant to this Lease shall
contain a clause that the insurer will provide Landlord with at least
thirty (30) days prior written notice of any material change, non-renewal
or cancellation of the policy, shall be in a form satisfactory to Landlord
and shall be taken out with an insurance company authorized to do business
in the State in which the Project is located and rated not less than
Best's Financial Class X and Best's Policy Holder Rating "A". In addition,
any insurance policy obtained by Tenant shall be written as a primary
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policy, and shall not be contributing with or in excess of any coverage
which Landlord may carry, and shall have loss payable clauses satisfactory
to Landlord and in favor of Landlord naming Landlord, and any other party
reasonably designated by Landlord as an additional insured. The liability
limits of the above described insurance policies shall in no matter limit
the liability of Tenant under the terms of Section XV. below.
Not more frequently than every two (2) years, Landlord may, by notice to
Tenant, require an increase in the above-described limits of coverage if,
in the reasonable opinion of Landlord, the amount of liability insurance
specified in this Section is not adequate to maintain the level of
insurance protection at least equal to the protection afforded on the date
the Term commences. If Tenant fails to maintain and secure the insurance
coverage required under this Section XIV., then Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but
not the obligation, to procure and maintain such insurance, the cost of
which shall be due and payable to Landlord by Tenant within ten (10)
business days after written demand.
If, on account of the failure of Tenant to comply with the provisions of
this Section, Landlord is deemed a co-insurer by its insurance carrier,
then any loss or damage which Landlord shall sustain by reason thereof
shall be borne by Tenant and shall be paid by Tenant as additional rent
within ten (10) business days after receipt of a bill therefor and
evidence of such loss.
B. Landlord
During the Term hereof, Landlord shall keep in full force and effect the
following insurance:
(1) Fire, extended coverage and vandalism and malicious mischief
insurance insuring the Building and Project of which the Premises
are a part, in an amount not less than 80% (or such greater
percentage as may be required by law) of the full replacement cost
thereof; and
(2) Such other insurance as Landlord deems necessary in its sole and
absolute discretion.
All insurance policies shall be issued in the names of Landlord and
Landlord's lender, and any other party reasonably designated by Landlord
as an additional insured, as their interests appear. The insurance
policies shall provide that any proceeds shall be made payable to
Landlord, or to the holders of mortgages or deeds of trust encumbering
Landlord's interest in the Premises, Building, and Project, or to any
other party reasonably designated by Landlord as an additional insured, as
their interests shall appear. All insurance premiums for Landlord's
insurance shall be included in Common Operating Costs.
SECTION XV. INDEMNITY
A. Tenant
Subject to the provisions of subparagraph C below, Tenant agrees to
indemnify, defend and hold Landlord and its officers, directors, partners
and employees entirely harmless from and against all liabilities, losses,
demands, actions, expenses or claims, including reasonable attorneys' fees
and court costs, for injury to or death of any person or for damages to
any property or for violation of law to the extent such liabilities,
losses, demands, actions, expenses or claims, including reasonable
attorneys' fees and court costs are arising out of or in any manner
connected with (i) the use, occupancy or enjoyment of the Premises,
Building and Project by Tenant or Tenant's agents, employees, or
contractors (the "Tenant's
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Agents") or any work, activity or other things allowed or suffered by
Tenant or Tenant's Agents to be done in or about the Premises, Building
and Project (ii) any breach or default in the performance of any
obligation of Tenant under this Lease and (iii) any negligent or otherwise
tortious act or failure to act by Tenant or Tenant's Agents on or about
the Premises, Building or Project. Notwithstanding the foregoing, Tenant
shall be responsible for actual damages only and shall not be responsible
for consequential damages.
B. Landlord
Subject to the provisions of subparagraph C below, Landlord agrees to
indemnify, defend and hold Tenant and its officers, directors, partners
and employees entirely harmless from and against all liabilities, losses,
demands, actions, expenses or claims, including attorneys' fees and court
costs but excluding consequential damages, for injury to or death of any
person or for damage to any property to the extent such are
determined to be caused by the negligence or willful misconduct of
Landlord, its agents, employees, or contractors on or about the Premises,
Building, or Project. None of the events or conditions set forth in this
paragraph shall be deemed a constructive or actual eviction or entitle
Tenant to any abatement or reduction of rent.
C. Limitation on Recovery for Property Damage
Notwithstanding the provisions of subparagraphs A and B above, neither
Landlord nor Tenant shall be liable to the other for any damage to the
property of the other caused by fire, casualty or the actions of Landlord,
Tenant or their employees, agents and contractors except to the extent
such property damage is (a) not covered by the damaged party's insurance
required to be maintained under the terms of this Lease (or if such
insurance is not in effect as required, the amount of such damage which
would not have been covered had the such insurance been in effect as
required); (b) caused by the intentional actions of Landlord or Tenant;
or (c) are caused by Tenant's installation or removal of alterations or
trade fixtures as provided in the Lease. In connection with the foregoing
waiver of claims, Landlord and Tenant hereby waive any rights of
subrogation arising under their respective property insurance policies.
D. Limitation on Landlord's Liability; Release of Trustees, officers and
Partners of Landlord
Tenant agrees that in the event Tenant obtains a judgment or decree
against Landlord arising out of the subject matter of this Lease which
requires the payment of money by Landlord, Tenant's sole recourse for the
satisfaction thereof shall be to (a) proceed against Landlord's interest
in the Building or any proceeds therefrom or (b) offset the amount due
under such judgment or decree against the sums due to Landlord hereunder
and no other property or assets of Landlord, its successors or assigns,
shall be subject to the levy, execution or other enforcement procedure for
the satisfaction of any such judgment or decree. Tenant further hereby
waives any and all right to assert any claim against or obtain any damages
from, for any reason whatsoever, the trustees, directors, officers and
partners of Landlord including all injuries, damages or losses to Tenant's
property, real and personal, whether known, unknown, foreseen, unforeseen,
patent or latent, which Tenant may have against Landlord or its directors,
officers or partners. Tenant understands and acknowledges the significance
and consequence of such specific waiver.
Landlord shall not be liable or responsible to Tenant for any loss or
damage to any property or person occasioned by theft, fire, act of God,
public enemy, injunction, riot, strike, insurrection, war,
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court order, requisition, or order of governmental body or authority.
SECTION XVI. ASSIGNMENT AND SUBLETTING BY TENANT
A. Tenant shall not directly or indirectly, voluntarily or by operation of
law, sell, assign, encumber, pledge or otherwise transfer or hypothecate
all or any part of the Premises or Tenant's leasehold estate hereunder
(collectively an "Assignment"), or permit the Premises to be occupied by
anyone other than Tenant or sublet the Premises or any portion thereof
(collectively a "Sublease") without Landlord's prior written consent,
which shall not be unreasonably withheld, being obtained in each instance,
subject to the terms and conditions contained in this Section.
B. If Tenant desires at any time to enter into an Assignment or Sublease of
the Premises or any portion thereof, Tenant shall, at least fifteen (15)
days prior to the effective date of the Assignment or Sublease, request in
writing Landlord's consent to the Assignment or Sublease and provide the
following:
(1) The name of the proposed assignee, sub-tenant or occupant;
(2) The nature of the proposed assignee's, subtenant's or occupant's
business to be carried on in the Premises;
(3) A copy of the proposed Assignment or Sublease; and
(4) Such financial information concerning the proposed assignee,
subtenant or occupant and other reasonable information regarding the
transaction which Landlord shall have requested following its
receipt of Tenant's request for consent.
C. At any time within fifteen (15) days after Landlord's receipt of the
notice specified above, Landlord may by written notice to Tenant elect
either to (a) consent to the proposed Assignment or Sublease, (b) refuse
to consent to the proposed Assignment or Sublease or (c) terminate this
Lease in full with respect to an Assignment or terminate in whole or in
part with respect to a Sublease and enter into a lease directly with the
proposed assignee or sublessee. In this regard, Landlord and Tenant agree
(by way of example and without limitation) that it shall be reasonable for
Landlord to withhold its consent if any of the following situations exist
or may exist:
(1) The proposed transferee's use of the Premises conflicts with the
Permitted Use under this Lease or is a type of use that is not
desirable or compatible with other uses of the Building or Project;
(2) In Landlord's reasonable business judgment, the proposed assignee,
sublessee or occupant lacks sufficient business reputation or
experience to operate a successful business of the type and quality
permitted under this Lease;
(3) Tenant is in default pursuant to this Lease or an event has occurred
which, with the passage of time and/or the giving of notice, would
constitute an event of default hereunder;
(4) (Intentionally Deleted)
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D. If Landlord consents to the Sublease or Assignment within said fifteen
(15) day period, Tenant may enter into such Assignment or Sublease of the
Premises or portion thereof, but only upon the terms and conditions set
forth in the notice furnished by Tenant to Landlord pursuant to Subsection
B. above; provided, however, that in connection with such Assignment or
Sublease, as a condition to Landlord's consent, Tenant shall pay to
Landlord one hundred percent (100%) of the excess net of actual
transaction costs (e.g., commissions) and net of any amounts paid to
Tenant by subtenant or assignee for furniture or equipment sold to said
subtenant or assignee, if any, of (i) in the case of an Assignment, the
rental and other payment obligations of the proposed assignee under the
terms of the proposed Assignment over the rental and other payment
obligations of Tenant under the terms of this Lease, or (ii) in the case
of a Sublease, the amount proposed to be paid by the sublessee over the
proportionate amount of rental and other payment obligations required to
be paid by Tenant to Landlord under the terms of this Lease as applicable
to the portion of the Premises so subleased.
E. No consent by Landlord to any Assignment or Sublease by Tenant shall
relieve Tenant of any obligation to be performed by Tenant under this
Lease, whether arising before or after the Assignment or Sublease. The
consent by Landlord to any Assignment or Sublease shall not relieve Tenant
of the obligation to obtain Landlord's express written consent to any
other Assignment or Sublease. Any Assignment or Sublease that is not in
compliance with this Section shall be void and, at the option of Landlord,
shall constitute a material default by Tenant under this Lease. The
acceptance of rent or payment of any other monetary obligation by Landlord
from a proposed assignee or sublessee shall not constitute the consent by
Landlord to such Assignment or Sublease. Tenant shall promptly provide to
Landlord a copy of the fully executed Sublease or Assignment.
F.
(1) For the purposes of the Lease, the term Assignment" shall also
include any of the following transactions if such transaction is
entered into principally for the purpose of transferring the
leasehold estate created hereby: (i) if Tenant is a partnership, the
transfer of a majority of partnership interests to other than,
existing partners or to their immediate family members; (ii) if
Tenant is a limited liability company, the transfer of a majority of
the membership interests to other than existing members or to their
immediate family members; (iii) if Tenant is a closely held
corporation (i.e., whose stock is not publicly held and not traded
through an exchange or over the counter), the sale or transfer of
more than an aggregate of 50% of the voting shares of Tenant to
other than existing shareholders or to their immediate family
members.
(2) Notwithstanding anything to the contrary contained in this Section
XVI, Landlord's consent shall not be required for an Assignment or
Sublease to an Affiliate, as long as Tenant gives notice to Landlord
of the Assignment or Sublease and, if an Assignment (other than as
described in Section XVIF(l)
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hereof), such assignee assumes the obligations of Tenant under this
Lease. As used herein, "Affiliate" shall mean any natural person,
corporation, partnership or limited liability company which, either
directly or with others; (i) then controls the original Tenant under
this Lease, (ii) is then controlled by the original Tenant under
this Lease, or (iii) is then controlled by a person or an entity
described in (1). The term "control" as used in this Section XVIF2
means the power to directly or indirectly direct or cause the
direction of the management or policies of Tenant.
(3) Notwithstanding anything to the contrary contained in this Section
XVI, Landlord's consent shall not be required in connection with an
Assignment or Sublease made in connection with: (i) a reorganization
in which beneficial ownership of a controlling interest in Tenant
remains in the shareholders of Tenant at the execution of this
Lease, (ii) a reincorporation or recapitalization of Tenant, (iii) a
merger or consolidation of any entity with or into Tenant, or (iv) a
sale of all or substantially all of the assets of Tenant or of the
division of Tenant located at the Premises, provided that in the
case of any such Transfer pursuant to clauses (iii) or (iv) above,
(x) Tenant gives Landlord at least ten (10) days' prior notice of
such transfer and (y) the successor to Tenant pursuant to such
Transfer has a net worth immediately following such Transfer that is
not less than ten (10) times the then annual rent obligations under
this lease.
G. Each assignee or other transferee, other than Landlord, shall assume, as
provided in this Subsection, all obligations of Tenant under this Lease
and shall be and remain liable jointly and severally with Tenant for the
payment of Monthly Rental and all other monetary obligations hereunder,
and for the performance of all the terms, covenants, conditions and
agreements herein contained on Tenant's part to be performed for the
remainder of the Term. No Assignment or Sublease shall be binding on
Landlord unless the assignee, sublessee or Tenant shall deliver to
Landlord a counterpart of the Assignment or Sublease . In connection with
an Assignment, Tenant or the assignee shall deliver an instrument
(acceptable in form and substance to Landlord and in recordable form,
whereby the assignee assumes all of the terms, covenants, conditions and
agreements of the Lease. However the failure or refusal of the assignee to
execute such instrument of assumption shall not release or discharge the
assignee from its liability as set forth above. In connection with a
Sublease, Tenant or the sublessee shall deliver to Landlord an instrument
(acceptable in form and substance to Landlord and in recordable form)
agreeing that sublessee shall be bound by all of the terms and conditions
of the Lease, other than those pertaining to rent, applicable to the
subleased space and that sublessee shall, at Landlord's sole option,
attorn to Landlord as lessor under the Sublessee if this Lease is
terminated for any reason and Landlord chooses to keep the Sublease in
effect.
H. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et. seq., (the
"Bankruptcy Code"), any and all monies or other consideration payable or
otherwise to be delivered in connection with such assignment shall be paid
or delivered to Landlord, shall be and remain the exclusive property of
Landlord and shall not constitute property of Tenant or of the estate of
Tenant within the meaning of the Bankruptcy Code. Any and all monies or
other considerations constituting Landlord's property under the preceding
sentence not paid or delivered to Landlord shall be held in trust for the
benefit of Landlord and be promptly paid or delivered to Landlord.
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I. any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed, without further act or
deed, to have assumed all of the obligations arising under this Lease on
and after the date of such assignment. Any such assignee shall upon demand
execute and deliver to Landlord an instrument confirming such assumption.
J. Tenant shall pay Landlord's reasonable expenses and attorneys' fees
incurred in processing an Assignment or Sublease, but in no event more
than Five Hundred Dollars ($500.00), for each such proposed transfer to
cover the legal review and administrative expenses of Landlord, whether or
not Landlord shall grant its consent to such proposed transfers.
SECTION XVII. TRANSFER OF LANDLORD'S INTEREST
In the event Landlord shall sell or otherwise convey its title to the Building,
then, after the effective date of such sale or conveyance Landlord shall have no
further liability under this Lease to Tenant except as to matters of liability
which have accrued and are unsatisfied as of the date of sale or conveyance, and
Tenant shall seek performance solely from Landlord's purchaser or successor in
title. In connection with such sale or transfer, Landlord may assign its
interest under this Lease without notice to or consent by Tenant. In such event,
Tenant agrees to be bound to any successor Landlord.
SECTION XVIII. DAMAGE AND DESTRUCTION
A. Minor Insured Damage
In the event the Premises or the Building, or any portion thereof, is
damaged or destroyed by any casualty that is covered by the insurance
maintained by Landlord pursuant to Section XIV. above, then Landlord shall
rebuild, repair and restore the damaged portion thereof, provided that (1)
the amount of insurance proceeds available to Landlord equals or exceeds
the cost of such rebuilding, restoration and repair, (2) such rebuilding,
restoration and repair can be completed within one hundred eighty (180)
days after the work commences in the opinion of a registered architect or
engineer appointed by Landlord, (3) the damage or destruction has occurred
more than twelve (12) months before the expiration of the Term and (4)
such rebuilding, restoration, or repair is then permitted, under
applicable governmental laws, rules and regulations, to be done in such a
manner as to return the damaged portion thereof to substantially its
condition immediately prior to the damage or destruction, including,
without limitation, the same net rentable floor area. To the extent that
insurance proceeds must be paid to a mortgagee or beneficiary under, or
must be applied to reduce any indebtedness secured by, a mortgage or deed
of trust encumbering the Premises, Building or Project, such proceeds, for
the purposes of this Subsection shall be deemed not available to Landlord
unless such mortgagee or beneficiary permits Landlord to use such proceeds
for the rebuilding, restoration, and repair of the damaged portion
thereof. Notwithstanding the foregoing, Landlord shall have no obligation
to repair any damage to, or to replace any of, Tenant's personal property,
furnishings, trade fixtures, equipment or other such property or effects
of Tenant.
B. Major or Uninsured Damage
In the event the Premises or the Building, or any portion thereof, is
damaged or destroyed by any casualty to the extent that Landlord is not
obligated, under Subsection A. above, to rebuild, repair or restore the
damaged portion thereof, then Landlord shall within sixty (60) days after
such damage or destruction, notify Tenant of its election, at its option,
to either (1) rebuild, restore and repair the damaged portions thereof, in
which case Landlord's notice
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shall specify the time period within which Landlord estimates such repairs
or restoration can be completed; or (2) terminate this Lease effective as
of the date the damage or destruction occurred. If Landlord does not give
Tenant written notice within ninety (90) days after the damage or
destruction occurs of its election to rebuild or restore and repair the
damaged portions thereof, Landlord shall be deemed to have elected to
terminate this Lease. Notwithstanding the foregoing, if Landlord does not
elect to terminate this Lease, Tenant may terminate this Lease if either
(i) Landlord notifies Tenant that such repair or restoration cannot be
completed within three hundred and sixty-five (365) days after the work is
commenced or (ii) the damage or destruction occurs within the last twelve
(12) months of the Term, unless Tenant's actions or omissions are the
cause of the damage. If Tenant has the right to terminate the Lease in
accordance with the above provisions, Tenant may so elect by written
notice to Landlord which must be given within fifteen (15) days after
Tenant's receipt of Landlord's notice of its election to rebuild. Upon
Landlord's receipt of such notice, the termination shall be effective as
of the date the destruction occurred.
C. Abatement of Rent
There shall be an abatement of rent by reason of damage to or destruction
of the Premises or the Building, or any portion thereof, to the extent
that either (i) Landlord received insurance proceeds for loss of rental
income attributable to the Premises or (ii) the floor area of the Premises
cannot be reasonably used by Tenant for conduct of its business, in which
event the Monthly Rental shall abate proportionately according to (i) or
(ii) above, as appropriate, commencing on the date that the damage to or
destruction of the Premises or Building has occurred, and except that, if
Landlord or Tenant elects to terminate this Lease as provided in
Subsection B. above, no obligation shall accrue under this Lease after
such termination. Notwithstanding the provisions of this Section, if any
such damage is due to the fault or neglect of Tenant, any person claiming
through or under Tenant, or any of their employees, suppliers, shippers,
servants, customers or invitees, then there shall be no abatement of rent
by reason of such damage, unless and until Landlord is reimbursed for such
abatement pursuant to any rental insurance policy that Landlord may, in
its sole discretion, elect to carry. Tenant's right to terminate this
Lease in the event of any damage or destruction to the Premises or
Building, is governed by the terms of this Section and therefore Tenant
hereby expressly waives the provisions of any and all laws, whether now or
hereafter in force, and whether created by ordinance, statute, judicial
decision, administrative rules or regulations, or otherwise, that would
cause this Lease to be terminated, or give Tenant a right to terminate
this Lease, upon any damage to or destruction of the Premises or Building
that occurs.
SECTION XIX. CONDEMNATION
A. Total or Partial Taking
If all or substantially all of the Premises is permanently condemned or
taken in any manner for public or quasi-public use, including but not
limited to, a conveyance or assignment in lieu of the condemnation or
taking, this Lease shall automatically terminate as of the earlier of the
date on which actual physical possession is taken by the condemnor or the
date of dispossession of Tenant as a result of such condemnation or other
taking. If less than all or substantially all of the Premises is so
condemned or taken, this Lease shall automatically terminate only as to
the portion of the Premises so taken as of the earlier of the date on
which actual physical possession is taken by the condemnor or the date of
dispossession of Tenant as a result of such condemnation or taking. If
such portion of the Building is condemned or otherwise taken so as to
require, in the opinion of Landlord, a substantial alteration
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or reconstruction of the remaining portions thereof, this Lease may be
terminated by Landlord, as of the date on which actual physical possession
is taken by the condemnor or dispossession of Tenant as a result of such
condemnation or taking, by written notice to Tenant within sixty (60) days
following notice to Landlord of the date on which such physical possession
is taken or dispossession will occur.
B. Award
Landlord shall be entitled to the entire award in any condemnation
proceeding or other proceeding for taking the Premises, Building or
Project for public or quasi-public use, including, without limitation, any
award made for the value of the leasehold estate created by this Lease. No
award for any partial or total taking shall be apportioned, and Tenant
hereby assigns to Landlord any award that may be made in such proceeding
for condemnation or other taking, together with any and all rights of
Tenant now or hereafter arising in or to the same or any part thereof.
Although all damages in the event of any condemnation shall belong to
Landlord whether such damages are awarded as compensation for diminution
in value of the leasehold or to the Landlord's fee , Tenant shall have the
right to claim and recover from the condemnor, but not from Landlord, such
compensation as may be separately awarded or recoverable by Tenant in
Tenant's own right on account of the interruption of or damage to Tenant's
business by reason of the condemnation and for or on account of any cost
or loss to which Tenant might incur in removing Tenant's merchandise,
furniture and other personal property, fixtures, and equipment from the
Premises.
C. Abatement in Rent
In the event of a partial condemnation or other taking that does not
result in a termination of this Lease as to the entire Premises pursuant
to this Section, the rent and all other charges under this Lease shall
abate in proportion to the portion of the Premises taken by such
condemnation or other taking. If this Lease is terminated, in whole or in
part, pursuant to any of the provisions of this Section, all rentals and
other charges payable by Tenant to Landlord hereunder and attributable to
the Premises taken shall be paid up to the date upon which actual physical
possession shall be taken by the condemnor. Landlord shall be entitled to
retain all of the Security Deposit until such time as this Lease is
terminated as to all of the Premises.
D. Temporary Taking
If all or any portion of the Premises is temporarily condemned or
otherwise taken for public or quasi-public use for a limited period of
time, this Lease shall remain in full force and effect and Tenant shall
continue to perform all terms, conditions and covenants of this Lease;
provided, however, the rent and all other charges payable by Tenant to
Landlord hereunder shall abate during such limited period in proportion to
the portion of the Premises that is rendered untenable and unusable as a
result of such condemnation or other taking. Landlord shall be entitled to
receive the entire award made in connection with any such temporary
condemnation or other taking. Tenant shall have the right to claim and
recover from the condemnor, but not from Landlord, such compensation as
may be separately awarded or recoverable by Tenant in Tenant's own right
on account of damages to Tenant's business by reason of the condemnation
and for or on account of any cost or loss to which Tenant might be put in
removing Tenant's merchandise, furniture and other personal property,
fixtures, and equipment or for the interruption of or damage to Tenant's
business.
E. Transfer of Landlord's Interest to Condemnor
Landlord may, without any obligation or liability to Tenant, agree to sell
and/or convey to the condemnor the Premises, the Building,
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the Project or any portion thereof, sought by the condemnor, free from
this Lease and the rights of Tenant hereunder, without first requiring
that any action or proceeding be instituted or, if instituted, pursued to
a judgment. In such event, this Lease shall be deemed terminated effective
on the date of such transfer.
SECTION XX. DEFAULT
A. Tenant's Default
The occurrence of any of the following events shall constitute a default
hereunder by Tenant:
(1) (Intentionally Deleted)
(2) If Tenant fails to pay any rent or other charges required to be paid
by Tenant under this Lease and such failure continues for five (5)
days after such payment is due and payable; provided, however, that
the obligation of Tenant to pay a late charge or interest pursuant
to this Lease shall commence as of the due date of the rent or such
other monetary obligation and not on the expiration of such five (5)
day grace period;
(3) If Tenant involuntarily transfers Tenant's interest in this Lease or
voluntarily attempts to or actually transfers its interest in this
Lease, without Landlord's prior written consent;
(4) If Tenant files a voluntary petition for relief, or if an
involuntary petition against Tenant, is filed in a proceeding under
the United States Bankruptcy Code or other federal or state
insolvency laws and is not withdrawn or dismissed within forty-five
(45) days thereafter; or if under the provisions of any law
providing for reorganization or winding up of corporations, any
court of competent jurisdiction assumes jurisdiction, custody or
control of Tenant or any substantial part of the Premises or any of
Tenant's personal property located at the Premises and such
jurisdiction, custody or control remains in force unrelinquished,
unstayed or unterminated for a period of forty-five (45) days;
(5) If in any proceeding or action in which Tenant is a party, a
trustee, a receiver, agent or custodian is appointed to take charge
of the Premises or any of Tenant's personal property located at the
Premises (or has the authority to do so) for the purpose of
enforcing a lien against the Premises or Tenant's personal property;
(6) If Tenant shall make any general assignment for the benefit of
creditors or convene a meeting of its creditors or any class thereof
for the purpose of effecting a moratorium upon or composition of its
debts, or any class thereof;
(7) If Tenant fails to discharge any lien placed as a result of Tenant's
action or inaction upon the Premises, the Building or the Project
within thirty (30) days after the imposition of such lien;
(8) If Tenant is a partnership or consists of more than one (1) person
or entity, if any partner of the partnership or other person or
entity is involved in any of the acts or events described in
subparagraphs (1) through (8) above;
(9) If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease (other than as
provided in subparagraphs (1) through (8) above) and such failure
continues for thirty (30)
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days after written notice thereof from Landlord to Tenant, or if
such failure cannot be completely cured within such thirty (30) day
period, then if Tenant fails to commence such cure within such
thirty (30) day period and thereafter proceed to completely cure
such failure within thirty (30) days after such written notice.
B. Remedies
Upon the occurrence of a default by Tenant that is not cured by Tenant
within any applicable grace period specified above, Landlord shall have
the following rights and remedies in addition to all other rights and
remedies available to Landlord at law or in equity, which shall be
cumulative and non-exclusive:
(1) The right to declare this Lease and the term of this Lease
terminated; to re-enter the Premises and the improvements located
thereon, with or without process of law; to eject all parties in
possession thereof therefrom; to repossess and enjoy the Premises
together with all said improvements; and to recover from Tenant all
of the following:
(a) The worth at the time of award of the unpaid rent which had
been earned at the time of termination;
(b) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided;
(c) The worth at the time of award of the amount by which the
unpaid rent for the balance of the Term after the time of
award exceeds the amount of rental loss that Tenant proves
could be reasonably avoided; and
(d) Any other amount necessary to compensate Landlord for all the
actual (not consequential) detriment proximately caused by
Tenant's failure to perform its obligations under this Lease
or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to, any
attorneys' fees, broker's commissions or finder's fees (not
only in connection with the reletting of the Premises, but
also that portion of any leasing commission paid by Landlord
in connection with this Lease which is applicable to that
portion of the Lease Term which is unexpired as of the date on
which this Lease is terminated); any costs for repairs,
clean-up, refurbishing, removal (including the repair of any
damage caused by such removal) and storage (or disposal) of
Tenant's personal property, equipment, fixtures, and anything
else that Tenant is required (under this Lease) to remove but
does not remove; any costs for alterations, additions and
renovations; and any other costs and expenses, including
reasonable attorney's fees and costs incurred by Landlord in
regaining possession of and reletting (or attempting to relet)
the Premises.
(2) The right to continue this Lease in effect and to enforce all of
Landlord's rights and remedies under this Lease, including the right
to recover rent and any other additional monetary charges as they
become due, for as long as Landlord does not terminate Tenant's
right to possession. Acts of maintenance or preservation, efforts to
relet the Premises or the appointment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not
constitute a termination of Tenant's right to possession.
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(3) The right: to re-enter the Premises; to eject therefrom all parties
in possession thereof; at any time and from time to time, but
without obligation to do so, to relet the Premises and the
improvements located therein or any part or parts thereof for the
account of Tenant, or otherwise, and to receive and collect the
rents therefor, and apply the same (i) first to the payment of the
following costs and expenses which Landlord may have paid, assumed
or incurred: (a) costs in recovering possession of the Premises and
said improvements, including attorneys' fees, and costs; (b)
expenses for placing the Premises and said improvements in good
order and condition, for decorating and preparing the Premises for
reletting; (c) costs in making any alterations, repairs, changes or
additions to the Premises that may be necessary or convenient; (d)
all other costs and expenses, including leasing and subleasing
commissions, and charges paid, assumed or incurred by Landlord in or
upon reletting the Premises and said improvements, or in fulfillment
of the covenants of Tenant under this Lease; and (ii) then to the
payment of Monthly Rental, Tenant's Proportionate Share of Common
Operating Costs, and other monetary obligations due and unpaid
hereunder. Any such reletting may be for the remainder of the term
of this Lease or for a longer or shorter period in Landlord's sole
and absolute discretion. Landlord may execute any lease or sublease
made pursuant to the terms of this subparagraph either in its own
name or in the name of Tenant as its agent, as Landlord may see fit.
The tenant(s) or subtenant(s) thereunder shall be under no
obligation whatsoever with regard to the application by Landlord of
any rent collected by Landlord from such tenant or subtenant to any
and all sums due and owing or which may become due and owing under
the provisions of this Lease, nor shall Tenant have any right or
authority whatever to collect any rent whatever from such tenant(s)
or subtenant(s). If Tenant has been credited with any rent received
by such reletting and such rent shall not be promptly paid to
Landlord by the tenant(s) or subtenant(s), or if such rentals
received from reletting during any month are less than those to be
paid during that month by Tenant hereunder, Tenant shall pay any
such deficiency to Landlord. Such deficiency shall be calculated and
paid monthly. For all purposes set forth in this subsection,
Landlord is hereby irrevocably appointed as agent for Tenant. No
taking possession of the Premises by Landlord shall be construed as
Landlord's acceptance of a surrender of the Premises by Tenant or an
election of Landlord's part to terminate this Lease unless written
notice of such intention is given to Tenant. Notwithstanding any
such leasing or subletting without termination of this Lease,
Landlord may at any time thereafter elect to terminate this Lease
for Tenant's previous breach.
(4) The right to have a receiver appointed for Tenant, upon application
by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and exercise all other rights and
remedies granted to Landlord pursuant to this Section.
SECTION XXI. LATE PAYMENTS/INTEREST AND LATE CHARGES
A. Interest
Any amount due from Tenant to Landlord which is not paid when due shall
bear interest at twelve percent (12%) annually from the date such payment
is due until paid, except that amounts spent by Landlord on behalf of
Tenant as provided in this Lease shall bear interest at such rate from the
date of disbursement by Landlord which Tenant agrees is to compensate
Landlord for Tenant's use of Landlord's money after it is due. Payment of
such interest shall
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not excuse or cure any default by Tenant pursuant to this Lease. Such rate
shall remain in effect after the occurrence of any breach or default
hereunder by Tenant to and until payment of the entire amount due.
B. Late Charges
Tenant hereby acknowledges that in addition to lost interest, the late
payment by Tenant to Landlord of rent or any other sums due hereunder will
cause Landlord to incur other costs not contemplated in this Lease, the
exact amount of which will be extremely difficult and impracticable to
ascertain. Such other costs include, but are not limited to processing,
administrative and accounting costs. Accordingly, if any installment of
rent or any additional rent or other sum due from Tenant shall not be
received by Landlord when such amount shall be due (without regard to any
grace period prior to default granted in this Lease), Tenant shall pay to
Landlord as additional rent hereunder a late charge equal to ten percent
(10%) of such overdue amount. The parties hereby agree that (i) such late
charge represents a fair and reasonable estimate of the costs Landlord
will incur in processing such past-due payment by Tenant, (ii) such late
charge shall be paid to Landlord as liquidated damages for each delinquent
payment, and (iii) the payment of the late charge is to compensate
Landlord for the additional administrative expense incurred by Landlord in
handling and processing delinquent payments. Notwithstanding the above, no
late charge or interest on past due amounts will be charged if there have
been fewer than two (2) incidences of late payment within the last twelve
(12) months and not more than five (5) incidences of late payments since
the beginning of the lease.
C. Consecutive Late Payment of Rent (Intentionally Deleted)
D. No Waiver
Neither assessment nor acceptance of partial payments, interest or late
charges by Landlord shall constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any
of its other rights and remedies under this Lease. Nothing contained in
this Section shall be deemed to condone, authorize, sanction or grant to
Tenant an option for the late payment of rent, additional rent or other
sums due hereunder, and Tenant shall be deemed in default with regard to
any such payments should the same not be made by the date on which they
are due.
SECTION XXII. LIEN FOR RENT (Intentionally Deleted)
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SECTION XXIII. HOLDING OVER
Any holding over by Tenant in the possession of the Premises, or any portion
thereof, after the expiration of the Term, with or without the consent of
Landlord, shall require Tenant to pay one hundred fifty percent (150%) of the
Monthly Rental herein specified for the last month in the Term (prorated on a
monthly basis), unless Landlord shall specify a lesser amount for rent in its
sole discretion, together with an amount estimated by Landlord for the monthly
Common Operating Costs payable under this Lease. If Tenant holds over with
Landlord's consent, such occupancy shall be deemed a month to month tenancy and
such tenancy shall otherwise be on the terms and conditions herein specified in
this Lease as far as applicable. Notwithstanding the foregoing provisions or the
acceptance by Landlord of any payment by Tenant, any holding over without
Landlord's consent shall constitute a default by Tenant and shall entitle
Landlord to pursue all remedies provided in this Lease and Tenant shall be
liable for any and all direct or consequential damages or losses of Landlord
resulting from Tenant's holding over without Landlord's consent.
SECTION XXIV. ATTORNEYS' FEES
The losing party shall pay to the prevailing party all reasonable costs and
expenses, including, but not limited to, reasonable attorneys' fees and amounts
paid to any collection agency, incurred by the prevailing party in connection
with any breach or default by the losing party under this Lease or incurred in
order to enforce or interpret the terms or provisions of this Lease. Such
amounts shall be payable immediately upon demand. In addition, if any action
shall be instituted by either Landlord or Tenant for the enforcement or
interpretation of any of its rights or remedies in or under this Lease, the
prevailing party shall be entitled to recover from the losing party all costs
incurred by the prevailing party in said action and any appeal therefrom,
including reasonable attorneys' fees and court costs to be fixed by the court
therein. In the event Landlord is made a party to any litigation between Tenant
and any third party, then Tenant shall reimburse Landlord for all costs and
attorneys' fees incurred by or imposed upon Landlord in connection with such
litigation unless Landlord is ultimately held to be liable.
SECTION XXV. MORTGAGEE PROTECTION
A. Subordination; Nondisturbance
The rights of Tenant under this Lease are and shall be, at the option of
Landlord or the mortgagee, beneficiary or master or ground lessor under
the following instruments, either subordinate or superior to any mortgage
or deed of trust (including a consolidated mortgage or deed of trust)
constituting a lien on the Premises,
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Building or Project, or on any part thereof or Landlord's interest therein
and to any ground or master lease if Landlord's title to the Premises or
any part thereof is or shall become a leasehold interest, whether such
mortgage, deed of trust, ground or master lease is placed on the Premises,
Building or Project before or after the date of this Lease; provided
however that notwithstanding any such subordination, Tenant's right to
occupy the Premises pursuant to this Lease shall remain in effect for the
full Term as long as Tenant is not in default hereunder. To further assure
the foregoing subordination or superiority, Tenant shall, upon Landlord's
request, together with the request of any mortgagee under a mortgage or
beneficiary under a deed of trust or ground or master lessor, execute any
instrument (including without limitation an amendment to this Lease that
does not materially and adversely affect Tenant's rights or duties under
this Lease), or instruments intended to subordinate this Lease (subject to
Tenant's non-disturbance rights, or at the option of Landlord, to make it
superior to any mortgage, deed of trust, or ground or master lease.
B. Attornment
Notwithstanding and in addition to the provisions of Subsection A. above,
Tenant agrees (1) to attorn to any mortgagee of a mortgage or beneficiary
of a deed of trust encumbering the Premises and to any party acquiring
title to the Premises by judicial foreclosure, trustee's sale, or deed in
lieu of foreclosure, and to any ground or master lessor, as the successor
to Landlord hereunder and (2) to execute any attornment agreement
evidencing such attornment requested by a mortgagee, beneficiary, ground
or master lessor, or party making a loan secured by the Premises, Building
or Project or so acquiring title to the Premises, and (3) that this Lease
shall remain in force notwithstanding any such judicial foreclosure,
trustee's sale, deed in lieu of foreclosure, or merger of titles.
Notwithstanding the foregoing, neither a mortgagee of a mortgage or
beneficiary of a deed of trust encumbering the Premises, any party
acquiring title to the Premises by judicial foreclosure, trustee sale, or
deed in lieu of foreclosure, or any ground lessor or master lessor, as the
successor to Landlord hereunder, shall be liable or responsible for any
breach of a covenant contained in this Lease that occurred before such
party acquired its interest in the Premises or for any continuing breach
thereof until after the successor Landlord has received the notice and
right to cure as provided herein, and no such party shall be liable or
responsible for any security deposits held by Landlord hereunder which
have not been transferred or actually received by such party, and such
party shall not be bound by any payment of rent or additional rent for
more than two (2) months in advance.
SECTION XXVI. ESTOPPEL CERTIFICATE/FINANCIAL STATEMENTS
A. Estoppel Certificate
Tenant, at any time and from time to time upon not less than ten (10) days
prior written notice from Landlord, agrees to execute and deliver to
Landlord a statement in the form provided by Landlord (a) certifying that
this Lease is unmodified and in full force and effect, or, if modified,
stating the nature of such modification and certifying that this Lease, as
so modified, is in full force and effect and the date to which the rent
and other charges are paid in advance, if any; (b) acknowledging that
there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder, or specifying such defaults if they are claimed
evidencing the status of this Lease; (c) acknowledging the amount of the
Security Deposit held by Landlord; and (d) containing such other
information regarding this Lease or Tenant as Landlord reasonably
requests. Tenant's failure to deliver an estoppel certificate within such
time shall be conclusive upon Tenant that (i) this Lease is in full force
and effect without modification except as may be represented by
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Landlord, (ii) to Tenant's knowledge there are no uncured defaults in
Landlord's performance, (iii) no rent has been paid in advance except as
set forth in this Lease, and (iv) such other information regarding this
Lease and Tenant set forth therein by Landlord is true and complete.
B. Furnishing of Financial Statements
Landlord has reviewed the financial statements, if any, requested and
received from the Tenant and has relied upon the truth and accuracy
thereof with Tenant's knowledge and representations of the truth and
accuracy of such statements and that said statements accurately and fairly
depict the financial condition of Tenant. Said financial statements are an
inducing factor and consideration for the entering into of this Lease by
Landlord with this particular Tenant. Tenant shall, at any time and from
time to time upon not less than ten (10) days prior written notice from
Landlord, furnish Landlord with (a) Tenant's most recent audited financial
statements, including a balance sheet and income statement, or a document
in which Tenant states that its books are not independently audited, and
(b) unaudited financial statements, including a balance sheet and income
statement, dated within ninety (90) days of the request from Landlord.
SECTION XXVII. PARKING
Landlord agrees to maintain or cause to be maintained an automobile parking area
and to maintain and operate, or cause to be maintained and operated, said
automobile parking area during the Term of this Lease for the benefit and use of
the customers, service suppliers, other invitees and employees of Tenant.
Whenever the words "automobile" or "parking area" are used in this Lease, it is
intended that the same shall include, whether in a surface parking area or a
parking structure, the automobile parking stalls, driveways, loading docks,
truck areas, service drives, entrances and exits and sidewalks, landscaped
areas, pedestrian passageways in conjunction therewith and other areas designed
for parking. Landlord shall keep said automobile parking area in a reasonably
neat, clean and orderly condition, lighted and landscaped, and shall repair any
damage to the facilities thereof, the cost of which shall be included in Common
Operating Costs as defined above. Landlord shall also have the right to
establish such reasonable rules and regulations as may be deemed desirable, at
Landlord's sole discretion, for the proper and efficient operation and
maintenance of said automobile parking area. Such rules and regulations may
include, without limitation, (i) restrictions in the hours during which the
automobile parking area shall be open for use, (ii) the establishment of charges
for parking therein (on either a reserved or unreserved basis, at Landlord's
sole discretion) by tenants of the Building and Project as well as by their
employees, customers and service suppliers, and (iii) the use of parking gates,
cards, permits and other control devices to regulate the use of the parking
areas.
The rights of Tenant and its employees, customers, service suppliers and
invitees to use the automobile parking area shall at all times be subject to (a)
Landlord's right to establish rules and regulations applicable to such use and
to exclude any person therefrom who is not authorized to use same or who
violates such rules and regulations; (b) the rights of Landlord and other
tenants in the Building and Project to use the same in common with Tenant and
its employees, customers, service suppliers and invitees, (c) the availability
of parking spaces in said automobile parking area, and (d) Landlord's right to
change the location and configuration of the parking areas and any assigned
reserved parking spaces as shall be determined at Landlord's sole discretion.
Tenant agrees to limit its use of the Automobile Parking Area to the number and
type of parking spaces specified in the subsection entitled "Tenant Parking
Spaces" in Section I.
Notwithstanding the foregoing, nothing contained herein shall be deemed
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to impose liability upon Landlord for personal injury or theft, for damage to
any motor vehicle, or for loss of property from within any motor vehicle, which
is suffered by Tenant or any of its employees, customers, service suppliers or
other invitees in connection with their use of said automobile parking area.
SECTION XXVIII. SIGNS; NAME OF BUILDING
Tenant shall not have the right to place, construct, or maintain on or about the
Premises, Building or Project, or in any interior portions of the Premises or
Building that may be visible from the exterior of the Building or Common Areas,
any signs, names, insignia, trademark, advertising placard, descriptive material
or any other similar item ("Sign") without Landlord's prior written consent,
which consent may be withheld in Landlord's sole discretion. In the event
Landlord consents to Tenant placing a Sign on or about the Premises, Building or
Project, any such Sign shall be subject to Landlord's approval of the color,
size, style and location of such Sign, and shall conform to any current or
future Sign criteria established by Landlord for the Building or Project. If
Landlord enacts a Sign criteria or revises an existing Sign criteria, after
Tenant has erected a Sign to which Landlord has granted its consent, if Landlord
so elects, Tenant agrees, at Landlord's expense but subject to Landlord's prior
approval of the cost thereof, to make the necessary changes to its Sign in order
to conform the Sign to Landlord's current Sign criteria, as enacted or revised,
provided that such changes shall be limited to the color, size, style and
location of Tenant's Sign and that Tenant shall not be required to change the
content of its Sign. In the event Landlord consents to Tenant's placement of a
Sign on the Building, Tenant shall, at its sole cost, (i) maintain such sign in
first class condition during the Term and (ii) and remove such Sign from the
Building at the end of the Term and restore the Building to the same condition
as before the installation of the Sign, ordinary wear and tear excepted,
including removing any discoloration of the Building caused by the presence of
such sign.
Landlord reserves the right at any time it deems necessary or appropriate to (a)
place Signs at any location on the Building and Project as it deems necessary
and (b) change the name, address or designation of the Building and Project.
SECTION XXIX. QUIET ENJOYMENT
Upon payment by Tenant of the charges herein provided, and upon the observance
and performance of all the covenants, terms and conditions on Tenant's part to
be observed and performed, Tenant shall peaceably and quietly hold and enjoy the
Premises for the Term without hindrance or interruption by Landlord or any other
person or persons lawfully or equitably claiming by, through or under Landlord,
subject, nevertheless, to the terms and conditions of this Lease and any
mortgage and/or deed of trust to which this Lease is subordinate.
SECTION XXX. BROKERS AND AGENTS
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except the Broker
identified in Section I. Tenant shall indemnify and hold Landlord harmless from
any cost, expense or liability (including costs of suit and reasonable
attorneys' fees) for any compensation, commission or fees claimed by any other
real estate broker or agent in connection with this Lease or its negotiation by
reason of any act of Tenant. Further, Tenant agrees that Landlord shall not be
responsible for, and Tenant shall indemnify and hold Landlord harmless from and
such liability for compensation, commission or fees claimed by any real estate
broker or agent representing Tenant in connection with any renewal, extension
modification or other matter relating to this Lease.
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SECTION XXXI. NOTICES
Any notice, demand, approval, consent, bill, statement or other communication
("Notice") required or desired to be given under this Lease shall be in writing
addressed to Tenant at Tenant's Address for Notice or to Landlord at Landlord's
Address for Notice, above and shall be personally served or given by pre-paid
Certified U.S. Mail, return receipt requested, or "overnight" delivery service
with written receipt. In the case of personal delivery, any Notice shall be
deemed to have been given when delivered; in the case of service by certified
mail, any Notice shall be deemed delivered on the date of receipt or refusal or
non-delivery indicated on the return receipt; and in the case of overnight
delivery service, any Notice shall be deemed given when delivered as evidenced
by a receipt. If more than one Tenant is named under this Lease, service of any
Notice upon any one of said Tenants shall be deemed as service upon all of such
Tenants. The parties hereto and their respective heirs, successors, legal
representatives, and assigns may from time to time change their respective
addresses for Notice by giving at least fifteen (15) days' written notice to the
other party, delivered in compliance with this Section.
SECTION XXXII. NOTICE AND CURE TO LANDLORD AND MORTGAGEE
On any act or omission by Landlord which gives, or which Tenant claims or
intends to claim gives, Tenant the right to recover damages from Landlord or the
right to terminate this Lease by reason of a constructive or actual eviction
from all or part of the Premises, or otherwise, Tenant shall not sue for damages
or attempt to terminate this Lease until it has given written notice of the act
or omission to Landlord and to the holder(s) of the indebtedness or other
obligations secured by any mortgage or deed of trust affecting the Premises as
identified by Landlord, and a reasonable period of time for remedying the act or
omission has elapsed following the giving of the notice, during which time
Landlord and the lienholder(s), or either of them, their agents or employees,
may enter upon the Premises and do therein whatever is necessary to remedy the
act or omission. During the period after the giving of notice and during the
remedying of the act or omission, the Monthly Rental payable by Tenant shall not
be abated and apportioned except to the extent that the Premises are
untenantable as a direct result of Landlord's breach of its obligations
hereunder.
SECTION XXXIII. GENERAL
A. Paragraph Headings
The paragraph headings used in this Lease are for the purposes of
convenience only. They shall not be construed to limit or to extend the
meaning of any part of this Lease.
B. Incorporation of Prior Agreements; Amendments
This Lease contains all agreements of Landlord and Tenant with respect to
any matter mentioned, or dealt with, herein. No prior agreement or
understanding pertaining to any such matter shall be binding upon
Landlord. Any amendments to or modifications of this Lease shall be in
writing, signed by the parties hereto, and neither Landlord nor Tenant
shall be liable for any oral or implied agreements.
Tenant hereby agrees that Landlord has not made, and Tenant may not rely
on, any representations or warranties, expressed or implied, with regard
to the Project, the Building, the Premises or otherwise, except as stated
in this Lease. In particular, Landlord has not authorized any agent or
broker to make a representation or warranty inconsistent with the terms of
this Lease and Tenant may not rely on any such inconsistent representation
or warranty.
C. Waiver
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Any waiver by Landlord of any breach of any term, covenant, or condition
contained in this Lease shall not be deemed to be a waiver of such term,
covenant, or condition or of any subsequent breach of the same or of any
other term, covenant, or condition contained in this Lease. Landlord's
consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Landlord's consent to, or approval of, any
subsequent act by Tenant. The acceptance of rent or other sums payable
hereunder by Landlord shall not be a waiver of any preceding breach by
Tenant of any provision hereof, other than failure of Tenant to pay the
particular rent or other sum so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance of such rent,
or sum equivalent to rent.
D. Short Form or Memorandum of Lease
Tenant agrees, at the request of Landlord, to execute, deliver, and
acknowledge a short form or memorandum of this Lease satisfactory to
counsel for Landlord, and Landlord may, in its sole discretion, record
such short form or memorandum in the county where the Premises are
located. Tenant shall not record this Lease, or a short form of this
Lease, without Landlord's prior written consent, and such recordation
shall, at the option of Landlord, constitute a default of Tenant
hereunder.
E. Time of Essence
Time is of the essence in the performance of each provision of this Lease.
F. Examination of Lease
Submission of this instrument for examination or signature by Tenant does
not constitute a reservation of or option for lease, and it is not
effective as a lease or otherwise until execution by and delivery to both
Landlord and Tenant.
G. Severability
If any term or provision of this Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term or provision
to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law.
H. Surrender of Lease Not Merger
+ Neither the voluntary or other surrender of the Lease by Tenant nor the
mutual cancellation thereof shall cause a merger of the titles of Landlord
and Tenant, but such surrender or cancellation shall, at the option of
Landlord, either terminate all or any existing subleases or operate as an
assignment to Landlord of any such subleases.
I. Corporate Authority
If Tenant is a corporation, each individual executing this Lease on behalf
of Tenant represents and warrants (1) that he is duly authorized to
execute and deliver this Lease on behalf of Tenant in accordance with a
duly adopted resolution of the Board of Directors of Tenant in accordance
with the By-laws of Tenant and (2) that this Lease is binding upon and
enforceable by Landlord against Tenant in accordance with its terms. If
Tenant is a corporation, Tenant shall, within thirty (30) days after
execution of this Lease, deliver to Landlord a certified copy of a
resolution of its Board of Directors authorizing or ratifying the
execution of this Lease.
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J. Governing Law
This Lease and the rights and obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the local laws of
the State in which the Project is located.
K. Force Majeure
If the performance by Landlord of any provision of this Lease is delayed
or prevented by any act of God, strike, lockout, shortage of material or
labor, restriction by any governmental authority, civil riot, flood, and
any other cause not within the control of Landlord, then the period for
Landlord's performance of the provision shall be automatically extended
for the same time the Landlord is so delayed or hindered.
L. Use of Language
Words of gender used in this Lease include any other gender, and words in
the singular include the plural, unless the context otherwise requires.
M. Successors
The terms, conditions and covenants contained in the Lease inure to the
benefit of and are binding on, the parties hereto and their respective
successors in interest, assigns and legal representatives, except as
otherwise herein expressly provided. All rights, privileges, immunities
and duties of Landlord under this Lease, including without limitation,
notices required or permitted to be delivered by Landlord to Tenant
hereunder, may, at Landlord's option, be exercised or performed by
Landlord's agent or attorney.
N. No Reduction of Rental
Except as otherwise expressly and unequivocally provided in this Lease,
Tenant shall not for any reason withhold or reduce the amounts payable by
Tenant under this Lease, it being understood that the obligations of
Landlord hereunder are independent of Tenant's obligations. If Landlord is
required by governmental authority to reduce energy consumption or impose
a parking or similar charge with respect to the Premises, Building or
Project, to restrict the hours of operation of, limit access to, or reduce
parking spaces available at the Building, or take other limiting actions,
then Tenant is not entitled to abatement or reduction of rent or to
terminate this Lease.
0. No Partnership
Notwithstanding any provision of this Lease or otherwise, Landlord is not,
and under no circumstances shall it be considered to be, a partner of
Tenant, or engaged in a joint venture with Tenant.
P. Exhibits
All exhibits attached hereto are made a part hereof and are incorporated
herein by a reference. A complete list of said exhibits is set forth in
the Table of Contents.
Q. Survival of Indemnities
The obligations of the indemnifying party under each and every
indemnification and hold harmless provision contained in this Lease shall
survive the expiration or earlier termination of this Lease to and until
the last to occur of(a) the last date permitted by law for the bringing of
any claim or action with respect to which indemnification may be claimed
by the indemnified party against the indemnifying party under such
provision or (b) the date on which any claim or action for which
indemnification may be claimed under such
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<PAGE>
provision is fully and finally resolved and, if applicable, any compromise
thereof or judgement or award thereon is paid in full by the indemnifying
party and the indemnified party is reimbursed by the indemnifying party
for any amounts paid by the indemnified party in compromise thereof or
upon a judgement or award thereon and in defense of such action or claim,
including reasonable attorneys' fees incurred. Payment shall not be a
condition precedent to recovery upon any indemnification provision
contained herein.
R. References to Default:
All references to default or Default herein shall be interpreted to mean
that all applicable notice or grace periods have expired.
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<PAGE>
SECTION XXXIV. EXECUTION
This Lease may be executed in several duplicate counterparts, each of which
shall be deemed an original of this Lease for all purposes.
"TENANT" "LANDLORD"
Pencom Systems, Inc. G&W Investment Partners, a nini
a New York Corporation kumia formed under the laws of
DBA PSW Technologies Japan
By: /s/ Wade E. Saadi By: Mony Realty Partner, Inc.,
------------------------ -----------------------------
a Delaware Corporation
as its Agent
Name: Wade E. Saadi Name: /s/Mark E. Novack
---------------------- ---------------------------
Mark E. Novack
Title: President Title: Vice President
--------------------- --------------------------
/s/Maureen J. Farulla /s/Elisabeth Stone Davis
[Stamp]
MAUREEN J. FARULLA Elisabeth Stone Davis
Notary Public State of New York Notary Public
No. 43-4773292 State of Colorado
Qualified in Richmond County My Commission Expires 10-08-1996
Commission Expires March 30,1998
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<PAGE>
EXHIBIT "A"
[SITE PLAN FOR THE PROJECT]
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<PAGE>
EXHIBIT "B"
[FLOOR PLAN OF THE PREMISES]
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<PAGE>
EXHIBIT "C"
CONSTRUCTION WORK LETTER
Landlord shall be responsible for the construction of all tenant improvements to
be installed in the Premises prior to the Lease Commencement Date ("Landlord's
Work") in accordance with the following provisions. Landlord's Work shall
include those items shown on the space plan attached to this exhibit as Exhibit
"B" ("Space Plan"). After execution of the Lease by both parties, Landlord shall
cause Landlord's architect to prepare and submit to Landlord and Tenant complete
construction plans and specifications ("Working Drawings") which shall be based
on the attached Space Plan. Landlord and Tenant shall approve or disapprove the
Working Drawings within five (5) business days after receipt. In the event any
changes are required or desired to the Working Drawings, Landlord and Tenant
shall work in good faith to finalize and approve the Working Drawings within ten
(10) business days after their original receipt thereof. Upon approval of the
Working Drawings by Landlord and Tenant, they shall constitute the "Construction
Documents".
Landlord shall cause the Landlord's Work to be completed in a good and
workmanlike manner in accordance with the Construction Documents and in
compliance with all applicable laws, rules and regulations, including local
building codes. Landlord shall endeavor to minimize any interruption to Tenant's
business and both parties shall cooperate to accomplish the construction herein
contemplated. Landlord's work shall be limited to the installation of one
demising wall, patching walls as necessary, providing touch up painting as
necessary and cleaning the carpet.
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<PAGE>
EXHIBIT "D"
RENT SCHEDULE
The total Monthly Rent (subject to adjustment by CPI increases, if applicable)
for the entire Term is equal to $261,199.68 and shall be payable monthly in
accordance with the provisions of the Lease in installments as set forth below:
Annual Rental
Months RSF Monthly Rental Rate
------ --- -------------- -------------
May 1, 1996 - 4,623 $7,127.13 $18.50/RSF
April 30, 1998
May 1, 1998 - 4,623 $7,512.38 $19.50/RSF
April 30, 1999
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<PAGE>
EXHIBIT "E"
RULES AND REGULATIONS
ATTACHED TO AND MADE A PART OF THE LEASE
The following Rules and Regulations shall be in effect at the Building. Landlord
reserves the right to adopt reasonable modifications and additions hereto. In
the case of any conflict between these regulations and the Lease, the Lease
shall be controlling.
1. Except with the prior written consent of Landlord, no tenant shall conduct
any retail sales in or from the Premises, or any business other than that
specifically provided for in the Lease.
2. Landlord reserves the right to prohibit personal goods and services
vendors from access to the Building except upon such reasonable terms and
conditions, including but not limited to a provision for insurance
coverage, as are related to the safety, care and cleanliness of the
Building, the preservation of good order thereon, and the relief of any
financial or other burden on Landlord occasioned by the presence of such
vendors or the sale by them of personal goods or services to a tenant or
its employees. If reasonably necessary for the accomplishment of these
purposes, Landlord may exclude a particular vendor entirely or limit the
number of vendors who may be present at any one time in the Building. The
term "personal goods or services vendors" means persons who periodically
enter the Building of which the Premises are a part for the purpose of
selling goods or services to a tenant, other than goods or services which
are used by a tenant only for the purpose of conducting its business on
the Premises. "Personal goods or services" include, but are not limited
to, drinking water and other beverages, food, barbering services, and shoe
shining services.
3. The sidewalks, halls, passages, elevators and stairways shall not be
obstructed by any tenant or used by it for any purpose other than for
ingress to and egress from their respective Premises. The halls, passages,
entrances, elevators, stairways, balconies, janitorial closets, and roof
are not for the use of the general public, and Landlord shall in all cases
retain the right to control and prevent access thereto of all persons
whose presence in the judgment of Landlord shall be prejudicial to the
safety, character, reputation and interests of the Building and its
tenants, provided that nothing herein contained shall be construed to
prevent such access to persons with whom Tenant normally deals only for
the purpose of conducting its business on the Premises (such as clients,
customers, office suppliers and equipment vendors, and the like) unless
such persons are engaged in illegal activities. No tenant and no employees
of any tenant shall go upon the roof of the Building without the written
consent of Landlord.
4. The sashes, sash doors, windows, glass lights, and any lights or skylights
that reflect or admit light into the halls or other places of the Building
shall not be covered or obstructed. The toilet rooms, water and wash
closets and other water apparatus shall not be used for any purpose other
than that for which they were constructed, and no foreign substance of any
kind whatsoever shall be thrown therein, and the expense of any breakage,
stoppage or damage, resulting from the violation of this rule shall be
borne by the tenant who, or whose clerks, agents, employees, or visitors,
shall have caused it.
5. No sign, advertisement or notice visible from the exterior of the Premises
or Building shall be inscribed, painted or affixed by Tenant on any part
of the Building or the Premises without the prior written consent of
Landlord. If Landlord shall have given
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<PAGE>
such consent at any time, whether before or after the execution of this
Lease, such consent shall in no way operate as a waiver or release of any
of the provisions hereof or of this Lease, and shall be deemed to relate
only to the particular sign, advertisement or notice so consented to by
Landlord and shall not be construed as dispensing with the necessity of
obtaining the specific written consent of Landlord with respect to each
and every such sign, advertisement or notice other than the particular
sign, advertisement or notice, as the case may be, so consented to by
Landlord.
6. In order to maintain the outward professional appearance of the Building,
all window coverings to be installed at the Premises shall be subject to
Landlord's prior reasonable approval. If Landlord, by a notice in writing
to Tenant, shall object to any curtain, blind, shade or screen attached
to, or hung in, or used in connection with, any window or door of the
Premises, such use of such curtain, blind, shade or screen shall be
forthwith discontinued by Tenant. No awnings shall be permitted on any
part of the Premises.
7. Tenant shall not do or permit anything to be done in the Premises, or
bring or keep anything therein, which shall in any way increase the rate
of fire insurance on the Building, or on the property kept therein, or
obstruct or interfere with the rights of other tenants, or in any way
injure or annoy them; or conflict with the regulations of the Fire
Department or the fire laws, or with any insurance policy upon the
Building, or any part thereof, or with any rules and ordinances
established by the Board of Health or other governmental authority.
8. No safes or other objects larger or heavier than the freight elevators of
the Building are limited to carry shall be brought into or installed in
the Premises. Landlord shall have the power to prescribe the weight,
method of installation and position of such safes or other objects. The
moving of safes shall occur only between such hours as may be designated
by, and only upon previous notice to, the manager of the Building, and the
persons employed to move safes in or out of the Building must be
acceptable to Landlord. No freight, furniture or bulky matter of any
description shall be received into the Building or carried into the
elevators except during hours and in a manner approved by Landlord.
9. Landlord shall clean the Premises as provided in the Lease, and except
with the written consent of Landlord, no person or persons other than
those approved by Landlord will be permitted to enter the Building for
such purpose, but Tenant shall not cause unnecessary labor by reason of
Tenant's carelessness and indifference in the preservation of good order
and cleanliness.
10. No tenant shall sweep or throw or permit to be swept or thrown from the
Premises any dirt or other substance into any of the corridors or halls or
elevators, or out of the doors or windows or stairways of the Building,
and Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises
to be occupied or used in a manner offensive or objectionable to Landlord
or other occupants of the Building by reason of noise, odors and/or
vibrations, or interfere in any way with other tenants or those having
business therein, nor shall any animals or birds be kept in or about the
Building. Smoking or carrying lighted cigars or cigarettes in the
elevators of the Building is prohibited.
11. Except for the use of microwave ovens and coffee makers for Tenant's
personal use, no cooking shall be done or permitted by Tenant on the
Premises, nor shall the Building be used for lodging.
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<PAGE>
12. Tenant shall not use or keep in the Building any kerosene, gasoline, or
inflammable fluid or any other illuminating material, or use any method of
heating other than that supplied by Landlord.
13. If Tenant desires telephone or telegraph connections, Landlord will direct
electricians as to where and how the wires are to be introduced. No boring
or cutting for wires or other otherwise shall be made without directions
from Landlord.
14. Each tenant, upon the termination of its tenancy, shall deliver to
Landlord all the keys of offices, rooms and toilet rooms, and security
access card/keys which shall have been furnished such tenant or which such
tenant shall have had made, and in the event of loss of any keys so
furnished, shall pay Landlord therefor.
15. No Tenant shall lay linoleum or other similar floor covering so that the
same shall be affixed to the floor of the Premises in any manner except by
a paste, or other material which may easily be removed with water, the use
of cement or other similar adhesive materials being expressly prohibited.
The method of affixing any such linoleum or other similar floor covering
to the floor, as well as the method of affixing carpets or rugs to the
Premises shall be subject to reasonable approval by Landlord. The expense
of repairing any damage resulting from a violation of this rule shall be
borne by Tenant by whom, or by those agents, clerks, employees or
visitors, the damage shall have been caused.
16. No furniture, packages or merchandise will be received in the Building or
carried up or down in the elevators, except between such hours and in such
elevators as shall be designated by Landlord.
17. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 7:00 a.m. access to the Building or to the halls,
corridors, elevators or stairways in the Building, or to the Premises may
be refused unless the person seeking access is known to the building
watchman, if any, in charge and has a pass or is properly identified.
Landlord shall in no case be liable for damages for the admission to or
exclusion from the Building of any person whom Landlord has the right to
exclude under Rule 3 above. In case of invasion, mob, riot, public
excitement, or other commotion, Landlord reserves the right but shall not
be obligated to prevent access to the Building during the continuance of
the same by closing the doors or otherwise, for the safety of the tenants
and protection of property in the Building.
18. Tenant shall see that the windows and doors of the Premises are closed and
securely locked before leaving the Building and Tenant shall exercise care
and caution that all water faucets or water apparatus are entirely shut
off before Tenant or Tenant's employees leave the Building, and that all
electricity, gas or air shall likewise be carefully shut off, so as to
prevent waste or damage, and for any default or carelessness Tenant shall
make good all injuries sustained by other tenants or occupants of the
Building or Landlord.
19. Tenant shall not alter any lock or install a new or additional lock or any
bolt on any door of the Premises without prior written consent of
Landlord. If Landlord shall give its consent, Tenant shall in each case
furnish Landlord with a key for any such lock.
20. Tenant shall not install equipment, such as but not limited to electronic
tabulating or computer equipment, requiring electrical or air conditioning
service in excess of those to be provided by Landlord under the Lease.
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<PAGE>
21. No bicycle, or shopping cart, or other vehicle or any animal shall be
brought into the Premises or the halls, corridors, elevators or any part
of the Building by Tenant.
22. Landlord shall have the right to prohibit the use of the name of the
Building or Project or any other publicity by Tenant which in Landlord's
opinion tends to impair the reputation of the Building or Project or their
desirability for other tenants, and upon written notice from Landlord,
Tenant will refrain from or discontinue such publicity.
23. Tenant shall not erect any aerial or antenna on the roof or exterior walls
of the Premises, Building, or Project without the prior written consent of
Landlord.
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<PAGE>
EXHIBIT "F"
AMENDMENT OF LEASE COMMENCEMENT DATE
In connection with that certain Office Lease dated _________________ between The
Mutual Life Insurance Company of New York, as Landlord, and
____________________________, as Tenant concerning the Premises located at
_____________________________, Landlord and Tenant hereby agree as follows:
1. The Lease Commencement Date stated in Section I. of the Office Lease is
amended to be _____________________, 19__ and the Expiration Date stated
in Section I. is amended to be __________, 19__.
2. Landlord has satisfactorily complied with all requirements and conditions
precedent to the commencement of the Term as specified in the Office
Lease.
3. The Premises covered by the Office Lease and the tenant improvements
therein have been fully completed as required, are in good condition, are
ready for occupancy and have been accepted by Tenant.
4. Tenant has or shall commence paying Monthly Rental pursuant to the Office
Lease on __________________, 199__.
Dated effective this __________ day of _________, 199__.
"TENANT" "LANDLORD"
________________________________ _______________________________________
________________________________ _______________________________________
________________________________ _______________________________________
By:_____________________________ By:____________________________________
Name: ______________________ Name: ______________________________
Title: ______________________ Title: _____________________________
[SAMPLE]
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<PAGE>
Exhibit 10.4
================================================================================
AGREEMENT OF LEASE
between
NEWPORT L.G.-I, INC.,
Landlord
and
PENCOM SYSTEMS INCORPORATED,
Tenant
Newport Office Tower
525 Washington Boulevard
Jersey City, New Jersey
Squire, Sanders & Dempsey
520 Madison Avenue
New York, New York 10022
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
DEFINITIONS .............................................................. 1
ARTICLE 1 - DEMISE, PREMISES, TERM, RENT ............................. 9
ARTICLE 2 - USE AND OCCUPANCY ........................................ 9
ARTICLE 3 - ALTERATIONS .............................................. 10
ARTICLE 4 - MAINTENANCE AND REPAIRS-FLOOR LOAD ....................... 15
ARTICLE 5 - WINDOW CLEANING .......................................... 17
ARTICLE 6 - REQUIREMENTS OF LAW ...................................... 17
ARTICLE 7 - SUBORDINATION ............................................ 19
ARTICLE 8 - RULES AND REGULATIONS .................................... 21
ARTICLE 9 - INSURANCE, PROPERTY LOSS OR DAMAGE;
REIMBURSEMENT ............................................ 21
ARTICLE 10 - DESTRUCTION-FIRE OR OTHER CAUSE .......................... 24
ARTICLE 11 - EMINENT DOMAIN ........................................... 27
ARTICLE 12 - ASSIGNMENT, SUBLETTING, MORTGAGE, ETC .................... 28
ARTICLE 13 - ELECTRICITY .............................................. 37
ARTICLE 14 - ACCESS TO PREMISES ....................................... 39
ARTICLE 15 - CERTIFICATE OF OCCUPANCY ................................. 41
ARTICLE 16 - DEFAULT .................................................. 41
ARTICLE 17 - REMEDIES AND DAMAGES ..................................... 44
ARTICLE 18 - LANDLORD FEES AND EXPENSES ............................... 46
ARTICLE 19 - NO REPRESENTATIONS BY LANDLORD ........................... 47
ARTICLE 20 - END OF TERM .............................................. 48
ARTICLE 21 - QUIET ENJOYMENT .......................................... 49
ARTICLE 22 - POSSESSION ............................................... 49
ARTICLE 23 - NO WAIVER ................................................ 49
ARTICLE 24 - WAIVER OF TRIAL BY JURY .................................. 50
ARTICLE 25 - INABILITY TO PERFORM ..................................... 50
ARTICLE 26 - BILLS AND NOTICES ........................................ 51
ARTICLE 27 - ESCALATION ............................................... 52
ARTICLE 28 - SERVICES ................................................. 59
ARTICLE 29 - PARTNERSHIP TENANT ....................................... 63
ARTICLE 30 - INTENTIONALLY OMITTED .................................... 63
ARTICLE 31 - SECURITY ................................................. 63
ARTICLE 32 - CAPTIONS ................................................. 64
ARTICLE 33 - PARTIES BOUND ............................................ 64
ARTICLE 34 - BROKER ................................................... 65
ARTICLE 35 - INDEMNITY ................................................ 65
ARTICLE 36 - INTENTIONALLY OMITTED .................................... 66
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<PAGE>
ARTICLE 37 - MISCELLANEOUS ............................................ 66
ARTICLE 38 - RENT CONTROL ............................................. 68
ARTICLE 39 - PARKING .................................................. 68
SCHEDULE A Rules and Regulations
SCHEDULE B Cleaning Specifications
SCHEDULE C VAC Specifications
SCHEDULE D Landlord's Work
EXHIBIT A Floor Plan
EXHIBIT B The Site
EXHIBIT C The Parking Garage
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<PAGE>
AGREEMENT OF LEASE, made as of the 13th day of May, 1996, between Landlord
and Tenant.
WITNESSETH
The parties hereto, for themselves, their legal representatives,
successors and assigns, hereby covenant as follows.
DEFINITIONS
"Affiliate" shall mean a Person which shall (1) Control, (2) be under the
Control of, or (3) be under common Control with the Person in question.
"Alterations" shall mean alterations, installations, improvements,
additions or other physical changes, (other than decorations) in or about the
Premises.
"Applicable Rate" shall mean the lesser of (x) two (2) percentage points
above the then current Base Rate, and (y) the maximum rate permitted by
applicable law, from time to time.
"Assignment Proceeds" shall have the meaning set forth in Section 12.8
hereof.
"Bankruptcy Code" shall mean 11 U.S.C. Section 101 et seq., or any statute
of similar nature and purpose.
"Base Operation Expenses" shall mean the Operating Expenses for the Base
Operating Year.
"Base Operating Year" shall mean the calendar year 1996.
"Base Rate" shall mean the rate of interest publicly announced from time
to time by Citibank, N.A., or its successor, as its "prime lending rate" (or
such other term as may be used by Citibank, N.A., from time to time, for the
rate presently referred to as its "prime lending rate").
"Base Taxes" shall mean One Million Five Hundred Sixty-Four Thousand Five
Hundred One and 50/100 Dollars ($1,564,501.50).
"Broker" shall mean Broadwall Brokerage & Consulting, Inc. and The
Georgetown Company.
<PAGE>
"Building" shall mean all the buildings, equipment and other improvements
and appurtenances of every kind and description now located or hereafter
erected, constructed or placed upon the land, including, without limitation, a
pedestrian bridge and/or walkway connecting to the Building if and to the extent
required to be maintained by Landlord and any and all alterations, and
replacements thereof, additions thereto and substitutions therefor, known as
Newport Office Tower, 525 Washington Boulevard, Jersey City, New Jersey.
"Building Systems" shall mean the mechanical, gas, electrical, sanitary,
heating, air conditioning, ventilating, elevator, plumbing, life-safety and
other service systems of the Building.
"Business Days" shall mean all days, excluding Saturdays, Sundays and
Holidays.
"Commencement Date" shall mean the date hereof.
"Control" or "control" shall mean ownership of more than fifty percent
(50%) of the outstanding voting stock of a corporation or other majority equity
and control interest if not a corporation and the possession of power to direct
or cause the direction of the management and policy of such corporation or other
entity, whether through the ownership of voting securities, by statute,
according to the provisions of a contract, or otherwise.
"Cost per Kilowatt Hour" shall mean the total cost for electricity
incurred by Landlord to service the Building during a particular time period
(including all applicable surcharges, demand charges, energy charges, fuel
adjustment charges, time-of-day charges, rate adjustment charges, taxes and
other factors used by the public utility in computing its charges to Landlord
and other sums payable in respect thereof) divided by the total kilowatt hours
consumed at the Building during such period. The Cost per Kilowatt Hour shall be
increased or decreased, as the case may be, to take into account any special
rate programs which are applicable specifically to Tenant or to other tenants in
the Building, as opposed to those rate programs which are applicable to tenants
in the Building, generally.
"Current Year" shall mean the Operating Year in which a demand is made
upon Tenant for payment of a Tentative Monthly Escalation Charge.
"Deficiency" shall have the meaning set forth in Section 17.2 hereof.
"Electricity Additional Rent" shall have the meaning set forth in Section
13.2 hereof.
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<PAGE>
"Escalation Rent" shall mean, individually or collectively, the Tax
Payment and the Operating Payment.
"Event of Default" shall have the meaning set forth in Section 16.1
hereof.
"Expiration Date" shall mean the Fixed Expiration Date or such earlier or
later date on which the Term shall sooner or later end pursuant to any of the
terms, conditions or covenants of this Lease or pursuant to law.
"Fixed Expiration Date" shall mean the date immediately preceding the date
which is one (1) month following the fifth (5th) anniversary of the Rent
Commencement Date.
"Fixed Rent" shall have the meaning set forth in Section 1.1 hereof.
"Governmental Authority (Authorities)" shall mean the United States of
America, the State of New Jersey, the City of Jersey City, any political
subdivision thereof and any agency, department, commission, board, bureau or
instrumentality of any of the foregoing, or any quasi-governmental authority,
now existing or hereafter created, having jurisdiction over the Real Property or
any portion thereof.
"Ground Lease" shall have the meaning set forth in Section 7.6 hereof.
"Holidays" shall mean all days observed by either the State of New Jersey
or the Federal Government and by the labor unions servicing the Building as
legal holidays.
"Indemnitees" shall mean Landlord, the partners comprising Landlord and
its and their partners, shareholders, officers, directors, employees, agents and
contractors.
"Landlord", on the date as of which this Lease is made, shall mean Newport
L.G.-I, Inc., a Delaware corporation having an office c/o The Georgetown
Company, 667 Madison Avenue, New York, New York, but thereafter, "Landlord"
shall mean only the fee owner of the Real Property or if there shall exist a
Superior Lease, the tenant thereunder.
"Landlord's Work" shall have the meaning set forth in Section 3.5 hereof.
"Lease Year" shall mean the twelve (12) month period commencing on the
Commencement Date and each succeeding twelve (12) month period thereafter.
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<PAGE>
"Lessor(s)" shall mean a lessor under a Superior Lease.
"Lighting Meters" shall mean the meters used to measure electricity for
lighting and ordinary office machinery use.
"LL Entity" shall have the meaning set forth in Section 12.4 hereof.
"Long Lead Work" shall mean any item which is not a stock item and must be
specially manufactured, fabricated or installed or is of such an unusual,
delicate or fragile nature that there is a substantial risk that
(i) there will be a delay in its manufacture, fabrication, delivery or
installation, or
(ii) after delivery, such item will need to be reshipped or redelivered or
repaired
so that the item in question would delay the completion of the standard items
even though the items of Long Lead Work in question are (1) ordered together
with the other items required, and (2) installed or performed (after the
manufacture or fabrication thereof) in the order and sequence that such Long
Lead Work and other items are normally installed or performed in accordance with
good construction practice.
"Meters" shall mean hard-wired check meters or other meters which are
acceptable to the public utility company furnishing electricity to the Building
which are placed within the electrical wires which supply electricity to the
Premises.
"Mortgage(s)" shall mean any trust indenture or mortgage which may now or
hereafter affect the Real Property, the Building or any Superior Lease and the
leasehold interest created thereby, and all renewals, extensions, supplements,
amendments, modifications, consolidations and replacements thereof or thereto,
substitutions therefor, and advances made thereunder.
"Mortgagee(s)" shall mean any trustee, mortgagee or holder of a Mortgage.
"NTURC" shall mean Newport Tower Urban Renewal Company, a New Jersey
limited partnership, having an office c/o The Limited, Inc., Two Limited
Parkway, P.O. Box 16000, Columbus, Ohio 43216.
"Occupancy Date" shall mean the date which is three (3) days after the
date Landlord notifies Tenant that Landlord's Work has been Substantially
Completed.
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<PAGE>
"Operating Expenses" shall have the meaning set forth in Section 27.1
hereof.
"Operating payment" shall have the meaning set forth in Section 27.4
hereof.
"Operating Statement" shall have the meaning set forth in Section 27.1
hereof.
"Operating Year" shall have the meaning set forth in Section 27.1 hereof.
"Operation of the Property" shall mean the maintenance, repair, security
and management of the Real Property and the curbs, sidewalks and areas adjacent
thereto.
"Overtime Periods" shall have the meaning set forth in Section 28.3
hereof.
"Parking Garage" shall mean the parking garage (which garage may be in
part a public parking garage) located as shown on Exhibit C attached hereto and
made a part hereof.
"Parties" shall have the meaning set forth in Section 37.2 hereof.
"Partner" or "partner" shall mean any partner of Tenant, if Tenant is a
partnership, and any shareholder of Tenant if Tenant is a corporation.
"Partnership Tenant" shall have the meaning set forth in Article 29
hereof.
"Person(s) or person(s)" shall mean any natural person or persons, a
partnership, a corporation and any other form of business or legal association
or entity.
"Premises" shall mean, subject to the provisions of this Lease, the
portion of the sixteenth (16th) floor of the Building shown by hatching on the
floor plan attached hereto and made a part hereof as Exhibit A.
"Prevailing Rate" shall have the meaning set forth in Section 12.6 hereof.
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<PAGE>
"Real Property" shall mean the Building, together with the plot of land
upon which it stands.
"Recapture Notice" shall have the meaning set forth in Section 12.6
hereof.
"Rental" shall mean and be deemed to include Fixed Rent, Escalation Rent,
Electricity Additional Rent, all additional rent and any other sums payable by
Tenant hereunder.
"Rent Commencement Date" shall mean the date which is six (6) months
following the Occupancy Date.
"Rent Per Square Foot" shall mean the sum of the then Fixed Rent and
Escalation Rent divided by the Space Factor.
"Requirements" shall mean all present and future laws, rules, orders,
ordinances, regulations, statutes, requirements, codes and executive orders,
extraordinary as well as ordinary, of all Governmental Authorities now existing
or hereafter created, and of any and all of their departments and bureaus, and
of any applicable fire rating bureau, or other body exercising similar
functions, affecting the Real Property or any portion thereof, or any street,
avenue or sidewalk comprising a part of or in front thereof, or requiring
removal of any encroachment, or affecting the maintenance, use or occupation of
the Real Property or any portion thereof. In furtherance and not in limitation
of the foregoing, Requirements shall include, without limitation, the Newport
City Urban Redevelopment Plan.
"Rules and Regulations" shall mean the rules and regulations annexed
hereto and made a part hereof as Schedule A, and such other and further rules
and regulations as Landlord or Landlord's agents may from time to time adopt on
such notice to be given as Landlord may elect, subject to Tenant's right to
dispute the reasonableness thereof as provided in Article 8 hereof.
"Site" shall mean the tract of land shown on Exhibit B attached hereto and
made a part hereof.
"Space Factor" shall mean three thousand seven hundred fifty-six (3,756),
as the same may be increased or decreased pursuant to the terms hereof.
"Specialty Alterations" shall mean Alterations consisting of kitchens,
executive bathrooms, raised computer floors, computer installations, vaults,
libraries, internal staircases, dumbwaiters, pneumatic tubes, vertical and
horizontal transportation systems, and other Alterations of a similar character.
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"Sublease" shall have the meaning set forth in Section 7.6 hereof.
"Sublease Expenses" shall mean: (i) in the event of a sale of Tenant's
Property, the then unamortized or undepreciated cost thereof determined on the
basis of Tenant's federal income tax returns, (ii) the reasonable out-of-pocket
costs and expenses of Tenant in making such sublease, such as brokers' fees,
attorneys' fees, and advertising fees paid to unrelated third parties, (iii) any
sums paid to Landlord pursuant to Section 12.2(B) hereof, (iv) the cost of
improvements or alterations made by Tenant expressly and solely for the purpose
of preparing that portion of the Premises for such subtenancy if not used by
Tenant subsequent to the expiration of the term of the sublease, and (v) the
unamortized or undepreciated cost of any Tenant's Property leased to and used by
such subtenant. In determining Sublease Rent, the costs set forth in clauses
(ii), (iii) and (iv) shall be amortized on a straight-line basis over the term
of such sublease and the costs set forth in clause (v) shall be amortized on a
straight line basis over the greater of the longest useful life of such
improvements, alterations or Property (as permitted pursuant to the Internal
Revenue Code of 1986, as amended) and the term of such sublease.
"Sublease Profit" shall mean the product of (x) the Sublease Rent Per
Square Foot less the Rent Per Square Foot, and (y) the number of rentable square
feet constituting the portion of the Premises sublet by Tenant.
"Sublease Rent" shall mean any rent or other consideration paid to Tenant
directly or indirectly by any subtenant or any other amount received by Tenant
from or in connection with any subletting (including, but not limited to, sums
paid for the sale or rental, or consideration received on account of any
contribution, of Tenant's Property or sums paid in connection with the supply of
electricity or VAC) less the Sublease Expenses.
"Sublease Rent Per Square Foot" shall mean the Sublease Rent divided by
the rentable square feet of the space demised under the sublease in question.
"Substantial Completion" or "Substantially Completed" or words of similar
import shall mean that Landlord's Work or Landlord's repairs have been
substantially completed, it being agreed that Landlord's Work or Landlord's
repairs shall be deemed to be substantially completed notwithstanding the fact
that (a) minor or insubstantial details of construction and/or mechanical
adjustment and/or decorative items remain to be performed, and (b) any Long Lead
Work remains to be performed.
"Superior Lease(s)" shall mean all ground or underlying leases of the Real
Property or the Building heretofore or hereafter made by Landlord and all
renewals, extensions, supplements, amendments and modifications thereof.
"Taxes" shall have the meaning set forth in Section 27.1 hereof.
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"Tax Agreement" shall mean the Financial Agreement Annual Service Charge
in Lieu of Taxes, dated April 18, 1988 between Newport Tower Urban Renewal
Company and the City of Jersey City, as the same may have been or may hereafter
be amended, entered into pursuant to the Urban Renewal Corporation and
Association Law of 1961 (N.J.S.A. 40:55C-40, et seq.)
"Tax Payment" shall have the meaning set forth in Section 27.2 hereof.
"Tax Statement" shall mean a statement in reasonable detail setting forth
a comparison of the Taxes for a Tax Year with the Base Taxes.
"Tax Year" shall mean the period January 1 through December 31 (or such
other period as hereinafter may be duly adopted by the Governmental Authority
then imposing taxes as its fiscal year for real estate tax purposes), any
portion of which occurs during the Term.
"Tenant" on the date as of which this Lease is made, shall mean Pencom
Systems Incorporated, a New York corporation, having an office at 40 Fulton
Street, New York, New York 10038, but thereafter "Tenant" shall mean only the
tenant under this Lease at the time in question; provided, however, that the
originally named tenant and any assignee of this Lease shall not be released
from liability hereunder in the event of any assignment of this Lease.
"Tenant's Allocable Share" shall mean a fraction, expressed as a
percentage, the numerator of which shall be the Space Factor, expressed as a
square footage, and the denominator of which shall be the total rentable square
footage of the area serviced by the VAC unit serving the Premises.
"Tenant's Delay" shall have the meaning set forth in Section 3.5 hereof.
"Tenant's Property" shall mean Tenant's movable fixtures and movable
partitions, telephone and other equipment, furniture, furnishings, decorations
and other items of personal property.
"Tenant's Share" shall mean three thousand eight hundred six ten
thousandths percent (.3806%), as the same may be increased or decreased pursuant
to the terms hereof.
"Tenant Statement" shall have the meaning set forth in Section 12.6
hereof.
"Tenant's Tax Share" shall mean three thousand six hundred one ten
thousandths percent (.3601%), as the same may be increased or decreased pursuant
to the terms hereof.
"Tentative Monthly Escalation Charge" shall have the meaning set forth in
Section 27.4 hereof.
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"Term" shall mean a term which shall commence on the Commencement Date and
shall expire on the Expiration Date.
"Unavoidable Delays" shall have the meaning set forth in Article 25
hereof.
"VAC" shall mean heat, ventilation and air conditioning.
"VAC Meters" shall mean the meters used to measure electricity consumed by
the VAC unit serving the Premises.
"VAC Systems" shall mean the Building Systems providing VAC.
ARTICLE 1
DEMISE, PREMISES, TERM, RENT
Section 1.1 Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the Premises, for the Term, at an annual rent (the "Fixed Rent") of
Ninety-Three Thousand Nine Hundred Dollars ($93,900.00) for the period
commencing on the Rent Commencement Date and ending one (1) month prior to the
Fixed Expiration Date ($7,825.00 per month); which Tenant agrees to pay in
lawful money of the United States which shall be legal tender in payment of all
debts and dues, public and private, at the time of payment, in equal monthly
installments in advance, on the first (1st) day of each calendar month during
the Term commencing on the Rent Commencement Date, at the office of Landlord or
such other place as Landlord may designate, without any set-off, offset,
abatement or deduction whatsoever, except that Tenant shall pay the first full
monthly installment on the execution hereof.
Section 1.2 If the Rent Commencement Date shall occur on a date other than
the first (1st) day of any calendar month, then the payment of Fixed Rent due on
the first (1st) day of the calendar month following the Rent Commencement Date
shall be prorated based upon the number of days in the month in which the Rent
Commencement Date occurs which include or follow the Rent Commencement Date.
ARTICLE 2
USE AND OCCUPANCY
Section 2.1 Tenant shall use and occupy the Premises as general or
executive offices, uses incidental thereto and for no other purpose.
Section 2.2 (A) Tenant shall not use the Premises or any part thereof, or
permit the Premises or any part thereof to be used, (1) for the business of
photographic, multilith or
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multigraph reproductions or offset printing, except in connection with, either
directly or indirectly, Tenant's own business and/or activities, (2) for a
banking, trust company, depository, guarantee or safe deposit business, which,
in each case, is open to the general public for off-the-street transactions, (3)
as a savings bank, a savings and loan association, or as a loan company, which,
in each case, is open to the general public for off-the-street transactions, (4)
for the sale of travelers checks, money orders, drafts, foreign exchange or
letters of credit or for the receipt of money for transmission, if any of the
foregoing, in each case, is open to the general public for off-the-street
transactions, (5) as a stockbroker's or dealer's office or for the underwriting
or sale of securities, which is open to the general public for off-the-street
transactions, (6) by the United States government, Jersey City, the State of New
Jersey, any foreign government, the United Nations or any agency or department
of any of the foregoing or any other Person having sovereign or diplomatic
immunity, (7) as a restaurant or bar or for the sale of confectionery, soda or
other beverages, sandwiches, ice cream or baked goods or for the preparation,
dispensing or consumption of food or beverages in any manner whatsoever, except
for consumption by Tenant's officers, employees and business guests, (8) as an
employment agency, executive search firm or similar enterprise, labor union,
school, or vocational training center (except for the training of employees of
Tenant intended to be employed at the Premises), or (9) as a barber shop, beauty
salon or similar use.
(B) Tenant may install, at its sole cost and expense and subject to
and in compliance with the provisions of Articles 3 and 4 hereof, vending
machines for the exclusive use of the officers, employees and business guests of
Tenant, each of which vending machines (if it dispenses any beverages or other
liquids or refrigerates) shall have a waterproof pan located thereunder,
connected to a drain.
Section 2.3 Tenant's use and occupancy of the Premises shall be subject to
and in conformity with (i) the Newport Redevelopment Plan, dated February 1985,
as amended on July 12, 1988 and September 22, 1988, and as the same may be
amended or replaced from time to time, and (ii) the Contract for the Sale of
Land for Private Redevelopment, dated July 2, 1981, between Jersey City
Redevelopment Agency and The Glimcher Company, as amended on March 29, 1985, and
as the same may be amended or replaced from time to time.
ARTICLE 3
ALTERATIONS
Section 3.1 (A) Except to the extent provided in Section 3.4 hereof,
Tenant shall not make Alterations without Landlord's prior consent. Landlord
shall not unreasonably withhold or delay its consent to any proposed
nonstructural Alterations, provided that such Alterations (i) are not visible
from the outside of the Building, (ii) do not adversely affect any part of the
Building other than the Premises or require any alterations, installations,
improvements, additions or other physical changes to be performed in or made to
any portion of the Building or the Real Property other than the Premises, (iii)
do not adversely affect any
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service required to be furnished by Landlord to Tenant or to any other tenant or
occupant of the Building, (iv) do not adversely affect the proper functioning of
any Building System, (v) do not reduce the value or utility of the Building, and
(vi) do not adversely affect or violate the certificate of occupancy for the
Building or the Premises. Landlord shall not be deemed to be unreasonable with
respect to withholding its consent to any proposed nonstructural Alteration
which meets the criteria set forth in this Section 3.1(A) if the Lessor or
Mortgagee, as the case may be, shall withhold its consent.
(B) (1) Prior to making any Alterations, Tenant shall (i) submit to
Landlord detailed plans and specifications (including layout, architectural,
mechanical and structural drawings) for each proposed Alteration and shall not
commence any such Alteration without first obtaining Landlord's approval of such
plans and specifications (except with respect to any nonstructural Alteration
referred to in Section 3.4 hereof for which Landlord's approval is not
required), which, in the case of nonstructural Alterations which meet the
criteria set forth in Section 3.1(A) above, shall not be unreasonably withheld
or delayed, (ii) at Tenant's expense, obtain all permits, approvals and
certificates required by any Governmental Authorities, it being agreed that all
filings with Governmental Authorities to obtain such permits, approvals and
certificates shall be made, at Tenant's expense, by a Person approved by
Landlord, which approval shall not be unreasonably withheld or delayed, and
(iii) furnish to Landlord duplicate original policies or certificates thereof of
worker's compensation (covering all persons to be employed by Tenant, and
Tenant's contractors and subcontractors in connection with such Alteration) and
comprehensive public liability (including property damage coverage) insurance in
such form, with such companies, for such periods and in such amounts as Landlord
may reasonably approve, naming Landlord and its agents, any Lessor and any
Mortgagee, as additional insureds. Upon completion of such Alteration, Tenant,
at Tenant's expense, shall obtain a certificate of occupancy and any other
approvals with respect to such Alteration as shall be required by any
Governmental Authority and shall furnish Landlord with copies thereof, together
with the "as-built" plans and specifications (or marked shop drawings) for such
Alterations, it being agreed that all filings with Governmental Authorities to
obtain such permits, approvals and certificates shall be made, at Tenant's
expense, by a Person approved by Landlord, which approval shall not be
unreasonably withheld or delayed. All Alterations shall be made and performed
substantially in accordance with the plans and specifications therefor as
approved by Landlord, all Requirements, the Rules and Regulations, and all rules
and regulations relating to Alterations promulgated by Landlord in its
reasonable judgment. All materials and equipment to be incorporated in the
Premises as a result of any Alterations or a part thereof shall be first quality
and no such materials or equipment (other than Tenant's Property) shall be
subject to any lien, encumbrance, chattel mortgage or title retention or
security agreement. In addition, no Alteration at a cost for labor and materials
(as reasonably estimated by Landlord's architect, engineer or contractor) in
excess of Twenty-Five Thousand Dollars ($25,000), either individually or in the
aggregate with any other Alteration constructed in any twelve (12) month period,
shall be undertaken prior to Tenant's providing to Landlord such security as
shall be reasonably satisfactory to Landlord or required by any Mortgagee or
Lessor. If, as a result of any Alterations performed by Tenant, any alterations,
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installations, improvements, additions or other physical changes are required to
be performed in or made to any portion of the Building or the Real Property
other than the Premises in order to comply with any Requirement(s), which
alterations, installations, improvements, additions or other physical changes
would not otherwise have had to be performed or made pursuant to the applicable
Requirement(s) at such time, Landlord, at Tenant's sole cost and expense, may
perform or make such alterations, installations, improvements, additions or
other physical changes and take such actions as Landlord shall deem reasonably
necessary, and the amount of the security required pursuant to the preceding
sentence shall include, in addition to the amounts set forth in the preceding
sentence, an amount equal to the cost of such alterations, installations,
improvements, additions or other physical changes, as reasonably estimated by
Landlord's architect, engineer or contractor. All Alterations requiring the
consent of Landlord shall be performed only under the supervision of an
independent licensed architect approved by Landlord, which approval shall not be
unreasonably withheld or delayed.
(2) If Landlord shall fail to disapprove Tenant's final plans
and specifications for any Alteration within twenty (20) Business Days, or
within ten (10) Business Days (with respect to any resubmission of disapproved
plans), after Landlord's receipt thereof (provided in each instance the same
shall be of a scope and scale reasonably susceptible of review in such periods),
Landlord shall be deemed to have approved such plans and specifications. Any
disapproval given by Landlord shall be accompanied by a statement of the reasons
for such disapproval. Landlord reserves the right to disapprove any plans and
specifications in part, to reserve approval of items shown thereon pending its
review and approval of other plans and specifications, and to condition its
approval upon Tenant making revisions to the plans and specifications or
supplying additional information. Any review or approval by Landlord of any
plans and/or specifications or any preparation or design of any plans by
Landlord's architect or engineer (or any architect or engineer designated by
Landlord) with respect to any Alteration is solely for Landlord's benefit, and
without any representation or warranty whatsoever to Tenant or any other Person
with respect to the compliance thereof with any Requirements, the adequacy,
correctness or efficiency thereof or otherwise. The granting by Landlord of its
consent to any Alterations shall not be deemed to imply that Landlord's estate
or interest in the Real Property and/or the Building may be subjected to any
lien by any contractor, subcontractor, mechanic, materialman, vendor or other
supplier engaged by Tenant, directly or indirectly, in connection with such
Alteration.
(C) Tenant shall be permitted to perform Alterations during the
hours of 8:00 A.M. to 6:00 P.M. on Business Days, provided that such work shall
not interfere with or interrupt the operation and maintenance of the Building or
unreasonably interfere with or interrupt the use and occupancy of the Building
by other tenants in the Building. Otherwise, Alterations shall be performed at
such times and in such manner as Landlord may from time to time reasonably
designate. All Tenant's Property installed by Tenant and all Alterations in and
to the Premises which may be made by Tenant at its own cost and expense prior to
and during the Term, shall remain the property of Tenant. Upon the Expiration
Date, Tenant shall remove Tenant's Property from the Premises and, at Tenant's
option, Tenant also may remove, at
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Tenant's cost and expense, all Alterations made by Tenant to the Premises,
provided, however, in any case, that Tenant shall repair and restore in a good
and workmanlike manner to good condition any damage to the Premises or the
Building caused by such removal. Notwithstanding the foregoing, however,
Landlord, upon notice given at least thirty (30) days prior to the Fixed
Expiration Date or upon such shorter notice as is reasonable under the
circumstances upon the earlier expiration of the Term, may require Tenant to
remove any Specialty Alterations, and to repair and restore in a good and
workmanlike manner to good condition any damage to the Premises or the Building
caused by such removal.
(D) All Alterations shall be performed, at Tenant's sole cost and
expense, by contractors, subcontractors or mechanics specified by Tenant from a
list prepared by Landlord and the Alteration shall, at Tenant's cost and
expense, be designed by an engineer designated by Landlord. The charge by the
engineer shall be competitive with charges of engineers for comparable services
in the New York/New Jersey metropolitan area.
(E) Any mechanic's lien filed against the Premises or the Real
Property for work claimed to have been done for, or materials claimed to have
been furnished to, Tenant shall be discharged by Tenant within thirty (30) days
after Tenant shall have received notice thereof (or such shorter period if
required by the terms of any Superior Lease or Mortgage), at Tenant's expense,
by payment or filing the bond required by law. Tenant shall not, at any time
prior to or during the Term, directly or indirectly employ, or permit the
employment of, any contractor, mechanic or laborer in the Premises, whether in
connection with any Alteration or otherwise, if such employment would interfere
or cause any conflict with other contractors, mechanics or laborers engaged in
the construction, maintenance or operation of the Building by Landlord, Tenant
or others, or of any adjacent property owned by Landlord. In the event of any
such interference or conflict, Tenant, upon demand of Landlord, shall cause all
contractors, mechanics or laborers causing such interference or conflict to
leave the Building immediately. Tenant shall at all times employ contractors,
mechanics and laborers who in each instance are members of the applicable trade
union.
Section 3.2 Tenant shall reimburse Landlord for all reasonable
out-of-pocket costs and expenses incurred by Landlord in connection with any
Alterations performed by Tenant. Tenant also shall pay any fee charged by any
Lessor or Mortgagee in reviewing the plans and specifications for such
Alterations or inspecting the progress of completion of the same.
Section 3.3 Upon the request of Tenant, Landlord, at Tenant's cost and
expense, shall join in any applications for any permits, approvals or
certificates required to be obtained by Tenant in connection with any permitted
Alteration (provided that the provisions of the applicable Requirement shall
require that Landlord join in such application) and shall otherwise cooperate
with Tenant in connection therewith, provided that Landlord shall not be
obligated to incur any cost or expense, including, without limitation,
attorneys' fees and disbursements, or suffer any liability in connection
therewith.
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Section 3.4 Anything contained in this Lease to the contrary
notwithstanding, Landlord's consent shall not be required with respect to any
nonstructural Alteration, provided that (a) consent for such Alteration is not
required under the terms of any Superior Lease or Mortgage, (b) such Alteration
meets the conditions set forth in clauses (i) through (vi) of Section 3.1(A)
hereof, and (c) the estimated cost of the labor and materials for which shall
not exceed Twenty Thousand Dollars ($20,000), either individually or in the
aggregate with other nonstructural Alterations constructed within any twelve
(12) month period; provided, however, that at least ten (10) days prior to
making any such nonstructural Alteration, Tenant shall submit to Landlord for
informational purposes only the detailed plans and specifications for such
Alteration, as required by Section 3.1(B)(1)(i) hereof, and any such Alteration
shall otherwise be performed in compliance with the provisions of this Article
3.
Section 3.5 (A) Landlord shall perform the work, and make the
installations, in the Premises as set forth on Schedule D annexed hereto and
made a part hereof ("Landlord's Work").
(B) If Landlord shall be delayed in Substantially Completing
Landlord's Work by reason of any of the following (individually a "Tenant's
Delay" and collectively referred to as "Tenant's Delays"):
(1) any request by Tenant that Landlord delay in
proceeding with any segment or part of Landlord's
Work;
(2) any subsequent changes or requests for changes to
Landlord's Work;
(3) any errors or omissions in the design of
Landlord's Work;
(4) any acts or omissions of Tenant or its agents,
employees or contractors;
(5) any necessary displacement of any of Landlord's
Work from its place in Landlord's construction
schedule resulting from any of the causes for
delay referred to in paragraphs 1 through 4 above,
inclusive; and
(6) any other item designated as a Tenant's Delay
pursuant to this Section 3.5;
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then the Occupancy Date shall be deemed to be the date upon which the Occupancy
Date would have occurred but for such Tenant's Delay. If Landlord becomes aware
of any Tenant's Delay or any condition which may give rise to a Tenant's Delay,
Landlord shall promptly notify Tenant of such Tenant's Delay or condition and
the anticipated length of time of such Tenant's Delay, provided, however,
Landlord shall suffer no liability for failure to notify Tenant as aforesaid if
the anticipated length of such Tenant's Delay as set forth in Landlord's
aforesaid notice shall be different than any actual Tenant's Delay, or in good
faith it was not possible to reasonably foresee that a Tenant's Delay would
arise.
(C) Tenant may request changes in Landlord's Work consisting of
additions, deletions or other changes. If Tenant desires to make a change, the
same shall be communicated to Landlord by a change order signed by Tenant. Upon
Landlord's receipt of such change order, and provided Landlord otherwise
approves such changes (which approval shall be based upon the criteria for
approval of Alterations as set forth in this Article 3), Landlord shall promptly
prepare and furnish to Tenant a statement, setting forth Landlord's good faith
estimate of the cost, if any, to Tenant resulting from the proposed change, as
well as Landlord's good faith estimate of any changes in the progress of
Landlord's Work which would result by reason of such change. If within five (5)
days of Tenant's receipt of said statement Tenant countersigns and redelivers a
copy of said statement to Landlord, such statement shall constitute a mutually
binding change order and such change order shall be included in Landlord's Work.
The failure of Tenant to so notify Landlord within said five (5) day period
shall be deemed a withdrawal by Tenant of the request for the change in
question. Any increase in the cost of Landlord's Work resulting from a change
order requested by Tenant shall be paid by Tenant. In addition, any delay
resulting from a change order requested by Tenant shall be deemed to constitute
a Tenant's Delay.
(D) If a delay or any portion of a delay in the Substantial
Completion of Landlord's Work is the result of a delay by reason of strikes or
labor troubles, or by any cause whatsoever beyond Landlord's control, including,
but not limited to, laws, governmental preemption in connection with any
national emergency or by reason of any Requirements or by reason of the
conditions of supply and demand which have been or are affected by war or other
emergency, and such delay would not have occurred but for a Tenant's Delay, such
delay shall be deemed to be a Tenant's Delay for the purposes hereof.
ARTICLE 4
MAINTENANCE AND REPAIRS-FLOOR LOAD
Section 4.1 Landlord shall operate, maintain and make all necessary
repairs (both structural and nonstructural) to the part of Building Systems
which provide service to the Premises but not to the distribution portions of
such Building Systems located within the Premises) and the public portions of
the Building, both exterior and interior, in conformance with standards
applicable to first class office buildings in Jersey City, New Jersey. Tenant,
at
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Tenant's sole cost and expense, shall take good care of the Premises and the
fixtures, furniture and equipment located therein and the distribution systems
and shall make all nonstructural repairs thereto, as and when needed to preserve
them in good working order and condition, except for reasonable wear and tear,
obsolescence and damage for which Tenant is not responsible pursuant to the
provisions of Article 10 hereof. Notwithstanding the foregoing, all damage or
injury to the Premises or to any other part of the Building and Building
Systems, or to fixtures, furniture and equipment whether requiring structural or
nonstructural repairs, caused by or resulting from carelessness, omission,
neglect or improper conduct of, or Alterations made by, Tenant, Tenant's agents,
employees, invitees or licensees, shall be repaired at Tenant's sole cost and
expense, by Tenant to the reasonable satisfaction of Landlord (if the required
repairs are nonstructural in nature and do not affect any Building System), or
by Landlord (if the required repairs are structural in nature or affect any
Building System). All of the aforesaid repairs shall be of first quality and of
a class consistent with first class office building work or construction and
shall be made in accordance with the provisions of Article 3 hereof. If Tenant
fails after ten (10) days' notice to proceed with due diligence to take such
steps as are necessary to make repairs required to be made by Tenant, the same
may be made by Landlord at the expense of Tenant, and the expenses thereof
incurred by Landlord, with interest thereon at the Applicable Rate, shall be
forthwith paid to Landlord as additional rent after rendition of a bill or
statement therefor. Tenant shall give Landlord prompt notice of any defective
condition in the Building or in any Building System, located in, servicing or
passing through the Premises.
Section 4.2 Tenant shall not place a load upon any floor of the Premises
exceeding fifty (50) pounds per square foot "live load", unless Tenant, in
compliance with all applicable Requirements and the provisions of Article 3
hereof, reinforces the floor in a manner reasonably satisfactory to Landlord.
Tenant shall not move any safe, heavy machinery, heavy equipment, freight, bulky
matter or fixtures into or out of the Building without Landlord's prior consent,
which consent shall not be unreasonably withheld, and shall make payment to
Landlord of Landlord's costs in connection therewith. If such safe, machinery,
equipment, freight, bulky matter or fixtures requires special handling, Tenant
shall employ only persons holding a Master Rigger's license to do said work. All
work in connection therewith shall comply with all Requirements and the Rules
and Regulations, and shall be done during such hours as Landlord may reasonably
designate. Business machines and mechanical equipment shall be placed and
maintained by Tenant at Tenant's expense in settings sufficient in Landlord's
reasonable judgment to absorb and prevent vibration, noise and annoyance. Except
as expressly provided in this Lease, there shall be no allowance to Tenant for a
diminution of rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from Landlord, Tenant or
others making, or failing to make, any repairs, alterations, additions or
improvements in or to any portion of the Building or the Premises, or in or to
fixtures, appurtenances or equipment thereof.
Section 4.3 Landlord shall use its reasonable efforts to minimize
interference with Tenant's use and occupancy of the Premises in making any
repairs, alterations, additions
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or improvements; provided, however, that Landlord shall have no obligation to
employ contractors or labor at so-called overtime or other premium pay rates or
to incur any other overtime costs or expenses whatsoever, except that Landlord,
at its expense, but subject to recoupment pursuant to Article 27 hereof, shall
employ contractors or labor at so-called overtime or other premium pay rates if
necessary to make any repair required to be made by it hereunder to remedy any
condition that either (i) results in a denial of access to the Premises, (ii)
threatens the health or safety of any occupant of the Premises, or (iii) except
in the case of a fire or other casualty, materially interferes with Tenant's
ability to conduct its business in the Premises. In all other cases, at Tenant's
request, Landlord shall employ contractors or labor at so-called overtime or
other premium pay rates and incur any other overtime costs or expenses in making
any repairs, alterations, additions or improvements, and Tenant shall pay to
Landlord, as additional rent, within ten (10) Business Days after demand, an
amount equal to the difference between the overtime or other premium pay rates
and the regular pay rates for such labor and any other overtime costs or
expenses so incurred.
ARTICLE 5
WINDOW CLEANING
Tenant shall not clean, nor require, permit, suffer or allow any window in
the Premises to be cleaned from the outside in violation of any applicable
Requirements.
ARTICLE 6
REQUIREMENTS OF LAW
Section 6.1 (A) Tenant at its sole cost and expense, shall comply with all
Requirements applicable to the use and occupancy of the Premises, including,
without limitation, those applicable to the making of any Alterations therein or
the result of the making thereof and those applicable by reason of the nature or
type of business operated by Tenant in the Premises, except that (other than
with respect to the making of Alterations or the result of the making thereof)
Tenant shall not be under any obligation to make any Alteration in order to
comply with any Requirement applicable to the mere general "office" use (as
opposed to the manner of use) of the Premises, unless otherwise expressly
required herein. Tenant shall not do or permit to be done any act or thing upon
the Premises which will invalidate or be in conflict with a standard "all-risk"
insurance policy; and shall not do, or permit anything to be done in or upon the
Premises, or bring or keep anything therein, except as now or hereafter
permitted by the Jersey City Fire Department, the Jersey City Building Inspector
or other authority having jurisdiction and then only in such quantity and manner
of storage as not to increase the rate for fire insurance applicable to the
Building, or use the Premises in a manner (as opposed to mere use as general
"offices") which shall increase the rate of fire insurance on the Building or on
property located therein, over that in similar type buildings or in effect on
the Commencement Date. If by reason of Tenant's failure to comply with the
provisions of this Article, the fire
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insurance rate shall be higher than it otherwise would be, then Tenant shall
desist from doing or permitting to be done any such act or thing and shall
reimburse Landlord, as additional rent hereunder, for that part of all fire
insurance premiums thereafter paid by Landlord which shall have been charged
because of such failure by Tenant, and shall make such reimbursement upon demand
by Landlord. In any action or proceeding wherein Landlord and Tenant are
parties, a schedule or "make up" of rates for the Building or the Premises
issued by any fire rating bureau or organization having jurisdiction, or other
body fixing such fire insurance rates, shall be conclusive evidence of the facts
therein stated and of the several items and charges in the fire insurance rates
then applicable to the Building.
(B) Landlord, at its sole cost and expense (but subject to
recoupment as provided in Article 27 hereof), shall comply with all Requirements
applicable to the Premises and the Building other than those Requirements which
Tenant or other tenants or occupants of the Building shall be required to comply
with, subject to Landlord's right to contest the applicability or legality
thereof.
Section 6.2 Tenant, at its sole cost and expense and after notice to
Landlord, may contest by appropriate proceedings prosecuted diligently and in
good faith, the legality or applicability of any Requirement affecting the
Premises, provided that (a) Landlord (or any Indemnitee) shall not be subject to
imprisonment or to prosecution for a crime, nor shall the Real Property or any
part thereof be subject to being condemned or vacated, nor shall the
certificate of occupancy for the Premises or the Building be suspended or
threatened to be suspended by reason of noncompliance or by reason of such
contest; (b) before the commencement of such contest, if Landlord or any
Indemnitee may be subject to any civil fines or penalties or other criminal
penalties or if Landlord may be liable to any independent third party as a
result of such noncompliance, Tenant shall furnish to Landlord either (i) a bond
of a surety company satisfactory to Landlord, in form and substance reasonably
satisfactory to Landlord, and in an amount equal to one hundred twenty percent
(120%) of the sum of (A) the cost of such compliance, (B) the criminal or civil
penalties or fines that may accrue by reason of such non-compliance (as
reasonably estimated by Landlord), and (C) the amount of such liability to
independent third parties (as reasonably estimated by Landlord) (except that
Tenant shall not be required to furnish such bond to Landlord if it has
otherwise furnished any similar bond required by law to the appropriate
Governmental Authority and has named Landlord as a beneficiary thereunder) or
(ii) other security reasonably satisfactory in all respects to Landlord, and
shall indemnify Landlord (and any Indemnitee) against the cost of such
compliance and liability resulting from or incurred in connection with such
contest or non-compliance; (c) such non-compliance or contest shall not
constitute or result in a violation (either with the giving of notice or the
passage of time or both) of the terms of any Mortgage or Superior Lease, or if
such Superior Lease or Mortgage shall condition such non-compliance or contest
upon the taking of action or furnishing of security by Landlord, such action
shall be taken or such security shall be furnished at the expense of Tenant; and
(d) Tenant shall keep Landlord regularly advised as to the status of such
proceedings.
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ARTICLE 7
SUBORDINATION
Section 7.1 This Lease shall be subject and subordinate to each and every
Superior Lease and to each and every Mortgage. This clause shall be
self-operative and no further instrument of subordination shall be required from
Tenant to make the interest of any Lessor or Mortgagee superior to the interest
of Tenant hereunder; however, Tenant shall execute and deliver promptly any
instrument, in recordable form, that Landlord or any Mortgagee or Lessor may
request to evidence or confirm such subordination. If the date of expiration of
any Superior Lease shall be the same day as the Expiration Date, the Term shall
end and expire twelve (12) hours prior to the expiration of the Superior Lease.
Tenant shall not do anything that would constitute a default under any Superior
Lease or Mortgage, or omit to do anything that Tenant is obligated to do under
the terms of this Lease so as to cause Landlord to be in default thereunder. If,
in connection with the financing of the Real Property, the Building or the
interest of the lessee under any Superior Lease, or if in connection with the
entering into of a Superior Lease, any lending institution or Lessor shall
request reasonable modifications of this Lease that do not increase Tenant's
monetary obligations under this Lease, or materially adversely affect or
diminish the rights, or materially increase the other obligations of Tenant,
under this Lease, Tenant shall make such modifications.
Section 7.2 If at any time prior to the expiration of the Term, any
Superior Lease shall terminate or be terminated for any reason or any Mortgagee
comes into possession of the Real Property or the Building or the estate created
by any Superior Lease by receiver or otherwise, Tenant agrees, at the election
and upon demand of any owner of the Real Property or the Building, or of the
Lessor, or of any Mortgagee in possession of the Real Property or the Building,
to attorn, from time to time, to any such owner, Lessor or Mortgagee or any
person acquiring the interest of Landlord as a result of any such termination,
or as a result of a foreclosure of the Mortgage or the granting of a deed in
lieu of foreclosure, upon the then executory terms and conditions of this Lease,
subject to the provisions of Section 7.1 hereof, for the remainder of the Term,
provided that such owner, Lessor or Mortgagee, as the case may be, or receiver
caused to be appointed by any of the foregoing, shall then be entitled to
possession of the Premises. The provisions of this Section 7.2 shall enure to
the benefit of any such owner, Lessor or Mortgagee, shall apply notwithstanding
that, as a matter of law, this Lease may terminate upon the termination of any
Superior Lease, and shall be self-operative upon any such demand, and no further
instrument shall be required to give effect to said provisions. Tenant, however,
upon demand of any such owner, Lessor or Mortgagee, shall execute, from time to
time, instruments, in recordable form, in confirmation of the foregoing
provisions of this Section 7.2, satisfactory to any such owner, Lessor or
Mortgagee, acknowledging such attornment and setting forth the terms and
conditions of its tenancy.
Section 7.3 From time to time, within fourteen (14) days next following
request by Landlord, any Mortgagee or any Lessor, Tenant shall deliver to
Landlord, such Mortgagee or such Lessor a written statement executed by Tenant,
in form satisfactory to Landlord, such
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Mortgagee or such Lessor, (1) stating that this Lease is then in full force and
effect and has not been modified (or if modified, setting forth all
modifications), (2) setting forth the date to which the Fixed Rent, additional
rent and other items of Rental have been paid, (3) stating whether or not, to
the best knowledge of Tenant, Landlord is in default under this Lease, and, if
Landlord is in default, setting forth the specific nature of all such defaults,
and (4) as to any other matters reasonably requested by Landlord, such Mortgagee
or such Lessor. Tenant acknowledges that any statement delivered pursuant to
this Section 7.3 may be relied upon by any purchaser or owner of the Real
Property or the Building, or Landlord's interest in the Real Property or the
Building or any Superior Lease, or by any Mortgagee, or by an assignee of any
Mortgagee, or by any Lessor.
Section 7.4 From time to time, within fourteen (14) days next following
request by Tenant but not more frequently than twice in any twelve (12) month
period, Landlord shall deliver to Tenant a written statement executed by
Landlord (i) stating that this Lease is then in full force and effect and has
not been modified (or if modified, setting forth all modifications), (ii)
setting forth the date to which the Fixed Rent, all additional rent and any
other items of Rental have been paid, (iii) stating whether or not, to the best
knowledge of Landlord, Tenant is in default under this Lease, and, if Tenant is
in default, setting forth the specific nature of all such defaults, and (iv) as
to any other matters reasonably requested by Tenant and related to this Lease.
Section 7.5 As long as any Superior Lease or Mortgage shall exist, Tenant
shall not seek to terminate this Lease by reason of any act or omission of
Landlord until Tenant shall have given written notice of such act or omission to
all Lessors and Mortgagees at such addresses as shall have been furnished to
Tenant by such Lessors and Mortgagees and, if any such Lessor or Mortgagee, as
the case may be, shall have notified Tenant within ten (10) Business Days
following receipt of such notice of its intention to remedy such act or
omission, until a reasonable period of time shall have elapsed following the
giving of such notice, during which period such Lessors and Mortgagees shall
have the right, but not the obligation, to remedy such act or omission.
Section 7.6 Landlord hereby represents to Tenant that (a) Landlord is both
(i) the fee owner of the Land, which Landlord's predecessor-in-interest leased
to NTURC, pursuant to a lease agreement (the "Ground Lease"), dated as of May
17, 1989, between Landlord's predecessor-in-interest and NTURC and (ii) the
tenant under a sublease agreement (the "Sublease"), dated as of May 17, 1989,
between NTURC, as sublandlord, and Landlord's predecessor-in-interest, as
subtenant, and (b) the Ground Lease and the Sublease are the only Superior
Leases affecting the Real Property or the Building on the date hereof. Landlord
further represents that neither the Ground Lease, the Sublease nor any other
underlying document or agreement shall impair Tenant's rights granted under this
Lease. Landlord and Tenant acknowledge and agree that during the term of the
Sublease this Lease shall be a lease from Landlord as subtenant under the
Sublease and that upon the expiration or earlier
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termination of the term of the Ground Lease, this Lease shall be a lease from
Landlord as the fee owner of the Real Property.
ARTICLE 8
RULES AND REGULATIONS
Tenant and Tenant's contractors, employees, agents, visitors, invitees and
licensees shall comply with the Rules and Regulations. Tenant shall have the
right to dispute the reasonableness of any additional Rule or Regulation
hereafter adopted by Landlord. If Tenant disputes the reasonableness of any
additional Rule or Regulation hereafter adopted by Landlord, the dispute shall
be determined by arbitration in Jersey City in accordance with the rules and
regulations then obtaining of the American Arbitration Association or its
successor. Any such determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice upon Landlord within thirty (30) days after
receipt by Tenant of notice of the adoption of any such additional Rule or
Regulation. Nothing in this Lease contained shall be construed to impose upon
Landlord any duty or obligation to enforce the Rules and Regulations or terms,
covenants or conditions in any other lease against any other tenant, and
Landlord shall not be liable to Tenant for violation of the same by any other
tenant, its employees, agents, visitors or licensees, except that Landlord shall
not enforce any Rule or Regulation against Tenant which Landlord shall not then
be enforcing against all other office tenants in the Building (other than
Landlord or its Affiliates).
ARTICLE 9
INSURANCE, PROPERTY LOSS OR DAMAGE; REIMBURSEMENT
Section 9.1 (A) Any Building employee to whom any property shall be
entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's
agent with respect to such property and neither Landlord nor its agents shall be
liable for any damage to property of Tenant or of others entrusted to employees
of the Building, nor for the loss of or damage to any property of Tenant by
theft or otherwise. Neither Landlord nor its agents shall be liable for any
injury (or death) to persons or damage to property, or interruption of Tenant's
business, resulting from fire or other casualty; nor shall Landlord or its
agents be liable for any such injury (or death) to persons or damage caused by
other tenants or persons in the Building or caused by construction of any
private, public or quasi-public work; nor shall Landlord be liable for any
injury (or death) to persons or damage to property or improvements, or
interruption of Tenant's business, resulting from any latent defect in the
Premises or in the Building (provided that the foregoing shall not relieve
Landlord from its obligations, if any, to repair such latent defect pursuant to
the provisions of Article 4 hereof or affect Tenant's right, if any, regarding
an abatement of the Fixed Rent and Escalation Rent as set forth in Section 14.2
hereof). Anything in this Article 9 to the contrary notwithstanding, except as
otherwise expressly
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provided in this Lease, Landlord shall not be relieved from responsibility
directly to Tenant for any loss or damage caused directly to Tenant wholly or in
part by the negligent acts or omissions of Landlord. Nothing in the foregoing
sentence shall affect any right of Landlord to the indemnity from Tenant to
which Landlord may be entitled under Article 35 hereof in order to recoup for
payments made to compensate for losses of third parties.
(B) If at any time any windows of the Premises are temporarily
closed, darkened or bricked-up due to any Requirement or by reason of repairs,
maintenance, alterations, or improvements to the Building, or any of such
windows are permanently closed, darkened or bricked-up due to any Requirement,
Landlord shall not be liable for any damage Tenant may sustain thereby and
Tenant shall not be entitled to any compensation therefor, nor abatement or
diminution of Fixed Rent or any other item of Rental, nor shall the same release
Tenant from its obligations hereunder, nor constitute an actual or constructive
eviction, in whole or in part, by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business, or otherwise, nor
impose any liability upon Landlord or its agents. If at any time the windows of
the Premises are temporarily closed, darkened or bricked-up, as aforesaid,
Landlord shall perform such repairs, maintenance, alterations or improvements
and comply with the applicable Requirements with reasonable diligence and
otherwise take such action as may be reasonably necessary to minimize the period
during which such windows are temporarily closed, darkened, or bricked-up.
(C) Tenant shall immediately notify Landlord of any fire or accident
in the Premises.
Section 9.2 Tenant shall obtain and keep in full force and effect (i) an
"all risk" insurance policy for Tenant's Specialty Alterations and Tenant's
Property at the Premises in an amount equal to one hundred percent (100%) of the
replacement value thereof, and (ii) a policy of commercial general liability and
property damage insurance on an occurrence basis, with a broad form contractual
liability endorsement. Such policies shall provide that Tenant is named as the
insured. Landlord, Landlord's managing agent, Landlord's agent and any Lessors
and any Mortgagees (whose names shall have been furnished to Tenant) shall be
added as additional insureds, as their respective interests may appear with
respect to the insurance required to be carried pursuant to clause (i) above,
and only to the extent of the named insured's negligence with respect to the
insurance required to be carried pursuant to clause (ii) above. Such policy
described in clause (ii) above shall include coverage for all cost, expense and
liability arising out of, or based upon, any and all claims, accidents, injuries
and damages mentioned in Article 35. In addition, the policy required to be
carried pursuant to clause (ii) above shall contain a provision that (a) no act
or omission of Tenant shall affect or limit the obligation of the insurer to pay
the amount of any loss sustained and (b) the policy shall be non-cancelable with
respect to Landlord, Landlord's managing agent, Landlord's agent and such
Lessors and Mortgagees (whose names and addresses shall have been furnished to
Tenant) unless thirty (30) days' prior written notice shall have been given to
Landlord by certified mail, return receipt requested, which notice shall contain
the policy number and the names of the insured and additional
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insureds. In addition, upon receipt by Tenant of any notice of cancellation or
any other notice from the insurance carrier which may adversely affect the
coverage of the insureds under such policy of insurance, Tenant shall
immediately deliver to Landlord and any other additional insured hereunder a
copy of such notice. The minimum amounts of liability under the policy of
insurance required to be carried pursuant to clause (ii) above shall be a
combined single limit with respect to each occurrence in an amount of $5,000,000
for injury (or death) to persons and damage to property, which amount shall be
increased from time to time to that amount of insurance which in Landlord's
reasonable judgment is then being customarily required by prudent landlords of
first class office buildings in the New York/New Jersey metropolitan area. All
insurance required to be carried by Tenant pursuant to the terms of this Lease
shall be effected under valid and enforceable policies issued by reputable and
independent insurers permitted to do business in the State of New Jersey and
rated in Best's Insurance Guide, or any successor thereto (or if there be none,
an organization having a national reputation) as having a general policyholder
rating of "A" and a financial rating of at least "X".
Section 9.3 Landlord shall obtain and keep in full force and effect
insurance against loss or damage by fire and other casualty to the Building,
including Tenant's Alterations (exclusive of Specialty Alterations), as may be
insurable under then available standard forms of "all-risk" insurance policies,
in an amount equal to one hundred percent (100%) of the replacement value
thereof or in such lesser amount as will avoid co-insurance (including an
"agreed amount" endorsement). Notwithstanding the foregoing, Landlord shall not
be liable to Tenant for any failure to insure, replace or restore any
Alterations unless Tenant shall have notified Landlord of the completion of such
Alterations and of the cost thereof, and shall have maintained adequate records
with respect to such Alterations to facilitate the adjustment of any insurance
claims with respect thereto. Tenant shall cooperate with Landlord and Landlord's
insurance companies in the adjustment of any claims for any damage to the
Building or such Alterations.
Section 9.4 On or prior to the Commencement Date, each of Landlord and
Tenant shall deliver to the other appropriate certificates of insurance,
including evidence of waivers of subrogation required pursuant to Section 9.6
hereof, required to be carried by such party pursuant to this Article 9.
Evidence of each renewal or replacement of a policy shall be delivered by each
of Landlord and Tenant to the other at least twenty (20) days prior to the
expiration of such policy.
Section 9.5 Tenant acknowledges that Landlord shall not carry insurance
on, and shall not be responsible for damage to, Tenant's Property or Specialty
Alterations, and that Landlord shall not carry insurance against, or be
responsible for any loss suffered by Tenant due to, interruption of Tenant's
business; it being expressly understood and agreed that the foregoing shall not
affect Tenant's right, if any, regarding an abatement of the Fixed Rent and
Escalation Rent pursuant to Section 14.2 hereof.
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Section 9.6 The parties hereto shall procure an appropriate clause in, or
endorsement on, any fire or extended coverage insurance covering the Premises,
the Building and personal property, futures and equipment located thereon or
therein, pursuant to which the insurance companies waive subrogation or consent
to a waiver of right of recovery and having obtained such clauses or
endorsements of waiver of subrogation or consent to a waiver of right of
recovery, will not make any claim against or seek to recover from the other for
any loss or damage to its property or the property of others resulting from fire
or other hazards covered by such fire and extended coverage insurance, provided,
however, that the release, discharge, exoneration and covenant not to sue herein
contained shall be limited by and be coextensive with the terms and provisions
of the waiver of subrogation clause or endorsements or clauses or endorsements
consenting to a waiver of right of recovery. If the payment of an additional
premium is required for the inclusion of such waiver of subrogation provision,
each party shall advise the other of the amount of any such additional premiums
and the other party at its own election may, but shall not be obligated to, pay
the same. If such other party shall not elect to pay such additional premium,
the first party shall not be required to obtain such waiver of subrogation
provision. If either party shall be unable to obtain the inclusion of such
clause even with the payment of an additional premium, then such party shall
attempt to name the other party as an additional insured but not a loss payee)
under the policy. If the payment of an additional premium is required for naming
the other party as an additional insured (but not a loss payee), each party
shall advise the other of the amount of any such additional premium and the
other party at its own election may, (but shall not be obligated to, pay the
same. If such other party shall not elect to pay such additional premium or if
it shall not be possible to have the other party named as an additional insured
(but not loss payee), even with the payment of an additional premium, then (in
either event) such party shall so notify the first party and the first party
shall not have the obligation to name the other party as an additional insured.
ARTICLE 10
DESTRUCTION-FIRE OR OTHER CAUSE
Section 10.1 (A) If the Premises (including Alterations other than
Specialty Alterations) shall be damaged by fire or other casualty, and if Tenant
shall give prompt notice thereof to Landlord, the damage shall be diligently
repaired by and at the expense of Landlord to substantially the condition prior
to the damage, with such modifications as shall be required in order to comply
with Requirements, and until such repairs which are required to be performed by
Landlord (excluding Long Lead Work) shall be Substantially Completed (of which
Substantial Completion Landlord shall promptly notify Tenant) the Fixed Rent and
Space Factor shall be reduced in the proportion which the ratio between the area
of the part of the Premises which is not usable by Tenant, as determined by
Landlord in its reasonable discretion, bears to the total area of the Premises
immediately prior to such casualty and Tenant's Share shall be redetermined
based upon the proportion in which the ratio between the rentable area of the
Premises remaining after such casualty bears to the rentable area of the
Building, exclusive of the retail portions of the Building, remaining after such
casualty. Upon the Substantial Comple-
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tion of such repairs (excluding Long Lead Work), Landlord shall diligently
prosecute to completion any items of Long Lead Work remaining to be completed.
Landlord shall have no obligation to repair any damage to, or to replace, any
Specialty Alterations or Tenant's Property. In addition, Landlord shall not be
obligated to repair any damage to, or to replace, any Alterations unless Tenant
shall have notified Landlord of the completion of such Alterations and the cost
thereof, and shall have maintained adequate records with respect to such
Alterations. Landlord shall use its reasonable efforts to minimize interference
with Tenant's use and occupancy in making any repairs pursuant to this Section.
(B) Prior to the Substantial Completion of Landlord's repair
obligations set forth in Section 10.1(A) hereof, Landlord shall provide Tenant
and Tenant's contractor, subcontractors and materialmen access to the Premises
to perform Specialty Alterations (or Alterations, if Landlord is not obligated
to repair same pursuant to the provisions hereof), on the following terms and
conditions (but not to occupy the same for the conduct of business):
(1) Tenant shall not commence work in any portion of the
Premises until the date specified in a notice from Landlord to Tenant stating
that the repairs required to be made by Landlord have been or will be completed
to the extent reasonably necessary, in Landlord's discretion, to permit the
commencement of the Specialty Alterations (or Alterations, if Landlord is not
obligated to repair same pursuant to the provisions hereof) then prudent to be
performed in accordance with good construction practice in the portion of the
Premises in question without interference with, and consistent with the
performance of, the repairs remaining to be performed.
(2) Such access by Tenant shall be deemed to be subject
to all of the applicable provisions of this Lease, including, without
limitation, Tenant's obligation to pay to Landlord the Electricity Additional
Rent as more particularly set forth in Article 13 hereof, except that there
shall be no obligation on the part of Tenant solely because of such access to
pay any Fixed Rent or Escalation Rent with respect to the affected portion of
the Premises for any period prior to Substantial Completion of the repairs.
(3) It is expressly understood that if Landlord shall be
prevented from Substantially Completing the repairs due to any acts of Tenant,
its agents, servants, employees or contractors, including, without limitation,
by reason of the performance of any Specialty Alteration (or Alteration, if
Landlord is not obligated to repair same pursuant to the provisions hereof), by
reason of Tenant's failure or refusal to comply or to cause its architects,
engineers, designers and contractors to comply with any of Tenant's obligations
described or referred to in this Lease, or if such repairs are not Substantially
Completed because under good construction scheduling practice such repairs
should be performed after completion of any Specialty Alteration (or Alteration,
if Landlord is not obligated to repair same pursuant to the provisions hereof),
then such repairs shall be deemed Substantially Complete on the date when the
repairs would have been Substantially Complete but for such delay and the
expiration of the abatement of Tenant's obligations hereunder shall not be
postponed by reason
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of such delay. Any additional costs to Landlord to complete any repairs
occasioned by such delay shall be paid by Tenant to Landlord within ten (10)
days after demand, as additional rent.
Section 10.2 Anything contained in Section 10.1 hereof to the contrary
notwithstanding, if the Building shall be so damaged by fire or other casualty
that, in Landlord's opinion, substantial alteration, demolition, or
reconstruction of the Building shall be required (whether or not the Premises
shall have been damaged or rendered untenantable), then Landlord, at Landlord's
option, may, not later than ninety (90) days following the damage, give Tenant a
notice in writing terminating this Lease, provided that if the Premises are not
substantially damaged or rendered substantially untenantable, Landlord may not
terminate this Lease unless it shall elect to terminate at least fifty percent
(50%) of the leases (including this Lease), affecting the Building. If Landlord
elects to terminate this Lease, the Term shall expire upon a date set by
Landlord, hut not sooner than the tenth (10th) day after such notice is given,
and Tenant shall vacate the Premises and surrender the same to Landlord in
accordance with the provisions of Article 20 hereof. Upon the termination of
this Lease under the conditions provided for in this Section 10.2, the Fixed
Rent and Escalation Rent shall be apportioned and any prepaid portion of Fixed
Rent and Escalation Rent for any period after such date shall be refunded by
Landlord to Tenant.
Section 10.3 (A) Within forty-five (45) days after notice to Landlord of
any damage described in Section 10.1 hereof, Landlord shall deliver to Tenant a
statement prepared by a reputable contractor setting forth such contractor's
estimate as to the time required to repair such damage, exclusive of time
required to repair any Specialty Alterations (which are Tenant's obligation to
repair) or to perform Long Lead Work. If the estimated time period exceeds
twelve (12) months from the date of such statement, Tenant may elect to
terminate this Lease by notice to Landlord not later than thirty (30) days
following receipt of such statement. If Tenant makes such election, the Term
shall expire upon the thirtieth (30th) day after notice of such election is
given by Tenant, and Tenant shall vacate the Premises and surrender the same to
Landlord in accordance with the provisions of Article 20 hereof. If Tenant shall
not have elected to terminate this Lease pursuant to this Article 10 (or is not
entitled to terminate this Lease pursuant to this Article 10), the damages shall
be diligently repaired by and at the expense of Landlord as set forth in Section
10.1 hereof unless Landlord shall elect to terminate this Lease pursuant to
Section 10.2 hereof. If Landlord cannot restore the Premises within twelve (12)
months from the date of such statement (as such period may be extended by any
Unavoidable Delays or Tenant delays), then Tenant may elect to terminate this
Lease by notice to Landlord not later than ten (10) Business Days following such
twelve (12) month period (as so extended). If Tenant makes such election, the
term shall expire upon the thirtieth (30th) day after notice of such election
given by Tenant, and Tenant shall vacate the Premises and surrender the same to
Landlord in accordance with the provisions of Article 20 hereof.
(B) Notwithstanding the foregoing, if the Premises shall be
substantially damaged during the last year of the Term, Landlord or Tenant may
elect by notice, given within thirty (30) days after the occurrence of such
damage, to terminate this Lease and if
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either party makes such election, the Term shall expire upon the thirtieth
(30th) day after notice of such election is given by such party and Tenant shall
vacate the Premises and surrender the same to Landlord in accordance with the
provisions of Article 20 hereof.
(C) Except as expressly set forth in this Section 10.3, Tenant shall
have no other options to cancel this Lease under this Article 10.
Section 10.4 This Article 10 constitutes an express agreement and
stipulation governing any case of damage or destruction of the Premises or the
Building by fire or other casualty, and the provisions of N.J.S.A. 46:84 and 7
which provide for such contingency in the absence of an express agreement or
stipulation, and any other law of like nature and purpose now or hereafter in
force shall have no application in any such case.
ARTICLE 11
EMINENT DOMAIN
Section 11.1 If the whole of the Real Property, the Building or the
Premises shall be acquired or condemned for any public or quasi-public use or
purpose, this Lease and the Term shall end as of the date of the vesting of
title with the same effect as if said date were the Expiration Date. If only a
part of the Real Property and not the entire Premises shall be so acquired or
condemned then, (1) except as hereinafter provided in this Section 11.1, this
Lease and the Term shall continue in force and effect, but, if a part of the
Premises is included in the part of the Real Property so acquired or condemned,
from and after the date of the vesting of title, the Fixed Rent and the Space
Factor shall be reduced in the proportion which the area of the part of the
Premises so acquired or condemned bears to the total area of the Premises
immediately prior to such acquisition or condemnation and Tenant's Share shall
be redetermined based upon the proportion in which the ratio between the
rentable area of the Premises remaining after such acquisition or condemnation
bears to the rentable area of the Building, exclusive of the retail portions
remaining after such acquisition or condemnation; (2) whether or not the
Premises shall be affected thereby, Landlord, at Landlord's option, may give to
Tenant, within sixty (60) days next following the date upon which Landlord shall
have received notice of vesting of title, a thirty (30) days' notice of
termination of this Lease if Landlord shall elect to terminate at least fifty
percent (50%) of the leases (including this Lease) affecting the Building; and
(3) if the part of the Real Property so acquired or condemned shall contain more
than fifteen percent (15%) of the total area of the Premises immediately prior
to such acquisition or condemnation, or if, by reason of such acquisition or
condemnation, Tenant no longer has reasonable means of access to the Premises,
Tenant, at Tenant's option, may give to Landlord, within sixty (60) days next
following the date upon which Tenant shall have received notice of vesting of
title, a thirty (30) days' notice of termination of this Lease. If any such
thirty (30) days' notice of termination is given by Landlord or Tenant, this
Lease and the Term shall come to an end and expire upon the expiration of said
thirty (30) days with the same effect as if the date of expiration of said
thirty (30) days were the Expiration Date. If a part of the
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Premises shall be so acquired or condemned and this Lease and the Term shall not
be terminated pursuant to the foregoing provisions of this Section 11.1,
Landlord, at Landlord's expense, shall restore that part of the Premises not so
acquired or condemned to a self-contained rental unit exclusive of Tenant's
Property and Specialty Alterations. Upon the termination of this Lease and the
Term pursuant to the provisions of this Section 11.1, the Fixed Rent and
Escalation Rent shall be apportioned and any prepaid portion of Fixed Rent and
Escalation Rent for any period after such date shall be refunded by Landlord to
Tenant.
Section 11.2 In the event of any such acquisition or condemnation of all
or any part of the Real Property, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation, Tenant shall have no
claim against Landlord or the condemning authority for the value of any
unexpired portion of the Term and Tenant hereby expressly assigns to Landlord
all of its right in and to any such award. Nothing contained in this Section
11.2 shall be deemed to prevent Tenant from making a separate claim in any
condemnation proceedings for the then value of any Tenant's Property included in
such taking, and for any moving expenses, provided same does not reduce
Landlord's award.
Section 11.3 If the whole or any part of the Premises shall be acquired or
condemned temporarily during the Term for any public or quasi-public use or
purpose, Tenant shall give prompt notice thereof to Landlord and the Term shall
not be reduced or affected in any way; provided, however, that during the term
of such temporary acquisition or condemnation, the Fixed Rent and Escalation
Rent payable with respect to the Premises or portion thereof, as the case may
be, shall be abated or reduced, as the case may be, and Landlord shall be
entitled to receive for itself all awards and payments for (i) the use and
occupancy of the Premises, or portion thereof, as the case may be, and (ii) the
costs and expenses of restoration of the Premises.
ARTICLE 12
ASSIGNMENT, SUBLETTING, MORTGAGE, ETC.
Section 12.1 (A) Except to the extent provided in Section 12.4 hereof,
Tenant, without the prior consent of Landlord in each instance, may not (a)
assign its rights or delegate its duties under this Lease (whether by operation
of law, transfers of interests in Tenant or otherwise), mortgage or encumber its
interest in this Lease, in whole or in part, (b) sublet, or permit the
subletting of, the Premises or any part thereof, or (c) permit the Premises or
any part thereof to be occupied or used for desk space, mailing privileges or
otherwise, by any Person other than Tenant.
(B) If this Lease is assigned to any person or entity pursuant to
the provisions of the Bankruptcy Code or any state insolvency related statute,
any and all monies or other consideration payable or otherwise to be delivered
in connection with such assignment shall be paid or delivered to Landlord, shall
be and remain the exclusive property of Landlord
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and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code or such state insolvency related statute. Any
and all monies or other consideration constituting Landlord's property under the
preceding sentence not paid or delivered to Landlord shall be held in trust for
the benefit of Landlord and shall be promptly paid to or turned over to
Landlord.
Section 12.2 (A) If Tenant's interest in this Lease is assigned in
violation of the provisions of this Article 12, such assignment shall be void
and of no force and effect against Landlord; provided, however, that Landlord
may collect an amount equal to the then Fixed Rent plus any other item of Rental
from the assignee as a fee for its use and occupancy, and shall apply the net
amount collected to the Fixed Rent and other items of Rental reserved in this
Lease. If the Premises or any part thereof are sublet to, or occupied by, or
used by, any Person other than Tenant, whether or not in violation of this
Article 12, Landlord, after default by Tenant under this Lease, including,
without limitation, a subletting or occupancy in violation of this Article 12,
may collect any item of Rental or other sums paid by the subtenant, user or
occupant as a fee for its use and occupancy, and shall apply the net amount
collected to the Fixed Rent and other items of Rental reserved in this Lease. No
such assignment, subletting, occupancy or use, whether with or without
Landlord's prior consent, nor any such collection or application of Rental or
fee for use and occupancy, shall be deemed a waiver by Landlord of any term,
covenant or condition of this Lease or the acceptance by Landlord of such
assignee, subtenant, occupant or user as tenant hereunder. The consent by
Landlord to any assignment, subletting, occupancy or use shall not relieve
Tenant from its obligation to obtain the express prior consent of Landlord to
any further assignment, subletting, occupancy or use.
(B) Tenant shall reimburse Landlord on demand for any out-of-pocket
costs that may be incurred by Landlord in connection with any proposed
assignment of Tenant's interest in this Lease (including, without limitation, a
change or conversion pursuant to Section 12.4(D) hereof) or any proposed
subletting of the Premises or any part thereof, including, without limitation,
attorneys' fees and disbursements and the costs of making investigations as to
the acceptability of the proposed subtenant or the proposed assignee.
(C) Neither an assignment of Tenant's interest in this Lease nor a
subletting, occupancy or use of the Premises or any part thereof by any Person
other than Tenant, nor any collection of Rental by Landlord from any Person
other than Tenant as provided in this Section 12.2, nor any application of any
such Rental as provided in this Section 12:2 shall, in any circumstances,
relieve Tenant of its obligations under this Lease on Tenant's part to be
observed and performed.
(D) Any Person to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code or any state insolvency related statute shall
be deemed without further act or deed to have assumed all of the obligations
arising under this Lease on and after the date of such assignment. Any such
assignee shall execute and deliver to Landlord upon demand an instrument
confirming such assumption. No assignment of this Lease shall
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relieve Tenant of its obligations hereunder and, subsequent to any assignment,
Tenant's liability hereunder shall continue notwithstanding any subsequent
modification or amendment hereof or the release of any subsequent tenant
hereunder from any liability, to all of which Tenant hereby consents in advance.
Section 12.3 (A) If Tenant assumes this Lease and proposes to assign the
same pursuant to the provisions of the Bankruptcy Code or any state insolvency
related statute to any Person who shall have made a bona fide offer to accept an
assignment of this Lease on terms acceptable to Tenant, then notice of such
proposed assignment shall be given to Landlord by Tenant no later than twenty
(20) days after receipt by Tenant, but in any event no later than ten (10) days
prior to the date that Tenant shall make application to a court of competent
jurisdiction for authority and approval to enter into such assignment and
assumption. Such notice shall set forth (a) the name and address of such Person,
(b) all of the terms and conditions of such offer, and (c) adequate assurance of
future performance by such Person under the Lease as set forth in Paragraph (B)
below, including, without limitation, the assurance referred to in Section
365(b)(3) of the Bankruptcy Code. Landlord shall have the prior right and
option, to be exercised by notice to Tenant given at any time prior to the
effective date of such proposed assignment, to accept an assignment of this
Lease upon the same terms and conditions and for the same consideration, if any,
as the bona fide offer made by such Person, less any brokerage commissions which
would otherwise be payable by Tenant out of the consideration to be paid by such
Person in connection with the assignment of this Lease.
(B) The term "adequate assurance of future performance" as used in
this Lease shall mean that any proposed assignee shall, among other things, (a)
deposit with Landlord on the assumption of this Lease the sum of the then Fixed
Rent as security for the faithful performance and observance by such assignee of
the terms and obligations of this Lease, which sum shall be held by Landlord,
(b) furnish Landlord with financial statements of such assignee for the prior
three (3) fiscal years, as finally determined after an audit and certified as
correct by a certified public accountant, which financial statements shall show
a net worth of at least six (6) times the then Fixed Rent for each of such three
(3) years, (c) grant to Landlord a security interest in such property of the
proposed assignee as Landlord shall deem necessary to secure such assignee's
future performance under this Lease, and (d) provide such other information or
take such action as Landlord, in its reasonable judgment shall determine is
necessary to provide adequate assurance of the performance by such assignee of
its obligations under the Lease.
Section 12.4 (A) Tenant shall have the right, subject to the terms and
conditions hereinafter set forth, without the consent of Landlord, to assign its
interest in this Lease to (i) any corporation which is a successor to Tenant
either by merger or consolidation, (ii) a purchaser of all or substantially all
of Tenant's assets (provided such purchaser shall have also assumed
substantially all of Tenant's liabilities) or (iii) an Affiliate of Tenant and
Tenant shall have the right, subject to the terms and conditions hereinafter set
forth, without the consent of Landlord, to sublease all or any portion of the
Premises to an Affiliate of Tenant. Any
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assignment or subletting described above may only be made upon the condition
that (a) any such assignee or subtenant shall continue to use the Premises for
the conduct of the same business as Tenant was conducting prior to such
assignment or sublease, (b) the principal purpose of such assignment or sublease
is not the acquisition of Tenant's interest in this Lease or to circumvent the
provisions of Section 12.1 of this Article, and (c) in the case of an
assignment, any such assignee shall have a net worth, annual income and cash
flow, determined in accordance with generally accepted accounting principles,
consistently applied, after giving effect to such assignment, equal to Tenant's
net worth, annual income and cash flow, as so determined, on the date
immediately preceding the date of such assignment. Tenant shall, within ten (10)
Business Days after execution thereof, deliver to Landlord either (x) a
duplicate original instrument of assignment in form and substance reasonably
satisfactory to Landlord, duly executed by Tenant, together with an instrument
in form and substance reasonably satisfactory to Landlord, duly executed by the
assignee, in which such assignee shall assume observance and performance of, and
agree to be personally bound by, all of the terms, covenants and conditions of
this Lease on Tenant's part to be observed and performed, or (y) a duplicate
original sublease in form and substance reasonably satisfactory to Landlord,
duly executed by Tenant and the subtenant.
(B) If Tenant is a partnership, the admission of new Partners, the
withdrawal, retirement, death, incompetency or bankruptcy of any Partner, or the
reallocation of partnership interests among the Partners shall not constitute an
assignment of this Lease, provided the principal purpose of any of the foregoing
is not to circumvent the restrictions on assignment set forth in the provisions
of this Article 12. The reorganization of Tenant from a professional corporation
into a partnership or the reorganization of a Tenant from a partnership into a
professional corporation, shall not constitute an assignment of this Lease,
provided that immediately following such reorganization the Partners of Tenant
shall be the same as the shareholders of Tenant existing immediately prior to
such reorganization, or the shareholders of Tenant shall be the same as the
Partners of Tenant existing immediately prior to such reorganization, as the
case may be. If Tenant shall become a professional corporation, each individual
shareholder in Tenant and each professional employee of a professional
corporation which is a shareholder in Tenant shall have the same personal
liability as such individual or professional employee would have under this
Lease if Tenant were a partnership and such individual or professional employee
were a Partner in Tenant. If any individual Partner in Tenant is or becomes a
professional employee of a professional corporation, such individual shall have
the same personal liability under this Lease as such individual would have if he
and not the professional corporation were a Partner of Tenant.
(C) Except as set forth above, either a transfer (including the
issuance of treasury stock or the creation and issuance of new stock or a new
class of stock) of a controlling interest in the shares of Tenant (if Tenant is
a corporation or trust) or a transfer of a majority of the total interest in
Tenant (if Tenant is a partnership or other entity) or a transfer of a
controlling interest in an entity that owns, directly or indirectly, a majority
interest in Tenant, at any one tune or over a period of time through a series of
transfers, shall be deemed an assignment of this Lease and shall be subject to
all of the provisions of this Article 12,
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including, without limitation, the requirement that Tenant obtain Landlord's
prior consent thereto. The transfer of shares of Tenant (if Tenant is a
corporation or trust) or of any parent corporation of Tenant for purposes of
this Section 12.4 shall not include the sale of shares by persons other than
those deemed "insiders" within the meaning of the Securities Exchange Act of
1934, as amended, which sale is effected through the "over-the-counter market"
or through any recognized stock exchange.
(D) Notwithstanding any other provision of this Article 12, if
Tenant is a Partnership Tenant, the change or conversion of Tenant to (i) a
limited liability company, (ii) a limited liability partnership, or (iii) any
other entity which possesses the characteristics of limited liability (each, an
"LL Entity"), shall be prohibited without the prior consent of Landlord, which
consent shall not be unreasonably withheld provided that:
(1) the LL Entity succeeds to all of Tenant's business and
assets;
(2) the LL Entity has a net worth, annual income and cash
flow, determined in accordance with generally accepted accounting principles,
consistently applied, equal to Tenant's net worth, annual income and cash flow,
as so determined, on the date immediately preceding the date of such change or
conversion;
(3) no monetary default or other Event of Default shall have
occurred and be continuing; and
(4) Tenant shall cause each general partner of Tenant to
execute and deliver to Landlord an agreement, in form and substance satisfactory
to Landlord, wherein each such general partner agrees to remain personally
liable for all of the terms, covenants and conditions of the Lease that are to
be observed and performed by the LL Entity.
Section 12.5 If, at any time after the originally named Tenant herein may
have assigned Tenant's interest in this Lease, this Lease shall be disaffirmed
or rejected in any proceeding of the types described in paragraph (D) of Section
16.1 hereof, or in any similar proceeding, or in the event of termination of
this Lease by reason of any such proceeding or by reason of lapse of time
following notice of termination given pursuant to said Article 16 based upon any
of the Events of Default set forth in such paragraph, any prior Tenant,
including, without limitation, the originally named Tenant, upon request of
Landlord given within thirty (30) days next following any such disaffirmance,
rejection or termination (and actual notice thereof to Landlord in the event of
a disaffirmance or rejection or in the event of termination other than by act of
Landlord), shall (1) pay to Landlord all Fixed Rent, Escalation Rent and other
items of Rental due and owing by the assignee to Landlord under this Lease to
and including the date of such disaffirmance, rejection or termination, and (2)
as "tenant", enter into a new lease with Landlord of the Premises for a term
commencing on the effective date of such disaffirmance, rejection or termination
and ending on the Expiration Date, unless sooner terminated as in such lease
provided, at the same Fixed Rent and upon the then executory
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terms, covenants and conditions as are contained in this Lease, except that (a)
Tenant's rights under the new lease shall be subject to the possessory rights of
the assignee under this Lease and the possessory rights of any person claiming
through or under such assignee or by virtue of any statute or of any order of
any court, (b) such new lease shall require all defaults existing under this
Lease to be cured by Tenant with due diligence, and (c) such new lease shall
require Tenant to pay all Escalation Rent reserved in this Lease which, had this
Lease not been so disaffirmed, rejected or terminated, would have accrued under
the provisions of Article 27 hereof after the date of such disaffirmance,
rejection or termination with respect to any period prior thereto. If any such
prior Tenant shall default in its obligation to enter into said new lease for a
period of ten (10) days next following Landlord's request therefor, then, in
addition to all other rights and remedies by reason of such default, either at
law or in equity, Landlord shall have the same rights and remedies against such
Tenant as if such Tenant had entered into such new lease and such new lease had
thereafter been terminated as of the commencement date thereof by reason of such
Tenant's default thereunder.
Section 12.6 (A) Notwithstanding the provisions of Section 12.1 hereof,
Landlord shall not unreasonably withhold its consent to any subletting of the
Premises or any assignment of this Lease, provided that:
(1) the Premises shall not, without Landlord's prior consent,
be listed or otherwise have been listed or otherwise publicly advertised for
subletting at a rental rate less than the prevailing rental rate set by Landlord
for comparable space in the Building or if there is no comparable space the
prevailing rental rate reasonably determined by Landlord (the "Prevailing Rate")
nor shall Tenant advise any broker, agent, finder or prospective subtenant that
Tenant intends to sublet the Premises at a rate less than the Prevailing Rate;
(2) no monetary default or other Event of Default shall have
occurred and be continuing;
(3) upon the date Tenant delivers the Tenant Statement to
Landlord and upon the date immediately preceding the commencement date of any
sublease or the effective date of any assignment approved by Landlord, the
proposed subtenant or assignee, as the case may be, shall have a financial
standing (taking into consideration the obligations of the proposed subtenant or
assignee under the sublease or this Lease, as the case may be) reasonably
satisfactory to Landlord, be of a character and be engaged in a business in
keeping with the standards in such respects of the other tenancies in the
Building and propose to use the Premises in accordance with the provisions of
Article 2 of this Lease;
(4) if Landlord then has comparable space available in the
Building, the proposed subtenant or assignee shall not be a tenant of any space
in the Building, nor shall the proposed subtenant or assignee be a Person with
whom Landlord is negotiating or discussing to lease space in the Building at the
time of receipt of a Tenant Statement;
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(5) the character of the business to be conducted or the
proposed use of the Premises by the proposed subtenant or assignee shall not (a)
violate any provision or restrictions herein relating to the use or occupancy of
the Premises; (b) require any alterations, installations, improvements,
additions or other physical changes to be performed in or made to any portion of
the Building or the Real Property other than the Premises; or (c) violate any
provision or restrictions in any other lease for space in the Building or in any
Superior Lease or Mortgage;
(6) the subletting shall be expressly subject to all of the
terms, covenants, conditions and obligations on Tenant's part to be observed and
performed under this Lease and the further condition and restriction that the
sublease shall not be modified without the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed, or assigned,
encumbered or otherwise transferred or the subleased premises further sublet by
the subtenant in whole or in part, or any part thereof suffered or permitted by
the subtenant to be used or occupied by others, without the prior written
consent of Landlord in each instance;
(7) the subletting shall end no later than one (1) day before
the Expiration Date;
(8) the assignee shall agree to assume all of the obligations
of Tenant under this Lease from and after the date of the assignment;
(9) such sublease shall expressly provide that in the event of
termination, re-entry or dispossess of Tenant by Landlord under this Lease,
Landlord may, at its option, take over all of the right, title and interest of
Tenant, as sublessor under such sublease, and such subtenant, at Landlord's
option, shall attorn to Landlord pursuant to the then executory provisions of
such sublease, except that Landlord shall not be:
(i) liable for any act or omission of Tenant under such
sublease, or
(ii) subject to any defense or offsets which such
subtenant may have against Tenant, or
(iii) bound by any previous payment which such subtenant
may have made to Tenant of more than thirty (30) days in advance of the date
upon which such payment was due, unless previously approved by Landlord, or
(iv) bound by any obligation to make any payment to or
on behalf of such subtenant, or
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(v) bound by any obligation to perform any work or to
make improvements to the Premises, or
(vi) bound by any amendment or modification of such
sublease made without its consent, or
(vii) bound to return such subtenant's security deposit,
if any, until such deposit has come into its actual possession and such
subtenant would be entitled to such security deposit pursuant to the terms of
such sublease; and
(10) no subletting shall be for less than the entire Premises.
(B) If Tenant desires to assign this Lease or sublet all or any
portion of the Premises, Tenant shall deliver to Landlord a notice (the
"Recapture Notice") offering such Lease or such portion of the Premises to
Landlord, and setting forth the date upon which such assignment or subletting
would be effective, which date shall not be less than ninety (90) days after
such Recapture Notice, and if applicable, the portion of the Premises so
offered. Within fifteen (15) Business Days after receipt of a Recapture Notice,
Landlord may elect to recapture the Premises or the portion thereof which Tenant
proposes to assign or sublet. If Landlord does not elect to recapture the
Premises or the portion of the Premises offered by Tenant or fails to respond
within such fifteen (15) Business Days following receipt of the Recapture
Notice, Landlord shall be deemed to have waived Landlord's right to recapture
such space and Tenant shall have the right to assign or sublet, subject to the
other provisions of this Article 12. If Tenant does not thereafter deliver to
Landlord a Tenant Statement within ninety (90) days after delivery of the
Recapture Notice, Tenant shall not assign or sublet without again complying with
the provisions of this Section 12.6(B). If Landlord elects to recapture the
Premises or the portion thereof which Tenant has offered in the Recapture
Notice, then on and as of the date set forth in the Recapture Notice, Tenant
shall surrender the Premises or the applicable portion thereof to Landlord and,
on such date, (i) the Premises, or the applicable portion thereof, shall be
delivered to Landlord in the manner and condition required by this Lease as if
such date were the Expiration Date with respect to the Premises or such
applicable portion thereof, and (ii) this Lease shall automatically terminate
with respect to the Premises or such applicable portion.
(C) At least fifteen (15) Business Days prior to any proposed
subletting of all or any portion of the Premises or any proposed assignment of
this Lease, Tenant shall submit a statement to Landlord (a "Tenant Statement")
containing the following information: (1) the name and address of the proposed
subtenant or assignee, as the case may be, (2) a description of the portion of
the Premises to be sublet, (3) the essential terms and conditions of the
proposed subletting or assignment, including, without limitation, the rent or
consideration payable and the value (including cost, overhead and supervision)
of any improvements (including any demolition to be performed) to the Premises
for occupancy by such subtenant or assignee, as the case may be, (4) the nature
and character of the business of the proposed
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subtenant or assignee, as the case may be, and (5) any other information that
Landlord may reasonably request, together with a statement specifically
directing Landlord's attention to the provisions of this Section 12.6(C)
requiring Landlord to respond to Tenant's request within fifteen (15) Business
Days after Landlord's receipt of the Tenant Statement. If Landlord shall fail to
notify Tenant within said fifteen (15) Business Day period of Landlord's consent
to or disapproval of the proposed subletting or assignment pursuant to the
Tenant Statement, as contemplated by Section 12.6(A) hereof, or if Landlord
shall have consented to such subletting or assignment as provided in Section
12.6(A) hereof, Tenant shall have the right to sublease that portion of the
Premises to such proposed subtenant or to assign its interest in this Lease on
the same terms and conditions set forth in the Tenant Statement, subject to the
terms and conditions of this Lease, including paragraph (A) of this Section
12.6. If Tenant shall not enter into such sublease or assignment, as the case
may be, within sixty (60) days after the delivery of the Tenant Statement to
Landlord, then the provisions of Section 12.1 hereof and this Section 12.6 shall
again be applicable to any other proposed subletting or assignment. If Tenant
shall enter into such sublease or assignment within sixty (60) days as
aforesaid, Tenant shall deliver a true, complete and fully executed counterpart
of (x) such sublease or (y) such assignment (which shall include an express
assumption by the assignee of the observance and performance of, and an
agreement to be personally bound by, all of the terms, covenants and conditions
of this Lease on Tenant's part to be performed) to Landlord within five (5) days
after execution thereof.
(D) The failure by Landlord to exercise its option under Section
12.6(B) with respect to any subletting shall not be deemed a waiver of such
option with respect to any extension of such subletting or any subsequent
subletting of the Premises affected thereby.
Section 12.7 (A) In connection with any subletting of all or any portion
of the Premises, Tenant shall pay to Landlord an amount equal to fifty percent
(50%) of any Sublease Profit derived therefrom. All sums payable hereunder by
Tenant shall be calculated on an annualized basis, but shall be paid to
Landlord, as additional rent, within ten (10) days after receipt thereof by
Tenant.
(B) Sublease Profit shall be recalculated from time to time to
reflect any corrections in the prior calculation thereof due to (i) subsequent
payments received or made by Tenant, (ii) the final adjustment of payments to be
made by or to Tenant, and (iii) mistake. Promptly after receipt or final
adjustment of any such payments or discovery of any such mistake, Tenant shall
submit to Landlord a recalculation of the Sublease Profit, and an adjustment
shall be made between Landlord and Tenant, on account of prior payments made or
credits received pursuant to this Section 12.7. In addition, if Sublease
Expenses utilized for the purpose of calculating Sublease Profit included an
amount attributable to the cost of the improvements made by Tenant expressly and
solely for the purpose of preparing the Premises or a portion thereof for the
occupancy of the subtenant and subsequent to the expiration of the sublease such
improvements and/or alterations were not demolished and/or removed, Sublease
Profits shall be recalculated as if the cost of such improvements and/or
alterations were not
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incurred by Tenant and Tenant promptly shall pay to Landlord fifty percent (50%)
of the additional amount of such Sublease Profit resulting from such
recalculation.
Section 12.8 Tenant shall pay to Landlord, upon receipt thereof, an amount
equal to fifty percent (50%) of all Assignment Proceeds. For purposes of Section
12.8, "Assignment Proceeds" shall mean all consideration payable to Tenant,
directly or indirectly, by any assignee, or any other amount received by Tenant
from or in connection with any assignment (including, but not limited to, sums
paid for the sale or rental, or consideration received on account of any
contribution, of Tenant's Property) after deducting therefrom: (i) in the event
of a sale (or contribution) of Tenant's Property, the then unamortized or
undepreciated cost thereof determined on the basis of Tenant's federal income
tax returns, (ii) the reasonable out-of-pocket costs and expenses of Tenant in
making such assignment, such as brokers' fees, reasonable attorneys' fees, and
advertising fees paid to unrelated third parties, (iii) any payments required to
be made by Tenant in connection with the assignment of its interest in this
Lease pursuant to any New Jersey statutes or any real property transfer tax of
the United States or the City of Jersey City or the State of New Jersey (other
than any income tax), (iv) any sums paid by Tenant to Landlord pursuant to
Section 12.2(B) hereof, (v) the cost of improvements or alterations made by
Tenant expressly and solely for the purpose of preparing the Premises for such
assignment, as determined by Tenant's federal income tax returns, (vi) the
unamortized or undepreciated cost of any of Tenant's Property leased to and used
by such assignee, and (vii) the then unamortized or undepreciated cost of the
Alterations determined on the basis of Tenant's federal income tax returns. If
the consideration paid to Tenant for any assignment shall be paid in
installments, then the expenses specified in this Section 12.8 shall be
amortized over the period during which such installments shall be payable. If
Landlord exercises its right to recapture this Lease or any portion of the
Premises pursuant to the provisions of Section 12.6(B) hereof, in no event shall
Tenant be entitled to any proceeds derived from or relating to (directly or
indirectly) any lease or sublease of the Premises by Landlord or further
assignment of the Lease.
ARTICLE 13
ELECTRICITY
Section 13.1 Tenant shall at all times comply with the rules, regulations,
terms and conditions applicable to service, equipment, wiring and requirements
of the public utility supplying electricity to the Building. The risers serving
the Premises shall be capable of supplying six (6) watts of electricity per
usable square foot of the Premises and Tenant shall not use any electrical
equipment which, in Landlord's reasonable judgment, would exceed such capacity
or interfere with the electrical service to other tenants of the Building. In
the event that, in Landlord's reasonable judgment, Tenant's electrical
requirements necessitate installation of an additional riser, risers or other
proper and necessary equipment, Landlord shall so notify Tenant of same. Within
five (5) Business Days after receipt of such notice, Tenant shall either cease
such use of such additional electricity or shall request that additional
electricity capacity
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(specifying the amount requested) be made available to Tenant. Landlord, in
Landlord's reasonable judgment (taking into consideration the potential needs of
present and future tenants of the Building and of the Building itself) shall
determine whether to make available such additional electricity capacity to
Tenant and the amount of such additional electricity capacity to be made
available. If Landlord shall agree to make available additional electrical
capacity and the same necessitates installation of an additional riser, risers
or other proper and necessary equipment, including, without limitation, any
switchgear, the same shall be installed by Landlord. Any such installation shall
be made at Tenant's sole cost and expense, and shall be chargeable and
collectible as additional rent and paid within ten (10) days after the rendition
of a bill to Tenant therefor. Landlord shall not be liable in any way to Tenant
for any failure or defect in the supply or character of electric service
furnished to the Premises by reason of any requirement, act or omission of the
utility serving the Building or for any other reason not attributable to the
gross negligence of Landlord, whether electricity is provided by public or
private utility or by any electricity generation system owned and operated by
Landlord.
Section 13.2 (A) Unless (1) Landlord is required to have Tenant, or (2)
Tenant elects to, obtain electricity from the public utility company furnishing
electricity to the Building pursuant to the provisions of Section 13.3 hereof,
electricity for lighting and ordinary office machinery use and for the VAC unit
serving the Premises shall be furnished by Landlord to the Premises and Tenant
shall pay to Landlord, as additional rent for such service, from and after the
Commencement Date, an amount (the "Electricity Additional Rent") equal to the
sum of (i) the product of (x) the Cost Per Kilowatt Hour, and (y) Tenant's
demand and consumption of electricity as determined by Lighting Meters
(installed by Landlord, at its cost, for the purpose of measuring such
consumption), (ii) the product of (x) Tenant's Allocable Share, (y) the Cost Per
Kilowatt Hour, and (z) the demand and consumption of electricity as determined
by the VAC Meters (installed by Landlord, at its cost), and (iii) an amount
equal to the out-of-pocket costs and expenses incurred by Landlord in connection
with furnishing such electricity and reading such Lighting Meters and VAC
Meters.
(B) Where more than one Meter measures the electricity supplied to
Tenant, the electricity rendered through each Meter may be computed and billed
separately in accordance with the provisions hereinabove setforth. Tenant
expressly acknowledges that the Meters have been installed so as to measure the
consumption of electricity on full floors of the Building. Bills for the
Electricity Additional Rent shall be rendered to Tenant monthly, and Tenant
shall pay the amount shown thereon to Landlord within ten (10) days after
receipt of such bill.
(C) Landlord and Tenant expressly acknowledge and agree that the
Meters shall not measure, and Tenant shall not be obligated to pay (pursuant to
this Article 13) for, the electrical energy utilized by the baseboard heating
system servicing the Premises, it being expressly understood and agreed that the
cost of providing electrical energy to the baseboard heating system throughout
the Building shall be included in Operating Expenses.
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Section 13.3 If Landlord shall be required to discontinue furnishing
electricity to Tenant, or if Tenant shall elect to obtain electricity directly
from the public utility, this Lease shall continue in full force and effect and
shall be unaffected thereby, except only that from and after the effective date
of such discontinuance, Landlord shall not be obligated to furnish electricity
to Tenant and Tenant shall not be obligated to pay the Electricity Additional
Rent. If Landlord so discontinues furnishing electricity to Tenant, Tenant shall
use diligent efforts to obtain electric energy directly from the public utility
furnishing electric service to the Building. The costs of such service shall be
paid by Tenant directly to such public utility. Such electricity may be
furnished to Tenant by means of the existing electrical facilities serving the
Premises, at no charge, to the extent the same are available, suitable and safe
for such purposes as determired by Landlord. All meters and all additional panel
boards, feeders, risers, wiring and other conductors and equipment which may be
required to obtain electricity shall be installed by Landlord at Tenant's
expense. Provided Tenant shall use and continue to use diligent efforts to
obtain electric energy directly from the public utility, Landlord, to the extent
permitted by applicable Requirements, shall not discontinue furnishing
electricity to the Premises until such installations have been made and Tenant
shall be able to obtain electricity directly from the public utility.
ARTICLE 14
ACCESS TO PREMISES
Section 14.1 (A) Tenant shall permit Landlord, Landlord's agents,
representatives, contractors and employees and the agents, representatives,
contractors and employees of public utilities and telecommunications companies
servicing the Building to erect, use and maintain concealed ducts, exhausts,
pipes, cables, risers and conduits in and through the Premises. Landlord,
Landlord's agents, representatives, contractors, and employees and the agents,
representatives, contractors, and employees of public utilities and
telecommunications companies servicing the Building shall have the right to
enter the Premises at all reasonable times upon reasonable prior notice (except
in the case of an emergency in which event Landlord and Landlord's agents,
representatives, contractors, and employees may enter without prior notice to
Tenant), which notice may be oral, to examine the same, to show them to
prospective purchasers, or prospective or existing Mortgagees or Lessors, and to
make such repairs, alterations, improvements, additions or restorations (i) as
Landlord may reasonably deem necessary to the Premises or to any other portion
of the Building, or (ii) which Landlord may elect to perform following ten (10)
days after notice, except in the case of an emergency (in which event Landlord
and Landlord's agents, representatives, contractors, and employees may enter
without prior notice to Tenant), following Tenant's failure to make repairs or
perform any work which Tenant is obligated to make or perform under this Lease,
or (iii) for the purpose of complying with any Requirements, a Superior Lease or
a Mortgage, and Landlord shall be allowed to take all material into and upon the
Premises that may be required therefor without the same constituting an eviction
or constructive eviction of Tenant in whole or in part and the Fixed Rent (and
any other item of Rental) shall not abate (except to the extent expressly set
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forth in Section 14.2 hereof) while said repairs, alterations, improvements,
additions or restorations are being made, by reason of loss or interruption of
business of Tenant, or otherwise.
(B) Any work performed or installations made pursuant to this
Article 14 shall be made with reasonable diligence and otherwise pursuant to the
provisions of Section 4.3 hereof.
(C) Except as hereinafter provided, any pipes, cables, ducts,
exhausts or conduits installed in or through the Premises pursuant to this
Article 14 shall be concealed behind, beneath or within partitioning, columns,
ceilings or floors located or to be located in the Premises. Notwithstanding the
foregoing, any such pipes, cables, ducts, exhausts or conduits may be furred at
points immediately adjacent to partitioning columns or ceilings located or to be
located in the Premises, provided that the same are completely furred and that
the installation of such pipes, cables, ducts, exhausts or conduits, when
completed, shall not reduce the usable area of the Premises beyond a de minimis
amount.
Section 14.2 If due to any work or installation performed by Landlord
hereunder or failure by Landlord to perform its obligations hereunder, (i)
Tenant shall be unable for at least ten (10) consecutive Business Days to
operate its business in the Premises in substantially the same manner as such
business was operated prior to the performance of such work or installation or
such failure, (ii) such interruption shall occur during business hours, and
(iii). Tenant shall have been unable, after using reasonable efforts, to
relocate its employees and property located in that portion of the Premises
which is the subject of such work or installation or such failure so as to have
been able to have continued so to operate its business, the Fixed Rent and the
Escalation Rent shall be reduced on a per diem basis in the proportion in which
the area of the portion of the Premises which is unusable bears to the total
area of the Premises for each day subsequent to the aforesaid ten (10) Business
Day period that such portion of the Premises remains unusable.
Section 14.3 During the twelve (12) month period prior to the Expiration
Date or the expiration of any renewal or extended term, Landlord may exhibit the
Premises to prospective tenants thereof, following reasonable telephonic notice
to Tenant.
Section 14.4 If Tenant shall not be present when for any reason entry into
the Premises shall be necessary or permissible, Landlord or Landlord's agents,
representatives, contractors or employees may enter the same without rendering
Landlord or such agents liable therefor if during such entry Landlord or
Landlord's agents shall accord reasonable care under the circumstances to
Tenant's Property, and without in any manner affecting this Lease. Nothing
herein contained, however, shall be deemed or construed to impose upon Landlord
any obligation, responsibility or liability whatsoever, for the care,
supervision or repair of the Building or any part thereof, other than as herein
provided.
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Section 14.5 Landlord also shall have the right at any time, without the
same constituting an actual or constructive eviction and without incurring any
liability to Tenant therefor, to change the arrangement or location of entrances
or passageways, doors and doorways, and corridors, elevators, stairs, toilets,
or other public parts of the Building and to change the name, number or
designation by which the Building is commonly known, provided any such change
does not (a) unreasonably reduce, interfere with or deprive Tenant of access to
the Building or the Premises, or (b) reduce the rentable area (except by a de
minimis amount) of the Premises. All parts (except surfaces facing the interior
of the Premises) of all walls, windows and doors bounding the Premises
(including exterior Building walls, exterior core corridor walls, exterior doors
and entrances), all balconies, terraces and roofs adjacent to the Premises, all
space in or adjacent to the Premises used for shafts, stacks, stairways, chutes,
pipes, conduits, ducts, fan rooms, heating, air cooling, plumbing and other
mechanical facilities, service closets and other Building facilities are not
part of the Premises, and Landlord shall have the use thereof, as well as access
thereto through the Premises for the purposes of operation, maintenance,
alteration and repair.
ARTICLE 15
CERTIFICATE OF OCCUPANCY
Tenant shall not at any time use or occupy the Premises in violation of
any certificate of occupancy at such time issued for the Premises or for the
Building and in the event that any Governmental Authority shall hereafter
contend or declare by notice, violation, order or in any other manner whatsoever
that the Premises are used for a purpose which is a violation of such
certificate of occupancy, Tenant, upon five (5) Business Days' written notice
from Landlord or any Governmental Authority, shall immediately discontinue such
use of the Premises. Tenant shall obtain a temporary or permanent certificate of
occupancy covering the Premises permitting the Premises to be used as "offices"
and such temporary or permanent certificate of occupancy will be in force upon
the date upon which Tenant shall occupy all or any portion of the Premises for
the conduct of business, provided, however, neither such certificate, nor any
provision of this Lease, nor any act or omission of Landlord, shall be deemed to
constitute a representation or warranty that the Premises, or any part thereof,
lawfully may be used or occupied for any particular purpose or in any particular
manner, in contradistinction to mere "office" use.
ARTICLE 16
DEFAULT
Section 16.1 Each of the following events shall be an "Event of Default"
hereunder:
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(A) if Tenant shall default in the payment when due of any
installment of Fixed Rent or any other item of Rental and such default shall
continue for five (5) Business Days; or
(B) if the Premises shall become abandoned or be vacant for more
than thirty (30) days; or
(C) if Tenant's interest or any portion thereof in this Lease shall
devolve upon or pass to any person, whether by operation of law or otherwise,
except as expressly permitted under Article 12 hereof; or
(D) (1) if Tenant shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due; or
(2) if Tenant shall commence or institute any case, proceeding
or other action (A) seeking relief on its behalf as debtor, or to adjudicate it
a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
property; or
(3) if Tenant shall make a general assignment for the benefit
of creditors; or
(4) if any case, proceeding or other action shall be commenced
or instituted against Tenant (A) seeking to have an order for relief entered
against it as debtor or to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts under any existing
or future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, or (B) seeking appointment of
a receiver, trustee, custodian or other similar official for it or for all or
any substantial part of its property, which in either of such cases (i) results
in any such entry of an order for relief, adjudication of bankruptcy or
insolvency or such an appointment or the issuance or entry of any other order
having a similar effect or (ii) remains undismissed for a period of ninety (90)
days; or
(5) if any case, proceeding or other action shall be commenced
or instituted against Tenant seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its property which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within ninety (90) days from the entry thereof; or
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(6) if Tenant shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clauses (2), (3), (4) or (5) above; or
(7) if a trustee, receiver or other custodian is appointed for
any substantial part of the assets of Tenant which appointment is not vacated or
stayed within seven (7) Business Days; or
(E) if this Lease is assigned (or all or a portion of the Premises
are subleased) to an Affiliate of Tenant and such entity shall no longer (i)
control, (ii) be under common control with, or (iii) be under the control of
Tenant (or any permitted successor by merger, consolidation or purchase as
provided herein); unless Tenant shall comply with the provisions of Article 12
of this Lease;
(F) if Tenant shall default in the observance or performance of any
other term, covenant or condition of this Lease on Tenant's part to be observed
or performed and Tenant shall fail to remedy such default within thirty (30)
days after notice by Landlord to Tenant of such default, or if such default is
of such a nature that it cannot with due diligence be completely remedied within
said period of thirty (30) days and Tenant shall not commence within said period
of thirty (30) days, or shall not thereafter diligently prosecute to completion,
all steps necessary to remedy such default.
Section 16.2 (A) If an Event of Default (i) described in Section 16.1(D)
hereof shall occur, or (ii) described in Sections 16.1(A), (B),(C), (E) or (F)
shall occur and Landlord, at any time thereafter, at its option gives written
notice to Tenant stating that this Lease and the Term shall expire and terminate
on the date Landlord shall give Tenant such notice, then this Lease and the Term
and all rights of Tenant under this Lease shall expire and terminate as if the
date on which the Event of Default described in clause (i) above occurred or the
date such notice is given to Tenant by Landlord, pursuant to clause (ii) above,
as the case may be, were the Fixed Expiration Date and Tenant immediately shall
quit and surrender the Premises, but Tenant shall nonetheless be liable for all
of its obligations hereunder, as provided for in Articles 17 and 18 hereof.
Anything contained herein to the contrary notwithstanding, if such termination
shall be stayed by order of any court having jurisdiction over any proceeding
described in Section 16.1(D) hereof, or by federal or state statute, then,
following the expiration of any such stay, or if the trustee appointed in any
such proceeding, Tenant or Tenant as debtor-in-possession shall fail to assume
Tenant's obligations under this Lease within the period prescribed therefor by
law or within one hundred twenty (120) days after entry of the order for relief
or as may be allowed by the court, or if said trustee, Tenant or Tenant as
debtor-in-possession shall fail to provide adequate protection of Landlord's
right, title and interest in and to the Premises or adequate assurance of the
complete and continuous future performance of Tenant's obligations under this
Lease as provided in Section 12.3(B), Landlord, to the extent permitted by law
or by leave of the court having jurisdiction over such proceeding, shall have
the right, at its election, to terminate this Lease on five (5) days' notice to
Tenant, Tenant as
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debtor-in-possession or said trustee and upon the expiration of said five (5)
day period this Lease shall cease and expire as aforesaid and Tenant, Tenant as
debtor-in-possession or said trustee shall immediately quit and surrender the
Premises as aforesaid.
(B) If an Event of Default described in Section 16.1(D) hereof shall
occur, or this Lease shall be terminated as provided in Section 16.2(A) hereof,
Landlord, without notice, may reenter and repossess the Premises using such
force for that purpose as may be necessary without being liable to indictment,
prosecution or damages therefor and may dispossess Tenant by summary proceedings
or otherwise.
Section 16.3 If at any time, (i) Tenant shall comprise two (2) or more
persons, or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any person other than Tenant, or (iii) Tenant's interest in this
Lease shall have been assigned, the word "Tenant," as used in Section 16.1(D),
shall be deemed to mean any one or more of the persons primarily or secondarily
liable for Tenant's obligations under this Lease. Any monies received by
Landlord from or on behalf of Tenant during the pendency of any proceeding of
the types referred to in Section 16.1(D) shall be deemed paid as compensation
for the use and occupation of the Premises and the acceptance of any such
compensation by Landlord shall not be deemed an acceptance of Rental or a waiver
on the part of Landlord of any rights under Section 16.2.
ARTICLE 17
REMEDIES AND DAMAGES
Section 17.1 (A) If there shall occur any Event of Default, and this Lease
and the Term shall expire and come to an end as provided in Article 16 hereof:
(1) Tenant shall quit and peacefully surrender the Premises to
Landlord, and Landlord and its agents may immediately, or at any time after such
default or after the date upon which this Lease and the Term shall expire and
come to an end, re-enter the Premises or any part thereof, without notice,
either by summary proceedings, or by any other applicable action or proceeding,
or by force or otherwise (without being liable to indictment, prosecution or
damages therefor), and may repossess the Premises and dispossess Tenant and any
other persons from the Premises and remove any and all of their property and
effects from the Premises; and
(2) Landlord, at Landlord's option, may relet the whole or any
portion or portions of the Premises from time to time, either in the name of
Landlord or otherwise, to such tenant or tenants, for such term or terms ending
before, on or after the Expiration Date, at such rental or rentals and upon such
other conditions, which may include concessions and free rent periods, as
Landlord, in its sole discretion, may determine; provided, however, that
Landlord shall have no obligation to relet the Premises or any part thereof and
shall in no event be liable for refusal or failure to relet the Premises or any
part thereof, or, in the event of
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any such reletting, for refusal or failure to collect any rent due upon any such
reletting, and no such refusal or failure shall operate to relieve Tenant of any
liability under this Lease or otherwise affect any such liability, and Landlord,
at Landlord's option, may make such repairs, replacements, alterations,
additions, improvements, decorations and other physical changes in and to the
Premises as Landlord, in its sole discretion, considers advisable or necessary
in connection with any such reletting or proposed reletting, without relieving
Tenant of any liability under this Lease or otherwise affecting any such
liability.
(B) Tenant hereby waives the service of any notice of intention to
reenter or to institute legal proceedings to that end which may otherwise be
required to be given under any present or future law. Tenant, on its own behalf
and on behalf of all persons claiming through or under Tenant, including all
creditors, does further hereby waive any and all rights which Tenant and all
such persons might otherwise have under any present or future law to redeem the
Premises, or to re-enter or repossess the Premises, or to restore the operation
of this Lease, after (a) Tenant shall have been dispossessed by a judgment or by
warrant of any court or judge, or (b) any re-entry by Landlord, or (c) any
expiration or termination of this Lease and the Term, whether such dispossess,
re-entry, expiration or termination shall be by operation of law or pursuant to
the provisions of this Lease. The words "re-enter," "re-entry" and "re-entered"
as used in this Lease shall not be deemed to be restricted to their technical
legal meanings. In the event of a breach or threatened breach by Tenant, or any
persons claiming through or under Tenant, of any term, covenant or condition of
this Lease, Landlord shall have the right to enjoin such breach and the right to
invoke any other remedy allowed by law or in equity as if re-entry, summary
proceedings and other special remedies were not provided in this Lease for such
breach. The right to invoke the remedies hereinbefore set forth are cumulative
and shall not preclude Landlord from invoking any other remedy allowed at law or
in equity.
Section 17.2 (A) If this Lease and the Term shall expire and come to an
end as provided in Article 16 hereof, or by or under any summary proceeding or
any other action or proceeding, or if Landlord shall re-enter the Premises as
provided in Section 17.1, or by or under any summary proceeding or any other
action or proceeding, then, in any of said events:
(1) Tenant shall pay to Landlord all Fixed Rent, Escalation
Rent and other items of Rental payable under this Lease by Tenant to Landlord to
the date upon which this Lease and the Term shall have expired and come to an
end or to the date of reentry upon the Premises by Landlord, as the case may be;
(2) Tenant also shall be liable for and shall pay to Landlord,
as damages, any deficiency ("Deficiency") between the Rental for the period
which otherwise would have constituted the unexpired portion of the Term and the
net amount, if any, of rents collected under any reletting effected pursuant to
the provisions of paragraph (2) of Section 17.1 (A) for any part of such period
(first deducting from the rents collected under any such reletting all of
Landlord's expenses in connection with the termination of this Lease, Landlord's
re-entry
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upon the Premises and with such reletting, including, but not limited to, all
repossession costs, brokerage commissions, legal expenses, attorneys' fees and
disbursements, alteration costs, contribution to work and other expenses of
preparing the Premises for such reletting); any such Deficiency shall be paid in
monthly installments by Tenant on the days specified in this Lease for payment
of installments of Fixed Rent, Landlord shall be entitled to recover from Tenant
each monthly Deficiency as the same shall arise, and no suit to collect the
amount of the Deficiency for any month shall prejudice Landlord's right to
collect the Deficiency for any subsequent month by a similar proceeding; and
(3) whether or not Landlord shall have collected any monthly
Deficiency as aforesaid, Landlord shall be entitled to recover from Tenant, and
Tenant shall pay to Landlord, on demand, in lieu of any further Deficiency as
and for liquidated and agreed final damages, a sum equal to the amount by which
the Rental for the period which otherwise would have constituted the unexpired
portion of the Term exceeds the then fair and reasonable rental value of the
Premises for the same period, both discounted to present worth at the Base Rate
less the aggregate amount of Deficiencies theretofore collected by Landlord
pursuant to the provisions of clause (A)(2) of this Section 17.2 for the same
period; if, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the Premises, or any part thereof, shall have
been relet by Landlord for the period which otherwise would have constituted
the unexpired portion of the Term, or any part thereof, the amount of rent
reserved upon such reletting shall be deemed, prima facie, to be the fair and
reasonable rental value for the part or the whole of the Premises so relet
during the term of the reletting.
(B) If the Premises, or any part thereof, shall be relet together
with other space in the Building, the rents collected or reserved under any such
reletting and the expenses of any such reletting shall be equitably apportioned
for the purposes of this Section 17.2. Tenant shall in no event be entitled to
any rents collected or payable under any reletting, whether or not such rents
shall exceed the Fixed Rent reserved in this Lease. Solely for the purposes of
this Article 17, the term "Escalation Rent" as used in Section 17.2(A) shall
mean the Escalation Rent in effect immediately prior to the Expiration Date, or
the date of re-entry upon the Premises by Landlord, as the case may be, adjusted
to reflect any increase pursuant to the provisions of Article 27 hereof for the
Operating Year immediately preceding such event. Nothing contained in Article 16
hereof or this Article 17 shall be deemed to limit or preclude the recovery by
Landlord from Tenant of the maximum amount allowed to be obtained as damages by
any statute or rule of law, or of any sums or damages to which Landlord may be
entitled in addition to the damages set forth in this Section 17.2.
ARTICLE 18
LANDLORD FEES AND EXPENSES
Section 18.1 If Tenant shall be in default in the performance of any of
its obligations under this Lease, Landlord may (1) perform the same for the
account of Tenant, or
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(2) make any expenditure or incur any obligation for the payment of money,
including, without limitation, reasonable attorneys' fees and disbursements in
instituting, prosecuting or defending any action or proceeding, and the cost
thereof, with interest thereon at the Applicable Rate, shall be deemed to be
additional rent hereunder and shall be paid by Tenant to Landlord within ten
(10) days of rendition of any bill or statement to Tenant therefor and if the
term of this Lease shall have expired at the time of making of such expenditures
or incurring of such obligations, such sums shall be recoverable by Landlord as
damages.
Section 18.2 If Tenant shall fail to pay any installment of Fixed Rent,
Escalation Rent or any other item of Rental within five (5) days after such
amount is due, Tenant shall pay to Landlord, in addition to such installment of
Fixed Rent, Escalation Rent or other item of Rental, as the case may be, as a
late charge and as additional rent, a sum equal to interest at the Applicable
Rate on the amount unpaid, computed from the date such payment was due to and
including the date of payment.
ARTICLE 19
NO REPRESENTATIONS BY LANDLORD
Landlord and Landlord's agents and representatives have made no
representations or promises with respect to the Building, the Real Property, the
Premises or the Site, including, without limitation, any proposed further or
future development of the Site, or any portion thereof, except as herein
expressly set forth, and no rights, easements or licenses are acquired by Tenant
by implication or otherwise except as expressly set forth herein. Tenant shall
accept possession of the Premises in the condition which shall exist on the
Commencement Date "as is", and Landlord shall have no obligation to perform any
work or make any installations in order to prepare the Premises for Tenant's
occupancy, except for Landlord's Work. The taking of occupancy of the whole or
any part of the Premises by Tenant for the conduct of its business shall be
conclusive evidence, as against Tenant, that Tenant accepts possession of the
same "as is" and that the Premises so occupied and the Building were in good and
satisfactory condition at the time such occupancy was so taken, and that
Landlord's Work was Substantially Completed. Landlord has made no
representations as to the date on which Landlord's Work will be Substantially
Completed. Landlord shall have the right to enter the Premises for the purpose
of performing Landlord's Work and access by Landlord to complete such work shall
not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of Rental or relieve Tenant from
any other obligations under this Lease, or impose any liability on Landlord by
reason of inconvenience or annoyance to Tenant or injury to or interruption of
Tenant's business or otherwise. All references in this Lease to the consent or
approval of Landlord shall be deemed to mean the written consent or approval of
Landlord and no consent or approval of Landlord shall be effective for any
purpose unless such consent or approval is set forth in a written instrument
executed by Landlord.
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ARTICLE 20
END OF TERM
Upon the expiration or other termination of this Lease, Tenant shall quit
and surrender to Landlord the Premises, vacant, broom clean, in good order and
condition, ordinary wear and tear and damage for which Tenant is not responsible
under the terms of this Lease excepted, and otherwise in compliance with the
provisions of Article 3 hereof. Tenant expressly waives, for itself and for any
person claiming through or under Tenant, any rights which Tenant or any such
person may have under the provisions of any Requirements in connection with any
holdover summary proceedings which Landlord may institute to enforce the
foregoing provisions of this Article 20. Tenant acknowledges that possession of
the Premises must be surrendered to Landlord on the Expiration Date. Tenant
agrees to indemnify and save Landlord harmless from and against all claims,
losses, damages, liabilities, costs and expenses (including, without limitation,
attorneys' fees and disbursements) resulting from delay by Tenant in so
surrendering the Premises, including, without limitation, any claims made by any
succeeding tenant founded on such delay. The parties recognize and agree that
the damage to Landlord resulting from any failure by Tenant to timely surrender
possession of the Premises as aforesaid will be extremely substantial, will
exceed the amount of the monthly installments of the Fixed Rent and Rental
theretofore payable hereunder, and will be impossible to accurately measure.
Tenant therefore agrees that if possession of the Premises is not surrendered to
Landlord on the Expiration Date, in addition to any other rights or remedies
Landlord may have hereunder or at law, and without in any manner limiting
Landlord's right to demonstrate and collect any damages suffered by Landlord and
arising from Tenant's failure to surrender the Premises as provided herein,
Tenant shall pay to Landlord on account of use and occupancy of the Premises a
sum equal to one and one-half (1 1/2) times the aggregate of that portion of the
Fixed Rent, Escalation Rent and Rental which was payable under the Lease during
the last month of the Term for the first month or any portion thereof during
which Tenant holds over in the Premises after the Expiration Date, and a sum
equal to two (2) times the aggregate of that portion of the Fixed Rent,
Escalation Rent and Rental which was payable under this Lease during the last
month of the Term for each month (or portion of any month) thereafter during
which Tenant holds over in the Premises after the Expiration Date. Nothing
herein contained shall be deemed to permit Tenant to retain possession of the
Premises after the Expiration Date or to limit in any manner Landlord's right to
regain possession of the Premises through summary proceedings, or otherwise, and
no acceptance by Landlord of payments from Tenant after the Expiration Date
shall be deemed to be other than on account of the amount to be paid by Tenant
in accordance with the provisions of this Article 20. The provisions of this
Article 20 shall survive the Expiration Date.
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ARTICLE 21
QUIET ENJOYMENT
Provided no default has occurred and is continuing beyond any applicable
grace period, Tenant may peaceably and quietly enjoy the Premises subject,
nevertheless, to the terms and conditions of this Lease.
ARTICLE 22
POSSESSION
Landlord shall deliver possession of the Premises on the Occupancy Date.
ARTICLE 23
NO WAIVER
Section 23.1 No act or thing done by Landlord or Landlord's agents during
the Term shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept such surrender shall be valid unless in writing signed by
Landlord. No employee of Landlord or of Landlord's agents shall have any power
to accept the keys of the Premises prior to the termination of this Lease. The
delivery of keys to any employee of Landlord or of Landlord's agents shall not
operate as a termination of this Lease or a surrender of the Premises. In the
event Tenant at any time desires to have Landlord sublet the Premises for
Tenant's account, Landlord or Landlord's agents are authorized to receive said
keys for such purpose without releasing Tenant from any of the obligations under
this Lease, and Tenant hereby relieves Landlord of any liability for loss of or
damage to any of Tenant's effects in connection with such subletting.
Section 23.2 The failure of Landlord to seek redress for violation of, or
to insist upon the strict performance of, any covenant or condition of this
Lease, or any of the Rules and Regulations set forth or hereafter adopted by
Landlord, shall not prevent a subsequent act, which would have originally
constituted a violation of the provisions of this Lease, from having all of the
force and effect of an original violation of the provisions of this Lease. The
receipt by Landlord of Fixed Rent, Escalation Rent or any other item of Rental
with knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the Rules and
Regulations set forth, or hereafter adopted, against Tenant or any other tenant
in the Building shall not be deemed a waiver of any such Rules and Regulations.
No provision of this Lease shall be deemed to have been waived by Landlord,
unless such waiver be in writing signed by Landlord. No payment by Tenant or
receipt by Landlord of a lesser amount than the monthly Fixed Rent or other item
of Rental herein stipulated shall be deemed to be other than on account of the
earliest stipulated Fixed Rent or other item of Rental, or as Landlord may elect
to apply same, nor shall any endorsement or
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statement on any check or any letter accompanying any check or payment as Fixed
Rent or other item of Rental be deemed an accord and satisfaction, and Landlord
may accept such check or payment without prejudice to Landlord's right to
recover the balance of such Fixed Rent or other item of Rental or to pursue any
other remedy provided in this Lease. This Lease contains the entire agreement
between the parties and all prior negotiations and agreements are merged herein.
Any executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of this Lease in whole or in part unless such
executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
Section 23.3 The failure of Tenant to seek redress for violation of, or to
insist upon the strict performance of, any covenant or condition of this Lease
on Landlord's part to be performed, shall not be deemed a waiver of such breach
or prevent a subsequent act which would have originally constituted a violation
of the provisions of this Lease from having all of the force and effect of an
original violation of the provisions of this Lease. The payment by Tenant of
Fixed Rent, Escalation Rent or any other item of Rental or performance of any
obligation of Tenant hereunder with knowledge of any breach of any covenant of
this Lease shall not be deemed a waiver of such breach, and payment of the same
by Tenant shall be without prejudice to Tenant's right to pursue any remedy
against Landlord in this Lease provided.
ARTICLE 24
WAIVER OF TRIAL BY JURY
The respective parties hereto shall and they hereby do waive trial by jury
in any action, proceeding or counterclaim brought by either of the parties
hereto against the other (except for personal injury or property damage) on any
matters whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
or for the enforcement of any remedy under any statute, emergency or otherwise.
If Landlord commences any summary proceeding against Tenant, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceeding (unless failure to impose such counterclaim would preclude Tenant
from asserting in a separate action the claim which is the subject of such
counterclaim), and will not seek to consolidate such proceeding with any other
action which may have been or will be brought in any other court by Tenant.
ARTICLE 25
INABILITY TO PERFORM
Subject to the provisions of Section 14.2 hereof, this Lease and the
obligation of Tenant to pay Rental hereunder and perform all of the other
covenants and agreements
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hereunder on the part of Tenant to be performed shall not be affected, impaired
or excused because Landlord is unable to fulfill any of its obligations under
this Lease expressly or impliedly to be performed by Landlord or because
Landlord is unable to make, or is delayed in making any repairs, additions,
alterations, improvements or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures, if Landlord is prevented or delayed from so
doing by reason of strikes or labor troubles or by accident, or by any cause
whatsoever beyond Landlord's control, including, but not limited to, laws,
governmental preemption in connection with a national emergency or by reason of
any Requirements or by reason of failure of the VAC, electrical, plumbing, or
other Building Systems in the Building, or by reason of the conditions of supply
and demand which have been or are affected by war or other emergency
("Unavoidable Delays").
ARTICLE 26
BILLS AND NOTICES
Except as otherwise expressly provided in this Lease, any bills,
statements, consents, notices, demands, requests or other communications given
or required to be given under this Lease shall be in writing and shall be deemed
sufficiently given or rendered if delivered by hand (against a signed receipt)
or if sent by registered or certified mail (return receipt requested) addressed
if to Tenant (a) at Tenant's address set forth in this Lease, Attn.:
Jonathan Wallace, Esq., if mailed prior to Tenant's taking possession of
the Premises, or (b) at the Building, Attn.: Jonathan Wallace, Esq., if
mailed subsequent to Tenant's taking possession of the Premises, or (c) at
any place where Tenant or any agent or employee of Tenant may be found if
mailed subsequent to Tenant's vacating, deserting, abandoning or
surrendering the Premises, in each case with a copy to Squadron, Ellenoff,
Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New York 10176,
Attn.: David L. Kovacs, Esq., or
if to Landlord do The Limited, Inc., Two Limited Parkway, P.O. Box
16000, Columbus, Ohio 43216, Attn.: Mr. Samuel Fried, and with copies to
(x) The Limited, Inc., Three Limited Parkway, Columbus, Ohio 43230, Attn.:
C. David Zoba, Esq., (y) The Georgetown Group, Inc., 667 Madison Avenue,
New York, New York 10021, Attn.: Mr. Edgar A. Lampert, and (z) each
Mortgagee and Lessor which shall have requested same, by notice given in
accordance with the provisions of this Article 26 at the address
designated by such Mortgagee or Lessor,
or to such other address(es) as Landlord, Tenant or any Mortgagee or Lessor may
designate as its new address(es) for such purpose by notice given to the other
in accordance with the provisions of this Article 26. Any such bill, statement,
consent, notice, demand, request or other communication shall be deemed to have
been rendered or given on the date when it shall
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have been hand delivered or three (3) Business Days from when it shall have been
mailed as provided in this Article 26. Anything contained herein to the contrary
notwithstanding, any Operating Statement, Tax Statement or any other bill,
statement, consent, notice, demand, request or other communication from Landlord
to Tenant with respect to any item of Rental (other than any "default notice" if
required hereunder) may be sent to Tenant by regular United States mail. A
notice may be given by a party hereto or on such party's behalf by its
attorneys.
ARTICLE 27
ESCALATION
Section 27.1 For the purposes of this Article 27, the following terms
shall have the meanings set forth below.
(A) (1) "Operating Expenses" shall mean the aggregate of those costs
and expenses (and taxes, if any, thereon, including without limitation, sales
and value added taxes) paid or incurred by or on behalf of Landlord (whether
directly or through independent contractors) in respect of (x) the Operation of
the Property which are properly chargeable to the Operation of the Property
under generally acceptable accounting procedures together with and including
(without limitation) the costs of gas, oil, steam, water, sewer rental,
electricity (for the portions of the Real Property not leased to and occupied by
tenants or available for occupancy, provided, however, that electricity used to
provide heat through the electrical baseboard heating units shall be included in
Operating Expenses for the entire Building, including those portions of the
Building which are available for leasing and occupancy by tenants and those
portions of the Building which are not leasable), VAC and other utilities
furnished to the Building and utility taxes, and the expenses incurred in
connection with the Operation of the Property such as insurance premiums,
attorneys' fees and disbursements (exclusive of any such fees and disbursements
incurred in applying for any reduction of Taxes) and auditing and other
professional fees and expenses, and (y) the maintenance and operation of areas
comprising portions of the Site which areas (1) are not exclusively reserved to
the use of individual owners, tenants or operators of projects within the Site,
and (2) Tenant and other occupants of the Building and their respective agents,
representatives, employees, invitees and customers shall have the right to use
or have the benefit of, in common with Landlord and others, but specifically
excluding:
(i) Taxes,
(ii) franchise or income taxes imposed upon Landlord,
(iii) debt service on Mortgages,
(iv) leasing commissions,
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(v) capital improvements (except as otherwise provided
herein),
(vi) the cost of electrical energy furnished directly to
Tenant and other tenants of the Building except for the cost of electrical
energy used to provide heat through the electrical baseboard heating units,
(vii) the cost of tenant installations incurred in connection
with preparing space for a new tenant,
(viii) salaries of personnel above the grade of building
manager,
(ix) rent paid under Superior Leases,
(x) any expense for which Landlord is otherwise compensated
through the proceeds of insurance or is otherwise compensated by any tenant
(including Tenant) of the Building for services in excess of the services
Landlord is obligated to furnish to Tenant hereunder,
(xi) legal fees incurred in connection with any negotiation
of, or disputes arising out of, any space lease in the Building,
(xii) depreciation, except as provided herein,
(xiii) Landlord's advertising and promotional costs for the
Building,
(xiv) any fee or expenditure paid (a) to any Affiliate of
Landlord, or (b) to any shareholder owning at least fifty (50%) percent of the
common stock, any general partner, any officer above the rank of vice president,
or member of any Board of Directors of Landlord or of any Person described in
this clause (xiv) or (c) to any person who is a relative by blood or marriage of
any such persons, in each case in excess of the amount which would be paid in
the absence of such relationship,
(xv) accounting fees and other expenses incurred in connection
with disputes with tenants or occupants of the Building or associated with the
enforcement of the terms of any leases with tenants or the defense of Landlord's
title to or interest in the Building,
(xvi) costs (including permits, licensing and inspection fees)
incurred in renovating or otherwise improving, decorating or altering space for
tenants or other occupants, or vacant space (excluding common areas) in the
Building, and
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(xvii) amortization payments on mortgages;
except, however, that if Landlord is not furnishing any particular work or
service (the cost of which if performed by Landlord would constitute an
Operating Expense) to a tenant who has undertaken to perform such work or
service in lieu of the performance thereof by Landlord, Operating Expenses shall
be deemed to be increased by an amount equal to the additional Operating
Expenses which reasonably would have been incurred during such period by
Landlord if it had at its own expense furnished such work or services to such
tenant. Any costs incurred in performing work or furnishing services for any
tenant (including Tenant), whether at such tenant's or Landlord's expense, to
the extent that such work or service is in excess of any work or service that
Landlord is obligated to furnish to Tenant at Landlord's expense shall be
deducted from Operating Expenses otherwise chargeable to the Operation of the
Property. Any insurance proceeds received with respect to any item previously
included as an Operating Expense shall be deducted from Operating Expenses for
the Operating Year in which such proceeds are received; provided, however, to
the extent any insurance proceeds are received by Landlord in any Operating Year
with respect to any item which was included in Operating Expenses during the
Base Operating Year, the amount of insurance proceeds so received shall be
deducted from Base Operating Expenses and (a) the Base Operating Expenses shall
be retroactively adjusted to reflect such deduction and (b) all retroactive
Operating Payments resulting from such retroactive adjustment shall be due and
payable when billed by Landlord.
(2) In determining the amount of Operating Expenses for any
Operating Year, if less than ninety-five percent (95%) of the Building rentable
area shall have been occupied by tenant(s) at any time during any such Operating
Year, Operating Expenses shall be determined for such Operating Year to be an
amount equal to the like expenses which would normally be expected to be
incurred if ninety-five percent (95%) of the Building rentable area been
occupied throughout such Operating Year.
(3) (a) If any capital improvement is made during any
Operating Year to comply with a Requirement, whether or not such Requirement is
valid, or in lieu of a repair, then the cost of such improvement shall be
included in Operating Expenses for the Operating Year in which such improvement
was made; provided, however, to the extent the cost of such improvement is
required to be capitalized under generally accepted accounting principles for
federal income tax purposes, such cost shall be amortized over the useful
economic life of such improvement as reasonably estimated by Landlord and the
annual amortization, together with interest thereon at the then Base Rate, of
such improvement shall be deemed an Operating Expense in each of the Operating
Years during which such cost of the improvement is amortized.
(b) If any capital improvement is made during any
Operating Year for the purpose of saving or reducing Operating Expenses (as, for
example, a labor-saving improvement), then the cost of such improvement shall be
included in Operating Expenses for the Operating Year in which such improvement
was made; provided, however,
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such cost shall be amortized over such period of time as Landlord reasonably
estimates such savings or reduction in Operating Expenses will equal the cost of
such improvement and the annual amortization, together with interest thereon at
the then Base Rate, of such improvement shall be deemed an Operating Expense in
each of the Operating Years during which such cost of the improvement is
amortized.
(B) "Operating Statement" shall mean a statement in reasonable
detail setting forth (1) a comparison of the Operating Expenses for an Operating
Year with the Base Operating Expenses and (2) the Operating Payment with respect
to the preceding Operating Year pursuant to the provisions of this Article 27.
(C) "Operating Year" shall mean the calendar year within which the
Commencement Date occurs and each subsequent calendar year for any part or all
of which Escalation Rent shall be payable pursuant to this Article 27.
(D) "Taxes" shall mean the aggregate amount of real estate taxes and
any general or special assessments (exclusive of penalties and interest thereon)
imposed upon the Real Property (including, without limitation, (i) assessments
made upon or with respect to any "air" and "development" rights now or hereafter
appurtenant to or affecting the Real Property, and (ii) any taxes or assessments
levied after the date of this Lease in whole or in part for public benefits to
the Real Property or the Building) without taking into account any discount that
Landlord may receive by virtue of any early payment of Taxes; provided, that if
because of any change in the taxation of real estate, any other tax or
assessment, however denominated (including, without limitation, any franchise,
income, profit, sales, use, occupancy, gross receipts or rental tax) is imposed
upon Landlord or the owner of the Real Property or the Building, or the
occupancy, rents or income therefrom, in substitution for any of the foregoing
Taxes, such other tax or assessment shall be deemed part of Taxes computed as if
Landlord's sole asset were the Real Property. With respect to any Tax Year, all
expenses, including attorneys' fees and disbursements, experts' and other
witnesses' fees, incurred in contesting the validity or amount of any Taxes or
in obtaining a refund of Taxes shall be considered as part of the Taxes for such
Tax Year. Anything contained herein to the contrary notwithstanding, Taxes shall
not be deemed to include (w) any taxes on Landlord's income, (x) franchise
taxes, (y) estate or inheritance taxes or (z) any similar taxes, imposed on
Landlord, unless such taxes are levied, assessed or imposed in lieu of or as a
substitute for the whole or any part of the taxes, assessments, levies,
impositions which now constitute Taxes.
Section 27.2 (A) Notwithstanding the definition of Taxes set forth in
Section 27.1(D) hereof, Tenant expressly acknowledges that the Real Property is
currently subject to the provisions of the Tax Agreement. Accordingly, Landlord
and Tenant hereby agree that for as long as the Tax Agreement shall be and
remain in full force and effect, Taxes shall mean the aggregate of the payments
which are obligated to be made to the City of Jersey City or any other
appropriate taxing authority pursuant to the Tax Agreement. If, at any time, the
Tax
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Agreement shall cease to be in full force and effect with respect to the Real
Property, the definition of Taxes set forth in Section 27.1(D) shall
automatically become effective.
(B) (1) Tenant shall pay as additional rent an amount equal to
Tenant's Tax Share of the difference, if any, between current Taxes and Base
Taxes (the "Tax Payment"). Notwithstanding the foregoing, so long as the Tax
Agreement shall be in force, the Tax Payment for the period commencing on (i)
the Commencement Date and ending on March 31, 1998, shall be an amount equal to
$0; (ii) April 1, 1998 and ending March 31, 2003, shall be an amount equal to
the product of (a) the Space Factor and (b) $.45; and (iii) April 1, 2003 and
ending on March 31, 2008, shall be an amount equal to the product of (a) the
Space Factor and (b) $.90. Tenant shall pay one-twelfth (1/12) of the Tax
Payment to Landlord on the first day of each month.
(2) At any time during or after the Term, Landlord may render to
Tenant a Tax Statement showing (i) a comparison of the Taxes for the Tax Year
with the Base Taxes, and (ii) the amount of the Tax Payment resulting from such
comparison. On the first day of the month following the furnishing to Tenant of
a Tax Statement, Tenant shall pay to Landlord a sum equal to one-twelfth
(1/12th) of the Tax Payment shown thereon to be due for such Tax Year multiplied
by the number of months (and any fraction thereof) of the Term then elapsed
since the commencement of such Tax Year. If Landlord furnishes a Tax Statement
for a Tax Year subsequent to the commencement thereof, until the first day of
the month following the month in which the Tax Statement is furnished to Tenant,
(x) Tenant shall continue to pay to Landlord on the first day of each month an
amount equal to the monthly sum payable by Tenant to Landlord with respect to
the next previous Tax Year; (y) promptly after the Tax Statement is furnished to
Tenant, Landlord shall give notice to Tenant stating whether the amount
previously paid by Tenant to Landlord for the current Tax Year was greater or
less than the installments of the Tax Payment to be paid for the current Tax
Year in accordance with the Tax Statement, and (a) if there shall be a
deficiency, Tenant shall pay the amount thereof within ten (10) days after
demand therefor, or (b) if there shall have been an overpayment, Landlord shall
credit the amount thereof against the next monthly installments of the Fixed
Rent payable under this Lease; and (z) on the first day of the month following
the month on which the Tax Statement is furnished to Tenant, and monthly
thereafter throughout the remainder of the current Tax Year, Tenant shall pay to
Landlord an amount equal to one-twelfth (1/12th) of the Tax Payment shown on the
Tax Statement. Tax Payments shall be collectible by Landlord in the same manner
as Fixed Rent. Landlord's failure to render a Tax Statement shall not prejudice
Landlord's right to render a Tax Statement during or with respect to any
subsequent Tax Year, and shall not eliminate or reduce Tenant's obligation to
make a Tax Payment for such Tax Year.
Section 27.3 Only Landlord shall be eligible to institute tax reduction or
other proceedings to reduce the Taxes; provided, however, that during the period
after the expiration or earlier termination of the Tax Agreement, upon request
of tenants occupying more than forty (40%) of the rentable area of the Building,
and to the extent permitted pursuant to applicable
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Requirements, Landlord shall commence and in good faith prosecute (which shall
include the right of Landlord to settle any such proceeding) proceedings to
reduce the Taxes. In the event that, after a Tax Statement has been sent to
Tenant, the Taxes set forth in the Tax Statement for such Tax Year are reduced
(as a result of settlement, final determination of legal proceedings or
otherwise), and as a result thereof a refund of Taxes is actually received by or
on behalf of Landlord, then, promptly after receipt of such refund, Landlord
shall send Tenant a Tax Statement adjusting the Taxes for such Tax Year (taking
into account the expenses mentioned in Section 27.1(D) hereof) and setting forth
Tenant's Tax Share of such refund and Tenant shall be entitled to receive such
share either by way of a credit against the Fixed Rent next becoming due after
the sending of such Tax Statement or by a refund to the extent no further Fixed
Rent is due; provided, however, that Tenant's Tax Share of such refund shall be
limited to the portion of the Tax Payment, if any, which Tenant had theretofore
paid to Landlord attributable to Taxes for the Tax Year to which the refund is
applicable on the basis of the Taxes before they had been reduced.
Section 27.4 (A) If the Operating Expenses for any Operating Year shall be
greater than the Base Operating Expenses, then Tenant shall pay as additional
rent for each Operating Year (any part or all of which falls within the Term),
Tenant's Share of such increase (the "Operating Payment") as hereinafter
provided.
(B) At any time during or after the Term, Landlord may render to
Tenant an Operating Statement or Operating Statements showing (i) a comparison
of the Operating Expenses for the Operating Year in question with the Base
Operating Expenses, and (ii) the amount of the Operating Payment resulting from
such comparison. Landlord's failure to render an Operating Statement during or
with respect to any Operating Year in question shall not prejudice Landlord's
right to render an Operating Statement during or with respect to any subsequent
Operating Year, and shall not eliminate or reduce Tenant's obligation to make
payments of the Operating Payment pursuant to this Article 27 for such Operating
Year.
(C) On the first day of the month following the furnishing to Tenant
of an Operating Statement, Tenant shall pay to Landlord a sum equal to
one-twelfth (1/12th) of the Operating Payment shown thereon to be due for the
preceding Operating Year multiplied by the number of months (and any fraction
thereof) of the Term then elapsed since the commencement of such Operating Year
in which such Operating Statement is delivered, less Operating Payments
theretofore made by Tenant for such Operating Year and thereafter, commencing
with the then current monthly installment of Fixed Rent and continuing monthly
thereafter until rendition of the next succeeding Operating Statement, Tenant
shall pay on account of the Operating Payment for such Year an amount equal to
one-twelfth (1/12th) of the Operating Payment shown thereon to be due for the
preceding Operating Year. Any Operating Payment shall be collectible by Landlord
in the same manner as Fixed Rent.
(D) (1) As used in this Section 27.4, (i) "Tentative Monthly
Escalation Charge" shall mean a sum equal to one-twelfth (1/12th) of the product
of (a)
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Tenant's Share, and (b) the amount by which (x) Landlord's estimate of Operating
Expenses for the Current Year exceeds (y) the Base Operating Expenses.
(2) At any time in any Operating Year, Landlord, at its
option, in lieu of the payments required under Section 27.4(C) hereof, may
demand and collect from Tenant, as additional rent, a sum equal to the Tentative
Monthly Escalation Charge multiplied by the number of months in said Operating
Year preceding the demand and reduced by the sum of all payments theretofore
made under Section 27.4(C) with respect to said Operating Year, and thereafter,
commencing with the month in which the demand is made and continuing thereafter
for each month remaining in said Operating Year, the monthly installments of
Fixed Rent shall be deemed increased by the Tentative Monthly Escalation Charge.
Any amount due to Landlord under this Section 27.4(D) may be included by
Landlord in any Operating Statement rendered to Tenant as provided in Section
27.4(B) hereof.
(E) (1) After the end of the Current Year and at any time that
Landlord renders an Operating Statement or Operating Statements to Tenant as
provided in Section 27.4(B) hereof with respect to the Operating Expenses for
said Operating Year or Current Year, as the case may be, the amounts, if any,
collected by Landlord from Tenant under Section 27.4(C) or (D) on account of the
Operating Payment or the Tentative Monthly Escalation Charge, as the case may
be, shall be adjusted, and, if the amount so collected is less than or exceeds
the amount actually due under said Operating Statement for the Operating Year, a
reconciliation shall be made as follows: Tenant shall be debited with any
Operating Payment shown on such Operating Statement and credited with the
amounts, if any, paid by Tenant on account in accordance with the provisions of
subsection (C) and subsection (D)(2) of this Section 27.4 for the Operating
Year in question. Tenant shall pay any net debit balance to Landlord within
fifteen (15) days next following rendition by Landlord of an invoice for such
net debit balance; any net credit balance shall be applied against the next
accruing monthly installments of Fixed Rent, or repaid by Landlord to Tenant at
the end of the Term.
(2) If the sum of the Tentative Monthly Escalation Charges and
payments made by Tenant in accordance with subsection (C) of this Section 27.4
for any Operating Year shall have exceeded the Operating Payment for such
Operating Year by more than ten percent (10%), interest at the Applicable Rate
on the portion of the overpayment that exceeds the applicable Operating Payment
by more than ten percent (10%) determined as of the respective dates of such
payments by Tenant and calculated from such respective dates to the dates on
which such amounts are credited against the monthly installments of Fixed Rent,
shall be so credited. Any amount owing to Tenant subsequent to the Term shall be
paid to Tenant within ten (10) Business Days after a final determination has
been made of the amount due to Tenant.
Section 27.5 Any Operating Statement sent to Tenant shall be conclusively
binding upon Tenant unless, within thirty (30) days after such Operating
Statement is sent, Tenant shall send a written notice to Landlord objecting to
such Operating Statement and
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specifying the respects in which such Operating Statement is disputed. If such
notice is sent, Tenant (together with its independent certified public
accountants, provided they are reputable and are Tenant's regular accounting
firm) may examine Landlord's books and records relating to the Operation of the
Property to determine the accuracy of the Operating Statement. Tenant recognizes
the confidential nature of such books and records and agrees to maintain the
information obtained from such examination in strict confidence. If after such
examination, Tenant still disputes such Operating Statement, either party may
refer the decision of the issues raised to a reputable independent firm of
certified public accountants, selected by Landlord and approved by Tenant, which
approval shall not be unreasonably withheld or delayed as long as such certified
public accounting firm is one of the so-called "big-six" public accounting
firms, and the decision of such accountants shall be conclusively binding upon
the parties. The fees and expenses involved in such decision shall be borne by
the unsuccessful party (and if both parties are partially successful, such fees
and expenses shall be apportioned between Landlord and Tenant in inverse
proportion to the amount by which such decision is favorable to each party).
Notwithstanding the giving of such notice by Tenant, and pending the resolution
of any such dispute, Tenant shall pay to Landlord when due the amount shown on
any such Operating Statement, as provided in Section 27.4 hereof. Following the
resolution of such dispute, Tenant shall pay any amount which it is found to owe
to Landlord within fifteen (15) days of such finding, and any amount which
Tenant is found to have overpaid shall be credited against the next accruing
installments of Fixed Rent.
Section 27.6 The expiration or termination of this Lease during any
Operating Year or Tax Year shall not affect the rights or obligations of the
parties hereto respecting any payments of Operating Payments for such Operating
Year and any payments of Tax Payments for such Tax Year, and any Operating
Statement relating to such Operating Payment and any Tax Statement relating to
such Tax Payment, may be sent to Tenant subsequent to, and all such rights and
obligations shall survive, any such expiration or termination. In determining
the amount of the Operating Payment for the Operating Year or the Tax Payment
for the Tax Year in which the Term shall expire, the payment of the Operating
Payment for such Operating Year or the Tax Payment for the Tax Year shall be
prorated based on the number of days of the Term which fall within such
Operating Year or Tax Year, as the case may be. Any payments due under such
Operating Statement or Tax Statement shall be payable within twenty (20) days
after such Operating Statement or Tax Statement, as the case may be, is sent to
Tenant.
ARTICLE 28
SERVICES
Section 28.1 (A) Landlord shall provide passenger elevator service to the
Premises on Business Days from 8:00 A.M. to 6:00 P.M. and have an elevator
subject to call at all other times.
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(B) There shall be two (2) freight elevators serving the Premises
and the entire Building on call on a "first come, first served" basis on
Business Days from 8:00 A.M. to 5:00 P.M. (less one (1) hour for lunch), and on
a reservation, "first come, first served" basis from 5:00 P.M. to 8:00 A.M. on
Business Days and at any time on days other than Business Days. If Tenant shall
use the freight elevators serving the Premises between 5:00 P.M. and 8:00 A.M.
on Business Days or at any time on any other days, Tenant shall pay Landlord, as
additional rent for such use, the standard rates then fixed by Landlord for the
Building, or if no such rates are then fixed, at reasonable rates.
(C) Landlord shall not be required to furnish any freight elevator
services during the hours from 5:00 P.M. to 8:00 A.M. on Business Days and at
any time on days other than Business Days unless Landlord has received advance
notice from Tenant requesting such services prior to 2:00 P.M. of the day upon
which such service is requested or by 2:00 P.M. of the last preceding Business
Day if such periods are to occur on a day other than a Business Day.
Section 28.2 Landlord, at Landlord's expense, (but subject to recoupment
pursuant to Article 27 hereof) shall furnish and distribute to the Premises
through the VAC System, when required for the comfortable occupancy of the
Premises, VAC in accordance with the specifications set forth in Schedule C
annexed hereto and made a part hereof, on a year-round basis from 7:00 A.M. to
9:00 P.M. on Business Days and from 7:00 A.M. to 5:00 P.M. on Saturdays which
are not Holidays. Landlord, throughout the Term, shall have free access to any
and all mechanical installations of Landlord, including, but not limited to,
air-cooling, fan, ventilating and machine rooms and electrical closets; Tenant
shall not construct partitions or other obstructions which may interfere with
Landlord's free access thereto, or interfere with the moving of Landlord's
equipment to and from the enclosures containing said installations. Neither
Tenant, nor its agents, employees or contractors shall at any time enter the
said enclosures or tamper with, adjust or touch or otherwise in any manner
affect said mechanical installations. Tenant shall draw and close the draperies
or blinds for the windows of the Premises whenever the VAC System is in
operation and the position of the sun so requires and shall at all times
cooperate fully with Landlord and abide by all of the regulations and
requirements which Landlord may prescribe for the proper functioning and
protection of the VAC System.
Section 28.3 If Landlord shall furnish VAC to the Premises at the request
of Tenant during periods other than the hours and days set forth above
("Overtime Periods"), Tenant shall pay Landlord additional rent for such
services at the stand rates then fixed by Landlord for the Building, or if no
such rates are then fixed, at reasonable rates. It is understood and agreed that
the VAC System servicing the Premises services the entire floor of the Building
of which the Premises form a part and, accordingly, if Tenant shall be the only
tenant using overtime VAC, Tenant shall pay the entire amount of the overtime
VAC additional rent. Landlord shall not be required to furnish any such services
during any Overtime Periods unless Landlord has received advance notice from
Tenant requesting such services prior to 2:00
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P.M. of the day upon which such services are requested or by 2:00 P.M. of the
last preceding Business Day if such Overtime Periods are to occur on a day other
than a Business Day. If Tenant fails to give Landlord such advance notice, then,
failure by Landlord to furnish or distribute any such services during such
Overtime Periods shall not constitute an actual or constructive eviction, in
whole or in part, or entitle Tenant to any abatement or diminution of Rental, or
relieve Tenant from any of its obligations under this Lease, or impose any
liability upon Landlord or its agents by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business or otherwise. If more
than one tenant utilizing the same system as Tenant requests the same Overtime
Periods for the same services as Tenant, the charge to Tenant shall be adjusted
pro rata.
Section 28.4 Landlord, at Landlord's expense, shall cause the Premises,
excluding any portions thereof used for the storage, preparation, service or
consumption of food or beverages, to be cleaned, substantially in accordance
with the standards set forth in Schedule B annexed hereto and made a part
hereof. Tenant shall pay to Landlord the cost of removal of any of Tenant's
refuse and rubbish from the Premises and the Building to the extent that the
same exceeds the refuse and rubbish usually attendant upon the use of such
Premises as offices. Bills for the same shall be rendered by Landlord to Tenant
at such time as Landlord may elect and shall be due and payable when rendered as
additional rent. Tenant, at Tenant's sole cost and expense, shall cause all
portions of the Premises used for the storage, preparation, service or
consumption of food or beverages to be cleaned daily in a manner satisfactory to
Landlord, and to be exterminated against infestation by vermin, rodents or
roaches regularly and, in addition, whenever there shall be evidence of any
infestation. Any such exterminating shall be done at Tenant's sole cost and
expense, in a manner satisfactory to Landlord, and by Persons approved by
Landlord. If Tenant shall perform any cleaning services in addition to the
services provided by Landlord as aforesaid, Tenant shall employ the cleaning
contractor providing cleaning services to the Building on behalf of Landlord or
such other cleaning contractor as shall be approved by Landlord. Tenant shall
comply with any recycling program and/or refuse disposal program (including,
without limitation, any program related to the recycling, separation or other
disposal of paper, glass or metals) which Landlord shall impose or which shall
be required pursuant to any Requirements.
Section 28.5 If any fire rating bureau or organization or any Governmental
Authority, including, without limitation, any department or official of the
state or city government shall require or recommend that any changes,
modifications, alterations or additional sprinkler heads or other equipment be
made or supplied by reason of Tenant's business, or the location of the
partitions, trade fixtures, or other contents of the Premises, Landlord, at
Tenant's cost and expense, shall promptly make and supply such changes,
modifications, alterations, additional sprinkler heads or other equipment.
Section 28.6 Landlord shall provide to the Premises hot and cold water for
ordinary drinking, cleaning and lavatory purposes and for use in connection with
"dwyer" or similar units. If Tenant requires, uses or consumes water for any
purpose in addition to
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ordinary drinking, cleaning or lavatory purposes or for use in connection with
"dwyer" or similar units, Landlord may install a water meter and thereby measure
Tenant's water consumption for all such additional purposes. In such event (1)
Tenant shall pay Landlord for the cost of the meter and the cost of the
installation thereof and through the duration of Tenant's occupancy Tenant shall
keep said meter and equipment in good working order and repair at Tenant's own
cost and expense; (2) Tenant shall pay for water consumed as shown on said
meter, as additional rent, and on default in making such payment Landlord may
pay such charges and collect the same from Tenant; and (3) Tenant shall pay the
sewer rent, charge or any other tax, rent, levy or charge which now or hereafter
is assessed, imposed or shall become a lien upon the Premises or the Real
Property of which they are a part pursuant to any Requirement made or issued in
connection with any such metered use, consumption, maintenance or supply of
water, water system, or sewage or sewage connection or system. The bill rendered
by Landlord for the above shall be based upon Tenant's consumption and shall be
payable by Tenant as additional rent within ten (10) days after rendition.
Section 28.7 Landlord reserves the right to stop service of the VAC System
or the elevator, electrical, plumbing or other Building Systems when necessary,
by reason of accident or emergency, or for repairs, additions, alterations,
replacements or improvements in the judgment of Landlord desirable or necessary
to be made, until said repairs, alterations, replacements or improvements shall
have been completed (which repairs, additions, alterations, replacements and
improvements shall be performed in accordance with Section 4.3 hereof). Subject
to Section 14.2 hereof, Landlord shall have no responsibility or liability for
interruption, curtailment or failure to supply VAC, elevator, electrical,
plumbing or other Building Systems when prevented by Unavoidable Delays or by
any Requirement of any Governmental Authority or due to the exercise of its
right to stop service as provided in this Article 28. The exercise of such right
or such failure by Landlord shall not constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any compensation or to any
abatement or diminution of Rental, or relieve Tenant from any of its obligations
under this Lease, or impose any liability upon Landlord or its agents by reason
of inconvenience or annoyance to Tenant, or injury to or interruption of
Tenant's business, or otherwise.
Section 28.8 Landlord shall make available to Tenant the computerized
directory in the lobby of the Building for up to fifteen (15) listings. The
initial programming shall be without charge to Tenant. From time to time, but
not more frequently than once every three (3) months, Landlord shall reprogram
the computerized direction to reflect such changes in the listings therein as
Tenant shall request, and Tenant promptly after request shall pay to Landlord a
reasonable reprogramming charge for each reprogramming Tenant requests. If
Landlord replaces the computerized directory with a standard directory, Tenant
shall be entitled to Tenant's Share of listings on the directory in the
Building.
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ARTICLE 29
PARTNERSHIP TENANT
If Tenant is a partnership or a professional corporation (or is comprised
of two (2) or more Persons, individually or as co-partners of a partnership or
shareholders of a professional corporation) or if Tenant's interest in this
Lease shall be assigned to a partnership or a professional corporation (or to
two (2) or more Persons, individually or as co-partners of a partnership or
shareholders of a professional corporation) pursuant to Article 12 hereof (any
such partnership, professional corporation and such Persons are refereed to in
this Article 29 as "Partnership Tenant"), the following provisions shall apply
to such Partnership Tenant: (a) the liability of each of the parties comprising
Partnership Tenant shall be joint and several; (b) each of the parties
comprising Partnership Tenant hereby consents in advance to, and agrees to be
bound by (x) any written instrument which may hereafter be executed by
Partnership Tenant or any successor entity, changing, modifying, extending or
discharging this Lease, in whole or in part, or surrendering all or any part of
the Premises to Landlord, and (y) any notices, demands, requests or other
communications which may hereafter be given by Partnership Tenant or by any of
the parties comprising Partnership Tenant; (c) any bills, statements, notices,
demands, requests or other communications given or rendered to Partnership
Tenant or to any of such parties shall be binding upon Partnership Tenant and
all such parties; (d) if Partnership Tenant shall admit new partners or
shareholders, as the case may be, all of such new partners or shareholders, as
the case may be, shall, by their admission to Partnership Tenant, be deemed to
have assumed joint and several liability for the performance of all of the
terms, covenants and conditions of this Lease on Tenant's part to be observed
and performed; and (e) Partnership Tenant shall give prompt notice to Landlord
of the admission of any such new partners or shareholders, as the case may be,
and upon demand of Landlord, shall cause each such new partner or shareholder,
as the case may be, to execute and deliver to Landlord an agreement in form
satisfactory to Landlord, wherein each such new partner or shareholder, as the
case may be, shall assume joint and several liability for the observance and
performance of all the terms, covenants and conditions of this Lease on Tenant's
part to be observed and performed (but neither Landlord's failure to request any
such agreement nor the failure of any such new partner or shareholder, as the
case may be, to execute or deliver any such agreement to Landlord shall vitiate
the provisions of clause (d) of this Article 29).
ARTICLE 30
INTENTIONALLY OMITTED
ARTICLE 31
SECURITY
Tenant shall deposit with Landlord on the signing of this Lease the sum of
Seven Thousand Eight Hundred Twenty-Five Dollars ($7,825.00), as security for
the faithful
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performance and observance by Tenant of the terms, covenants, conditions and
provisions of this Lease, including, without limitation, the surrender of
possession of the Premises to Landlord as herein provided. If an Event of
Default shall occur and be continuing, Landlord may apply or retain the whole or
any part of the security so deposited, (i) for the payment of any Fixed Rent,
Escalation Rent or any other item of Rental as to which Tenant is in default,
(ii) for any sum which Landlord may expend or be required to expend by reason of
Tenant's default in respect of any of the terms, covenants and conditions of
this Lease, including, without limitation, any damage, expense (including,
without limitation, attorneys' fees and disbursements) or liability incurred or
suffered by Landlord, and (iii) against any damages or deficiency which Landlord
may suffer or incur in the reletting of the Premises, whether such damages or
deficiency accrue or accrues before or after summary proceedings or other
re-entry by Landlord. If Landlord applies or retains any part of the security so
deposited, Tenant, upon demand, shall deposit with Landlord the amount so
applied or retained so that Landlord shall have the full deposit on hand at all
times during the Term. If Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this Lease, the security
shall be returned to Tenant after the Expiration Date and after delivery of
possession of the Premises to Landlord. In the event of a sale or leasing of the
Real Property or the Building, Landlord shall have the right to transfer the
security to the vendee or lessee and Landlord shall thereupon be released by
Tenant from all liability for the return of such security. Tenant shall look
solely to the new landlord for the return of the security. The provisions hereof
shall apply to every transfer or assignment of the security made to a new
landlord. Tenant shall not assign or encumber or attempt to assign or encumber
the monies deposited herein as security and neither Landlord nor its successors
or assigns shall be bound by any such assignment, encumbrance, attempted
assignment or attempted encumbrance.
ARTICLE 32
CAPTIONS
The captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this Lease nor
the intent of any provision thereof.
ARTICLE 33
PARTIES BOUND
The covenants, conditions and agreements contained in this Lease shall
bind and inure to the benefit of Landlord and Tenant and their respective legal
representatives, successors, and, except as otherwise provided in this Lease,
their assigns.
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ARTICLE 34
BROKER
Each party represents and warrants to the other that it has not dealt with
any broker or Person in connection with this Lease other than the Broker. The
execution and delivery of this Lease by each party shall be conclusive evidence
that such party has relied upon the foregoing representation and warranty.
Tenant shall indemnify and hold Landlord harmless from and against any and all
claims for commission, fee or other compensation by any Person (other than
Broker) who shall claim to have dealt with Tenant in connection with this Lease
and for any and all costs incurred by Landlord in connection with such claims,
including, without limitation, reasonable attorneys' fees and disbursements.
Landlord shall indemnify and hold Tenant harmless from and against any and all
claims for commission, fee or other compensation by the Broker and any Person
who shall claim to have dealt with Landlord in connection with this Lease and
for any and all costs incurred by Tenant in connection with such claims,
including, without limitation, reasonable attorneys' fees and disbursements. The
provisions of this Article 34 shall survive the Expiration Date.
ARTICLE 35
INDEMNITY
Section 35.1 (A) Tenant shall not do or permit any act or thing to be done
upon the Premises which may subject Landlord to any liability or responsibility
for injury, damages to persons or property or to any liability by reason of any
violation of any Requirement, and shall exercise such control over the Premises
as to fully protect Landlord against any such liability. Tenant shall indemnify
and save the Indemnitees harmless from and against (a) all claims of whatever
nature against the Indeninitees arising from any act, omission or negligence of
Tenant, its contractors, licensees, agents, servants, employees, invitees or
visitors, (b) all claims against the Indemnitees arising from any accident,
injury or damage whatsoever caused to any person or to the property of any
person and occurring during the Term in or about the Premises, (c) all claims
against the Indemnitees arising from any accident, injury or damage occurring
outside of the Premises but anywhere within or about the Real Property, where
such accident, injury or damage results or is claimed to have resulted from an
act, omission or negligence of Tenant or Tenant's contractors, liceneees,
agents, servants, employees, invitees or visitors, and (d) any breach, violation
or non-performance of any covenant, condition or agreement in this Lease set
forth and contained on the part of Tenant to be fulfilled, kept, observed and
performed. This indemnity and hold harmless agreement shall include indemnity
from and against any and all liability, fines, suits, demands, costs and
expenses of any kind or nature (including, without limitation, reasonable
attorneys' fees and disbursements) incurred in or in connection with any such
claim or proceeding brought thereon, and the defense thereof but except with
respect to claims with respect to bodily injury or death, shall be limited to
the extent any insurance proceeds collectible by Landlord under policies owned
by Landlord or such injured party with respect to such damage or injury are
insufficient to satisfy same. Tenant
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shall have no liability for any consequential damages suffered either by
Landlord or by any party claiming through Landlord.
(B) Except as otherwise expressly provided in this Lease, Landlord
shall indemnify and save Tenant, its shareholders, directors, officers,
Partners, employees and agents harmless from and against all claims against
Tenant arising from any direct damage to the Premises and any bodily injury to
Tenant's employees, agents or invitees resulting from the acts, omissions or
negligence of Landlord or its agents. This indemnity and hold harmless agreement
shall include indemnity from and against any and all liability, fines, suits,
demands, costs and expenses of any kind or nature (including, without
limitation, reasonable attorneys' fees and disbursements) incurred in or in
connection with any such claim or proceeding brought thereon, but shall be
limited to the extent any insurance proceeds collectible by Tenant or such
injured party with respect to such damage or injury are insufficient to satisfy
same. Landlord shall have no liability for any consequential damages suffered
either by Tenant or by any party claiming through Tenant.
Section 35.2 If any claim, action or proceeding is made or brought against
either party, which claim, action or proceeding the other party shall be
obligated to indemnify such first party against pursuant to the terms of this
Lease, then, upon demand by the indemnified party, the indemnifying party, at
its sole cost and expense, shall resist or defend such claim, action or
proceeding in the indemnified party's name, if necessary, by such attorneys as
the indemnified party shall approve, which approval shall not be unreasonably
withheld. Attorneys for the indemnifying party's insurer are hereby deemed
approved for purposes of this Section 35.2. The provisions of this Article 35
shall survive the expiration or earlier termination of this Lease.
ARTICLE 36
INTENTIONALLY OMITTED
ARTICLE 37
MISCELLANEOUS
Section 37.1 This Lease is offered for signature by Tenant and it is
understood that this Lease shall not be binding upon Landlord or Tenant unless
and until Landlord and Tenant shall have executed and unconditionally delivered
a fully executed copy of this Lease to each other.
Section 37.2 The obligations of Landlord under this Lease shall not be
binding upon Landlord named herein after the sale, conveyance, assignment or
transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Building or the Real Property, as the case may
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be, and in the event of any such sale, conveyance, assignment or transfer,
Landlord shall be and hereby is entirely freed and relieved of all covenants and
obligations of Landlord hereunder. The partners, shareholders, directors,
officers and principals, direct and indirect, of Landlord (collectively, the
"Parties") shall not be liable for the performance of Landlord's obligations
under this Lease. Tenant shall look solely to Landlord to enforce Landlord's
obligations hereunder and shall not seek any damages against any of the Parties.
The liability of Landlord for Landlord's obligations under this Lease shall be
limited to Landlord's interest in the Real Property and the current proceeds
thereof, and Tenant shall not look to any other property or assets of Landlord
or the property or assets of any of the Parties in seeking either to enforce
Landlord's obligations under this Lease or to satisfy a judgment for Landlord's
failure to perform such obligations.
Section 37.3 Notwithstanding anything contained in this Lease to the
contrary, all amounts payable by Tenant to or on behalf of Landlord under this
Lease, whether or not expressly denominated Fixed Rent, Escalation Rent
additional rent or Rental, shall constitute rent for the purposes of Section
502(b)(7) of the Bankruptcy Code.
Section 37.4 Tenant's liability for all items of Rental shall survive the
Expiration Date.
Section 37.5 Tenant hereby waives any claim against Landlord which Tenant
may have based upon any assertion that Landlord has unreasonably withheld or
unreasonably delayed any consent or approval requested by Tenant, and Tenant
agrees that its sole remedy shall be an action or proceeding to enforce any
related provision or for specific performance, injunction or declaratory
judgment. In the event of a determination that such consent or approval has been
unreasonably withheld or delayed, the requested consent or approval shall be
deemed to have been granted; however, Landlord shall have no liability to Tenant
for its refusal or failure to give such consent or approval. Tenant's sole
remedy for Landlord's unreasonably withholding or delaying consent or approval
shall be as provided in this Section 37.5.
Section 37.6 This Lease contains the entire agreement between the parties
and supersedes all prior understandings, if any, with respect thereto. This
Lease shall not be modified, changed, or supplemented, except by a written
instrument executed by both parties.
Section 37.7 The terms and provisions of this Lease shall be governed by
and construed and interpreted in accordance with the laws of the State of New
Jersey. Notwithstanding anything to the contrary contained herein, if the
Occupancy Date does not occur within twenty-one (21) years after the date
hereof, then this Lease shall be rendered void and of no further force or
effect.
Section 37.8 (A) All of the Schedules and Exhibits attached hereto are
incorporated in and made a part of this Lease, but, in the event of any
inconsistency between the terms and provisions of this Lease and the terms and
provisions of the Schedules and
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Exhibits hereto, the terms and provisions of this Lease shall control. Wherever
appropriate in this Lease, personal pronouns shall be deemed to include the
other genders and the singular to include the plural. All Article and Section
references set forth herein shall, unless the context otherwise specifically
requires, be deemed references to the Articles and Sections of this Lease.
(B) If any term, covenant, condition or provision of this Lease, or
the application thereof to any person or circumstance, shall ever be held to be
invalid or unenforceable, then in each such event the remainder of this Lease or
the application of such term, covenant, condition or provision to any other
Person or any other circumstance (other than those as to which it shall be
invalid or unenforceable) shall not be thereby affected, and each term,
covenant, condition and provision hereof shall remain valid and enforceable to
the fullest extent permitted by law.
ARTICLE 38
RENT CONTROL
If at the commencement of, or at any time or times during the Term of this
Lease, the Rental reserved in this Lease shall not be fully collectible by
reason of any Requirement, Tenant shall enter into such agreements and take such
other steps (without additional expense to Tenant) as Landlord may request and
as may be legally permissible to permit Landlord to collect the maximum rents
which may from time to time during the continuance of such legal rent
restriction be legally permissible (and not in excess of the amounts reserved
therefor under this Lease). Upon the termination of such legal rent restriction
prior to the expiration of the Term, (a) the Rental shall become and thereafter
be payable hereunder in accordance with the amounts reserved in this Lease for
the periods following such termination, and (b) Tenant shall pay to Landlord, if
legally permissible, an amount equal to (i) the items of Rental which would have
been paid pursuant to this Lease but for such legal rent restriction less (ii)
the rents paid by Tenant to Landlord during the period or periods such legal
rent restriction was in effect.
ARTICLE 39
PARKING
Section 39.1 On the Commencement Date, Landlord shall make available or
cause to be made available to Tenant one (1) parking space which Landlord is
entitled to use in the Parking Garage. All parking spaces which are made
available to Tenant shall be solely for automobiles. Tenant shall pay, to
Landlord, as additional rent, a monthly rental charge equal to One Hundred Fifty
Dollars ($150.00) per parking space which is made available to Tenant pursuant
hereto. If at any time after the Commencement Date, the prevailing market rate
for monthly rental parking spaces shall increase, the monthly rental charge set
forth herein shall be increased to the prevailing rate for monthly rental of
parking spaces established by Landlord
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generally for tenants of the Building. At the option of the operator of the
Parking Garage, the parking spaces shall be assigned or unassigned.
Section 39.2 Landlord shall have no responsibility with respect to any
matter arising in connection with the furnishing of parking spaces to Tenant and
Tenant's employees, including, without limitation, any damage to the automobiles
of Tenant and Tenant's employees. Tenant shall have no right to charge any
person any fee or other consideration for the use of any of the parking spaces
and only those persons designated by Tenant may use the parking spaces.
Section 39.3 Notwithstanding anything in this Lease or this Article 39 to
the contrary, Tenant's obligations under this Lease shall not be in any way
affected by Landlord's inability to make available or cause to be made available
any or all of the parking spaces to Tenant or Tenant's employees by reason of
(i) Unavoidable Delays with respect to any further construction of, or
modification to, the Parking Garage, (ii) damage to the Parking Garage, (iii)
subject to the provisions of Section 11.1 hereof, the whole or any part of the
Parking Garage being acquired or condemned for any public or quasi-public use or
purpose, or (iv) any other reason beyond Landlord's reasonable control.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.
NEWPORT L.G.-I, INC., Landlord
By: /s/ Marshall Roje
Name: Marshall Roje
Authorized Signatory
PENCOM SYSTEMS INCORPORATED,
Tenant
By: /s/ Jonathan Wallace
Jonathan Wallace, Vice President
Fed. Id. No. 13-2742382
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STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
I CERTIFY that on May 8, 1996, Jonathan Wallace personally came before me
and this person acknowledged under oath, to my satisfaction, that:
(a) this person signed, sealed and delivered the attached document as
President of the corporation named in this document;
(b) the proper corporate seal was affixed; and
(c) this document was signed and made by the corporation as its voluntary
act and deed by virtue of authority from its Board of Directors.
/s/ Maureen Kinald
----------------------------------
Name: Maureen Kinald
A Notary Public of the State of New York
MAUREEN KINALD
Notary Public State of New York
No.01K14974996
Qualified in Queens County
Commission Expires November 26, 1996
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SCHEDULE A
RULES AND REGULATIONS
(If any provision of this Schedule A conflicts with any other provision of
the Lease to which this Schedule A is attached, such other provisions of the
Lease shall govern)
1. The sidewalks, driveways, entrances, passages, courts, lobbies,
esplanade areas, atrium, plazas, elevators, escalators, stairways, vestibules,
corridors, halls and other public portions of the Building ("Public Areas")
shall not be obstructed or encumbered by any tenant or used for any purpose
other than ingress and egress to and from the Premises, and no tenant shall
permit any of its employees, agents, licensees or invitees to congregate or
loiter in any of the Public Areas. No tenant shall invite to, or permit to
visit, its premises persons in such numbers or under such conditions as may
interfere with the use and enjoyment by others of the Public Areas. Fire exits
and stairways are for emergency use only, and they shall not be used for any
other purposes by any tenant, or the employees, agents, licensees or invitees of
any tenant. Landlord reserves the right to control and operate, and to restrict
and regulate the use of, the Public Areas and the public facilities, as well as
facilities furnished for the common use of the tenants, in such manner as it
deems best for the benefit of the tenants generally, including the right to
allocate certain elevators for delivery service, and the right to designate
which Building entrances shall be used by persons making deliveries in the
Building. No doormat of any kind whatsoever shall be placed or left in any
public hall or outside any entry door of the Premises.
2. No awnings or other projections shall be attached to the outside
wall of the Building. No curtains, blinds, shades or screens shall be attached
to or hung in, or used in connection with, any window or door of the Premises
without the consent of Landlord. Such curtains, blinds, shades or screens must
be of a quality, type, design and color, and attached in the manner, approved by
Landlord. In order that the Building can and will maintain a uniform appearance
to those persons outside of the Building, each tenant occupying the perimeter
areas of the Building shall (a) use only building standard lighting in areas
where lighting is visible from the outside of the Building and (b) use only
building standard blinds in window areas which are visible from the outside of
the Building.
3. No sign, insignia, advertisement, lettering, notice or other
object shall be exhibited, inscribed, painted or affixed by any tenant on any
part of the outside or inside of the Premises or the Building or on corridor
walls without the prior consent of Landlord. Signs on each entrance door of the
Premises shall confirm to building standard signs, samples of which are on
display in Landlord's rental office. Such signs shall, at the expense of Tenant,
be inscribed, painted or affixed by signmakers approved by Landlord. In the
event of the violation of the foregoing by any tenant, Landlord may remove the
same without any liability, and may charge the expense incurred in such removal
to the tenant or tenants violating this rule. Interior signs, elevator cab
designations, if any, and lettering on doors and the Building directory shall,
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if and when approved by Landlord, be inscribed, painted or affixed for each
tenant by Landlord, at the expense of such tenant, and shall be of a size, color
and style acceptable to Landlord. Only Tenant named in the Lease shall be
entitled to appear on the directory tablet. Additional names may be added in
Landlord's sole discretion under such terms and conditions as the Landlord may
approve.
4. Neither the sashes, sash doors, skylights or windows that
reflect or admit light and air into the halls, passageways or other public
places in the Building nor the heating, ventilating and air conditioning
vents and doors shall be covered or obstructed by any tenant, nor shall any
bottles, parcels or other articles be placed on the window sills or on the
peripheral heating enclosures, Tenant agrees to draw the shades, blinds or
other window coverings, as reasonably required because of the position of the
sun. Tenant shall have no right to remove or change shades, blinds or other
window coverings within the Premises without Landlord's consent.
5. No showcases or other articles shall be put by Tenant in front of
or affixed to any part of the exterior of the Building, nor placed in the Public
Areas.
6. No acids, vapors or other harmful materials shall be discharged,
or permitted to be discharged, into the waste lines, vents or flues of the
Building. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed and
constructed, and no sweepings, rubbish, rags, acids or other foreign substances
shall be thrown or deposited therein. Nothing shall be swept or thrown into the
Public Areas or other areas of the Building, or into or upon any heating or
ventilating vents or registers or plumbing apparatus in the Building, or upon
adjoining buildings or land or the street. The cost of repairing any damage
resulting from any misuse of such fixtures, vents, registers and apparatus and
the cost of repairing any damage to the Building, or to any facilities of the
Building, or to any adjoining building or property, caused by any tenant, or the
employees, agents, licensees or invitees of such tenant, shall be paid by such
tenant. Any cuspidors or similar containers or receptacles shall be emptied,
cared for and cleaned by and at the expense of such tenant.
7. No tenant shall mark, paint, drill into, or in any way deface,
any part of the Premises or the Building. No boring, cutting or stringing of
wires shall be permitted, except with the prior written consent of, and as
directed by, Landlord. No telephone, telegraph or other wires or instruments
shall be introduced into the Building by any tenant except in a manner approved
by Landlord. No tenant shall lay linoleum, or other similar floor covering, so
that the same shall come in direct contact with the floor of its premises, and,
if linoleum or other similar floor covering is desired to be used, an
interlining of building's deadening felt shall be first affixed to the floor, by
a paste or other material, soluble in water, the use of cement or other similar
adhesive material being expressly prohibited.
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8. No bicycles, vehicles, animals (except seeing eye dogs), fish, or
birds of any kind shall be brought into, or kept in or about, the Premises.
9. No noise, including, but not limited to, music, the playing of
musical instruments, recordings, radio or television, which, in the judgment of
Landlord, might disturb other tenants in the Building, shall be made or
permitted by any tenant. Nothing shall be done or permitted by any tenant which
would impair or interfere with the use or enjoyment by any other tenant of any
other space in the Building.
10. Nothing shall be done or permitted in the Premises, and nothing
shall be brought into, or kept in or about the Premises, which would impair or
interfere with any of the Building Equipment or the services of the Building or
the proper and economic heating, ventilating, air conditioning, cleaning or
other services of the Building or the Premises, nor shall there be installed by
any tenant any ventilating, air conditioning, electrical or other equipment of
any kind which, in the judgment of Landlord, might cause any such impairment or
interference. No tenant, nor the employees, agents, licensees or invitees of any
tenant, shall at any time bring or keep upon its premises any inflammable,
combustible or explosive fluid, chemical or substance.
11. No additional locks or bolts of any kind shall be placed upon
any of the doors or windows by any tenant, nor shall any changes be made in
locks or the mechanism thereof. Duplicate keys for the Premises and toilet rooms
shall be procured only from Landlord, and Landlord may make a reasonable charge
therefor. Each tenant shall, upon the expiration or sooner termination of the
Lease of which these Rules and Regulations are a part, turn over to Landlord all
keys to stores, offices and toilet rooms, either furnished to, or otherwise
procured by, such tenant, and in the event of the loss of any keys furnished by
Landlord, such tenant shall pay to Landlord the cost of replacement locks.
Notwithstanding the foregoing, Tenant may, with Landlord's prior consent,
install a security system in the Premises which uses master codes or cards
instead of keys provided that Tenant shall provide Landlord with the master code
or card for such system.
12. All removals, or the carrying in or out of any safes, freight,
furniture, packages, boxes, crates or any other object or matter of any
description shall take place only during such hours and in such elevators as
Landlord may from time to time determine, which may involve overtime work for
Landlord's employees. Tenant shall reimburse Landlord for extra costs incurred
by Landlord including but not limited to the cost of such overtime work.
Landlord reserves the right to inspect all objects and matter to be brought into
the Building and to exclude from the Building all objects and matter which
violate any of the Rules and Regulations or the Lease of which these Rules and
Regulations are a part. Landlord may require any person leaving the Building
with any package or other object or matter to submit a pass, listing such
package or object or matter, from the tenant from whose premises the package or
object or matter is being removed, but the establishment and enforcement of such
requirements shall not impose any responsibility on Landlord for the protection
of any tenant
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against the removal of property from the premises of such tenant. Landlord shall
in no way be liable to any tenant for damages or loss arising from the
admission, exclusion or ejection of any person to or from the Premises or the
Building under the provisions of this Rule 12 or of Rule 15 hereof.
13. No tenant shall use or occupy, or permit any portion of its
premises to be used or occupied, as an office for a public stenographer or
public typist, or for the possession, storage, manufacture or sale of narcotics
or dope or as a barber, beauty or manicure shop, telephone or telegraph agency,
telephone or secretarial service, messenger service, travel or tourist agency,
retail, wholesale or discount shop for sale of merchandise, retail service shop,
labor union, classroom, company engaged in the business of renting office or
desk space, or for a public finance (personal loan) business, or as a hiring
employment agency. No tenant shall engage or pay any employee on its premises,
except those actually working for such tenant on its premises, nor advertise for
laborers giving an address at the Building. No tenant shall use its premises or
any part thereof, or permit the Premises or any part thereof to be used, as a
restaurant, shop, booth or other stand, or for the conduct of any business or
occupation which predominantly involves direct patronage of the general public,
or for manufacturing, or for the sale at retail or auction of merchandise, goods
or property of any kind.
14. Landlord shall have the right to prohibit any advertising or
identifying sign by any tenant which, in the judgment of Landlord, tends to
impair the appearance or reputation of the Building or the desirability of the
Building as a building for offices, and upon written notice from Landlord, such
tenant shall refrain from and discontinue such advertising or identifying sign.
15. Landlord reserves the right to exclude from the Building all
employees of any tenant who do not present a pass to the Building signed by such
tenant. Landlord or its agent will furnish passes to persons for whom any tenant
requests same in writing. Landlord reserves the right to require all other
persons entering the Building to sign a register, to be announced to the tenant
such person is visiting, and to be accepted as a visitor by such tenant or to be
otherwise properly identified (and, if not so accepted or identified, reserves
the right to exclude such persons from the Building) and to require persons
leaving the Building to sign a register or to surrender a pass given to such
person by the tenant visited. Each tenant shall be responsible for all persons
for which it requests any such pass or any person who such tenant so accepts,
and such tenant shall be liable to Landlord for all acts or omissions of such
persons. Any person whose presence in the Building at any time shall, in the
judgment of Landlord, be prejudicial to the safety, character, security,
reputation or interests of the Building or the tenants of the Building may be
denied access to the Building or may be ejected from the Building. In the event
of invasion, riot, public excitement or other commotion, Landlord may prevent
all access to the Building during the continuance of the same by closing the
doors or otherwise, for the safety of tenants and the protection of property in
the Building.
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16. All entrance doors in the Premises shall be kept locked by each
tenant when its premises are not in use. Entrance doors shall not be left open
at any time.
17. Each tenant shall, at the expense of such tenant, provide light,
power and water for the employees of Landlord, and the agents, contractors and
employees of Landlord, while doing janitor service or other cleaning in the
Premises demised to such tenant and while making repairs or alterations in its
premises.
18. The Premises shall not be used for lodging or sleeping or for
any immoral or illegal purpose.
19. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of their regular duties, unless under
special instructions from Landlord.
20. Canvassing, soliciting and peddling in the Building are
prohibited and each tenant shall cooperate to prevent the same.
21. The employees, agents, licensees and invitees of any tenant
shall not loiter around the Public Areas or the front, roof or any part of the
Building used in common by other occupants of the Building.
22. There shall not be used in any space, or in the Public Areas,
either by any tenant or by others, in the moving or delivery or receipt of
safes, freight, furniture, packages, boxes, crates, paper, office material or
any other matter or thing, any hand trucks except those equipped with rubber
tires, side guards and such other safeguards as Landlord shall require. No hand
trucks shall be used in passenger elevators.
23. No tenant shall cause or permit any odors of cooking or other
processes, or any unusual or objectionable odors, to emanate from its premises
which would annoy other tenants or create a public or private nuisance. No
cooking shall be done in the Premises except as is expressly permitted in the
Lease of which these Rules and Regulations are a part.
24. All paneling, doors, trim or other wood products not considered
furniture shall be of fire-retardant materials. Before installation of any such
materials, certification of the materials' fire-retardant characteristics shall
be submitted to and approved by Landlord, and installed in a manner approved by
Landlord.
25. Whenever any tenant shall submit to Landlord any plan, agreement
or other document for the consent or approval of Landlord, such tenant shall pay
to Landlord, on demand, a processing fee in the amount of the fees for the
review thereof, including the service of any architect, engineer or attorney
employed by Landlord to review such plan.
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26. Landlord reserves the right to rescind, alter, waive or add, as
to one or more or all tenants, any rule or regulation at any time prescribed for
the Building when, in the judgment of Landlord, Landlord deems it necessary or
desirable for the reputation, safety, character, security, care, appearance or
interests of the Building, or the preservation of good order therein, or the
operation or maintenance of the Building, or the equipment thereof, or the
comfort of tenants or others in the Building. No rescission, alteration, waiver
or addition of any rule or regulation in respect of one tenant shall operate as
a rescission, alteration or waiver in respect of any other tenant.
27. Anything to the contrary contained in this Lease
notwithstanding, any Improvements to, or visible from, any elevator lobby shall
be subject to the prior approval of Landlord.
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SCHEDULE B
JANITORIAL AND RELATED SERVICES
CONTRACTOR will furnish cleaning services to Park Tower Management as Agent for
NEWPORT L.G.-I, INC., hereinafter called the Owner, at 525 Washington Blvd.,
Jersey City, New Jersey 07310, in accordance with the following terms:
GENERAL
CONTRACTOR shall employ an adequate competent supervisor with proven performance
in a building of similar size and operation. References, if requested by Owner,
shall be submitted by CONTRACTOR prior to assigning him/her to the building.
Furnish proper cleaning materials, implements, machinery and supplies for the
performance of all the services required.
CONTRACTOR'S personnel shall be members in good standing of the various Building
Services Unions, A.F.L.-C.I.O.
CONTRACTOR'S personnel shall be carefully interviewed, screened, reference
checked. They shall be properly uniformed, neat and clean in appearance.
CONTRACTOR agrees to give prior written notification and submit for AGENT'S
approval, any and all supervisory and/or key personnel changes.
All uniforms shall be furnished by CONTRACTOR in accordance with AGENT'S
specifications. Night personnel shall be provided with two changes per week and
day personnel shall receive three changes per week.
CONTRACTOR shall have the uniforms laundered, or dry cleaned, regularly and kept
in good repair.
CONTRACTOR shall furnish the necessary, appropriate, tested and approved
implements, machinery and cleaning supplies for the satisfactory performance of
all services, including exchanging light bulbs in atrium/lobby, and other areas
of interior and exterior.
A log book shall be kept in a place on the premises, to be made promptly
of any occurrences requiring the attention of the AGENT.
Sufficient space in the building shall be given to CONTRACTOR for:
1. Storage of cleaning materials, implements and machinery;
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2. Locker space for CONTRACTOR'S employees, and space for supervisory
personnel.
CONTRACTOR shall insure that all of its employees and/or agents shall abide by
all safety rules and regulations which may be promulgated from time to time by
either party as they pertain to the CONTRACTOR'S operations.
CONTRACTOR'S personnel shall not disturb papers on desks, tables, cabinets.
Inspections shall be made quarterly by a senior officer of CONTRACTOR and
reviewed with AGENT'S designate.
CONTRACTOR shall execute Owner's standard form of Hold Harmless and
Indemnification Agreement and furnish Public Liability Insurance covering bodily
injury and property damage, along with contractual liability insurance with
minimum limits, and such other insurance as is customarily required by AGENT,
and furnish Workmen's Compensation and Unemployment Insurance as required by
law.
CONTRACTOR shall furnish Public Liability and Property Damage insurance covering
all of its operations in said building in limits of at least
$1,000,000/$500,000,000 for liability and in limits of at least $1,000,000 for
property damage, certificates of which shall be forwarded to the AGENT.
INDEMNITY AND INSURANCE
Contractor agrees to indemnify and save harmless the OWNER and its AGENTS
against all loss and expense, by reason of liability imposed by law upon the
OWNER or its agent for damages (1) because of bodily injuries, including death
at any time resulting therefrom, sustained by any employee of the CONTRACTOR
while at the premises where service under this contract is being conducted, or
elsewhere, while engaged in the performance of work under this contract,
however, such injuries may be caused, including, but not limited to, such
injuries as are caused by the sole or concurrent negligence of the OWNER or its
Agent, whether attributable to a breach of statutory duty or administrative
regulation or otherwise, and such injuries for which liability is imputed to the
OWNER or its agent, and (2) because of bodily injuries including death at any
time resulting therefrom, sustained by any person, or persons, other than
employees of the CONTRACTOR while on or about the premises of AGENT caused by
the acts or omissions of CONTRACTOR, or (3) because of injury or destruction of
property caused or occasioned directly or indirectly by the CONTRACTOR, or its
servants, agents or employees. The CONTRACTOR agrees to defend promptly and
diligently, at its sole cost and expense, any claim, action or preceding brought
against the OWNER and/or agent or against the OWNER and agent and the CONTRACTOR
jointly or severally (a) arising out of or based upon by law, regulation,
requirement, contact or award relating to the hours of employment, working
conditions and/or wages or compensations of any such employees. It is expressly
understood and agreed that the foregoing provisions shall survive the
termination of the Agreement.
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The CONTRACTOR shall maintain Workmen's Compensation Insurance covering
employees as required by law. The CONTRACTOR shall also maintain Contractual
Liability Insurance to insure the indemnifying portions of this contract, such
insurance to include both Bodily Injury Liability and Property Damage Liability.
Before commencing the work, the CONTRACTOR shall furnish a certificate from its
insurance carrier showing that it has complied with the foregoing provisions of
this article, and providing that the said insurance policies will not be changed
or cancelled during their term until after at least ten (10) days prior notice
by registered mail to the OWNER and AGENT.
CONTRACTOR shall pay payroll and other taxes levied against payrolls by city,
state and federal agencies.
CONTRACTOR shall comply with all union requirements and make proper payments to
union pension and welfare funds as prescribed in union contracts.
CONTRACTOR shall make reasonable and prompt restitution, by cash, replacement or
repairs, subject to the approval of the AGENT for any damage for which the
contractor is liable.
CONTRACTOR shall purchase the necessary time clocks and lockers for all its
personnel.
Upon completion of the work, all lights shall be extinguished, all windows
closed, all office doors closed and entrance doors locked, Venetian blinds shall
be lowered and tiled to keep out the sun, all slop sinks, locker areas, etc.,
shall be cleaned thoroughly and cleaning equipment stored in a proper location.
All tenant spaces will be locked during cleaning operation and work will be
performed behind locked doors.
AREAS TO BE COVERED
CONTRACTOR shall perform the following throughout the entire premises, including
all office space, first floor and above, entrance lobby, sidewalks, all basement
areas, tenant areas (including all levels below first floor, if applicable),
public halls and/or building corridors, stairways, loading freight area, fire
towers, lavatories, passageways, and elevator cabs, and shall render normal
cleaning of tenant internal lunch areas, if applicable, and include planters
located in interior public areas whether artificial or natural. Service utility
and mechanical areas shall be covered as required and at the direction of the
Building Manager. Where terms "as needed" or "as necessary" are used, the agent
shall be the sole judge.
GENERAL CLEANING
Nightly
Nightly services shall be rendered five (5) nights each week, Monday through
Friday, excluding only such holidays upon which the building is closed, OWNER
being the sole judge.
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Sweep floors as needed to maintain in clean condition throughout the building,
including tenant spaces, entrance foyers and vestibules and all public areas,
including building corridors, all stone, ceramic tile, marble, terrazzo, asphalt
tile, linoleum, rubber, vinyl and other type of flooring to insure dust-free
floors with special attention to hard-to-reach areas.
Carpet sweep nightly and vacuum weekly all carpeted areas and rugs, moving light
furniture other than desks, file cabinets, etc. Spot clean for spillage.
Empty and clean all wastepaper baskets and disposal receptacles, wash ash trays,
sanitary cans, wastepaper towel cans and any other receptacles. Damp dust as
necessary. Install liners, if provided by tenant.
Empty and clean all cigarette urns and ashtrays. Replace sand or water in
cigarette urns. Material to be furnished by CONTRACTOR.
Collect and remove daily from building, wastepaper, cardboard boxes (which
CONTRACTOR will flatten) waste materials and all rubbish from normal operation
of building at CONTRACTOR'S expense. Waste and/or rubbish bags shall be
furnished by CONTRACTOR. AGENT shall have the right to approve trash removal
containers and janitorial carts.
Move and dust under all desk equipment, ash trays, telephones and other similar
equipment, replacing and dusting said equipment. Papers and documents will not
be moved.
Sweep building stairways, wash as necessary. Vacuum carpeted inter-connecting
tenant stairways, dust handrails, balustrades and stringers as necessary. Wash
inter-connecting tenant stairways nightly.
Dust and wipe clean all furniture, fixtures, shelving, desk equipment,
telephones, cabinets, window sills, door casings, blackboards and clean all
furniture with impregnated cloths, as needed.
Dust and clean all chair rails, panelling, trim, door and other architectural
louvers, lattices and ornamental work, grilles, pictures, vinyl or fabric of
chairs and settees, ventilating louvers, charts and baseboards.
Vacuum ceilings, as necessary to remove all dust around and on grilles.
Remove all finger marks, smudges, scuff marks, gum or foreign matter from glass
directory boards, metal partitions and other marks from walls, window sill
frames and other similar surfaces, and glass table cabinets, as necessary.
Clean and remove fingermarks and smudges from glass entry doors and side panels.
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Scour, wash and clean all water fountains and coolers, emptying waste water, as
needed.
Wash window sills and remove all ink stains and smudges, as necessary.
Keep locker and slop sink rooms in clean and orderly condition.
Dust and wash all closet and coat room shelving, coat racks and flooring.
Wipe clean all brass, stainless steel, metal and other brightwork.
Wipe clean all metal door knobs, kick plates, directional signs, door saddles
and all metals.
Nightly cleaning operations will be scheduled to commence after 5:30 p.m.
insofar as practical and possible.
CONTRACTOR agrees to perform all cleaning services as may be necessary by tenant
traffic and building use on holidays at an additional charge.
Lights shall be used only in areas where cleaning operations are being performed
and then turned off upon completion.
Lavatories & Rest Rooms
Sweep scrub and/or wash and dry all flooring with approved germicidal detergent
solution to remove all spills, smears, scuff marks and foot tracks throughout.
Wash and polish all mirrors, powder shelves, brightwork, enamel surfaces
including flushometers, piping, toilet seat hinges and all metal.
CONTRACTOR shall use only non-abrasive material to avoid damage and
deterioration to chrome fixtures.
Scour, wash and disinfect all basins, bowls and urinals with approved germicidal
detergent solution, including tile walls near urinals.
Wash both sides of all toilet seats with approved germicidal detergent solution.
Disinfect and damp wipe all partitions, enamel surfaces, tile walls, dispensers,
door and receptacles. Remove graffiti on sight, if unable to remove, tenant will
be notified immediately.
Empty and clean paper towel and sanitary disposal receptacles.
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Remove wastepaper and refuse, including soiled sanitary napkins, to a designated
area in the premises and dispose of same at CONTRACTOR'S expense. All wastepaper
receptacles to be thoroughly cleaned and washed.
If applicable, wash and wax all resilient tile floors in toilet powder rooms, or
vacuum if carpeted. Spot-clean and shampoo, as needed.
Fill and maintain mechanical operations of all toilet tissue holders, soap
dispensers, towel dispensers and sanitary napkin vending dispensers. Materials,
as approved by AGENT, to be furnished by CONTRACTOR. The filling of such
receptacles to be in such quantity as to last the entire business day wherever
possible and refilled daily as set forth in other parts of this specification.
Remove stains as necessary, clean underside of rims of urinals and bowls.
Wash down ceilings (including washable acoustical tile) and walls in washrooms
and stalls from ceiling to floor as often as necessary, but at least once every
thirty (30) days. Scrub floors as needed, but not less than once a month.
It is the intention to keep lavatories thoroughly clean and not to use a
disinfectant to mask odors. If disinfectants are necessary, an odorless
disinfectant shall be used.
CONTRACTOR shall use only non-abrasive material to avoid damage and
deterioration to chrome fixtures.
Entrance Vestibules, Main Lobby, Public Areas, Sidewalks & Elevator Lobbies -
Nightly
It is the intent of this agreement and CONTRACTOR agrees to keep
entrance ways, outer vestibules and lobby properly maintained, clean and
presentable at all times, commensurate with first-class office buildings.
Sweep and wash flooring. Clean and buff all surfaces of resilient tile to
maintain a highly clean and polished surface at all times. Strip and renew as
needed.
All carpeted corridors to be vacuumed nightly and as needed daily, spot cleaned
and/or shampooed as required.
Dust public corridors and walls.
Sweep, vacuum, spot clean and shampoo all weather mats, if carpeted. Scrub and
clean all weather mats, if rubber.
Clean all cigarette urns and replace sand or water, as necessary. Material to be
furnished by CONTRACTOR.
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Maintain floors in elevator cabs as needed and clean thoroughly. If carpeted,
remove soluble spots which safely respond to standard spotting procedure without
risk of injury to color or fabric. Cabs to be vacuumed and shampooed, as
required.
If there are resilient tile floors in elevator cabs, wash, buff wax and polish
nightly. Strip and rewax, as necessary.
Wash flooring, including mats, of main floor area.
Pick up and put out rain mats, when necessary, making sure they are clean at all
times.
Clean entrance floor glass.
Dust and rub down elevator doors, mail depository and walls, metal work and
saddles in elevator cabs. All elevator corridors, car door tracks and thresholds
and saddles are to be cleaned and polished to remove all stains, dirt, paper
clips, cigarette butts and all debris.
Maintain metal work throughout, including elevator cabs, by cleaning as
necessary.
Clean exterior of mail chute, mail depository, lobby directories and director's
panel station, including glass, if applicable.
Vacuum sidewalks with powered equipment daily. Clean curb area 18" into street.
Clean telephone booths and storage rooms.
Treat and polish wood and synthetic panelling in the elevator cabs as necessary.
PERIODIC CLEANING
Lavatories & Rest Rooms
Machine scrub floor as necessary, with approved germicidal detergent solution.
Scrub, wash and polish all partitions, tile walls and enamel surfaces from
ceiling to floor as necessary, but not less than once every month, using proper
disinfectant.
Wash all lighting fixtures as necessary (but not less than once a year).
Do all high dusting approximately once a month.
Wash all painted wall surfaces as needed, but not less than once every two (2)
months.
Clean and disinfect all equipment drains. No acid permitted unless instructed by
AGENT.
B-7
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Wash all ceilings including washable acoustical tile, as necessary.
Vacuum ceilings, as needed.
Clean urinals and bowls with scale-solvent as needed, but not less than once a
week.
Entrance Lobby/Public Areas/Elevator Landings/Sidewalks
Machine scrub flooring and seal, as necessary (but not less than once a month).
Clean lights, globes, diffusers and fixtures as often as necessary and keep
light fixtures properly lamped, as required. Lamps supplied by CONTRACTOR.
Dust down entrance, elevator, public corridor, lobby and stairway walls, floor
to ceiling, as necessary, but not less than once per month.
Shampoo carpets in elevator cabs, including spare carpets if made available for
replacement, as needed. Shampoo lobby and corridor carpet, as needed. Remove as
necessary soluble spots which safely respond to standard spotting procedure
without risk of injury to color or fabric.
High Dusting - Office Area
Do all high dusting every three months, unless otherwise specified, including
the following:
Vacuum and dust all pictures, frames, charts, graphs and similar wall hangings
not reached in nightly cleaning. Damp dust, as required.
Vacuum and/or dust all vertical surfaces such as walls, partitions, doors, bucks
and ventilating louvers, grilles, high moldings and other surfaces not reached
in nightly cleaning.
Dust all overhead pipes, sprinklers, ventilating and air-conditioning louvers,
ducts, high molding and other areas not reached in nightly cleaning.
Dust all window frames.
Dust all lighting fixtures.
Vacuum and dust ceiling tiles around ventilators.
MISCELLANEOUS - OFFICE AREAS & BUILDING CORRIDORS AND BATHROOMS
(To be performed as needed, but not less than once each week unless otherwise
specified)
Sweep all building stairways, dust rails and fire equipment monthly and mop
monthly.
B-8
<PAGE>
Wipe clean all aluminum, chrome, stainless steel, brass and other metal work,
including trim and hardware, as necessary.
Elevator, stairways, office and utility doors on all floors to be checked for
general cleanliness, as necessary, removing finger prints, smudges and other
marks. Clean exterior of all building elevator doors, as necessary.
If carpeted, remove spots and thoroughly clean all carpets in public corridors
as needed. Public corridors and lobbies will be placed on a shampoo schedule to
be kept on file in building office.
In addition to daily maintenance, steel wool, dry buff or damp mop or wet mop
and wax, as needed, removing all ground in heel marks scuffs and gum, any
asphalt, rubber, linoleum and vinyl flooring throughout public corridors.
Clean all vacant areas, at least once per month.
Clean glass entrance doors, as needed.
Clean all Venetian blinds throughout the building at least once a year.
Once a week, dust and wash all door louvers and other ventilating louvers within
reach.
Wash and remove all finger marks, ink stains, smudges, scuff marks and other
marks from metal partitions, sills, all vertical surfaces (doors, walls, window
sills) including elevator doors and other surfaces, as necessary. All marble
walls, elevator, stairway, office and utility doors to be washed as necessary
using clear water or approved cleanser.
Wash and clean electrical fixtures, all baseboards walls and any other fixtures
or fittings in public corridors, as necessary.
Vacuum, clean and polish car and corridor saddles of elevator doors on all
floors, as needed.
Clean interior and exterior of mail depository as required, making arrangements
with postal authorities for interior cleaning.
DAY SERVICE
Day services shall be rendered five (5) days each week, Monday through Friday,
excluding only such holidays upon which the building is closed.
CONTRACTOR agrees to furnish sufficient day porters, one of whom shall be a
working supervisor, to perform the following duties and any additional duties
which may be directed by the AGENT.
B-9
<PAGE>
A Porter shall be assigned to premises on Saturday while the building is open.
CONTRACTOR also agrees to provide sufficient porter for tenant work, which in no
way will delete from building staff, unless approved by AGENT.
Duties of Day Porters and Day Matron
A sufficient porter staff shall be assigned to perform the following services
and any additional chores as directed by building management:
Police lobby area and sidewalk, picking up all foreign matter on sight.
Operate service elevator, as directed.
Police and maintain elevator cabs, including floors, as required. If carpeted
floors in elevators, cabs are to be vacuumed at least twice a day and spots are
to be removed, as required. If floors are of a resilient tile, clean, buff and
wax as required.
Police all lavatories a minimum of twice a day, morning and afternoon. Wipe
clean all sinks, glass, and powder shelves.
Check and fill, as necessary, in all lavatories, toilet tissue, soap, towel and
sanitary dispensers; materials to be furnished by CONTRACTOR. Monies from same
collected by CONTRACTOR.
Clean basement, including all levels below first floor, corridors and utility
areas. Police employee's locker rooms so they are kept in a clean condition at
all times.
Sweep, vacuum, remove gum and hose building entrance sidewalks and all sidewalk
areas daily before 8:00 a.m. All equipment, including vacuum and washing
equipment to clean sidewalks, shall be provided by CONTRACTOR and such equipment
to be of a type and manufacturer as approved by the AGENT.
Set out weather mats in inclement weather and keep in clean condition.
Police roof and set backs daily. Clean as necessary.
Keep entrance door glass and frames in clean condition.
Clean and polish standpipes and sprinkler siamese connections, as necessary.
Wipe down outside tenant signage daily.
Properly maintain exterior of the building at ground level, including all metal
work and signs, and store fronts, if required to be maintained by AGENT.
B-10
<PAGE>
All planted areas shall be policed and debris removed.
Loading dock and truck area shall be cleaned daily and scrubbed as needed.
Sweep and dust stairways and fire tower. Dust handrails, firehose cabinets and
extinguishers, newels and stair stringers. Wash stairs, as necessary. Report any
discrepancies to building office.
All public areas, including building entrance and sidewalks, are to be kept
clean, clear and free from snow. Snow will be removed daily and before 8:00 a.m.
Urea or similar material will be used instead of rock-salt. Materials to be
supplied by CONTRACTOR at no cost to AGENT.
All materials and equipment, including snow removal equipment, to be furnished
by CONTRACTOR and such equipment to be of a type and manufacture as approved by
AGENT.
As directed by AGENT, equipment rooms, fan rooms and other utility rooms, shall
be swept and damp mopped regularly.
WINDOW CLEANING - General
Window cleaning contractor shall log in and out with the Building before any
services are performed.
Any materials used for the washing of windows or metal surfaces shall be
approved by the AGENT.
CONTRACTOR shall provide adequate protection to the exterior of the building,
during window washing operation.
An additional interior cleaning prior to move-in of new tenants, shall be
provided for by the CONTRACTOR upon instructions from the AGENT at no charge.
Wash and clean all windows, four (4) times a year, inside and outside, including
all adjacent metal surfaces, which shall be wiped clean during the window
cleaning operation including grade level windows where applicable, as determined
by the AGENT. Wipe all interior metal window frames, mullions, terrace doors, if
any, and other unpainted interior metal surfaces of the perimeter walls of the
buildings at the same time that the interior of the windows are washed.
Building entrance doors and director glass shall be cleaned daily and kept in
clean condition at all times during the day. All lobby exterior glass shall be
washed and cleaned once a week and all lobby interior glass, once a month.
Mail chute glass shall be kept in a clean condition at all times.
B-11
<PAGE>
CONTRACTOR shall provide all labor, materials, tools, equipment and perform all
operations necessary to carry out the apparent intent thereof, for the window
washing operation. CONTRACTOR further agrees to maintain all such equipment
provided at its sole cost and expense including the building supplied scaffold.
INITIAL CLEANING
In addition to all other services specified herein. Prior to tenant occupancy,
the CONTRACTOR, shall, at no additional cost to AGENT, render a thorough initial
cleaning of all newly rented space.
This includes dusting, sweeping, polishing of interior metal window frames,
sills and mullion, window washing, cleaning and vacuuming of perimeter H.V.A.C.
metal enclosures including the removal of all debris, so that the premises shall
be in clean and proper condition. The CONTRACTOR shall also provide complete
floor maintenance and initial waxing prior to move-in of all new tenants at no
charge to AGENT or tenant.
PEST CONTROL
The CONTRACTOR shall render pest control services throughout the basement and
first floor premises once each month. Public areas above the first floor shall
be serviced monthly. Services shall be performed by thoroughly trained
operators, licensed, if required. Evidence of such service call shall be
presented to AGENT.
Special emergency calls shall be made on request at no additional charge.
Service shall be rendered at such hours as will not interfere with normal
business.
FREIGHT ELEVATOR
A. Service elevator shall be operated by porter/operator, as directed
by AGENT.
B. All personnel provided by CONTRACTOR shall be adequately trained and
supervised to perform any duties assigned. All personnel are subject
to approval by AGENT.
LAMPING
The CONTRACTOR agrees at its cost to furnish and install replacement electric
light bulbs, tubes, ballasts and starters as required for public interior and
exterior building areas, including fan and mechanical equipment room. Work shall
be performed by thoroughly trained and qualified personnel who shall be members
of union having jurisdiction.
SPECIAL SERVICES
B-12
<PAGE>
It is agreed that CONTRACTOR may perform special additional services to tenants
in the building from time to time. Such special day or night services shall be
billed directly to the tenants.
SCHEDULE
Each month CONTRACTOR is to supply AGENT a schedule of periodic cleaning items
to be completed for the coming month giving exact dates corridor floors are to
be waxed or carpets cleaned, rest rooms scrubbed, windows washed, drapes cleaned
and any other major item to be done. In the event work is not done at time
scheduled, AGENT is to be informed by the following work day and given a date
when work will be completed.
CONTRACTOR agrees to give AGENT full credit for vacant space and space not
cleaned. The credit for vacant space shall be in accordance with a formula to be
developed and accepted by the parties. CONTRACTOR shall submit unit cost of
cleaning windows not cleaned because of inclement weather or otherwise. Formulas
for vacant space and window cleaning to be separately designated on CONTRACTOR'S
proposal.
Specify staff intended to be used to comply with this specification.
B-13
<PAGE>
SCHEDULE C
VAC SPECIFICATIONS
The VAC System shall be capable of maintaining 72 degrees Fahrenheit (no
humidity control) when outdoor conditions are 6 degrees Fahrenheit. The VAC
System shall be capable of maintaining 75 degrees Fahrenheit (average
temperature throughout the Building) when outdoor conditions are 95 degrees
Fahrenheit dry bulb and 75 degrees Fahrenheit wet bulb. The VAC System is
designed based upon (i) occupancy rate of one (1) person per net usable 100
square feet, (ii) four (4) watts per net usable square foot, (iii) .15 cfm per
net usable square foot, and (iv) insulated glass windows with venetian blinds
drawn.
C-1
<PAGE>
SCHEDULE D
LANDLORD'S WORK
D-1
<PAGE>
[LETTERHEAD OF DESCON]
April 16, 1996
Mr. Alan Grossman
The Georgetown Company
667 Madison Avenue
New York, N.Y. 10021
Re: Pencom
Newport Tower - 16th Floor Area "A"
Dear Alan:
As per attached sketch #SP-1 dated 4/2/96 the following is the scope of work
required for the above project:
I. Construction
a. Erect new partition to subdivide room #1607 into (2) offices.
b. Install new door, frame and hardware in new office to match
existing.
II. Electrical
a. Install new switch in new office and recircuit lights as required.
b. Install throughout space as shown a total of:
(5) duplex electrical outlets.
(5) voice/data outlets.
III. Finishes
a. Paint throughout to match existing.
b. Existing carpet, base, wallcovering and VCT to remain; clean as
required.
Please contact me if you have any questions.
Sincerely,
DESCON INTERIORS INCORPORATED
/s/Alan Richman
Alan Richman
Project Director
AR/rr
cc: Holly Gallagher
(Pen NT 1)
descon interiors incorporated/149 madison avenue/new york, new york 10016/
(212)532 6753
<PAGE>
[FLOOR PLAN]
<PAGE>
EXHIBIT A
FLOOR PLAN
<PAGE>
[16TH FLOOR PLAN]
Newport Office Tower
Jersey City, New Jersey
<PAGE>
EXHIBIT B
THE SITE
<PAGE>
Layout
[SITE PLAN]
NEWPORT
<PAGE>
EXHIBIT C
THE PARKING GARAGE
<PAGE>
Layout
[SITE PLAN]
NEWPORT
<PAGE>
Exhibit 10.5*
SOFTWARE DEVELOPMENT AGREEMENT
This Software Development Agreement ("Agreement") having an Effective Date
of March 9, 1994 is made between Canon Computer Systems, Inc., a California
corporation, with offices at 2995 Red Hill Avenue, Costa Mesa, California 92626
(hereinafter called "CCSI") and Pencom Systems Incorporated, a New York
corporation, with offices at 150 Broadway, New York, New York 10038 (hereinafter
called "PENCOM").
WHEREAS, PENCOM possesses certain technical information and know how
relating to the development of software systems based on object oriented
technology;
WHEREAS, CCSI desires to retain PENCOM to use its technical information
and know how to develop a wholesale distribution system for tracking CCSI's
imports and exports, monitoring inventory, processing customer orders, tracking
distribution of CCSI products, and generating sales and marketing reports.
WHEREAS, PENCOM desires to perform such services and develop the
Deliverables in accordance with the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties agree as follows:
1. DEFINITIONS.
1.1. "Software Project" shall mean the efforts undertaken by PENCOM to
develop new software and related Deliverables under the terms and conditions of
this Agreement and in accordance with the schedule and at prices set forth in
Section 4 of this Agreement.
1.2. "Software Package" shall mean the design, development and
implementation of the NeXTSTEP software to be developed for CCSI pursuant to the
efforts undertaken by PENCOM as set forth in Section 2 and shall include all
Pre-Existing Software used therein.
1.3. "Specifications" shall mean the technical criteria for the Software
Package set forth in Attachment A to this Agreement.
1.4. "Intellectual Property Rights" shall mean all inventions, trade
secrets, know-how, developments, improvements, results, data, designs, computer
programs/software and other information in any form, patentable or unpatentable,
patented or unpatented, copyrighted or uncopyrighted, copyrightable or not,
which
* Confidential treatment is requested for certain portions of Exhibit 10.5
pursuant to Rule 406 under the Securities Act of 1933.
<PAGE>
are conceived, created, written, developed, reduced to practice, acquired, owned
or controlled by PENCOM pursuant to this Agreement.
1.5. "Deliverables" shall mean any and all tangible products developed by
PENCOM for CCSI under this Agreement, including all object diagrams, functional
specifications, prototypes, class libraries, the "source" code and object code
for the Software Package, and all necessary documentation. The Deliverables
shall be provided in three phases. A list of all Phase One and Phase Two
Deliverables is set forth in Attachment A to this Agreement. A list of Phase
Three Deliverables shall be provided by PENCOM on or before the date given in
Section 4.1 of the Agreement as the conclusion of Phase Two of the Software
Project.
1.6. "Phase Three Amendment" shall mean the amendment to this Agreement
between the parties stating the schedule, fees, and certain other terms of Phase
Three of the Software Project.
1.7. "Pre-Existing Software" shall mean any of PENCOM's proprietary
software products existing as of the date of this Agreement necessary for the
development, implementation and use of the Software Package, including any third
party software licensed to PENCOM for use in its products and any software in
the public domain, and listed as an attachment to the Phase Three Amendment.
1.8. "Alpha-Test Version" shall mean the Phase Three Deliverables for each
module of the Software Package except for the user's manual that will implement
all features and functions of the module but may contain minor errors in the
execution of the functions.
2. SCOPE OF SERVICES.
PENCOM will perform the Software Project and develop the Software Package.
As set forth in Section 6 of this Agreement, CCSI will own all Deliverables.
2.1. Phase One of the Software Project. On or before the date given in
Section 4.1 of the Agreement as the conclusion of Phase One of the Software
Project, PENCOM shall provide CCSI with all Phase One Deliverables.
2.2. Phase Two of the Software Project. On or before the date given in
Section 4.1 of the Agreement as the conclusion of Phase Two of the Software
Project, PENCOM shall provide CCSI with all Phase Two Deliverables.
2.3. Phase Three of the Software Project. Subject to CCSI's acceptance of
the Phase One and Two Deliverables and the parties' executing the Phase Three
Amendment, PENCOM will develop the agreed-upon Phase Three Deliverables using
generally accepted programming techniques. To the extent that some specific
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<PAGE>
requirements for the Software Package may not be known at this time, PENCOM will
endeavor to provide flexibility in the Phase Three Deliverables to be able to
meet these requirements. PENCOM will deliver each Alpha-Test Version and the
final Phase Three Deliverables, including the object code, the source code,
system and user documentation, by the dates specified in the Phase Three
Amendment. System documentation, including source code documentation, will be
completed to a level sufficient for a skilled programmer to adequately support
the Deliverables. User documentation shall describe screens, menus, and
functions of the Software Package and shall be adequately indexed to serve as a
reference manual.
2.4. Support, Training, Maintenance, Upgrades, and Special Projects. For a
period of one (1) year after CCSI's final acceptance of all the Phase Three
Deliverables pursuant to Section 3.4 of the Agreement ("the Warranty Period"),
PENCOM will provide CCSI with corrections to reproducible defects for the
Software Package at no charge. Specific support, training and maintenance
requirements and fees will be addressed in the Phase Three Amendment or in
subsequent amendments to this Agreement. At CCSI's request, PENCOM also agrees
to assist in developing upgrade plans and to use commercially reasonable efforts
to cause the Software Package to remain compatible with the NeXTSTEP platform
and the Oracle interface, including new versions of, or new models replacing,
the NeXTSTEP platform and the Oracle interface, and to provide CCSI with testing
assistance to certify such compatibility. Such upgrades and special projects
requested by CCSI will be performed at the development rates specified in
Section 4.5.
2.5. Progress. During this Agreement, PENCOM shall keep CCSI informed of
its progress on the Software Project and shall promptly notify CCSI in the event
of any anticipated delay in the Schedule as set forth in Section 4 or the Phase
Three Amendment.
3. ACCEPTANCE.
3.1. Phase One Deliverables. CCSI will have thirty (30) days from its
receipt of the Phase One Deliverables to evaluate them and specify any changes
or modifications needed prior to the commencement of Phase Two. In the event
that CCSI determines that the Phase One Deliverables are inadequate, CCSI may
elect in writing to terminate this Agreement as set forth in Section 12.2 of the
Agreement and shall specify in writing the grounds why such Phase One
Deliverables are inadequate, except that PENCOM shall be limited to ten (10)
days to cure any breach of the Agreement under this section. CCSI's acceptance
shall not be unreasonably withheld and shall be based on the completeness,
quality, and timeliness of the Phase One Deliverables.
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<PAGE>
3.2. Phase Two Deliverables. CCSI will have thirty (30) days from the
receipt of the Phase Two Deliverables to evaluate them and specify changes or
modifications to the Specifications that PENCOM will incorporate in the design
of the Phase Three Deliverables. In the event that CCSI determines that the
Phase Two Deliverables are inadequate, CCSI may elect in writing to terminate
this Agreement as set forth in Section 12.2 of the Agreement and shall specify
in writing the grounds why such Phase Two Deliverables are inadequate, except
that PENCOM shall be limited to ten (10) days to cure any breach of the
Agreement under this section. CCSI's acceptance shall not be unreasonably
withheld and shall be based on the completeness, quality, and timeliness of the
Phase Two Deliverables.
3.3. Alpha-Test Version Acceptance. PENCOM shall deliver to CCSI two (2)
copies of the Alpha-Test Version for each Software Package module by the dates
specified in the Phase Three Amendment. CCSI shall have thirty (30) days
thereafter in which to evaluate each Alpha-Test Version and accept or reject it
in writing. In the event CCSI rejects an Alpha-Test Version, CCSI shall specify
in writing the grounds for the rejection and PENCOM shall use its best efforts
to make it Alpha-Test Version conform with the applicable Specifications set
forth in Attachment A as soon as possible. PENCOM shall continue to use its best
efforts to make the Alpha-Test Version conform to the applicable Specifications
set forth in Attachment A and acceptable to CCSI until CCSI accepts the
Alpha-Test Version or elects in writing to terminate this Agreement as set forth
in Section 12.2 of the Agreement. CCSI's acceptance of each Alpha-Test Version
shall not be unreasonably withheld.
3.4. Final Acceptance. PENCOM shall deliver to CCSI two (2) copies of the
Phase Three Deliverables by the date specified in the Phase Three Amendment.
CCSI shall have ninety (90) days thereafter in which to evaluate them and accept
or reject them in writing. In the event that CCSI rejects them, CCSI shall
specify in writing the grounds for the rejection and PENCOM shall use its best
efforts to make them conform with the Specifications as soon as possible. PENCOM
shall continue to use its best efforts to make the Phase Three Deliverables
conform to the Specifications and acceptable to CCSI until CCSI accepts the
Phase Three Deliverables or terminates this Agreement as set forth in Section
12.2 of the Agreement. CCSI's acceptance shall not be unreasonably withheld.
4. SCHEDULE AND FEES.
4.1. Schedule. Performance of the services will conform to the following
schedule:
PENCOM will commence Phase One of the Software Project no later than
March 15, 1994;
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<PAGE>
The Phase One Deliverables shall be submitted to CCSI for approval
under Section 3.1 no later than April 26, 1994;
PENCOM will commence Phase Two of the Software Project no later than
May 2, 1994;
The Phase Two Deliverables shall be submitted to CCSI for approval
under Section 3.2 no later than June 20, 1994; and
PENCOM will commence Phase Three of the Software Project no later
than June 27, 1994.
The dates set forth above are subject to adjustment based on the application of
Section 4.7 of this Agreement. The Phase One and Two Deliverables will be
completed according to the schedules provided in Attachment B to this Agreement.
4.2. Payment of Fees for Phase One of the Software Project. CCSI will pay
to PENCOM the sum of $95,000 for the Phase One Deliverables based on the
following schedule:
$47,500 upon the execution of this Agreement; and
$47,500 upon CCSI's acceptance of the Phase One Deliverables.
4.3. Payment of Fees for Phase Two of the Software Project. CCSI will pay
to PENCOM the sum of $115,000 for the Phase Two Deliverables based on the
following schedule:
$57,500 upon PENCOM's commencement of Phase Two of the Software
Project; and
$57,500 upon CCSI's acceptance of the Phase Two Deliverables.
4.4. Payment of Fees for Phase Three Deliverables. The fees for Phase
Three of the Software Project and the payment schedule for such fees will be set
by the Phase Three Amendment.
4.5. Payment of Fees for Upgrades and Special Projects. For all upgrades
and special projects not otherwise provided free of charge under this Agreement,
such upgrades and projects shall be performed at PENCOM's discounted rates as
listed in Attachment C to this Agreement.
- 5 -
<PAGE>
4.6. Payment of Fees for Expenses. CCSI shall be billed separately for all
reasonable and necessary travel, meal and lodging expenses directly associated
with PENCOM's provision of on-site development and training services to CCSI.
CCSI shall not be responsible for any expenses incurred in violation of PENCOM's
travel and entertainment policy, attached as Attachment D to this Agreement.
4.7. Phase and Payment Overlap. Upon completion of each phase of the
Software Project and upon CCSI's receipt of the Deliverables for that phase,
PENCOM is authorized to begin the next phase of the Software Project unless:
(1) CCSI has notified PENCOM to delay startup of the next phase;
or
(2) PENCOM has not received the startup payment for the next
phase.
If either (1) or (2) above occur and CCSI notifies PENCOM that there will be a
delay between phases of more than one (1) week, then PENCOM shall have the right
to reassign its employees and independent contractors on a short-term project
for up to two (2) weeks between the applicable phases, and the schedule
specified in Section 4.1 of this Agreement will be adjusted accordingly.
5. CONFIDENTIALITY AND EXCLUSIVITY.
5.1. CCSI Information. In connection with this Agreement, CCSI has
provided and shall provide PENCOM with certain information that is proprietary
and confidential to CCSI and necessary or useful for PENCOM to perform its
services.
5.2. Confidentiality. The term "Confidential Information" as used herein
shall mean any information disclosed by CCSI to PENCOM pursuant to Section 5.1
above in a written or other tangible form clearly identified as being
confidential. Oral or visual information shall not be considered as Confidential
Information unless it is designated confidential at the time of oral or visual
disclosure and reduced to a writing clearly marked as being confidential that is
sent to PENCOM by CCSI within thirty (30) days after such oral or visual
disclosure. For the purpose of this Agreement, any Deliverable shall be deemed
Confidential Information.
5.3. Treatment of Confidential Information. During this Agreement and
thereafter, PENCOM shall keep the Confidential Information in strict confidence
and shall not disclose it to any person, firm or corporation outside PENCOM, nor
use the same for any purpose other than performing the Agreement. In addition,
PENCOM agrees to safeguard the Confidential Information by restricting its
internal dissemination to only those employees within PENCOM having a need to
know the Confidential Information for purposes of this Agreement. PENCOM has
full
- 6 -
<PAGE>
responsibility to ensure that all employees who are given access to the
Confidential Information maintain the confidentiality of the Confidential
Information, whether or not such employees continue to be employees of PENCOM.
Notwithstanding the limitations of Section 5.3, PENCOM may disclose Confidential
Information to such independent contractors that PENCOM hires for the specific
purpose of working on the Software Project, provided such persons have signed
the Independent Contractor Agreement attached as Attachment E. PENCOM has full
responsibility to ensure that all independent contractors who are given access
to the Confidential Information maintain the confidentiality of the Confidential
Information, whether or not such independent contractors continue to be engaged
by PENCOM.
5.4. Exceptions to Treatment of Confidential Information. Notwithstanding
Section 5.3 above, PENCOM shall have no confidential obligation and no use
restriction hereunder with respect to any Confidential Information that:
(1) is already known to PENCOM at the time of disclosure thereof
as evidenced by written records;
(2) is or becomes publicly known through no wrongful act of PENCOM
at or subsequent to the time of disclosure thereof; or
(3) is permitted for release by prior written consent of CCSI.
5.5. Tangible Embodiments. Any and all written or tangible embodiments of
information disclosed to PENCOM by CCSI hereunder shall be and remain the
property of CCSI, and PENCOM agrees promptly to return such tangible
embodiments, including any copy thereof, to CCSI upon completion of this
Agreement.
5.6. PENCOM Information. It is understood that CCSI does not desire to
receive any confidential information from PENCOM and accordingly, with respect
to any information provided by PENCOM, including all Deliverables, CCSI shall
have no confidential obligation and no use restriction and CCSI may freely use
such information for any purpose without restriction, including taking the
information and/or Deliverables to a third party for completion or modification
of a software object technology-based system based on the information contained
in the Deliverables.
5.7. Intellectual Property. Except to the extent necessary to perform
PENCOM's obligations hereunder, no license or right, expressed or implied, is
hereby conveyed or granted to PENCOM for any invention, patent application,
patent, copyright, know how, trade secret or other intellectual property of
CCSI.
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<PAGE>
5.8. Trademarks. No license or right, expressed or implied, is hereby
conveyed or granted to PENCOM to use any trademark of CCSI in any advertising,
marketing, or distribution of the Deliverables by PENCOM, without the prior
express written consent of CCSI.
5.9. Enforcement. PENCOM understands and agrees that the obligations and
restrictions provided herein are necessary and reasonable in order to protect
the business of CCSI, and CCSI would be irreparably harmed by any breach or
threatened breach hereof. In addition to any other remedies available for breach
thereof, CCSI shall be entitled to obtain injunctive relief against a threatened
breach or continuation of any such breach, without the necessity of providing
actual damages.
6. OWNERSHIP.
6.1. Works Made for Hire. All Intellectual Property Rights embodied in the
Deliverables are hereby assigned to and shall be the property of CCSI. All
copyrightable subject matter included in the Deliverables shall be owned
exclusively by CCSI and shall be deemed works made for hire for purposes of the
U.S. Copyright Act. PENCOM also agrees to cooperate with CCSI in preparing
and/or executing any necessary documents required for the filing of applications
covering the foregoing Intellectual Property Rights.
6.2. Assignment of Ownership. If any copyrightable subject matter in the
Deliverables shall be determined not to be a work made for hire or if ownership
of all right, title, and interest of copyrights therein shall not otherwise be
deemed to vest exclusively in CCSI, PENCOM without additional compensation shall
forthwith assign to CCSI the ownership of all such subject matter together with
all rights arising from such copyright ownership, including works created by
independent contractors hired for the Software Project, and CCSI shall have the
right to register in its own name all copyrights therein. PENCOM further agrees
to deliver to CCSI assignments of any and all Intellectual Property Rights in a
form satisfactory to CCSI and its legal counsel.
6.3. Inventions. Any new or improved idea, design, concept, or other
invention made or developed solely by PENCOM, its employees, and its independent
contractors or jointly with CCSI in the course of creation of the Deliverables
shall be promptly disclosed to CCSI by PENCOM in a complete disclosure. At
CCSI's option, a complete written disclosure on any such idea, design, concept
or other invention will be provided to it by PENCOM at an agreed upon hourly or
daily rate after an estimate and approval of such expense is obtained. PENCOM
assigns to CCSI all right, title and interest in and to any such invention,
together with the right to file patent applications with respect thereto in any
country. PENCOM shall, upon the request of CCSI, execute all such other
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instruments and documents as CCSI may reasonably request in connection
therewith.
6.4. License of Pre-Existing Software. PENCOM will grant to CCSI a
royalty-free, irrevocable, worldwide right and license to use, maintain,
execute, reproduce, display, perform, modify, and sublicense all Pre-Existing
Software not already in the public domain necessary for the implementation and
use of the Software Package.
6.5. Limited License of Software Package. Based on terms and conditions to
be negotiated in the Phase Three Amendment to this Agreement (including but not
limited to the payment of royalties) and subject to the parties executing the
Phase Three Amendment and CCSI's acceptance of the Phase Three Deliverables,
CCSI will grant to PENCOM the worldwide right and license to use a
functionality, structure, sequence, or organization similar to that contained in
the Software Package in developing software for third parties where PENCOM
performs such development without reference to the Software Package.
Notwithstanding the foregoing grant, PENCOM shall not use a functionality,
structure, sequence, or organization similar to that contained in the Software
Package to perform any consulting services or develop any software for third
parties engaged in, or about to become engaged in, research and development,
production, marketing, distribution, selling, or leasing of products or services
in the fields of computers and computer peripherals. This restriction shall
commence on the Effective Date of this Agreement and shall expire (a) at the end
of Phase Two if the parties do not execute a Phase Three Amendment; (b) on the
third year anniversary of CCSI's final acceptance of the Phase Three
Deliverables; or (c) on the first anniversary of CCSI's termination of this
Agreement under Section 12.2 due to Pencom's failure to deliver conforming and
acceptable Phase Three Deliverables.
7. WARRANTIES.
7.1. Warranties and Representations of CCSI. CCSI represents and warrants
to PENCOM that it has the authority to authorize PENCOM to perform the Software
Project and develop the Deliverables.
7.2. Warranties and Representations of PENCOM. PENCOM represents and
warrants (a) that it has the right to disclose and make available to CCSI all
Pre-Existing Software; (b) that it has the right to grant all rights granted to
CCSI herein; (c) that the Deliverables and the Software Package will not
infringe any patent, copyright, trademark or trade secret or other proprietary
right of any person; (d) that it will not use any trade secrets or confidential
or proprietary information owned by any third party in developing the
Deliverables and Software Package; and that neither PENCOM nor any company or
individual developing the Deliverables and Software Package pursuant to this
Agreement is under any obligation to assign or give any work done under this
Agreement to any third party. PENCOM warrants (a) that all people working on the
Software Project will be (i) employees whose
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normal duties include the functions they will perform on the Software Project or
(ii) independent contractors who have signed the Independent Contractor
Agreement attached hereto as Attachment E, and (b) that it will perform its
obligations under this Agreement in accordance with all applicable laws.
7.3. Warranties of Performance of the Software Package. During the
Warranty Period, PENCOM warrants that the Software Package will conform to and
perform according to the Specifications, operate within the system performance
parameters (to be provided by PENCOM as a Phase Two Deliverable) and to operate
in the technical environment specified in Attachment F to this Agreement. PENCOM
will correct any nonconformities, errors or discrepancies in the Software
Package that are identified by CCSI or by PENCOM during this warranty period as
soon as possible after CCSI informs PENCOM of any breach of this warranty.
7.4. Limitation of Warranties. OTHER THAN THE WARRANTIES GIVEN IN SECTIONS
7.2 AND 7.3 OF THIS AGREEMENT, PENCOM MAKES NO OTHER WARRANTY, EXPRESS OR
IMPLIED, AND ALL OTHER WARRANTIES, INCLUDING WITHOUT LIMITATION, THE WARRANTIES
OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY
EXCLUDED. IN NO EVENT SHALL EITHER PARTY, OR ITS DIRECTORS, OFFICERS, EMPLOYEES
AND/OR CONSULTANTS BE LIABLE TO THE OTHER PARTY FOR ANY INCIDENTAL, SPECIAL, OR
CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION ANY CLAIMS FOR LOST PROFITS
OR LOST SAVINGS, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
8. RECRUITING SERVICES.
During Phase Two of the Software Project, CCSI, at its sole option, may engage
PENCOM to recruit NeXTSTEP developers for employment by CCSI beginning with the
start of Phase Three. If CCSI engages PENCOM to recruit on its behalf, PENCOM
shall use its best efforts to perform such recruiting services on the following
terms and conditions:
8.1. PENCOM's sole fee for its recruiting services shall be in the amount
equal to twenty-five percent (25%) of any hired candidate's first year salary,
exclusive of any bonuses.
8.2. PENCOM shall not solicit or recruit from CCSI.
8.3. No candidate shall be referred to CCSI until he or she has been
personally interviewed by PENCOM, thoroughly screened and determined appropriate
as a referral to CCSI. To be an appropriate referral, the candidates must meet
the requirements set by CCSI and provided to PENCOM at a later date.
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8.4. PENCOM shall not withhold candidate information which CCSI would
reasonably consider essential to its hiring decision.
8.5. Candidates shall be referred only with the candidates' express prior
consent.
8.6. Neither PENCOM nor any of its employees shall ever discriminate in
the provision of PENCOM's recruiting services on the basis of race, creed,
color, national origin, religion, sex, marital status, affectional preference,
handicap, age or any other legally proscribed criteria.
8.7. Fees will be due and payable as follows: fifty percent (50%) within
thirty (30) business days of the hired candidate's start date and fifty percent
(50%) within thirty (30) business days of the four (4) month anniversary of the
hired candidate's start date. Notwithstanding the payment schedule of this
section, no payments for recruiting services shall be due from CCSI to PENCOM
until CCSI has received a written invoice from PENCOM for such services.
8.8. Should the hired candidate leave voluntarily or be dismissed by CCSI
for any reason within four (4) months of the start date, PENCOM shall be given
thirty (30) days to refill the position at no additional cost to CCSI. Should
PENCOM be successful in providing an acceptable replacement within the thirty
(30) day period, PENCOM may retain the full fee. Should PENCOM be unsuccessful
in providing an acceptable replacement, PENCOM shall refund the fee.
8.9. Should the hired candidate leave voluntarily or be dismissed by CCSI
for any reason after four (4) months of employment but prior to completing eight
(8) months of employment, PENCOM shall be given thirty (30) days to refill the
position at no additional cost to CCSI. Should PENCOM be successful in providing
an acceptable replacement within the thirty (30) day period, PENCOM may retain
the full fee. Should PENCOM be unsuccessful in providing an acceptable
replacement, PENCOM shall refund fifty percent (50%) of the fee.
8.10. CCSI shall be under no obligation to hire candidates referred by
PENCOM, and shall be free to recruit candidates either on its own or through the
use of other recruiters.
9. NON-SOLICITATION.
9.1. Restriction. Subject to the exceptions contained in Sections 9.2 and
9.3 of this Agreement, during the term of this Agreement and for a period of six
(6) months thereafter, neither party shall solicit for employment or employ,
directly or
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indirectly, whether as an employee, independent contractor or otherwise, any
employee of the other.
9.2. Exception for Recruiting. The non-solicitation restriction shall not
apply to any employees recruited by PENCOM for employment by CCSI.
9.3. Exception for Condition of Pencom. The non-solicitation restriction
shall not apply in the event that PENCOM attempts to execute or executes an
assignment for the benefit of creditors, PENCOM becomes or is adjudicated a
bankrupt or insolvent, PENCOM admits in writing its inability to pay its debts
generally as they become due, PENCOM files a petition under any federal or state
bankruptcy, receivership, or debtor relief statute, PENCOM becomes the subject
of an involuntary proceeding intending to discharge PENCOM's debts, or PENCOM's
assets become the subject of any attachment, sequestration, or similar
proceeding.
10. STAFFING.
The parties recognize that the following PENCOM employees are essential
for to PENCOM's performance of its obligations under this Agreement: Pat Motola,
Vice President and General Manager; Chris Chauvin, Project Manager/Business
Analyst; and Lorne Wilson, Lead Architect/Systems Analyst ("Key Employees").
Subject to the short-term exception contained in Section 4.7 of the Agreement,
PENCOM agrees that, until CCSI has given its final acceptance of the Phase Three
Deliverables pursuant to Section 3.4 of the Agreement, Mr. Chauvin and Mr.
Wilson will work full time on the Software Project. The parties further agree
that, should any of the Key Employees die, become incapacitated and unable to
perform his normal duties for more than thirty (30) days, or terminates his
employment with PENCOM, CCSI, at its sole discretion, may terminate the
Agreement pursuant to Section 12.2 of the Agreement, provided that PENCOM first
shall have an opportunity to locate a replacement satisfactory to CCSI within
the thirty (30) day cure period established by Section 12.2.
11. ACCESS TO CCSI PERSONNEL AND FACILITIES.
CCSI will provide PENCOM with access to appropriate personnel to provide
the information needed by PENCOM to perform its obligations under this
Agreement. While PENCOM employees and independent contractors are on-site, CCSI
will provide offices and reasonable access to its existing computer systems,
including all hardware and software described in Attachment F to this Agreement.
12. GENERAL.
12.1. Timeliness of Performance. PENCOM understands that prompt
development of the Deliverables hereunder is required by CCSI in order to meet
its
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schedules and commitments. In the event that any anticipated or actual delays in
meeting the deadlines specified in Section 4.1. are caused by the performance or
failure to perform of any PENCOM personnel or any other cause within the
reasonable control of PENCOM, PENCOM shall provide additional temporary
personnel, as requested by CCSI and at no charge to CCSI, in order to complete
the assignment involved in a timely manner. Neither party, however, shall be
responsible for any delays that are not due to such party's fault or negligence
or that could not reasonably have been foreseen or provided against.
12.2. Termination. This Agreement shall commence on the Effective Date and
shall continue in force thereafter until terminated in accordance with any of
the sections of this Agreement, or until the date set by the Phase Three
Amendment. This Agreement shall also terminate upon the bankruptcy or insolvency
of either party. In the event of a material breach of this Agreement by either
party, the other party may cancel this Agreement by giving thirty (30) days
prior written notice thereof; provided that this Agreement shall not terminate
if the party in breach has cured the breach of which it has been notified prior
to the expiration of the thirty (30) days. Upon termination, any Deliverables
(including drafts and works in progress) then in existence and not already in
CCSI's possession shall be delivered to CCSI. The following sections of this
Agreement shall survive completion or any termination of this agreement: 5, 6.4,
6.5, 9, 12.3, and 12.4.
12.3. Indemnification. PENCOM shall indemnify CCSI and any person, or
other entity who uses the Deliverables and/or Software Package and hold CCSI and
such other entities harmless from any loss, claim, liability, costs or expenses
(including attorneys' fees) or damage arising out of this Agreement to the
extent that such loss, claim or damage is caused by the negligence or
intentional acts of PENCOM or from PENCOM's breach of any term of this
Agreement. In no event will PENCOM's liability exceed the total cumulative
license, maintenance, consulting, and any other fees paid to PENCOM by CCSI
under this Agreement or any amendments thereto as of the date such claim arose.
This indemnity survives any termination of this Agreement.
12.4. Infringement Indemnity. PENCOM shall, at its own expense, defend any
suit instituted against CCSI which is based on an allegation that (a) the
Software Package provided to CCSI hereunder infringes or violates any copyright
or patent of any third party, (b) the Software Package contains, embodies or
incorporates any trade secret or proprietary information of any third party, or
(c) the use, license or modification of the Software Package constitutes a
violation of the trade secrets or proprietary rights of such third party, and
shall indemnify, hold harmless and defend CCSI against any claim, loss, expense
or judgment, including reasonable attorney's fees, which arises from any of the
preceding allegations (a) through (c), provided that CCSI gives PENCOM prompt
notice in writing of any such allegations and permits PENCOM through PENCOM's
counsel to defend the same and gives
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PENCOM all available information, assistance and authority to enable PENCOM to
assume such defense. PENCOM shall be permitted to control the defense of any
such suit, including appeals from any judgment therein and any negotiations for
the settlement or compromise thereof, with authority to enter into a settlement
or compromise with the prior written consent of CCSI, which will not be
unreasonably withheld. PENCOM shall have the affirmative obligation to
diligently and effectively defend against any such claim. If CCSI determines
that PENCOM is not diligently and effectively defending against such a claim,
CCSI shall have the absolute right and option to intervene in any such suit and
participate or assume control of the defense of the suit but will not have any
obligation to do so. In the event that any part of the Software Package is held
to infringe or otherwise violate the rights of others and its use is enjoined,
PENCOM shall promptly, at its option and expense, (a) procure for CCSI the right
to continue providing such Software Package consistent with the terms of this
Agreement, or (b) replace or modify such Software Package so that it no longer
infringes or violates such rights, provided however, that any such replacements
or modifications shall in no way lessen the functionality of the Software
Package and it will continue to fully perform in accordance with the
Specifications.
12.5. Status of Parties. PENCOM is and shall at all times be an
independent contractor and shall not be deemed an employee or agent of CCSI.
Nothing in this Agreement shall be deemed to create a partnership or joint
venture between the parties.
12.6. Complete Agreement. This Agreement and the Attachments hereto
contain the complete agreement between the parties and shall, as of the
Effective Date hereof, supersede all other agreements, if any, between the
parties relating to the performance of the Software Project and the development
of the Deliverables. The parties stipulate that neither of them has made any
representation with respect to the subject matter of this Agreement or the
execution and delivery hereof except such representations as are specifically
set forth herein. Each of the parties hereto acknowledges that it has relied on
its own judgment in entering into this Agreement.
12.7. Modifications. No modification, amendment, supplement to or waiver
of this Agreement shall be binding upon on the parties hereto unless made in
writing and duly signed by both parties.
12.8. Waiver. A failure of either party to exercise any right provided for
herein shall not be deemed a waiver of any right under this Agreement.
12.9. Assignment. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of the respective parties.
PENCOM may not assign this Agreement in whole or in part, without the prior
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written consent of CCSI and any such attempted assignment shall be null and
void, provided that PENCOM may contract with other parties to provide services
hereunder subject to PENCOM's supervision, and provided further that PENCOM
shall be liable for having such other parties bear the same obligations and
restrictions of PENCOM contained herein and for securing CCSI's rights granted
herein.
12.10. Severability. In the event that any one or more of the provisions
of this Agreement is unenforceable, the enforceability of the remaining
provisions shall be unimpaired.
12.11. Governing Law. This Agreement shall be governed by, and interpreted
in accordance with, the substantive laws of the State of California.
12.12. Notices. Any notice which either party desires or is obligated to
give to the other party hereunder shall be in writing and delivered personally
or sent by certified mail, postage prepaid and addressed to the last known
address of the party which the notice is intended. As of the date hereof, any
notice to be given to CCSI shall be addressed to:
CCSI
2995 Red Hill Avenue
Costa Mesa, California 92626
Attention: Bruce Nolan, Director, Information Systems
CCSI
2995 Red Hill Avenue
Costa Mesa, California 92626
Attention: Frederick O'Reilly, Vice President, Operations
As of the date hereof, any notice to be given to PENCOM shall be addressed
to:
PENCOM Corporation
9050 Capital of Texas Highway
Austin, Texas 78759
Attention: Pat Motola, Vice President and General Manager
PENCOM Corporation
9050 Capital of Texas Highway
Austin, Texas 78759
Attention: Chris Chauvin, Project Manager/Business Analyst
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IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed
in duplicate by its duly authorized representative, to be effective as of the
date(s) written below.
CCSI PENCOM
Canon Computer Systems, Inc. Pencom Systems Incorporated
By: __________________________________ By: _______________________________
Frederick O'Reilly Wade Saadi
Vice President, Operations President
Date: ________________________________ Date: _____________________________
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Attachment A
I. Specifications
A. The code for the Software Package shall be written in the NeXTSTEP
programming language. The Software Package will have an interface
that runs in an Oracle environment.
B. [Additional details to be provided by Phase Three Amendment]
II. Deliverables
A. Phase One
1. Business Model: This document will identify the major business
objects in the problem domain, their attributes, class hierarchy,
and relationships. Pencom will use the Booch Object-Oriented
Analysis Methodology to document these specifications and will
include Booch class instance, process, and timing diagrams in
sufficient detail to clearly convey the system requirements.
2. Requirements Definition: This document will summarize the findings
of the data gathering effort, prioritizing the major findings by
level of perceived business impact. This document will be focused on
defining the areas and problems to be addressed by the new system,
the basic form that the functionality will take, and the return to
be expected from the improvements.
3. Data Dictionary: This document will define the data model elements
used by the business. Included will be a listing of each data
element, its type and size, and a description of the role and usage
of the data element.
4. Implementation plan, including scope of development
5. Staffing Plan for CCSI
6. Critical Component Prototype: A business-critical component of the
target system (such as the order processing module) will be selected
to be prototyped within a NeXTSTEP workstation environment. The
Prototype will be used to propose user-interface techniques, to test
and verify critical portions of the business model, and to
demonstrate a
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limited subset of end-user functionality. It is expected that the
Prototype will use a subset of real (but non-live) data.
B. Phase Two
1. System Model Definition: This document will expand on the set of
objects defined in the Business Model Definition, mapping business
objects into system objects. All critical system objects will be
identified, including their attributes, class hierarchy, and
relationships. These will include class, instance, and process and
timing diagrams in sufficient detail to move directly into detailed
design and implementation.
2. System Architecture Document: This document will specify the
underlying software and hardware architecture of the system,
including hardware requirements, third-party software requirements,
and the client/server distribution of functionality within the
system. Additionally, implications of wide-area networks on the
overall system design will be discussed. Key subsystems will be
identified and their interactions will be defined.
3. Database Schema Design: This document will define the underlying
Oracle database schema to be used by the new system. It will also
include the specification of the appropriate DBModel(s) required by
NEXTSTEP. If appropriate, this document will also include
adjustments and modifications to the schema to support third-party
tools such as AccessKit.
4. Functional Specification: This document will define the
functionality required to meet the specifications set forth in the
Requirements Definition. Additionally, this document will define the
end-user functionality of the new system, breaking it up into
functional subsystems. The user-interface and the supported
operations for each subsystem will be detailed as will the
interactions between subsystems.
5. Critical Component Prototype: The Prototype defined in Phase I will
be refined, increasing its functionality and validating critical
portions of the system model. The Prototype will serve as a
discussion vehicle to obtain additional user feedback and will also
provide a foundation to obtain baseline performance parameters.
6. System Performance Parameters:
C. Phase Three
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(to be provided by Phase Three Amendment)
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Attachment B
Schedule for Completion of Phase One and Two Deliverables
Phase I Schedule and Costs
Phase II Schedule and Costs
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Attachment C
PENCOM RATES
PENCOM STANDARD RATES
Skill Level hourly day week month 3 mo+
Engineer [*] [*] [*] [*] [*]
Senior Eng/Proj Mgr. [*] [*] [*] [*] [*]
Exec. (Dir., VP, higher) [*] [*] [*] [*] [*]
PENCOM DISCOUNTED RATES
Skill Level hourly day week month 3 mo+
Engineer [*] [*] [*] [*] [*]
Senior Eng/Proj Mgr. [*] [*] [*] [*] [*]
Exec. (Dir., VP, higher) [*] [*] [*] [*] [*]
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Attachment D
PENCOM Travel and Expense Policy
If several employees are traveling together, joint room charges or other
expenses not covered by room charges (for example, meals, long distance calls)
should be submitted on only one expense report (to be determined by employees).
EXTENDED TRAVEL COMPENSATION
Extended travel is defined as any assignment over 3 weeks (15 working
days) in duration. Compensation will be paid on a salaried basis and you will
not be eligible for overtime pay. (Pencom employees are classified as Exempt
employees which meet the federal wage and hour guidelines for either the
executive, professional or administrative classification.) The intent of this
policy is to defray extended travel expenses.
Additional compensation and benefits are listed below:
$25.00 ($35.00 in major cities) meal allowance
o Begins on the first day of assignment
$35.00 extended travel allowance
o Begins on the 16th working day
o Must be submitted through Travel Expense Account Forms (TEA) forms
One trip home every 15 working days
o Trips must be scheduled 21 days in advance in order to get the most
competitive fare
o Arrangements must be made through Pencom's travel agent
o Reimbursable car and motel expenses for travel home cannot exceed
equivalent air fare
o When travel home is authorized (such as, one trip every 15 working
days), no additional compensation or allowances are available while
on home leave
When you travel or entertain for Pencom, you should not incur a personal
financial loss nor should you spend extravagantly. Thus, be careful to keep
accurate records, to claim all you spend (provide original receipts), and to
follow the guidelines below. Check with your manager for additional guidelines
concerning travel that is billable to a client.
TRAVEL APPROVAL
Management approval is required prior to making travel arrangements. A
"Travel Request" form should be completed and turned into the Accounting
Department. An attempt will always be made to honor personal travel preferences,
however, if your reference results in any additional cost, you will be expected
to assume this addition expense. It is in everyone's best interest to travel in
the least costly way possible with consideration given to time and safety.
Travel arrangements are made through Pencom's travel agent -- Cindy Hansen at
Century Travel (512) 327-8760 or (800) 950-8314. The agent may request your
credit card number in order to secure guaranteed late arrival.
The Pencom travel agent provides travel services and tickets on a
corporate contract. If you choose not to use the Pencom travel agent, you will
be expected to assume any financial risk for cancelling tickets or reservations.
CREDIT CARD
All Pencom employees must have a major credit card, as well as a long
distance telephone calling card. If you are a frequent traveler, please consult
your manager about acquiring the American Express Corporate Card.
LONG DISTANCE CALLS
While at a hotel, use your telephone calling card for all long distance
calls, as hotels add substantial charges to calls put through their
switchboards.
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When you receive your phone bill, photocopy the itemized bill and
highlight those calls made while traveling for Pencom. Add the applicable tax to
the total, and enter it in your expense report. You are allowed to make one
phone call home a day.
RENTAL CAR
Pencom has enrolled in the American Express Car Rental Loss & Damage
Coverage program which provides primary coverage for Corporate Cardmembers. Each
time you rent a car from a rental agency using the American Express Corporate
Card, simply decline the Collision Damage Waiver offered by the agency and you
are automatically covered. Pencom will receive a $4 charge for each auto rental.
This fee will not appear on your monthly statement.
CAR EXPENSE
If you use your own car for business travel, the expenses incurred (for
gas or mileage) must not exceed those expenses incurred for other forms of
transportation. Pencom will reimburse you for actual tolls and estimated gas use
unless you normally drive an average of 50+ miles per week for Pencom business
(not including commuting to and from home). In that case, Pencom will pay $.24
per mile.
ACCOMMODATIONS
When Pencom is paying for your accommodations, Pencom uses double
occupancy rates at moderately priced hotels (for example, Holiday Inn, Ramada
Inn, and so on) whenever possible. Any upgrades will be at your personal
expense. If, for example, you wish to have a single room, you must pay half the
cost of a single occupancy room. It is expected that the minimum number and
configuration of rooms will be utilized when more than one (of the same sex)
employee travels. In-room movies and other extras may not be charged to Pencom.
Pencom can arrange direct billing with most hotels with advance notice.
MEAL ALLOWANCE
You will be compensated for your meals through a meal allowance of $25.00
per day ($35.00 per day in major cities). You do not need to itemize or provide
receipts for personal meals.
This amount assumes the following:
Breakfast $ 5.00 $ 7.00*
Lunch $ 8.00 $11.00*
Dinner $12.00 $17.00*
** Applicable only when traveling to major cities such as Detroit, Boston,
Chicago, New York, Los Angeles, San Francisco, Miami, Houston, Dallas, Seattle,
Atlanta, and Washington DC.
Subtract any meals that are paid for by someone else. If you entertain a
customer at Pencom's expense, charge the meal on your credit card. On your
travel expense report, subtract the above per meal amount from your daily meal
allowance and substitute the total cost of the meal charged on your credit card
on your daily meal expense.
EXPENSE REPORTS
An expense report must be completed within one week after each business
trip or project for which expenses have incurred. If your trip included air
travel, the airline ticket must accompany the expense report. All expense forms
must be approved by your manager and director and then submitted to the
Accounting Department for reimbursement. Supplemental expense reports can be
submitted after the primary expense report has been approved to account for
other travel expenses (for example, phone bills). Expense reports are found
on-line under Pencom/MiscInfo/Forms/ExpenseReport.imp or in hardcopy in the
filing cabinet behind the receptionist desk.
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Attachment E
Independent Contractor Agreement
This Agreement ("Agreement") having an Effective Date upon signature by
both the parties hereto, is made between Pencom Systems Incorporated, a New York
corporation, with offices at 150 Broadway, New York, New York 10038 (hereinafter
called "PENCOM") and ____________, an individual residing at ___________________
___________________________ ("Contractor").
WHEREAS, PENCOM has been hired by Canon Computer Systems, Inc., a
California corporation, with offices at 2995 Red Hill Avenue, Costa Mesa,
California 92626 ( "CCSI") to development a software system based on object
oriented technology, including without limitation, object and source code in the
NeXTSTEP programming language, documentation, and reference and user's manuals;
WHEREAS, PENCOM desires to retain Contractor's services for the Software
Project; and
WHEREAS, CONTRACTOR desires to perform such services;
NOW, THEREFORE, in consideration of the compensation to be paid by PENCOM
to CONTRACTOR, CONTRACTOR agrees to the following terms and conditions:
1. Confidentiality and Exclusivity.
1.1. CCSI Information. In connection with this Agreement, CCSI and PENCOM
shall provide CONTRACTOR with certain information that is proprietary and
confidential to CCSI and necessary or useful for PENCOM to perform its services.
1.2. Confidentiality. The term "Confidential Information" as used herein
shall mean any information disclosed by CCSI or PENCOM on behalf of CCSI to
CONTRACTOR pursuant to Section 1.1 above in a written or other tangible form
clearly identified as being confidential. Oral or visual information shall not
be considered as Confidential Information unless it is designated confidential
at the time of oral or visual disclosure and reduced to a writing clearly marked
as being confidential that is sent to CONTRACTOR by CCSI or PENCOM within thirty
(30) days after such oral or visual disclosure. For the purpose of this
Agreement, any Deliverable as identified in the attached exhibit, as that
exhibit may be amended from time to time, shall be deemed Confidential
Information.
1.3. Treatment of Confidential Information. During this Agreement and
thereafter, CONTRACTOR shall keep the Confidential Information in strict
confidence and shall not disclose it to any person, firm or corporation outside
PENCOM except for
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other independent contractors working on the CCSI project, nor use the
Confidential Information for any purpose other than performing the Agreement.
1.4. Exceptions to Treatment of Confidential Information. Notwithstanding
Section 1.3 above, CONTRACTOR shall have no confidential obligation and no use
restriction hereunder with respect to any Confidential Information that:
(1) is already known to CONTRACTOR at the time of disclosure
thereof as evidenced by written records;
(2) is or becomes publicly known through no wrongful act of
CONTRACTOR at or subsequent to the time of disclosure thereof;
or
(3) is permitted for release by prior written consent of CCSI.
1.5. Tangible Embodiments. Any and all written or tangible embodiments of
information disclosed to CONTRACTOR by PENCOM or CCSI hereunder shall be and
remain the property of CCSI, and CONTRACTOR agrees promptly to return such
tangible embodiments, including any copy thereof, to PENCOM upon completion of
this Agreement.
2. Ownership of Intellectual Property Rights.
2.1. Definition of Intellectual Property Rights. For purposes of this
Agreement, Intellectual Property Rights shall be defined as all inventions,
trade secrets, know-how, developments, improvements, results, data, designs,
computer programs/software and other information in any form, patentable or
unpatentable, patented or unpatented, copyrighted or uncopyrighted,
copyrightable or not, which are conceived, created, written, developed, reduced
to practice, acquired, owned or controlled by CONTRACTOR pursuant to this
Agreement.
2.2. Works Made for Hire. All Intellectual Property Rights embodied in the
works created by CONTRACTOR in its engagement by PENCOM are hereby assigned to
and shall be the property of PENCOM. All copyrightable subject matter included
in the works shall be owned exclusively by PENCOM and shall be deemed works made
for hire for purposes of the U.S. Copyright Act. CONTRACTOR also agrees to
cooperate with PENCOM in preparing and/or executing any necessary documents
required for the filing of applications covering the foregoing Intellectual
Property Rights.
2.3. Assignment of Ownership. If any copyrightable subject matter in the
works created by CONTRACTOR in its engagement by PENCOM shall be determined not
to be a work made for hire or if ownership of all right, title, and interest of
copyrights therein shall not otherwise be deemed to vest exclusively in PENCOM,
CONTRACTOR without additional compensation shall forthwith assign to PENCOM the
ownership of all such
E-2
<PAGE>
subject matter together with all rights arising from such copyright ownership.
CONTRACTOR further agrees to deliver to PENCOM assignments of any and all
Intellectual Property Rights in a form satisfactory to PENCOM and its legal
counsel.
3.Third-Party Beneficiary. CONTRACTOR acknowledges that the Confidential
Information is that of CCSI and that CCSI is a third-party beneficiary of this
Agreement with all the rights of PENCOM to enforce the obligation of this
Agreement against CONTRACTOR.
__________________________________
Name:
Date:
E-3
<PAGE>
Exhibit A to Attachment E, Independent Contractor Agreement
List of Deliverables
I. Phase One
II. Business Model
III. Requirements definition
IV. Data Dictionary
V. Implementation plan, including scope of development
VI. Staffing plan for CCSI
VII. Critical component prototype
VIII. Phase Two
IX. System Model
X. System Architecture documentation
XI. Data base schema
XII. Functional specification
XIII Critical component prototype (refined)
XIV. System performance parameters
XV. Phase Three
[to be provided by amendment]
E-4
<PAGE>
Attachment F
Technical Environment
HARDWARE:
Servers:
PYRAMID MISERVER 4ES - DC/OSX Operating System 1.1-93c0440.33
X-Window Server, Motif, Xview, Visual System Manager, OpenNet TCP/IP
OpenNet NFS, Dual Ethernet Option NeXTstation Turbo - 16 MB RAM 240 MB-
NeXTSTEP 3.2
Canon Innova 486 DX266 36MB RAM 1.0 Gig - Novell NetWare 3.11 250 User
Canon Innova 486 DX266 36MB RAM 2.5 Gig - Novell NetWare 3.11 50 User
Canon Innova 486 DX266 10MB RAM 500MB - Novell NetWare 3.11 10 User
Canon Innova 486 DX266 36MB RAM 1.0 Gig - Novell NetWare 3.11 50 User
Canon Innova 486 DX266 36MB RAM 1.0 Gig - Novell NetWare 3.12 50 User
Discview CD-ROM Server (10BT)
Castelle FaxPress Server 100 Line DID Trunk Routing
Castelle LANPress Server 16 Print Servers
Network Hardware:
CCSI:Costa Mesa
Cisco 4000 Router - TCP/IP, AppleTalk, IP, IPX, SDLC Protocols
NRC Multi-Gate Hub-2 (48 Ports)
NRC Multi-Gate Hub-1 (192 Ports)
Larse Access-T CSU/DSU T-1 Devices
IBM 3174-11R 32 Ports Mainframe Terminal Controller Unit
IBM 3299-032 32 Port Extender
IBM 3174-51R 8 Port Mainframe Terminal Controller Unit
IBM 3299-2 8 Port Extender
CCSI:Memphis
Cisco 4000 Router TCP/IP, AppleTalk, IP, IPX, SDLC Protocols
NRC MultiGate Hub-2 (24 Ports)
NRC MultiGate Hub-1 (48 Ports)
IBM 3174-51R 8 Port Mainframe Terminal Controller Unit
IBM 3299-2 8 Port Extender
CCSI:ATO Portland
Cisco 4000 Router TCP/IP, AppleTalk, IP, IPX, SDLC Protocols
NRC MultiGate Hub-2 (24 Ports)
IBM3174-51R 8 Port Mainframe Terminal Controller Unit
Client Hardware:
Canon Innova 486 SX33 VL BUS 4MB RAM 170MB HD
Canon Innova 486 DX66 ISA BUS 4MB RAM 240 MB HD
Canon Innova 486 DX66 VLBUS 4MB RAM 240 MB HD
NeXT Station 16MB RAM 200MB HD
NeXT 400dpi Laser Printer
F-1
<PAGE>
NeXT Color Printer
Macintosh IIsi
Canon LBP4 Plus Laser Printer
Canon LBP 8SX Laser Printer
Canon LBP 860 Laser Printer
Canon BJ-200 Bubblejet Printer
Canon BJ-600 Bubblejet Printer
SOFTWARE:
Operating Systems:
DC/OSX Operating System
Novell NetWare 3.11(250, 50, 50, 10 User Licenses)
NeXTSTEP Operating System versions (3.0J, 3.2)
DOS 6.0
Microsoft Windows 3.1
Connectivity Software:
FTP TCP/IP Software
Novell Lan Workshop for DOS
SQL*Net 2.0
TCP Adapter 2.0
Palindrome Network Archivist 3.0
Local Path (Mac)
Database Software:
Oracle 7 Server
Oracle Forms 4.0 Windows
Oracle Reports 2.0 Windows
Oracle DataBrowser 1.0 Windows
Q&A Software
Microsoft Access
CD-ROM Software:
Support on-site
Microsoft Tech Net
F-2
<PAGE>
PHASE THREE AMENDMENT TO
SOFTWARE DEVELOPMENT AGREEMENT
The March 9, 1994 Software Development Agreement ("Agreement") between
Canon Computer Systems, Inc., a California corporation, with offices at 2995 Red
Hill Avenue, Costa Mesa, California 92626 (hereinafter called "CCSI") and Pencom
Systems Incorporated, a New York corporation, with offices at 150 Broadway, New
York, New York 10038 (hereinafter called "PENCOM") is amended as set forth
below. Unless specified below, all definitions and terms from the Agreement
govern this Phase Three Amendment ("Amendment").
1. PHASE THREE DELIVERABLES.
PENCOM shall deliver to CCSI the Phase Three Deliverables listed in
Attachment 1 to this Amendment, as that attachment may be amended from time to
time.
2. STAFFING, SCHEDULE, AND FEES.
2.1. Staffing. The Phase Three Deliverables shall be developed by the CCSI
and PENCOM employees identified in Attachment 1 to this Amendment. Irrespective
of the initial assignment of responsibility for particular objects to be
developed as individual Phase Three Deliverables, PENCOM shall bear the ultimate
responsibility for such Deliverables as set forth in the Agreement.
2.2. Schedule. The development services shall be performed and the Phase
Three Deliverables provided to CCSI in accordance with the schedules set forth
in Attachments 1 and 2 to this Amendment.
2.3. Fees. The fees for Phase Three of the Software Project are the PENCOM
Discounted Rates for a greater than three month basis as set forth in Attachment
C to the Agreement. All fees and expenses shall be billed on a monthly basis.
3. SUPPORT, TRAINING AND MAINTENANCE SERVICES.
3.1. Initial Support, Training, and Maintenance Services. For a period of
a minimum of three (3) months following CCSI's final acceptance of the Phase
Three Deliverables, PENCOM shall provide a senior software engineer on site at
CCSI's offices in Costa Mesa, California ("on-site"), an on-site software
engineer, and a software engineer at a location to be determined by CCSI, all of
whom must be approved by CCSI and must have been members of the PENCOM team
working on Phase Three of the Software Project. These engineers shall work on
the Software Project on a full-time basis correcting reproducible
nonconformities, errors, and discrepancies to the Software Package ("Defects");
coordinating Defect corrections with PENCOM in Austin, Texas;
<PAGE>
performing additional development and enhancement of the Software Project; and
training CCSI employees as required. Fees for these services shall be at
PENCOM's discounted rates as listed in Attachment C to the Agreement. The length
of any initial support, training, and maintenance services to be provided beyond
three (3) months shall be determined by CCSI, provided that CCSI shall give at
least two (2) weeks' written notice of termination to PENCOM.
3.2. Subsequent Support, Training, and Maintenance Services. For a period
beginning with the termination of the period described in Section 3.1 above and
ending up to one (1) year following CCSI's final acceptance of the Phase Three
Deliverables, PENCOM shall provide a senior software engineer and a software
engineer, both of whom must be approved by CCSI and must have been members of
the PENCOM team working on Phase Three of the Software Project. These engineers
shall work on the Software Project on a full-time basis correcting Defects in
the Software Package and performing additional development and enhancement of
the Software Project. Fees for these services shall be at PENCOM's discounted
rates as listed in Attachment C to the Agreement. The length of the subsequent
support, training, and maintenance services shall be determined by CCSI,
provided that CCSI shall give at least sixty (60) days' written notice of
termination to PENCOM.
3.3. PENCOM Response to Errors. During the time periods defined in
Sections 3.1 and 3.2 of this Amendment, PENCOM shall respond to a CCSI request
to correct to any Defects in the Software Package by assigning an engineer to
correct the Defect and by communicating that assignment to CCSI within the time
frame specified in Attachment 3 to this Amendment. Response times to Defects are
based on normal business hours of Monday through Friday 7:30 a.m. to 5:00 p.m.
Pacific Standard Time. Responsibility for correcting Defects in the Software
Package shall first be assigned to the PENCOM engineers working full-time on the
Software Package. If necessary to meet the response times stated in Attachment 3
to this Amendment, PENCOM shall assign additional engineers to correct Defects
at no additional charge to CCSI. If the Defect constitutes a Severity Level One
or Two Problem (as those terms are defined in Section One of Attachment I to
this Amendment), then the PENCOM engineer initially assigned to correct the
Defect shall not be reassigned to another project until the Defect is corrected.
If PENCOM assigns an engineer not already working full-time on the Software
Package to correct a Defect and the Defect cannot be reproduced by PENCOM, then
CCSI shall reimburse PENCOM at PENCOM's discounted rates as listed in Attachment
C to the Agreement for that engineer's reasonable time spent investigating the
Defect.
3.4. Additional Support, Training, and Maintenance Services. Additional
support, training and maintenance services requested by CCSI following the
termination of the period described in Section 3.2 of this Amendment shall be
provided upon the mutual agreement of the parties at PENCOM's discounted rates
as listed in Attachment C to the Agreement.
- 2 -
<PAGE>
4. RESTRICTION.
4.1. Restriction. PENCOM shall not use a functionality, structure,
sequence, or organization similar to that contained in the Software Package to
perform any consulting services or develop any software for third parties
engaged in, or about to become engaged in, research and development, production,
marketing, distribution, selling, or leasing of products or services in the
fields of computers and computer peripherals (the "Restriction"). This
Restriction shall commence on the Effective Date of this Agreement and shall
expire (a) on the third year anniversary of CCSI's final acceptance of the Phase
Three Deliverables; or (b) on the first anniversary of CCSI's termination of the
Agreement under Section 12.2 due to Pencom's failure to deliver conforming and
acceptable Phase Three Deliverables.
4.2. Exception to Restriction. PENCOM may request CCSI to waive the
Restriction and CCSI will not unreasonably withhold its approval of such request
provided that the following conditions are met: (a) Pencom submits its request
in writing to CCSI; (b) the proposed engagement does not utilize the NeXTSTEP
programming language; (c) no Key Employees (as defined in Section 10 of the
Agreement) are involved; and (d) no licensable CCSI material is used in the
engagement. CCSI shall respond to a written PENCOM request within fifteen (15)
days of its receipt of such request, or its failure to respond in that time
period shall constitute approval of the request providing that the four
conditions described above are met.
5. TERM.
The Agreement, as modified by this Amendment, shall continue in force
until terminated in accordance with any of the sections of the Agreement, or
until ninety (90) days after CCSI's final acceptance of the Phase Three
Deliverables. The following sections of the Agreement and the Amendment shall
survive completion or any termination of the Agreement: Sections 2.4, 5, 6.4,
6.5, 7, 9, 12.3, and l2.4 of the Agreement, and Sections 3 and 4 of the
Amendment.
- 3 -
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed in duplicate by its duly authorized representative, to be effective as
of the later date written below.
CCSI PENCOM
Canon Computer Systems, Inc. Pencom Systems Incorporated
By: _______________________________ By: _______________________________
Frederick O'Reilly Wade Saadi
Vice President, Operations CEO
Date: _____________________________ Date: _____________________________
- 4 -
<PAGE>
Attachment 1 to Phase Three Amendment
I. Severity Level Definitions and Examples
A. Severity Level One: Critical - system not usable. The Software
Package can not be used at all by the majority of users or by users
who must perform critical business functions. Examples of this might
include, the Software Package will not boot, the database cannot be
accessed, major portions of data are corrupted, or the Software
Package crashes and cannot be worked around.
B. Severity Level Two: Important - a major system function is not
working and cannot be worked around. Examples might include the
inability to change item prices, the inability to print a particular
report, or isolated data integrity problems.
C. Severity Level Three: Minor - the Software Package does not conform
to the Specifications. The Defect is minor or can be worked around
and does not significantly interfere with the ability to perform
system integration testing. Examples might be that an informational
message is incorrect, a report does not show all specified fields,
or the validation check for a field entry is not correct.
D. Severity Level Four: Documentation - the documentation is in error
or there is a minor cosmetic problem. Examples of this include
errors in the documentation, misspellings in the documentation or
screens, or minor alignment of fields.
E. Severity Levels for Performance Problems: Severity levels for
problems associated with performance shall be determined by the
impact on the usability of the Software Package and the difference
between the specified performance and the observed performance. For
example, if a performance problem is so severe that "the Software
Package cannot be used at all by the majority of users or by users
who must perform critical business functions", then it would be a
Severity Level One problem. On the other hand, a function which
responds in 3.5 seconds when the specification states a 3 second
response time would typically be a Severity Level Three problem.
Problems entered for performance which is within the applicable
specification will be closed as an enhancement request and will
require a DCR to change the specification.
F. Assignment and Review of Severity Levels: Severity levels are
assigned by the Pencom SQA team. These problem reports and severity
levels are reviewed by the development team and approved. The
problem reports
1 - 1
<PAGE>
- --------------------------------------------------------------------------------
Canon Object 21
Project Organization - DRAFT
- --------------------------------------------------------------------------------
--------------------
CNN Project Director --------------
Bruce Nolan User Committee
-------------------- --------------
------------ ----------
Pencom Exec. SHL Exec.
Pat Motola Greg Scott
------------ ----------
----------------- ---------------- -------------- --------------
Object 21 Manager Testing/Impl Mgr Cambar Mgr PeopleSoft Mgr
Mick Korelc Julia Moore Tony McFarland Elaine Kist
----------------- ---------------- -------------- --------------
- -------------- ------------- ----------- ---------------
O21 Architect Testing Teams Cambar Team PeopleSoft Team
Lorne Wilson (SHL)
- -------------- ------------- ----------- ---------------
- -------------- ------------- ------------- Cambar PeopleSoft
O21 Appl. Mgr. O21 Agent Mgr Impl. Teams Hunter Group
Chris Chauvin TBD (SHL) (SHL, CCSI)
- -------------- ------------- -------------
- -------------- -----------
Appl. Teams Agent Teams
(PENCOM) (SHL, CCSI)
- -------------- -----------
-----------
Report Team 600-800 person days
(SHL) 20 hrs per report
-----------
<PAGE>
Schedule A to Attachment 1 to Phase Three Amendment
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Development Lifecycle
--------------------------------------------------------------
Design Implementation
--------------------------------------------------------------
Design
Assigned Design Implementation Implementation
To Completed Assigned to Completed
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Test A/R Test Objects mike Mike Heath 5-Oct-94
--------------------------------------------------------------------------------------------------------------------
BaseModel jmorgan 21-Oct-94 Justin Morgan 25-Oct-94
---------------------------------------------------------------------------------------------------
Customer jmorgan 28-Oct-94 Justin Morgan 27-Oct-94
---------------------------------------------------------------------------------------------------
Item craigh 28-Oct-94 Craig Halley 30-Oct-94
---------------------------------------------------------------------------------------------------
ItemGroup craigh 28-Oct-94 Craig Halley 28-Oct-94
---------------------------------------------------------------------------------------------------
ItemClass craigh 28-Oct-94 Craig Halley 29-Oct-94
---------------------------------------------------------------------------------------------------
MiniOrder gordo 28-Oct-94 Gordon Pitt 30-Oct-94
---------------------------------------------------------------------------------------------------
CustomerMiniOrder gordo 28-Oct-94 Gordon Pitt 15-Nov-94
---------------------------------------------------------------------------------------------------
Contact jmorgan 28-Oct-94 Justin Morgan 26-Oct-94
---------------------------------------------------------------------------------------------------
CustomerContact jmorgan 28-Oct-94 Justin Morgan 26-Oct-94
---------------------------------------------------------------------------------------------------
Address jmorgan 28-Oct-94 Justin Morgan 26-Oct-94
---------------------------------------------------------------------------------------------------
CustomerAddress jmorgan 28-Oct-94 Justin Morgan 27-Oct-94
---------------------------------------------------------------------------------------------------
CustomerBillAddress jmorgan 28-Oct-94 Justin Morgan 27-Oct-94
---------------------------------------------------------------------------------------------------
CustomerShipToAddress jmorgan 28-Oct-94 Justin Morgan 27-Oct-94
---------------------------------------------------------------------------------------------------
CustomerLegalAddress jmorgan 28-Oct-94 Justin Morgan 28-Oct-94
---------------------------------------------------------------------------------------------------
CustomerAlias jmorgan 21-Oct-94 Justin Morgan 28-Oct-94
---------------------------------------------------------------------------------------------------
Model Contract jmorgan 21-Oct-94 Justin Morgan 28-Oct-94
---------------------------------------------------------------------------------------------------
CustomerContract jmorgan 21-Oct-94 Justin Morgan 28-Oct-94
---------------------------------------------------------------------------------------------------
CreditRules jmorgan 15-Nov-94 Justin Morgan 7-Nov-94
---------------------------------------------------------------------------------------------------
E FlooringCompany jmorgan 21-Oct-94 Justin Morgan 7-Nov-94
v ---------------------------------------------------------------------------------------------------
e CCSIRegion jmorgan 21-Oct-94 Justin Morgan 7-Nov-94
r ---------------------------------------------------------------------------------------------------
y PaymentTerms jmorgan 21-Oct-94 Justin Morgan 7-Nov-94
t ---------------------------------------------------------------------------------------------------
h Reference jmorgan 28-Oct-94 Justin Morgan 8-Nov-94
i ---------------------------------------------------------------------------------------------------
n Customer BankReference jmorgan 28-Oct-94 Justin Morgan 8-Nov-94
g Management ---------------------------------------------------------------------------------------------------
CustomerItemMapping jmorgan 21-Oct-94 Justin Morgan 9-Nov-94
---------------------------------------------------------------------------------------------------
DunBradstreetInfo jmorgan 21-Oct-94 Justin Morgan 9-Nov-94
---------------------------------------------------------------------------------------------------
TradeReference jmorgan 28-Oct-94 Justin Morgan 9-Nov-94
---------------------------------------------------------------------------------------------------
File ricardo 28-Oct-94 Ricardo Parada 18-Nov-94
---------------------------------------------------------------------------------------------------
Checkpoint craigh 21-Oct-94 Craig Halley 7-Nov-94
---------------------------------------------------------------------------------------------------
Credentials craigh 21-Oct-94 Craig Halley 7-Nov-94
---------------------------------------------------------------------------------------------------
Permission craigh 21-Oct-94 Craig Halley 8-Nov-94
---------------------------------------------------------------------------------------------------
User craigh 21-Oct-94 Craig Halley 8-Nov-94
--------------------------------------------------------------------------------------------------------------------
ObjectWell ricardo 21-Oct-94 Ricardo Parada 27-Oct-94
---------------------------------------------------------------------------------------------------
DraggableImageView ricardo 21-Oct-94 Ricardo Parada 29-Oct-94
---------------------------------------------------------------------------------------------------
DraggableImageViewAssociation ricardo 21-Oct-94 Ricardo Parada 29-Oct-94
---------------------------------------------------------------------------------------------------
O21OpenPanel gordo 28-Oct-94 Craig Halley 19-Nov-94
---------------------------------------------------------------------------------------------------
ShellView ricardo 21-Oct-94 Ricardo Parada 15-Nov-94
---------------------------------------------------------------------------------------------------
IconPath ricardo 21-Oct-94 Ricardo Parada 19-Nov-94
---------------------------------------------------------------------------------------------------
IconCell ricardo 21-Oct-94 Ricardo Parada 9-Nov-94
---------------------------------------------------------------------------------------------------
View HierarchyManager ricardo 21-Oct-94 Ricardo Parada 19-Nov-94
---------------------------------------------------------------------------------------------------
HierarchyManagerAssociation ricardo 21-Oct-94 Ricardo Parada 22-Nov-94
---------------------------------------------------------------------------------------------------
RepositoryView ricardo 21-Oct-94 Ricardo Parada 25-Nov-94
---------------------------------------------------------------------------------------------------
AutoFinder jmorgan 28-Oct-94 Justin Morgan 11-Nov-94
---------------------------------------------------------------------------------------------------
NXTableVector(EOAssociation) jmorgan 28-Oct-94 Justin Morgan 12-Nov-94
---------------------------------------------------------------------------------------------------
AutoSortingEOColumnAssociation jmorgan 28-Oct-94 Justin Morgan 17-Nov-94
---------------------------------------------------------------------------------------------------
OTGraphEOAssociation jmorgan 28-Oct-94 Justin Morgan 18-Nov-94
---------------------------------------------------------------------------------------------------
DataSet ricardo 21-Oct-94 Justin Morgan 19-Nov-94
---------------------------------------------------------------------------------------------------
Inspector ricardo 21-Oct-94 Justin Morgan 27-Nov-94
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Development Lifecycle
----------------------------------
Testing
----------------------------------
Object Application
----------------------------------
Testing Complete Testing Complete
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Test A/RTestObjects 19-Oct-94 10-Jan-95
----------------------------------------------------------------------------------------
BaseModel 27-Oct-94 10-Jan-95
-----------------------------------------------------------------------
Customer 30-Oct-94 10-Jan-95
-----------------------------------------------------------------------
Item 5-Nov-94 10-Jan-95
-----------------------------------------------------------------------
ItemGroup 31-Oct-94 10-Jan-95
-----------------------------------------------------------------------
ItemClass 1-Nov-94 10-Jan-95
-----------------------------------------------------------------------
MinOrder 5-Nov-94 10-Jan-95
-----------------------------------------------------------------------
CustomerMinOrder 4-Dec-94 10-Jan-95
-----------------------------------------------------------------------
Contact 28-Oct-94 10-Jan-95
-----------------------------------------------------------------------
CustomerContact 28-Oct-94 10-Jan-95
-----------------------------------------------------------------------
Address 29-Oct-94 10-Jan-95
-----------------------------------------------------------------------
CustomerAddress 29-Oct-94 10-Jan-95
-----------------------------------------------------------------------
CustomerBillAddress 29-Oct-94 10-Jan-95
-----------------------------------------------------------------------
CustomerShipToAddress 29-Oct-94 10-Jan-95
-----------------------------------------------------------------------
CustomerLegalAddress 30-Oct-94 10-Jan-95
-----------------------------------------------------------------------
CustomerAlias 30-Oct-94 10-Jan-95
-----------------------------------------------------------------------
Model Contract 30-Oct-94 10-Jan-95
-----------------------------------------------------------------------
CustomerContract 30-Oct-94 10-Jan-95
-----------------------------------------------------------------------
CreditRules 9-Nov-94 10-Jan-95
-----------------------------------------------------------------------
E FlooringCompany 9-Nov-94 10-Jan-95
v -----------------------------------------------------------------------
e CCSIRegion 9-Nov-94 10-Jan-95
r -----------------------------------------------------------------------
y PaymentTerms 9-Nov-94 10-Jan-95
t -----------------------------------------------------------------------
h Reference 11-Nov-94 10-Jan-95
i -----------------------------------------------------------------------
n Customer BankReference 11-Nov-94 10-Jan-95
g Management -----------------------------------------------------------------------
CustomerItemMapping 11-Nov-94 10-Jan-95
-----------------------------------------------------------------------
DunBradstreetInfo 11-Nov-94 10-Jan-95
-----------------------------------------------------------------------
TradeReference 12-Nov-94 10-Jan-95
-----------------------------------------------------------------------
File 21-Nov-94 10-Jan-95
-----------------------------------------------------------------------
Checkpoint 10-Nov-94 10-Jan-95
-----------------------------------------------------------------------
Credentials 9-Nov-94 10-Jan-95
-----------------------------------------------------------------------
Permission 10-Nov-94 10-Jan-95
-----------------------------------------------------------------------
User 11-Nov-94 10-Jan-95
----------------------------------------------------------------------------------------
ObjectWell 31-Oct-94 10-Jan-95
-----------------------------------------------------------------------
DraggableImageView 8-Nov-94 10-Jan-95
-----------------------------------------------------------------------
DraggableImageViewAssociation 1-Nov-94 10-Jan-95
-----------------------------------------------------------------------
O21OpenPanel 22-Nov-94 10-Jan-95
-----------------------------------------------------------------------
ShellView 23-Nov-94 10-Jan-95
-----------------------------------------------------------------------
IconPath 25-Nov-94 10-Jan-95
-----------------------------------------------------------------------
IconCell 13-Nov-94 10-Jan-95
-----------------------------------------------------------------------
View HierarchyManager 22-Nov-94 10-Jan-95
-----------------------------------------------------------------------
HierarchyManagerAssociation 25-Nov-94 10-Jan-95
-----------------------------------------------------------------------
RepositoryView 30-Nov-94 10-Jan-95
-----------------------------------------------------------------------
AutoFinder 14-Nov-94 10-Jan-95
-----------------------------------------------------------------------
NXTableVector(EOAssociation) 15-Nov-94 10-Jan-95
-----------------------------------------------------------------------
AutoSortingEOColumnAssociation 22-Nov-94 10-Jan-95
-----------------------------------------------------------------------
OTGraphEOAssociation 22-Nov-94 10-Jan-95
-----------------------------------------------------------------------
DataSet 22-Nov-94 10-Jan-95
-----------------------------------------------------------------------
Inspector 6-Dec-94 10-Jan-95
- -----------------------------------------------------------------------------------------------------
</TABLE>
1 - 6
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Development Lifecycle
--------------------------------------------------------------
Design Implementation
--------------------------------------------------------------
Design
Assigned Design Implementation Implementation
To Completed Assigned to Completed
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
InspectionManager ricardo 21-Oct-94 Justin Morgan 8-Dec-94
---------------------------------------------------------------------------------------------------
View RealFormatter gordo 28-Oct-94 Gordon Pitt 21-Nov-94
---------------------------------------------------------------------------------------------------
InlFormatter gordo 28-Oct-94 Gordon Pitt 21-Nov-94
---------------------------------------------------------------------------------------------------
BaseDocWindow ricardo 21-Oct-94 Justin Morgan 28-Nov-94
--------------------------------------------------------------------------------------------------------------------
BaseAppController gordo 28-Oct-94 Gordon Pitt 21-Nov-94
---------------------------------------------------------------------------------------------------
CustomerManagementAppCont jmorgan 28-Oct-94 Justin Morgan 6-Dec-94
---------------------------------------------------------------------------------------------------
BaseDocController gordo 28-Oct-94 Gordon Pitt 23-Nov-94
---------------------------------------------------------------------------------------------------
CustomerDocController jmorgan 28-Oct-94 Justin Morgan 12-Dec-94
Customer ---------------------------------------------------------------------------------------------------
Management ItemBrowser ricardo 21-Oct-94 Craig Halley 12-Dec-94
---------------------------------------------------------------------------------------------------
Controller ItemManager ricardo 21-Oct-94 Craig Halley 3-Dec-94
---------------------------------------------------------------------------------------------------
FileManager ricardo 21-Oct-94 Craig Halley 1-Dec-94
---------------------------------------------------------------------------------------------------
Security craigh 21-Oct-94 Craig Halley 11-Nov-94
---------------------------------------------------------------------------------------------------
UniqueKey gordo 21-Oct-94 Gordon Pitt 24-Nov-94
---------------------------------------------------------------------------------------------------
ReadOnlyDataSource 5-Dec-94
---------------------------------------------------------------------------------------------------
SparseDataSource 6-Dec-94
--------------------------------------------------------------------------------------------------------------------
Summary 15-Nov-94 12-Dec-94
-------------------------------------------------------------------------------------------------------------------------------
Test InventoryTestObjects mike Mike Heath 23-Nov-94
--------------------------------------------------------------------------------------------------------------------
Tariff craigh 21-Oct-94 Craig Halley 10-Nov-94
---------------------------------------------------------------------------------------------------
MiniItem craigh 21-Oct-94 Craig Halley 11-Nov-94
E ---------------------------------------------------------------------------------------------------
v ItemGroupCost craigh 21-Oct-94 Craig Halley 11-Nov-94
e ---------------------------------------------------------------------------------------------------
r Model ItemGroupCostHistory craigh 21-Oct-94 Craig Halley 14-Nov-94
y ---------------------------------------------------------------------------------------------------
t Item ItemFOB craigh 21-Oct-94 Craig Halley 14-Nov-94
h Management ---------------------------------------------------------------------------------------------------
i ItemFOBHistory craigh 21-Oct-94 Craig Halley 15-Nov-94
n ---------------------------------------------------------------------------------------------------
g ItemCost craigh 21-Oct-94 Craig Halley 15-Nov-94
---------------------------------------------------------------------------------------------------
ItemCostHistory craigh 21-Oct-94 Craig Halley 16-Nov-94
---------------------------------------------------------------------------------------------------
ItemSafety craigh 21-Oct-94 Craig Halley 16-Nov-94
---------------------------------------------------------------------------------------------------
ItemFCCInfo craigh 21-Oct-94 Craig Halley 17-Nov-94
---------------------------------------------------------------------------------------------------
ItemFDAInfo craigh 21-Oct-94 Craig Halley 17-Nov-94
---------------------------------------------------------------------------------------------------
Inventory 30-Nov-94
---------------------------------------------------------------------------------------------------
LogicalInventory 7-Dec-94
---------------------------------------------------------------------------------------------------
LogicalPhysicalInventory 7-Dec-94
---------------------------------------------------------------------------------------------------
PhysicalInventory 8-Dec-94
--------------------------------------------------------------------------------------------------------------------
ItemManagementAppController craigh 28-Oct-94 Craig Halley 12-Dec-94
---------------------------------------------------------------------------------------------------
Controller ItemDocController craigh 21-Oct-94 Craig Halley 6-Dec-94
---------------------------------------------------------------------------------------------------
ItemGroupDocController craigh 21-Oct-94 Craig Halley 16-Dec-94
--------------------------------------------------------------------------------------------------------------------
Summary 28-Oct-94 16-Dec-94
-------------------------------------------------------------------------------------------------------------------------------
ContractItemDisc gordo 28-Oct-94 Gordon Pitt 13-Dec-94
---------------------------------------------------------------------------------------------------
ContractItemTerms gordo 28-Oct-94 Gordon Pitt 12-Dec-94
---------------------------------------------------------------------------------------------------
ContractItemPricing gordo 28-Oct-94 Gordon Pitt 20-Nov-94
---------------------------------------------------------------------------------------------------
ItemDiscount gordo 28-Oct-94 Gordon Pitt 6-Dec-94
---------------------------------------------------------------------------------------------------
Item ItemPricing gordo 28-Oct-94 Gordon Pitt 28-Nov-94
Pricing ---------------------------------------------------------------------------------------------------
Model ItemTerms gordo 28-Oct-94 Gordon Pitt 9-Dec-94
---------------------------------------------------------------------------------------------------
ItemDiscProposed gordo 28-Oct-94 Gordon Pitt 2-Dec-94
---------------------------------------------------------------------------------------------------
ItemTermsProposed gordo 28-Oct-94 Gordon Pitt 9-Dec-94
---------------------------------------------------------------------------------------------------
ContractItemTermsProposed gordo 28-Oct-94 Gordon Pitt 12-Dec-94
---------------------------------------------------------------------------------------------------
ContractItemDiscProposed gordo 28-Oct-94 Gordon Pitt 13-Dec-94
---------------------------------------------------------------------------------------------------
ItemPricingProposed gordo 28-Oct-94 Gordon Pitt 28-Nov-94
---------------------------------------------------------------------------------------------------
ContractItemPricingProposed gordo 28-Oct-94 Gordon Pitt 29-Nov-94
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Development Lifecycle
----------------------------------
Testing
----------------------------------
Object Application
----------------------------------
Testing Complete Testing Complete
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
InspectionManager 17-Dec-94 10-Jan-95
-----------------------------------------------------------------------
View RealFormatter 23-Nov-94 10-Jan-95
-----------------------------------------------------------------------
InlFormatter 23-Nov-94 10-Jan-95
-----------------------------------------------------------------------
BaseDocWindow 1-Dec-94 10-Jan-95
----------------------------------------------------------------------------------------
BaseAppController 24-Nov-94 10-Jan-95
-----------------------------------------------------------------------
CustomerManagementAppCont 9-Dec-94 10-Jan-95
-----------------------------------------------------------------------
BaseDocController 28-Nov-94 10-Jan-95
-----------------------------------------------------------------------
CustomerDocController 18-Dec-94 10-Jan-95
Customer -----------------------------------------------------------------------
Management ItemBrowser 20-Dec-94 10-Jan-95
-----------------------------------------------------------------------
Controller ItemManager 9-Dec-94 10-Jan-95
-----------------------------------------------------------------------
FileManager 6-Dec-94 10-Jan-95
-----------------------------------------------------------------------
Security 18-Nov-94 10-Jan-95
-----------------------------------------------------------------------
UniqueKey 27-Nov-94 10-Jan-95
-----------------------------------------------------------------------
ReadOnlyDataSource 5-Dec-94 10-Jan-95
-----------------------------------------------------------------------
SparseDataSource 7-Dec-94 10-Jan-95
----------------------------------------------------------------------------------------
Summary 20-Dec-94 10-Jan-95
---------------------------------------------------------------------------------------------------
Test InventoryTestObjects 7-Dec-94 21-Dec-94
----------------------------------------------------------------------------------------
Tariff 13-Nov-94 21-Dec-94
-----------------------------------------------------------------------
MiniItem 14-Nov-94 21-Dec-94
E -----------------------------------------------------------------------
v ItemGroupCost 14-Nov-94 21-Dec-94
e -----------------------------------------------------------------------
r Model ItemGroupCostHistory 17-Nov-94 21-Dec-94
y -----------------------------------------------------------------------
t Item ItemFOB 17-Nov-94 21-Dec-94
h Management -----------------------------------------------------------------------
i ItemFOBHistory 18-Nov-94 21-Dec-94
n -----------------------------------------------------------------------
g ItemCost 18-Nov-94 21-Dec-94
-----------------------------------------------------------------------
ItemCostHistory 19-Nov-94 21-Dec-94
-----------------------------------------------------------------------
ItemSafety 19-Nov-94 21-Dec-94
-----------------------------------------------------------------------
ItemFCCInfo 20-Nov-94 21-Dec-94
-----------------------------------------------------------------------
ItemFDAInfo 20-Nov-94 21-Dec-94
-----------------------------------------------------------------------
Inventory 1-Dec-94 21-Dec-94
-----------------------------------------------------------------------
LogicalInventory 8-Dec-94 21-Dec-94
-----------------------------------------------------------------------
LogicalPhysicalInventory 8-Dec-94 21-Dec-94
-----------------------------------------------------------------------
PhysicalInventory 9-Dec-94 21-Dec-94
----------------------------------------------------------------------------------------
ItemManagementAppController 15-Dec-94 21-Dec-94
-----------------------------------------------------------------------
Controller ItemDocController 12-Dec-94 21-Dec-94
-----------------------------------------------------------------------
ItemGroupDocController 21-Dec-94 21-Dec-94
----------------------------------------------------------------------------------------
Summary 21-Dec-94 21-Dec-94
---------------------------------------------------------------------------------------------------
ContractItemDisc 16-Dec-94 5-Jan-94
-----------------------------------------------------------------------
ContractItemTerms 15-Dec-94 5-Jan-94
-----------------------------------------------------------------------
ContractItemPricing 2-Dec-94 5-Jan-94
-----------------------------------------------------------------------
ItemDiscount 11-Dec-94 5-Jan-94
-----------------------------------------------------------------------
Item ItemPricing 1-Dec-94 5-Jan-94
Pricing -----------------------------------------------------------------------
Model ItemTerms 12-Dec-94 5-Jan-94
-----------------------------------------------------------------------
ItemDiscProposed 5-Dec-94 5-Jan-94
-----------------------------------------------------------------------
ItemTermsProposed 12-Dec-94 5-Jan-94
-----------------------------------------------------------------------
ContractItemTermsProposed 15-Dec-94 5-Jan-94
-----------------------------------------------------------------------
ContractItemDiscProposed 16-Dec-94 5-Jan-94
-----------------------------------------------------------------------
ItemPricingProposed 1-Dec-94 5-Jan-94
-----------------------------------------------------------------------
ContractItemPricingProposed 2-Dec-94 5-Jan-94
- -----------------------------------------------------------------------------------------------------
</TABLE>
1 - 7
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Development Lifecycle
--------------------------------------------------------------
Design Implementation
--------------------------------------------------------------
Design
Assigned Design Implementation Implementation
To Completed Assigned to Completed
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Model ItemStep gordo 28-Oct-94 Gordon Pitt 2-Dec-94
--------------------------------------------------------------------------------------------------------------------
Item ItemPricingDocController gordo 28-Oct-94 Gordon Pitt 24-Dec-94
Pricing Controller ---------------------------------------------------------------------------------------------------
ItemPricingAppController gordo 28-Oct-94 Gordon Pitt 22-Dec-94
--------------------------------------------------------------------------------------------------------------------
Summary 28-Oct-94 24-Dec-94
-------------------------------------------------------------------------------------------------------------------------------
MinOrderCollection gordo 28-Oct-94 Ricardo Parada 7-Dec-94
---------------------------------------------------------------------------------------------------
Order gordo 28-Oct-94 Ricardo Parada 10-Dec-94
---------------------------------------------------------------------------------------------------
PurchaseOrder gordo 28-Oct-94 Ricardo Parada 9-Dec-94
Model ---------------------------------------------------------------------------------------------------
CustomerOrder gordo 28-Oct-94 Ricardo Parada 19-Dec-94
---------------------------------------------------------------------------------------------------
CustomerOrderCredit gordo 28-Oct-94 Ricardo Parada 31-Dec-94
---------------------------------------------------------------------------------------------------
CustomerPurchaseOrder gordo 28-Oct-94 Ricardo Parada 8-Jan-95
Order --------------------------------------------------------------------------------------------------------------------
Entry MinOrderFindPanel gordo 28-Oct-94 Justin Morgan 24-Dec-94
---------------------------------------------------------------------------------------------------
View NewOrderPanel gordo 28-Oct-94 Justin Morgan 6-Jan-95
---------------------------------------------------------------------------------------------------
NewPOPanel gordo 28-Oct-94 Justin Morgan 8-Jan-95
--------------------------------------------------------------------------------------------------------------------
CustomerOrderDocController gordo 28-Oct-94 Justin Morgan 27-Jan-95
Controller ---------------------------------------------------------------------------------------------------
OrderEntryAppController gordo 28-Oct-94 Justin Morgan 29-Jan-95
--------------------------------------------------------------------------------------------------------------------
Summary 28-Oct-94 29-Jan-95
-------------------------------------------------------------------------------------------------------------------------------
ContactRecord craigh 21-Oct-94 Craig Halley 18-Nov-94
Model ---------------------------------------------------------------------------------------------------
CreditHold craigh 21-Oct-94 Craig Halley 18-Nov-94
--------------------------------------------------------------------------------------------------------------------
CreditApprovalAppController craigh 21-Oct-94 Craig Halley 27-Dec-94
---------------------------------------------------------------------------------------------------
Credit AddressDocController craigh 28-Oct-94 Craig Halley 6-Jan-95
E Approval Controller ---------------------------------------------------------------------------------------------------
v CreditHoldDocController craigh 21-Oct-94 Craig Halley 8-Jan-95
e ---------------------------------------------------------------------------------------------------
r ContactRecordDocController craigh 28-Oct-94 Craig Halley 18-Nov-94
y --------------------------------------------------------------------------------------------------------------------
t Summary 28-Oct-94 8-Jan-95
h -------------------------------------------------------------------------------------------------------------------------------
i QueryResultsController jmorgan 28-Oct-94 Zacharles Beckm 4-Jan-95
n Order Controller ---------------------------------------------------------------------------------------------------
g Finder OrderFinderAppController jmorgan 28-Oct-94 Zacharles Beckm 6-Jan-95
--------------------------------------------------------------------------------------------------------------------
Summary 28-Oct-94 6-Jan-95
-------------------------------------------------------------------------------------------------------------------------------
MeetCompMinOrder craigh 21-Oct-94 Michael Henderson 21-Nov-94
Model ---------------------------------------------------------------------------------------------------
MeetComp craigh 21-Oct-94 Michael Henderson 11-Jan-95
--------------------------------------------------------------------------------------------------------------------
MeetCompDocController craigh 21-Oct-94 Michael Henderson 15-Jan-95
Meet Comp ---------------------------------------------------------------------------------------------------
Controller MeetCompAppController craigh 21-Oct-94 Michael Henderson 16-Jan-95
---------------------------------------------------------------------------------------------------
MeetCompItemController craigh 28-Oct-94 Michael Henderson 17-Jan-95
--------------------------------------------------------------------------------------------------------------------
Summary 28-Oct-94 17-Jan-95
-------------------------------------------------------------------------------------------------------------------------------
OrderFailure gordo 28-Oct-94 Ricardo Parada 9-Jan-95
Model ---------------------------------------------------------------------------------------------------
MinOrderFailure gordo 28-Oct-94 Ricardo Parada 12-Jan-95
--------------------------------------------------------------------------------------------------------------------
Order OrderApprovalAppController gordo 28-Oct-94 Ricardo Parada 11-Jan-95
Approval Controller ---------------------------------------------------------------------------------------------------
OrderApprovalDocController gordo 28-Oct-94 Ricardo Parada 20-Jan-95
--------------------------------------------------------------------------------------------------------------------
Summary 28-Oct-94 20-Jan-95
-------------------------------------------------------------------------------------------------------------------------------
Warehouse WarehouseAgent gordo Tammy Mckean 12-Feb-95
Agent --------------------------------------------------------------------------------------------------------------------
Summary 12-Feb-95
-------------------------------------------------------------------------------------------------------------------------------
Order OrderAgent gordo Tammy Mckean 29-Dec-94
Agent --------------------------------------------------------------------------------------------------------------------
Summary 29-Dec-94
-------------------------------------------------------------------------------------------------------------------------------
ED Order EDOrderEntry zac Tammy Mckean 22-Feb-95
Entry --------------------------------------------------------------------------------------------------------------------
Summary 22-Feb-95
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Development Lifecycle
----------------------------------
Testing
----------------------------------
Object Application
----------------------------------
Testing Complete Testing Complete
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Model ItemStep 6-Dec-94 5-Jan-95
----------------------------------------------------------------------------------------
Item ItemPricingDocController 5-Jan-95 5-Jan-95
Pricing Controller -----------------------------------------------------------------------
ItemPricingAppController 25-Dec-94 5-Jan-95
----------------------------------------------------------------------------------------
Summary 5-Jan-95 5-Jan-95
---------------------------------------------------------------------------------------------------
MinOrderCollection 15-Dec-94 18-Feb-95
-----------------------------------------------------------------------
Order 15-Dec-94 18-Feb-95
-----------------------------------------------------------------------
PurchaseOrder 12-Dec-94 18-Feb-95
Model -----------------------------------------------------------------------
CustomerOrder 31-Dec-94 18-Feb-95
-----------------------------------------------------------------------
CustomerOrderCredit 13-Jan-95 18-Feb-95
-----------------------------------------------------------------------
CustomerPurchaseOrder 10-Jan-95 18-Feb-95
Order ----------------------------------------------------------------------------------------
Entry MinOrderFindPanel 27-Dec-94 18-Feb-95
-----------------------------------------------------------------------
View NewOrderPanel 11-Jan-95 18-Feb-95
-----------------------------------------------------------------------
NewPOPanel 14-Jan-95 18-Feb-95
----------------------------------------------------------------------------------------
CustomerOrderDocController 18-Feb-95 18-Feb-95
Controller -----------------------------------------------------------------------
OrderEntryAppController 4-Feb-95 18-Feb-95
----------------------------------------------------------------------------------------
Summary 18-Feb-95 18-Feb-95
---------------------------------------------------------------------------------------------------
ContactRecord 20-Nov-94 13-Jan-95
Model -----------------------------------------------------------------------
CreditHold 20-Nov-94 13-Jan-95
----------------------------------------------------------------------------------------
CreditApprovalAppController 3-Jan-95 13-Jan-95
-----------------------------------------------------------------------
Credit AddressDocController 11-Jan-95 13-Jan-95
E Approval Controller -----------------------------------------------------------------------
v CreditHoldDocController 13-Jan-95 13-Jan-95
e -----------------------------------------------------------------------
r ContactRecordDocController 21-Nov-94 13-Jan-95
y ----------------------------------------------------------------------------------------
t Summary 13-Jan-95 13-Jan-95
h ---------------------------------------------------------------------------------------------------
i QueryResultsController 7-Jan-95 11-Jan-95
n Order Controller -----------------------------------------------------------------------
g Finder OrderFinderAppController 11-Jan-95 11-Jan-95
----------------------------------------------------------------------------------------
Summary 11-Jan-95 11-Jan-95
---------------------------------------------------------------------------------------------------
MeetCompMinOrder 24-Nov-94 20-Jan-95
Model -----------------------------------------------------------------------
MeetComp 14-Jan-95 20-Jan-95
----------------------------------------------------------------------------------------
MeetCompDocController 20-Jan-95 20-Jan-95
Meet Comp -----------------------------------------------------------------------
Controller MeetCompAppController 19-Jan-95 20-Jan-95
-----------------------------------------------------------------------
MeetCompItemController 20-Jan-95 20-Jan-95
----------------------------------------------------------------------------------------
Summary 20-Jan-95 20-Jan-95
---------------------------------------------------------------------------------------------------
OrderFailure 14-Jan-95 29-Jan-95
Model -----------------------------------------------------------------------
MinOrderFailure 16-Jan-95 29-Jan-95
----------------------------------------------------------------------------------------
Order OrderApprovalAppController 14-Jan-95 29-Jan-95
Approval Controller -----------------------------------------------------------------------
OrderApprovalDocController 29-Jan-95 29-Jan-95
----------------------------------------------------------------------------------------
Summary 29-Jan-95 29-Jan-95
---------------------------------------------------------------------------------------------------
Warehouse WarehouseAgent 25-Feb-95 25-Feb-95
Agent ----------------------------------------------------------------------------------------
Summary 25-Feb-95 25-Feb-95
---------------------------------------------------------------------------------------------------
Order Order Agent 10-Jan-95 10-Jan-95
Agent ----------------------------------------------------------------------------------------
Summary 10-Jan-95 10-Jan-95
---------------------------------------------------------------------------------------------------
ED Order EDOrderEntry 8-Mar-95 8-Mar-95
Entry ----------------------------------------------------------------------------------------
Summary 8-Mar-95 8-Mar-95
- -----------------------------------------------------------------------------------------------------
</TABLE>
1 - 8
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Development Lifecycle
--------------------------------------------------------------
Design Implementation
--------------------------------------------------------------
Design
Assigned Design Implementation Implementation
To Completed Assigned to Completed
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Inventory gordo Michael Henderson 14-Feb-95
E Inventory --------------------------------------------------------------------------------------------------------------------
v Summary 14-Feb-95
e -------------------------------------------------------------------------------------------------------------------------------
r InvoiceGeneration zac Tammy Mckean 27-Feb-95
y Invoicing --------------------------------------------------------------------------------------------------------------------
t Summary 27-Feb-95
h -------------------------------------------------------------------------------------------------------------------------------
i General G/LAgent zac Michael Henderson 7-Mar-95
n Ledger --------------------------------------------------------------------------------------------------------------------
g Agent Summary 7-Mar-95
- ---------------------------------------------------------------------------------------------------------------------------------
Count 125 117 125 131
- ---------------------------------------------------------------------------------------------------------------------------------
Summary Count 14 14 14 14
- ---------------------------------------------------------------------------------------------------------------------------------
Completion Percentage 95.42% 89.31% 95.42% 100.00%
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Development Lifecycle
----------------------------------
Testing
----------------------------------
Object Application
----------------------------------
Testing Complete Testing Complete
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inventory 12-Mar-95 12-Mar-95
E Inventory ----------------------------------------------------------------------------------------
v Summary 12-Mar-95 12-Mar-95
e ---------------------------------------------------------------------------------------------------
r InvoiceGeneration 25-Mar-95 25-Mar-95
y Invoicing ----------------------------------------------------------------------------------------
t Summary 25-Mar-95 25-Mar-95
h ---------------------------------------------------------------------------------------------------
i General G/LAgent 21-Mar-95 21-Mar-95
n Ledger ----------------------------------------------------------------------------------------
g Agent Summary 21-Mar-95 21-Mar-95
- -----------------------------------------------------------------------------------------------------
Count 131 131
- -----------------------------------------------------------------------------------------------------
Summary Count 14 14
- -----------------------------------------------------------------------------------------------------
Completion Percentage 100.00% 100.00%
- -----------------------------------------------------------------------------------------------------
</TABLE>
1 - 9
<PAGE>
Schedule B to Attachment 1 to Phase Three Amendment
DCR Process Summary
All changes require completion of a Design Change Request (DCR) Form.
Anyone on the project team may submit a DCR. Any modifications to design
and functionality will not be made until a DCR is approved.
The process of submitting a DCR is as follows:
1. Changes to any of the controlled documents require the submittal of
a DCR. A Major change is one which will impact a major task
checkpoint, increase the cost of the project, or has the potential
to impact performance or usability. The cost and schedule impact
will be determined by Chris Chauvin and Lorne Wilson. Each major DCR
must be approved by Bruce Nolan, Zacharias Beckman, and Chris
Chauvin.
2. Minor DCRs to the Project Plan and Requirements Definition may be
approved by Chris Chauvin. Minor DCRs to the Functional
Specifications, Data Dictionary, and System Architecture may be
approved by Lorne Wilson and Zacharias Beckman. Minor changes to the
Design Documents may be approved by Gordon Pitt. This authority
allows for keeping the documents accurate and allowing appropriate
iterative refinement without undue bureaucracy. Each of these
changes are logged through the normal DCR mechanism but require
approval only by those listed above.
3. Minor changes to implementation code and the database schema may be
made by the engineer responsible for implementation of an object.
4. Determination of whether a DCR is a Major or Minor change is
determined by Lorne Wilson and Chris Chauvin.
5. Denise Fischer enters the DCR into a problem tracking system. All
management of the DCR schedule and status is controlled through a
tracking spreadsheet controlled by Chris Chauvin.
6. Each week all outstanding DCR's are reviewed by Chris Chauvin, Lorne
Wilson, and Zacharias Beckman. At that time DCR's are accepted,
rejected, or are assigned a list of action items to be pursued.
1 - 10
<PAGE>
Schedule B to Attachment 1 to Phase Three Amendment
DCR Process Summary
All changes require completion of a Design Change Request (DCR) Form.
Anyone on the project team may submit a DCR. Any modifications to design
and functionality will not be made until a DCR is approved.
The process of submitting a DCR is as follows:
1. Changes to any of the controlled documents require the submittal of
a DCR. A Major change is one which will impact a major task
checkpoint, increase the cost of the project, or has the potential
to impact performance or usability. The cost and schedule impact
will be determined by the PENCOM Project Manager and the PENCOM Lead
Architect. Each major DCR must be approved by the CCSI Director of
Information Systems and the PENCOM Project Manager.
2. Minor DCRs to the Project Plan and Requirements Definition may be
approved by the PENCOM Project Manager. Minor DCRs to the Functional
Specifications, Data Dictionary, and System Architecture may be
approved by the PENCOM Lead Architect and the CCSI Lead Architect.
Minor changes to the Design Documents may be approved by the PENCOM
Object Designer. This authority allows for keeping the documents
accurate and allowing appropriate iterative refinement without undue
bureaucracy. Each of these changes are logged through the normal DCR
mechanism but require approval only by those listed above.
3. Minor changes to implementation code and the database schema may be
made by the engineer responsible for implementation of an object.
4. Determination of whether a DCR is a Major or Minor change is
determined by the PENCOM Lead Architect and the PENCOM Project
Manager.
5. PENCOM personnel enter the DCR into a problem tracking system. All
management of the DCR schedule and status is controlled through a
tracking spreadsheet controlled by the PENCOM Project Manager.
1 - 10
<PAGE>
6. Each week all outstanding DCR's are reviewed by the PENCOM Project
Manager, the PENCOM Lead Architect, and the CCSI Lead Architect. At
that time DCR's are accepted, rejected, or are assigned a list of
action items to be pursued. These action items are assigned to the
appropriate personnel and are due the following review period.
Decisions are made only after a DCR is complete. To be complete, a
DCR must have the proposed changes to all controlled documents and
have, if the DCR is considered major, an estimate of cost and
schedule impact to the project.
7. Once DCR's are approved, the affected documents are updated
accordingly.
1 - 11
<PAGE>
Attachment 2 to Phase Three Amendment
June 30, 1995 Deadline for completion of application testing and
delivery of all items listed under Section III.A of
Attachment 1 to the Amendment
September 30, 1995 Deadline for completion of integration testing and
delivery of all items listed under Sections III.B
through III.I of Attachment 1 to the Amendment
2 - 1
<PAGE>
Attachment 3 to Phase Three Amendment
Response Deadlines
- ------------------
Severity Level One Problems (2) 1 Hour
Severity Level Two Problems 2 Hours
Severity Level Three Problems the end of the next business day
- ----------
(2) Severity levels are defined in Section I of Attachment I to the Amendment.
3-1
<PAGE>
Exhibit 10.6*
SOFTWARE LICENSING AGREEMENT
THIS SOFTWARE LICENSING AGREEMENT (this "Agreement"), made and entered by
and between Pencom Systems Incorporated, doing business as PSW Technologies
(hereinafter "PSW"), a New York corporation with its principal offices at 9050
Capital of Texas Highway North Austin, Texas 78759, and Canon Computer Systems
Incorporated (hereinafter "CCSI"), a California corporation with its principal
offices at 2995 Redhill Avenue, Costa Mesa, California 92626:
WITNESSETH:
WHEREAS, pursuant to that certain Software Development Agreement between
Pencom Systems Incorporated and CCSI dated March 9, 1994, as amended by the
Phase Three Amendment to Software Development Agreement dated March 7, 1995
("Development Agreement"), CCSI hired Pencom to develop a wholesale distribution
system based on object oriented technology for tracking CCSI's imports and
exports, monitoring inventory, processing customer orders, tracking distribution
of CCSI products, and generating sales and marketing reports.
WHEREAS, on February 15, 1996, Pencom Software, a division of Pencom
Systems, Inc., changed its name to PSW Technologies;
WHEREAS, PSW desires to license back from CCSI certain of the object
oriented technology it developed for CCSI under the Development Agreement;
WHEREAS, CCSI is willing to grant such rights and licenses on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and intending to be legally bound, the parties hereby agree as follows:
Section 1
DEFINITION OF TERMS
The definition of terms set forth in this Section 1 shall apply in this
Agreement (in addition to terms expressly defined elsewhere herein) including
any and all exhibits, addenda, and amendments made to or incorporated herein now
or in the future.
1.1 "Deliverables." Any and all tangible products developed by PSW for
CCSI under the Development Agreement, including all object diagrams, functional
specifications, prototypes, reports, conversion tools, class libraries, the
"source" code and object code, and all necessary Documentation therefor and
further including enhancements, modifications, and corrections made to the
Deliverables by PSW pursuant to support, training, and maintenance services
provided to CCSI or otherwise at the request and expense of PSW.
* Confidential treatment is requested for certain portions of Exhibit 10.6
pursuant to Rule 406 under the Securities Act of 1933.
<PAGE>
1.2 "Documentation." All textual material relating to the Deliverables,
including flow charts, operating instructions, and related technical
information. Documentation shall also include customary end-user materials, such
as user manuals and training materials and sample source code used for training
and documentation purposes.
1.3 "Object 21 Systems Library." Those certain Deliverables as specified
in Schedule A that DO NOT contain specific rules or information pertaining to
CCSI's unique business methods.
l.4 "Object 21 Business Library." Those certain Deliverables as specified
in Schedule A that DO contain specific rules or information pertaining to CCSI's
unique business methods.
1.5 "Object 21 Library." The Object 21 Systems Library and the Object 21
Business Library.
1.6 "CCSI Enhancements." Changes, corrections, modifications, or
additions, including all new releases and applications, made by CCSI to the
Object 21 Library and related Documentation.
1.7 "PSW Enhancements." Changes, corrections, modifications, or additions,
including all new releases and applications, made by PSW to the Object 21
Library and related Documentation apart from its obligations pursuant to the
Development Agreement and not at CCSI's request and expense, including the
conversion of the Object 21 Library from the NeXTSTEP language into a more open
platform (e.g. OpenSTEP).
1.8 "Product." Any deliverables licensed by PSW that includes the Object
21 Library, CCSI Enhancements, PSW Enhancements, or related Documentation.
"Product" may include one or more separately priced PSW offerings.
1.9 "Customer." Any end user customers to whom PSW or Resellers may market
and sell the Product, either directly or indirectly, under the terms and
conditions of this Agreement.
1.10 "Reseller." Any of PSW's authorized resellers.
1.11 "Direct Customer." Any Resellers and any end user Customers to whom
PSW directly markets and sells the Product.
1.12 "Computer Business." The Computer Business shall be defined to
include the research, development, production, marketing, selling, distribution,
or leasing of computer hardware, computer hardware peripherals, integrated
-2-
<PAGE>
document management systems or cameras, or the performance of development,
consulting, training, or maintenance services relating to computer hardware,
computer hardware peripherals, integrated document management systems, or
cameras.
Section 2
GRANT OF LICENSES FROM CCSI TO PSW
2.1 Scope of License Grant. CCSI hereby grants to PSW, and PSW hereby
accepts, the following nontransferable worldwide rights and licenses:
2.1.1 a royalty-free right to use, execute, modify, and reproduce
(in any medium) the Object 21 Library, the CCSI Enhancements and related
Documentation for internal business purposes.
2.1.2 a royalty-bearing license to distribute the Product to Direct
Customers.
2.1.3 a royalty-bearing license to authorize Resellers to distribute
the Product to Customers, either on a stand-alone basis or for use in
conjunction with Resellers' computer application programs.
The foregoing rights and licenses shall be nonexclusive, except that the United
States license shall be exclusive for five (5) years from the date hereof.
2.2 Customer License. Any distribution of the Product by PSW to Customers
shall be pursuant to the terms and conditions of PSW's Customer license in the
form attached hereto as Schedule B or to a form that contains the minimum terms
and conditions of and is no less restrictive in protecting CCSI's interests than
such agreement attached hereto as Schedule B. Any distribution of the Product by
PSW to Resellers and then by Resellers to Customers shall be pursuant to the
terms and conditions of PSW's Reseller agreement in the form attached hereto as
Schedule C or to a form that contains the minimum terms and conditions of and is
no less restrictive in protecting CCSI's interests than such agreement attached
hereto as Schedule C. PSW agrees to provide and to require its Resellers to
provide in a conspicuous manner one copy of the Customer license attached as
Schedule 2 to Schedule C hereto with each Product. PSW agrees to report to CCSI
any known or suspected violation(s) of the Customer license agreement or
Reseller agreements and to reasonably cooperate with CCSI in any enforcement
actions taken by CCSI. If a conflict arises between Schedule B and any other
Customer license agreement, the terms of Schedule B shall prevail. If a conflict
arises between Schedule C and any other Reseller agreements, the terms of
Schedule C shall prevail. PSW shall undertake reasonable efforts to enforce the
terms of any license agreement between
-3-
<PAGE>
PSW or its Resellers and a Customer as it relates to the Products. No Customers
shall have any right to sublicense the Product unless they are also a Reseller.
2.3 Reseller Agreement. Any distribution of the Product by PSW to
Resellers, whether for further distribution on a stand-alone basis or for use in
conjunction with Resellers' computer application programs, shall be pursuant to
the terms and conditions of the PSW's Reseller agreement in the form attached
hereto as Schedule C or to a form that contains the minimum terms and conditions
of and is no less restrictive in protecting CCSI's interests than the Reseller
agreement attached hereto as Schedule C. PSW agrees to report to CCSI any known
or suspected violation(s) of the Reseller agreement and to reasonably cooperate
with CCSI in any enforcement actions taken by CCSI. If a conflict arises between
Schedule C and any other Reseller agreement, the terms of Schedule C shall
prevail. Resellers shall be bound by the restriction contained in Section 2.5.
2.4 Continuing Rights of CCSI. Subject to the rights granted in this
Section 2, CCSI shall retain all ownership of and full rights to continue to
use and market the Deliverables and the CCSI Enhancements and all right, title
and interest in and to all copyrights, patent rights or trade secret rights
associated with the Deliverables and the CCSI Enhancements.
2.5 Marketing Restrictions. PSW shall not directly or indirectly market or
license the Object 21 Business Library to any Customer engaged in whole or in
part in the Computer Business unless prior written authorization is received
from CCSI.
Section 3
GRANT OF LICENSE FROM PSW TO CCSI
3.1 PSW Enhancements. PSW hereby grants to CCSI, and CCSI hereby accepts,
a royalty-free, irrevocable, nonexclusive, and fully paid-up license to use,
execute, modify, reproduce (in any medium), and distribute the PSW Enhancements
for internal CCSI use and to sublicense any or all of such rights to the
affiliates of CCSI's ultimate parent Canon Inc. for their internal use.
3.2 PSW Determination of Marketing and Pricing. Except as provided herein,
PSW shall retain full discretion with respect to all decisions relating to
distribution and marketing of the Product, including, without limitation, the
determination to introduce or withdraw the Product, and the terms, conditions,
and pricing of the Product. PSW shall use its best efforts to promote the
Product or to continue any such promotion once commenced.
3.3 PSW Ownership. All PSW Enhancements shall be owned exclusively by PSW.
Nothing herein shall be construed to assign or transfer any intellectual
-4-
<PAGE>
property rights in the Deliverables or CCSI Enhancements, in which CCSI retains
all right, title, and interest subject only to the rights and license herein
granted.
Section 4
DELIVERY
4.1 Deliverables. As of the date hereof, PSW acknowledges that it already
has in its possession a copy of the Object 21 Library and related Documentation.
4.2 CCSI Enhancements. CCSI shall deliver copies of any CCSI Enhancements
to PSW at PSW's request CCSI shall keep PSW advised as to its plans for
preparation of any CCSI Enhancements.
4.3 PSW Enhancements. PSW shall provide to CCSI any PSW Enhancements made
by PSW during the term of this Agreement. PSW shall keep CCSI advised as to its
plans for preparation of PSW Enhancements. PSW agrees that, at a minimum, no
later than one (1) year from implementation of the Deliverables pursuant to the
Development Agreement it shall deliver to CCSI at no charge the converted Object
21 Systems Library from the NeXTSTEP language into the OpenSTEP platform in both
object and source code format.
Section 5
ROYALTY PAYMENTS AND REPORTS
5.1 Royalty Payments. In consideration of the rights in and licenses to
the Object 21 Library and CCSI Enhancements granted by this Agreement, PSW shall
pay to CCSI a [*] royalty on Net Sales Revenue of the Products on
a calendar quarterly basis. "Net Sales Revenue" means gross sales revenue less
customary trade discounts actually given, returns actually credited, and
transportation and taxes separately itemized and actually charged to and paid by
the Direct Customers. No other costs incurred in the manufacture, sales,
distribution, license, or lease of the Product shall be deducted in calculating
the royalty obligation of PSW. It is understood that PSW may increase or
decrease any prices, charges, or fees relating to any Product without notice to
or approval of CCSI. Royalties shall be paid by check to CCSI within thirty (30)
days after the last of each such quarter.
5.2 Royalty Reports. At the same time PSW makes its royalty payment to
CCSI pursuant to Section 5.1, PSW shall furnish to CCSI a royalty report
including (a) the number of Products shipped during such calendar quarter, (b)
which Object 21 Library Deliverables, CCSI Enhancements, and PSW Enhancements
are incorporated within or used in the development of the Product; and (c) and
any and all other information necessary for the determination of royalties under
this Agreement.
-5-
<PAGE>
5.3 Royalty Records. PSW shall keep or cause to be kept full and accurate
accounts and records of all transactions made by it and by its Resellers under
this Agreement in form such that all amounts owing hereunder to CCSI may be
readily and accurately determined. PSW shall use commercially reasonable efforts
to assure that its Resellers are (a) accurately reporting to PSW all
transactions with Customers and (b) otherwise complying with this Agreement. All
books of account and records kept under this Section 5 shall be retained by PSW
for at least two (2) years after the termination of this Agreement.
5.4 Royalty Base Confirmation. PSW shall, upon written request once each
calendar year, provide access to records with respect to the licenses granted
under this Agreement, during normal business hours, to an independent accounting
organization chosen and compensated by CCSI for purposes of a confirming audit
with respect to royalty payments. PSW shall promptly make any payments due as a
result of the audit, and PSW shall reimburse CCSI for the costs of such audit if
the audit determines that any such report pursuant to Section 5.2 is understated
by more than five percent (5%).
Section 6
COPYRIGHT NOTICES AND ENFORCEMENT
6.1 Copyright Notices. PSW shall not remove any existing copyright or
other proprietary rights notices from the Object 21 Library. PSW agrees that any
Product distributed to Resellers or Direct Customers shall contain an
appropriate copyright notice in the name of CCSI as to the CCSI-owned portions
of the Product.
6.2 Enforcement of Copyright. PSW shall be responsible to enforce CCSI and
PSW copyright infringement by Customers of the Product to the extent reasonable
under the circumstances. A failure by PSW to so enforce rights against
infringers of such copyrights within a reasonable period of time after
appropriate notification, if such failure results in a material loss of value of
licenses granted to PSW herein, shall be considered a material breach of this
Agreement by PSW.
Section 7
INDEMNIFICATION AND INSURANCE
7.1 Indemnity for Product. PSW agrees to indemnity and hold harmless CCSI
and its affiliates, officers, agents, directors, and employees, against any and
all claims, actions, proceedings, expenses, damages and liabilities (including
but not limited to any governmental investigations, complaints and actions) and
reasonable attorney's fees, arising out of or in connection with (a) any breach
of this Agreement by PSW, including its representations, warranties and
covenants, (b) any Product or any information contained therein and the use
thereof, and (c) any claim or action
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for personal injury, death or other cause of action involving product liability
claims arising from or relating to any Product.
7.2 Infringement of Intellectual Property Rights. PSW shall, at its own
expense, defend any claim or demand made, or suit instituted, against CCSI or
its affiliates, officers, agents, directors, and employees, which is based on an
allegation that (a) any Product sold, licensed, or distributed by PSW hereunder
infringes or violates any copyright, patent, trademark, or trade name of any
third party, (b) any Product contains, embodies or incorporates any trade secret
or proprietary information of any third party, or (c) the use, license or
modification of the Product constitutes a violation of the trade secrets or
proprietary rights of such third party, and shall indemnity, hold harmless and
defend CCSI or its affiliates, officers, agents, directors, and employees
against any claim, loss, expense or judgment, including reasonable attorney's
fees, which arises from any of the preceding allegations (a) through (c),
provided that CCSI gives PSW prompt notice in writing of any such allegations
and permits PSW through PSW's counsel to defend the same and gives PSW all
available information, assistance and authority to enable PSW to assume such
defense. PSW shall be permitted to control the defense of any such suit,
including appeals from any judgment therein and any negotiations for the
settlement or compromise thereof, with authority to enter into a settlement or
compromise with the prior written consent of CCSI, which will not be
unreasonably withheld. PSW shall have the affirmative obligation to diligently
and effectively defend against any such claim. If CCSI determines that PSW is
not diligently and effectively defending against such a claim, CCSI shall have
the absolute right and option to intervene in any such suit and participate or
assume control of the defense of the suit but will not have any obligation to do
so. CCSI shall have no obligation to defend PSW, or to pay any such costs,
damages, and attorney fees for any claim based upon the combination, operation,
or use of the Product.
7.3 Insurance. PSW agrees to maintain during the term of this Agreement
general liability insurance covering claims arising under the indemnification
provisions as set forth above in Sections 7.1 and 7.2, which insurance shall be
in amounts and of a type customarily maintained by companies similarly situated,
providing at least one million dollars ($1,000,000.00) coverage per occurrence.
Upon execution of this Agreement, PSW shall provide to CCSI a certificate of
insurance flaming CCSI and its affiliates, including their respective officers,
directors, agents and employees, as additional named insureds on such insurance
coverage. PSW's purchase of the commercial general liability insurance shall not
relieve PSW of any other of its obligations or liabilities under this Agreement
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Section 8
TERM AND TERMINATION
8.1 Basic Term. This Agreement shall be effective on the date first above
written and shall remain in force unless it terminates as provided below.
8.2 Termination for Default. This Agreement shall terminate upon the
bankruptcy or insolvency of either party.
8.3 Termination for Breach. In the event of a material breach of this
Agreement by either party, the other party may terminate this Agreement by
giving thirty (30) days' prior written notice thereof; provided that this
Agreement shall not terminate if the party in breach has cured the breach of
which it has been notified prior to the expiration of the thirty (30) days.
8.4 Post-Termination Provisions. In the event of any termination of the
entire Agreement, then (a) the provisions of Sections 3, 5.3, 6, 7, and 9 shall
survive as necessary to effectuate their purposes and shall bind the parties and
their legal representatives, successors, and assigns, and (b) Customer licenses
and Reseller agreements then existing by virtue of rights exercised prior to the
effective date of termination under this Agreement and any royalty obligations
of PSW with respect thereto shall survive and continue.
Section 9
CONFIDENTIAL INFORMATION
9.1 CCSI Information. In connection with this Agreement, CCSI has provided
and shall provide PSW with certain information that is proprietary and
confidential to CCSI and necessary or useful for PSW to exploit the licenses
granted hereunder.
9.2 Confidentiality. The term "Confidential Information" as used herein
shall mean any information disclosed by CCSI to PSW pursuant to Section 9.1
above in a written or other tangible form clearly identified as being
confidential. Oral or visual information shall not be considered as Confidential
Information unless it is designated confidential at the time of oral or visual
disclosure and reduced to a writing clearly marked as being confidential that is
sent to PSW by CCSI within thirty (30) days after such oral or visual
disclosure. For the purpose of this Agreement, any Deliverable or CCSI
Enhancement shall be deemed Confidential Information.
9.3 Treatment of Confidential Information. During this Agreement and
thereafter, PSW shall keep the Confidential Information in strict confidence and
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shall not disclose it to any person, firm or corporation outside PSW, nor use
the same for any purpose other than performing the Agreement. In addition, PSW
agrees to safeguard the Confidential Information by restricting its internal
dissemination to only those employees within PSW having a need to know the
Confidential Information for purposes of this Agreement. PSW has full
responsibility to ensure that all employees who are given access to the
Confidential Information maintain the confidentiality of the Confidential
Information, whether or not such employees continue to be employees of PSW.
9.4 Exceptions to Treatment of Confidential Information. Notwithstanding
Section 9.3 above, PSW shall have no confidential obligation and no use
restriction hereunder with respect to any Confidential Information that:
(1) is already known to PSW at the time of disclosure thereof
as evidenced by written records;
(2) is or becomes publicly known through no wrongful act of PSW
at or subsequent to the time of disclosure thereof; or
(3) is permitted for release by prior written consent of CCSI.
These exceptions shall not apply to information that is classified as
Confidential Information pursuant to the Development Agreement.
9.5 Tangible Embodiments. Any and all written or tangible embodiments of
information disclosed to PSW by CCSI hereunder shall be and remain the property
of CCSI, and PSW agrees promptly to return such tangible embodiments, including
any copy thereof, to CCSI upon termination of this Agreement.
9.6 PSW Information. It is understood that CCSI does not desire to receive
any confidential information from PSW and accordingly, with respect to any
information provided by PSW, including all PSW Enhancements, CCSI shall have no
confidential obligation and no use restriction and CCSI may freely use such
information for any purpose permitted under the license granted in Section 3.1.
9.7 Intellectual Property. Except to the extent necessary to perform PSW's
obligations hereunder or as otherwise provided herein, no license or right,
expressed or implied, is hereby conveyed or granted to PSW for any invention,
patent application, patent, copyright, know-how, trade secret or other
intellectual property of CCSI.
9.8 Trademarks. No license or right, expressed or implied, is hereby
conveyed or granted to PSW to use any trademark of CCSI or any of its affiliates
in any advertising, marketing, or distribution of the Products by PSW, without
the prior express written consent of CCSI. PSW shall have the right to include
CCSI in a
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list of its customers and to refer in PSW marketing materials to the development
work PSW has performed for CCSI, provided that PSW shall obtain CCSI's prior
written consent to such usage, which consent shall not unreasonably be refused.
9.9 Enforcement. PSW understands and agrees that the obligations and
restrictions provided herein are necessary and reasonable in order to protect
the business of CCSI, and CCSI would be irreparably harmed by any breach or
threatened breach hereof. In addition to any other remedies available for breach
thereof, CCSI shall be entitled to obtain injunctive relief against a threatened
breach or continuation of any such breach, without the necessity of providing
actual damages.
9.10 Confidentiality of Terms. Neither party shall, without written
authorization of the other, disclose to any third party the terms and conditions
of this Agreement except as may be necessary to establish or assert rights
hereunder or as required by law; provided, however, that either party may, on a
confidential basis, disclose this Agreement to its accountants, attorneys, and
financing organizations.
Section 10
RELATIONSHIP TO DEVELOPMENT AGREEMENT
Nothing in this Agreement shall be construed as amending or limiting the
Development Agreement. All rights and obligations thereunder remain valid and
binding on the parties, including without limitation Section 4 of the Phase
Three Amendment to the Development Agreement.
Section 11
GENERAL
11.1 Entire Agreement. The provisions herein constitute the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior agreements, oral or written, and all other communications
relating to the subject matter hereof. No amendment or modification of any
provision of this Agreement will be effective unless set forth in a document
that purports to amend this Agreement and is executed by both parties.
11.2 Assignment. PSW shall not sell, transfer, assign, or subcontract any
right or obligation hereunder except as expressly provided herein without the
prior written consent of CCSI. Any act in derogation of the foregoing shall be
null and void. Notwithstanding the foregoing two sentences, PSW may assign this
Agreement in connection with the sale, reorganization, or other disposition of
all or substantially all of the assets of PSW or any affiliate or subsidiary or
division thereof, provided that (1) any such assignee agrees in writing with
CCSI to comply with PSW's obligations under this Agreement, and (2) in the case
of an assignment
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in which PSW survives, PSW remains subject to all of its obligations under this
Agreement. Subject to the foregoing, this Agreement shall be for the benefit of
and be binding upon the parties' successors.
11.3 Force Majeure. Except for failures to make any payment when due,
neither party shall be held liable for failure to fulfill its obligations
hereunder if such failure is due to a natural calamity, act of government, or
similar cause beyond the control of such party.
11.4 Governing Law. The validity, construction, and performance of this
Agreement shall be governed by the substantive law of the State of
California, without regard to its conflicts of law provisions.
11.5 Severability. If any provision of this Agreement is held by a court
of competent jurisdiction to be contrary to law, the remaining provisions of the
Agreement will remain in full force and effect.
11.6 Compliance with Laws and Regulations. CCSI and PSW shall comply with
all laws, rules, and regulations of competent public authorities relating to the
duties, obligations, and performance under this Agreement and shall procure all
licenses and pay all fees and other charges required thereby.
11.7 Notices. Any notices required or permitted to be made or given by
either party hereto pursuant to this Agreement will be deemed sufficiently made
or given on the fifth day after the date of mailing if sent to such party by
certified mail, postage prepaid, addressed as set forth below or to such other
address as a party shall designate by written notice given to the other party.
As of the date hereof, any notice to be given to CCSI shall be addressed
to:
Canon Computer Systems, Inc.
2995 Red Hill Avenue
Costa Mesa, California 92626
Attention: Director, Information Systems
Canon Computer Systems, Inc.
2995 Red Hill Avenue
Costa Mesa, California 92626
Attention: General Counsel
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As of the date hereof, any notice to be given to PSW shall be addressed to:
PSW Technologies
9050 Capital of Texas Highway North
Austin, Texas 78759
Attention: President
PSW Technologies
9050 Capital of Texas Highway North
Austin, Texas 78759
Attention: Vice President and General Manager
11.8 Waiver. A failure of either party to exercise any right provided for
herein shall not be deemed a waiver of any right under this Agreement.
11.9 Rights Outside of Agreements. Subject to Section 10, nothing
contained in this Agreement shall be construed as limiting rights that the
parties may enjoy outside the scope of the licenses granted and the obligations
and restrictions set forth or treated herein.
IN WITNESS THEREOF, the parties have caused this Agreement to be signed below by
their duly authorized representatives and to be effective as of the later date
written below:
PSW
Pencom Systems Incorporated
By: /s/ [Illegible]
----------------------------------------------
Date: 26 May 1996
CCSI
Canon Computer Systems, Inc.
By: /s/ Michael Rusert
----------------------------------------------
Michael Rusert, Vice President, Operations
Date: June 13, 1996
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SOFTWARE LICENSING AGREEMENT
SCHEDULE A
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SOFTWARE LICENSING AGREEMENT
SCHEDULE B
Minimum Terms for Customer License Agreement
(The following terms are the minimum terms which will be included in any
Customer license agreement. In the minimum terms, PSW Technologies will be
referred to as PSW and the end user licensing the Product will be referred to as
CLIENT.)
Section 1
DEFINITION OF TERMS
The definition of terms set forth in this Section 1 shall apply in this
Agreement (in addition to terms expressly defined elsewhere herein) including
any and all exhibits, addenda, and amendments made to or incorporated herein now
or in the future.
1.1 "Deliverables." Any and all tangible products delivered by PSW for
CLIENT under this Agreement, including all object diagrams, functional
specifications, prototypes, reports, conversion tools, class libraries, the
"source" code and object code, and all necessary Documentation therefor and
further including enhancements, modifications, and corrections made to the
Deliverables by PSW pursuant to support, training, and maintenance services
provided to CLIENT by PSW.
1.2 "Documentation." All textual material relating to the Deliverables,
including flow charts, operating instructions, and related technical
information. Documentation shall include user manuals, help text, training
materials, and sample source code used for training and documentation purposes.
1.3 "PSW Systems Library." Those Deliverables in Schedule 1 that are
specified to be part of the PSW Systems Library.
1.4 "PSW Business Library." Those Deliverables in Schedule 1 that are
specified to be part of the PSW Business Library.
1.5 "PSW Object Library." The combination of the PSW Systems Library and
the PSW Business Library.
1.6 "CLIENT Enhancements." Changes, corrections, modifications, or
additions, including all new releases and applications, made by CLIENT to the
PSW Object Library and related Documentation.
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1.7 "PSW Enhancements." Changes, corrections, modifications, or additions,
including all new releases and applications, made by PSW to the PSW object
Library and related Documentation.
1.8 "Computer Business." The Computer Business shall be defined to include
the research, development, production, marketing, selling, distribution, or
leasing of computer hardware, computer hardware peripherals, integrated document
management systems or cameras, or the performance of development, consulting,
training, or maintenance services relating to computer hardware, computer
hardware peripherals, integrated document management systems, or cameras.
1.9 "PSW Licensors." Other parties who have licensed portions of the
Deliverables to PSW under separate agreements.
Section 2
GRANT AND SCOPE OF RIGHTS FROM PSW TO CLIENT
2.1 Scope of License. PSW grants to CLIENT the right to use, execute,
modify, and reproduce, and distribute for internal use the licensed portions of
the PSW Object Library as specified in Schedule 1 and any PSW Enhancements.
Schedule 2 specifies the extent of the CLIENT's business as it pertains to this
license.
2.2 License Restrictions. CLIENT is not authorized to distribute or
sublicense the PSW Object Library or PSW Enhancements to any party currently in
or planning to enter the Computer Business as defined in Section 1. CLIENT is
not authorized to operate a service bureau utilizing any Deliverables, CLIENT
Enhancements, or PSW Enhancements.
2.3 Representation and Warranty of CLIENT Business. If CLIENT is licensing
any portion of the PSW Business Library, CLIENT represents and warrants by
signing this Agreement that neither it nor its subsidiaries, affiliates, or
divisions is are not currently in, nor planning to enter the Computer Business
as defined in Section 1. If CLIENT is licensing any portion of the PSW Business
Library and either it or any of its subsidiaries, affiliates, or divisions
desires to enter the Computer Business, then prior to entering such Computer
Business CLIENT shall return all licensed portions of the PSW Business Library
to PSW and shall provide a sworn statement to PSW averring that no copies of the
PSW Business Library remain on any computer system or otherwise within its
possession or control.
(Sections 3 and 4 intentionally omitted)
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Section 5
CONFIDENTIAL INFORMATION
5.1 PSW Information. In connection with this Agreement, PSW has provided
and shall provide CLIENT with certain information that is proprietary and
confidential to PSW or the PSW Licensors and necessary or useful for CLIENT to
exploit the licenses granted hereunder.
5.2 Confidentiality. The term "Confidential Information" as used herein
shall mean any information disclosed by PSW to CLIENT pursuant to Section 5.1
above in a written or other tangible form clearly identified as being
confidential. Oral or visual information shall not be considered as Confidential
Information unless it is designated confidential at the time of oral or visual
disclosure and reduced to a writing clearly marked as being confidential that is
sent to CLIENT by PSW within thirty (30) days after such oral or visual
disclosure. For the purpose of this Agreement, any Deliverable or PSW
Enhancement shall be deemed Confidential Information.
5.3 Treatment of Confidential Information. During this Agreement and
thereafter, CLIENT shall keep the Confidential Information in strict confidence
and shall not disclose it to any person, firm or corporation outside CLIENT, nor
use the same for any purpose other than performing the Agreement. In addition,
CLIENT agrees to safeguard the Confidential Information by restricting its
internal dissemination to only those employees within CLIENT having a need to
know the Confidential Information for purposes of this Agreement. CLIENT has
full responsibility to ensure that all employees who are given access to the
Confidential Information maintain the confidentiality of the Confidential
Information, whether or not such employees continue to be employees of CLIENT.
5.4 Exceptions to Treatment of Confidential Information. Notwithstanding
Section 5.3 above, CLIENT shall have no confidential obligation and no use
restriction hereunder with respect to any Confidential Information that:
(1) is already known to CLIENT at the time of disclosure thereof as
evidenced by written records;
(2) is or becomes publicly known through no wrongful act of CLIENT at
or subsequent to the time of disclosure thereof; or
(3) is permitted for release by prior written consent of PSW.
5.5 Tangible Embodiments. Any and all written or tangible embodiments of
information disclosed to CLIENT by PSW hereunder shall be and remain the
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property of PSW, and CLIENT agrees promptly to return such tangible embodiments,
including any copy thereof, to PSW upon termination of this Agreement.
5.6 Intellectual Property. Except to the extent necessary to perform
CLIENT's obligations hereunder or as otherwise provided herein, no license or
right, expressed or implied, is hereby conveyed or granted to CLIENT for any
invention, patent application, patent, copyright, know-how, trade secret or
other intellectual property of PSW or PSW Licensors.
5.7 Trademarks. No license or right, expressed or implied, is hereby
conveyed or granted to CLIENT to use any trademark of PSW without the prior
express written consent of PSW or any trademark of any PSW Licensors without the
prior express written consent of such PSW Licensor.
5.8 Enforcement. CLIENT understands and agrees that the obligations and
restrictions provided herein are necessary and reasonable in order to protect
the business of PSW and the PSW Licensors, and PSW and the PSW Licensors would
be irreparably harmed by any breach or threatened breach hereof. In addition to
any other remedies available for breach thereof, PSW and the PSW Licensors shall
be entitled to obtain injunctive relief against a threatened breach or
continuation of any such breach, without the necessity of providing actual
damages.
5.9 Confidentiality of Other Parties. CLIENT acknowledges that portions of
the PSW Object Library may be licensed by PSW from other parties. To the degree
that the identity of and terms of those license agreements are made known to
CLIENT for the execution of this Agreement, CLIENT shall keep this Confidential
Information in strict confidence and shall not disclose it to any person, firm
or corporation except as required to execute this Agreement; provided, however,
that either party may, on a confidential basis, disclose those Agreements to its
accountants, attorneys, and financing organizations.
Section 6
REPRESENTATIONS AND WARRANTIES
CLIENT acknowledges and agrees that any representations and warranties regarding
the Deliverables are provided by PSW and that its sole remedy for breach
hereunder shall be against PSW and not against the PSW Licensors. THE PSW
LICENSORS EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO
THE DELIVERABLES OR THE RESULTS OBTAINED FROM USING THE SAME, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
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Section 7
LIMITATION OF LIABILITY
UNDER NO CIRCUMSTANCES SHALL PSW OR THE PSW LICENSORS BE LIABLE FOR SPECIAL,
EXEMPLARY, INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO
LEGAL FEES, LOSS OF PROFITS, LOSS OR INACCURACY OF DATA, OR LOSS RESULTING FROM
BUSINESS DISRUPTION, EVEN IF PSW OR THE PSW LICENSORS HAVE BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
Section 8
THIRD-PARTY BENEFICIARY
CLIENT acknowledges that the Deliverables and Confidential Information include
that of the PSW Licensors and that the PSW Licensors are third-party
beneficiaries of this Agreement with all the rights of PSW to enforce the
obligations of this Agreement against CLIENT.
Section 9
U.S. GOVERNMENT RESTRICTED RIGHTS
If this license is acquired under a U.S. Government contract, use, duplication
or disclosure by the U.S. Government is subject to restrictions as set forth in
DFARS 252.227-7013(c)(ii) for Department of Defense contracts and as set forth
in FAR 52.227-19(a)-(d) for civilian agency contracts. PSW and the PSW Licensors
reserve all unpublished rights under the United States copyright laws.
(remainder of Customer license agreement intentionally omitted)
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SOFTWARE LICENSING AGREEMENT
SCHEDULE B
Minimum Terms for Customer License Agreement
Schedule 1
(include Deliverables containing relevant objects from Schedule A of the
Software License Agreement between CCSI and PSW and indicate which objects they
contain.)
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SOFTWARE LICENSING AGREEMENT
SCHEDULE B
Minimum Terms for Customer License Agreement
Schedule 2
(description of the locations, sites, divisions, and legal entities defining
the boundaries of the CLIENT's business for purposes of this agreement)
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SOFTWARE LICENSING AGREEMENT
SCHEDULE C
Minimum Terms for Reseller Agreement
(The following terms are the minimum terms which will be included in the
Reseller Agreement. In the minimum terms, Reseller will be referred to as
RESELLER, and the Customer license agreement will be referred to as an End User
License Agreement. The Reseller agreement will serve as an extension to the
Customer license agreement, which is attached as Schedule B of the Software
Licensing Agreement. All Resellers must be licensed first as a Customer.)
WITNESSETH:
WHEREAS, pursuant to that certain End User License Agreement between PSW
and RESELLER dated _____________, RESELLER desires the right to resell portions
of the Deliverables and PSW Object Library to other parties.
WHEREAS, PSW is willing and able to grant such rights and licenses on the
terms and conditions set forth herein;
Section 1
DEFINITION OF TERMS
The definition of terms set forth in this Section 1 shall apply in this
Agreement (in addition to terms expressly defined elsewhere herein) including
any and all exhibits, addenda, and amendments made to or incorporated herein now
or in the future.
1.1 "De1iverables." Any and all tangible products delivered by PSW for
RESELLER under this Agreement, including all object diagrams, functional
specifications, prototypes, reports, conversion tools, class libraries, the
"source" code and object code, and all necessary Documentation therefor and
further including enhancements, modifications, and corrections made to the
Deliverables by PSW pursuant to support, training, and maintenance services
provided to RESELLER by PSW.
1.2 "Documentation." All textual material relating to the Deliverables,
including flow charts, operating instructions, and related technical
information. Documentation shall include user manuals, help text, training
materials, and sample source code used for training and documentation purposes.
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1.3 "PSW Systems Library." Those Deliverables in Schedule 1 that are
specified to be part of the PSW Systems Library.
l.4 "PSW Business Library." Those Deliverables in Schedule 1 that are
specified to be part of the PSW Business Library.
1.5 "PSW Object Library." The combination of the PSW Systems Library and
the PSW Business Library.
1.6 "PSW Enhancements." Changes, corrections, modifications, or additions,
including all new releases and applications, made by PSW to the PSW Object
Library and related Documentation.
1.7 "RESELLER Enhancements." Changes, corrections, modifications, or
additions, including all new releases and applications, made by RESELLER to the
PSW Object Library and related Documentation.
1.8 "Computer Business." The Computer Business shall be defined to include
the research, development, production, marketing, selling, distribution, or
leasing of computer hardware, computer hardware peripherals, integrated document
management systems or cameras, or the performance of development, consulting,
training, or maintenance services relating to computer hardware, computer
hardware peripherals, integrated document management systems, or cameras.
1.9 "PSW Licensors". Other parties who have licensed portions of the
Deliverables to PSW under separate agreements.
1.10 "Customer." Any end user customers to whom RESELLER directly markets
and sells the Product and who sign an End User License Agreement as minimally
defined in Schedule 2.
1.11 "Product" Any deliverables licensed by PSW that includes the Object
21 Library, CCSI Enhancements, PSW Enhancements, Documentation, or other
Deliverables. "Product" may include one or more separately priced PSW
offerings.
1.12 "End User License Agreement." The license agreement signed by an end
user customer of the reseller as minimally specified in Schedule 2.
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Section 2
GRANT AND SCOPE OF RIGHTS FROM PSW TO RESELLER
2.1 Scope of Rights Granted. PSW hereby grants to RESELLER, and RESELLER,
hereby accepts, a nontransferable, nonexclusive right to distribute the
Deliverables to Customers.
2.2 Rights Restrictions. RESELLER is not authorized to distribute or
sublicense the PSW Business Library or PSW Enhancements to any party currently
in or planning to enter the Computer Business as defined in Section 1.
2.3 End User License Agreement. Any distribution of the Product by
RESELLER shall be pursuant to the terms and conditions of the End User License
Agreement in the form attached hereto as Schedule 2. The terms and conditions of
such End User License shall serve as the minimum documentation distributed by
RESELLER defining each Customer's rights and obligations regarding the Product
and RESELLER agrees to provide in a conspicuous manner one copy of the End User
License with each Product. Although RESELLER shall not be liable to PSW for any
Customer's failure to comply with the terms and conditions of the End User
License agreement, RESELLER agrees to report to PSW any known or suspected
violation(s) of the Customer license agreement and to reasonably cooperate with
PSW in any enforcement actions taken by PSW.
Section 3
OWNERSHIP
3.1 Continuing Rights. PSW and PSW Licensors shall retain full ownership
of and full rights to continue to use and market the Deliverables and the PSW
Enhancements and all rights, title and interest in and to all copyrights, patent
rights or trade secret rights associated with the Deliverables and the PSW
Enhancements.
3.2 Copyrights. RESELLER shall not remove any existing copyright or other
proprietary rights notices from the PSW Object Library, PSW Enhancements, or the
Deliverables.
Section 4
TERM
4.1 Basic Term. This agreement shall be effective on the date first above
written and shall remain in force until __________________ (date when RESELLER
rights terminate).
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4.2 Loss of Rights by PSW. In the event that PSW shall lose any of its
sublicenses or rights due to breach, bankruptcy, insolvency, or any other event,
the rights and obligations in this agreement shall continue until the
termination date.
Section 5
CONFIDENTIAL INFORMATION
Treatment of Confidential Information as defined in the End User License
agreement shall apply to this Agreement as well.
Section 6
REPRESENTATIONS AND WARRANTIES
RESELLER acknowledges and agrees that any representations and warranties
regarding the Deliverables are provided by PSW and that its sole remedy for
breach hereunder shall be against PSW and not against the PSW Licensors. THE PSW
LICENSORS EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO
THE DELIVERABLES OR THE RESULTS OBTAINED FROM USING THE SAME, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
Section 7
LIMITATION OF LIABILITY
UNDER NO CIRCUMSTANCES SHALL PSW OR THE PSW LICENSORS BE LIABLE FOR SPECIAL,
EXEMPLARY, INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO
LEGAL FEES, LOSS OF PROFITS, LOSS OR INACCURACY OF DATA, OR LOSS RESULTING FROM
BUSINESS DISRUPTION, EVEN IF PSW OR THE PSW LICENSORS HAVE BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
Section 8
THIRD-PARTY BENEFICIARY
RESELLER acknowledges that the Deliverables and Confidential Information include
that of the PSW Licensors and that the PSW Licensors are third-party
beneficiaries of this Agreement with all the rights of PSW to enforce the
obligations of this Agreement against RESELLER.
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Section 9
U.S. GOVERNMENT RESTRICTED RIGHTS
If this license is acquired under a U.S. Government contract, use, duplication
or disclosure by the U.S. Government is subject to restrictions as set forth in
DFARS 252.227-7013(c)(ii) for Department of Defense contracts and as set forth
in FAR 52.227-19(a)-(d) for civilian agency contracts. PSW and the PSW Licensors
reserve all unpublished rights under the United States copyright laws.
(remainder of reseller agreement intentionally omitted)
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SOFTWARE LICENSING AGREEMENT
SCHEDULE C
Schedule 1
(include Deliverables containing relevant objects from Schedule A of the
Software License Agreement between CCSI and PSW and indicate which objects they
contain)
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SOFTWARE LICENSING AGREEMENT
SCHEDULE C
Minimum Terms for Reseller Agreement
Schedule 2 - Minimum Terms for Customer License Agreement
(The following terms are the minimum terms for Customers which will be included
in any Customer license agreement conveyed by a PSW Reseller. In the minimum
terms, the Reseller will be referred to as RESELLER and the Customer the Product
will be referred to as CLIENT.)
Section 1
DEFINITION OF TERMS
The definition of terms set forth in this Section 1 shall apply in this
Agreement (in addition to terms expressly defined elsewhere herein) including
any and all exhibits, addenda, and amendments made to or incorporated herein now
or in the future.
1.1 "Deliverables." Any and all tangible products delivered by RESELLER
for CLIENT under this Agreement, including all object diagrams, functional
specifications, prototypes, reports, conversion tools, class libraries, the
"source" code and object code, and all necessary Documentation therefor and
further including enhancements, modifications, and corrections made to the
Deliverables by RESELLER pursuant to support, training, and maintenance services
provided to CLIENT by RESELLER.
1.2 "Documentation." All textual material relating to the Deliverables,
including flow charts, operating instructions, and related technical
information. Documentation shall include user manuals, help text, training
materials, and sample source code used for training and documentation purposes.
1.3 "RESELLER Systems Library." Those Deliverables in Schedule 1 that are
specified to be part of the RESELLER Systems Library.
1.4 "RESELLER Business Library." Those Deliverables in Schedule 1 that are
specified to be part of the RESELLER Business Library.
1.5 "RESELLER Object Library." The combination of the RESELLER Systems
Library and the RESELLER Business Library.
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1.6 "CLIENT Enhancements." Changes, corrections, modifications, or
additions, including all new releases and applications, made by CLIENT to the
RESELLER Object Library and related Documentation.
1.7 "RESELLER Enhancements." Changes, corrections, modifications, or
additions, including all new releases and applications, made by RESELLER to the
RESELLER Object Library and related Documentation.
1.8 "Computer Business." The Computer Business shall be defined to include
the research, development, production, marketing, selling, distribution, or
leasing of computer hardware, computer hardware peripherals, integrated document
management systems or cameras, or the performance of development, consulting,
training, or maintenance services relating to computer hardware, computer
hardware peripherals, integrated document management systems, or cameras.
1.9 "RESELLER Licensors." Other parties who have licensed portions of the
Deliverables to RESELLER under separate agreements.
Section 2
GRANT AND SCOPE OF RIGHTS FROM RESELLER TO CLIENT
2.1 Scope of License. RESELLER hereby grants to CLIENT the right to use,
execute, modify, and reproduce, and distribute for internal use the licensed
portions of the RESELLER Object Library as specified in Schedule 1 and any
RESELLER Enhancements. Schedule 2 specifies the extent of the CLIENT's business
as it pertains to this license.
2.2 License Restrictions. CLIENT is not authorized to distribute or
sublicense the RESELLER Object Library or RESELLER Enhancements to any party
currently in or planning to enter the Computer Business as defined in Section 1.
CLIENT is not authorized to operate a service bureau utilizing any Deliverables,
CLIENT Enhancements, or RESELLER Enhancements.
2.3 Representation and Warranty of CLIENT Business. If CLIENT is licensing
any portion of the RESELLER Business Library, CLIENT represents and warrants by
signing this Agreement that neither it nor its subsidiaries, affiliates, or
divisions are not currently in, nor planning to enter the Computer Business
as defined in Section 1. If CLIENT is licensing any portion of the RESELLER
Business Library and either it or any of its subsidiaries, affiliates, or
divisions desires to enter the Computer Business, then prior to entering such
Computer Business CLIENT shall return all licensed portions of the RESELLER
Business Library to RESELLER and shall provide a sworn statement to RESELLER
averring that no copies of the
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RESELLER Business Library remain on any computer system or otherwise within its
possession or control.
Section 3
OWNERSHIP
3.1 RESELLER Enhancements. RESELLER shall own all RESELLER Enhancements.
3.2 CLIENT Enhancements. CLIENT shall own all CLIENT Enhancements.
3.3 Continuing Rights. RESELLER and RESELLER Licensors shall retain full
ownership of and full rights to continue to use and market the Deliverables and
RESELLER Enhancements and all rights, title and interest in and to all
copyrights, patent rights, and trade secret rights associated with the
Deliverables and RESELLER Enhancements.
3.4 Copyrights. CLIENT shall not remove any existing copyright or other
proprietary rights notices from the RESELLER Object Library, RESELLER
Enhancements or the Deliverables.
Section 4
TERM
4.1 Loss of Rights by RESELLER. In the event that RESELLER shall lose any
of its sublicenses or rights due to breach, bankruptcy, insolvency, or any other
event, the rights and obligations in this agreement shall continue.
Section 5
CONFIDENTIAL INFORMATION
5.1 RESELLER Information. In connection with this Agreement, RESELLER has
provided and shall provide CLIENT with certain information that is proprietary
and confidential to RESELLER or the RESELLER Licensors and necessary or useful
for CLIENT to exploit the licenses granted hereunder.
5.2 Confidentiality. The term "Confidential Information" as used herein
shall mean any information disclosed by RESELLER to CLIENT pursuant to Section
5.1 above in a written or other tangible form clearly identified as being
confidential. Oral or visual information shall not be considered as Confidential
Information unless it is designated confidential at the time of oral or visual
disclosure and
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<PAGE>
reduced to a writing clearly marked as being confidential that is sent to CLIENT
by RESELLER within thirty (30) days after such oral or visual disclosure. For
the purpose of this Agreement, any Deliverable or RESELLER Enhancement shall be
deemed Confidential Information.
5.3 Treatment of Confidential Information. During this Agreement and
thereafter, CLIENT shall keep the Confidential Information in strict confidence
and shall not disclose it to any person, firm or corporation outside CLIENT, nor
use the same for any purpose other than performing the Agreement. In addition,
CLIENT agrees to guard the Confidential Information by restricting its internal
dissemination to only those employees within CLIENT having a need to know the
Confidential Information for purposes of this Agreement. CLIENT has full
responsibility to ensure that all employees who are given access to the
Confidential Information maintain the confidentiality of the Confidential
Information, whether or not such employees continue to be employees of CLIENT.
5.4 Exceptions to Treatment of Confidential Information.
Notwithstanding Section 5.3 above, CLIENT shall have no confidential
obligation and no use restriction hereunder with respect to any Confidential
Information that
(1) is already known to CLIENT at the time of disclosure thereof as
evidenced by written records;
(2) is or becomes publicly known through no wrongful act of CLIENT at
or subsequent to the time of disclosure thereof; or
(3) is permitted for release by prior written consent of RESELLER.
5.5 Tangible Embodiments. Any and all written or tangible embodiments of
information disclosed to CLIENT by RESELLER hereunder shall be and remain the
property of RESELLER, and CLIENT agrees promptly to return such tangible
embodiments, including any copy thereof, to RESELLER upon termination of this
Agreement.
5.6 Intellectual Property. Except to the extent necessary to perform
CLIENT's obligations hereunder or as otherwise provided herein, no license or
right, expressed or implied, is hereby conveyed or granted to CLIENT for any
invention, patent application, patent, copyright, know-how, trade secret or
other intellectual property of RESELLER or RESELLER Licensors.
5.7 Trademarks. No license or right, expressed or implied, is hereby
conveyed or granted to CLIENT to use any trademark of RESELLER without the prior
express written consent of RESELLER or any trademark of any RESELLER Licensor
without the prior express written consent of such RESELLER Licensor.
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5.8 Enforcement. CLIENT understands and agrees that the obligations and
restrictions provided herein are necessary and reasonable in order to protect
the business of RESELLER and the RESELLER Licensors, and RESELLER and the
RESELLER Licensors would be irreparably harmed by any breach or threatened
breach hereof. In addition to any other remedies available for breach thereof,
RESELLER and the RESELLER Licensors shall be entitled to obtain injunctive
relief against a threatened breach or continuation of any such breach, without
the necessity of providing actual damages.
5.9 Confidentiality of Other Parties. CLIENT acknowledges that portions of
the RESELLER object Library may be licensed by RESELLER from other parties. To
the degree that the identity of and terms of those license agreements are made
known to CLIENT for the execution of this Agreement, CLIENT shall keep this
Confidential Information in strict confidence and shall not disclose it to any
person, firm or corporation except as required to execute this Agreement;
provided, however, that either party may, on a confidential basis, disclose
those Agreements to its accountants, attorneys, and financing organizations.
Section 6
REPRESENTATIONS AND WARRANTIES
CLIENT acknowledges and agrees that any representations and warranties regarding
the Deliverables are provided by RESELLER and that its sole remedy for breach
hereunder shall be against RESELLER and not against the Reseller Licensors. THE
RESELLER LICENSORS EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, WITH
RESPECT TO THE DELIVERABLES OR THE RESULTS OBTAINED FROM USING THE SAME,
INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
Section 7
LIMITATION OF LIABILITY
UNDER NO CIRCUMSTANCES SHALL RESELLER OR THE RESELLER LICENSORS BE LIABLE FOR
SPECIAL, EXEMPLARY, INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT
LIMITED TO LEGAL FEES, LOSS OF PROFITS, LOSS OR INACCURACY OF DATA, OR LOSS
RESULTING FROM BUSINESS DISRUPTION, EVEN IF RESELLER OR THE RESELLER LICENSORS
HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
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<PAGE>
Section 8
THIRD-PARTY BENEFICIARY
CLIENT acknowledges that the Deliverables and Confidential Information include
that of the Reseller Licensors and that the Reseller Licensors are third-party
beneficiaries of this Agreement with all the rights of Reseller to enforce the
obligations of this Agreement against CLIENT.
Section 9
U.S. GOVERNMENT RESTRICTED RIGHTS
If this license is acquired under a U.S. Government contract, use, duplication
or disclosure by the U.S. Government is subject to restrictions as set forth in
DFARS 252.227-7013(c)(ii) for Department of Defense contracts and as set forth
in FAR 52.227-19(a)-(d) for civilian agency contracts. RESELLER and the RESELLER
Licensors reserve all unpublished rights under the United States copyright laws.
(remainder of the reseller's Customer license agreement intentionally omitted)
(Schedules 1 and 2 to this End User Agreement are the same as Schedules 1 and 2
to PSW's end user agreement, which is Schedule B to Software Licensing
Agreement)
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Exhibit 10.7
SERVICE AGREEMENT NO 200.504
This SERVICE AGREEMENT, made as of November 26, l990, by and between
International Business Machines Corporation, a corporation of the State of New
York, having an office at 11400 Burnet Road, Austin, Texas 78758 (hereinafter
referred to as IBM), and Pencom Software Inc., a corporation of New York, having
an office at 9050 Capital of Texas Hwy. North, Austin, TX 78759 (hereinafter
referred to as Contractor).
1.0 SCOPE OF WORK
1.1 Contractor will furnish skill requirements for technical support to IBM,
as more fully set forth in Appendix A (which is attached and made a part
of this Agreement) and in accordance with the terms and conditions on the
face and reverse of purchase orders issued from time to time by IBM and
accepted by Contractor. Such purchase orders shall constitute the
only authorization for Contractor to take any action or expend any money
for services hereunder. Contractor's services may include collaboration
with and assistance to IBM personnel and/or others retained by IBM. In the
event of any conflict between the terms and conditions of this Agreement
and those of purchase orders issued hereunder, the terms and conditions
of this Agreement shall prevail.
"Subsidiary" shall mean a corporation, company of other entity:
more than fifty percent (50%) of whose outstanding shares or securities
(representing the right to vote for the election of directors or other
managing authority) are; or
which does not have. outstanding shares or securities, as may be the case
in a partnership, joint venture or unincorporated association, but more
than fifty percent (50%) of whose ownership interest (representing the
right to make the decisions for such corporation, company or other entity)
is;
now or hereafter, owned or controlled, directly or indirectly by a party hereto,
but such corporation, company or other entity shall be deemed to be Subsidiary
only so long as such ownership or control exists.
1.2 IBM shall appoint a coordinator for each purchase order issued by IBM
under this Agreement. Such coordinator shall be responsible for
maintaining technical liaison with Contractor's supervisor and for
determining for IBM the adequacy, acceptability and fitness of the
<PAGE>
services performed by the Contractor under such purchase orders.
1.3 When work is done on IBM's premises, Contractor shall at all times provide
supervisory personnel acceptable to IBM to provide on-premises supervision
and control of Contractor's personnel who are working on such premises.
The Contractor will inform IBM of the name of the supervisor responsible
for the work. The supervisor shall have authority to act as agent for the
Contractor in his absence.
2.0 PAYMENT
2.1 IBM will pay Contractor for services under this Agreement in accordance
with rates specified in purchase orders issued hereunder by IBM or with
rates specified in the attached rate schedule.
3.0 RECORDS
3.1 Contractor shall maintain complete and accurate accounting records, in a
form in accordance with generally accepted accounting principles to
substantiate Contractor's charges hereunder. Such records shall include
payroll records, job cards, attendance cards and job summaries, and the
Contractor shall retain such records for a one year period from the date
of termination of this Agreement.
IBM shall have access to such records for purposes of audit during normal
business hours during the term of this Agreement and during the respective
periods in which Contractor is required to maintain such records as herein
provided.
4.0 CONFIDENTIAL INFORMATION
4.1 "Confidential Information" shall mean that information: 1) disclosed to or
obtained by Contractor in connection with, and during the term of, this
Agreement; and 2) which relates to past, present and future research,
development and business activities of IBM or its Subsidiaries. It shall
also mean all items prepared for and submitted to IBM in connection with
work performed under this Agreement, including drafts and associated
materials. The term "Confidential Information" shall not mean any
information which is previously known to Contractor without obligation of
confidence, is publicly disclosed by IBM either prior
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or subsequent to Contractor's receipt of such information, or is
rightfully received by Contractor from a third party without obligation of
confidence.
4.2 For a period of three years from the date of disclosure or receipt,
Contractor agrees to hold all such Confidential Information in trust and
confidence for IBM; and not to use such Confidential Information other
than for the benefit of IBM, or make copies of such Confidential
Information without the permission of IBM. Except as may be authorized by
IBM in writing, Contractor agrees not to disclose any such Confidential
Information, for such period of time, by publication or otherwise, to any
person other than those persons whose services Contractor requires who
have a need to know such Confidential Information for purposes of carrying
out the terms of this Agreement, and who agree in writing to be bound by,
and comply with, the provisions of this Section 4.
4.3 Upon termination or expiration of this Agreement, Contractor will return
to IBM all written or descriptive matter, including, but not limited to,
drawings, blueprints, descriptions, or other papers, documents, tapes, or
any other media which contain any such Confidential Information. In the
event of a loss of any item containing such Confidential Information,
Contractor shall promptly notify IBM in writing.
5.0 RIGHTS IN DATA
5.1 All of the items prepared for and submitted to IBM by Contractor under
this Agreement shall belong exclusively to IBM and shall be deemed to be
works made for hire. To the extent that any such items may not, by
operation of law, be works made for hire, Contractor hereby assigns to IBM
the ownership of copyright in such items and IBM shall have the right to
obtain and hold in its own name copyrights, registrations and similar
protection which may be available in such items. Contractor agrees to give
IBM or its designees all assistance reasonably required to perfect such
rights.
5.2 To the extent that any preexisting materials of Contractor are contained
in such items, Contractor grants to IBM an irrevocable, nonexclusive,
worldwide, royalty-free license to: 1) use, execute, reproduce, display,
perform, distribute (internally or externally) copies of, and prepare
derivative works based upon, such preexisting materials and derivative
works thereof, and, 2) authorize others to do any, some or all of the
foregoing.
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5.3 No license or right is granted to Contractor either expressly or by
implication, estoppel or otherwise to publish, reproduce, prepare
derivative works based upon, distribute copies of, publicly display, or
perform, any of such items, except preexisting materials of Contractor,
either during or after the term of this Agreement.
6.0 WARRANTIES
6.1 Contractor represents and warrants that it is under no obligation or
restriction, nor will it assume any such obligation or restriction, which
would in any way interfere or be inconsistent with, or present a conflict
of interest concerning, the services to be furnished by Contractor under
this Agreement.
6.2 Contractor represents and warrants the originality of the items prepared
for and submitted to IBM under this Agreement and that no portion of such
items, or their use or distribution violates or is protected by any
copyright or similar right of any third party.
6.3 In providing services under this Agreement, Contractor understands that
IBM does not wish to receive from Contractor any information which may be
considered confidential and/or proprietary to Contractor and/or to any
third party. Contractor represents and warrants that any information
disclosed by Contractor to IBM is not confidential and/or proprietary to
Contractor and/or to any third party.
7.0 INVENTIONS
7.1 'Invention' shall mean any idea, design, concept, technique, invention,
discovery or improvement, whether or not patentable, made, solely or
jointly by Contractor, and/or Contractor's employees, or jointly by
Contractor and/or Contractor's employees with one or more employees of IBM
during the term of this Agreement and in the performance of services
hereunder, provided that either the conception or reduction to practice
occurs during the term of this Agreement and in the performance of
services hereunder.
8.0 INVENTION RIGHTS
8.1 Contractor shall promptly make a complete written disclosure to IBM of
each Invention, specifically pointing out the features or concepts which
Contractor believes to be new or different.
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8.2 Contractor hereby assigns to IBM, its successors and assigns, any said
Invention together with the right to seek protection by obtaining patent
rights therefor and to claim all rights of priority thereunder, and the
same shall become and remain IBM's property whether or not such protection
is sought.
8.3 Contractor shall, upon IBM's request and at IBM's expense, cause patent
applications to be filed thereon, through solicitors designated by IBM,
and forthwith assign all such applications to IBM, its successors and
assigns. Contractor shall give IBM and its solicitors all reasonable
assistance in connection with the preparation and prosecution of any such
patent applications and shall cause to be executed all such assignments
and other instruments and documents as IBM may consider necessary or
appropriate to carry out the intent of this Section.
8.4 To the extent that IBM has the right to do so, IBM hereby grants to
Contractor an irrevocable, nonexclusive, non-transferable and fully
paid-up license throughout the world under any said Inventions assigned to
IBM pursuant to this Section 8, and under any patents throughout the world
issuing thereon, including reissues, extensions, divisions and
continuations thereof; provided, however, that such license is not
applicable to any Inventions, patent applications or patents relating to
appearance designs.
8.5 Nothing contained in this Agreement shall be deemed to grant either
directly or by implication, estoppel, or otherwise, any license under any
patents or patent applications arising out of any other inventions of
either party.
9.0 CONTRACTOR'S AGREEMENT WITH EMPLOYEES
9.1 Contractor will have an appropriate agreement with each of its employees
and all others whose services Contractor may secure to perform hereunder,
sufficient to enable it to comply with all of the terms of this Agreement.
10.0 CONTRACTOR'S EMPLOYEES NOT DEEMED IBM'S
10.1 Contractor agrees to take appropriate preventive steps before the
assignment of any of its employees to perform work under this Agreement,
that it reasonably believes will ensure that its employees and its
subcontractors' employees at any level, will not engage in inappropriate
conduct while on IBM premises.
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Inappropriate conduct shall include, but is not limited to: being under
the influence of or affected by alcohol, illegal drugs, or controlled
substances; the manufacture use, distribution, sale or possession of
alcohol, illegal drugs or any controlled substance, except for approved
medical purposes; the possession of a weapon of any sort; and/or
harassment, threats or violent behavior. Violation of this provision may
result in termination of this Agreement and any other remedy available to
IBM at law or in equity.
10.2 Personnel supplied by Contractor are employees of Contractor and will not
for any purpose be considered employees or agents of IBM. Contractor
assumes full responsibility for the actions of such personnel while
performing services pursuant to purchase order(s) issued hereunder, and
shall be solely responsible for their supervision, daily direction and
control, payment of salary (including withholding of income taxes and
social security), worker's compensation, disability benefits and the like.
10.3 Contractor agrees to provide IBM any information about Contractor's
personnel that IBM is required by law to obtain, including information on
"leased employees" and "management services organizations," as these terms
are discussed in Sections 414 (m), (n) and (o) of the U.S. Internal
Revenue Code.
11.0 FORMER DEPARTMENT OF DEFENSE EMPLOYEES
Contractor warrants that no individual who is a former officer or employee
of Department of Defense (DoD), who:
1) left DoD service on or after April 16, 1987; and
2) served in a civilian position for which the rate of pay is equal to
or greater than the minimum rate of pay for grade GS-13; or served
in the Armed Forces in a pay grade of 4 or higher,
shall be employed or compensated for services rendered under this
Agreement within two years after they left service in DoD, without
specific written approval of IBM. If Contractor requests such approval,
Contractor agrees to provide IBM with any information needed to comply
with 10 USC 2397 b and c.
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12.0 TERM, TERMINATION AND CANCELLATION
12.1 This Agreement shall commence on December 3, 1990, and shall expire on
December 2, 1991.
12.2 Contractor or IBM may terminate this Agreement at any time upon 30 days'
prior written notice to the other party. Any outstanding purchase orders
shall terminate upon termination of this Agreement.
12.3 IBM may, at its sole discretion, request that Contractor remove any
specified employee(s) of Contractor from IBM's premises, and that they not
be reassigned to any IBM premises under this Agreement. No reason is
required for such request. Contractor hereby agrees to take action
immediately to remove such specified employee(s), and to see that such
reassignment does not occur.
12.4 Purchase orders issued pursuant to this Agreement, or portions thereof,
covering services of Contractor's personnel to be performed on or off IBM
premises, may be so cancelled on 30 days, written notice, without further
liability to Contractor by IBM.
12.5 In the event of cancellation, termination or expiration of any purchase
order issued hereunder, all work being performed thereunder in
Contractor's possession shall be forwarded to IBM, and IBM shall make
payment at the specified rates for satisfactory services performed to the
effective date of cancellation, termination or expiration of such purchase
order.
13.0 COMPLIANCE WITH LAWS
13.1 There are incorporated into this Agreement the provisions of Executive
Order 11246 (as amended) of the President of the United States on Equal
Employment Opportunity and the rules and regulations issued pursuant
thereto. Contractor represents that Contractor will comply with this order
and pertinent rules and regulations, unless exempted.
13.2 Contractor represents that in the performance of this Agreement,
Contractor shall comply with all of the applicable provisions of the Fair
Labor Standards Act of 1938 of the United States, as amended.
13.3 Contractor agrees to comply and do all things necessary to meet the
requirements of the Occupational Safety and Health Act of 1970. Contractor
agrees to promptly
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notify IBM in writing if a charge of noncompliance with the Act has been
filed against it in connection with the services being provided hereunder.
13.4 Contractor agrees to comply, and do all the things necessary for IBM to
comply, with all applicable Federal, State and local laws, regulations and
ordinances, including, but not limited to, the Foreign Corrupt Practices
Act; the Immigration Reform and Control Act of 1986, as amended; and the
Regulations of the United States Department of Commerce relating to the
Export of Technical Data; insofar as they relate to the services to be
performed under this Agreement. Contractor agrees to obtain all required
government documents and approvals prior to export of any technical data
disclosed to Contractor or the direct product related thereto.
13.5 Contractor represents that it is not subject, either directly or
indirectly (by affiliation or any other connection with another party), to
any order issued by any agency of the United States Government revoking or
denying, in whole or in part, the Contractor's United States export
privileges. Contractor agrees to notify IBM immediately in the event
Contractor becomes subject to any such order.
14.0 ILLEGAL ALIENS
14.1 The Contractor shall establish appropriate procedures and controls so that
services under this Agreement will not be performed by using any alien who
is not legally eligible for such employment under United States
immigration laws.
15.0 FORMER IBM EMPLOYEES
15.1 Contractor shall inform IBM when Contractor plans to assign a former IBM
employee to perform work under this Agreement, whether or not on IBM
premises. IBM reserves the right to approve or disapprove the assignment.
15.2 Nothing contained in this Agreement shall be construed as granting to
Contractor or any employee of Contractor any other or additional rights
under any IBM employee benefit plan or otherwise, than may now exist under
the IBM Retirement Plan by reason of Contractor's or such employees' prior
status as a retired employee of IBM.
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16.0 GENERAL PROVISIONS
16.1 The rights and obligations of Sections 3.0, 4.0, 5.0, 6.0, 8.0, 13.0 and
20.0 shall survive and continue after any expiration or termination of
this Agreement and shall bind the parties and their legal representatives,
successors, heirs and assigns.
16.2 Contractor agrees that neither Contractor nor any of its agents or
employees will export or re-export any information of IBM, nor any
process, product or service that is produced as a result of the use of
such information, to any country specified in such Export Regulations as a
prohibited destination, without first obtaining U.S. Government approval,
by application through IBM. Upon request, IBM will advise Contractor of
the countries then specified in such Regulations as prohibited
destinations.
16.3 Neither party shall assign any of its rights (except rights to the payment
of money) or delegate any of its obligations under this Agreement to any
third party without the express written consent of the other. Any act in
derogation of the foregoing shall be null and void.
16.4 This Agreement incorporates by reference the IBM Austin Contractor Safety
Guide dated October 4, 1989, the terms of which are set forth in Appendix
B (which is attached and made a part of this Agreement). In the event of
any conflict between or among the terms of the IBM Austin Contractor
Safety Guide and Paragraphs 1 through 21, the terms of Paragraph 1 through
21 of this Agreement shall control.
17.0 SOLE AGREEMENT
17.1 This Agreement together with its attachments shall supersede all prior
agreements and understandings between the parties respecting the subject
matter thereof. This Agreement may not be changed or terminated orally by
or on behalf of either party.
18.0 INDEMNIFICATION
18.01 Contractor agrees to indemnify and save IBM harmless from and against any
and all claims of any kind including, but not limited to, personal injury
or death to persons or damage to property, arising out of, in connection
with, or resulting from Contractor's performance under this Agreement, to
the extent caused
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in whole or in part by Contractor, or any subcontractors, or by anyone
directly or indirectly employed by Contractor.
19.0 LIMITATION OF LIABILITY
19.1 Neither party shall be liable for any lost revenue, lost profits, or other
consequential damages under any part of this Agreement, even if advised of
the possibility of such damages. Furthermore, IBM shall not be liable for
any delays, losses or any other damages which may result from the
furnishing of any equipment, documentation, programs or services under
this Agreement, even if advised of the possibility of such damages.
19.2 Contractor shall secure and maintain adequate worker's compensation
insurance in accordance with the law of the state or states wherein
Contractor shall perform services for IBM. Contractor further agrees to
maintain comprehensive general and vehicular liability insurance for
claims for damages because of bodily injury (including death) and property
damage, caused by or arising out of acts or omission of its employees. The
minimum limits of such insurance shall be $100,000.00 for each person and
$300,000.00 for each accident because of bodily injury, and $100,000.00
because of property damage for each accident. Certificates of such
insurance shall be furnished to IBM at the commencement of this Agreement
and at the renewal date or dates of all such insurance policies for as
long as this Agreement remains in effect. In no event shall any such
insurance be cancelled without prior written notice to IBM by Contractor's
insurance carrier.
20.0 IBM TRADEMARK
20.1 Notwithstanding any other provisions of this Agreement, Contractor shall
have no right to use IBM's trademark, or trade name, or to refer to this
Agreement or the services performed hereunder, directly or indirectly, in
connection with any product, service, promotion or publication without the
prior written approval of IBM.
21.0 APPLICABLE LAW
21.1 This Agreement shall be construed, and the legal relations between the
parties hereto shall be determined in accordance with the law of the State
of New York.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized representatives as of the day and year first
above written.
INTERNATIONAL BUSINESS PENCOM SOFTWARE, INC.
MACHINES CORPORATION
BY: /s/ A. Caricari BY: /s/ E. Taylor
TITLE: Procurement Manager TITLE: President
DATE: 11-30-90 DATE: 12/3/90
-11-
<PAGE>
APPENDIX "A"
SCOPE OF WORK
Provide skill requirements for technical support on IBM premises to IBM's
Advanced Workstations Division Customer Technical Support Center as follows:
1. Be responsible for answering questions from IBM customers and
vendors that the marketing level 1 and level 2 support centers
cannot answer.
2. Develop tips and techniques or course material for IBM marketing
technical support centers or porting center.
3. Assist IBM customers and vendors in difficult porting, performance
tuning or customer environment situations.
Skill requirements require excellent UNIX and C skills with the ability to read
code, specific knowledge of AIX, provide very good customer interaction skills
and a desire to work with problems/solutions rather than developing a new code.
Contractor shall provide a time based report on all projects being performed by
its employees under this agreement. These reports shall contain the time worked
on specific projects, coded to these projects. These reports shall be issued on
a weekly basis, followed by a monthly summary report. This reporting frequency
shall be in effect through the end of March, 1991. Thereafter, a reporting
procedure shall be negotiated and implemented for The period after March, 1991.
-12-
<PAGE>
Service Agreement # 200.504
Attachment 1
IBM Vendor Certificate of Originality
This questionnaire must be completed by the Vendor furnishing a software
material (program product or offering and related documentation, or other
software material) for IBM reproduction and marketing, and must be sent to the
IBM product manager. The acceptance of this questionnaire by IBM is a necessary
condition precedent for the IBM final payment for the furnished material.
One questionnaire can cover one complete product, even if that product includes
multiple modules. However, a separate questionnaire must be completed for code
and another for its related documentation (if any).
Please leave no question blank. Write "not applicable" or "N/A" if a question is
not relevant to the furnished software material.
----------
1. Name of the software material (provide complete identification, including
version, release, and modification numbers for programs and
documentation):
The only software provided will be software created in connection with
Pencom's technical support role.
2. Was the software material or any portion thereof written by any party than
you, _____ or your employees working within their job assignment?
YES _____ NO x
-1-
<PAGE>
If YES, provide the following information:
A) Indicate if the whole software material or only a portion thereof was
written by such party, and identify such portion:
n/a
B) Specify for each involved party:
i) Name: ______________________________________________________________
ii) Address: ___________________________________________________________
iii) If the party is a Company, how did it acquire title to the software
material (e.g. software material was written by company's employees
as part of their job assignment)?
n/a
iv) If the party is an individual, did he/she create the software
material while employed by or under contractual relationship with
another party?
YES _____ NO _____
If YES, provide name and address of the other party and explain the nature
of the obligations:
n/a
3. What copyright notice(s) do you wish to have included in the software
material when published by IBM?
n/a
4. Was the software material or any portion thereof derived from any of their
party's preexisting material(s)?
YES ______ NO X
-2-
<PAGE>
If YES, provide the following information for each of the preexisting
materials:
A) Name of the materials: n/a
B) Owner:
C) How did you get the right to use the preexisting material(s)? n/a
5. Identify below, or in an attachment, any other circumstances which might
affect IBM's ability to reproduce and market this software product,
including:
A) Confidentiality or trade secrecy of preexisting material(s) n/a
B) Known or possible royalty obligations to others: n/a
C) Preexisting materials developed for another party or customer
(including government) where you may not have retained full rights
to the material: n/a
D) Materials acquired from a person or company possibly having no title
to them: n/a
-3-
<PAGE>
E) Other Circumstances:
n/a
Vendor Name: Pencom Software Inc.
Address: 9050 Capital of Texas Hwy, N
Austin, Texas 78759
Signer Name and Title: Edward A. Taylor
-------------------------------------
President
Signature: /s/ E. Taylor
-------------------------------------
Date: December 3, 1990
-4-
<PAGE>
Attachment 2
November 30, 1990
Pencom Software, Inc.
9050 Capital of Texas Hwy N. # 300
Austin, TX 78759
SUBJECT: Service Agreement #200.504
Dear Edward Taylor:
In furnishing you with AT&T Information Systems' UNIX* or UNIX derivative source
code, International Business Machines Corporation (hereinafter referred to as
IBM) has been requested by AT&T Information Systems (hereinafter referred to as
AT&T) to obtain your Agreement to the following:
1. Any claim, demand, or right of action arising on behalf of Pencom
Software, Inc. (hereinafter referred to as Vendor) from access to or use
of the UNIX or UNIX derivative source code shall be solely against IBM.
2. Vendor agrees that it shall hold the UNIX or UNIX derivative source code
in confidence for AT&T and IBM. Vendor further agrees that it shall not
make any disclosure of any or all of the UNIX or UNIX derivative source
code to anyone, except to employees of Vendor or IBM to whom such
disclosure is necessary to the use for which rights are granted hereunder.
Vendor shall appropriately notify each employee to whom any such
disclosure is made that such disclosure is made in confidence and shall be
kept in confidence by such employee. If information relating to the UNIX
or UNIX derivative source code at any time becomes available without
restrictions to the general public by acts not attributable to Vendor or
its employees, Vendor's obligations under this Section shall not apply to
such information after such time.
3. All UNIX or UNIX derivative Source Code may be used only in conjunction
with a machine which has the appropriate source code license furnished by
AT&T. The only copies permitted to be made are those for back-up purposes
in conjunction with that machine. If Vendor wishes to transfer the source
code to another machine, IBM must be notified and have AT&T's approval to
transfer such source code, prior to the transfer of the source code. The
source code must be removed from the previously licensed machine upon
transfer of the license to the newly licensed machine.
*UNIX is a registered trademark of AT&T.
<PAGE>
4. Vendor, upon completion of work for IBM relating to the UNIX or UNIX
derivative source code shall return all copies of the UNIX or UNIX
derivative source code to IBM and shall erase any such software form any
storage elements or apparatus.
5. The obligations of Vendor and its respective employees under this
Agreement shall survive and continue after termination of any other
Agreements between Vendor and IBM.
This Agreement is effective December 3, 1990.
If the above terms and conditions are acceptable to Vendor, an authorized
representative is requested to indicate acceptance thereof by signing and
returning two (2) copies of this Agreement, as instructed herein, and retaining
one (1) copy for file.
Return one (1) copy to: IBM Corporation
Software Contracts Procurement
AOD/983/Zip 2202
11400 Burnet Road
Austin, TX 78758
Attention: May Cherry
Return one (1) copy to: IBM Corporation
Zip 1109
11400 Burnet Road
Austin, TX 78758
Attention: Lynn Turner
Very truly yours, Accepted and Agreed to:
INTERNATIONAL BUSINESS _________________________________
MACHINES CORPORATION
By: /s/ Caricari By: /s/ E. Taylor
--------------------------- -----------------------------
Title: Procurement Manager Title: President
Date: 11-30-90 Date: December 3, 1990
<PAGE>
Date: November 30, 1990
ATTACHMENT 3
Pencom Software, Inc
9050 Capital of TX, Hwy N. #300
Austin, TX 78759
SUBJECT: SERVICE AGREEMENT #200.504
Dear, Edward Taylor
International Business Machines Corporation (hereinafter called IBM) may wish to
obtain quotations from and to issue to Pencom Software, Inc. (hereinafter called
Developer) IBM Purchase Orders and to execute with Developer associated
agreements for various materials, services or software programs from time to
time. In connection therewith, it may be necessary for IBM to disclose to
Developer confidential information of IBM.
As a basis for such dealing, Developer is required to enter into this Agreement
having the following terms and conditions.
1. IBM may disclose IBM Confidential Information to Developer either orally
or in writing (including graphic material). When disclosed in writing, or
other tangible form, the information will be labeled "IBM Confidential".
When disclosed orally, such information will be identified as "IBM
Confidential" at the time of disclosure with subsequent confirmation in
writing referencing the date and type of information disclosed. Developer
agrees to clearly label as "IBM Confidential" all information reduced to
writing by Developer as a result of such oral disclosures.
IBM's disclosure of Confidential Information may include disclosure(s) of
third Party source code (hereinafter called Third Party Source Code).
Third Party and/or IBM Source Code shall be labeled as such in addition to
being labeled as and deemed to be IBM Confidential Information as set
forth above.
2. Developer shall hold in trust and confidence all IBM Confidential
Information including Third Party Source Code and shall not disclose such
information to any third party. Furthermore, Developer shall not use such
IBM Confidential Information for any purpose other than to prepare a
response to any IBM Request For Quotation or to perform work for IBM as
may subsequently be ordered. Developer shall not disclose or use such
information for any purpose other than those stated above until such time
as the information becomes publicly know through no fault of Developer.
-1-
<PAGE>
3. Except for the specific purposes contemplated by this Agreement, it is to
be understood that by disclosing IBM Confidential Information to
Developer, IBM and any Third Party do not grant any express or implied
license or other right to Developer under patents, copyrights or other
proprietary rights of IBM or the Third Party.
4. IBM Confidential Information shall also include all information identified
as confidential and disclosed by IBM to Developer which pertains to IBM's
past, present or future research, development or business activities.
5. Developer shall not disclose IBM Confidential Information to
subcontractors nor subcontract any part or the work covered by Purchase
Orders issued by IBM without first obtaining written consent from IBM.
6. Developer's obligations regarding IBM Confidential Information shall not
apply to information which was already know to Developer prior to
disclosure of it to Developer by IBM which is or becomes publicly
available through no fault of Developer's, which is rightfully received by
Developer from third parties without accompanying secrecy obligations,
which is independently developed by Developer or which is approved in
writing by IBM for Developer to release.
7. Developer shall disclose IBM'S Confidential Information only to
Developer's employees having a need-to-know and shall segregate such
information at all times from the materials of third parties so as to
prevent any commingling.
8. Developer shall maintain a written agreement with each of Developer's
employees sufficient to enable Developer to comply with the terms of this
Agreement.
9. Developer shall secure IBM documents, items of work in process, work
products, and any other items that embody IBM Confidential Information in
locked files or areas providing restricted access to prevent its
unauthorized disclosure.
10. Developer shall maintain adequate procedures to prevent loss of any
materials containing IBM Confidential Information. In the event of any
loss, Developer shall notify IBM immediately.
11. Developer agrees to maintain on hundred percent (100%) accountability of
material and equipment consigned to Developer by IBM and will promptly
notify IBM of loss or damage of any items consigned.
12. Developer shall return to IBM Confidential Information upon request.
-2-
<PAGE>
13. IBM does not wish to receive confidential information of Developer or
any third party and IBM will be free to reproduce, distribute to third
parties, and otherwise use any information furnished to IBM by Developer.
Any information provided to IBM shall not be deemed confidential.
14. This Agreement shall begin on December 3, 1990 and terminate on December
2, 1991 provided, however, that either party shall have the right to
terminate this Agreement upon ten (10) days prior written notice.
15. The provisions of this Agreement shall service and continue after
expiration or termination of the Agreement with respect to any IBM
Confidential Information disclosed to or obtained by Developer prior to
the date of such expiration or termination or disclosed to or obtained by
Developer subsequent thereto under any Purchase Orders in effect on such
date or expiration or termination.
16. This Agreement shall be construed and the legal relations between the
parties hereto shall be determined, in accordance with the substantive law
of the State of New York.
17. IBM shall have the right to visit periodically, using reasonable business
practices, Developer's premises and conduct a review of the compliance
with the terms of this Agreement -
18. Upon execution of this Agreement, Developer shall promptly notify IBM in
writing of Developer's authorized representative who will coordinate the
receipt and maintenance of all IBM Confidential Information sent to
Developer. Developer shall promptly notify IBM in writing of any change of
such authorized representatives.
-3-
<PAGE>
If the above terms and conditions are acceptable to Developer, an authorized
representative is requested to indicate acceptance thereof by signing and
returning two (2) copies of this Agreement, as instructed herein, and retaining
one (1) copy for file.
Return one (1) copy to: IBM Corporation
Software Contracts Procurement
AOD/983/Zip 2202
11400 Burnet Road
Austin, TX 78758
Attention: May Cherry
Return One (1) copy to: IBM Corporation
Zip 1109
11400 Burnet Road
Austin, TX 78758
Attention: Lynn Turner
Very truly yours, Accepted and Agreed to:
INTERNATIONAL BUSINESS --------------------------------
MACHINES CORPORATION
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
---------------------------- ----------------------------
Title: Procurement Manager Title: President
Date: 11-30-90 Date: December 3, 1990
-4-
<PAGE>
ATTACHMENT III
NON-CONFIDENTIAL GENERAL DESCRIPTION
OF IBM CONFIDENTIAL IMFORMATION
TO BE DISCLOSED TO TECHNICAL COORDINATOR
AIX Versons 3, 2, and 4 release plans.
<PAGE>
[LETTERHEAD OF IBM]
November 18, 1991
Mr. Edward A. Taylor
Pencom Software, Inc.
9050 Capital of Texas Hwy. North
Austin, Texas 78759
Dear Ed:
Service Agreement #200.504, dated November 26, 1990, is now being renewed.
There are no changes to the previous agreement pertaining to any terms and
conditions except the dates stated on Page 7. The dates of November 26, 1991
through November 25, 1992 will now apply.
If you agree with this change, please sign both copies and return one copy to
me.
If you have any questions, please contact me at phone number (512) 823-6539.
INTERNATIONAL BUSINESS
MACHINES CORPORATION PENCOM SOFTWARE, INC.
NAME: Lynn D. Turner NAME: Ed Taylor
TITLE: Procurement Contracts TITLE: President
Administrator
DATE: 11/18/91 DATE: 11/20/91
SIGNATURE: /s/ Lynn D. Turner SIGNATURE: /s/ Ed Taylor
-------------------- ------------------------
<PAGE>
[LETTERHEAD OF IBM]
October 29, 1992
Pencom Software, Inc.
9050 Capital of Texas Hwy North
Austin, TX 78759
Dear Sir:
Service Agreement Number 200.504, dated November 26, 1990, is now being renewed.
There are no changes to the previous agreement pertaining to any terms and
conditions except the dates stated on Page 7. The dates of November 26, 1992
through November 25, 1993 will now apply.
If you agree with this change, please sign both copies and return one copy to
me.
If you have any questions, please contact me at phone number (512) 823-6539.
INTERNATIONAL BUSINESS
MACHINES CORPORATION PENCOM SOFTWARE, INC.
NAME: Lynn D. Turner NAME: Wade E. Saadi
TITLE: Procurement Contracts TITLE: President
Administrator
DATE: 10/29/92 DATE: November 17, 1992
SIGNATURE: /s/ Lynn D. Turner SIGNATURE: /s/ Wade E. Saadi
<PAGE>
November 2, 1992 Attachment 2
Pencom Software, Inc.
9050 Capital of Texas Hwy. N. #300
Austin, Texas 78759
SUBJECT: SERVICE AGREEMENT NUMBER 200.504
Dear Sir:
International Business Machines Corporation (hereinafter called IBM) may wish to
obtain quotations from and to issue to Pencom Software, Inc. (hereinafter called
Developer) IBM Purchase Orders and to execute with Developer associated
agreements for various materials, services or software programs from time to
time. In connection therewith, it may be necessary for IBM to disclose to
Developer confidential information of IBM.
As a basis for such dealings, Developer is required to enter into this Agreement
having the following terms and conditions.
1. IBM may disclose IBM Confidential Information to Developer either orally
or in writing (including graphic material). When disclosed in writing, or
other tangible form, the information will be labeled "IBM Confidential".
When disclosed orally, such information will be identified as "IBM
Confidential" at the time of disclosure with subsequent confirmation in
writing referencing the date and type of information disclosed. Developer
agrees to clearly label as "IBM Confidential" all information reduced to
writing by Developer as a result of such oral disclosures.
IBM's disclosure of Confidential Information may include disclosure(s) of
third Party source code (hereinafter called Third Party Source Code).
Third Party and/or IBM Source Code shall be labeled as such in addition to
being labeled as and deemed to be IBM Confidential Information as set
forth above.
2. Developer shall hold in trust and confidence all IBM Confidential
Information including Third Party Source Code and shall not disclose such
information to any third party. Furthermore, Developer shall not use such
IBM Confidential Information for any purpose other than to prepare a
response to any IBM Request For Quotation or to perform work for IBM as
may subsequently be ordered. Developer shall not disclose or use such
information for any purpose other than those stated above until such time
as the information becomes publicly known through no fault of Developer.
<PAGE>
3. Except for the specific purposes contemplated by this Agreement, it is to
be understood that by disclosing IBM Confidential Information to
Developer, IBM and any Third Party do not grant any express or implied
license or other right to Developer under patents, copyrights or other
proprietary rights of IBM or the Third Party.
4. IBM Confidential Information shall also include all information identified
as confidential and disclosed by IBM to Developer which pertains to IBM's
past, present or future research, development or business activities.
5. Developer shall not disclose IBM Confidential Information to
subcontractors nor subcontract any part of the work covered by Purchase
Orders issued by IBM without first obtaining written consent from IBM.
6. Developer's obligations regarding IBM Confidential Information shall not
apply to information which was already known to Developer prior to
disclosure of it to Developer by IBM which is or becomes publicly
available through no fault of Developer's, which is rightfully received by
Developer from third parties without accompanying secrecy obligations,
which is independently developed by Developer or which is approved in
writing by IBM for Developer to release.
7. Developer shall disclose IBM's Confidential Information only to
Developer's employees having a need-to-know and shall segregate such
information at all times from the materials of third parties so as to
prevent any commingling.
8. Developer shall maintain a written agreement with each of Developer's
employees sufficient to enable Developer to comply with the terms of this
Agreement.
9. Developer shall secure IBM documents, items of work in process, work
products, and any other items that embody IBM Confidential Information in
locked files or areas providing restricted access to prevent its
unauthorized disclosure.
10. Developer shall maintain adequate procedures to prevent loss of any
materials containing IBM Confidential Information. In the event of any
loss, Developer shall notify IBM immediately.
11. Developer agrees to maintain one hundred percent (100%) accountability of
material and equipment consigned to Developer by IBM and will promptly
notify IBM of loss or damage of any items consigned.
12. Developer shall return to IBM all IBM Confidential Information upon
request.
13. IBM does not wish to receive confidential information of Developer or any
third party and IBM will be free to
<PAGE>
reproduce, distribute to third parties, and otherwise use any information
furnished to IBM by Developer. Any information provided to IBM shall not
be deemed confidential.
14. This Agreement is effective upon execution.
15. The provisions of this Agreement shall survive and continue after
expiration or termination of the Agreement with respect to any IBM
Confidential Information disclosed to or obtained by Developer prior to
the date of such expiration or termination or disclosed to or obtained by
Developer subsequent thereto under any Purchase Orders in effect on such
date or expiration or termination.
16. This Agreement shall be construed and the legal relations between the
parties hereto shall be determined, in accordance with the substantive law
of the State of New York.
17. IBM shall have the right to visit periodically, using reasonable business
practices, Developer's premises and conduct a review of the compliance
with the terms of this Agreement.
18. Upon execution of this Agreement, Developer shall promptly notify IBM in
writing of Developer's authorized representative who will coordinate the
receipt and maintenance of all IBM Confidential Information sent to
Developer. Developer shall promptly notify IBM in writing of any change or
such authorized representatives.
If the above terms and conditions are acceptable to Developer, an authorized
representative is requested to indicate acceptance thereof by signing and
returning two (2) copies of this Agreement, as instructed herein, and retaining
one (1) copy for file.
Return one (1) copy to: IBM Corporation
Software Contracts Procurement
AOD/808/Zip 3001
11400 Burnet Road
Austin, Texas 78758
Attention: May Cherry
Return one (1) copy to: IBM Corporation
11400 Burnet Road
Internal Zip 1109
Austin, Texas 78758
Attention: Lynn Turner
<PAGE>
Very truly yours, Accepted and Agreed to:
INTERNATIONAL BUSINESS PENCOM SOFTWARE, INC.
MACHINES CORPORATION
By: /s/ Lynn D. Turner By: /s/ Wade E. Saadi
----------------------------- -------------------------------
Lynn D. Turner
Title: Procurement Administrator Title: President
-------------------------- ----------------------------
Date: 11/4/92 Date: 11/20/92
--------------------------- -----------------------------
<PAGE>
[LETTERHEAD OF IBM]
November 17, 1993
Pencom Systems Incorporated
150 Broadway, Suite 600
New York, NY 10038
Dear Sir:
Service Agreement Number 200.504, dated November 26, 1990, is now being renewed.
There are no changes to the previous agreement pertaining to any terms and
conditions except the dates stated on Page 7. The dates of November 26, 1993
through November 25, 1994 will now apply.
If you agree with this change, please sign both copies and return one copy to
me.
If you have any questions, please contact me at phone number (512) 823-6539.
INTERNATIONAL BUSINESS PENCOM SOFTWARE, INC.
MACHINES CORPORATION
NAME: Lynn Turner NAME: /s/ Wade E. Saadi
----------------------------- -------------------------------
TITLE: Sr. Procurement TITLE: President
Administrator
---------------------------- ------------------------------
DATE: 11/17/93 DATE: November 24, 1993
----------------------------- -------------------------------
SIGNATURE: /s/ Lynn D. Turner SIGNATURE: Wade E. Saadi
------------------------ --------------------------
<PAGE>
[LETTERHEAD OF IBM]
February 17, 1995
Pencom Systems
40 Fulton Street
New York, NY 10038
Dear Sir:
Service Agreement Number 200.504, dated November 26, 1990, is now being amended
as follows:
Amend Section 4.1 to include "All third party confidential information provided
by Contractor to IBM should be considered IBM Confidential if it contains either
an IBM Confidential legend or a proprietary legend of the third party.
Contractor shall be obligated to comply with additional usage restrictions and
confidentiality protection requirements IBM provides Contractor from time to
time".
If you agree with this change, please sign both copies and return one copy to
me.
If you have any questions, please contact me at phone number (512) 823-6539.
INTERNATIONAL BUSINESS PENCOM SYSTEMS, INC.
MACHINES CORPORATION
NAME: Lynn Turner NAME: /s/ Wade E. Saadi
------------------------------ -------------------------------
TITLE: Sr. Procurement Administrator TITLE: President
----------------------------- ------------------------------
DATE: 2/17/95 Date: 2/21/95
------------------------------ -------------------------------
SIGNATURE: /s/ Lynn D. Turner SIGNATURE: /s/ Wade E. Saadi
------------------------- --------------------------
<PAGE>
[LETTERHEAD OF IBM]
April 20, 1995
Pencom Systems
150 Broadway, Suite 600
New York, NY 10038
Dear Sir:
Service Agreement Number 200.504, dated November 26, 1990, is now being amended
as follows:
Amend Section 4.1 to include "All third Party confidential information provided
by IBM to Contractor should be considered IBM Confidential if it contains either
an IBM Confidential legend or a proprietary legend of the third party.
Contractor shall be obligated to comply with additional usage restrictions and
confidentially protection requirements IBM provides Contractor form time to
time."
If you agree with this change, please sign both copies and return one copy to
me.
If you have any questions, please contact me at phone number (512) 823-6539.
INTERNATIONAL BUSINESS PENCOM SOFTWARE, INC.
MACHINES CORPORATION
NAME: Lynn Turner NAME: /s/ Wade E. Saadi
------------------------------ -------------------------------
TITLE: Sr. Procurement Administrator TITLE: President
----------------------------- ------------------------------
DATE: 4/21/95 Date: 4/27/95
------------------------------ -------------------------------
SIGNATURE: /s/ Lynn D. Turner SIGNATURE: /s/ Wade E. Saadi
------------------------- --------------------------
<PAGE>
[LETTERHEAD OF IBM]
December 11, 1995
Pencom Systems, Inc.
40 Fulton Street
New York, NY 10038
Dear Sir,
Service Agreement # 200.504, dated November 26, 1990, is now being renewed.
There are no changes to the previous agreement pertaining to any terms and
conditions except the dates stated on Page 7. The dates of January 1, 1996
through December 31, 1996 will now apply.
If you agree with this change, please sign both copies and return one copy to
me.
If you have any questions, please contact me at phone number (512) 823-6539.
INTERNATIONAL BUSINESS PENCOM SYSTEMS, INC.
MACHINES CORPORATION
NAME: Lynn Turner NAME: /s/ Wade E. Saadi
------------------------------ -------------------------------
TITLE: Advisory Contracts TITLE: President
----------------------------- ------------------------------
Administrator
-----------------------------
DATE: 12/11/95 Date: 12/14/95
------------------------------ -------------------------------
SIGNATURE: /s/ Lynn D. Turner SIGNATURE: /s/ Wade E. Saadi
------------------------- --------------------------
<PAGE>
Exhibit 10.8
Tivoli
Making Client/Server Work(TM)
SOFTWARE TASK ORDER AGREEMENT
THIS SOFTWARE TASK ORDER AGREEMENT ("Agreement") is made by and between TIVOLI
SYSTEMS INC. (hereinafter "Tivoli"), with offices at 9442 Capital of Texas
Highway North Arboretum Plaza One Suite 500, Austin, TX 78759 and Pencom
Software, (hereinafter "Pencom"), with offices at 9050 Capital of Texas Highway
North Austin Texas 78759.
PREAMBLE
Purpose - Tivoli desires to engage Pencom to perform software task orders
including but not limited to; developing, enhancing, porting, creating, testing,
support, and delivering certain programming materials as works made for hire,
and Pencom is interested in accepting such engagement, subject to the parties'
further agreement on the scope and terms of individual Work Statements which
shall be incorporated as Exhibits to this Agreement. Tivoli and Pencom mutually
agree that the terms and conditions set forth in this Agreement shall govern to
all such engagements.
NOW, THEREFORE, in consideration of the promises and covenants contained
herein, the parties hereby agree as follows:
Section 1 DEFINITIONS
When used in this Agreement and in the Work Statement hereto, the capitalized
terms listed below shall have the following meanings:
1.1 Code. Computer programming code. If not otherwise specified, "Code" shall
include both Object Code and Source Code. "Code" shall include any
Maintenance Modifications or Basic Enhancements thereto in existence from
time to time, and shall include Major Enhancements thereto when added to
the Code in connection with the Work Statement.
a. Object Code. The machine-readable form of the Code.
b. Source Code. The human-readable form of the Code and related system
documentation, including all comments and any procedural code such as
revision control files and shell scripts.
1.2 Deliverables. All Code, Documentation, and other materials developed for
or delivered to Tivoli by Pencom under this Agreement and defined any
applicable Work Statement attached hereto and made apart of this
Agreement.
1.3 Derivative Work. A work that is based upon one or more preexisting works,
such as a revision, modification, translation, abridgment, condensation,
expansion, or any other form in which such preexisting works may be
recast, transformed, or adapted, and which, if prepared without
authorization of the owner of the copyright in such preexisting work,
would constitute a copyright infringement. For purposes hereof, a
Derivative Work shall also include any compilation that incorporates such
a preexisting work.
1.4 Documentation. User manuals and other written materials that relate to
particular Code, including materials useful for design (e.g. logic manuals
and principles of operation). Documentation shall include any Maintenance
Modifications of Basic Enhancements, and updates provided by Pencom to
Tivoli from time to time, and shall include Major Enhancements thereto
when added to the Documentation in connection with any individual Work
Statement issued hereunder.
1.5 Enhancements. Changes or additions, other than Maintenance Modifications,
to Code and related Documentation, including all new releases, that
improve functions, add new functions, or significantly improve performance
by changes in system design or coding.
Tivoli/Pencom Software Task Order Agreement (November 20, 1995) Page 1
<PAGE>
a. Basic Enhancements. Any Enhancements that are not Major Enhancements.
b. Major Enhancements. Change or additions to Code and related
Documentation that (1) have a value and utility separate from the use of
Code and Documentation; (2) as a practical matter, may be priced and
offered separately from the Code and Documentation; and/or (3) are not
made available to any of Pencom's customers without separate charge.
1.6 Error. Any error, problem, or defect resulting from (1) an incorrect
functioning of Code, or (2) an incorrect or incomplete statement or
diagram in Documentation, if such error, problem, or defect renders the
Code inoperable, causes the Code to fail to meet the specifications
thereof, causes the Documentation to be inaccurate or incomplete in any
material respect, causes incorrect results, or causes incorrect functions
to occur when any such materials are used.
1.7 Maintenance Modifications. Any modifications or revisions, other than
Enhancements, to Code or Documentation that correct errors, support new
releases of the operating systems with which the Code is designed to
operate, support new input/output (I/O) devices, or provide other
incidental updates and corrections.
1.8 Specifications. The requirements for the work as defined collectively by
the Work Statement.
1.9 a) Software Product(s) means one or more Tivoli Management Environment(TM)
("TME") proprietary computer software programs or Tivoli/Plus Modules in
object code format, and their related materials which include the user
manuals, documentation, and software release notes associated with them
including updates, modifications or new releases of such software programs
and documentation as may be provided by Tivoli to Pencom from time to
time.
b) "Toolkit" is defined as a Software Product which permits user
customization or extension of the application Software and/or production
of Developed Programs (currently such Toolkits are Tivoli/AEF(TM),
Tivoli/EIF(TM) and Tivoli/ADE(TM).
1.10 Ported TME Software. means the ported version of the Software Products
adapted to operate on specific hardware and software platforms as shall be
further defined in any applicable Work.
1.11 New Work. "New Work" shall mean any idea, design, concept, technique,
invention, discovery, or improvement whether or not patentable, made
solely or jointly by Pencom and/or Pencom's employees and/or Pencom's
subcontractors, or jointly by Pencom and/or Pencom's employees and/or
Pencom's subcontractors with one or more employees of Tivoli and/or
Tivoli's subcontractors, during the term of this Agreement and in the
performance of any work under Work Statement issued hereunder, provided
that either the conception or reduction to practice thereof occurs during
the term of this Agreement and in the performance of work under the Work
Statement issued hereunder.
1.12 Proprietary Data. "Tivoli Proprietary Data" is defined as unpublished
Tivoli "know-how", which shall include (without limitation) computer
program designs, algorithms, subroutines, system specifications, test
data, charts, graphs, operation sheets and all other technical
information, owned by Tivoli or under its control, relating to the
deeelopment and production or use of the Tivoli preexisting work, defined
in Exhibit A, and the design, configuration, programming, and protocol of
the Tivoli pre-existing work. "Pencom Proprietary Data" is defined as
unpublished Pencom "know-how", which shall include algorithms, subroutines
and all other technical information, owned by Pencom or under its control,
relating to the development and production or use of Pencom preexisting
work, defined in Exhibit A, and the design, configuration, programming,
and protocol of the Pencom pre-existing work.
Tivoli/Pencom Software Task Order Agreement (November 20, 1995) Page 2
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Section 2 PROJECT MANAGEMENT
2.1 Project Manager. Upon execution of this Agreement, each party shall notify
the other party of the name, business address, and telephone number of its
Project Manager. The Project Manager of each party shall be responsible
for arranging all meetings, visits, and consultations between the parties.
The Project Manager shall also be responsible for receiving all notices
under this Agreement and for all administrative matters such as invoices,
payments, and amendments.
2.2 Scope of Work. The Work Statement agreed to by the parties shall define
the scope of work. Additional scope of work hereunder, regardless of
whether it relates to the same subject matter as the initial Work
Statement or not shall become effective only upon execution by authorized
representatives of both parties of a written amendment hereto.
Section 3 CHANGES
3.1 Changes in the Work Statement, Specifications or Deliverables of the Work
Statement hereunder shall become effective only when a written change
request is executed by authorized reprentatives of both parties.
3.2 Change requests that do not substantially affect the nature of
Deliverables, their performance, or their functionality, and that do not
change schedules or dollar amounts may be requested and/or accepted by the
parties' Project Managers.
3.3 Pencom may not decline to accept any change requests that reduce the cost
of performance, provided that an equitable adjustment in compensation is
made for costs of any performance or preparation already undertaken.
Pencom further may not decline any change requests that increase the cost
or magnitude of scope, provided that the changes are reasonable in scope.
Section 4 COMPENSATION AND INVOICING
4.1 Payment for all services to be performed shall be set forth in the Work
Statement.
a. Fixed Price-Pencom compensation for Deliverables subject to
milestones in the Work Statement shall be fixed price. Unless the Work
Statement provides for progress payments, Tivoli shall pay the full amount
of the fixed price upon Pencom's satisfactory completion of the Work
Statement and Tivoli's acceptance or the work as provided therein.
b. Royalties-Royalties, if any, will be paid by Tivoli to Pencom as
defined in the Work Statement.
c. Invoicing-Pencom will submit invoices to Tivoli for payment for work
and/or Deliverables at such times as payment becomes due under the Work
Statement. Invoices shall be payable net thirty (30) days after
receipt of a proper invoice from Pencom unless otherwise specified in the
Work Statement.
1) Invoices shall specifically refer to the Work Statement milestone
or Deliverables to which they relate. Whenever an invoice includes
charges for time and materials if authorized by a Work Statement,
the invoice shall detail names, and hours of Pencom's employees
performing the work.
2) Each invoice shall separately set forth reasonable travel and
living expenses which have prior authorization for reimbursement by
Tivoli. Supporting receipts as required by Tivoli's travel
reimbursement guidelines shall accompany each invoice.
3) Pencom shall maintain complete and accurate records in accordance
with sound accounting practices to support all Pencom's charges
invoiced to Tivoli under this Agreement for a period of three (3)
years after expiration of termination of this Agreement.
Section 5 EXPENSES
Tivoli/Pencom Software Task Order Agreement (November 20,1995) Page 3
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5.1 Except as expressly agreed otherwise by Tivoli in the Work Statement,
Pencom shall bear all of its own costs and expenses arising from its
performance of its obligations under this Agreement and the Work Statement
issued hereafter, including (without limitation) facilities, work space,
utilities, management, clerical reproduction services and supplies.
Section 6 DELIVERY AND ACCEPTANCE
6.1 Pencom shall deliver all Deliverables, upon completion, to Tivoli's
technical coordinator for testing and acceptance. Unless a different
procedure for testing and acceptance is set forth in the Work Statement,
Tivoli's technical coordinator shall commence acceptance testing following
its receipt of the Deliverables. Upon completion of such testing, Tivoli
shall issue to Pencom's technical coordinator written notice of acceptance
or rejection of the Deliverables. In the event of rejection, Tivoli shall
give its reasons for rejection to Pencom's technical coordinator. Pencom
shall use all reasonable effort to correct any deficiencies or
nonconformity and resubmit the corrected items within thirty (30) days.
Tivoli will no unreasonably reject acceptance. If Tivoli does not reply to
Pencom wthin thirty (30) days after delivery with notice of acceptance or
rejection then the the delivery will have deemed to be accepted.
Section 7 NOTICE OF DELAY
7.1 Pencom agrees to notify Tivoli promptly of any delay that may affect
Pencom's ability to meet the requirements of the Work Statement under this
Agreement, or that is likely to occasion any material delay in delivery of
Deliverables. Such notice shall be given, including but not limited to the
event of any loss or reassignment of key employees, threat of strike, or
major equipment failure.
Section 8 OWNERSHIP AND RIGHTS
8.1 Ownership of Work Product by Tivoli. All Deliverables shall be owned by
Tivoli and shall be considered works made for hire. Tivoli shall own all
United States and international copyrights in the Deliverables and title
to all Code in the Deliverables, including all modifications and
Enhancements made by Pencom under this project. Tivoli shall retain all
rights, title and interest to, and copyright in, Tivoli Code, and
Derivative Work thereof, supplied to Pencom by Tivoli as a basis for
Pencom's work.
8.2 Vesting of Rights. With the sole exception of any preexisting works
identified in Section 8.3 hereof, Pencom agrees to assign, and hereby
assigns to Tivoli, its successors and assigns, ownership of all United
States and international copyrights in each and every Deliverable, insofar
as any such Deliverable by operation of law, may not be considered a work
made for hire. From time to time upon Tivoli's request, Pencom and/or its
personnel shall confirm such assignment by execution and delivery of such
assignments, confirmations of assignment, or other written instruments as
Tivoli may request. Tivoli, its successors and assigns, shall have the
right to obtain and hold in its own name all copyright registrations and
other protection that be available for Deliverables.
8.3 Preexisting Works. In the event that any Deliverable constitutes a
Derivative Work of any preexisting work, Pencom shall ensure that the Work
Statement pertaining to such Deliverable so indicates reference to (1) the
nature of such preexisting work, (2) its owner, (3) any restrictions or
royalty terms applicable to Pencom's use of such preexisting work or
Tivoli's exploitation of the Deliverable as a Derivative Work thereof, and
(4) the source of Pencom's authority to employ the preexisting work in the
preparation of the Deliverable. Before initiating the preparation of any
such Deliverable that is a Derivative Work of a preexisting work licensed
by Tivoli, Pencom shall cause Tivoli, its successors and assigns, to have
and obtain the irrevocable, non-exclusive, worldwide, royalty-free license
and right to (1) use, execute, reproduce, display, perform, distribute
internally and externally, sell copies of, and prepare Derivative Works
based upon all preexisting works and Derivative Works thereof, and (2)
authorize or sub license others from time to time to do any or all of the
foregoing.
8.4 Patent License. In addition, Pencom hereby grants to Tivoli, its
successors and assigns, the royalty-free worldwide, non-exclusive right
and license under any patents owned by Pencom, or with respect to which
Pencom has a right to grant such rights and licenses, to the extent
required by Tivoli to exploit the Deliverables and exercise its full
rights in the Deliverables, including (without limitation) the right to
make, use, license, sublicense and sell any product and services based on
or incorporating such Deliverables.
8.5 Pencom Use of Tivoli Software Code and License Grant. Tivoli will deliver
to Pencom Tivoli Object or Source Code and related documentation Software
Products to the extent and as defined and required for in the Work
Tivoli/Pencom Software Task Order Agreement (November 20, 1995) Page 4
<PAGE>
Statement. Tivoli Software Products are provided to Pencom with the
following limited license grant. Tivoli grants Pencom a non-exclusive,
non-transferable, license to use the Software Products for internal use
only for the purpose of development, enhancement, testing, and delivery of
software product Deliverables as defined in the Work Statement and for
Pencom maintenance support of the Pencom-supplied Tivoli Deliverable
product or for subsequent work for Tivoli as the parties may agree by
mutual written agreement and amendment hereto. Pencom may install and use
Software Products on a Tivoli Server(s) and Licensed Computers only in the
maximum number of copies of each Software Product as provided by Tivoli.
The Tivoli Server host identification number and the number of licensed
copies of each Software Product which are to be used are confirmed between
Tivoli and Pencom in the License Key Certificate (License Key Request)
Form which and which accompanies delivery of the Software Products. Pencom
may also make a reasonable number of copies of the Software in
machine-readable form solely for archive or backup purposes in accordance
with Pencom's standard archive or backup policies and procedures. Except
as provided in the Software documentation relating to Toolkits, Pencom is
not authorized to modify, adapt trsnslate, or create derivative works
based upon, in whole or in part any Software Products, or to reverse
compile or disassemble the Software. Pencom may use Toolkits or Developed
Program(s) only on Licensed Computers which are operating one or more
suitably licensed Tivoli Software Products. The rights granted Pencom
hereunder are restricted exclusively to Pencom and such license and use
rights, Software Products, or Developed Programs may not be assigned,
sub-leased, sub-licensed, sold or otherwise transferred.
USE ON OTHER COMPUTERS. Pencom may use the Software Products on computers
other than the Licensed Computers (i) temporarily, if the Licensed
Computers cannot be used because of equipment or software malfunctions or
(ii) if the Licensed Computers are replaced by Pencom with other
computers provided there is no increase in the quantity of computers
using Software Product(s) over the quantity of computers for which Pencom
has purchased licenses for such product(s).
DOCUMENTATION. Pencom may make, for its internal use only and only in
conjunction with use of the Software Products, a reasonable number of
printed copies of the Software Product user manuals/documentation which
may be supplied to Pencom in CD/ROM, tape and/or hard copy format
provided Pencom includes all Tivoli copyright and all other proprietary
notices on the documentation on such copies it produces.
TITLE. This Agreement grants Pencom no title or rights of ownership in
the Software Products. All Software Products furnished by Tivoli, and all
copies thereof made by Pencom, including translations, compilations, and
partial copies, and all patches, revisions, and updates thereto are and
shall remain the property of Tivoli or Tivoli's licensors, as applicable.
PROPRIETARY MARKINGS. Pencom agrees not to remove or destroy any
proprietary markings or proprietary legends placed on or contained within
the Software Products or any related materials or documentation.
Additionally, Pencom agrees to reproduce and include Tivoli's proprietary
and copyright notices on any copies of the Software Products and related
materials, or on any portion thereof, including reproduction of the
international copyright notice.
Section 9 TECHNOLOGICAL MATTERS
9.1 Vesting of Rights. Pencorn hereby assigns to Tivoli, its successors and
assigns, all New Work, together with the right to seek protection by
obtaining patent rights therefor and to claim all rights or priority
thereunder, and the same shall become and remain Tivoli's property whether
or not such protection is sought.
9.2 Protection of Proprietary Data and Confidential Information. Pencom and
Tivoli acknowledge and agree that their respective Proprietary Data
comprises commercially valuable technology, the design and development of
which reflect the effort of experts and the investment of substantial time
and money. Pencom and Tivoli both recognize that the continued value of
their respective Proprietary Data depends on the preservation and
enforcement of the trade secrets, copyrights, and other proprietary
interests embodied in their respective Proprietary Data and, in the case
of Tivoli Proprietary Data, to be embodied in the work product. Therefore,
Pencom and Tivoli agree, for their mutual benefit, to apply reasonable
efforts to protect and defend the trade secrets and copyrights of each
other, and Tivoli trade secrets and copyrights in the work product against
unauthorized use or infringement. Pencom and Tivoli agree that each will
take reasonable steps to ensure that all persons afforded access to the
other's Proprietary Data protect such Proprietary Data against
unauthorized use, dissemination, disclosure, reproduction or distribution.
Any Confidential Information disclosed between the parties shall be
subject to the terms of Exhibit B attached and incorporated into this
Agreement.
Section 10 AGREEMENTS WITH EMPLOYEES
Tivoli/Pencom Software Task Order Agreement (November 20, 1995) Page 5
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10.1 Pencom shall obtain and maintain in effect written agreements with each of
its employees and contractors who participate in any of Pencom's work
under the Work Statement. Such agreements shall contain terms sufficient
for Pencom to comply with all provisions of this Agreement and to support
all grants and assignments of rights and ownership hereunder. Such
agreements also shall impose an obligation of confidentiality on such
employees with respect to Tivoli's confidential information.
Section 11 REPRESENTATIONS AND WARRANTIES
11.1 Pencom makes the following representations and warranties for the benefit
of the Tivoli, as a present and ongoing affirmation of facts in existence
at all times when this Agreement or the Work Statement is in effect:
a. No Conflict. Pencom represents and warrants that it is under no
obligation or restriction, nor will it assume any such obligation or
restriction, that does or would in any way interfere or conflict
with, or that does or would present a conflict of interest
concerning, the work to be performed by Pencom under this Agreement
and the Work Statement.
b Ownership Rights. Pencom represents and warrants (1) that, except as
provided in Section 8.3 hereof with respect to certain identified
preexisting works licensed to Tivoli, it is the sole author of all
works employed by Pencom in preparing any and all Deliverables; (2)
that it has full and sufficient right to assign or grant the rights
and/or licenses granted in the Deliverables pursuant to this
Agreement; (3) that no Deliverables, including any preexisting works
addressed in Section 8.3 hereof, have been published under
circumstances that have caused a loss of copyright therein; and (4)
that no Deliverables, including any preexisting works addressed in
Section 8.3 hereof, infringe any patent, copyright, trademark, or
other intellectual property rights (including trade secrets), or
privacy or similar rights, of any third party, nor has any claim
(whether or not embodied in action, past or present) of such
infringement been threatened or asserted, nor is such a claim
pending, against Pencom (or, insofar as Pencom is aware, any entity
from which Pencom has obtained such rights).
c. Conformity, Performance, and Compliance. Pencom represents and
warrants (1) that all Deliverables shall be prepared in a
workmanlike manner and with professional diligence and skill, (2)
that all Deliverables will function on the machines and with the
operating systems for which they are designed and as further defined
in any individual Work Statement hereto, (3) that all Deliverables
will conform to the specifications and function set forth in the
Work Statement relating thereto, and (4) that Pencom will perform
all work called for by the Work Statement in compliance with
applicable law.
d. Pencom Representations. Pencom represents and warrants upon its
execution hereof and throughout the term of this Agreement and in
the performance of the work hereunder that:
1) All Pencom license agreements from third party licensors of
Pencom concerning the hardware and/or software which Pencom
uses in performing the work are in full force and effect,
2) no such condition(s) exist which would adversely affect
Pencom's ability to deliver the Deliverables at the milestones
or checkpoints called for in the Work Statement.
Section 12 TERM AND TERMINATION
12.1 Term of Ageement. This Agreement shall be effective upon the parties
execution of this Agreement, and shall remain in force for a period of two
(2) years, unless otherwise terminated as provided herein; provided,
however, that the Work Statement shall remain in effect after such
termination, until the Work Statement is terminated as provided herein or
performance thereunder is completed.
12.2 Termination of the Work. Tivoli may, at its sole option, terminate this
Agreement and the Work Statement, or any portion thereof, upon fifteen
(15) days written notice unless otherwise a different date is agreed upon
for an individual Work Statement. Upon receipt of notice of such
termination, Pencom shall inform Tivoli of the extent to which performance
has been completed through such date, and collect and deliver to Tivoli
whatever work product then exists, and in a manner prescribed by Tivoli.
Pencom shall be paid for all work performed through the date of
termination, provided that such payment shall not be greater than the
payment that would have become due if the work had been completed. Pencom
may not terminate the Agreement or Work Statement once Pencom has entered
into this Agreement and Work Statement except as may otherwise be provided
in the Work Statement. Upon termination of this Agreement or cancellation
of the license hereunder Pencom shall immediately (i) return the Software
Products and all copies of documentation to Tivoli or alternatively,
provide written certification that all copies
Tivoli/Pencom Software Task Order Agreement (November 20,1995) Page 6
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of the Software Products and documentation have been destroyed, (ii) purge
all copies of the Software Products or any portion thereof from all
computers and from any computer storage device or medium on which Pencom
has placed or has permitted others to place the Software Products.
12.3 Termination for Default.
a. By Tivoli. If Pencom shall breach a material term and condition of
this Agreement, violate the terms of the Tivoli License Agreement
hereto for use of Tivoli Licensed Software, fall to meet a
Deliverables delivery milestone or checkpoint or fail to make
substantial progress in performing the work schedules called for in
the Work Statement thereby jeopardizing the project schedule in the
Work Statement, Tivoli may, after thirty (30) days' prior written
notice to Pencom and during which period if Pencom falls to remedy
such breach to Tivoli's satisfaction, terminate this Agreement and
Work Statement at no cost or liability to Tivoli, except for any
outstanding payments due at the time of Termination for work
completed by Pancom and accepted by Tivoli. Notwithstanding the
foregoing, for a material violation of the terms of the License
Grant herein for use of Tivoli Licensed Software, Tivoli may
terminate this Agreement and the license grant provided for Pencom's
use of the Tivoli Licensed Software shall immediately cease.
b. By Pencom. If Tivoli shall breach this Agreement by failing to make
payment(s) for the work as provided in the Work Statement, Pencom
may, after thirty (30) days' prior written notice to Tivoli and
during which period if Tivoli fails to remedy such breach, terminate
this Agreement and cease the work called for in the Work Statement.
In which case Tivoli's obligation to make any outstanding payments
due Pencom shall survive such termination.
c. Liquidation. If either party is liquidated, dissolved, or ceases to
carry on business on a regular basis as pertains to this Agreement
and the liquidating party's obligations under this Agreement are not
assumed by a successor or assignee, this Agreement may be terminated
by either party with thirty (30) days written notice to the other.
12.4 Consequences of Termination by Tivoli. Except as provided in Section
12.3.b above, upon termination of the Agreement by Tivoli as provided in
Sections 12.2 or 12.3 above Pencom shall immediately assign and deliver
all completed work product to Tivoli.
12.5 Consequences of Termination by Pencom. Notwithstanding any term and
condition in this Agreement to the contrary, upon termination of this
Agreement by Pencom solely as provided in Section 12.3.b for default of
payment by Tivoli, and without cure by Tivoli during the thirty (30) day
notice period, Tivoli shall assign and Pencom shall obtain all right and
title to Pencom Code embedded in the Deliverable which is completed at the
time of such termination.
12.6 Survival. In the event of any termination of this Agreement, Sections 9
through 13 hereof shall survive and continue in effect and shall insure to
the benefit of and be binding upon the parties and their legal
representatives, heirs, successors, and assigns.
Tivoli/Pencom Software Task Order Agreement (November 20, 1995) Page 7
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Section 13 INDEMNIFICATION and LIMITATION OF LIABILITY
13.1 Indemnification.
a. Upon proper notice as specified herein, Pencom agrees to indemnify
and hold harmless Tivoli and its subsidiaries or affiliates under
its control, and their directors, officers, employees and agents,
and customers against any and all losses, liabilities, judgments,
awards and costs (including legal fees and expenses) arising out of
or related to any claim that Tivoli or its customers' use or
possession of the Deliverables, or licenses granted thereunder,
infringes or violates the copyright, trade secret or other
proprietary right of any third party and where such cause of action
directly relates to Pencom's work product, and Pencom shall, at its
sole expense, provide Tivoli with all information, data and
assistance reasonably required by Tivoli for Tivoli's defense
thereof and Pencom shall indemnify and hold harmless Tivoli for all
costs for Tivoli to defend and settle all suits or proceedings
arising out of the foregoing.
b. Upon proper notice as specified herein, Tivoli agrees to indemnify
and hold harmless Pencom and its subsidiaries or affiliates under
its control, and their directors, officers, employees and agents,
and customers against any and all losses, liabilities, judgments,
awards and costs (including legal fees and expenses) arising out of
or related to any claim against Pencom that Tivoli or its customers'
use or possession of the Deliverables, or the licenses granted
thereunder, infringes or violates the copyright, trade secret or
other proprietary right of any third party and where such cause of
action directly relates to Tivoli's, and not Pencom's, Code portion
of the Deliverable software, and Tivoli shall, at its sole expense,
defend and settle all suits or proceedings arising out of the
foregoing, and Pencom agrees to provide Tivoli with all information
and assistance reasonably required by Tivoli in its defense or
settlement thereof.
c. Either party is required to provide reasonably timely notice to
other party after it becomes aware of any claim that Tivoli or its
customers' use or possession of the Deliverables, or the licenses
granted hereunder, infringes or violates the copyright, trade secret
or other proprietary right of any third party. Notice must be in
writing specifying the nature of the claim and sent in the manner
specified in Section 18 hereof.
d. Either party shall be responsible for its own expense for the full
defense for which indemnification would be owed; provided, however,
that Tivoli shall be entitled to assume and conduct all such
defenses, and Tivoli shall be liable for its own expenses for the
defense of claims against Tivoli for which it is solely liable.
Either party shall, before settling any such action, obtain the
other party's written consent thereto, which consent shall not be
unreasonably withheld. Neither Pencom nor Tivoli shall be liable
hereunder for any settlement of any such claim made by the other
party without its prior written approval or consent.
e. In addition to the foregoing, should Tivoli or its customers' use of
the Deliverables, pursuant to its business, because of Pencom's work
product, be enjoined due to actual or alleged infringement of any
patent, trademark, copyright, trade secret or other proprietary
right of any third party, Pencom shall, at its sole option and
expense either:
1. Procure for Tivoli or its customers' the right to continue using
the Deliverables;
2. Replace or modify such Deliverables so it becomes non-infringing
(which modification or replacement shall not adversely affect the
specifications for, or the use or operation by, Tivoli or its
customers' of such Deliverables); or
3. If Pencom is unable under its best efforts to procure the right
to use, replace or modify the Deliverables, as described above,
Pencom shall reimburse Tivoli its work cost and/or royalties paid
hereunder for the Deliverables.
13.2 Limitation of Liability. Except as provided in this Section 12 hereof,
neither party shall be liable to the other for incidental or consequential
damages hereunder.
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Section 14 MISCELLANEOUS
14.1 Force Majeure. Pencom shall be excused from delays in performing or from
its failure to perform hereunder to the extent that such delays or
failures result from causes beyond the reasonable control of such party;
provided, however, that in order to be excused from delay or failure to
perform, such party must act diligently to remedy the cause of such delay
or failure.
14.2 No Agency. Pencom, in rendering performance under the Work Statement
hereunder, is acting solely as an independent contractor. Tivoli does not
undertake by this Agreement or otherwise to perform any obligation of
Pencom, whether by regulation or contract. In no way is Pencom to be
construed as the agent or acting as the agent of Tivoli in any respect,
any other provisions of this Agreement or any Work Statements issued
hereunder notwithstanding. Nothing herein shall be construed as having
created a partnership or joint venture of any kind between the parties.
14.4 Section Headings; Exhibits. The section and subsection headings used
herein are for reference and convenience only, and shall not enter into
the interpretation hereof. The exhibits referred to herein and attached
hereto, or to be attached hereto, including the Work Statement, are
incorporated herein to the same extent as if set forth in full herein.
14.5 No Waiver. No delay or omission by either party hereto to exercise any
right or power occurring upon any noncompliance or default by the other
party with respect to any of the terms of this Agreement shall impair any
such right or power or be construed to be a waiver thereof. A waiver by
either of the parties hereto of any of the covenants, conditions, or
agreements to be performed by the other shall not be construed to be a
waiver of any succeeding breach thereof or of any covenant, condition, or
agreement herein contained. Unless stated otherwise, all remedies provided
for in this Agreement shall be cumulative and in addition to and not in
lieu of any other remedies available to either party in law, in equity, or
otherwise.
14.6 Authority of Pencom. Pencom has the sole right and obligation to
supervise, manage, contract, direct, procure, perform, or cause to be
performed all work to be performed by Pencom hereunder unless otherwise
provided herein Pencom shall not subcontract any of the work requested by
Tivoli under this Agreement without the prior written consent of Tivoli.
14.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
14.8 Notices. Under this agreement, if one party is required to give notice to
the other, such notice shall be deemed given if mailed by US. mail, first
class, postage prepaid, and addressed as follows (or as subsequently
noticed to the other party):
To Tivoli: To Pencom:
Tivoli Systems Inc.
Attn. Business Operations
9442 Capital of Texas Highway North, Suite 500
Austin, TX 78750
14.9 No Assignment. Neither party may, without the prior written consent of the
other party, assign or transfer this Agreement or any obligation incurred
hereunder to any third party. Tivoli may transfer or assign its rights
hereunder to a third party who acquires Tivoli by merger, reorganization,
consolidation, or sale of all or substantially all of Tivoli's assets. Any
attempt to by Pencom to assign or transfer this Agreement in contravention
of this Section shall be void and of no force and effect.
14.11 Entire Agreement. This Agreement and the Exhibits annexed hereto,
constitute the entire agreement between the parties and as such supersedes
all other writings, understandings or agreements between the parties
concerning the subject matter hereof.
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IN WITNESS WHEREOF, Tivoli and Pencom have caused this Agreement to be signed
and delivered by their duly authorized representatives, all as of the date
executed below.
TIVOLI SYSTEMS INC. (Tivoli) Pencom Software (Pencom)
By:/s/ Chris A. Grafft By:/s/ W. Frank King
------------------------- ------------------------------
Name: Chris Grafft Name: W. Frank King
Title: Vice President Title: President
Products Division
Date: November 20, 1995 Date: 12/6/95
Tivoli/Pencom Software Task Order Agreement (November 20, 1995) Page 10
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AMENDMENT NO 1 TO
Tivoli Systems Inc. and Pencom Software Task Order Agreement
This amendment is made between the parties effective this 8th day of November
1996, to the Software Task Order Agreement (hereinafter the "Agreement") dated
November 20, 1995 between Pencom Software and Tivoli Systems Inc. The parties
agree to amend the Agreement as follows:
1. Pencom Software is no longer a division of Pencom Systems, Inc., but a
separate, independently owned corporation renamed as PSW Technologies Inc. The
Agreement is changed from Pencom Systems to PSW Technologies Inc. and the term
"Pencom" is changed to mean "PSW" wherever it appears in the Agreement.
2. Sections a, b, and c of the Compensation Schedule of Exhibit E of the
Agreement will be replaced by the following compensation plan:
o PSW will receive target compensation of 1.5871% of the annual Tivoli
Product Revenue (Projected to be $89M) net of any prior payments made in
1996 as defined in Exhibit E. This net amount will be invoiced by PSW on
or after December 31, 1996 and will be due Net 30 days after receipt. The
maximum payment inclusive of all prior payments for 1996 made pursuant to
Exhibit E shall be $1,412,500.
o PSW will receive an additional bonus of $137,500 for the General Available
Release (GA) delivery to Tivoli, for Manufacturing and Distribution, of
all of the following software ports which are currently scheduled to ship
on or before December 31, 1996; SGI 5.X, SGI 6.X, NCR 2, NCR 3, Solaris
X86, DG/UX 88, Sequent. Each of these ports consists of the Tivoli
Platform, Tivoli Courier, Tivoli Sentry, and Logfile Adapter Applications.
The Solaris X86 port also includes the Tivoli Admin Application. If these
deliveries are achieved PSW will invoice Tivoli on or after December 31,
1996 and payment will be due Net 30 days after receipt.
All other terms and conditions of the Agreement remain in full force and effect.
The parties have read this Amendment and agree to its terms by their execution
below.
Tivoli Systems Inc. PSW Technologies Inc.
By:/s/ Steven J. Bankhead By:/s/ Patrick Motola
- ----------------------------------- -----------------------------------
Name: Steven J. Bankhead Name: PATRICK MOTOLA
Title: Manager, Porting Services Title: CFO & VP OPERATIONS
Date: November 8,1996 Date: 11/12/96
<PAGE>
Exhibit 10.9
Tivoli
Marking Client/Server(TM)
Tivoli Systems Inc.
Loan Agreement
Tivoli Systems Inc. ("Tivoli"), a Texas corporation, with its principal place of
business address at 9442 Capital of Texas Highway, North, Arboretum Plaza One,
Suite 500, Austin, TX 78759, desires to loan to Pencom Software ("Pencom") with
its business location at 9050 Capital of Texas Highway North Austin Texas 78759
and Pencom desires to receive, use and protect, certain loaned hardware
products, which are the property of Tivoli Systems Inc., in accordance with the
terms and conditions contained herein.
1. Effective Date: November 15, 1995.
2. Loan Expiration Date: The Loan Term and this Agreement Term shall expire on
November 15, 1996.
3. Use of Products: Tivoli grants to Pencom the right to use the Products for
the purpose of porting Tivoli Software. Title to and ownership of the
Products and all copies thereof shall remain the property of Tivoli Systems
Inc. Pencom shall not mortgage, pledge or encumber the Products in any
way. Pencom shall keep the products in good working order during the term
of this Agreement.
All installation, deinstallation, maintenance and repairs of the Products
must be performed by Pencom Software, Inc.
4. Location. Pencom shall keep the Products at the address set forth above
and shall not move the Products without the prior written consent of
Tivoli.
5. Loss or Damage- Pencom shall immediately notify Tivoli for any loss or
damage to the Products. Pencom shall be responsible for any loss or damage
to the Products and shall pay Tivoli the value of the Products damaged or
destroyed while in the custody of Pencom.
7. Termination: Tivoli may terminate this Agreement prior to the Loan
Expiration Date for any reason upon ten (10) days written notice or
immediately upon notice of any breach by Pencom of the provisions of this
Agreement. Within fifteen days (15) following expiration or termination of
this Agreement, Pencom shall return to Tivoli all of the Products in
tangible form in its possession. Any additional copies Software held by
Pencom which are not returned to Tivoli shall be destroyed by Pencom within
the fifteen day period and such destruction will be certified to Tivoli.
8. Warranty and Liability Disclaimer: The Products disclosed under this
Agreement are delivered "as is" and Tivoli makes no warranty of any kind
with respect to the accuracy of such Products or its suitability for any
particular use or with respect to freedom from bugs or uninterrupted use.
TIVOLI DISCLAIMS ALL WARRANTIES RELATING TO THE PRODUCT, EXPRESS OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES AGAINST INFRINGEMENT
OF THIRD PARTY RIGHTS, MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. PENCOM ACKNOWLEDGES AND AGREES THAT TIVOLI SHALL NOT BE LIABLE
UNDER THIS AGREEMENT OR OTHERWISE AS A RESULT OF PENCOM'S USE OF ANY
SOFTWARE OR PRODUCTS PROVIDED BY TIVOLI, WHETHER AS AS RESULT OF
CONTRACTUAL, NEGLIGENCE, STRICT LIABILITY OR FOR ANY REASON OR CAUSE
WHATSOEVER, FOR ANY DIRECT, INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENT
DAMAGES.
10. Non-assignability. The rights and obligations arising under this Agreement
may not be assigned by Pencom without the express written consent of the
other party and any purported assignment without such written consent shall
be void.
11. Agreement Execution; Controlling Law; and Severability. This Agreement
shall become effective only upon its execution by both Tivoli and Pencom
and it shall be governed by and construed in accordance with the laws of
the State of Texas, U.S.A. In any action to enforce this Agreement the
prevailing party will be entitled to cost and attorneys fees. In the event
that any of the provision of this Agreement shall be held unenforceable,
such provision shall be limited or eliminated to the minimum extent
necessary so that this Agreement shall otherwise remain in full force and
effect and enforceable.
12. Entire Agreement. This Agreement and Exhibit A attached hereto constitutes
the entire agreement between the parties. All additions and modifications
to this Agreement must be made in writing referencing this Agreement and
must be signed by both parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
P. 1
<PAGE>
Tivoli Systems Inc. ("Tivoli") Pencom Systems ("Pencom")
/s/ Steven J. Bankhead /s/ Vitek Boruvka
- ----------------------------------- -----------------------------------
Authorized Signature Authorized Signature
Steven J. Bankhead Vitek Boruvka
- ----------------------------------- -----------------------------------
Name Name
Mgr. Development Services Software Eng.
- ----------------------------------- -----------------------------------
Title Title
11/16/95 11/18/95
- ----------------------------------- -----------------------------------
Date Date
p. 2
<PAGE>
LOAN AGREEMENT
EXHIBIT A
Quantity System Description
- -------- ------------------
1 4GB external SCSI disk in enclosure with cable and terminator.
Manufacture ZZYZX Worstation Peripherals, serial number 95110062.
P. 3
<PAGE>
Exhibit 10.10*
SOFTWARE & METHODOLOGY LICENSING AGREEMENT
THIS SOFTWARE & METHODOLOGY LICENSING AGREEMENT, (this "Agreememt"), made and
entered by and between PSW Technologies, Inc. (hereinafter "PSW"), a Delaware
corporation with its offices at 9050 Capital of Texas Highway North, Austin,
Texas 78759, and LICENSEE (the scope and definition of LICENSEE as it pertains
to this Agreement is specified in Schedule2).
WITNESSETH:
WHEREAS, LICENSEE desires to license from PSW certain software and methodology
assets;
WHEREAS, PSW is willing and able to grant such rights and licenses on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
intending to be legally bound, the parties hereby agree as follows:
Section 1
DEFINITION OF TERMS
The definition of terms set forth in this Section 1 shall apply in this
Agreement (in addition to expressly defined elsewhere herein) including any and
all exhibits, addenda, and amendments made to or incorporated herein now or in
the future.
1.1 "Deliverables." Any and all tangible products or assets delivered by PSW
for LICENSEE under this Agreement, including all object diagrams,
functional specifications, prototypes, reports, conversion tools, class
libraries, the "source" code and object code, and all necessary
Documentation therefor.
1.2 "Documentation." All textural material relating to the Deliverables,
including flow charts, operating instructions, and related technical
information. Documentation shall include user manuals, help text, training
materials, and sample source code used for training and documentation
purposes.
1.3 "Genova." The name of PSW's family of software and methodology assets for
custom business system development
1.4 "Genova Methodology." PSW's family of software and methodology assets for
custom business Systems using object oriented software
* Confidential treatment is requested for certain portions of Exhibit 10.10
pursuant to Rule 406 under the Securities Act of 1933.
<PAGE>
technology. "This approach includes definition of phases, phase entry &
exit criteria, deliverables, activities, templates tips & techniques
1.5 "Genova On-Line." The reference document which specifies PSW's software
development methodology available in formats that can be viewed by
computers.
1.6 "Genova Academy." The classes taught by PSW to train software developers
and other project personnel in Genova.
1.7 "Genova Courseware." The documents, presentations, exercises, and other
tangible assets which comprise the materials used to teach the Genova
Academy classes.
1.8 "Genova Systems Library." Those Deliverables in Schedule 1 that are
specified to be part of the Genova Systems Library.
1.9 "Genova Business Library." Those Deliverables in Schedule 1 that are
specified to be part of the Genova Business Library.
1.10 "Genova Object Library." The combination of the Genova Systems Library and
the Genova Business Library.
1.11 "PSW Enhancements." Changes, corrections, modifications, or additions,
including all new releases and applications, made by PSW to the
Deliverables or related Documentation.
1.12 "LICENSEE Enhancements." Changes, corrections, modifications, or
additions, including all new releases and applications, made by LICENSEE
to the Deliverables or related Documentation.
1.13 "PSW Licensors." Other parties who have licensed portions of the
Deliverables or Documentation to PSW under Separate agreements.
1.14 "Service Bureau." An operation which directly provides the services and
benefits of Genova to parties other than Licensee. Providing services to
LICENSEE customers utilizing Systems developed with Genova is not defined
to be a Service Bureau.
1.15 "Computer Business." The Computer Business shall be defined to include the
research, development, production, marketing, selling, distribution, or
leasing of computer hardware, computer hardware peripherals, integrated
document management systems or cameras, or the performance of development,
consulting, training or maintenance services relating to computer
hardware, computer hardware peripherals, integated document management
systems or cameras.
Section 2
<PAGE>
GRANT AND SCOPE OF LICENSE FROM PSW TO LICENSEE
2.1 Scope of Licence. PSW hereby grants to LICENSEE the right to use, execute,
modify, reproduce, and distribute for internal use the Deliverables as
specified in Schedule 1, and any PSW Enhancements which made available to
LICENSEE per this agreement. Schedule 2 specifies the extent of LICENSEE's
business as it pertains to this license. The RESELLER agreement modifies
and extends these rights.
2.2 Consideration. In consideration for the license granted in this section,
LICENSEE will pay PSW the fees specified in Schedule 1. License fees shall
be invoiced by PSW upon delivery and are payable within 30 days of receipt
of invoice.
2.3 Acceptance. The Deliverable shall be deemed accepted by Licensee upon
delivery by PSW.
2.4 Licence Restrictions. LICENSEE is not authorized to market, sell,
distribute or sub-license the Deliverables or PSW Enhancements. LICENSEE
is not authorized to operate a Service Bureau utilizing any Deliverables,
LICENSEE Enhancements of PSW Enhancements. LICENSEE may not license any
portion of the Genova Business Library unless it has signed the Genova
Business Object Library Amendment to this Agreement. The RESELLER
agreement modifies and extends these rights..
2.5 Continuing Rights. Subject to the rights granted in this Section 2, PSW
and PSW Licensors shall retain all ownership of and full rights to market
and continue to use the Deliverables and all PSW Enhancements and all
rights, title, and interest in and to all copyrights, patent rights or
trade secret rights associated with the Deliverables and PSW Enhancements.
Section 3
OTHER SERVICES AND ENHANCEMENTS
3.1 Maintenance, Technical Support, and Training. Genova is licensed as source
code that is modifiable by LICENSEE and therefore maintenance and
technical support is not provided under this Agreement. Genova Courseware
is licensable under this Agreement, but training is not provided under
this Agreement. LICENSEE is expected to maintain, provide technical
support, and conduct training for the Deliverables provided herein or
enter into a separate agreement with PSW to provide these service.
<PAGE>
3.2 PSW Enhancements for LICENSEE. Enhancements to the Deliverables which are
substantially performed by PSW shall be owned by PSW and are subject to
the terms of this Agreement.
3.3 Other PSW enhancements. Upon request by LICENSEE, PSW Enhancements not
made for LICENSEE but which can be rightfully licensed to LICENSEE shall
be made available to LICENSEE for an administrative fee specified in
Schedule 1. These PSW Enhancements remain the intellectual property of PSW
and are subject to the terms of this Agreement. PSW shall solely determine
what constitutes a separately licensable asset requiring an additional
license fee versus an enhancement to an existing licensed asset. PSW will
be responsible for maintaining source control Genova Object Library and
providing updates to LICENSEE on a regular basis. Updates will be provided
no less than once a year.
3.4 Enhancements by LICENSEE. Enhancements to the Deliverables which are
performed by LICENSEE shall be owned by LICENSEE.
Section 4
COPYRIGHT NOTICES AND INTELLECTUAL PROPERTY
RIGHTS
4.1 Copyright Notices. LICENSEE shall not remove any existing copyright or
other proprietary rights notices from the Deliverables or PSW
Enhancements.
4.2 Enforcement of Copyright. LICENSEE shall be responsible to enforce PSW or
PSW Licensor copyrights from infringement that result from misuse of
Deliverables provided to Licensee under this Agreement. A failure by
LICENSEE to enforce rights against infringers of these copyrights in a
timely manner after appropriate notification shall be considered a
material breach of this Agreement by LICENSEE.
4.3 Protection of Intellectual Property Rights. LICENSEE shall promptly notify
PSW of any known or suspected violation of PSW or PSW Licensor
intellectual property rights including copyrights, patents, trademarks,
trade secrets, or other proprietary information. LICENSEE shall cooperate
with PSW and provide all reasonable information deemed necessary by PSW to
protect the intellectual property rights of PSW and PSW Licensors. Failure
to notify PSW promptly or to cooperate with PSW shall be a material breach
of this Agreement.
<PAGE>
Section 5
INDEMNIFICATION
Indemnity for Deliverables. LICENSEE agrees to indemnify and hold harmless PSW
and its affiliates, officers, agents, directors, and employees, against any and
all claims, actions, proceedings, expenses, damages, attorney's fees, and
liabilities (including but not limited to any governmental investigations,
complaints and actions) arising out of or in connection with (a) any breach of
this agreement by LICENSEE, including its representations, warranties and
covenants, (b) any use of the Deliverables described herein, and (c) any claim
or action for personal injury, death or other cause of action involving product
liability claims arising from or relating to any of the Deliverables.
Section 6
TERM
6.1 Basic term. This Agreement shall be effective from the date it is
originally signed by LICENSEE and PSW and shall remain in force unless it
terminates as provided below.
6.2 Termination for Default. This Agreement shall terminate upon the
bankruptcy or insolvency of LICENSEE.
6.3 Termination for Breach. In the event of material breach of this Agreement
by either party, the other party may terminate this Agreement by giving
thirty (30) days prior written notice thereof; provided that this
Agreement shall not terminate if the party in breach has cured the breach
of which it has been notified prior to the expiration of the thirty (30)
days.
6.4 Loss of Rights by PSW. In the event that PSW shall lose any of its
sub-licenses or rights due to breach, bankruptcy, insolvency, or any other
event, the rights and obligations in this agreement shall survive and
continue.
<PAGE>
Section 7
CONFIDENTIAL INFORMATION
7.1 PSW Information. In connection with this Agreement, PSW has provided and
shall provide LICENSEE with certain information that is proprietary and
confidential to PSW or the PSW Licensors and necessary or useful for
LICENSEE to exploit the licenses granted hereunder.
7.2 Confidentiality. The term "Confidential Information" as used herein shall
mean any information disclosed by PSW to LICENSEE related to this
Agreement in a written or other tangible form clearly identified as being
confidential. Oral or visual information shall not be considered as
Confidential Information unless it is designated confidential at the time
of oral or visual disclosure and reduced to a writing clearly marked as
being confidential that is sent to LICENSEE by PSW within thirty (30) days
after such oral or visual disclosure. For the purpose of this Agreement,
any Deliverable or PSW Enhancement shall be deemed Confidential
Information.
7.3 Treatment of Confidential Information. During this Agreement and
thereafter, LICENSEE shall keep the Confidential Information in strict
confidence and shall not disclose it to any person, firm or corporation
outside LICENSEE, nor use the same for any purpose other than performing
the Agreement, in addition, LICENSEE agrees to safeguard the Confidential
Information by restricting its internal dissemination to only those
employees within LICENSEE having a need to know the Confidential
Information for purposes of this Agreement. LICENSEE is fully responsible
to ensure that all employees who are given access to the Confidential
Information maintain the confidentiality of the Confidential Information,
whether or not such employees continue to be employees of LICENSEE. The
RESELLER agreement modifies and extends the treatment of Confidential
Information.
7.4 Exceptions to Treatment of Confidential Information. Notwithstanding the
above, LICENSEE shall have no confidential obligation and no use
restriction hereunder with respect to any confidential information that:
<PAGE>
(1) is already know to LICENSEE at the time of disclosure thereof as
evidenced by written records;
(2) is or becomes publicly known through no wrongful act of LICENSEE at
or subsequent to the time of disclosure thereof; or
(3) is permitted for release by prior written consent of PSW.
7.5 Tangible Embodiments. Any and all written or tangible embodiments of
information disclosed to LICENSEE by PSW hereunder shall be and remain the
property of PSW, and LICENSEE agrees promptly to return such tangible
embodiments, including any copy thereof, to PSW upon termination of this
Agreement.
7.6 Intellectual Property. Except to the extent necessary to perform
LICENSEE's obligations hereunder or as otherwise provided herein, no
license or right, expressed or implied, is hereby conveyed or granted to
LICENSEE for any invention, patent application, patent, copyright, know
how, trade secret or other intellectual property of PSW or PSW Licensors.
7.7 Trademarks. No license or right, expressed or implied, is hereby conveyed
or granted to LICENSEE to use any trademark of PSW without the prior
express written consent of PSW or any trademark of any PSW Licensors
without the prior express written consent of such PSW Licensor.
7.8 Enforcement. LICENSEE understands and agrees that the obligations and
restrictions provided herein are necessary and reasonable in order to
protect the businesses of PSW and the PSW Licensors, and PSW and the PSW
Licensors would be irreparably harmed by any breach or threatened breach
hereof. In addition to any other remedies available for breach thereof,
PSW and the PSW Licensors shall be entitled to obtain injunctive relief
against a threatened breach or continuation of any such breach, without
the necessity of providing actual damages.
7.9 Confidentiality of Other Parties. LICENSEE acknowledges that portions of
the Deliverables may be licensed by PSW from other parties. To the degree
that the identity of and terms of those license agreements are made know
to LICENSEE for the execution of this Agreement, LICENSEE shall keep this
Confidential Information in strict confidence and shall not disclose it to
any person, firm or corporation except as required to execute this
Agreement; provided, however, that either party may, on a confidential
basis, disclose those Agreements to its accountants, attorneys, and
financing organizations.
Section 8
<PAGE>
REPRESENTATIONS AND WARRANTIES
8.1 Limited Warranty. If any of the physical media in the Deliverables are
physically damaged when received, the damaged items can be returned to PSW
within 30 days and PSW will replace the damaged materials at PSW's own
cost.
8.2 No Other Warranty. LICENSEE acknowledges that PSW and PSW LICENSORS
EXPRESSLY DISCLAIM ANY OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO
THE DELIVERABLES OR THE RESULTS OBTAINED FROM USING THE SAME, INCLUDING
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
8.3 Warranty of Performance. PSW warrants that the services performed under
this Agreement will be of professional quality, performed by qualified
staff experienced in the relevant disciplines and performed in a manner
consistent with generally accepted industry standards.
8.4 Compliance with Laws. PSW warrants that in performance of services under
this agreement, it shall comply with all applicable federal, state, and
local laws, codes and government regulations, including without
limitation, any California Wage Orders and Executive Orders pertaining to
immigration, foreign nationals working in the United States and labor and
employment. PSW agrees that it will not permit work to be performed under
this Agreement by individuals who are citizens of countries to which the
United States government prohibits export of software and related
technology.
Section 9
LIMITATION OF LIABILITY
UNDER NO CIRCUMSTANCES SHALL PSW OR THE PSW LICENSORS BE LIABLE FOR SPECIAL,
EXEMPLARY, INCIDENTAL AND/OR CONSEQUENTIAL DAMAGE, INCLUDING BUT NOT LIMITED TO
LEGAL FEES, LOSS OF PROFITS, LOSS OR INACCURACY OF DATA, OR LOSS RESULTING FROM
BUSINESS DISRUPTION, EVEN IF PSW OR THE PSW LICENSORS HAVE BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. PSW's SOLE LIABILITY IS LIMITED TO THE AMOUNT PAID
BY LICENSEE.
<PAGE>
Section 10
THIRD-PARTY BENEFICIARY
LICENSE acknowledges that the Deliverables and Confidential Information include
that of the PSW Licensors and that the PSW Licensors are third-party
beneficiaries of this Agreement with all the rights of PSW to enforce LICENSEE's
obligations under this Agreement.
Section 11
U.S. GOVERNMENT RESTRICTED RIGHTS
If this license is acquired under a U.S. Government contract, use, duplication
or disclosure by the U.S. Government is subject to restrictions as set forth in
DFARS 252.227-7013(c)(ii) for Department of Defense contracts and as set forth
in FAR 52.227-19 (a)-(d) for civilian agency contracts. PSW and the PSW
Licensors reserve all unpublished rights under the United States copyright laws.
Section 12
GENERAL
12.1 Entire Agreement. The provisions herein constitute the entire agreement
between the parties with respect to the licensing of the subject matter
hereof and supersede all prior agreements, oral or written, and all other
communications relating to the licensing of the subject matter hereof. No
amendment or modification of any provision of this Agreement will be
effective unless set forth in a document that purports to amend this
Agreement and is executed by both parties.
12.2 Assignment. LICENSEE shall not sell, transfer, assign, or subcontract any
right or obligation hereunder except as expressly provided herein with out
the prior written consent of PSW. Any act in derogation of the foregoing
shall be null and void. PSW may assign this Agreement to another party
upon approval of LICENSEE and such approval shall not be unreasonably with
held
<PAGE>
12.3 Force Majeure. Except for failures to make any payment when due, neither
party shall be held liable for failure to fulfill its obligations
hereunder if such failure is due to a natural calamity, act of government,
or similar cause beyond the control of such party.
12.4 Governing Law. The validity, construction, and performance of this
Agreement shall be governed by the laws of the Senate of Texas.
12.5 Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be contrary to law, the remaining provisions of
the Agreement will remain in full force and effect.
12.6 Compliance with Laws and Regulations. PSW and LICENSEE shall comply with
all laws, rules, and regulations of competent public authorities relating
to the duties, obligations, and performance under this Agreement and shall
procure all licenses and pay all fees and other charges required thereby.
12.7 Notices. Any notices required or permitted to be made or given by either
party hereto pursuant to this Agreement will be deemed sufficiently made
or given of the fifth day after the date of mailing if sent to such party
by certified mail, postage prepaid, addressed as set forth below or to
such other address as a party shall designate by written notice given to
the other party. Contact and addresses for notices are Specified in
Schedule 3.
12.8 Waiver. A failure of either party to exercise any right provided for
herein shall not be deemed a waiver of any right under this Agreement.
12.9 Right Outside of Agreement. Nothing contained in this Agreement shall be
construed as limiting rights that the parties may enjoy outside the scope
of the licenses granted and the obligations and restrictions set forth or
treated herein.
<PAGE>
IN WITNESS THEREOF, the parties have caused this Agreement to be signed below by
their duly authorized representatives and to be effective as of the later date
written below:
PSW Technologies LICENSEE
By:/s/ Pat Motola By:/s/ [Illegible]
--------------------------------- --------------------------------
Title: CFO, VP of Operations Title: President
----------------------------- ----------------------------
Date: 12-10-96 Date: 11-4-96
================================================================================
<PAGE>
SOFTWARE & METHODOLOGY LICENSING AGREEMENT
SCHEDULE LICENSED ASSETS & LICENSING FEES
LICENSED ASSET LICENSE FEE
- --------------------------------- -----------
Genova System Library [*]
(See Note 1)
OTHER FEES FEE
- --------------------------------- -----------
50 additional copies of Genova System
Library at [*] per copy exclusively for resale
with Neptune systems $ [*]
Porting of Genova System Library from NeXTSTEP
to OPENSTEP $ [*]
NOTES
- ----------
1. The Genova System Library and Genova Business Library consist of the
software owned by PSW or to which PSW has rights which are required to
convert the licensed source code into software which can be executed on a
PSW specified computer configuration running PSW specified commercially
available software. The purchase, setup, support, maintenance,
installation, and configuration of hardware, commercially available
software, and PSW provided software is the responsibility of LICENSEE.
2. PSW also grants LICENSEE the option to purchase an unlimited number of
additional copies of the Genova System Library at a price not to exceed
$[*] per copy. These copies would also be exclusively for resale with
Neptune systems.
================================================================================
<PAGE>
SOFTWARE & METHODOLOGY LICENSING AGREEMENT
SCHEDULE 2
DEFINITION OF SCOPE OF LICENSEE BUSINESS
The scope of this Agreement is restricted to thc definition of Licensee's
business as defined below:
o Embarcadero Corporation
600 Harrison, Suite 525
San Francisco, CA. 94107
o Embarcadero System Corporation
400 Second, Suite 250
San Francisco, CA 94107
o Marine Terminals Corporation
600 Harrison, Suite 200
San Francisco, CA 94107
o Deep Water Port Service
600 Harrison, Suite 200
San Francisco, CA 94107
o Northstar
11790 Ocean Dock Road
PO Box 102019
Anchorage, AK 99510
o Majestic Insurance
400 Second Street, Suite 350
San Francisco, CA 94107
o Terminal Maintenance Corporation
1601 Pier D Street
Long Beach, CA 90802
================================================================================
<PAGE>
SOFTWARE & METHODOLOGY LICENSING AGREEMENT
SCHEDULE 3
NOTICES
Any notice to be given to PSW shall be addressed to:
PSW Technologies
9050 Capital of Texas highway North
Austin, Texas 78759
Attention: Vice President, Business Systems
PSW Technologies
9050 Capital of Texas Highway North
Austin, Texas 78759
Attention: CFO and Vice President, Operations
Any notice to be given to LICENSEE shall be addressed to:
Embarcadero Corporation
400 Second, Suite 250
San Francisco, CA 94107
Attention: Robert Verret
================================================================================
<PAGE>
================================================================================
<PAGE>
Exhibit 10.11
================================================================================
RESELLER AGREEMENT
WITNESSETH:
WHEREAS, pursuant to that certain End User License Agreement between PSW
and RESELLER dated 11-4-96 RESELLER desires the right to resell portions of the
Deliverables and PSW Object Library to other parties.
WHEREAS, PSW is willing and able to grant such rights and licenses on the
terms and conditions set forth herein;
Section 1
DEFINITION OF TERMS
The definition of terms set forth in this Section 1 shall apply in this
Agreement (in addition to terms expressly defined elsewhere herein) including
any and all exhibits, addenda, and amendments made to or incorporated herein now
or in the future.
1.1 "Deliverables." Any and all tangible products delivered by PSW for
RESELLER under this Agreement, including all object diagrams,
functional specifications, prototypes, reports, conversion tools,
class libraries, the "source" code and object code, and all
necessary Documentation therefor and further including enhancements,
modifications, and corrections made to the Deliverables by PSW
pursuant to support, trainng, and maintenance services provided to
RESELLER by PSW.
1.2 "Documentation." All textual material relating to the Deliverables,
Including flow charts, operating instructions, and related technical
information. Documentation shall include user manuals, help text,
training materials, and sample source code used for training and
documentation purposes.
1.3 "Genova." The name of PSW's family of software and methodology
assets for custom business system development.
1.4 "Genova Methodology." PSW's family of software and methodology
assets for custom business systems using object oriented software
technology. This approach includes definition of phases,
<PAGE>
phase entry & exit criteria, deliverables, activities, templates
tips & techniques.
1.5 "Genova On-Line." The reference document which specifies PSW's
software development methodology available in formats that can be
viewed by computers.
1.6 "Genova Academy." The classes taught by PSW to train software
developers and other project personnel in Genova.
1.7 "Genova Courseware." The documents, presentations, exercises, and
other tangible assets which comprise the materials used to teach the
Genova Academy classes.
1.8 "Genova Systems Library." Those Deliverables in Schedule 1 that are
specified to be part of the PSW Systems Library.
1.9 "Genova Business Library." Those Deliverables in Schedule 1 that are
specified to be part of the PSW Business Library.
1.10 "Genova Object Library." The combination of the PSW Systems Library
and the PSW Object Library.
1.11 "Genova Enhancements." Changes, corrections, modifications, or
additions, including all new releases and applications, made by PSW
to the PSW Object Library and related Documentation.
1.12 "RESELLER Enhancements." Changes, corrections, modifications, or
additions, including all new releases and applications, made by
RESELLER to the PSW Object Library and related Documentation.
1.13 "Computer Business." The Computer Business shall be defined to
include the research, development, production, marketing, selling,
distribution, or leasing of computer hardware, computer hardware
peripherals, integrated document management systems or cameras, or
the performance of development, consulting, training, or maintenance
services relating to computer hardware, computer hardware
peripherals, integrated document management systems, or cameras.
1.14 "PSW Licensors". Other parties who have licensed portions of the
Deliverables to PSW under separate agreements.
1.15 "Customer." Any end user customers to whom RESELLER directly markets
and sells the Product and who sign an End User License Agreement as
minimally defined in Schedule B.
1.16 "Product." Any deliverables licensed by PSW that Includes the Object
21 Library, CCSI Enhancements, PSW Enhancements, Documentation, or
other Deliverables. "Product" may include one or more separately
priced PSW offerings.
<PAGE>
1.17 "End User License Agreement." The license agreement signed by and
end user customer of the reseller as minimally specified in Schedule
B.
Section 2
GRANT AND SCOPE OF RIGHTS FROM PSW TO RESELLER
2.1 Scope of Rights Granted. PSW hereby grants to RESELLER, and
RESELLER, hereby accepts, a nontransferable, non exclusive right to
distribute the Deliverables to Customers.
2.2 Rights Restrictions. RESELLER is not authorized to distribute or
sub-license the PSW Business Library or PSW Enhancements to any
patty currently in or planning to enter the computer Business as
defined in Section 1.
2.3 End User License Agreement. Any distribution of the Product by
RESELLER shall be pursuant to the terms and conditions of the End
User License Agreement in the form attached hereto as Schedule B.
The terms and conditions of such End User License shall serve as the
minimum documentation distributed by RESELLER defining each
Customer's rights and obligations regarding the Product and RESELLER
agrees to provide in a conspicuous mnnner one copy of the End User
License with each Product. Although RESELLER shall not be liable to
PSW for any Customers failure to comply with the terms and
conditions of the End User License agreement, RESELLER agrees to
report to PSW any known or suspected violation(s) of the Customer
license agreement and to reasonably cooperate with PSW in any
enforcement actions taken by PSW.
Section 3
OWNERSHIP
3.1 Continuing Rights. PSW and PsW Licensors shall retain full ownership
of and full rights to continue to use and market the Deliverables
and the PSW Enhancements and all rights, title and interest in and
to all copyrights, patent rights or trade secret rights associated
with the Deliverables and the PSW Enhancements.
3.2 Copyrights. RESELLER shall not remove any existing copyright or
other proprietary rights notices from the PSW Object Library, PSW
Enhancements, or the Deliverables.
<PAGE>
Section 4
TERM
4.1 Basic Term. This agreement shall be effective on the date first
above written and shall remain in force without term.
4.2 Loss of Rights by PSW. In the event that PSW shall lose any of its
sub-licenses or rights due to breach, bankruptcy, insolvency, or any
other event, the rights and obligations in this agreement shall
continue until the termination date.
Section 5
CONFIDENTIAL INFORMATION
Treatment of Confidential Information as defined in the End User License
agreement shall apply to this Agreement as well.
Section 6
REPRESENTATIONS AND WARRANTIES
RESELLER acknowledges and agrees that any representations and warranties
regarding the Deliverables are provided by PSW and that its sole remedy for
breach hereunder shall be against PSW and not against the PSW Licensors. THE PSW
UCENSORS EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO
THE DELIVERABLES OR THE RESULTS OBTAINED FROM USING THE SAME, INCLUDING ANDY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTIBULAR PURPOSE.
Section 7
LIMITATION OF LIABILITY
UNDER NO CIRCUMSTANCES SHALL PSW OR THE PSW LICENSORS BE LIABLE FOR SPECIAL,
EXEMPLARY, INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO
LEGAL FEES, LOSS OF PROFITS, LOSS OR INACCURACY OF SATA, OR LOSS RESULTING FROM
BUSINESS DISRUPTION, EVEN IF PSW OR THE PSW LICENSORS HAVE BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
<PAGE>
Section 8
THIRD-PARTY BENEFICIARY
RESELLER acknowledges that the Deliverables and Confidential Information include
that of the PSW Licensors and that the PSW Licensors are third-party
beneficiaries of this Agreement with all the rights of PSW to enforce the
obligations of this Agreement against RESELLER.
Section 9
U.S. GOVERNMENT RISTRICTED RIGHTS
If this license is acquired under a U.S. Government contact, use, duplication or
disclosure by the U.S. Government is subject to restrictions as set forth In
DFARS 252.227-701(c)(ii) for Department of Defense contracts and as set forth in
FAR 52.227-19(a)-(d) for civilian agency contracts. PSW and the PSW Licensors
reserve all unpublished rights under the United Stares copyright laws.
Section 10
GENERAL
10.1 Entire Agreement. The provisions herein constitute the entire
agreement between the parties with respect to the licensing of the
subject matter hereof and supersede all prior agreements, oral or
written, and all other communications relating to the licensing of
the subject matter hereof. No amendment or modification of any
provision of this Agreement will be effective unless set forth in a
document that purports to amend this Agreement and is executed by
both parties.
10.2 Assignment. LICENSEE shall not sell, transfer, assign, or
subcontract any right or obligation hereunder except as expressly
provided herein with out the prior written consent of PSW. Any act
in derogation of the foregoing shall be null and void. PSW may
assign this Agreement to another party.
10.3 Force Majeure. Except for failures to make any payment when due,
neither patty shall be hold liable for failure to fulfill its
obligations hereunder if such failure is due to a natural calamity,
act of government, or similar cause beyond the control of such
party.
<PAGE>
10.4 Governing Law. The validity, construction, and performance of this
Agreement shall be governed by the laws of the State of Texas.
10.5 Severability. If any provision of this Agreement is held by a court
of competent jurisdiction to be contrary to law, the remaining
provisions of the Agreement will remain in full force and effect.
10.6 Compliance with Laws and Regulations. PSW and LICENSEE shall comply
with all laws, rules, and regulations of competent public
authorities relating to the duties, obligations, and performance
under this Agreement and shall procure all licenses and pay all fees
and other charges required thereby.
10.7 Notices. Any notices required or permitted to be made or given by
either party hereto pursuant to this Agreement will be deemed
sufficiently made or given of the fifth day after the date of
mailing if sent to such party by certified mail, postage prepaid,
addressed as set forth below or to such other address as a party
shall designate by written notice given to the other party. Contact
and addresses for notices are Specified In Schedule C.
10.8 Waiver. A failure of either parry to exercise any right provided for
herein shall not be deemed a waiver of any right under this
Agreement.
10.9 Right Outside of Agreement. Nothing contained In this Agreement
shall be construed as limiting rights that the parties may enjoy
outside the scope of the licenses granted and the obligations and
restrictions set forth or treated herein.
Section 11
ROYALTY PAYMENTS AND REPORTS
11.1 Royalty Reports. RESELLER shall furnish to PSW a royalty report
including (a) the number of Products shipped during such calendar
quarter, (b) which Object 21 Library Deliverables, PSW Enhancements,
and RESELLER Enhancements are incorporated within or used in the
development of the Product; and (c) and any and all other
information necessary for the determination of royalties under this
agreement.
11.2 Royalty Records. RESELLER shall keep or cause to be kept full and
accurate accounts and records of all transactions made by it under
this agreement in form such that all amounts owing hereunder to PSW
may be readily and accurately determined. RESELLER shall use
commercially reasonable efforts to assure that it is (a) accurately
reporting to PSW all transactions with Customers and (b) otherwise
complying with the Agreement.
<PAGE>
11.3 Royalty Base Confirmation. RESELLER shall, upon written request once
each calendar year, provide access to records with respect to the
licenses granted under this Agreement, during normal business hours,
to an independent accounting organization chosen and compensated by
PSW for the purposes of a confirming audit with respect to royalty
payments. RESELLER shall promptly make any payments due as a result
of the audit, and RESELLER shall reimburse PSW for the costs of such
audit pursuant to Section 11.2 is understated by more than five
percent (5%).
IN WITNESS THEREOF, the parties have caused this Agreement to be signed
below by their duly authorized representatives and to be effective as of
the later date written below:
PSW Technologies RESELLER
By: /s/ Pat Motola By: [Illegible]
-------------------------- -------------------------
Title: CFO, VP of Operations Title: President
Date: 12-10-96 Date: 11-4-96
================================================================================
<PAGE>
Exhibit 10.12
CREDIT AGREEMENT
(Borrowing Base)
THIS CREDIT AGREEMENT (as amended, restated and supplemented from time to time,
this "Agreement") by and between PSW TECHNOLOGIES, INC. ("Borrower") and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION ("Bank") is dated as of November 8, 1996 (the
"Effective Date").
1. THE LOANS.
REVOLVING CREDIT NOTE 1.1 Subject to the terms and conditions hereof, Bank
agrees to make loans ("Loan" or "Loans") to Borrower from time to time before
the Termination Date, not to exceed at any one time outstanding the lesser of
the Borrowing Base or $6,500,000.00 (the "Commitment"). Borrower has the right
to borrow, repay and reborrow the Loans. Each Loan and each repayment must be at
least the minimum amount required in the Note. The Loans may only be used for
financing Borrower's working capital needs. Chapter 15 of the Texas Credit Code
will not apply to this Agreement, the Note or any Loan. The Loans will be
evidenced by, and will bear interest and be payable as provided in, the
promissory note of Borrower dated the Effective Date (together with any and all
renewals, extensions, modifications and replacements thereof and substitutions
therefor, the "Note"). "Termination Date" means the earlier of: (a) November 8,
1997; or (b) the date specified by Bank pursuant to Section 6.1 hereof.
BORROWING BASE 1.2 The Borrowing Base will be the amount shown as the BORROWING
BASE on the most recent Borrowing Base Report, subject to verification by Bank
and calculated using the eligibility criteria, borrowing base factors and dollar
ceilings for various components specified in the attached Exhibit A,
incorporated herein by reference.
REQUIRED PAYMENT 1.3 If the unpaid amount of the Loans at any time exceeds the
Borrowing Base then in effect, Borrower must make a payment on the Note in an
amount sufficient to reduce the unpaid principal balance of the Note to an
amount no greater than the Borrowing Base. Such payment shall be accompanied by
any prepayment charge required by the Note and shall be due concurrently with
the Borrowing Base Report.
COMMITMENT FEE; TERMINATION 1.4 Borrower will pay a commitment fee (computed on
the basis of a year comprised of 360 days of 3/16% per annum on the daily
average difference between the Commitment and the principal balance of the Note,
from the date hereof to the Termination Date. The Commitment fee shall be
computed, and be due and payable, quarterly in arrears. Borrower shall be
entitled, upon delivery of 30 days advance written notice to Bank, to terminate
its use of the unused portion of the Commitment as of the effective date of such
notice. Upon the effective date of such notice of termination, accrual of the
commitment shall cease; Borrower shall thereupon not have the right to borrow or
reborrow new Loans under the Commitment (notwithstanding anything in this
Agreement or the other Loan Documents to the contrary); and the amount of such
fee accrued through the effective date of such termination shall be immediately
due and payable.
CAPITAL ADEQUACY 1.5 With respect to any Loan bearing interest at the LIBOR
Rate, if Bank determines after the date of this Agreement that any change in
applicable laws, rules or regulations regarding capital adequacy, or any change
in the interpretation or administration thereof by any appropriate governmental
agency, or compliance with any request or directive to Bank regarding capital
adequacy (whether or not having the force of law) of any such agency, increases
the capital required to be maintained with respect to any Loan bearing interest
at the LIBOR Rate and therefore reduces the rate of return on Bank's capital
below the level Bank could have achieved but for such change or compliance
(taking into consideration Bank's policies with respect to capital adequacy),
then Borrower will pay to Bank from time to time, within 15 days of Bank's
request, any additional amount required to compensate Bank for such reduction.
Bank will request any additional amount by delivering to Borrower a certificate
of Bank setting forth the amount necessary to compensate Bank. The certificate
will be conclusive and binding, absent manifest error. Bank may make any
assumptions, and may use any allocations of costs and expenses and any averaging
and attribution methods, which Bank in good faith finds reasonable.
2. CONDITIONS PRECEDENT.
ALL LOANS 2.1 Bank is not obligated to make any Loan unless: (a) Bank has
received the following, duly executed and in Proper Form: (1) a Request for
Loan, substantially in the form of Exhibit B, within the time required in the
Note; provided, however, Bank may accept and act upon verbal advance requests
received from Borrower's representative reasonably believed by Bank to be
authorized to make such requests; (2) a Borrowing Base Report within the time
required by this Agreement; and (3) such other documents as Bank reasonably may
require; (b) no Event of Default exists; and (c) the making of the Loan is not
prohibited by, or subjects Bank to any penalty or onerous condition under any
Legal Requirement. If Bank fails to make Loans solely on the basis of clause (c)
of the preceding sentence, then during the period that such clause (c) applies,
the commitment fee provided for in section 1.4 shall not accrue.
FIRST LOAN 2.2 In addition to the matters described in the preceding section,
Bank will not be obligated to make the first Loan unless Bank has received all
of the Loan Documents specified in Annex I in Proper Form.
3. REPRESENTATIONS AND WARRANTIES. To induce Bank to enter into this Agreement
and to make the Loans, Borrower represents and warrants as of the Effective Date
that each of the following statements is true and correct:
ORGANIZATION AND STATUS 3.1 Borrower and each Subsidiary of Borrower is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; has all power and authority to conduct its
business as presently conducted, and is duly qualified to do business and in
good standing in each jurisdiction in which the nature of the business conducted
by it makes such qualification desirable. Borrower has no Subsidiary other than
those listed on Annex II and each Subsidiary is owned by Borrower in the
percentage set forth on Annex II.
FINANCIAL STATEMENTS 3.2 All financial statements delivered to Bank are complete
and correct and fairly present, in accordance with generally accepted accounting
principles, consistently applied ("GAAP"), the financial condition and the
results of operations of Borrower and each Subsidiary of Borrower as at the
dates and for the periods indicated. No material adverse change has occurred in
the assets, liabilities, financial condition, business or affairs of Borrower or
any Subsidiary of Borrower since the dates of such financial statements. Neither
Borrower nor any Subsidiary of Borrower is subject to any instrument or
agreement materially and adversely affecting its financial condition, business
or affairs. Each of the foregoing representations and warranties is subject to
the following qualifications: (a) the unaudited interim Income Statement of
Pencom Software ("Pencom Software") (a Division of Pencom Systems Incorporated
("PSI")) for the month and eight months ended August 31, 1996 delivered
Page 1 of 7 Pages
<PAGE>
Credit Agreement (With Borrowing Base) November 8, 1996
PSW TECHNOLOGIES, INC.
to the Bank was prepared in a manner substantially similar with the preparation
of the audited financial statements of Pencom Software for the years ended
December 31, 1995 and December 31, 1994, except that the unaudited interim
income statement is subject to normal year-end audit adjustments including, but
not limited to, bonus accruals and non-cash charges related to stock option
transactions; and (b) no material adverse change has occurred in the assets,
liabilities financial condition, or business affairs of Pencom Software since
the date of the financial statements referred to in the preceding clause (a)
except that on October 1, 1996 certain but not all of the assets and
liabilities, and an assignment of an interest in Pencom Software accounts
receivable, were contributed to Borrower by PSI.
ENFORCEABILITY 3.3 The Loan Documents are legal, valid and binding obligations
of the Borrower enforceable in accordance with their respective terms, except as
may be limited by bankruptcy, insolvency and other similar laws affecting
creditors' rights generally. The execution, delivery and performance of the Loan
Documents have all been duly authorized by all necessary action; are within the
power and authority of the Borrower; do not and will not violate any Legal
Requirement, the Organizational Documents of the Borrower or any agreement or
instrument binding or affecting the Borrower or any of its Property.
COMPLIANCE 3.4 Borrower and each Subsidiary of Borrower has filed all applicable
tax returns and paid all taxes shown thereon to be due, except those for which
extensions have been obtained and those which are being contested in good faith
and for which adequate reserves have been established. Borrower and each
Subsidiary of Borrower is in compliance with all applicable Legal Requirements
and manages and operates (and will continue to manage and operate) its business
in accordance with good industry practices. Neither Borrower nor any Subsidiary
of Borrower is in default in the payment of any other indebtedness or under any
agreement to which it is a party. The Parties have obtained all consents of and
registered with all Governmental Authorities or other Persons required to
execute, deliver and perform the Loan Documents.
LITIGATION 3.5 Except as previously disclosed to Bank in writing, there is no
litigation or administrative proceeding pending or, to the knowledge of
Borrower, threatened against, nor any outstanding judgment, order or decree
affecting Borrower or any Subsidiary of Borrower before or by any Governmental
Authority which, if determined adversely to Borrower, would have a material
adverse effect on Borrower's business or financial condition.
TITLE AND RIGHTS 3.6 Borrower and each Subsidiary of Borrower has good and
marketable title to its Property, free and clear of any Lien except for Liens
permitted by this Agreement and other Loan Documents. Except as otherwise
expressly stated in the Loan Documents or permitted by this Agreement, the Liens
of the Loan Documents will constitute valid and perfected first and prior Liens
on the Property described therein, subject to no other Liens whatsoever.
Borrower and each Subsidiary of Borrower possess all permits, licenses, patents,
trademarks and copyrights required to conduct its business. All easements,
rights-of-way and other rights necessary to maintain and operate Borrower's
Property have been obtained and are in full force and effect.
REGULATION U; BUSINESS PURPOSES 3.7 None of the proceeds of any Loan will be
used to purchase or carry, directly or indirectly, any margin stock or for any
other purpose which would make this credit a "purpose credit" within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System. All
Loans will be used for business, commercial, investment or other similar purpose
and not primarily for personal, family, or household use or primarily for
agriculture purposes as such terms are used in Chapter One of the Texas Credit
Code.
ENVIRONMENT 3.8 Borrower and each Subsidiary of Borrower have complied with
applicable Legal Requirements in each instance in which any of them have
generated, handled, used, stored or disposed of any hazardous or toxic waste or
substance, on or off its premises (whether or not owned by any of them). Neither
Borrower nor any Subsidiary of Borrower has any material contingent liability
for non-compliance with environmental or hazardous waste laws. Neither Borrower
nor any Subsidiary of Borrower has received any notice that it or any of its
Property or operations does not comply with, or that any Governmental Authority
is investigating its compliance with, any environmental or hazardous waste laws.
INVESTMENT COMPANY ACT/PUBLIC UTILITY HOLDING COMPANY ACT 3.9 Neither Borrower
nor any Subsidiary of Borrower is an "investment company" within the meaning of
the Investment Company Act of 1940 or a "holding company" or an "affiliate" of a
"holding company" or a "public utility" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
STATEMENTS BY OTHERS 3.10 All material written statements and information
provided by or on behalf of Borrower, any Subsidiary of Borrower or any other of
the Parties in connection with any Loan Document constitute the representations
and warranties of Borrower hereunder.
4. AFFIRMATIVE COVENANTS. Borrower agrees to do, and if necessary causes to be
done, and cause its Subsidiaries to do, each of the following:
CORPORATE FUNDAMENTALS 4.1 (a) Pay when due all taxes and governmental charges
of every kind upon it or against its income, profits or Property, unless and
only to the extent that the same shall be contested in good faith and adequate
reserves have been established therefor; (b) Renew and keep in full force and
effect all of its licenses, permits and franchises as may be reasonably
necessary to conduct its business properly and efficiently; (c) Do all things
necessary to preserve its corporate existence and its qualifications and rights
in all jurisdictions where such qualification is necessary or desirable; (d)
Comply with all applicable Legal Requirements; and (e) Protect, maintain and
keep in good repair its property and make all replacements and additions to its
Property as may be reasonably necessary to conduct its business properly and
efficiently.
INSURANCE 4.2 Maintain insurance with such reputable financially sound insurers,
on such of its Property and personnel, in such amounts and against such risks as
is customary with similar Persons or as may be reasonably required by Bank, and
furnish Bank satisfactory evidence thereof promptly upon request. These
insurance provisions are cumulative of the insurance provisions of the other
Loan Documents. Bank must be named as a beneficiary, loss payee or additional
insured of such insurance as its interest may appear and Borrower must provide
Bank with copies of the policies of insurance and a certificate of the insurer
that the insurance required by this section may not be canceled, reduced or
affected in any manner without 30 days' prior written notice to Bank.
Page 2 of 7 Pages
<PAGE>
Credit Agreement (With Borrowing Base) November 8, 1996
PSW TECHNOLOGIES, INC.
FINANCIAL INFORMATION/BORROWING BASE REPORT 4.3 Furnish to Bank in Proper Form
(i) the financial statements prepared in conformity with GAAP on consolidated
and consolidating bases and the other information described in, and within the
times required by, Exhibit C, Reporting Requirements, Financial Covenants and
Compliance Certificate attached hereto and incorporated herein by reference;
(ii) the Borrowing Base Report substantially in the form of, and within the time
required by, Exhibit A along with the other information required by Exhibit A to
be submitted; (iii) within the time required by Exhibit C, Exhibit C signed and
certified by the chief financial officer or president of Borrower; (iv) promptly
after such request is submitted to the appropriate Governmental Authority, any
request for waiver of funding standards or extension of amortization periods
with respect to any employee benefit plan; (v) copies of special audits,
studies, reports and analyses prepared for the management of Borrower by outside
parties and (vi) such other information relating to the financial condition and
affairs of the Borrower and guarantors and their Subsidiaries as Bank may
request from time to time in its discretion.
MATTERS REQUIRING NOTICE 4.4 Notify Bank immediately, upon acquiring knowledge
of (a) the institution or threatened institution of any lawsuit of
administrative proceeding which, if adversely determined, might materially
adversely affect Borrower; (b) any material adverse change in the assets,
liabilities, financial condition, business or affairs of Borrower; (c) any Event
of Default; or (d) any reportable event or any prohibited transaction in
connection with any employee benefit plan.
INSPECTION 4.5 Permit Bank and its affiliates to inspect and photograph its
Property, to examine and copy its files, books and records, and to discuss its
affairs with its officers and accountants, at such times and intervals and to
such extent as Bank reasonably desires.
ASSURANCE 4.6 Promptly execute and deliver any and all further agreements,
documents, instruments, and other writings that Bank may request to cure any
defect in the execution and delivery of any Loan Document or more fully to
describe particular aspects of the agreements set forth or intended to be set
forth in the Loan Documents.
CERTAIN CHANGES 4.7 Notify Bank at least 30 days prior to the date that any of
the Parties changes its name or the location of its chief executive office or
principal place of business or the place where it keeps its books and records or
the location of any of the Collateral.
EXHIBIT C 4.8 Comply with each of the other affirmative covenants set forth in
Exhibit C.
5. NEGATIVE COVENANTS. The Borrower will not, and no Subsidiary of Borrower
will, without the prior written consent of the Bank, which Bank shall be
entitled to withhold in its sole and absolute discretion (Bank agreeing that it
will respond in writing to each written request for such consent with reasonable
promptness):
INDEBTEDNESS 5.1 Create, incur, or permit to exist, or assume or guarantee,
directly or indirectly, or become or remain liable with respect to, any
Indebtedness, contingent or otherwise, unless there is a permitted amount in
Exhibit C, except: (a) Indebtedness to Bank, or secured by Liens permitted by
this Agreement, or otherwise approved in writing by Bank, and renewals and
extensions (but not increases) thereof; and (b) current accounts payable and
unsecured current liabilities, not the result of borrowing, to vendors,
suppliers and Persons providing services, for expenditures for goods and
services normally required by it in the ordinary course of business and on
ordinary trade terms.
LIENS 5.2 Create or permit to exist any Lien upon any of its Property now owned
or hereafter acquired, or acquire any Property upon any conditional sale or
other title retention device or arrangement or any purchase money security
agreement; or in any manner directly or indirectly sell, assign, pledge or
otherwise transfer any of its accounts or other Property, unless as permitted in
Exhibit C, except: (a) Liens, not for borrowed money, arising in the ordinary
course of business; (b) Liens for taxes not delinquent or being contested in
good faith by appropriate proceedings; (c) Liens in effect on the date hereof
and disclosed to Bank in writing, so long as neither the principal indebtedness
secured thereby nor the Property covered thereby increases; and (d) Liens in
favor of Bank, or otherwise approved in writing by Bank. Notwithstanding
anything to the contrary herein, Borrower will not, and no Subsidiary of
Borrower will permit any Lien on any inventory that secures the Loans unless
Bank shall provide Borrower with Bank's prior written consent.
FINANCIAL AND OTHER COVENANTS 5.3 Fail to comply with the required financial
covenants and other covenants described, and calculated as set forth, in Exhibit
C. Unless otherwise provided on Exhibit C, all such amounts and ratios will be
calculated: (a) on the basis of GAAP; and (b) on a consolidated basis.
Compliance with the requirements of Exhibit C will be determined as of the dates
of the financial statements to be provided to Bank.
CORPORATE CHANGES 5.4 RESTRICTED PAYMENTS 5.5 In any single transaction or
series of transactions, directly or indirectly: (a) liquidate or dissolve; (b)
be a party to any merger or consolidation; (c) sell or dispose of any interest
in any of its Subsidiaries, or permit any of its Subsidiaries to issue any
additional equity other than to Borrower; (d) sell, convey or lease all or any
substantial part of its assets, except for sale of inventory in the ordinary
course of business; or (e) permit any change in ownership of Borrower affecting
more than 49% of the stock ownership of Borrower (as of the Effective Date).
RESTRICTED PAYMENTS 5.5 Unless otherwise permitted on Exhibit C, at any time:
(a) redeem, retire, or otherwise acquire, directly or indirectly, any shares of
its capital stock or other equity interest; (b) declare or pay any dividend
(except stock dividends and dividends paid to Borrower); or (c) make any other
distribution or contribution of any Property or cash or obligation to owners of
an equity interest or to a Subsidiary in their capacity as such.
NATURE OF BUSINESS; MANAGEMENT 5.6 Substantially change the nature of its
business or enter into any business which is substantially different from the
business in which it is presently engaged, or permit any material change in its
management (which shall be understood to have occurred if more than one of the
persons who are President, Chief Financial Officer and the Controller of the
Borrower are changed).
AFFILIATE TRANSACTIONS 5.7 Enter into any transaction or agreement with any
Affiliate except upon terms substantially similar to those obtainable from
wholly unrelated sources.
SUBSIDIARIES 5.8 Form, create or acquire any Subsidiary; except that Borrower
shall be permitted to do any of the foregoing with the prior written consent of
the Bank, which consent shall not be unreasonably delayed or withheld, if in
advance of or
Page 3 of 7 Pages
<PAGE>
Credit Agreement (With Borrowing Base) November 8, 1996
PSW TECHNOLOGIES, INC.
substantially simultaneously with such action such Subsidiary shall execute a
continuing guaranty of the Obligations in Proper Form.
6. EVENTS OF DEFAULT AND REMEDIES.
EVENTS OF DEFAULT 6.1 Each of the following is an "Event of Default":
(a) Any Obligor fails to pay any principal of or interest on the Note or any
other obligation under any Loan Document as and when due; or
(b) Any Obligor or any Subsidiary of Borrower fails to pay at maturity, or
within any applicable period of grace, any principal of or interest on any other
borrowed money obligation (which shall not include any capital lease) in excess
of $25,000.00, or fails to observe or perform any term, covenant or agreement
contained in any agreement with respect to any such obligation; or
(c) Any representation or warranty made in connection with any Loan Document was
incorrect, false or misleading when made; or
(d) Any Obligor violates any covenant contained in any Loan Document; or
(e) An event of default occurs under any other Loan Document and any cure or
grace period with respect to such default has elapsed with such default
continuing; or
(f) Final judgment for the payment of money over $100,000.00 is rendered against
Obligor or any Subsidiary of Borrower and remains undischarged for a period of
30 days during which execution is not effectively stayed; or
(g) The sale, encumbrance or abandonment (except as otherwise expressly
permitted by this Agreement or another Loan Document) of any of the Collateral
or the making of any levy, seizure, garnishment, sequestration or attachment
thereof or thereon; or the uninsured loss, theft, substantial damage, or
destruction of any material portion of such Property; or
(h) Any order is entered in any proceeding against Borrower or any Subsidiary of
Borrower decreeing the dissolution, liquidation or split-up thereof, and such
order shall remain in effect for 30 days; or
(i) Any Obligor or any subsidiary of Borrower makes a general assignment for the
benefit of creditors or shall petition or apply to any tribunal for the
appointment of a trustee, custodian, receiver or liquidator of all or any
substantial part of its business, estate or assets or shall commence any
proceeding under any bankruptcy, insolvency, dissolution or liquidation law of
any jurisdiction, whether now or hereafter in effect; or any such petition or
application shall be filed or any such proceeding shall be commenced against any
Obligor or any Subsidiary of Borrower and the Obligor or such subsidiary by any
act or omission shall indicate approval thereof, consent thereto or acquiescence
therein, or an order shall be entered appointing a trustee, custodian, receiver
or liquidator of all or any substantial part of the assets of any Obligor or any
subsidiary of Borrower or granting relief to any Obligor or any subsidiary of
Borrower or approving the petition in any such proceeding, and such order shall
remain in effect for more than 30 days; or any Obligor or any subsidiary of
Borrower shall fail generally to pay its debts as they become due or suffer any
writ of attachment or execution or any similar process to be issued or levied
against it or any substantial part of its property which is not released,
stayed, bonded or vacated within 30 days after its issue or level; or
(j) Any Obligor or any Subsidiary of Borrower conceals or removes any part of
its Property, with intent to hinder, delay or defraud any of its creditors; (A)
makes or permits a transfer of any of its Property which may be fraudulent under
any bankruptcy, fraudulent conveyance or similar law; or (B) makes any
unscheduled transfer of its Property to or for the benefit of a creditor at a
time when other creditors similarly situated have not been paid; or
(k) A material adverse change occurs in the assets, liabilities or financial
condition of any Obligor, or any Subsidiary of Borrower, which is reasonably
related to such Obligor's ability to perform its obligations under the Loan
Documents and/or its ability to avoid any Event of Default; or
(l) Any change occurs in the ownership of Borrower other than as expressly
permitted by this Agreement; or
(m) Any Obligor that is not an individual dissolves.
RIGHTS AND REMEDIES 6.2 If any Event of Default defined in Section 6.1 occurs,
then Bank may do any or all of the following: (1) declare the Obligations to be
immediately due and payable without notice of acceleration or of intention to
accelerate, presentment and demand or protest, all of which are hereby expressly
waived; (2) without notice to any Obligor, terminate the Commitment and
accelerate the Termination Date; (3) set off, in any order, against the
indebtedness or Borrower under the Loan Documents any debt owing by Bank to
Borrower (whether such debt is owed individually or jointly), including, but not
limited to, any deposit account, which right is hereby granted by Borrower to
Bank; and (4) exercise any and all other rights pursuant to the Loan Documents,
at law, in equity or otherwise.
CURE PERIOD FOR CERTAIN EVENTS OF DEFAULT 6.3 Notwithstanding any other
provision of this Agreement or any other Loan Document to the contrary, the Bank
shall not take the actions described in section 6.2 during the Cure Period (as
defined hereinafter), with respect to: (i) any Event of Default described in
section 6.1(a) or (b) which consists of delay in making a payment of money; or
(ii) an Event of Default described in section 6.1(b) or (d) which consists of
delay in delivering reports or documents; or (iii) an Event of Default described
in section 6.1(d) which consists of a curable failure to maintain a financial
covenant set out in Exhibit C Part C. With respect to an Event of Default
described in clause (i) of the preceding sentence, the "Cure Period" shall be 5
business days beginning on the first day of the Event of Default. With respect
to an Event of Default described in clause (ii) or (iii) of the first sentence
of this section, the "Cure Period" shall be 15 calendar days beginning on the
first day of the Event of Default. This section 6.3 shall be void and of no
effect unless Borrower shall, to the extent Borrower has actual knowledge
thereof, provide prompt notices to Bank (in writing if requested by the Bank) of
(x) the occurrence or expected occurrence of such Event of Default, with a
certification to Bank of Borrower's good faith expectation that such Event of
Default shall be cured by Borrower before the end of the Cure Period; and (y)
the occurrence of Borrower's cure of the Event of Default before the end of the
Cure Period. During the Cure Period, an Event of Default shall be deemed to have
occurred and be continuing until actually cured by Borrower, for all purposes
including without limitation section 2.1(b) hereof. If the Event of Default is
not cured before the end of the Cure Period, Bank shall have all of the rights
described in Section 6.2 and each of the other Loan Documents without any
restriction imposed by this section whatsoever. This section shall not restrict
the Bank from taking any remedy with respect to any Event of Default not
specified in the first sentence of this section.
REMEDIES CUMULATIVE 6.4 No remedy, right or power of Bank is exclusive of any
other remedy, right or power now or hereafter existing by contract, at law, in
equity, or otherwise, and all remedies, rights and powers are cumulative.
7. MISCELLANEOUS.
NO WAIVER 7.1 No waiver of any default or Event of Default will be a waiver of
any other default or Event of Default. No failure to exercise or delay in
exercising any right or power under any Loan Document will be a waiver thereof,
nor shall any single or partial exercise of any such right or power preclude any
further or other exercise thereof or the exercise of any other right or power.
The making of any Loan during either the existence of any default or Event of
Default, or subsequent to the occurrence of an Event of Default will not be a
waiver of any such default or Event of Default. No amendment, modification or
waiver of any
Page 4 of 7 Pages
<PAGE>
Credit Agreement (With Borrowing Base) November 8, 1996
PSW TECHNOLOGIES, INC.
PAGE MISSING (STAMPED SHEET NUMBERS ARE CONSECUTIVE WITHOUT THIS PAGE, THOUGH)
Page 5 of 7 Pages
<PAGE>
Credit Agreement (With Borrowing Base) November 8, 1996
PSW TECHNOLOGIES, INC.
fees and amounts paid in settlement) (each, a "Claim") to which Bank may become
subject arising out of or based upon the Loan Documents, or any Loan, including
that resulting from Bank's own negligence, except and to the extent caused by
Bank's gross negligence or willful misconduct. To the extent any Claim is one to
which Borrower is not a party, Bank agrees that (a) it shall provide Borrower
written notice within 30 days of the date that the Bank has actual knowledge
that a Claim has been made; and (b) upon receipt by Bank of Borrower's
confirmation in Proper Form that the Claim is indemnified and that Borrower will
honor the indemnity, Bank shall (i) not compromise or settle such Claim without
Borrower's consent, which shall not be unreasonably withheld, and (ii) agree to
be represented by legal counsel mutually reasonably acceptable to Borrower and
Bank.
USURY NOT INTENDED 7.8 Borrower and Bank intend to conform strictly to
applicable usury laws. Therefore, the total amount of interest (as defined under
applicable law) contracted for, charged or collected under this Agreement or any
other Loan Document will never exceed the Highest Lawful Rate. If Bank contracts
for, charges or receives any excess interest, it will be deemed a mistake. Bank
will automatically reform the Loan Document or charge to conform to any
applicable law, and if excess interest has been received, Bank will either
refund the excess to Borrower or credit the excess on any unpaid principal
amount of the Note or any other Loan Document. All amounts constituting interest
will be spread throughout the full term of the Loan Document or applicable Note
in determining whether interest exceeds lawful amounts.
NO COURSE OF DEALING 7.9 NO COURSE OF DEALING BY BORROWER WITH BANK, NO COURSE
OF PERFORMANCE AND NO TRADE PRACTICES OR OTHER INTRINSIC EVIDENCE OF ANY NATURE
MAY BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS
AGREEMENT.
8. DEFINITIONS.
Unless the context otherwise requires, capitalized terms used in Loan Documents
and not defined elsewhere shall have the meanings provided by GAAP, except as
follows:
Account Debtor means any person in any way obligated on or in connection with
any Account.
Affiliate means, as to any Person, any other Person (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, such Persons; (b) that directly or indirectly
beneficially owns or holds five percent (5%) or more of any class of voting
stock of such Person; or (c) five percent (5%) or more of the voting stock of
which is directly or indirectly beneficially owned or held by the Person in
question. The term "control" means to possess, directly or indirectly, the power
to direct the management and policies of a Person, whether through the ownership
of voting securities, by contract, or otherwise. Bank is not under any
circumstances to be deemed an Affiliate of Borrower or any of its Subsidiaries.
Authority Documents means certificates of authority to transact business,
certificates of good standing, borrowing resolutions (with secretary's
certificate), secretary's certificates of incumbency, and other documents which
empower and enable Borrower or its representatives to enter into agreements
evidenced by Loan Documents or evidence such authority.
Business Day means a day when the main office of Bank is open for the conduct of
commercial lending business.
Collateral means all Property, tangible or intangible, real, personal or mixed,
now or hereafter subject to Security Documents, or intended to be.
Corporation means corporations, partnerships, limited liability companies, joint
ventures, joint stock associations, associations, banks, business trusts and
other business entities.
Debt means all revolving, term and other interest and non-interest bearing debt
from banks and other financial institutions excluding accounts payable and other
accruals.
EBITDA means Borrower's earnings before interest, taxes, depreciation,
amortization and other Specified Non-Cash Charges.
Government Accounts means receivables owed by the U.S. government or by the
government of any state, county, municipality, or other political subdivision as
to which Bank's security interest or ability to obtain direct payment of the
proceeds is governed by any federal or state statutory requirements other than
those of the Uniform Commercial Code, including, without limitation, the Federal
Assignment of Claims Act of 1940, as amended.
Governmental Authority means any foreign governmental authority, the United
States of America, any state of the United States and any political subdivision
of any of the foregoing, and any agency, department, commission, board, bureau,
court or other tribunal having jurisdiction over Bank or any Obligor, or any
Subsidiary of Borrower or their respective Property.
Highest Lawful Rate means the maximum nonusurious rate of interest permitted to
be charged by applicable Federal or Texas law (whichever permits the highest
lawful rate) from time to time in effect. If Chapter One of the Texas Credit
Code establishes the Highest Lawful Rate, the Highest Lawful Rate is the
"indicated rate ceiling" as defined in that Chapter.
Indebtedness means and includes (a) all items which in accordance with GAAP
would be included on the liability side of a balance sheet on the date as of
which Indebtedness is to be determined (excluding capital stock, surplus,
surplus reserves and deferred credits); it being understood that operating lease
obligations and other such obligations which under GAAP do not appear as
liabilities on Borrower's balance sheet are not Indebtedness; (b) all
guaranties, endorsements and other contingent obligations in respect of, or any
obligations to purchase or otherwise acquire, Indebtedness of others, and (c)
all Indebtedness secured by any Lien existing on any interest of the Person with
respect to which indebtedness is being determined, in Property owned subject to
such Lien, whether or not the Indebtedness secured thereby has been assumed.
Legal Requirement means any law, ordinance, decree, requirement, order,
judgment, rule, regulation (or interpretation of any of the foregoing) of, and
the terms of any license or permit issued by, and Governmental Authority.
Lien shall mean any mortgage, pledge, charge, encumbrance, security interest,
collateral assignment or other lien or restriction of any kind, whether based on
common law, constitutional provision, statute or contract.
Loan Documents means this Agreement, the agreements, documents, instruments and
other writings contemplated by this Agreement or listed on Annex I, all other
assignments, deeds, guaranties, pledges, instruments, certificates and
agreements now or hereafter executed or delivered to the Bank pursuant to any of
the foregoing, and all amendments, modifications, renewals, extensions,
increases and rearrangements of, and substitutions for, any of the foregoing.
Obligations means all principal, interest and other amounts which are or become
owing under this Agreement, the Note or any other Loan Document.
Obligor means each Borrower and any guarantor, surety, co-signer, general
partner or other person who may now or hereafter be obligated to pay all or any
part of the Obligations.
Organizational Documents means, with respect to a corporation, the certificate
of incorporation, articles of incorporation and bylaws of such corporation; with
respect to a limited liability company, the articles of organization,
regulations and other documents establishing such entity, with respect to a
partnership, joint venture, or trust, the agreement, certificate or instrument
establishing such entity; in each case including all modifications and
supplements thereof as of the date of the Loan Document referring to such
Organizational Document and any and all future modifications thereof which are
consented to by Bank.
Parties means all Persons other than Bank executing any Loan Documents.
Page 6 of 7 Pages
<PAGE>
Credit Agreement (With Borrowing Base) November 8, 1996
PSW TECHNOLOGIES, INC.
Person means any individual, Corporation, trust, unincorporated organization,
Governmental Authority or any other form of entity.
Proper Form means in form and substance satisfactory to the Bank.
Property means any interest in any kind of property or asset, whether real,
personal or mixed, tangible or intangible.
Security Documents means those Security Agreements listed on Annex I and all
supplements, modifications, amendment, extensions thereof and all other
agreements hereafter executed and delivered to Bank to secure the Loans.
Specified Non-Cash Charges means all non-cash charges to the Borrower's income
statement (not reflected as depreciation or amortization) (a) resulting from
stock option transactions; or (b) as agreed in writing by Bank in its sole
discretion, upon Borrower's request.
Subordinated Debt means any Indebtedness subordinated to Indebtedness due Bank
pursuant to a written subordination agreement in Proper Form by and among Bank,
subordinated creditor and Borrower which at a minimum must prohibit: (a) any
action by subordinated creditor which will result in an occurrence of an Event
of Default or default under this Agreement, the subordination agreement or the
subordinated Indebtedness; and (b) upon the happening of any Event of Default or
default under any Loan Document, the subordination agreement, or any instrument
evidencing the subordinated Indebtedness (i) any payment of principal and
interest on the subordinated Indebtedness; (ii) any act to compel payment of
principal or interest on subordinated Indebtedness; and (iii) any action to
realize upon any Property securing the subordinated Indebtedness.
Subsidiary means, as to a particular parent Corporation, any Corporation of
which 50% or more of the indicia of equity rights is at the time directly or
indirectly owned by such parent Corporation or by one or more Persons controlled
by, controlling or under common control with such parent Corporation.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN BANK AND THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF BANK AND THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN BANK AND THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
BORROWER: PSW TECHNOLOGIES, INC.
By: /s/W. Frank King
----------------------------------------------------------------------------
Name: W. Frank King
--------------------------------------------------------------------------
Title: CEO & President
-------------------------------------------------------------------------
Address: 9050 Capital of TX Hwy Austin TX
-----------------------------------------------------------------------
BANK: TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/Ralph T. Beasley
----------------------------------------------------------------------------
Name: Ralph T. Beasley
--------------------------------------------------------------------------
Title: Vice President
-------------------------------------------------------------------------
EXHIBITS: ANNEXES:
A Borrowing Base Report I Loan Documents
B Request for Loan II Subsidiaries
C Reporting Requirements, Financial
Covenants, and Compliance Certificate
Page 7 of 7 Pages
<PAGE>
SECURITY AGREEMENT -- ACCOUNTS AND GENERAL INTANGIBLES
("Agreement")
PSW TECHNOLOGIES, INC.
9050 Capital of Texas Highway North, Austin, Travis County, Texas 78759
("Debtor")
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
700 Lavaca, P.O. Box 550, Austin, Travis County, Texas 78701-0001
("Secured Party"), agree as follows:
1. DEFINITIONS. (a) "Collateral" means all Accounts and all Proceeds, together
with all books and records of Debtor, whether in paper or electronic form,
relating to the Collateral. "Accounts" means all accounts, instruments,
negotiable documents, and chattel paper. (b) "Obligations" means all debts,
obligations and liabilities of every kind and character, whether joint or
several, contingent or otherwise, of Debtor now or hereafter existing in favor
of Secured Party, including without limitation all liabilities arising under or
from any note, open account, overdraft, letter of credit, endorsement, surety
agreement, guaranty, interest rate swap, or other derivative produce,
acceptance, foreign exchange contract or depository service contract, whether
payable to Secured Party or to a third party and subsequently acquired by
Secured Party. Debtor and Secured Party specifically contemplate that Debtor may
hereafter become further indebted to Secured Party. (c) "Past Due Rate" means
the lesser of the Prime Rate plus three percent (3%) or the highest nonusurious
rate of interest that Secured Party may contract for, charge or receive under
applicable law. (d) "Proceeds" means the rights and interests of Debtor in
goods, the sale and delivery of which give rise to any Account, including all
returned or repossessed goods, and all products and proceeds, in cash or
otherwise, of all Collateral. (e) "Security Interest" means the security
interests created by this Agreement. (f) "UCC" means the Texas Uniform
Commercial Code, as amended from time to time. (g) "Prime Rate" means the rate
of interest per annum determined from time to time by the Secured Party as its
prime rate in effect at its principal office in Houston, Texas and thereafter
entered in the minutes of its Loan and Discount Committee; each change in the
Prime Rate shall be effective on the date such change is determined; without
special notice to the Debtor or any other person or entity. THE PRIME RATE IS A
REFERENCE RATE AND DOES NOT NECESSARILY REPRESENT THE LOWEST OR BEST RATE
ACTUALLY CHARGED TO ANY CUSTOMER AND ANY STATEMENT, REPRESENTATION OR WARRANTY
IN THAT REGARD OR TO THAT EFFECT IS EXPRESSLY DISCLAIMED BY SECURED PARTY.
2. CREATION OF SECURITY INTEREST. To secure the payment and performance of the
Obligations, Debtor grants to Secured Party a security interest in and assigns
to Secured Party all Collateral which Debtor owns or later acquires.
3. DEBTOR'S REPRESENTATIONS AND WARRANTIES. (a) Debtor is the sole lawful owner
of the Collateral, free and clear of all encumbrances, and has the right and
power to transfer the Collateral to Secured Party. No financing statement
covering the Collateral, other than in favor of Secured Party, is on file in any
public office. (b) This Agreement constitutes the legal, valid and binding
obligation of Debtor, enforceable in accordance with its terms. (c) The
Collateral and the Debtor's use thereof comply with all applicable laws, rules
and regulations, and Debtor has obtained any consents necessary to execute,
deliver and perform its obligations under this Agreement. (d) The address set
forth above is Debtor's place of business, if Debtor has only one place of
business, Debtor's chief executive office, if Debtor has more than one place of
business, or Debtor's residence, if Debtor has no place of business.
4. DEBTOR'S AGREEMENTS. (a) Debtor will warrant and defend its title to and
Secured Party's interest in the Collateral against any adverse claimant. Debtor
will promptly take all reasonable and appropriate steps to collect the
Collateral. Debtor will not agree to a material modification of the payment
terms of any Account without the written consent of Secured Party. (b)
Notwithstanding the security interest in Proceeds granted herein, Debtor will
not sell, transfer, assign or otherwise dispose of any interest in the
Collateral, except as authorized in this Agreement or in writing by Secured
Party, and Debtor will keep the Collateral (including Proceeds) free from unpaid
charges, including taxes and assessments, and from all encumbrances other than
those in favor of Secured Party. (c) After the occurrence and during the
continuation of an Even of Default (with respect to which, if subject to a Cure
Period, such Cure Period has ended with such default uncured), Secured Party may
require that Debtor (i) deposit all payments on the Accounts in a special bank
account over which Secured Party alone has the power of withdrawal, and (ii)
direct each account debtor to send remittances to an address designated by
Secured Party. Secured Party may hold the funds in the account as security, or
apply the funds to pay the Obligations. (d) Debtor will furnish Secured Party
all information Secured Party may request with respect to the Collateral. Debtor
will notify Secured Party promptly of any event that could have a material
adverse affect on the aggregate value of the Collateral or on the Security
Interest, or any change in Debtor's location, name, identity or organizational
structure. (e) Debtor will keep accurate books and records regarding the
Collateral and will allow Secured Party to inspect and make copies (including
electronic copies) of its books and records during regular business hours.
Secured Party may make text verifications of the Collateral.
5. FURTHER ASSURANCES. Secured Party may file this Agreement or any financing
statements wherever Secured Party believes necessary to perfect the Security
Interest. A photographic or other reproduction of this Agreement or any
financing statement relating to this Agreement will be sufficient as a financing
statement. Debtor authorizes Secured Party and irrevocably appoints Secured
Party as Debtor's attorney-in-fact to file any financing statement (including
any amendments) relating to this Agreement electronically, and Secured Party's
transmission of Debtor's name as part of any filing relating to this Agreement
will constitute Debtor's signature on the financing statement. Debtor will take
such action as Secured Party may at any time require to protect, assure or
enforce the Security Interest. Debtor will promptly deliver to Secured Party any
part of the Collateral that constitutes instruments, and will make a designation
on all of its chattel paper, instruments and negotiable documents to reflect the
Security Interest.
6. COSTS AND EXPENSES. Debtor will pay, or reimburse Secured Party for, all
out-of-pocket costs and expenses and all costs and expenses customarily charged
by Bank to similarly-situated Debtors, of every character incurred from time to
time in connection with this Agreement (including all modifications and
renewals) and the Obligations, including costs and expenses incurred (a) for
mortgage or recording taxes, (b) to satisfy any obligation of Debtor under this
Agreement or to protect the Collateral, (c) in connection with the evaluation,
monitoring or administration of the Obligations or the Collateral (whether or
not an Event of Default has occurred), and (d) in connection with the exercise
of Secured Party's rights and remedies. Costs and expenses include reasonable
fees and expense of outside counsel and other outside professionals and charges
imposed for the services of attorneys and other professionals employed by
Secured Party or its affiliates. Any amount owing under this Section will be due
and payable on demand and will bear interest from the date of expenditure by
Secured Party until paid at the Past Due Rate. If any part of the Obligations is
governed by Chapter 3, 4, 5 or 15 of the Texas Credit Code, this Section is
limited to the extent required by those chapters.
<PAGE>
7. DEFAULT. "Event of Default" shall have the same meaning as that set out in
the Credit Agreement between Debtor and Secured Party of even date herewith.
After an Event of Default occurs, Secured Party may, without notice to any
person, declare the Obligations to be immediately due and payable. Debtor WAIVES
demand, presentment and all notices, including without limitation notice of
dishonor and default, notice of intent to accelerate and notice of acceleration.
8. SECURED PARTY'S RIGHTS AND REMEDIES. After an Event of Default occurs,
Secured Party will have all rights and remedies of a secured party after default
under the UCC and other applicable law. Secured Party may, without waiving any
default, do anything Debtor is required to do by this Agreement and fails to do.
Secured Party may require Debtor to assemble the Collateral and make it
available at a reasonably convenient place Secured Party designates. Except for
the safe custody of any Collateral in its possession and accounting for moneys
actually received by it, Secured Party will have no duty as to any Collateral,
including any duty to preserve rights against prior parties. Debtor irrevocably
appoints Secured Party Debtor's attorney-in-fact to endorse any checks or other
instruments included in the Collateral, or to take any other action to enforce,
collect or compromise the Collateral. Secured Party is not required to take
possession of any Collateral prior to any sale, nor to have any Collateral
present at any sale. Secured Party may sell part of the Collateral without
waiving its right to proceed against the remaining Collateral. If any sale is
not completed or is defective in the opinion of Secured Party, Secured Party may
make a subsequent sale of the same Collateral. Any bill of sale or other
instrument evidencing any foreclosure sale will be prima facie evidence of
factual matters stated or recited therein. If a sale of Collateral is conducted
in conformity with customary practices of banks disposing of similar property,
the sale will be deemed commercially reasonably, but Secured Party will have no
obligation to advertise or to sell Collateral on credit. Written notice to
Debtor mailed 10 days prior to public or private sale is reasonable notice. By
exercising its rights, Secured Party will not become liable for, and Debtor will
not be released from, any of Debtor's duties or obligations under the contracts
and agreements included in the Collateral. Secured Party may purchase Collateral
at any public sale, and may credit the purchase price against the Obligations.
All remedies in this Agreement are cumulative of any and all other legal,
equitable or contractual remedies available to Secured Party. Debtor WAIVES any
rights to a marshaling of assets or sale in inverse order of alienation, and any
rights to notice except as provided in the UCC.
9. ADDITIONAL AGREEMENTS. (a) This Agreement will remain in effect until the
Secured Party executes and delivers to Debtor a written termination statement.
(b) No modification or waiver of the terms of this Agreement will be effective
unless in writing and signed by Secured Party. Secured Party may waive any
default without waiving any other prior or subsequent default. Secured Party's
failure to exercise or delay in exercising any right under this Agreement will
not operate as a waiver of such right. No single or partial exercise of any
right under this Agreement will preclude any other or further exercise of that
right or any other right. (c) Any notice required or permitted under this
Agreement will be given in writing by United States mail, by hand delivery or
delivery service, or by telegraphic, telex, telecopy or cable communication,
sent to the intended addressee at the address shown in this Agreement, or to
such different address as the addressee designates by 10 days notice. Notice by
United States mail will be effective when mailed. All other notices will be
effective when received. Written confirmation of receipt will be conclusive. (d)
If any provision of this Agreement is unenforceable or invalid, that provision
will not affect the enforceability or validity of any other provision. If the
application of any provision of this Agreement to any person or circumstance is
illegal or unenforceable, that application will not affect the legality or
enforceability of the provision as to any other person or circumstance. (e) If
more than one person executes this Agreement as Debtor, their obligations under
this Agreement are joint and several, and the term Collateral includes any
property described in Section 1 that is owned by any Debtor individually or
jointly with any other Debtor and the term "Obligations" includes both several
and joint obligations of each Debtor. (f) The section headings in this Agreement
are for convenience only and shall not be considered in construing this
Agreement. (g) This Agreement may be executed in any number of counterparts and
by different parties in separate counterparts, each of which will constitute one
and the same agreement. (h) This Agreement benefits the Secured Party and its
successors and assigns and is binding on Debtor and its heirs, legal
representatives, successors and assigns. (i) If any of the Obligations are
subject to Chapter 3, 4, 5 or 15 of the Texas Credit Code or Regulation AA of
the Board of Governors of the Federal Reserve System (collectively, the
"Consumer Restrictions"), (1) nothing in this Agreement waives any rights which
cannot be legally waived under the Consumer Restrictions, and (2) the Collateral
does not include any assignment of wages or any non-possessory, non-purchase
money security interest in household goods. (j) This Agreement is governed by
the laws of the State of Texas. (k) Secured Party is executing this Agreement
for the purpose of acknowledging the following notice, and Secured Party's
failure to execute this Agreement will not invalidate this Agreement.
This written loan agreement represents the final agreement between the parties
and may not be contradicted by evidence of prior, contemporaneous or subsequent
oral agreements of the parties. There are no unwritten oral agreements between
the parties.
Effective as of November 8, 1996.
DEBTOR PSW TECHNOLOGIES, INC.:
By: /s/W. Frank King Date: Nov. 8, 1996
---------------------------------- ------------
Name: W. Frank King
--------------------------------
Title: CEO & President
-------------------------------
SECURED PARTY: TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/Ralph T. Beasley
----------------------------------
Name: Ralph T. Beasley
--------------------------------
Title: Vice President
-------------------------------
2
<PAGE>
EXHIBIT A
BORROWING BASE REPORT
Borrowing Base Report for Period Beginning: __________ and Ending _________
("Current Period") required by the Credit Agreement dated the Effective Date (as
amended, restated, and supplemented from time to time, the "Agreement") by and
between PSW TECHNOLOGIES, INC. and Texas Commerce Bank National Association
- --------------------------------------------------------------------------------
THE BORROWING BASE REPORT MUST BE SUBMITTED TO BANK WITHIN 30 DAYS OF THE LAST
DAY OF EACH CALENDAR MONTH. BORROWER MUST PROVIDE THE FOLLOWING ALONG WITH THE
BORROWING BASE REPORT; ACCOUNTS RECEIVABLE AGINGS AND LISTING
- --------------------------------------------------------------------------------
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1. Total Accounts as of the end of the Current Period $_________
Ineligible Accounts as of the end of the Current Period:
2. That portion (e.g., invoice) of all of the Accounts
of any Account Debtor where the Account is more than
110 days from invoice date $_________
3. All of the Accounts, not already included in Line 2,
of any Account Debtor if 20% of the dollar amount of all
of the Accounts of such Account Debtor are more than
110 days from invoice date $_________
4. Intercompany and Affiliate Accounts $_________
5. Governmental Accounts [Governmental Accounts means
receivables owed by the U.S. government or by the
government of any state, county, municipality, or
other political subdivision as to which Bank's
security interest or ability to obtain direct payment
of the proceeds is governed by any federal or state
statutory requirements other than those of the Uniform
Commercial Code, including, without limitation,
the Federal Assignment of Claims Act of 1940,
as amended.] $_________
6. Foreign Accounts (unless secured by a letter
of credit issued by a bank satisfactory to
the Bank or covered by Credit insurance
satisfactory to Bank) $_________
7. Accounts subject to any dispute or set-off or contra
account (including, but not limited to, accounts subject
to deferred revenue liability, royalty liability and
customer payable liability) $_________
8. Accounts associated with fixed price contracts in
excess of the lesser of: 20% of the Borrowing Base;
or (ii) $1,000,000.00 $_________
9. Other Ineligible Accounts $_________
10. Total Ineligible Accounts for the Current Period $_________
(Add Lines 2 through 9)
11. Total Eligible Accounts for the Current Period $_________
(Line 1 - Line 10)
12. Plus: Borrower's interest in "Receivables" as defined and
provided for in the Accounts Receivables Agreement dated
October 1, 1996 between Borrower and PSI, and collaterally
assigned to Bank in Proper Form (not to exceed $2,000,000.00);
provided, after 12/31/96, no credit shall be allowed on the
Borrowing Base for any such Accounts) $_________
13. Adjusted Total Eligible Accounts for the Current Period $_________
(Line 1 - Line 10)
14. Multiplied by: Borrowing Base Factor 85%
15. Equals: BORROWING BASE as of
the end of the Current Period $_________
16. Less: Aggregate principal amount outstanding under the Note
as of the end of the Current Period: $_________
17. Equals: amount available for borrowing subject to the terms
of the Agreement (including, but not limited to, the
maximum amount of the Commitment ($6,500,000.00), if
positive; or amount due, if negative: $_________
</TABLE>
The term "Accounts shall have the meaning as set forth in the Texas Business and
Commerce Code in effect as of the date of the Agreement. "Other Ineligible
Accounts" shall mean all such Accounts of Borrower that are not subject to a
first and prior Lien in favor of Bank, all Accounts that are subject to any Lien
not in favor of Bank and those Accounts of Borrower as shall be deemed from time
to time to be, in the sole judgment of the Bank, ineligible for purposes of
determining the Borrowing Base. All other terms not defined herein shall have
the respective meanings as in the Agreement.
For all invoices billed on or after December 1, 1996: (a) invoices in an amount
greater than $100,000.00 shall not be included in the Borrowing Base unless
Borrower has a letter of engagement in Proper Form relating thereto; and (b)
invoices of an amount greater than $100,000.00 associated with specific
milestone event(s) on fixed price contracts shall not be included in the
Borrowing Base for more than the sixty (60) day period immediately following the
invoice billing date unless Borrower has received a letter of acceptance
therefor in Proper Form within the above-described sixty (60) day period.
Borrowing Base Report EXHIBIT A Page 1 of 1
<PAGE>
Further, for all invoices of an amount greater than $100,000.00, if: (a)
Borrower's ratio of Total Funded Liabilities to EBITDA exceeds the maximum of
1.75:1.0 beginning September 30, 1996 and reverting back to 1.50:1.0 beginning
March 31, 1997; and/or (b) the Dilution Ratio (Cumulative Dilution
Amount/Cumulative Receivables Billed) over a three (3) month rolling average,
tested monthly, exceeds 2.00% (Dilution would include all negative adjustments
to Borrower's accounts receivable excluding negative adjustments associated
solely with any Account Debtor's inability to pay solely for financial reasons);
then these invoice(s) shall not be included in the Borrowing Base unless
Borrower has obtained written acceptance in Proper Form from the Account Debtor
that services have been rendered.
Borrower certifies that the above information and computations are true,
correct, complete and not misleading as of the date hereof.
Borrower: PSW TECHNOLOGIES, INC.
By: _______________________________________________________________________
Name: _____________________________________________________________________
Title: ____________________________________________________________________
Address: __________________________________________________________________
Date: _____________________________________________________________________
Borrowing Base Report EXHIBIT A Page 2 of 2
<PAGE>
EXHIBIT B
REQUEST FOR LOAN
Letterhead of Borrower
Texas Commerce Bank National Association
700 Lavaca
P.O. Box 550
Austin, Texas 78789-0001
Re: Request for Loan under Agreement
Attention: Ralph Beasley
Gentlemen:
This letter confirms our oral or telephonic request of __________, 19___,
for a Loan in accordance with that certain Credit Agreement (as amended,
restated and supplement from time to time, the "Agreement") dated as of the
Effective Date between you and us. Any term defined in the Agreement and used in
this letter has the same meaning as in the Agreement.
The proposed Loan is to be in the amount of $__________ and is to be made
on __________, 19___, which is a Business Day. The proceeds of the proposed Loan
should be (check one:) |_| deposited into account number __________ with the
Bank; or |_| ___________________________________________________________. The
proposed Loan should bear interest at the (check one:)
|_| Effective LIBOR Rate; or
|_| Effective Alternate Base Rate.
The undersigned hereby certifies that:
(1) The representations and warranties made by the Borrower or by any
other Person in the Agreement and the other Loan Documents are true
and correct on and as of this date as though made on this date.
(2) The proposed Loan complies with all applicable provisions of the
Agreement.
(3) No Event of Default has occurred and is continuing.
Sincerely,
PSW TECHNOLOGIES, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
EXHIBIT B Page 1 of 1
<PAGE>
EXHIBIT C to Agreement between
PSW Technologies, Inc. ("Borrower") and
Texas Commerce Bank National Association ("Bank")
dated the Effective Date as same may be amended,
restated and supplemented in writing.
REPORTING REQUIREMENTS, FINANCIAL COVENANTS
AND COMPLIANCE CERTIFICATE
FOR CURRENT REPORTING PERIOD ENDING __________, 199__ ("END DATE")
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===========================================================================================
A. Financial Reporting. Borrower will provide the following financial Compliance
information within the times indicated: Certificate
===========================================================================================
WHO WHEN DUE WHAT Compliance
--- -------- ---- (Circle)
Yes No
- -------------------------------------------------------------------------------------------
BORROWER (i) Within 120 days of Annual financial statements Yes No
fiscal year end (balance sheet, income
statement, cash flow
(Borrower's Fiscal Year Ends statement) Audited (with
on December 31) unqualified opinion) by
independent certified public
accountants satisfactory to
Bank, accompanied by
Compliance Certificate
(Exhibit C) executed by
Borrower
------------------------------------------------------------------------------
(ii)(a) prior to any Unaudited interim financial Yes No
successful IPO, within 30 statements accompanied by
days of each month end, Compliance Certificate
including final period of (Exhibit C) executed by
fiscal year Borrower
(b) Upon successful
completion of an IPO, within
45 days of each fiscal
quarter end including final
period of fiscal year
------------------------------------------------------------------------------
(iii) Within 30 days of each Borrowing Base Report Yes No
month end (Exhibit A), along with
accounts receivable aging
and listing
===========================================================================================
</TABLE>
EXHIBIT C Page 1 of 3 Pages
<PAGE>
<TABLE>
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===========================================================================================
B. FINANCIAL COVENANTS. Borrower COMPLIANCE CERTIFICATE
will comply with the following
financial covenants, defined in
accordance with GAAP and the
definitions in Section 8, and
incorporating the calculation
adjustments indicated on the
Compliance Certificate:
- ------------------------------------------------------------------------------------------
REQUIRED ACTUAL REPORTED
-------- --------------- Compliance
Except as specified otherwise, For Current Reporting Period/ (Circle)
each covenant will be maintained as of the End of Date Yes No
at all times and reported for
each Reporting Period or as of
each fiscal quarter End Date
(March 31, June 30, September 30
and December 31), as appropriate:
- ------------------------------------------------------------------------------------------
1. Maintain a Tangible Net Worth Stockholders' Equity $____ Yes No
as adjusted of at least Minus: Goodwill $____
$2,200,000.00 beginning October Other Intangible
1, 1996 until December 31, 1996, Assets $____
and increasing thereafter each Loans/Advances to
quarter by 60% of Borrower's net Equity holders $____
income generated after October 1, Loans to Affiliates $____
1996, with the increased minimum
Tangible Net Worth requirement Plus: Subordinated Debt $____
beginning with the December 31, = Tangible Net Worth as
1996 calculation and continuing adjusted $____
thereafter on the last day of
each March, June, September and
December.
- ------------------------------------------------------------------------------------------
2. Beginning Most + YTD - YTD Yes No
October 1, Recent this last
1996 and FYE Year year Total
continuing
until March Net income $____ $____ $____ $____
31, 1997, Plus: Depreciation $____ $____ $____ $____
have a ratio Amortization $____ $____ $____ $____
of Total Interest
Funded Expense $____ $____ $____ $____
Liabilities Tax Expense $____ $____ $____ $____
to EBITDA for Specified
the 12 months Non-Cash
ending at Charges $____ $____ $____ $____
each fiscal Equals: EBITDA = $____ $____ $____ $____
quarter End
Date of not As of fiscal quarter End Date:
more than Loans from Bank $______________
2.00:1.00, Plus: Other Liabilities
and beginning for borrowed money $______________
March 31,
1997 and Equals: Total Funded Liabilities = $
continuing ==============
thereafter
until the $_______________ / $_______________ = _____________
termination Total Funded EBITDA Ratio
of the Liabilities
Agreement,
have a ratio
of Total
Funded
Liabilities
to EBITDA for
the 12 months
ending at
each month
End Date of
not more than
1.75:1.00
==========================================================================================
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EXHIBIT C Page 2 of 3 Pages
<PAGE>
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===========================================================================================
C. Other Required Covenants to be maintained and to be certified.
COMPLIANCE CERTIFICATE
===========================================================================================
REQUIRED ACTUAL REPORTED
-------- --------------- Compliance
(Circle)
- ------------------------------------------------------------------------------------------
(i) No change in ownership affecting Indicate change exceeding Yes No
more than 49% of the stock limit, if any
ownership of Borrower (as of the
Effective Date)
- ------------------------------------------------------------------------------------------
(ii) Borrower shall be permitted to
incur indebtedness, in the form
of capital leases and/or debt
secured by purchase money liens,
for capital leases and/or
purchases of equipment for use in
Borrower's regular business
operations not to exceed the
following amounts incurred in the
periods indicated:
$725,000.00 -- remainder of
FY 1996
$1,700,000.00 -- FY 1997
$2,500,000.00 -- FY 1998
- ------------------------------------------------------------------------------------------
(iii) Borrower shall be permitted to
incur indebtedness, other than
that expressly permitted in
Section 5.1 and this Exhibit, in
amounts not to exceed an
aggregate of $350,000.00 incurred
per fiscal year of Borrower (such
limitation shall be reduced by
proration for the partial fiscal
year remaining for the year in
which this Agreement is
executed).
===========================================================================================
</TABLE>
THE ABOVE SUMMARY REPRESENTS SOME OF THE COVENANTS AND AGREEMENTS CONTAINED IN
THE AGREEMENT AND DOES NOT IN ANY WAY RESTRICT OR MODIFY THE TERMS AND
CONDITIONS OF THE AGREEMENT. IN CASE OF CONFLICT BETWEEN THIS EXHIBIT C AND THE
AGREEMENT, THE AGREEMENT SHALL CONTROL.
The undersigned hereby certifies that the above information and computations are
true and correct and not misleading as of the date hereof, and that since the
date of the Borrower's most recent Compliance Certificate (if any):
|_| No default or Event of Default has occurred under the Agreement during
the current Reporting Period, or been discovered from a prior period,
and not reported.
|_| A default or Event of Default (as described below) has occurred during
the current Reporting Period or has been discovered from a prior
period and is being reported for the first time and:
|_| was cured on _______________.
|_| was waived by Bank in writing on _______________.
|_| is continuing.
Description of Event of Default: __________________________________________
___________________________________________________________________________
Executed this __________ day of __________, 19___.
BORROWER: PSW TECHNOLOGIES, INC.
SIGNATURE: _____________________________________________________________________
NAME: __________________________________________________________________________
TITLE: __________________________________ (Chief Financial Officer or President)
ADDRESS: 9050 Capital of Texas Highway North, Austin, Travis County, Texas 78759
EXHIBIT C Page 3 of 3 Pages
<PAGE>
ANNEX I
Loan Documents
"Loan Documents" includes, but is not limited to, the following:
1. Agreement
2. Note
3. Borrowing Base Report
4. Compliance Certificate
5. Security Agreement, in Proper Form, covering Accounts; additional
documentation of assignment to Bank of Receivables referred to in Line 12
of Borrowing Base, if Borrower elects to include them as provided in
Borrowing Base
6. Financing Statements
7. Guaranty by: any and all Subsidiaries (current and future) of Borrower (as
such Subsidiaries may exist from time to time)
8. Certificate of Account Status
9. Certified copies of Organizational and Authority Documents
10. Financial Statements of: Borrower; any Guarantor(s)
11. UCC search
Loan Documents - ANNEX I Page 1 of 1
<PAGE>
ANNEX II
Subsidiaries
IF NONE AS OF EFFECTIVE DATE, CHECK |X| NONE
Subsidiary Name State Where
and Address Incorporated % Owned
- --------------- ------------ -------
ANNEX II Page 1 of 1
<PAGE>
BORROWING RESOLUTION FOR
CORPORATIONS/PROFESSIONAL ASSOCIATIONS AND SECRETARY'S CERTIFICATE
I, the undersigned, Secretary of PSW Technologies, Inc. (Name of
Company)("this Company"), a Delaware (State of Incorporation)
corporation/professional association, do hereby certify that at a meeting of the
Board of Directors of this Company duly and regularly called on the _____ day of
________________, 19 ___, a quorum being present, or pursuant to a waiver of
notice and unanimous consent to action of all directors dated the 1st day of
October, 1996, the following resolutions were unanimously adopted and recorded
in the minute books of this Company kept by me, and are in accord with and
pursuant to the charter and by-laws of this Company and are now in full force
and effect, to wit:
RESOLVED, that (SPECIFY NUMBER OF SIGNATURES REQUIRED ON EACH INSTRUMENT)
one of the following officers or employees of this Company, herein called
"Authorized Persons," whether one or more:
PLEASE TYPE OR PRINT PLAINLY BELOW THE NAMES OF AUTHORIZED PERSONS.
NAME TITLE SIGNATURE
W. Frank King President and CEO /s/W. Frank King
- -------------------- -------------------- --------------------
Patrick Motola CFO & Secretary /s/Patrick Motola
- -------------------- -------------------- --------------------
Keith Thatcher Treasurer /s/Keith Thatcher
- -------------------- -------------------- --------------------
are hereby authorized for and on behalf of and as the act and deed of this
Company to borrow money or to obtain credit from
TEXAS COMMERCE BANK NATIONAL ASSOCIATION AUSTIN, TEXAS
("Bank") in such amounts, for such times, in such forms (including, but not
limited to, notes, facilities, acceptances, letters of credit and overdrafts)
and upon such terms as may be deemed by such Authorized Persons to be advisable;
to renew and extend from time to time any such loan or credit arrangement; to
execute and deliver to Bank, in such form as may be required by Bank, notes,
loan agreements, drafts, letters of credit applications and other instruments
and documents relating to any indebtedness owing by this Company to Bank or
relating to any other arrangement whereby Bank extends credit to this Company,
whether fixed or contingent; to mortgage, hypothecate, encumber, pledge, assign
or transfer to Bank, or otherwise subject to any lien or security interest in
favor of Bank, as security for any such indebtedness, any property of this
Company, real or personal, tangible or intangible; to sell to Bank with or
without recourse, any of this Company's notes, bills receivable, acceptances or
other paper, whether or not negotiable; and to take all such other actions as
such Authorized Persons may deem to be necessary or desirable, or as Bank may
require, to consummate any transaction contemplated in these resolutions.
FURTHER RESOLVED, that Bank be and it hereby is authorized to credit this
Company on Bank's books with the proceeds as directed by such Authorized
Persons, whether to the order of any of said persons in his individual capacity
or not, and whether such proceeds are deposited to the individual credit of any
such person or not.
FURTHER RESOLVED, that the foregoing authority shall be and continue in
full force and effect until revoked or modified by written notice actually
delivered to the President or a Vice President of Bank; provided that such
revocation shall not be effective with respect to any exercise of any said
authority prior to the receipt by Bank of such notice.
I FURTHER CERTIFY that each title indicated and each signature appearing
above next to a designated Authorized Person is the title and signature of that
designated Authorized Person.
I FURTHER CERTIFY, that Company
|X| does not conduct business under an assumed business or professional
name(s).
|_| does conduct business under an assumed business or professional name(s) and
it has properly filed an Assumed Name Certificate(s) in the office(s) required
by Chapter 36 of the Texas Business and Commerce Code for the following name(s):
ASSUMED BUSINESS/PROFESSIONAL NAMES USED:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
I FURTHER CERTIFY that this Company is duly organized, validly existing and
in good standing under the laws governing its creation and existence; that all
requisite licenses, permits and franchises for the operation of Company's
business are in full force and effect; and that all taxes, assessments and
governmental charges due upon Company's income, profits, or property have been
paid except for those that Company is contesting in good faith and for which it
has established adequate reserves.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal* of this Company by order of the Board of Directors this 8th day of
November, 1996.
(SEAL)* /s/Patrick Motola
(If Company has no seal, type "none.") ---------------------------------
Secretary
F-250-00350C (Rev. 1/91) 2990264 012-0317131-710001
<PAGE>
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THIS FINANCING STATEMENT IS PRESENTED
TO A FILING OFFICER FOR FILING PURSUANT
TO THE UNIFORM COMMERCIAL CODE.
------------------------------------------
11. |_| CHECK TO REQUEST SAME DEBTOR
SEARCH CERTIFICATE (INSTRUCTION B.11)
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR (IF PERSONAL) LAST NAME FIRST NAME MI 1A. PREFIX 1B. SUFFIX
PSW Technologies, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
1C. MAILING ADDRESS 1D. CITY, STATE 1E. ZIP CODE
9050 Capital of Texas Hwy North Austin, Texas 78759
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR (IF PERSONAL) LAST NAME FIRST NAME MI 2A. PREFIX 2B. SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2C. MAILING ADDRESS 2D. CITY, STATE 2E. ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR (IF PERSONAL) LAST NAME FIRST NAME MI 3A. PREFIX B. SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3C. MAILING ADDRESS 3D. CITY, STATE 3E. ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY (IF PERSONAL) LAST NAME FIRST NAME MI
Texas Commerce Bank National Association
- ------------------------------------------------------------------------------------------------------------------------------------
4A. MAILING ADDRESS 4B. CITY, STATE 4C. ZIP CODE
P.O. Box 2558 Houston, Texas 77252-2558
- ------------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) LAST NAME FIRST NAME MI
- ------------------------------------------------------------------------------------------------------------------------------------
5A. MAILING ADDRESS 5B. CITY, STATE 5C. ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
6. This FINANCING STATEMENT covers the following types or items of property. (If collateral is crops, fixtures, timber or
minerals, read instruction B.6-7.)
ALL ACCOUNTS, INSTRUMENTS, NEGOTIABLE DOCUMENTS AND CHATTEL PAPER OF DEBTOR
TOGETHER WITH ALL PROCEEDS THEREOF (INCLUDING THE RIGHTS AND INTERESTS OF
DEBTOR IN GOODS, THE SALE AND DELIVERY OF WHICH GIVE RISE TO ANY ACCOUNT,
INCLUDING ALL RETURNED OR REPOSSESSED GOODS, AND ALL PRODUCTS AND PROCEEDS,
IN CASH OR OTHERWISE, OF ANY OF THE FOREGOING.
- ------------------------------------------------------------------------------------------------------------------------------------
7. CHECK ONLY 7A. PRODUCTS OF 7B. THIS FINANCING STATEMENT IS NUMBER OF ADDITIONAL
IF COLLATERAL ARE TO BE FILED FOR RECORD IN SHEETS
APPLICABLE |_| ALSO COVERED |_| THE REAL ESTATE RECORDS PRESENTED __________
- ------------------------------------------------------------------------------------------------------------------------------------
8. CHECK 8A. THIS FINANCING STATEMENT IS SIGNED BY THE SECURED PARTY
APPROPRIATE INSTEAD OF THE DEBTOR TO PERFECT A SECURITY INTEREST IN
BOX COLLATERAL IN ACCORDANCE WITH INSTRUCTION B.8 ITEM: |_|(1) |_|(2) |_|(3) |_|(4) |_|(5)
- ------------------------------------------------------------------------------------------------------------------------------------
9. SIGNATURE(S) THIS SPACE FOR USE OF FILING OFFICER
OF (DATE, TIME, NUMBER, FILING OFFICER)
DEBTOR(S) BY: /s/Patrick Motola
- ------------------------------------------------------------------------------------------
PSW Technologies, Inc.
- ------------------------------------------------------------------------------------------
SIGNATURE(S)
OF
SECURED PARTY(IES) /s/Ralph T. Beasley
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
10. Return copy to:
NAME Texas Commerce Bank National Association
ADDRESS P.O. Box 2558
CITY Houston, Texas 77252-2558
STATE 08 1111 Fannin 301 (CPU)
ZIP
- ------------------------------------------------------------------------------------------------------------------------------------
STANDARD FORM - FORM UCC-1(REV. 9/1/92) (C)1992 OFFICE OF THE SECRETARY OF STATE OF TEXAS
(1) FILING OFFICER COPY - NUMERICAL TEXAS COMMERCE BANCSHARES, INC. F- 250-00220c (REV. 9/92)
</TABLE>
<PAGE>
Exhibit 10.13
PROMISSORY NOTE
(this "Note")
U.S. $6,500,000.00 November 8, 1996 ("Date")
FOR VALUE RECEIVED, PSW TECHNOLOGIES, INC. ("Borrower"), a Delaware corporation,
promises to pay to the order of TEXAS COMMERCE BANK NATIONAL ASSOCIATION
("Bank") on or before November 8, 1997 (the "Termination Date"), at its banking
house at 700 Lavaca, P.O. BOX 550, Austin, Travis County, Texas 78701-0001, or
at such other location as Bank may designate, in lawful money of the United
States of America, the lesser of: (i) the principal sum of SIX MILLION FIVE
HUNDRED THOUSAND AND NO/100THS UNITED STATES DOLLARS (U.S. $6,500,000.00)(the
"Maximum Loan Total"); or (ii) the aggregate unpaid principal amount of all
loans made by Bank to Borrower pursuant to the terms of the Credit Agreement (as
hereinafter defined)(each such loan being a "Loan"), which may be outstanding on
the Termination Date. Each Loan shall be due and payable on the maturity date
agreed to by Bank and Borrower with respect to such Loan (the "Maturity Date").
In no event shall any Maturity Date fall on a date after the Termination Date.
Subject to the terms and conditions of this Note and the Loan Documents,
Borrower may borrow, repay and reborrow all or any part of the credit provided
for herein at any time before the Termination Date, there being no limitation on
the number of Loans made so long as the total unpaid principal amount at any
time outstanding does not exceed the Maximum Loan Total.
"Alternate Base Rate" shall mean for any day, a rate per annum (rounded upwards,
if necessary, to the next higher 1/16 of 1%) equal to the greatest of: (a) the
Prime Rate or (b) the Federal Funds Effective Rate in effect on such day plus
1/4 of 1%. For purposes hereof, "Prime Rate" shall mean the rate of interest per
annum determined from time to time by the Bank as its prime rate in effect at
its principal office in Houston, Texas and thereafter entered in the minutes of
its Loan and Discount Committee; each change in the Prime Rate shall be
effective on the date such change is determined; without special notice to the
Maker or any other person or entity. THE PRIME RATE IS A REFERENCE RATE AND DOES
NOT NECESSARILY REPRESENT THE LOWEST OR BEST RATE ACTUALLY CHARGED TO ANY
CUSTOMER AND ANY STATEMENT, REPRESENTATION OR WARRANTY IN THAT REGARD OR TO THAT
EFFECT IS EXPRESSLY DISCLAIMED BY BANK. PAYEE MAY MAKE LOANS AT RATES OF
INTEREST, AT, ABOVE OR BELOW THE PRIME RATE. "Federal Funds Effective Rate"
shall mean, for any day, the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for the day of such
transactions received by the Bank from three Federal funds brokers of recognized
standing selected by Bank. If for any reason the Bank shall have determined
(which determination shall be conclusive absent manifest error) that it is
unable to ascertain the Federal Funds Effective Rate for any reason, including
the inability or failure of the Bank to obtain sufficient quotations in
accordance with the terms thereof, the Alternate Base Rate shall be determined
without regard to clause (b) of the first sentence of this definition, as
appropriate, until the circumstances giving rise to such inability no longer
exist. Any change in the Alternate Base Rate due to a change in the Prime Rate
or the Federal Funds Effective Rate shall be effective on the effective date of
such change in the Prime Rate or the Federal Funds Effective Rate, respectively.
"Alternate Base Rate Loan" means a Loan which bears interest at a rate
determined by reference to the Alternate Base Rate.
"Assessment Rate" means, for any date, the annual rate (rounded upwards, if not
already a whole multiple of 1/16 of 1%, to the next higher 1/16 of 1%) most
recently estimated by the Bank as the then current net annual assessment rate
that will be employed in determining amounts payable by the Bank to the Federal
Deposit Insurance Corporation for insurance by the Corporation of time deposits
made in dollars at its domestic offices.
"Board" means the Board of Governors of the Federal Reserve System of the United
States.
"Borrowing Date" means any Business Day on which Bank shall make a Loan
hereunder.
"Business Day" means a day: (i) on which Bank and commercial banks in New York
City are generally open for business, and (ii) with respect to LIBOR Loans, on
which dealings in United States Dollar deposits are carried out in the interbank
markets.
"Highest Lawful Rate" means the maximum nonusurious rate of interest from time
to time permitted by applicable law. If Texas law determines the Highest Lawful
Rate, Bank has elected the "indicated" (weekly) ceiling as defined in the Texas
Credit Code or any successor statute. Bank may from time to time, as to current
and future balances, elect and implement any other ceiling under such Code
and/or revise the index, formula or provisions of law used to compute the rate
on this open-end account by notice to Borrower, if and to the extent permitted
by, and in the manner provided in such Code.
Page 1 of 6 Pages
<PAGE>
"Interest Period" means the period commencing on the Borrowing Date and ending
on the Maturity Date, consistent with the following provisions. The duration of
each Interest Period shall be: (a) in the case of an Alternate Base Rate Loan, a
period of 90 days unless any portion thereof is converted to a LIBOR Loan
hereunder; and (b) in the case of a LIBOR Loan, a period of up to one, two or
three months; in each case as selected by Borrower in accordance with the terms
of this Note. Borrower's choice of Interest Period is subject to the following
limitations: (i) No Interest Period shall end on a date after the Termination
Date; and (ii) If the last day of an Interest Period would be a day other than a
Business Day, the Interest Period shall end on the next succeeding Business Day
(unless the Interest Period relates to a LIBOR Loan and the next succeeding
Business Day is a different calendar month than the day on which the Interest
Period would otherwise end, in which case the Interest Period shall end on the
next preceding Business Day).
"LIBOR Loan" means a Loan which bears interest at a rate determined by reference
to the LIBOR Rate.
"LIBOR Rate" means a per annum interest rate determined by Bank by dividing: (i)
the average rate per annum (rounded upwards, if necessary, to the next 1/16 of
1%) of the rates per annum at which United States dollar deposits in an amount
comparable to the principal amount of the LIBOR Loan to which such LIBOR Rate is
applicable for a term equal to or substantially equal to the Interest Period are
offered by Bank to prominent banks in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of the applicable Interest Period; by (ii) Statutory Reserves.
"LIBOR Spread" means a spread of the following basis points (100 basis points
equaling 1.00%), based upon the Borrower's ratio of Total Funded Liabilities to
EBITDA as of the most recent fiscal quarter End Date (March 31, June 30,
September 30 and December 31) as defined and calculated in accordance with
Financial Covenant #2 in Exhibit C of the Credit Agreement (as hereinafter
defined):
=======================================================
Total Funded Liabilities Libor Spread
/EBITDA (basis points)
-------------------------------------------------------
if .74x or less then 125
-------------------------------------------------------
if .75x to .99x then 150
-------------------------------------------------------
if 1.00x to 1.49x ` then 175
-------------------------------------------------------
if 1.50x to 1.99x then 200
=======================================================
"Loan Documents" means this Note and any document or instrument evidencing,
securing, guaranteeing or given in connection with this Note, including, but not
limited to, that certain Credit Agreement of even date herewith entered into by
and between Borrower and Bank (as may be amended from time to time, the "Credit
Agreement").
"Obligations" means all principal, interest and other amounts which are or
become owing under this Note or any other Loan Document.
"Obligor" means Borrower and any guarantor, surety, co-signer, general partner
or other person who may now or hereafter be obligated to pay all or any part of
the Obligations.
Specified Non-Cash Charges means all non-cash charges to the Borrower's income
statement (not reflected as depreciation or amortization) (a) resulting from
stock option transactions; or (b) as agreed in writing by Bank in its sole
discretion, upon Borrower's request.
"Statutory Reserves" means the difference (expressed as a decimal) of the number
one minus the aggregate of the maximum reserve percentages (including, without
limitation, any marginal, special, emergency, or supplemental reserves)
expressed as a decimal established by the Board and any other banking authority
to which Bank is subject to, with respect to the LIBOR Rate, for Eurocurrency
Liabilities (as defined in Regulation D of the Board). Such reserve percentages
shall include, without limitation, those imposed under such Regulation D. LIBOR
Loans shall be deemed to constitute Eurocurrency Liabilities and as such shall
be deemed to be subject to such reserve requirements without benefit of or
credit for proration, exceptions or offsets which may be available from time to
time to any bank under such Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
Loans may be either Alternate Base Rate Loans or LIBOR Loans, as selected
by Borrower in accordance with the terms of this Note. Borrower shall pay
interest on the unpaid principal amount of each Alternate Base Rate Loan at a
rate per annum equal to the lesser of: (i) the Alternate Base Rate in effect
from time to time (the "Effective Alternate Base Rate"); or (ii) the Highest
Lawful Rate. Accrued interest on each Alternate Base Rate Loan is due and
payable on the first day of each month and at the Maturity Date.
Through March 31, 1997, Borrower shall pay interest on the unpaid
principal amount of each LIBOR Loan for the Interest Period with respect thereto
at a rate per annum equal to the lesser of: (i) the Highest Lawful Rate. Accrued
interest on each LIBOR Loan is due on the last day of each Interest Period
applicable thereto and on any prepayment (on the amount prepaid).
Page 2 of 6 Pages
<PAGE>
Beginning April 1, 1997, Borrower shall pay interest on the unpaid principal
amount of each LIBOR Loan for the Interest Period with respect thereto at a rate
per annum equal to the lesser of: (i) the LIBOR Rate plus the LIBOR Spread (the
"Ratio Effective LIBOR Rate")(the Initial Effective LIBOR Rate or the Ratio
Effective LIBOR Rate, whichever applies, is hereinafter sometimes the "Effective
LIBOR Rate"); or (ii) the Highest Lawful Rate. Accrued interest on each LIBOR
Loan is due on the last day of each Interest Period applicable thereto and on
any prepayment (on the amount prepaid).
If at any time the effective rate of interest which would otherwise be
payable on any Loan evidenced by this Note exceeds the Highest Lawful Rate, the
rate of interest to accrue on the unpaid principal balance of such Loan during
all such times shall be limited to the Highest Lawful Rate, but any subsequent
reductions in such interest rate shall not become effective to reduce such
interest rate below the Highest Lawful Rate until the total amount of interest
accrued on the unpaid principal balance of such Loan equals the total amount of
interest which would have accrued if the Effective Alternate Base Rate, or
Effective LIBOR Rate, whichever is applicable, had at all times been in effect.
Each LIBOR Loan shall be in an amount not less than $500,000.00 and an
integral multiple of $100,000.00. Interest shall be computed on the basis of the
actual number of days elapsed and a year comprised of 360 days.
The unpaid principal balance of this Note at any time will be the total
amounts advanced by Bank, less the amount of all payments or prepayments of
principal. Absent manifest error, the records of Bank will be conclusive as to
amounts owed.
Loans shall be made on Borrower's irrevocable notice to Bank, given not
later than 10:00 A.M. (Houston time) on, in the case of LIBOR Loans, the third
Business Day prior to the proposed Borrowing Date or, in the case of Alternate
Base Rate Loans, the Business Day of the proposed Borrowing Date. Each notice of
a requested borrowing (a "Notice of Requested Borrowing") under this paragraph
may be oral or written, and shall specify: (i) the requested amount; (ii)
proposed Borrowing Date; (iii) whether the requested Loan is to be an Alternate
Base Rate Loan or LIBOR Loan; and (iv) Interest Period for the LIBOR Loan. If
any Notice of Requested Borrowing shall be oral, Borrower shall deliver to Bank
prior to the Borrowing Date a confirmatory written Notice of Requested
Borrowing.
Borrower may on any Business Day prepay the outstanding principal amount
of any Alternate Base Rate Loan, in whole or in part, without penalty or
premium. Borrower shall have the right to prepay any LIBOR Loan, subject to
Borrower's indemnity and reimbursement set out hereinafter.
Provided that no Event of Default has occurred and is continuing, Borrower
may elect to continue all or any part of any LIBOR Loan beyond the expiration of
the then current Interest Period relating thereto by providing Bank at least
three Business Days' written or telecopy notice of such election, specifying the
Loan or portion thereof to be continued and the Interest Period therefor and
whether it is to be an Alternate Base Rate Loan or LIBOR Loan provided that any
continuation as a LIBOR Loan shall not be less than $500,000.00 and shall be in
an integral multiple of $100,000.00. If an Event of Default shall have occurred
and be continuing, the Borrower shall not have the option to elect to continue
any such LIBOR Loan or to convert Alternate Base Rate Loans into LIBOR Loans.
Provided that no Event of Default has occurred and is continuing, Borrower may
elect to convert any Alternate Base Rate Loan at any time or from time to time
to a LIBOR Loan by providing Bank at least three Business Day's written or
telecopy notice of such election, specifying each Interest Period therefor. Any
conversion of Alternate Base Rate Loans shall not result in a borrowing of LIBOR
Loans in an amount less than $500,000.00 and in integral multiples of
$100,000.00.
If at any time Bank determines in good faith (which determination shall be
conclusive) that any change in any applicable law, rule or regulation or in the
interpretation, application or administration thereof makes it unlawful, or any
central bank or other governmental authority asserts that it is unlawful, for
Bank or its foreign branch or branches to maintain any LIBOR Loan by means of
dollar deposits obtained in the London interbank market (any of the above being
described as a "LIBOR Event"), then, at the option of Bank, the aggregate
principal amount of all LIBOR Loans outstanding shall be prepaid; however the
prepayment may be made with an Alternate Base Rate Loan. Upon the occurrence of
any LIBOR Event, and at any time thereafter so long as such LIBOR Event shall
continue, the Bank may exercise its aforesaid option by giving written notice
thereof to Borrower within 30 days after Bank's determination that a LIBOR Event
has occurred.
If any domestic or foreign law, treaty, rule or regulation (whether now in
effect or hereinafter enacted or promulgated, including Regulation D of the
Board) or any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof (whether or
not having the force of law): (a) changes, imposes, modifies, applies or deems
applicable any reserve, special deposit or similar requirements in respect of
any LIBOR Loan; or (b) imposes on Bank or the interbank eurocurrency deposit and
transfer market or the market for domestic bank certificates or deposit any
other condition affecting any such LIBOR Loan; and the result of any of the
foregoing is to impose a cost to Bank of agreeing to make, funding or
maintaining any such LIBOR Loan or to reduce the amount of any sum receivable by
Bank in respect of any such Loan, then Bank may notify Borrower in writing of
the happening of such event and Borrower shall upon demand pay to Bank such
additional amounts as
Page 3 of 6 Pages
<PAGE>
will compensate Bank for such costs as determined by Bank. Without prejudice to
the survival of any other agreement of Borrower under this Note, the obligations
of Borrower under this paragraph shall survive the termination of this Note.
Borrower will indemnify Bank against, and reimburse Bank on demand for,
any loss, cost or expense incurred or sustained by Bank (including without
limitation any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by Bank to fund or maintain
LIBOR Loans) as a result of: (a) any payment or prepayment (whether permitted by
Bank or required hereunder or otherwise) of all or a portion of any LIBOR Loan
on a day other than the Maturity Date of such Loan; (b) any payment or
prepayment, whether required hereunder or otherwise, of any LIBOR Loan made
after the delivery of a Notice of Requested Borrowing but before the applicable
Borrowing Date if such payment or prepayment prevents the proposed Loan from
becoming fully effective; or (c) the failure of any LIBOR Loan to be made by
Bank due to any action or inaction of Borrower. Such funding losses and other
costs and expenses shall be calculated and billed by Bank and such bill shall,
as to the costs incurred, be conclusive absent manifest error.
All past-due principal and interest on this Note, will, at Bank's option,
bear interest at the lesser of Highest Lawful Rate, or a rate per annum equal to
the Alternate Base Rate plus three percent (3%).
In addition to all principal and accrued interest on this Note, Borrower
agrees to pay: (a) all reasonable costs and expenses incurred by Bank and all
owners and holders of this Note in collecting this Note through probate,
reorganization, bankruptcy or any other proceeding; and (b) reasonable
attorney's fees if and when this Note is placed in the hands of an attorney for
collection.
Borrower and Bank intend to confirm strictly to applicable usury laws.
Therefore, the total amount of interest (as defined under applicable law)
contracted for, charged or collected under this Note will never exceed the
Highest Lawful Rate. If Bank contracts for, charges or receives any excess
interest, it will be deemed a mistake. Bank will automatically reform the
contract or charge to conform to applicable law, and if excess interest has been
received, Bank will either refund the excess to Borrower or credit the excess on
the unpaid principal amount of this Note. All amounts constituting interest will
be spread through the full term of this Note in determining whether interest
exceeds lawful amounts.
If any Event of Default (as defined in the Credit Agreement) occurs, then
Bank may do any or all of the following: (i) cease making Loans hereunder; (ii)
declare the Obligations to be immediately due and payable, without notice of
acceleration or of intention to accelerate, presentment and demand or protest or
notice of any kind, all of which are hereby expressly waived; (iii) set off, in
any order, against the Obligations any debt owing by Bank to any Obligor,
including, but not limited to, any deposit account, which right is hereby
granted by each Obligor to Bank; and (iv) exercise any and all other rights
under the Loan Documents, at law, in equity or otherwise.
No waiver of any default is a waiver of any other default. Bank's delay in
exercising any right or power under any Loan Document is not a waiver of such
right or power.
Each Obligor severally waives notice, demand, presentment for payment,
notice of nonpayment, notice of intent to accelerate, notice of acceleration,
protest, notice of protest, and the filing of suit and diligence in collecting
this Note and all other demands and notices, and consents and agrees that its
liabilities and obligations will not be released or discharged by any or all of
the following, whether with or without notice to it or any other Obligor, and
whether before or after the stated maturity hereof: (i) extensions of the time
of payment; (ii) renewals; (iii) acceptances of partial payments; (iv) releases
or substitutions of any collateral or any Obligor; and (v) failure, if any, to
perfect or maintain perfection of any security interest in any collateral. Each
Obligor agrees that acceptance of any partial payment will not constitute a
waiver and that waiver of any default will not constitute waiver of any prior or
subsequent default.
Where appropriate the neuter gender includes the feminine and the
masculine and the singular number includes the plural number.
Borrower represents and agrees that: all Loans evidenced by this Note are
and will be for business, commercial, investment or other similar purpose and
not primarily for personal, family, or household use as such terms are used in
Chapter One of the Texas Credit Code. Borrower represents and agrees that each
of the following statements is true unless the box preceding that statement is
checked and initiated by Borrower and Bank: (i) No advances will be used
primarily for agricultural purposes as such term is used in the Texas Credit
Code. (ii) No advances will be used for the purpose of purchasing or carrying
any margin stock as that term is defined in Regulation U of the Board.
Notwithstanding anything contained herein or in any other Loan Document, if this
is a consumer credit obligation (as defined or described in 12 C.F.R. 227,
Regulation AA, promulgated by the Board), the security for this credit
obligation will not extend to any non-possessory security interest in household
goods (as defined in Regulation AA) other than a purchase money security
interest, and no waiver of any notice contained herein or therein will extend to
any waiver of notice prohibited by Regulation AA.
Chapter 15 of the Texas Credit Code shall not apply to this Note or to any
Loan evidenced by this Note.
Page 4 of 6 Pages
<PAGE>
This Note is governed by Texas law. If any provision of this Note is
illegal or unenforceable, that illegality or unenforceability will not affect
the remaining provisions of this Note. BORROWER AND BANK AGREE THAT THE COUNTY
IN WHICH BANK'S PRINCIPAL OFFICE IS LOCATED IN TEXAS IS PROPER VENUE FOR ANY
ACTION OR PROCEEDING BROUGHT BY BORROWER OR BANK, WHETHER IN CONTRACT, TORT, OR
OTHERWISE. ANY ACTION OR PROCEEDING AGAINST BORROWER MAY BE BROUGHT IN ANY STATE
OR FEDERAL COURT IN SUCH COUNTY TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW.
TO THE EXTENT PERMITTED BY APPLICABLE LAW BORROWER HEREBY IRREVOCABLY (A)
SUBMITS TO THE NONEXCULSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT
FORUM. BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED
OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED BELOW.
BANK MAY SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW AND MAY BRING ANY
ACTION OR PROCEEDING AGAINST BORROWER OR WITH RESPECT TO ANY OF ITS PROPERTY IN
COURTS IN OTHER PROPER JURISDICTIONS OR VENUES.
For purposes of this Note, any assignee or subsequent holder of this Note
will be considered the "Bank," and each successor to Borrower will be considered
the "Borrower."
Each Borrower and cosigner represents that if it is not a natural person,
it is duly organized and validly existing and in good standing under the laws of
the state of its incorporation or organization; has full power to own its
properties and to carry on its business as now conducted; is duly qualified to
do business and is in good standing in each jurisdiction in which the nature of
the business conducted by it makes such qualification desirable; and has not
commenced any dissolution proceedings. Each Borrower and cosigner that is
subject to the Texas Revised Partnership Act ("TRPA") agrees that Bank is not
required to comply with Section 3.05(d) of the TRPA and agrees that Bank may
proceed directly against one or more partners or their property without first
seeking satisfaction from partnership property. Each Borrower and cosigner
represents that if it conducts business under an assumed business or
professional name it has properly filed Assumed Name Certificate(s) in the
office(s) required by Chapter 36 of the Texas Business and Commerce Code. Each
of the persons signing below as Borrower or cosigner represents that he/she has
full requisite power and authority to execute and deliver this Note to Bank on
behalf of the party for whom he/she signs and to bind such party to the terms
and conditions of this Note and that this Note is enforceable against such
party.
NO COURSE OF DEALING BETWEEN BORROWER AND BANK, NO COURSE OF PERFORMANCE,
NO TRADE PRACTICES, AND NO EXTRINSIC EVIDENCE OF ANY NATURE MAY BE USED TO
CONTRADICT OR MODIFY ANY TERM OF THIS NOTE OR ANY OTHER LOAN DOCUMENT.
THIS NOTE AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, Borrower has executed this Note effective the day,
month and year first aforesaid.
BORROWER: PSW TECHNOLOGIES, INC.
By: /s/ W. Frank King
-----------------------------
Name: /s/ W. Frank King
---------------------------
Title: CEO & President
--------------------------
(Bank's signature is provided as its acknowledgment of the above as the final
written agreement between the parties and as its agreement with each Borrower
subject to TRPA that Bank is not required to comply with Section 3.05(d) of
TRPA.)
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/Ralph T. Beasly
-----------------------------------
Page 5 of 6 Pages
<PAGE>
Name: Ralph T. Beasly
----------------------------------
Title: Vice President
---------------------------------
Page 6 of 6 Pages
<PAGE>
Exhibit 10.14
ACCOUNTS RECEIVABLE AGREEMENT
AGREEMENT made as of this 1st day of October, 1996 by and between Pencom
Systems Incorporated, a New York corporation ("Transferor"), and PSW
Technologies, Inc., a Delaware corporation ("Transferee").
WHEREAS, Transferor has transferred to Transferee certain assets of
Transferor relating to the development and management of software systems, and
Transferee has agreed to assume and discharge certain liabilities of Transferor
relating thereto; and
WHEREAS, in connection with such transfer of assets and assumption of
liabilities, Transferor desires to transfer an interest in certain accounts
receivable of Transferor, and Transferee desires to accept such assignment.
NOW, THEREFORE, in consideration the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged. Transferor and
Transferee hereby agrees as follows:
1. Transfer of Interest in Accounts Receivable. Transferor hereby
transfers, assigns and delivers to Transferee an interest in the accounts
receivable of Transferor set forth on Schedule A attached hereto (the
"Receivables") equal to 26.67% of all Proceeds (as defined below) from the
Receivables. As used herein, the term "Proceeds" means money or other
consideration, including checks, notes, drafts, money orders or other evidence
of payment, which Transferor may receive as payment or satisfaction of the
Receivables, whenever received by Transferor. Within 15 days following the end
of each month in which Proceeds are received by Transferor. Transferor shall pay
to the Transferee 26.67% of the Proceeds received by Transferor in such month.
Notwithstanding the foregoing, Transferor shall be entitled to deduct from
any payments due Transferee hereunder 26.67% of all direct costs, fees and
expenses incurred by Transferor in connection with the collection of any of the
Receivables.
Each month that a payment is made to Transferee hereunder, such payment
shall be accompanied by a statement prepared by Transferor describing (i) the
Receivables with respect to which the payment is being made and (ii) the direct
costs, fees and expenses which were deducted, if any.
For the purpose of determining amounts collected by Transferor with
respect to the Receivables being transferred pursuant to this Agreement, (i) if
a payment is specified by an account debtor as being in payment of a specific
invoice, the payment shall be applied to that invoice and (ii) all payments by
an account debtor that are not specified as being in payment of a specific
invoice shall first be applied to the oldest outstanding invoice due from that
account debtor.
This agreement shall not create any obligations on the part of Transferor
to take any action to collect any of the Receivables, to settle or compromise
any dispute regarding the collection of any of the Receivables or to
<PAGE>
commence, continue or conclude any legal proceedings with respect to the
collection of any of the Receivables.
2. Use of Proceeds. Transferee shall be free to use, spend and/or retain
all amounts received pursuant to this Agreement in any manner whatsoever.
3. Further Assurances. At Transferee's request and without additional
consideration, Transferor, shall execute, acknowledge and deliver such further
instruments of conveyance and transfer and take such other actions as Transferee
may reasonably require to more effectively convey and transfer to Transferee the
interest in the Receivables being transferred pursuant to this Agreement.
4. Miscellaneous. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of Transferor and Transferee. This
Agreement shall be construed and enforced in accordance with the laws of the
State of New York.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
Pencom Systems Incorporated
By /s/Illegible
-----------------------
Name:
Title:
PSW Technologies, Inc.
By:_______________________
Name:
Title:
<PAGE>
Exhibit 10.15
[Letterhead of PSW TECHNOLOGIES]
================================================================================
October 2, 1996
Jonathan Wallace
Vice President of Operations
Pencom Systems, Inc.
40 Fulton Street
New York, NY 10020
SUBJECT: Letter of Agreement for Accounting and Legal Services from Pencom
Systems, Inc.
Dear Jonathan:
In consideration of the services listed below, PSW Technologies, Inc. agrees
to pay Pencom Systems, Inc. the sum of $7,00.00 per month. The term of this
agreement shall be from October 1, 1996 to April 30, 1997, unless terminated
in writing by either party with ten (10) days notice.
Pencom shall provide the following services and performance levels under this
agreement.
1. All accounting services to complete the 1996 Pencom Software division
transactions and books through September 30, 1996 including support of
PSW Technologies, Inc. 1996 audit. Accounting Services shall be provided
in a timely manner so as not to impact the February 7, 1997 completion of
the 1996 audit.
2. Support transfer of all Pencom Software accounting, payroll, benefits and
human resource records to PSW Technologies, Inc.
3. Provide contract review services for all PSW Technologies, Inc. contracts.
4. Provide general counsel services to coordinate legal activities associated
with the spin-out and initial public offering of PSW Technologies, Inc.
Services shall be provided in a timely manner so as not to impact the
March 31, 1997 IPO schedule.
<PAGE>
Jonathan Wallace
October 2, 1996
Page 2
Please acknowledge your agreement with these terms by your signature below.
Pat Motola
CFO, VP of Operations
PSW Technologies, Inc.
Agreed to Agreed to
By: /s/ Jonathan Wallace By: /s/ Pat Motola
------------------------------ -----------------------------
Jonathan Wallace Pat Motola
VP of Operations CFO, VP of Operations
Pencom Systems, Inc. PSW Technologies, Inc.
Date: 2/5/97 Date: 1/19/97
<PAGE>
Exhibit 10.16
[LETTERHEAD OF PSW TECHNOLOGIES]
Recruiting Services Agreement
This Agreement made the 20th day of January, 1997 by PSW Technologies, Inc. a
corporation of the state of Delaware ("PSW") and, Pencom Systems, Inc.
("Pencom") a corporation of the state of New York.
Purpose of Agreement
PSW wishes to engage your search and recruitment agency to provide job
candidates to PSW in consideration for the fees specified in this Agreement.
Term of Agreement
This Agreement will last for one year from the date shown above. The agreement
may be terminated for any reason by either party with 10 days written notice.
Skill and Experience Requirements
PSW will provide you with a written description of each position for which you
are authorized to submit candidates by email, letter, or others written means
agreed to by PSW and Pencom.
Fees & Expenses
Fees are specified in Attachment A. Fees will be payable to you for active,
unique, and valid candidates. A candidate is considered active for 9 months
after initial resume submission to PSW. A unique candidate is one who upon
initial submission has not been previously submitted by another recruiting firm
or actively pursued by internal PSW recruiting efforts within the last 9
months. A valid candidate is one who has been screened by Pencom prior to being
submitted to PSW and has been determined to be a fit by Pencom for PSW's
specific position requirements. PSW shall be the final authority in determining
fees due under this agreement. Payment terms for fees payable to you are net 30
from the initial date of employment of your candidates hired by PSW. Unless
otherwise specified in Attachment A, expenses are your responsibility and are
not reimbursable.
Warranty
If an employee of PSW for whom you have been paid a fee terminates employment
for any reason within 90 days, PSW shall, at its discretion, request Pencom to
provide for a replacement hire at no charge, or to provide a credit for fees
paid or due to Pencom. The credit shall be as follows based on the date the
candidate first reported for employment with PSW (the "initial employment
date"); the first 30 days following the initial employment date, the fee will be
refundable in its entirety to PSW; if within 31 to 60 days of initial employment
date, 67% will be refundable; if within 61 to 90 days, 33% will be refundable.
91 days after your candidates initial employment date by PSW' your fees are
fully earned.
Non-Solicitation
During the term of this Agreement and for a period of twelve months thereafter,
neither party shall solicit for employment or employ, (directly or indirectly,
whether as an employee, independent contractor or otherwise) any employee of the
other unless authorized in writing or email by an officer of PSW or Pencom.
<PAGE>
Confidential Information
You acknowledge that you may acquire technical, project and client information
that is confidential to PSW Technologies (hereinafter "Confidential
Information"). You agree to hold such Confidential Information in strict
confidence, not to disclose it to others or use it in any way, commercially or
otherwise, and not to allow any unauthorized person access to it, either before
or after termination of this Agreement, without the prior written consent of PSW
Technologies. Confidential Information shall not include any information which
(i) is in the public domain; (ii) is rightfully disclosed to you by a third
party or (iii) was previously known to you.
Governing Law
This Agreement shall be governed by, and interpreted in accordance with, the
laws of the State of Texas.
PSW TECHNOLOGIES PENCOM
Agreed and Accepted: Agreed and Accepted:
/s/ Patrick Motola /s/ Jonatha Wallace
- ---------------------------------- ----------------------------------
Name: Patrick Motola Name: Jonatha Wallace
----------------------------- -----------------------------
Title: SR. VP-OPERATIONS Title: VP
---------------------------- ----------------------------
Address: 6300 BRIDGEPOINT Pkwy Address: 40 Fulton St.
-------------------------- --------------------------
BUILDING 3, SUITE 200 NY NY 10038
AUSTIN, TX 78730
-------------------------- --------------------------
Date: January 27, 1997 Date: 1/29/97
----------------------------- -----------------------------
<PAGE>
Attachment A
Fees
See the Fees & Expenses section of the Agreement and the Warranty section of the
Agreement for other relevant payment details.
PSW shall pay the following fees as a % of annual salary per the accepted offer
letter by the candidate. These fees shall be based on the PSW Position Level as
specified in the position on the PSW Web Page or as specified in the PSW Offer
Letter. PSW shall be the final authority regarding the position level for which
the fee applies. Fees shall also be based on the number of hires PSW has made
with Pencom during 1997 for which a fee has been paid.
================================================================================
PSW Position Name % of % of % of % of
Level Annual Annual Annual Annual
Salary 1- Salary Salary Salary
12 97 13-24 97 25-36 97 37+ 97
hires hires hires hires
================================================================================
13 Associate SW Engineer 20% 19% 18% 17%
- --------------------------------------------------------------------------------
16 Software Engineer 20% 19% 18% 17%
- --------------------------------------------------------------------------------
l9 Senior SW Engineer 20% 19% 18% 17%
- --------------------------------------------------------------------------------
21 Architect 20% 19% l8% 17%
- --------------------------------------------------------------------------------
21 Senior Manager 20% 19% 18% 17%
- --------------------------------------------------------------------------------
21 Director/ Executive 25% 24% 23% 22%
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 10.19
PROMISSORY NOTE
$152,243.00 New York, New York
As of October 19, 1995
FOR VALUE RECEIVED, the undersigned (the "Borrower") HEREBY PROMISES TO
PAY TO THE ORDER of Pencom Systems Incorporated, a New York corporation with its
principal address at 40 Fulton Street, New York, New York, 10038 (the "Lender"),
(i) the principal sum of One Hundred Fifty Two Thousand Two Hundred Forty-Three
Dollars ($152,243.00) on the Due Date (as hereinafter defined), and (ii)
interest on the principal amount remaining unpaid hereunder from time to time
outstanding from the date hereof until such principal amount becomes due,
payable at the end of each calendar year following the date of this Note and
when such principal amount becomes due, at the rate of 7% per annum. The "Due
Date" shall be the date of which the Borrower sells all or any portion of the
shares of common stock, without par value, of the Lender, issued by the Lender
to the Borrower contemporaneously with the Borrower's execution of this Note
(the "Shares").
The Borrower hereby grants to the Lender, as security for the payment of
the outstanding principal amount of this Note and all other amounts due
hereunder, a security interest in the Shares, together with any stock rights,
rights to subscribe, liquidating dividends, stock dividends, dividends paid in
stock, new securities or other property to which the Borrower is or may
hereafter become entitled to receive on account of the Shares.
If the Borrower shall fail to pay any principal of or interest on this
Note when due, then the Lender may (i) declare the outstanding principal amount
of this Note and all other amounts due hereunder to be immediately due and
payable, whereupon the outstanding principal amount of this Note and all such
other amounts shall become and shall be forthwith due and payable, without
diligence, presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived, (ii) cause the Shares to be transferred to
its name or to the name of its nominee and exercise as to the Shares all the
rights, powers and remedies of an owner, and (iii) exercise any and all of its
other rights under applicable law and hereunder.
The Borrower hereby agrees to pay on demand all costs and expenses
(including, without limitation, all fees and expenses of counsel to the Lender)
incurred by the Lender in connection with the enforcement of the Lender's
rights, and the collection of all amounts due, hereunder.
<PAGE>
This Note shall be governed by, and accordance with, the laws of the State
of New York.
/s/William Frank King
-----------------------------
Name: William Frank King
Address:
c/o PSW Technologies
9050 Capital of Texas Highway
Austin, Texas 78759
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Exhibit 10.20
[LETTERHEAD OF PENCOM]
EMPLOYMENT AGREEMENT
This AGREEMENT effective as of the 19 day of October, 1992, by and between
PENCOM SYSTEMS INCORPORATED, a New York corporation with principal offices
located at 150 Broadway, New York, New York (the "Company") and William F. King,
an individual residing at the address set forth under his signature at the base
of this Agreement (the "Employee").
WHEREAS, the Company is engaged in the business of recruiting personnel to
provide services as employees or contractors in two related fields (collectively
referred to as (the "Industry") and of providing software development services
in these fields: (i) the UNIX operating system and UNIX-like operating systems
and (ii) applications running under such operating systems;
WHEREAS, the Company desires to employ the Employee as President of Pencom
Software division, and the Employee desires to be employed by the Company, upon
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties intending to be legally bound agree as follows:
1. Employment. The Company hereby employs the Employee and the Employee
hereby agrees to be employed by the Company upon the terms and conditions
hereinafter set forth.
2. Duties and Services.
(a) The Employee is employed as President, Pencom Software division
to manage in all respects the said division and to report to the Company's Board
of Directors.
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(b) The Employee agrees to devote Employee's full time and efforts
to the performance of the Employee's duties as an employee of the Company. The
Employee shall not during the term of the Agreement perform any services for any
person, firm or corporation, other than as approved in writing by the Company.
Notwithstanding the foregoing, the Employee may serve on up to 5 Boards of
Directors of other companies provided such role requires no more than 25 days of
effort per annum total and involves no business conflict of interest with
Employee's services hereunder. The prohibitions of this section shall apply to
indirect activities of the Employee as well as direct activities, and will
accordingly prohibit activities of persons with whom the Employee is
"affiliated", as that term is defined under the Securities Act of 1933, as
amended, and the Rules and Regulations thereunder.
(c) The Employee shall undertake such travel as may be reasonably
necessary or desirable to promote the business and affairs of the Company.
(d) The Employee is under no restriction or obligation,
contractually or otherwise, to any present or former employer, partner,
associate, or other person, which would prevent or restrict the Employee in any
manner whatsoever from performing the duties set forth herein.
3. Term.
(a) Unless sooner terminated pursuant to paragraph 3(b), the term of
this Employment Agreement shall be for a period of five years commencing October
19, 1992.
(b) This Agreement may be terminated at any time without cause by
either party on four weeks' prior written notice to the other, or immediately
upon written notice in case of cause. In the event of termination without cause,
Company shall pay the Employee severance pay
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as follows:
One years' salary if the Employee is terminated between October 19,
1992 - April 18, 1994;
Four months' salary if Employee is terminated at any time
thereafter. Additional Compensation as defined below will be calculated pro rata
through the effective date of termination and will be paid within thirty days
after Company's accounting firm renders signed financial statements for the year
in which the termination occurs, in either event.
(c) For purposes of this Agreement, "cause" shall mean:
i) Any act or acts of dishonesty on the part of Employee resulting in or
intended to result, directly or indirectly, in substantial gain or personal
enrichment at the expense of the Company;
ii) Fraud, misappropriation, embezzlement, or willful and material damage
of or to any material property of the Company or its business by Employee;
iii) A good faith determination by a majority of the board of directors of
the Company that Employee has exhibited a pattern or practice of willful
disregard of his duties as an employee of the Company;
iv) The conviction of Employee for a felony or any crime involving moral
turpitude; or
v) A material violation of this Agreement or the Shareholders' Agreement
dated contemporaneously herewith or any amendment thereto (the "Shareholders
Agreement").
4. Compensation.
(a) For all of the services to be rendered by the Employee in any capacity
hereunder, the Company shall pay the Employee a salary as follows:
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for the period commencing October 19, 1992 through December 31, 1992, a
salary of $275,000.00 per annum, prorated; a Base Salary of $250,000.00 per
annum thereafter. On each October 19, commencing October 19, 1993, Company shall
increase the Employee's Base Salary by 6% of the Base Salary paid or payable in
the preceding twelve-month period.
In addition, Employee will receive Additional Compensation calculated as
follows and payable within thirty (30) days after the Company's accountants
render a year end statement.
One percent (1%) of revenues (exclusive of sales returns and
allowances) of the Pencom Software division up to the amount of the revenues
reported on a generally accepted accounting principles basis, by the division
during the Company's prior calendar year and two percent (2%) of such revenues
reported on a generally accepted accounting principles basis, in excess of such
amount.
For the 1993 calendar year only, Company shall guarantee the
Employee Additional Compensation in the amount of $25,000.00. Therefore, if the
preceding formula does not result in additional compensation of at least
$25,000.00, Company shall pay Employee the difference.
Additional Compensation beyond the guarantee amount shall only be
payable for 1993, if the Pencom Software division reports on a generally
accepted accounting principles basis, net profits of at least one cent prior to
payment of the Additional Compensation for that year. Thereafter, the division
shall report on a generally accepted accounting principles basis, net profits of
at least one cent after deduction of the Additional Compensation. In the event
net profits for any year are less than the Additional Compensation as calculated
for that year, Employee's Additional Compensation for that year shall equal
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the net profits minus one cent.
Company shall also make a one-time payment of relocation expense to
Employee in the amount of $10,000.00, on or prior to October 19, 1992, in
addition to two round trips for Employee and one one-way air fare for Employee
and spouse from Boston, Massachusetts to Austin, Texas.
Company may in its sole discretion change from a calendar to a
fiscal year or change fiscal year ends at any time. In such event, additional
compensation shall be calculated and paid pro rata for the short year resulting
from such change, using revenues for the equivalent months from the previous
year (calendar or fiscal, as the case may be) as the basis for comparison of
revenues. In the first full fiscal year following such change, additional
compensation shall be calculated and paid based upon a comparison of the current
fiscal year revenues to revenues in the twelve month period immediately
preceding the start of such fiscal year.
(b) Within five days after October 19, 1992, the Company will sell shares
of its common stock to the Employee (the "Shares") in the amount of 1.875% of
the shares then issued and outstanding. Employee shall enter into an appropriate
form of Shareholders' Agreement governing the rights and responsibilities of the
Shareholders.
(c) The Company shall sell additional shares to the Employee during
employment according to the following schedule:
1.875% on October 19, 1993
1.875% on October 19, 1994
1.875% on October 19, 1995
for a total of 7 1/2% of the issued and outstanding shares after taking into
account the shares issued to the Employee. The cost of the Shares, whenever
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issued to Employee, shall be their value as of October 19, 1992, as set forth in
an addendum to the Shareholders' Agreement.
In the event that, prior to the purchase of all of the Shares
according to the schedule set forth above, (i) the Company shall subdivide (by
any stock split, stock dividend, recapitalization or otherwise) its outstanding
shares of Common Stock into a greater number of shares, the purchase price for
Shares to be sold subsequent to such action shall be proportionately reduced; or
(ii) the Company shall combine (by reverse stock split, recapitalization or
otherwise) its outstanding shares of Common Stock into a smaller number of
shares, the purchase price for Shares to be sold subsequent to such action shall
be proportionately increased. It is the express intent of the parties that
Employee shall be entitled to purchase Shares hereunder representing an interest
of 7 1/2% of the total equity interest in the Company held by the shareholders
of the Company as of the date of this Agreement (the "Current Shareholders").
The Company agrees that Employee shall be entitled to participate in any
proposed issuance of the Company's securities to any such Current Shareholder on
the same terms and conditions applicable to other purchasers with respect
thereto, whether such issuance is accomplished directly by the sale of common
stock or indirectly by the issuance of options, warrants or convertible
securities, to the extent necessary to maintain an interest equal to 7 1/2% of
the aggregate number of shares to be owned, directly or indirectly, by the
Current Shareholders and Employee following such offering. In the event Employee
purchases any shares under the terms and conditions of this paragraph 4(c), the
Company shall lend the Employee the purchase price of the shares on the same
terms and conditions, and at the same price as Employees original purchase of
shares under this Agreement.
(d) In the event Employee dies, resigns or Company terminates Employee's
services on any ground permitted to it hereunder, Employee or his
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estate shall tender all the Shares then owned by him for sale to the Company,
and the Company shall accept such offer and shall enter into an agreement to
purchase all of the Shares within 120 days after such tender, pursuant to the
procedure set forth in the Shareholders' Agreement.
(e) In the event Employee resigns his Employment with the Company within
five years after October 19, 1992, Employee shall pay the Company a penalty as
follows. The penalty shall be realized by the Company as a reduction of the net
purchase price of the Shares (after reduction by the amount of the loan) and
shall be subtracted in equal amounts from each payment made to the Employee for
the purchase of the Shares.
10/19/92-9/30/93 = 36% of the net purchase price of the shares held as of
such date by Employee
10/19/93-9/30/94 = 34% of the net purchase price of the shares held as of
such date by Employee
10/19/94-9/30/95 = 33.33% of the net purchase price of the shares held as
of such date by Employee
10/19/95-9/30/96 = 34% of the net purchase price of the shares held as of
such date by Employee
10/19/96-9/30/97 = 17% of the net purchase price of the shares held as of
such date by Employee
There will be no penalty for resignation thereafter. It is understood by the
parties that these penalties operate solely as a set off against the net
purchase price and in the event there is no net purchase price (for example, the
shares fail to appreciate over or decline in value below, the loan amount)
Employee shall not be liable for any penalty.
(f) The Company shall loan the Employee the funds necessary to purchase
the Shares (the "Loan") at the value set forth in subparagraph (c) above, and
Employee shall be liable for interest thereon, in the amount
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<PAGE>
of 7% per annum. Company shall recoup the loan principal only upon the sale of
the Shares. In no event shall Employee be personally liable to make any payment
of principal in connection with the Shares. Employee shall be treated
consistently with the Company's other shareholders in the receipt of S
Corporation distributions if any and in loaning distributions back to the
Company.
(g) In the event Company repurchases the Shares from Employee, the
purchase price of the Shares shall be determined by calculating the value of the
Shares pursuant to the last certificate of agreed value executed by all of the
Shareholders (or if such certificate is more than four months old, the value
determined by the procedures set forth in the Shareholder's Agreement). Company
shall in the event of such repurchase recover the outstanding Loan balance as
equal deductions from each installment of the purchase price.
5. Vacations. The Employee shall be entitled each year to vacations in
accordance with the Company's policies for its officers, as such policies may
from time to time be revised by the Company. All vacations shall be in addition
to recognized national holidays. During all vacations, the Employee's
compensation and other benefits as stated herein shall continue to be paid in
full.
6. Other Benefits. In addition to the compensation and to the rights
provided for elsewhere in this Agreement, the Employee shall be entitled to
participate in each plan of the Company now or hereafter adopted for the benefit
of its officers to the extent permitted by such plans and by applicable law.
7. Disclosure of Information. Employee is also entering into a certain
Confidentiality Agreement of like date. Any breach thereof shall also be
construed as a breach of this Employment Agreement.
8. Restrictive Covenant. (a) Notwithstanding the terms of a
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restrictive covenant set forth in the Shareholder's Agreement, Employee agrees
only that during the term of this Agreement and thereafter for the period of
time set forth in subparagraph (c) below, Employee will not, directly or
indirectly, for himself, or as agent, or in behalf of or in conjunction with any
other person, firm, partnership, corporation or other entity:
(i) provide any Unix-related computer consulting, software development,
consultant placement or full-time placement to any company or entity for whom
the company performed services within twelve months' prior to termination, or
made a proposal within six months' prior to termination.
(ii) Request or advise any of the customers or employees of the Company to
withdraw or cancel any of their business or cause anyone else to do so; or
induce or entice any employee and/or independent contractor of the Company to
leave such employment or position, or cause anyone else to do so;
(b) The parties hereto recognize and agree that in the event of the breach
of any provision of this covenant, there is not a remedy at law adequate to
protect the rights and interest of the Company set forth herein, and the parties
therefore agree that the Company shall have the right to an injunction enjoining
the Employee from violating the provision of this Section. Nothing herein shall
be construed as prohibiting the Company from pursuing any other remedies
available for such breach or threatened breach, including the recovery of
damages from the Employee. In the event that any restriction contained in this
covenant is deemed by any court to be void because it is for an excessive period
of time or restricts the Employee from engaging in a business competing with the
Company in an excessive geographical area, it is agreed by the parties that said
court shall have the right to decrease the time period or geographical area
covered by such restriction to a time period and/or geographical area which is
not excessive.
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(c) In the event employee resigns or is terminated between October 19,
1992 and April 18, 1994, the term of this restrictive covenant shall be twelve
months. In the event this Agreement expires or Employee resigns or is
terminated at any time thereafter, the term of the restrictive covenant shall be
six months.
9. Inventions or Discoveries. The Employee hereby sells, transfers and
assigns to the Company or to any person or entity designated by the Company all
of the entire right, title and interest of the Employee in and to all
inventions, whether patented or unpatented, and copyrightable material made or
conceived by the Employee, solely or jointly, during the term hereof which
relate to the services provided by the Company or which otherwise relate or
pertain to the business, functions or operations of the Company. The Employee
agrees to communicate promptly and to disclose to the Company in such form as
the Employee may be required to do so all information, details and data
pertaining to such inventions, and such other papers and documents as may be
required of the Employee to permit the Company or any person or entity
designated by the Company to file and prosecute the patent applications and, as
to copyrightable material, to obtain copyrights thereof.
10. Publicity. The Employee grants the Company (subject to Employee's
right of approval which shall not be unreasonably withheld) the right to use the
Employee's name, picture or other likeness, and biographical material concerning
the Employee, in connection with advertising, promotion and publicizing the
Company and its activities.
11. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered or sent
by certified mail, return receipt requested, to Employee's residence, in the
case of the Employee, or to the Company, at the Company's principal
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<PAGE>
office, attention of the President, in the case of the Company. All notices
shall be deemed received upon delivery, in the case of personal delivery, or two
days after their postmark, if mailed.
12. Construction of Agreement. This Agreement is intended to be construed
and enforced in accordance with the laws of the State of Texas, in the same
manner as those executed and performed entirely within the State of Texas, and
without regard to or aid of any presumption or other rule requiring construction
against the party drawing or causing this be drawn. In the event anything set
forth in paragraphs 4 or 8 of this Agreement conflicts with any provision of the
Shareholder's Agreement, the provisions of this Agreement shall govern.
13. Commencement of Actions or Proceeding. Any action or proceeding
brought by a party hereto against another and arising out of this Agreement or
any breach thereof, may be commenced by the service of process in the same
manner as a notice may be served under this Agreement and the parties hereby
confer exclusive jurisdiction in any such action or proceeding upon the District
Court for the County of Travis, State of Texas, unless such court shall decline
to accept jurisdiction, in which case any such action or proceeding may be
brought in any other court of suitable jurisdiction.
14. Attorneys' Fees. In the event that any party shall be required to
bring an action to enforce its rights under this Agreement, such party shall be
entitled to recover from the defaulting party all costs and expenses, including
reasonable attorneys' fees, incurred by it with respect to such action, unless
such party has also breached this Agreement.
15. Interest on Outstanding Claims. In the event a party hereto shall make
a claim for damages or otherwise allege default by the other party relating to
this Agreement for breach of a covenant contained herein, which shall remain
unpaid for thirty days after demand for payment shall have been
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made, even if disputed, interest shall accrue as of the date claimed on all
amounts as claimed and finally determined to be payable to the claiming party at
such prime rate of interest as charged by Bankers Trust Company, New York, New
York, to its best commercial customers of its ninety-day obligations, at the
commencement of each quarter annual period during which such payment shall not
have been made.
16. Non-Waiver. No provision of this Agreement shall be deemed to have
been waived except if such waiver is contained in a notice given to the party
claiming such waiver has occurred and no such waiver shall be deemed to be a
waiver of any other or further similar or dissimilar obligation or liability of
the party in whose favor the waiver was given.
17. Illegality. If any provision or provisions hereof (or any part
thereof) or the application thereof to any particular facts or circumstances
shall be illegal and unenforceable by reason of any statute or rule of law, the
remaining provisions (or parts thereof) of this Agreement or the application of
the particular provision or provisions (or parts thereof) to the other facts or
circumstances shall not be affected thereby and shall remain in full force and
effect, it being the intention by this section to make clear the Agreement of
the parties that this Agreement shall be enforced insofar as it may be enforced
consistent with law.
18. Headings. The headings of the sections herein are for convenience only
and are not part of this Agreement and shall not affect the interpretation
thereof.
19. Entire Agreement. This Agreement contains the entire agreement of the
parties. All prior agreements or understandings are merged herein. It may not be
changed orally, but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought.
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20. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of, the successors and assigns of the Company, whether by
merger, consolidation, sale or lease of assets, or otherwise singular or plural,
as the sense requires, and to include any and all successor and substitutes
therefore.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date and year first above written.
PENCOM SYSTEMS INCORPORATED
By: /s/ Wade E. Saadi
-------------------------------
Wade E. Saadi, President
THE EMPLOYEE:
/s/ William Frank King
-------------------------------
William Frank King
The Address of Employee is as follows:
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Exhibit 10.22
[LETTERHEAD OF PENCOM]
EMPLOYMENT AGREEMENT
This agreement, entered into this 1st day of July, 1993, between PENCOM
SOFTWARE (PSW), a division of PENCOM SYSTEMS INCORPORATED, a New York
corporation and Patrick Motola (herein after referred to as "EMPLOYEE").
1. PSW hereby employs EMPLOYEE in the position of Vice President/General
Manager.
2. EMPLOYEE shall receive a salary of $140,000.00 per annum, paid in
twenty-four (24) equal semi monthly installments of $5,833.33. EMPLOYEE shall
receive the benefits set forth in the "Benefits Package" as amended from time to
time.
3. EMPLOYEE will devote his or her full business time and best efforts to
PSW, will provide technical services on such projects or to such clients as PSW
designates, and will perform such administrative duties related to his or her
other duties as PSW may reasonably assign.
4. EMPLOYEE agrees not to disclose to third parties, or to use for his or
her own benefit, information, materials or other property (including without
limitation, source code, object code, design documents, test suites, protocols,
other computer related information, the customer list, billing rates, methods of
doing business or other materials marked confidential) belonging to PSW, or its
clients. All information gained as a result of this Agreement is confidential
and such information shall not be disclosed to third parties. EMPLOYEE further
agrees that upon termination he or she will return to PSW all such information
and material in his or her possession. This paragraph shall survive the
expiration or termination of this Agreement.
5. EMPLOYEE shall not during the term of this Agreement, and for a period
of one year thereafter, directly or indirectly:
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a. Solicit or induce any employee or consultant of PSW to terminate his or
her employment.
b. Solicit or induce any customer of PSW to terminate its business
relationship with PSW, including firms that have been customers of PSW
within the twelve (12) months preceding EMPLOYEE'S termination.
c. Accept any opportunity (whether of a contract or full-time employment)
with a PSW client if Employee learned about the opportunity in the course
of Employee's employment by PSW.
6. EMPLOYEE agrees to disclose to PSW in writing any and all documentation,
inventions, improvements or discoveries which arise out of his or her employment
with PSW.
7. All copyrightable work is "work for hire" and EMPLOYEE hereby assigns to
PSW all rights and interest in any copyrightable work, invention or idea made or
conceived while in the performance of any job related duties during the term of
this Agreement. EMPLOYEE will execute any documents, and at PSW's expense
provide any cooperation reasonably necessary to create or record any such
transfer of ownership.
8. EMPLOYEE represents that EMPLOYEE has the right to enter into this
Agreement without infringing any prior agreement to which EMPLOYEE is a party;
that all deliverable work provided hereunder will be original and will not
infringe any copyright, patent or other intellectual property right; that the
EMPLOYEE is an American citizen or legal permanent resident of the United States
and, at the same time this Agreement is signed, will sign an I-9 form and will
provide to PSW the documentation required. EMPLOYEE will obey all PSW rules and
regulations as they may be issued from time to time.
9. It is understood that either party may terminate this Agreement without
cause by giving two weeks prior written notice to the other. In its sole
discretion, PSW may terminate employee, without cause, effective immediately,
upon payment of two weeks salary to employee. PSW may terminate immediately upon
written
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notice to EMPLOYEE for cause. In the event of termination without cause, PSW
shall pay three months' salary to Employee as severance.
10. This Agreement will be governed by Texas law.
11. This Agreement may not be assigned by either party without the prior
written consent of the other.
12. This Agreement, and any written amendments thereto, contain all terms
and conditions agreed upon by the parties hereto, and no other agreements, oral
or otherwise, shall be deemed to exist or to bind any of the parties hereto. All
previous communications, representations, warranties, promises, conditions or
agreements of any kind shall not be binding upon the parties unless incorporated
into this Agreement. This Agreement may not be amended or modified, except by a
writing signed by both parties.
READ AND ACCEPTED BY EMPLOYEE
/s/ Pat Motola
- ---------------------------------------------------
Pat Motola
Address of Employee is as follows:
569 Loch Lomond Court
Sunnyvale, CA 94087
PENCOM SOFTWARE
(a division of Pencom Systems Incorporated)
/s/ Wade E. Saadi
- ---------------------------------------------------
Wade E. Saadi
President
Pencom Systems Incorporated
<PAGE>
Exhibit 10.23
[LETTERHEAD OF PENCOM]
EMPLOYMENT AGREEMENT
This agreement, entered into this 27th day of September, 1993, between
PENCOM SOFTWARE (PSW), a division of PENCOM SYSTEMS INCORPORATED, a New York
corporation and William Cason (herein after referred to as "EMPLOYEE").
1. PSW hereby employs EMPLOYEE in the position of Director of Transaction
Systems.
2. EMPLOYEE shall receive a salary of $120,000.00 per annum, paid in
twenty-four (24) equal semi monthly installments of $5,000.00. EMPLOYEE shall
receive the benefits set forth in the "Benefits Package" as amended from time to
time.
3. EMPLOYEE will devote his or her full business time and best efforts to
PSW, will provide technical services on such projects or to such clients as PSW
designates, and will perform such administrative duties related to his or her
other duties as PSW may reasonably assign.
4. EMPLOYEE agrees not to disclose to third parties, or to use for his or
her own benefit, information, materials or other property (including without
limitation, source code, object code, design documents, test suites, protocols,
other computer related information, the customer list, billing rates, methods of
doing business or other materials marked confidential) belonging to PSW, or its
clients. All information gained as a result of this Agreement is confidential
and such information shall not be disclosed to third parties. EMPLOYEE further
agrees that upon termination he or she will return to PSW all such information
and material in his or her possession. This paragraph shall survive the
expiration or termination of this Agreement.
5. EMPLOYEE shall not during the term of this Agreement, and for a period
of one year thereafter, directly or indirectly:
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a. Solicit or induce any employee or consultant of PSW to terminate his or
her employment.
b. Solicit or induce any customer of PSW to terminate its business
relationship with PSW, including firms that have been customers of PSW
within the twelve (12) months preceding EMPLOYEE'S termination.
c. Accept any opportunity (whether of a contract or full-time employment)
with a PSW client if Employee learned about the opportunity in the course
of Employee's employment by PSW.
6. EMPLOYEE agrees to disclose to PSW in writing any and all documentation,
inventions, improvements or discoveries which arise out of his or her employment
with PSW.
7. All copyrightable work is "work for hire" and EMPLOYEE hereby assigns to
PSW all rights and interest in any copyrightable work, invention or idea made or
conceived while in the performance of any job related duties during the term of
this Agreement. EMPLOYEE will execute any documents, and at PSW's expense
provide any cooperation reasonably necessary to create or record any such
transfer of ownership.
8. EMPLOYEE represents that EMPLOYEE has the right to enter into this
Agreement without infringing any prior agreement to which EMPLOYEE is a party;
that all deliverable work provided hereunder will be original and will not
infringe any copyright, patent or other intellectual property right; that the
EMPLOYEE is an American citizen or legal permanent resident of the United States
and, at the same time this Agreement is signed, will sign an I-9 form and will
provide to PSW the documentation required. EMPLOYEE will obey all PSW rules and
regulations as they may be issued from time to time.
9. It is understood that either party may terminate this Agreement without
cause by giving two weeks prior written notice to the other. In its sole
discretion, PSW may terminate employee, without cause, effective immediately,
upon payment of two weeks salary to employee. PSW may terminate immediately upon
written
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<PAGE>
notice to EMPLOYEE for cause (including without limitation PSW's client
requesting termination of EMPLOYEE's services).
10. This Agreement will be governed by Texas law.
11. This Agreement may not be assigned by either party without the prior
written consent of the other.
12. This Agreement, and any written amendments thereto, contain all terms
and conditions agreed upon by the parties hereto, and no other agreements, oral
or otherwise, shall be deemed to exist or to bind any of the parties hereto. All
previous communications, representations, warranties, promises, conditions or
agreements of any kind shall not be binding upon the parties unless incorporated
into this Agreement. This Agreement may not be amended or modified, except by a
writing signed by both parties.
READ AND ACCEPTED BY EMPLOYEE
/s/ William Cason
- ---------------------------------------------------
William Cason
Address of Employee is as follows:
804 Hunt Road
Newtown Square, PA 19073
PENCOM SOFTWARE
(a division of Pencom Systems Incorporated)
/s/ Wade E. Saadi
- ---------------------------------------------------
Wade E. Saadi
President
Pencom Systems Incorporated
<PAGE>
Exhibit 10.24
[LETTERHEAD OF PENCOM]
EMPLOYMENT AGREEMENT
This agreement, entered into this 19th day of October, 1993, between PENCOM
SOFTWARE (PSW), a division of PENCOM SYSTEMS INCORPORATED, a New York
corporation and Brian Baisley (herein after referred to as "EMPLOYEE").
1. PSW hereby employs EMPLOYEE in the position of Director of Technical
Support.
2. EMPLOYEE shall receive a salary of $60,000.00 per annum, paid in
twenty-four (24) equal semi monthly installments of $2,500.00. EMPLOYEE shall
receive the benefits set forth in the "Benefits Package" as amended from time to
time.
3. EMPLOYEE will devote his or her full business time and best efforts to
PSW, will provide technical services on such projects or to such clients as PSW
designates, and will perform such administrative duties related to his or her
other duties as PSW may reasonably assign.
4. EMPLOYEE agrees not to disclose to third parties, or to use for his or
her own benefit, information, materials or other property (including without
limitation, source code, object code, design documents, test suites, protocols,
other computer related information, the customer list, billing rates, methods of
doing business or other materials marked confidential) belonging to PSW, or its
clients. All information gained as a result of this Agreement is confidential
and such information shall not be disclosed to third parties. EMPLOYEE further
agrees that upon termination he or she will return to PSW all such information
and material in his or her possession. This paragraph shall survive the
expiration or termination of this Agreement.
5. EMPLOYEE shall not during the term of this Agreement, and for a period
of one year thereafter, directly or indirectly:
-1-
<PAGE>
a. Solicit or induce any employee or consultant of PSW to terminate his or
her employment.
b. Solicit or induce any customer of PSW to terminate its business
relationship with PSW, including firms that have been customers of PSW
within the twelve (12) months preceding EMPLOYEE'S termination.
c. Accept any opportunity (whether of a contract or full-time employment)
with a PSW client if Employee learned about the opportunity in the course
of Employee's employment by PSW.
6. EMPLOYEE agrees to disclose to PSW in writing any and all documentation,
inventions, improvements or discoveries which arise out of his or her employment
with PSW.
7. All copyrightable work is "work for hire" and EMPLOYEE hereby assigns to
PSW all rights and interest in any copyrightable work, invention or idea made or
conceived while in the performance of any job related duties during the term of
this Agreement. EMPLOYEE will execute any documents, and at PSW's expense
provide any cooperation reasonably necessary to create or record any such
transfer of ownership.
8. EMPLOYEE represents that EMPLOYEE has the right to enter into this
Agreement without infringing any prior agreement to which EMPLOYEE is a party;
that all deliverable work provided hereunder will be original and will not
infringe any copyright, patent or other intellectual property right; that the
EMPLOYEE is an American citizen or legal permanent resident of the United States
and, at the same time this Agreement is signed, will sign an I-9 form and will
provide to PSW the documentation required. EMPLOYEE will obey all PSW rules and
regulations as they may be issued from time to time.
9. It is understood that either party may terminate this Agreement without
cause by giving two weeks prior written notice to the other. In its sole
discretion, PSW may terminate employee, without cause, effective immediately,
upon payment of two weeks salary to employee. PSW may terminate immediately upon
written
-2-
<PAGE>
notice to EMPLOYEE for cause (including without limitation PSW's client
requesting termination of EMPLOYEE's services).
10. This Agreement will be governed by Texas law.
11. This Agreement may not be assigned by either party without the prior
written consent of the other.
12. This Agreement, and any written amendments thereto, contain all terms
and conditions agreed upon by the parties hereto, and no other agreements, oral
or otherwise, shall be deemed to exist or to bind any of the parties hereto. All
previous communications, representations, warranties, promises, conditions or
agreements of any kind shall not be binding upon the parties unless incorporated
into this Agreement. This Agreement may not be amended or modified, except by a
writing signed by both parties.
READ AND ACCEPTED BY EMPLOYEE
/s/ Brian Baisley
- ---------------------------------------------------
Brian Baisley
Address of Employee is as follows:
2961 Tumbleweed Trail
Grapevine, TX 76051
PENCOM SOFTWARE
(a division of Pencom Systems Incorporated)
/s/ Wade E. Saadi
- ---------------------------------------------------
Wade E. Saadi
President
Pencom Systems Incorporated
<PAGE>
Exhibit 10.25
[LETTERHEAD OF PENCOM]
EMPLOYMENT AGREEMENT
This agreement, entered into this 18th day of July, 1994, between PENCOM
SOFTWARE (PSW), a division of PENCOM SYSTEMS INCORPORATED, a New York
corporation and William Sutton Wimberley, Jr. (herein after referred to as
"EMPLOYEE").
1. PSW hereby employs EMPLOYEE in the position of Director of Business
Development.
2. EMPLOYEE shall receive a salary of $125000.00 per annum, paid in
twenty-four (24) equal semi monthly installments of $5208.33. EMPLOYEE shall
receive the benefits set forth in the "Benefits Package" as amended from time to
time.
3. EMPLOYEE will devote his or her full business time and best efforts to
PSW, will provide technical services on such projects or to such clients as PSW
designates, and will perform such administrative duties related to his or her
other duties as PSW may reasonably assign.
4. EMPLOYEE agrees not to disclose to third parties, or to use for his or
her own benefit, information, materials or other property (including without
limitation, source code, object code, design documents, test suites, protocols,
other computer related information, the customer list, billing rates, methods of
doing business or other materials marked confidential) belonging to PSW, or its
clients. All information gained as a result of this Agreement is confidential
and such information shall not be disclosed to third parties. EMPLOYEE further
agrees that upon termination he or she will return to PSW all such information
and material in his or her possession. This paragraph shall survive the
expiration or termination of this Agreement.
5. EMPLOYEE shall not during the term of this Agreement, and for a period
of one year thereafter, directly or indirectly:
-1-
<PAGE>
a. Solicit or induce any employee or consultant of PSW to terminate his or
her employment.
b. Solicit or induce any customer of PSW to terminate its business
relationship with PSW, including firms that have been customers of PSW
within the twelve (12) months preceding EMPLOYEE'S termination.
c. Accept any opportunity (whether of a contract or full-time employment)
with a PSW client if Employee learned about the opportunity in the course
of Employee's employment by PSW.
6. EMPLOYEE agrees to disclose to PSW in writing any and all documentation,
inventions, improvements or discoveries which arise out of his or her employment
with PSW.
7. All copyrightable work is "work for hire" and EMPLOYEE hereby assigns to
PSW all rights and interest in any copyrightable work, invention or idea made or
conceived while in the performance of any job related duties during the term of
this Agreement. EMPLOYEE will execute any documents, and at PSW's expense
provide any cooperation reasonably necessary to create or record any such
transfer of ownership.
8. EMPLOYEE represents that EMPLOYEE has the right to enter into this
Agreement without infringing any prior agreement to which EMPLOYEE is a party;
that all deliverable work provided hereunder will be original and will not
infringe any copyright, patent or other intellectual property right; that the
EMPLOYEE is an American citizen or legal permanent resident of the United States
and, at the same time this Agreement is signed, will sign an I-9 form and will
provide to PSW the documentation required. EMPLOYEE will obey all PSW rules and
regulations as they may be issued from time to time.
9. It is understood that either party may terminate this Agreement without
cause by giving two weeks prior written notice to the other. In its sole
discretion, PSW may terminate employee, without cause, effective immediately,
upon payment of two weeks salary to employee. PSW may terminate immediately upon
written
-2-
<PAGE>
notice to EMPLOYEE for cause (including without limitation PSW's client
requesting termination of EMPLOYEE's services).
10. This Agreement will be governed by Texas law.
11. This Agreement may not be assigned by either party without the prior
written consent of the other.
12. This Agreement, and any written amendments thereto, contain all terms
and conditions agreed upon by the parties hereto, and no other agreements, oral
or otherwise, shall be deemed to exist or to bind any of the parties hereto. All
previous communications, representations, warranties, promises, conditions or
agreements of any kind shall not be binding upon the parties unless incorporated
into this Agreement. This Agreement may not be amended or modified, except by a
writing signed by both parties.
READ AND ACCEPTED BY EMPLOYEE
/s/ William Sutton Wimberley, Jr.
- ---------------------------------------------------
William Sutton Wimberley, Jr.
Address of Employee is as follows:
2522 Dillon
Garland, TX 75040
PENCOM SOFTWARE
(a division of Pencom Systems Incorporated)
/s/ Wade E. Saadi
- ---------------------------------------------------
Wade E. Saadi
President
Pencom Systems Incorporated
<PAGE>
Exhibit 10.28
ADOPTION AGREEMENT
ARTICLE 1
NON-STANDARDIZED PROFIT SHARING PLAN
1.01 PLAN INFORMATION
(a) Name of Plan:
This is the PSW Profit Sharing Plan (the "Plan").
(b) Type of Plan:
(1) |X| 401(k) and Profit Sharing
(2) |_| Profit Sharing Only
(3) |_| 401(k) Only
(c) Name of Plan Administrator, if not the Employer:
______________________________________________________________
Address: ________________________________________________
Phone Number: ________________________________________________
The Plan Administrator is the agent for service of legal
process for the Plan.
(d) Limitation Year (check one):
(1) |X| Calendar Year
(2) |_| Plan Year
(3) |_| Other: ______________
(e) Three Digit Plan Number: 001
(f) Plan Year End (month/day): 12/31
(g) Plan Status (check one):
(1) |X| Effective Date of new Plan: 10/1/96
<PAGE>
(2) |_| Amendment Effective Date: __________________. This is
(check one):
(A) |_| an amendment of The CORPORATEplan for
Retirement Adoption Agreement previously
executed by the Employer; or
(B) |_| a conversion from another plan document
into The CORPORATEplan for Retirement.
The original effective date of the Plan:
_________________
The substantive provisions of the Plan shall
apply prior to the Effective Date to the
extent required by the Tax Reform Act of
1986 or other applicable laws.
1.02 EMPLOYER
(a) The Employer is: PSW Technologies, Inc.
Address: 9050 Capital of Texas Highway
Austin, Texas 78759
Contact's Name: Keith Thatcher
Telephone Number: (512) 343-6666
(1) Employer's Tax Identification Number: 74-2796054
(2) Business form of Employer (check one):
(A) Corporation
(B) |_| Sole proprietor or partnership
(C) |X| Subchapter S Corporation
(D) |_| Governmental
(E) |_| Tax-exempt organization
(F) |_| Rural Electric Cooperative
(3) Employer's fiscal year end: 12/31
(4) Date business commenced: 10/1
2
<PAGE>
(b) The term "Employer" includes the following Related Employer(s)
(as defined in Section 2.01(a)(26)):
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
o 1.03 Coverage:
(a) All Employees who meet the conditions specified below will be
eligible to participate in the Plan:
(1) Service requirement (check one):
(A) |X| no service requirement.
(B) |_| three consecutive months of service (no
minimum number Hours of Service can be
required).
(C) |_| six consecutive months of service (no
minimum number Hours of Service can be
required).
(D) |_| one Year of Service.
(1,000 Hours of Service is required during
the Eligibility Computation Period.)
(2) Age requirement: (check one)
(A) |_| no age requirement.
(B) |X| must have attained age 21 (not to exceed
21).
(3) The class of Employees eligible to participate in the
Plan (check one):
(A) |_| includes all Employees of the Employer.
(B) |X| includes all Employees of the Employer
except for (check the appropriate box(es)):
3
<PAGE>
(i) |X| Employees covered by a collective
bargaining agreement.
(ii) |_| Highly Compensated Employees as
defined in Code Section 414(q).
(iii)|_| Leased Employees as defined in
Section 2.01(a)(18).
(iv) |X| Nonresident aliens who do not
receive any earned income from
the Employer which constitutes
United States source income.
(v) |_| Other: ____________________________
Note: No exclusion in this section may create a discriminatory
class of Employees. An Employer's Plan must still pass the
Internal Revenue Code coverage and participation requirements
if one or more of the above groups of Employees have been
excluded from the Plan.
(b) The Entry Date(s) shall be (check one):
(1) |_| the first day of each Plan Year (do not select if
Section 1.03(a)(1)(D) is elected or if there is an
age requirement of greater than 20 1/2 in Section
1.03(a)(2)(B)).
(2) |_| the first day of each Plan Year and the date six
months later.
(3) |_| the first day of each Plan Year and the first day
of the fourth, seventh, and tenth months.
(4) |X| the first day of each month.
(c) Date of Initial Participation - An Employee will become a
Participant unless excluded by Section 1.03(a)(3) above on the
Entry Date immediately following the date the Employee
completes the service and age requirement(s) in Section
1.03(a), if any, except (check one):
(1) |_| No exceptions.
(2) |_| Employees employed on the Effective Date in
Section 1.01(g) will become Participants on that
date.
(3) |X| Employees who meet the age and service requirement(s)
of Section 1.03(a) on the Effective Date in Section
1.01(g) will become Participants on that date.
4
<PAGE>
o 1.04 Compensation:
(a) For purposes of determining contributions under the Plan,
Compensation shall be as defined in Section 2.01(a)(7), but
excluding (check the appropriate box(es)):
(1) |_| Overtime Pay.
(2) |_| Bonuses.
(3) |_| Commissions.
(4) |_| The value of a qualified or a non-qualified stock
option granted to an Employee by the Employer to the
extent such value is includable in the Employee's
taxable income.
Note: These exclusions shall not apply for purposes of the
"Top-Heavy" requirements in Section 9.03 or for allocating
Discretionary Employer Contributions if an Integrated Formula
is elected in Section 1.05(a)(2).
` (5) |X| No exclusions.
(b) Compensation for the First Year of Participation
Contributions for the Plan Year in which an Employee first
becomes a Participant shall be determined based on the
Employee's Compensation (check one):
(1) |_| For the entire Plan Year.
(2) |X| For the portion of the Plan Year in which the
Employee is eligible to participate in the Plan.
o 1.05 Contributions:
(a) |_| Employer Contributions:
(1) |_| Fixed Formula - Nonintegrated Formula (check (A)
or (B) and fill in the blank):
(A) |_| Fixed Percentage Employer Contribution:
5
<PAGE>
For each Plan Year, the Employer will
contribute for each eligible Participant an
amount equal to ________% (not to exceed
15%) of such Participant's Compensation.
(B) |_| Fixed Flat Dollar Employer Contribution:
For each Plan Year, the Employer will
contribute for each eligible Participant an
amount equal to $__________.
(2) |X| Discretionary Formula
The Employer may decide each Plan Year whether to make a
discretionary Employer contribution on behalf of eligible
Participants in accordance with Section 4.06. Such
contributions shall be allocated to eligible Participants
based upon the following (check (A) or (B)):
(A) |X| Nonintegrated Allocation Formula:
In the ratio that each eligible
Participant's Compensation bears to the
total Compensation paid to all eligible
Participants for the Plan Year.
(B) |_| Integrated Allocation Formula:
In accordance with Section 4.06.
Note: An Employer who maintains any other plan that provides
for Social Security Integration (permitted disparity) may not
elect (2)(B).
(3) Eligibility Requirement(s)
A Participant shall be entitled to Employer contributions for
a Plan Year under this Subsection (a) if the Participant
satisfies the following requirement(s) (Check the appropriate
box(es) - Options (B) and (C) may not be elected together):
(A) |_| is employed by the Employer on the last day
of the Plan Year.
(B) |_| earns at least 500 Hours of Service during
the Plan Year.
(C) |X| earns at least 1,000 Hours of Service during
the Plan Year.
(D) |_| no requirements.
Note: If option (A), (B), or (C) above is selected, then
Employer contributions can only be funded by the Employer
after Plan Year end. Employer contributions funded during the
Plan Year Shall not be subject to the eligibility requirements
of this section 1.05(a)(3).
6
<PAGE>
(b) |X| Deferral Contributions
(1) Regular Contributions
The Employer shall make a Deferral Contribution in accordance with Section
4.01 on behalf of each Participant who has an executed salary reduction
agreement in effect with the Employer for the payroll period in question,
not to exceed 15% (no more than 15%) of Compensation for that period.
(A) A Participant may increase or decrease, on a prospective basis,
his salary reduction agreement percentage (check one):
(i) |_| As of the beginning of each payroll period.
(ii) |X| As of the first day of each month.
(iii) |_| As of the next Entry Date.
(iv) |_| (Specify, but must be at least once per Plan Year.)
______________________________________________________________
(B) A Participant may revoke, on a prospective basis, a salary
reduction agreement at any time upon proper notice to the
Administrator but in such case may not file a new salary reduction
agreement until (check one):
(i) |_| The first day of the next Plan Year.
(ii) |_| Any subsequent Plan Entry Date.
(iii) |X| (Specify, but must be at least once per Plan Year.)
As of the first day of each month.
(2) |_| Catch-Up Contributions
The Employer may allow Participants upon proper nonce and approval to enter into
a special salary reduction agreement to make additional Deferral Contributions
in an amount up to 100% of their Compensation for the payroll period(s) in the
final month of the Plan Year.
(3) |_| Bonus Contributions
<PAGE>
The Employer may allow Participants upon proper notice and approval to
enter into a special salary reduction agreement to make Deferral
Contributions in an amount up to 100% of any Employer-paid cash bonuses
made for such Participants during the Plan Year. The Compensation
definition elected by the Employer in Section 1.04(a) must include bonuses
if bonus contributions are permitted.
Note: A Participant's contributions under (2) and/or (3) may not cause the
Participant to exceed the percentage limit specified by the Employer in
(1) after the Plan Year. The Employer has the right to restrict a
Participant's right to make Deferral Contributions if they will adversely
affect the Plan's ability to pass the actual deferral percentage test
and/or the actual contribution percentage test.
(4) |X| Qualified Discretionary Contributions
The Employer may contribute an amount which it designates as a Qualified
Discretionary Contribution to be included in the actual deferral
percentage or actual contribution percentage test. Qualified Discretionary
Contributions shall be allocated to Non-highly Compensated Employees
(check one):
(A) |X| in the ratio which each such Participant's Compensation
for the Plan Year bears to the total of all such
Participants' Compensation for the Plan Year.
(B) |_| as a flat dollar amount for each such Participant for the
Plan Year.
(c) |_| Matching Contributions (only if Section 1.05(b) is checked)
(1) The Employer shall make a Matching Contribution on behalf of each
Participant in an amount equal to the following percentage of a
Participant's Deferral Contributions during the Plan Year (check one):
(A) |_| 50%
(B) |_| 100%
(C) |_| _____%
(D) |_| (Tiered Match) _______% of the first ________% of the
<PAGE>
Participant's Compensation contributed to the Plan, ________%
of the next _________% of the Participant's Compensation
contributed to the Plan, __________% of the next % of the
Participant's Compensation contributed to the Plan.
Note: The percentages specified above for Matching Contributions may not
increase as the percentage of Compensation contributed increases.
(E) |_| The percentage declared for the year, if any, by a Board
of Directors' Resolution or by a Letter of Intent for a
Sole Proprietor or Partnership.
(2) |_| The Employer may at Plan Year end make an additional Matching
Contribution equal to a percentage declared by the Employer,
through a Board of Directors' Resolution or by a Letter of Intent
for a Sole Proprietor or Partnership, of the Deferral
Contributions made by each Participant during the Plan Year (only
if an option is checked under Section 1.05(c)(1)).
(3) |_| Matching Contribution Limits (check the appropriate box):
(A) |_| Deferral Contributions in excess of ________% of the
Participant's Compensation for the period in question
shall not be considered for Matching Contributions.
Note: If the Employer elects a percentage limit in (A) above and requests
the Trustee to account separately for matched and unmatched Deferral
Contributions, the Matching Contributions allocated to each Participant
must be computed, and the percentage limit applied, based upon each
payroll period.
(B) |_| Matching Contributions for each Participant for each Plan
Year shall be limited to $ ____________.
(4) Eligibility Requirement(s)
A Participant who makes Deferral Contributions during the Plan Year under
Section 1.05(b) shall be entitled to Matching Contributions for that Plan
Year if the Participant satisfies the
<PAGE>
following requirement(s) (Check the appropriate box(es). Options (B) and
(C) may not be elected together):
(A) |_| Is employed by the Employer on the last day of the Plan
Year.
(B) |_| Earns at least 500 Hours of Service during the Plan Year.
(C) |_| Earns at least 1,000 Hours of Service during the Plan
Year.
(D) |_| Is not a Highly Compensated Employee for the Plan Year.
(E) |_| Is not a Partner of the Employer, if the Employer is a
Partnership.
(F) |_| No requirements.
Note: If option (A), (B), or (C) above is selected, then Matching
Contributions can only be funded by the Employer after the Plan Year ends.
Any Matching Contribution funded before Plan Year end shall not be subject
to the eligibility requirements of this Section 1.05(c)(4)). If option
(A), (B), or (C) is adopted during a Plan Year, such option shall not
become effective until the first day of the next Plan Year.
(d) |_| Employee After-Tax Contributions (check one):
(1) |_| Future Contributions
Participants may make voluntary non-deductible Employee contributions
pursuant to Section 4.09 of the Plan. This option may only be elected if
the Employer has elected to permit Deferral Contributions under Section
1.05(b). Matching Contributions by the Employer are not allowed on any
voluntary non-deductible Employee contributions. Withdrawals are limited
to one per year unless Employee contributions were allowed under a
previous plan document which authorized more frequent withdrawals.
(2) |_| Frozen Contributions
Participants may not make voluntary non-deductible Employee contributions,
but the Employer does maintain frozen Participant voluntary non-deductible
Employee Contribution Accounts.
<PAGE>
o 1.06 Retirement Age(s):
(a) |X| The Normal Retirement Age under the Plan is (check one):
(l) |_| age 65.
(2) |_| age _______ (specify between 55 and 64).
(3) |X| later of the age 65 (cannot exceed 65) or the fifth anniversary
of the Participant's Employment Commencement Date.
(b) |_| The Early Retirement Age is the first day of the month after the
Participant attains age ____ (specify 55 or greater) and completes
____ Years of Service for Vesting.
(c) |X| A Participant is eligible for Disability Retirement if he/she (check
the appropriate box(es)):
(1) |_| satisfies the requirements for benefits under the Employer's
Long-Term Disability Plan.
(2) |_| satisfies the requirements for Social Security disability
benefits.
(3) |X| is determined to be disabled by a physician approved by the
Employer.
o 1.07 Vesting Schedule:
(a) The Participant's vested percentage in Employer contributions (Fixed or
Discretionary) elected in Section 1.05(a) and/or Matching Contributions
elected in Section 1.05(c) shall be based upon the schedule(s) selected
below, except with respect to any Plan Year during which the Plan is
Top-Heavy. The schedule elected in Section 1.12(d) shall automatically
apply for a Top-Heavy Plan Year and all Plan Years thereafter unless the
Employer has already elected a more favorable Vesting Schedule below.
<PAGE>
(1) Employer Contributions (2) Matching Contributions
(check one): (check one):
(A) |_| N/A - No Employer (A) |_| N/A - No Matching
Contributions Contributions
(B) |X| 100% Vesting immediately (B) |X| 100% Vesting immediately
(C) |_| 3-year cliff (see C below) (C) |_| 3-year cliff (see C below)
(D) |_| 5-year cliff (see D below) (D) |_| 5-year cliff (see D below)
(E) |_| 6-year graduated (see E below) (E) |_| 6-year graduated (see E below)
(F) |_| 7-year graduated (see F below) (F) |_| 7-year graduated (see F below)
(G) |_| Other vesting (complete (G) |_| Other vesting (complete
G1 below) G2 below)
VESTING SCHEDULE
================================================================================
Years of
Service for C D E F Gl G2
Vesting
- --------------------------------------------------------------------------------
0 0% 0% 0% 0% -- --
l 0% 0% 0% 0% -- --
2 0% 0% 20% 0% -- --
3 100% 0% 40% 20% -- --
4 100% 0% 60% 40% -- --
5 100% 100% 80% 60% -- --
6 100% 100% 100% 80% -- --
7 100% 100% 100% 100% 100% 100%
================================================================================
Note: A schedule elected under G1 or G2 above must be at least as
favorable as one of the schedules in C, D, E, or F above.
(b) |_| Years of Service for Vesting shall exclude (check one):
(1) |_| for new plans, service prior to the Effective Date as defined in
Section 1.01(g)(1).
(2) |_| for existing plans converting from another plan document,
service prior to the original Effective Date as defined in
Section 1.01(g)(2).
<PAGE>
o 1.08 Predecessor Employer Service:
Service for purposes of eligibility in Section 1.03(a)(1) and vesting in Section
1.07(a) of this Plan shall include service with the following employer(s):
(a) ____________________________________________________________________________
(b) ____________________________________________________________________________
(c) ____________________________________________________________________________
(d) ____________________________________________________________________________
o 1.09 Participant Loans:
Participation loans (check (a) or (b)):
(a) |X| will be allowed in accordance with Section 7.09, subject to a $1,000
minimum amount, and will be granted (check (1) or (2)):
(1) |X| for any purpose.
(2) |_| for hardship withdrawal (as defined in Section 7.10) purposes
only.
(b) |_| will not be allowed.
o 1.10 Hardship Withdrawals:
Participant withdrawals for hardship prior to termination of employment (check
one):
(a) |X| will be allowed in accordance with Section 7.10, subject to a $1,000
minimum amount.
(b) |_| will not be allowed.
<PAGE>
o 1.11 Distributions:
(a) Subject to Articles 7 and 8 and (b) below, distributions under the Plan
will be paid (check the appropriate box(es)):
(1) |X| as a lump sum.
(2) |_| under a systematic withdrawal plan (installments).
(b) |X| Check if a Participant will be entitled to receive a distribution of
all or any portion of the following Accounts without terminating
employment upon attainment of age 59 1/2 (check one):
(1) |X| Deferral Contribution Account.
(2) |_| All Accounts.
(C) |_| Check if the Plan was converted (by Plan amendment) from another
defined contribution plan, and the benefits were payable as (check the
appropriate box(es)):
(1) |_| a form of single or joint and survivor life annuity.
(2) |_| an in-service withdrawal of vested Employer contributions
maintained in a Participant's Account (check (A) and/or (B)):
(A) |_| for at least ______ (24 or more) months.
(B) |_| after the Participant has at least 60 months of
participation.
(3) |_| another distribution option that is a "protected benefit" under
Section 411(d)(6) of the Internal Revenue Code. Please attach a
separate page identifying the distribution option(s). These
additional forms of benefit may be provided for such plans under
Articles 7 or 8.
Note: Under Federal Law, distributions to Participants must generally
begin no later than April 1 following the year in which the Participant
attains age 70 1/2.
<PAGE>
o 1.12 Top-Heavy Status:
(a) The plan shall be subject to the Top-Heavy Plan requirements of Article 9
(check one):
(1) |_| for each Plan Year.
(2) |X| for each Plan Year, if any, for which the Plan is Top-Heavy as
defined in Section 9.02.
(3) |_| Not applicable. (This option is available for plans covering
only employees subject to a collective bargaining agreement and
there are no Employer or Matching Contributions elected in
Section 1.05.)
(b) In determining Top-Heavy status, if necessary, for an Employer with at
least one defined benefit plan, the following assumptions shall apply:
(1) |_| Interest rate: ____% per annum.
(2) |_| Mortality table:__________,
(3) |X| Not applicable.
(c) In the event that the Plan is treated as Top-Heavy for a Plan Year, each
Non-Key Employee shall receive an Employer contribution of at least 3 (3,
4, 5, or 7 1/2)% of Compensation for the Plan Year in accordance with
Section 9.03 (check one):
(1) |_| under this Plan in any event.
(2) |X| under this Plan only if the Participant is not entitled to such
contribution under another qualified plan of the Employer.
(3) |_| Not applicable. (This option is available for plans covering
only Employees subject to a collective bargaining agreement and
there are no Employer or Matching Contributions elected in
Section 1.05.)
Note: Such minimum Employer contribution may be less than the percentage
indicated in (c) above to the extent provided in Section 9.03(a).
<PAGE>
(d) In the event that the Plan is treated as Top-Heavy for a Plan Year, the
following Vesting Schedule shall apply instead of the schedule(s) elected
in Section 1.07(a) for such Plan Year and each Plan Year thereafter (check
one):
(1) |X| 100% vested after 0 (not in excess of 3) Years of Service for
Vesting.
(2) |_| Years of Service Vesting Percentage Must be at Least
for Vesting
0 _______ 0%
l _______ 0%
2 _______ 20%
3 _______ 40%
4 _______ 60%
5 _______ 80%
6 _______ 100%
Note: If the schedule(s) elected in Section 1.07(a) is(are) more favorable
in all cases than the schedule elected in (d) above, then the schedule(s)
in Section 1.07(a) will continue to apply even in Plan Years in which the
Plan is Top-Heavy.
o 1.13 Two or More Plans
Code Section 415 limitation on annual additions:
If the Employer maintains or ever maintained another qualified plan in
which any Participant in this Plan is (or was) a participant or could
become a participant, the Employer must complete this section. The
Employer must also complete this section if it maintains a welfare benefit
fund, as defined in Section 419(e) of the Code, or an individual medical
account, as defined in Section 415(1)(2) of the Code, under which amounts
are treated as Annual Additions with respect to any Participant in this
Plan.
<PAGE>
(a) If the Employer maintains, or maintained, any other defined contribution
plan which is not a Master or Prototype Plan, Annual Additions for any
Limitation Year to this Plan will be limited (check one):
(1) |_| in accordance with Section 5.03 of this Plan.
(2) |_| in accordance with another method set forth on an attached
separate sheet.
(3) |_| Not applicable.
(b) If the Employer maintains, or maintained, any defined benefit plan(s), the
sum of the Defined Contribution Fraction and Defined Benefit Fraction for
a Limitation Year may not exceed the limitation specified in Code Section
415(e), modified by section 416(h)(1) of the Code. This combined plan
limit will be met as follows (check one):
(1) |_| Annual Additions to this Plan are limited so that the sum of the
Defined Contribution Fraction and the Defined Benefit Fraction
does not exceed 1.0.
(2) |_| another method of limiting Annual Additions or reducing
projected annual benefits is set forth on an attached schedule.
(3) |_| Not applicable.
o 1.14 Establishment of Trust and Investment Decisions:
(a) Investment Directions
Participant Accounts will be invested (check one):
(1) |_| in accordance with investment directions provided to the Trustee
by the Employer for allocating all Participant Accounts among
the options listed in (b) below.
(2) |X| in accordance with investment directions provided to the Trustee
by each Participant for allocating his entire Account among the
options listed in (b) below.
(3) |_| in accordance with investment directions provided to the Trustee
by each Participant for all contribution sources in a
Participant's Account except the following sources
<PAGE>
shall be invested as directed by the Employer (check (A) and/or
(B)):
(A) |_| Fixed or Discretionary Employer contributions;
(B) |_| Employer Matching Contributions.
The Employer must direct the applicable sources among the same investment
options made available for Participant-directed sources listed in (b)
below.
(b) Plan Investment Options
The Employer hereby establishes a Trust under the Plan in accordance with
the provisions of Article 14, and the Trustee signifies acceptance of its
duties under Article 14 by its signature below. Participant Accounts under
the Trust will be invested among the Fidelity Funds listed below pursuant
to Participant and/or Employer directions.
Fund Name Fund Number
--------- -----------
(1) FMMT Retirement Money Market 630
(2) Contra Fund 022
(3) Intermediate Bond Fund 032
(4) Growth & Income 027
(5) Fidelity Asset Manager 314
(6) ___________________________________________ ____________
(7) ___________________________________________ ____________
(8) ___________________________________________ ____________
(9) ___________________________________________ ____________
(10) ___________________________________________ ____________
To the extent that the Employer selects as an investment option the
Managed Income Portfolio of the Fidelity Group Trust for Employee Benefit
Plans (the "Group Trust"), the Employer hereby (A) agrees to the terms of
the Group Trust and adopts said terms as a part of this Agreement and (B)
acknowledges that it has received from the Trustee a copy of the Group
Trust, the
<PAGE>
Declaration of Separate Fund for the Managed Income Portfolio of the Group
Trust, and the Circular for the Managed Income Portfolio.
Note: The method and frequency for change of investments will be
determined under the rules applicable to the selected funds or, if
applicable, the rules of the Employer adopted in accordance with Section
6.03. Information will be provided regarding expenses, if any, for changes
in investment options.
o 1.15 Reliance on Opinion Letter:
An adopting Employer may not rely on the opinion letter issued by the
National Office of the Internal Revenue Service as evidence that this Plan
is qualified under Section 401 of the Code. If the Employer wishes to
obtain reliance that his/her Plan(s) are qualified, application for a
determination letter should be made to the appropriate Key District
Director of the Internal Revenue Service. Failure to fill out the Adoption
Agreement properly may result in disqualification of the Plan.
This Adoption Agreement may be used only in conjunction with Fidelity
Prototype Plan Basic Plan Document No. 07. The Prototype Sponsor shall
inform the adopting Employer of any amendments made to the Plan or of the
discontinuance or abandonment of the prototype plan document.
<PAGE>
o 1.16 Prototype Information:
Name of Prototype Sponsor: Fidelity Management & Research Co.
Address of Prototype Sponsor: 82 Devonshire Street
Boston, MA 02109
Questions regarding this prototype
document may be directed to
the following telephone number:
1 800 343-9184.
<PAGE>
EXECUTION PAGE
(FIDELITY'S COPY)
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to be
executed
this 26th day of September, 1996.
Employer PSW Technologies, Inc.
By /s/ William Frank King
Title President
Employer ______________________________________________________________________
By ______________________________________________________________________
Title ______________________________________________________________________
Accepted by Fidelity Management Trust Company, as Trustee
By /s/ Teresa A. Hassara Date 9/30/96
Title VP ECM Client Services
<PAGE>
EXECUTION PAGE
(EMPLOYER'S COPY)
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to be
executed
this 26th day of September, 1996.
Employer PSW Technologies, Inc.
By /s/ William Frank King
Title President
Employer ______________________________________________________________________
By ______________________________________________________________________
Title ______________________________________________________________________
Accepted by Fidelity Management Trust Company, as Trustee
By /s/ Teresa A. Hassara Date 9/30/96
Title VP ECM Client Services
<PAGE>
SERVICE AGREEMENT
PROFIT SHARING/401(k) PLAN
This Agreement is between Fidelity Management Trust Company ("Fidelity") and PSW
Technologies, Inc. (the "Employer"), who maintains the Plan designated below.
Plan Name: PSW Profit Sharing Plan
Implementation Date: 10/1/96
Number of Eligible Employees: _____________________________________________
Select One: |_| Start Up Plan
|X| Conversion Plan or Start Up plan with assets
transferred from another plan.
o Article I. Implementation Service Fees:
Set Up Fee: $ 2,000
Includes:
o Camera-ready copy of all relevant Administrative Forms
o Employee Communication Materials
o Fidelity Retirement Services Workbench Software and Reference Manuals
o Implementation Conference Call - Issues covered include electronic data
transmission, contribution processing cycles, ordering communication
materials, plan administrative needs, plan profile, project timetables,
and resource coordination
o One Administrative Manual
o One original Summary Plan Description
o Prototype plan document (updated as required to ensure compliance with
the Internal Revenue Code)
<PAGE>
Conversion Fee: $___________ *
(For Conversion Plans or Start-up Plans with Assets Transferred From Another
Plan)
Includes:
o Establishment of historical data on the Fidelity Participant
Recordkeeping System (FPRS)
o Implementation Meeting, if necessary - Issues covered include data
transmission, contribution processing cycles, plan administrative needs,
plan profile, project timetables, and resource coordination
o Preparation of Participant and plan records for FPRS
o Reconciliation of all conversion data
o Transfer of assets from current Trustee
* To be completed and initialed by a Fidelity Representative.
o Article II. Administrative Service Fees:
Annual Fees (Sum of (1) through (4)):
(1) Base Fee $ 2,000
(2) Per Participant Fee:
Contributions will be remitted to Fidelity via wire transfer on a (select
one):
|X| Monthly (or less frequent) Cycle $28 per Participant
|_| Biweekly or Semimonthly Cycle $35 per Participant
|_| Weekly Cycle $40 per Participant
The minimum fee under Sections (1) and (2) is $4,500 except if the
Employer elected a biweekly, semimonthly or weekly contribution cycle. If
a biweekly or semimonthly cycle is selected then the minimum fee is $4,500
plus an additional $7 per participant. If a weekly cycle is selected then
the minimum fee is $4,500 plus an additional $12 per participant.
Includes:
o Contribution processing on the designated cycle
o Daily valuation
<PAGE>
o Investment exchanges of existing Participant account balances
o Investment direction of future contributions
o Monthly Trial Balance Report
o Monthly withdrawals
o Quarterly Administrative Report*
o Quarterly Statements mailed directly to Participants' homes*
o Twenty-four hour Participant telephone access to account balance and
fund price information
* The Quarterly Administrative Report and Quarterly Statements will be generated
on an off calendar quarter cycle.
(3) (Optional)
--------------------------------------------------------------------------
Participants Amount Per Fund
--------------------------------------------------------------------------
Additional Fee for each Fidelity Fund 1 - 1,000 $ 500
offered for the Plan in excess of seven.
1,001 - 2,000 $ 1,000
more than 2,000 $ 1,500
--------------------------------------------------------------------------
Indicate the number of funds offered under the Plan in excess of seven:
______________.
(4) (Optional)
Additional Per-Participant Fee For Frozen Employee
Voluntary After-Tax Contribution (frozen or active) Account: $ 10
(Only for those Participants with active or inactive after-tax balances.)
<PAGE>
o Article III. Trustee Service Fees:
Annual Fee: $ 2,800
Includes:
o Annual Plan-Year-End Summary Reporting Package on a cash basis
o Custody of plan assets held in trust at Fidelity
o Distribution checks and annual IRS Form 1099-R Tax reporting
o Plan assets invested at the direction of Participants or the Employer if
Employer direction is elected
o Service for Exiting Employees (SEE) Kit for IRA Rollovers
o Article IV. Additional Fees:
(1) Employee Communication
o Initial Employee enrollment No charge for one day-one city meetings**
meeting presentations
o Meetings for additional $500 per day for same city**
consecutive days of initial
Employee enrollment meetings $750 per day for additional sites**
** Limit of four meetings per day.
(2) Participant Loans
o Participant loan application fee processed via batched
hardcopy $75 setup
o Participant loan maintenance $25 per year
(Loan fees must be paid by the Employer unless paid by the Participant.)
(3) Recordkeeping Guaranteed Insurance Contract (GIC)
o Annual Fee $ ________
(Based upon Fidelity's review of the GIC.
To be completed and initialed by a Fidelity Representative.)
<PAGE>
Three percent of the GIC assets will be maintained as a Reserve Fund by
Fidelity in a money market portfolio for Participant redemptions. The
annual GIC recordkeeping fee will not apply to this Reserve Fund. Instead,
an investment management fee of up to 18 basis points will be charged and
deducted from the Reserve Fund's interest income.
(4) Miscellaneous Distributions
o Refund of Participant 401(k) excess deferrals, $25 per Participant
contributions, or annual additions. This fee
will be charged to the Employer (Only for those Participants
who receive refunds.)
(5) Non-Discrimination Testing (select one): |X| Yes |_| No
By indicating "yes" in the above box, the Employer authorizes Fidelity to
perform the Core and/or Additional Tests listed below. Please choose
either Package Testing Services (option "a") or one or more of the tests
offered under the Individual Testing Services (option "b"). (Note: The
services included under option "a" include all of the individual tests
listed under option "b.") The Employer understands that the
non-discrimination tests' results are based upon the information provided
to Fidelity by the Employer. Fidelity cannot be responsible for invalid
test results that are based upon incorrect or incomplete information
provided to Fidelity. Fidelity has no obligation to solicit data, nor does
it have an obligation to ascertain the accuracy or completeness of the
data received. The Employer must complete a Fidelity non-discrimination
testing questionnaire before the initial test can be performed.
(a) |X| Package Testing
(Effective for plan years beginning on or after January 1, 1994)
If the Package Testing Service is elected, Fidelity will perform
semi-annual Actual Deferral Percentage, Actual Contribution Percentage,
Annual Addition and Deferral Contribution Limitation tests (as outlined in
the Core Testing Services section below) and, as necessary, the annual
Top-Heavy, Minimum Coverage, and Minimum Participation tests (as outlined
in the Additional
<PAGE>
Testing Services section below) for the Employer's Plan. The fees for
these services are as follows:
Initial test date for semi-annual test: ________________________ (Please
specify.)
================================================================================
Plan Size Package Tests
(Based on Number of Eligible Employees)
- --------------------------------------------------------------------------------
1-500 $2,250
501 - 1,000 $3,300
1,001 - 2,000 $4,350
================================================================================
(b) |_| Individual Testing Services
(1) Semi-Annual or Annual Core Testing Services
If elected, Fidelity will perform the non-discrimination test required by
Internal Revenue Code (IRC) Section 401(k)(3) (Actual Deferral Percentage
Test (ADP)) and, if applicable, by IRC Section 40l(m)(2) (Actual
Contribution Percentage Test (ACP)). The annual fee for performing the
tests is listed below. Fidelity must receive complete and accurate data in
the required format thirty days prior to the anticipated distribution date
of Participant refunds due to the Plan's failure of the non-discrimination
tests under IRC Section 401(k)(3) and/or 401(m)(2). Fidelity must receive
proper written authorization from the Employer before making any such
distributions.
There are two Core Testing Service Options, Semi-Annual or Annual Testing.
You may elect one of the following options.
|_| Semi-Annual ADP, ACP, IRC Section 415(c)(1) and IRC Section 402(g)
Limit Testing
|_| Annual ADP, ACP, IRC Section 415(c)(1) and IRC Section 402(g) Limit
Testing
<PAGE>
Initial test date for semi-annual test: ___________________________
(Please specify.)
================================================================================
Plan Size Annual Semi-Annual
(Based on Number of (One Test) (Two Test)
Eligible Employees) Cycle* Cycles*
- --------------------------------------------------------------------------------
1 - 500 $1,300 $1,500
501 - 1,000 $1,800 $2,200
1,001 - 2,000 $2,000 $2,900
================================================================================
*Each Core Testing Services Cycle includes an ADP Test, an ACP Test, IRC
Section 402(g) Deferral Limitation Monitoring (for calendar year plans
only), and IRC Section 415(c)(1) Limitation Monitoring (for Defined
Contribution Plans only). A quarterly testing cycle is available, and the
fee will be quoted upon request.
(2) Additional Testing Services
|_| IRC Section 416(c)(2) Top-Heavy Test (Annual Top-Heavy Test for
Defined Contribution Plan(s)). Fidelity will perform the top-heavy
test for an Employer that also has a defined benefit plan that is
aggregated with the defined contribution plan. However, the Employer
must timely provide Fidelity with the relevant defined benefit plan
information.
|_| IRC Section 410(b)(1) Minimum Coverage Test (Annual Ratio Percentage
Test only) and IRC Section 401(a)(26) Minimum Participation Test.
<PAGE>
The fees for the Additional Testing Services, if they are elected
individually, are as follows:
================================================================================
Plan Size IRC Minimum Coverage
(Based on Number of Section 416(c)(2) (Ratio Percentage Test Only)
Eligible Employees) Top-Heavy Test And Minimum
Participation Test**
- --------------------------------------------------------------------------------
1 - 500 $ 750 $ 750
501-1,000 $1,100 $1,100
1,001 -2,000 $1,450 $1,450
================================================================================
** This fee includes the Minimum Coverage Test and the Minimum
Participation Test.
Any annual IRC tests not elected in options "a" or "b" are the
responsibility of the Employer. The data for the Core and/or Additional
Testing Services must be transmitted to Fidelity on magnetic tape or via
Fidelity Retirement Service Workbench Software.
The Employer will be billed a pro-rata portion of the entire annual
Non-Discrimination Testing Service fee at the end of each quarter based
upon the number of tests elected in the Employer's Authorization for
Non-discrimination Tests. If testing is required for more than one plan of
the Employer, a fee will be charged for each plan based upon the number of
Employees eligible to participate in that plan. If extraordinary
consulting regarding the results of the non-discrimination tests is
provided by Fidelity personnel to the Employer, then such consulting will
be provided at the rate of $100 per hour. In addition, any correction or
manipulation of Plan data by Fidelity personnel at the request of the
Employer will be charged at the rate of $100 per hour.
<PAGE>
o Article V. Billing Information:
Fidelity's quarterly invoice for services rendered will be sent to the
following address:
Contact Name: Keith Thatcher
Telephone Number: (512) 343-6666
Title: Controller
Address: 9050 Capital of Texas Highway
City/State/Zip Code: Austin, Texas 78759
o Article VI. Contacts:
Prior Recordkeeper: _____________________________________________
Contact Name: _____________________________________________
Telephone Number: _____________________________________________
Title: _____________________________________________
Address: _____________________________________________
City/State/Zip Code: _____________________________________________
Prior Trustee: _____________________________________________
Contact Name: _____________________________________________
Telephone Number: _____________________________________________
Title: _____________________________________________
Address: _____________________________________________
City/State/Zip Code: _____________________________________________
<PAGE>
Prior Custodian: _____________________________________________
(If not Trustee)
Contact Name: _____________________________________________
Telephone Number: _____________________________________________
Title: _____________________________________________
Address: _____________________________________________
City/State/Zip Code: _____________________________________________
External Payroll Vendor: Ceridian
Contact Name: Stacy Alexander
Telephone Number: (713) 965-5790
Title: Implementation Manager
Address: Two Riverway, Suite 300
City/State/Zip Code: Houston, TX 77056
Internal Payroll Contact: _____________________________________________
Contact Name: Keith Thatcher
Telephone Number: (512) 343-6666
Title: Controller
Address: 9050 Capital of Texas Highway
City/State/Zip Code: Austin, Texas 78759
Payroll Frequency/Dates: Semi-monthly
<PAGE>
o Article VII. Terms of Agreement:
The Implementation, Administrative, Trustee Services, and Additional Fees
specified on pages one through eight are contingent upon both parties
fulfilling their respective responsibilities in the following sections:
1. Data Submission:
The Employer or Plan Administrator will provide Fidelity with accurate and
complete data via electronic data transmission, magnetic tape, or the
Fidelity Retirement Services Workbench Software on a timely basis. As of
the Implementation Date, the Employer or Plan Administrator must send
Fidelity the following required data for each new or existing Participant:
name, Social Security Number, address, employment dates, employment
status, and initial investment elections. After the Implementation Date,
the Employer or Plan Administrator may only send Fidelity the
aforementioned information for a new Participant or changes to the name,
address, employment dates, or employment status for an existing
Participant. Investment election changes may only be made as provided in
this Article VII, Section Four. Fidelity will not be responsible for any
losses and/or expenses that arise due to the submission of incorrect or
incomplete data, or data transmitted to Fidelity in an improper format.
2. Services:
Fidelity will have the responsibility to perform only the services set
forth in Articles I, II, III, and IV of this Agreement, effective as of
the Implementation Date. All other regulatory and administrative matters
relating to the Plan shall be the responsibility of the Employer and the
Plan Administrator. If so elected, the Employer may engage Fidelity to
perform the required annual Internal Revenue Code tests offered by its
Non-discrimination Testing Services Group.
3. Initial Investment Election:
If Participant direction is elected by the Employer, each Participant in
the Plan shall submit his/her initial investment elections to the Employer
or Plan Administrator. These elections will then be submitted to Fidelity
by the Employer or Plan Administrator in accordance with the terms set
forth in Section One. All subsequent investment elections for existing
Participants must be made in accordance with Section Four using the
Fidelity telephone exchange system. Existing Participants must use the
Fidelity telephone exchange in Section Four to make investment changes.
4. Telephone Directions by Participants:
If Participant direction is chosen by the Employer, each Participant in
the Plan shall be permitted to direct the investment of his/her individual
account balance and investment of future
<PAGE>
contributions among available investment options through the use of
Fidelity's telephone exchange system. The Employer hereby directs Fidelity
to act upon such telephonic instructions without questioning the
authenticity of such direction other than as provided in the third
paragraph of this section, Fidelity will not be responsible for any losses
and/or expenses that arise for clients who provide changes for existing
Participant investment elections via the Fidelity Retirement Services
Workbench Application, electronic data transmission or magnetic tape.
This service allows Participants to telephone Fidelity between the hours
of 8:30 AM and 8:00 PM Eastern Time on any business day. The number of
exchanges from a Participant's existing account balance will be governed
by the mutual fund prospectus unless otherwise limited by the Employer in
accordance with Section 6.03 of The CORPORATEplan for Retirement(SM)
Prototype Basic Plan Document. Fidelity reserves the right to modify or
withdraw the exchange privilege in the future. All telephone conversations
will be recorded for the protection of Fidelity and the Participants.
Fidelity will not be responsible for determining the authenticity of
Participant and his/her telephone instructions. A confirmation of the
exchange of existing account balances and/or a change in investment of
future contributions will be mailed to the Participant within seven
business days of the call. If the telephone call is received prior to 4:00
PM Eastern Time, the requested exchange will be effective with that day's
mutual fund closing prices. If the telephone call is received after 4:00
PM Eastern Time, the exchange will be effective with the next business
day's closing prices.
A Participant will be required to provide the Fidelity telephone exchange
system representative with his/her Employer's plan number, Social Security
Number and personal identification number. For security purposes, upon
proper notice to Fidelity, the Employer shall have the right to require a
Participant to respond to additional questions (i.e., date of birth, date
of hire, etc.) before being able to access his/her accounts. Only
authorized Plan contact(s) and the Participant shall have access to a
Participant's account. A Participant's ex-spouse who has a segregated
account in the Plan under a Qualified Domestic Relations Order (QDRO)
shall have access only to this account. A Participant's spouse or any
other third party may not have access to the Participant's account or make
exchanges of existing account balances and/or changes in the investment of
future contributions. Upon proper documentation and notice to the
Employer, an individual who becomes an active Beneficiary in accordance
with Section 2.01 (a)(5) of the Basic Plan Document due to the death of
the Participant shall have the right to access the deceased Participant's
account. Fidelity reserves the right to establish a separate account for
the Beneficiary based upon his/her entitlement to the deceased
Participant's account.
A Participant may not change his/her address through the telephone
exchange system. A11 such changes must be submitted to the Employer in
writing. The Employer shall then send changes to Fidelity in the required
format.
<PAGE>
5. Employer Investment Direction:
If Employer investment direction is chosen by the Employer, then all
Participant accounts must be invested in Fidelity Fund(s) elected in
Section 1.14(b) of the Adoption Agreement. A Participant will not be
allowed to make any telephone exchanges of his/her account balance.
Fidelity will provide the Employer with procedures for exchanging
Participant account balances between/among Fidelity Fund(s) offered under
the Plan. Exchanges requested by an authorized Plan representative will be
executed within the time period specified in the procedures. Fidelity
reserves the right to modify the procedures upon notice to the Employer.
6. Contributions:
The Employer will be responsible for computing Employer contributions for
eligible Participants unless Fidelity provides such a service.
Contribution information must be received by Fidelity in an acceptable
media: diskette, electronic data transmission, Fidelity Retirement
Services Workbench Software or magnetic tape in the required Fidelity
format. The Employer must consolidate the contribution information for
multiple payrolls and/or multiple payroll sites onto one diskette,
electronic data transmission, Fidelity Retirement Services Workbench
Software or magnetic tape before sending it to Fidelity. The Employer will
remit contributions by wire transfer to Fidelity after receiving
notification and approval from Fidelity to wire the funds. Employer
contributions may be sent on a quarterly or a less frequent cycle. The
trade date of the transaction will be the day the funds are received by
Fidelity. Unsolicited or unidentified wire transfers of contributions will
not be invested until they can be properly identified and reconciled by
Fidelity.
7. Withdrawals:
Withdrawal requests, including loans, will be processed monthly based upon
a mutually acceptable date determined immediately after the implementation
period by Fidelity and the Plan Administrator except no withdrawal will be
processed between December 15 and January 1. Fidelity will process all
withdrawals and mail the checks to the Participants within ten business
days of the monthly processing date. Withdrawals will only be processed if
there is complete, accurate and properly authorized data received by
Fidelity in the required media. All withdrawal requests received after the
monthly cutoff date will be processed the following month. The monthly
withdrawal date may be changed once each Plan Year based upon the written
consent of Fidelity and the Employer. Fidelity reserves the right to
process withdrawals on a more frequent basis.
8. IRS Determination Letter Filing:
The Employer must use the Fidelity CORPORATEplan for Retirement(SM)
Prototype Basic Plan Document and corresponding Adoption Agreement. The
Employer can not add, delete, or modify
<PAGE>
them in any way. The Employer will be responsible for completing and
executing the Adoption Agreement, Standardized or Non-Standardized.
Fidelity as the Prototype Plan Sponsor is responsible for updating and
amending the Prototype Plan Documents. If the Non-standardized Adoption
Agreement is used, or if the Standardized Adoption Agreement is used and
the Employer maintains, or has ever maintained, another plan, the Employer
may not rely on the opinion letter issued by the National Office of the
Internal Revenue Service as evidence that this Plan is qualified under
section 401 of the Internal Revenue Code. The Employer is responsible for
filing a request with the appropriate Internal Revenue Service office to
obtain an individual determination letter for its Plan.
9. Initial Employee Communication Meetings:
The initial day of Employee enrollment meetings will be limited to four
meetings. Additional fees will be incurred if meetings are held on
additional consecutive days or at multiple sites. Initial meetings
represent those meetings conducted by Fidelity before or immediately after
the Implementation Date of the Plan. Additional fees will be charged for
all re-enrollment meetings or meetings conducted sixty days after the
Implementation Date.
10. Transition Period:
An existing Employer Plan converting to Fidelity's CORPORATEplan for
Retirement(SM) will be subject to a transition period to facilitate the
movement of Participant records and Plan assets from the prior
recordkeeper and/or trustee to Fidelity. The Employer will be responsible
for ensuring the prior recordkeeper provides Fidelity with all of the
required Participant account balance history and related information. The
Plan assets must be converted to cash and wired to Fidelity on the
Implementation Date unless the assets are already invested in a Fidelity
mutual fund offered under The CORPORATEplan for Retirement(SM) (Fidelity
reserves the right, upon sufficient written notice, to require the
Employer to liquidate all holdings in Fidelity mutual funds as of the
Implementation Date). The assets will be invested in a money market fund
until the transition period is completed. The transition period will be
from the Effective Date in Section 1.01(g) of the Adoption Agreement
through the date the conversion process is completed and approved by the
Employer. Participants will not be able to make withdrawals, exchanges, or
redirect future contributions during the transition period. Fidelity will
provide the Employer with information about the conversion process and the
transition period.
The duration of the transition period is dependent upon the cooperation of
the prior recordkeeper, prior trustee, the Employer and the Plan
Administrator. Fidelity can not guarantee that the transition period will
end as of a specified date, or the length of time required to complete the
implementation period.
<PAGE>
11. Fees:
As consideration for its services under this Agreement, Fidelity shall be
entitled to the fees computed in accordance with Articles I, II, III and
IV of this Agreement and any additional fees described in this Section. A
reasonable additional fee will be charged if Fidelity has to reprocess any
contribution data transmission due to excessive errors of the Employer or
payroll vendor. Additional services and special reports or statements may
be provided if Fidelity and Employer enter into a separate written
agreement identifying such services and the associated fees. Fidelity
shall be entitled to reasonable compensation for its costs and expenses
incurred in the event of termination of this Agreement. Fidelity reserves
the right to charge a termination fee equal to a full year of fees
identified under Articles I, II, III and IV in the event the Employer
terminates its relationship with Fidelity within one year after the
Implementation Date.
Fidelity will charge an additional Conversion Fee under Article I if
either the Employer acquires another Company and merges the acquired
Company's plan with its Plan or the Employer receives additional assets to
be added to its existing Plan. The Conversion Fee will be determined after
the relevant information has been received by Fidelity. This fee will be
communicated to the Employer prior to the conversion of additional assets
into the Employer's Plan.
The implementation service fee in Article I will be billed during the
implementation process. The annual base fees in Article II will become
effective as of the earlier of the date the telephone exchange service
becomes available to Participants and/or the Employer, or the date
Fidelity processes withdrawals. These fees will be prorated through the
end of the initial quarter. All Fidelity fees in Articles II, III and IV
will be billed in arrears to the Employer on a quarterly basis. An
Employee is treated as a Participant for purposes of the annual
per-participant fee if he/she has an account balance on any day of the
quarter or any previous quarter in the twelve-month annual billing cycle.
Therefore a Participant receiving a distribution will be considered a
Participant in each quarter in which he/she had an account and each
quarter thereafter in the billing cycle. The trustee fees in Article III
will become effective as of the later of the Plan's Effective Date in
Section 1.01(g) of the Adoption Agreement or the Implementation Date.
If payment of the aforementioned fees is not received by Fidelity within
sixty days of receipt of Fidelity's quarterly invoice, or the fees are to
be paid by the Participants, then the fees shall be paid from the Trust
fund. Unless allocable to the accounts of particular Participants, such
fees shall be charged against the respective accounts of all Participants
in such reasonable manner as the Trustee may determine.
<PAGE>
12. Duration and Amendment:
This Agreement shall remain in effect for the remainder of the current
calendar year and shall thereafter be automatically extended for
successive one-year terms. Either party, however, by sixty days prior
written notice to the other, may terminate this Agreement unless the
receiving party agrees to a shorter notice period. This Agreement may be
amended or modified at any time and from time to time by an instrument
executed by the parties. Notwithstanding the foregoing, Fidelity reserves
the right to amend unilaterally the fee schedule upon sixty days prior
written notice to the Employer.
13. Participant Loans:
The Employer or Plan Administrator shall act as the Trustee's agent for
the purpose of holding Participant loans and the related documentation and
as such shall (1) hold physical custody of and keep safe the promissory
notes and other loan documents, (2) collect and remit all principal and
interest payments to the Trustee, (3) advise the Trustee of the date,
amount and payee of the checks to be drawn representing loans, and (4)
cancel and surrender the promissory note and other loan documentation to
the Participant when a loan has been paid in full.
14. Beneficiary Designation Forms:
The Employer or Plan Administrator will be responsible for physical
custody of all Participant beneficiary designation forms.
15. Recordkeeping Guaranteed Investment Contracts:
Fidelity may provide recordkeeping services for an additional fee for a
guaranteed investment contract ("GIC") held in an existing plan that
converts to The CORPORATEplan for Retirement(SM). The Employer's Plan must
meet all of the criteria established by Fidelity before the GIC can be
recordkept. Fidelity will review the GIC to determine any required
changes. Fidelity will then notify the Employer of the required changes.
The Employer will be responsible for negotiating directly with the
Insurance Company for any changes that will be required to the GIC for
Fidelity to recordkeep it. Fidelity will not conduct any Employee
communication meetings until after all of the required changes have been
agreed to by the Employer and the Insurance Company.
Upon maturity of the GIC all proceeds must be invested into Fidelity
Funds. Fidelity will not trustee the GIC assets and the Employer will be
responsible for the establishment of a separate trust or fund under The
CORPORATEplan for Retirement(SM) Prototype Basic Plan Document. The
Employer will be required to sign a Consent to a Separate Trust/Fund and
GIC Operating Agreement with Fidelity prior to the Effective Date listed
in Section 1.01(g) of the Adoption Agreement. The former Agreement will
identify the procedures and conditions for Fidelity to recordkeep the GIC.
<PAGE>
16. Use of Service Agreement:
The use of this Service Agreement is contingent upon the use of The
CORPORATEplan for Retirement(SM) Prototype Basic Plan Document and
corresponding Adoption Agreement. Fidelity shall have no responsibility
whatsoever if the Employer attempts to use a plan document other than The
CORPORATEplan for Retirement(SM) Document.
17. Investments:
Fidelity shall have no discretion or authority with respect to the
investment of the Plan assets but shall act solely as a directed trustee
of the contributed funds. All Plan assets must be invested in allowable
Fidelity Funds under The CORPORATEplan for Retirement(SM) as selected by
the Employer unless a separate trust or fund is established under the
Prototype Basic Plan Document with the written consent of Fidelity. The
Employer may add, delete or replace any Fidelity Fund with another by
providing Fidelity with proper written direction at least thirty days
prior to the effective date of the change. Fidelity may charge the
Employer a reasonable additional fee to facilitate the replacement of
mutual fund(s).
18. Service Providers:
Fidelity Management Trust Company is the Trustee of the Employer's Plan
under The CORPORATEplan for Retirement(SM). Fidelity may use its
affiliates in providing the services described in this Agreement.
<PAGE>
o Specimen Signatures:
At least one person is required to be authorized to provide instructions
to Fidelity Management Trust Company regarding The CORPORATEplan for
Retirement(SM) Account. Only the following person(s) designed below is/are
authorized to advise Fidelity on all plan administrative matters:
Name & Title Specimen Signature
W. Frank King /s/ W. Frank King
President & CEO ----------------------------------
Patrick Motola /s/ Patrick Motola
CFO & Secretary ----------------------------------
Keith Thatcher /s/ Keith Thatcher
Controller ----------------------------------
___________________________ __________________________________
___________________________
Procedure for Changing Specimen Signatures
The specimen signatures can be changed by the Employer at any time. To add
a new authorized signer, the Employer must send a letter of instruction
signed by an authorized individual to the Account Manager, with an
original specimen signature of the new authorized signer. To delete or
replace a signer, the Employer should identify the name(s) of the
individual(s) who is/are no longer authorized signer(s). The Employer must
provide any change at least ten business days prior to the date the change
will become effective.
<PAGE>
EXECUTION PAGE
(FIDELITY'S COPY)
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts except to the extent such laws are superseded by Section 514 of
ERISA. This Agreement shall be effective for the Plan as of the later of the
Effective Date in Section 1.01(g) of the Adoption Agreement or the
Implementation Date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers.
Employer: Employer:
Print Name: William Frank King Print Name:
Signature: /s/ William Frank King Signature:
Title: President Title: ________________________
Date: 9/26/96 Date: ________________________
Note: Only one authorized signature is required to execute this Agreement unless
the Employer's corporate policy mandates two authorized signatures.
Fidelity Management Trust Company
Print Name: Teresa A. Hassara
Signature: /s/ Teresa A. Hassara
Title: VP ECM Client Service
Date: 9/30/96
<PAGE>
EXECUTION PAGE
(EMPLOYER'S COPY)
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts except to the extent such laws are superseded by Section 514 of
ERISA. This Agreement shall be effective for the Plan as of the later of the
Effective Date in Section 1.01(g) of the Adoption Agreement or the
Implementation Date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers.
Employer: Employer:
Print Name: William Frank King Print Name: ________________________
Signature: /s/ William Frank King Signature: ________________________
Title: President Title: ________________________
Date: 9/26/96 Date: ________________________
Note: Only one authorized signature is required to execute this Agreement unless
the Employer's corporate policy mandates two authorized signatures.
Fidelity Management Trust Company
Print Name: Teresa A. Hassara
Signature: /s/ Teresa A. Hassara
Title: VP ECM Client Service
Date: 9/30/96
Note: This page should be signed by both the Employer and Fidelity. The Employer
should forward this page to Fidelity after signing it. Fidelity will return it
to the Employer after it is executed by an authorized Fidelity representative.
<PAGE>
ADDENDUM TO ARTICLES I, II, III AND IV
OF THE CORPORATEplan for Retirement(SM)
SERVICE AGREEMENT
Please indicate by checking the appropriate box whether each applicable fee
should be billed to the employer or charged to the employee.
Type of fee Paid by Charged to
Employer Participant
(on a flat $ basis)
1. Setup |X| |_|
2. Conversion |X| |_|
3. Admin. Service-Base |X| |_|
4. Admin. Service-Per Participant |X| |_|
5. Additional Investment Fund |_| |_|
6. Return of Excess Contribution |X| |_|*
7. Employee Communications |X| |_|
8. Non-Discrimination Testing |X| |_|
9. Recordkeeping GIC (Guaranteed Insurance
Contract) |_| |_|*
10. Trustee Fee |_| |_|
11. Participant Loan Setup |_| |X|
12. Participant Loan Annual |_| |X|
* Charged only to affected participants.
NOTE: The employer shall consult with their attorney to determine if the above
expenses are reasonable expenses of the Plan under Sections 403(c)(1) and 404
(a)(1)(A) of the Employee Retirement Income Security Act of 1974. This form
will serve as notification to Fidelity of the party responsible for paying the
Fidelity fees of the Employer's Plan.
<PAGE>
================================================================================
The CORPORATEplan
FOR RETIREMENT(SM)
ERISA Section 404(c)
Election Form
o Employer: PSW Technologies, Inc. ("Employer")
Plan Name: PSW Profit Sharing Plan ("Plan")
The Employer should use this form to notify Fidelity of its intention to
designate the above-referenced plan as an ERISA Section 404(c) plan. The
Employer should refer to the ERISA Section 404(c) Information Guide before
making an election below. Check one:
|X| The Employer designates the Plan as an ERISA Section 404(c) plan. Fidelity
will include the Notice of Limited Liability in the Plan Highlights
brochure and Summary Plan Description.
|_| The Employer does not designate the Plan as a 404(c) plan.
o "Employer"
By: /s/ William Frank King Date: 9/26/96
Title: President
Please return to Fidelity with executed Adoption Agreement.
[LOGO]
================================================================================
[Stamp]
SEP 27 1996
<PAGE>
================================================================================
The CORPORATEplan
FOR RETIREMENT(SM)
Request for Waiver of Sales Charge
An Employee Benefits Plan will qualify for net asset value purchase of shares
of certain Fidelity funds which impose a sales charge if such a Plan covers at
least 200 eligible employees or has $3,000,000 in plan assets invested in
Fidelity Investments mutual funds (as provided in the fund prospectus). To
obtain such an exemption from the sales charge for your Plan, an authorized
person at your company must complete this form and forward it to your Fidelity
Institutional Retirement Services Company Representative. The waiver of sales
charges is not retroactive. The sales load waiver becomes effective when the
form is signed by an authorized Fidelity Representative. Approval can take up
to 30 days.
o Name of Plan PSW Profit Sharing Plan
Address 9050 Capital of Texas Highway, Austin, TX 78759
Name of Fund(s) To Be Determined
Account Number(s) To Be Determined
(if available)
On behalf of the above-referenced Plan, I hereby attest that the Plan covers
200 or more eligible employees or has $3,000,000 in plan assets invested in
Fidelity Investments mutual funds, making the Plan eligible for investments in
the above-referenced Fidelity fund account(s) at net asset value.
I understand that Fidelity Institutional Retirement Services Company reserves
the right to make a determination as to the accuracy and status of this
Request for Waiver of Sales Charge as it deems necessary.
o Signed /s/ William Frank King [STAMP]SEP 27 1996
Please Print Name William Frank King
Title President Date 9/26/96
Please return this completed form to Fidelity Institutional Retirement
Services Company Representative.
To be completed by Fidelity Investments
Authorized Representative /s/ Teresa A. Hassara
Effective Date 10/1/96
Comments
[LOGO]
================================================================================
<PAGE>
Exhibit 10.29
DESCRIPTION OF EXECUTIVE BONUS PLAN
PSW Technologies, Inc.'s annual Executive Bonus Plan generally awards
cash and/or Common Stock options to executive officers of the Company
according to a formula based upon specified pre-tax profit levels.
<PAGE>
EXHIBIT 11.1
PSW TECHNOLOGIES, INC.
COMPUTATION OF PRO FORMA NET INCOME PER SHARE
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES SHARES
---------- ----------
<S> <C> <C>
Common stock issued at inception.................................... 5,538,463 5,538,463
CHEAP SHARES
Shares commited to be issued in January 1997 at $6.25............... 8,000
Treasury shares..................................................... (3,846)
----------
4,154 4,154
CHEAP STOCK OPTIONS AND WARRANTS
Stock Options and Warrants granted at $.04.......................... 921,389
Treasury shares..................................................... (2,835)
----------
918,554 918,554
Stock Options granted at $.43....................................... 136,271
Treasury shares..................................................... (4,507)
----------
131,764 131,764
Stock Options granted at $2.58...................................... 70,552
Treasury shares..................................................... (14,002)
----------
56,550 56,550
Stock Options granted at $3.90...................................... 381,921
Treasury shares..................................................... (114,576)
----------
267,344 276,344
Stock Options granted at $4.55...................................... 9,122
Treasury shares..................................................... (3,193)
----------
5,929 5,929
Stock Options granted at $6.25...................................... 59,915
Treasury shares..................................................... (28,805)
----------
31,110 31,110
----------
Weighted Average Shares--1992 through 1995..........................
</TABLE>
<TABLE>
<S> <C> <C>
6,953,869
Additional shares required to be sold to pay dividend to
stockholders:
Assumed IPO price per share....................................... $ 13.00
Underwriters commission (7%)...................................... $ (0.91)
----------
Net proceeds per share............................................ $ 12.09
----------
Additional shares required to raise proceeds of $500,000 to pay
distribution to stockholders.................................... 41,356
----------
Weighted Average Shares--1996....................................... 6,995,225
----------
----------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA WEIGHTED PRO FORMA NET
NET INCOME AVERAGE INCOME (LOSS)
YEAR (LOSS) NUMBER OF SHARES PER SHARE
- ------------------------------------------------------------- ---------------- ----------------- ---------------
<S> <C> <C> <C>
1992......................................................... $ (173,000) 6,953,869 $ (0.02)
1993......................................................... $ (957,000) 6,953,869 $ (0.14)
1994......................................................... $ 138,000 6,953,869 $ 0.02
1995......................................................... $ 1,326,000 6,953,869 $ 0.19
1996......................................................... $ 720,000 6,995,225 $ 0.10
</TABLE>
<PAGE>
PSW TECHNOLOGIES, INC.
COMPUTATION OF SUPPLEMENTAL PRO FORMA NET INCOME (LOSS) PER SHARE
<TABLE>
<S> <C> <C>
Weighted Average Shares--1996....................... 6,995,225
Note payable to bank as of December 31, 1996........ $5,125,000
Cash as of December 31, 1996 assumed to be used to
repay note payable to bank........................ (3,182,000)
----------
Note payable to bank repaid from proceeds
offering.......................................... $1,943,000
----------
Additional shares required to raise proceeds to pay
note payable (at a net price of $12.09 per
share)............................................ 160,711
---------
Weighted Average Shares for Supplemental net income
per share......................................... 7,155,936
---------
---------
Pro forma net income................................ $ 720,000
Interest paid on note payable to bank............... 40,920
---------
$ 760,920
---------
---------
Supplemental pro forma net income per share......... $ 0.11
---------
---------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated February 3, 1997
(except for paragraph 2 of Note 3, as to which the date is March , 1997), in
the Registration Statement (Form S-1) and related Prospectus of PSW
Technologies, Inc. for the registration of 2,850,000 shares of its common stock.
ERNST & YOUNG LLP
New York, New York
March , 1997
------------------------
The foregoing consent is in the form that will be signed upon the completion
of the restatement of capital accounts described in Note 3 to the financial
statements.
ERNST & YOUNG LLP
New York, New York
February 7, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 31, 1995, in the Registration Statement (Form
S-1) and related Prospectus of PSW Technologies, Inc. for the registration of
2,850,000 shares of its common stock.
Margolin, Winer & Evens LLP
Garden City, New York
February 10, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,182
<SECURITIES> 0
<RECEIVABLES> 6,238
<ALLOWANCES> 120
<INVENTORY> 0
<CURRENT-ASSETS> 10,147
<PP&E> 3,097
<DEPRECIATION> 1,301
<TOTAL-ASSETS> 11,943
<CURRENT-LIABILITIES> 8,499
<BONDS> 0
0
0
<COMMON> 55
<OTHER-SE> 3,389
<TOTAL-LIABILITY-AND-EQUITY> 11,943
<SALES> 0
<TOTAL-REVENUES> 31,274
<CGS> 0
<TOTAL-COSTS> 16,444
<OTHER-EXPENSES> 13,424
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 170
<INCOME-PRETAX> 1,161
<INCOME-TAX> 441
<INCOME-CONTINUING> 720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 720
<EPS-PRIMARY> .10
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 34
<SECURITIES> 0
<RECEIVABLES> 3,894
<ALLOWANCES> 45
<INVENTORY> 0
<CURRENT-ASSETS> 4,054
<PP&E> 1,827
<DEPRECIATION> 899
<TOTAL-ASSETS> 4,982
<CURRENT-LIABILITIES> 1,298
<BONDS> 0
0
0
<COMMON> 55
<OTHER-SE> 3,629
<TOTAL-LIABILITY-AND-EQUITY> 4,982
<SALES> 0
<TOTAL-REVENUES> 21,147
<CGS> 0
<TOTAL-COSTS> 11,193
<OTHER-EXPENSES> 7,679
<LOSS-PROVISION> 52
<INTEREST-EXPENSE> 84
<INCOME-PRETAX> 2,139
<INCOME-TAX> 813
<INCOME-CONTINUING> 1,326
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,326
<EPS-PRIMARY> .19
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 2,732
<ALLOWANCES> 14
<INVENTORY> 0
<CURRENT-ASSETS> 2,766
<PP&E> 1,382
<DEPRECIATION> 601
<TOTAL-ASSETS> 3,538
<CURRENT-LIABILITIES> 833
<BONDS> 0
0
0
<COMMON> 55
<OTHER-SE> 2,620
<TOTAL-LIABILITY-AND-EQUITY> 3,539
<SALES> 0
<TOTAL-REVENUES> 12,318
<CGS> 0
<TOTAL-COSTS> 7,385
<OTHER-EXPENSES> 4,585
<LOSS-PROVISION> 52
<INTEREST-EXPENSE> 74
<INCOME-PRETAX> 222
<INCOME-TAX> 84
<INCOME-CONTINUING> 138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> DEC-31-1993
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 1,704
<ALLOWANCES> 14
<INVENTORY> 0
<CURRENT-ASSETS> 1,722
<PP&E> 1,148
<DEPRECIATION> 340
<TOTAL-ASSETS> 2,533
<CURRENT-LIABILITIES> 196
<BONDS> 0
0
0
<COMMON> 55
<OTHER-SE> 2,247
<TOTAL-LIABILITY-AND-EQUITY> 2,533
<SALES> 0
<TOTAL-REVENUES> 8,725
<CGS> 0
<TOTAL-COSTS> 6,167
<OTHER-EXPENSES> 3,766
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 329
<INCOME-PRETAX> (1,543)
<INCOME-TAX> (586)
<INCOME-CONTINUING> (957)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (957)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1992
<PERIOD-END> DEC-31-1992
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 1,096
<ALLOWANCES> 8
<INVENTORY> 0
<CURRENT-ASSETS> 1,106
<PP&E> 744
<DEPRECIATION> 195
<TOTAL-ASSETS> 1,489
<CURRENT-LIABILITIES> 1,660
<BONDS> 0
0
0
<COMMON> 55
<OTHER-SE> 1,489
<TOTAL-LIABILITY-AND-EQUITY> 1,660
<SALES> 0
<TOTAL-REVENUES> 6,562
<CGS> 0
<TOTAL-COSTS> 4,003
<OTHER-EXPENSES> 2,650
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 181
<INCOME-PRETAX> (279)
<INCOME-TAX> (106)
<INCOME-CONTINUING> (173)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (173)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
