UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 31, 1998
Commission File Number 0-9747
EXCALIBUR TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 85-0278207
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1921 Gallows Road, Suite 200, Vienna, Virginia 22182
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 761 - 3700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to the filing
requirements for the past 90 days. Yes |X| No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of April 15, 1998 (based on the closing sales price as reported on
the NASDAQ National Market System) was $118,846,045.
The number of shares outstanding of the registrant's class of common stock as of
April 15, 1998 was 13,251,297.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1998 Annual Meeting of
Shareholders are incorporated by reference into Part III.
The Index to Exhibits begins on Page 29
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EXCALIBUR TECHNOLOGIES CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
TABLE OF CONTENTS
Page
PART I
Item 1. Business........................................... 1
Item 2. Properties......................................... 11
Item 3. Legal Proceedings.................................. 11
Item 4. Submission of Matters to a Vote of
Security Holders................................... 11
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters........................ 12
Item 6. Selected Financial Data............................ 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 15
Item 8. Financial Statements and Supplementary Data........ 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 27
PART III
Item 10. Directors and Executive Officers of the Registrant. 28
Item 11. Executive Compensation ............................ 28
Item 12. Security Ownership of Certain Beneficial
Owners and Management.............................. 28
Item 13. Certain Relationships and Related Transactions..... 28
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K............................ 28
<PAGE>
PART I
Item 1. Business.
This report contains forward looking statements that involve risks and
uncertainties. The statements contained in this report that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended and section 21E of the Securities
Exchange Act of 1934, as amended, including without limitation statements
regarding the expectations, beliefs, intentions or strategies regarding the
future of Excalibur Technologies Corporation ("Excalibur" or the "Company"). All
forward looking statements included in this report are based on information
available to the Company on the date hereof and the Company assumes no
obligation to update any such forward looking statements. The Company's actual
results could differ materially from those anticipated in these forward looking
statements as a result of certain factors, including those set forth elsewhere
in this report.
Overview
Excalibur designs, develops, markets and supports enterprise-wide, accurate,
scalable and secure knowledge-retrieval software solutions. Excalibur's
comprehensive suite of knowledge retrieval products which includes Excalibur
RetrievalWare, Excalibur RetrievalWare FileRoom, Excalibur Internet Spider,
Excalibur EFS and Excalibur Visual RetrievalWare, enable individuals to quickly
access, search and retrieve relevant information residing on an enterprise's
networks, intranets, extranets and the Internet. Retrievable assets or document
data types include paper documents, text, databases, word processing documents,
PDF files, newsfeeds, groupware systems, e-mails, images and video. Excalibur's
software solutions deliver capabilities for real-time profiling and
retrospective search, combined full-text and database searching, word
meaning-based semantic searching, fault-tolerant pattern recognition-based
searching, statistical searching and a full suite of traditional keyword and
Boolean search techniques. Excalibur RetrievalWare has a modular architecture
that supports parallel processing on distributed, multi-threaded servers and is
designed to support both very large databases and large information systems with
thousands of users. Excalibur EFS is a multi-platform, commercial, end-user
software application for document imaging and information retrieval. Excalibur
offers its software solutions to information systems for workgroups, enterprises
and distributed wide area networks, including the Internet and World Wide Web.
Excalibur's software products combine two unique and complementary technologies:
semantic network and Adaptive Pattern Recognition Processing (APRP(TM)).
Semantic network leverages lexical knowledge at the highest level using built-in
knowledgebases to search for specific word meanings enriched by related terms
and concepts. The APRP(TM) technology identifies patterns in digital data,
providing the capability to build content-based retrieval applications for
virtually any type of digital information. By integrating these two approaches,
Excalibur believes that it delivers the most complete, powerful, yet easy to use
knowledge retrieval capabilities available today. The combined technology power
most Excalibur applications.
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Excalibur licenses its software products directly to commercial businesses and
government agencies throughout North America, Europe and other parts of the
world and also distributes its software products to end users through license
agreements with value-added resellers, system integrators, original equipment
manufacturers and other strategic partners. As of January 31, 1998, more than
950 customers were using the Company's software products, approximately 300 of
which use the flagship Company product RetrievalWare.
On May 5, 1997, the Company acquired Interpix Software Corporation ("Interpix"),
located in Santa Clara, California, a privately-owned company and developer of a
commercial technology enabling the collection, indexing, management and
presentation of multimedia data on the Internet and corporate intranets. The
shareholders of Interpix received 275,000 shares of common stock of Excalibur in
exchange for all of the outstanding common stock of Interpix. The total purchase
price included the value of the Excalibur shares totaling $1,822,000 and
out-of-pocket acquisition costs which totaled $45,000. The purchase price was
allocated to the assets purchased and the liabilities assumed based upon their
fair values on the date of acquisition. Approximately $1,284,000 of the purchase
price was allocated to research and development projects in process and was
expensed in the three month period ended July 31, 1997. The excess of the
purchase price over the fair value of the net assets of Interpix was
approximately $545,000. This amount represents intangible assets related to the
completed technology base, the assembled workforce and tradenames acquired and
has been recorded as goodwill which is being amortized on a straight-line basis
over five years. The purchase method of accounting has been applied to this
acquisition transaction and, accordingly, the results of operations of Interpix
have been included in the Company's consolidated results of operations for the
period ended January 31, 1998 from the date of acquisition. The results of
operations for Interpix prior to the acquisition were not material.
Excalibur's wholly-owned subsidiary located in the United Kingdom, Excalibur
Technologies International, Ltd. ("ETIL"), conducts international sales
activities. Except as otherwise noted, Excalibur and its subsidiaries are
collectively referred to hereinafter as the "Company."
The Company can be contacted via email at [email protected] and visited at its
web site at www.excalib.com.
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PRODUCTS
Excalibur's suite of text retrieval software components which includes Excalibur
RetrievalWare, Excalibur RetrievalWare FileRoom, Excalibur Internet Spider and
Excalibur EFS (Electronic Filing Software) is being utilized in a wide-range of
applications and solutions including electronic publishing, online information
systems, global corporate intranets, intelligence analysis and paper archival
systems. Markets include publishing, legal, manufacturing, pharmaceutical,
insurance, transportation, financial services, government and many others. The
Company provides a visual retrieval solution to the same markets with Excalibur
Visual RetrievalWare, which enables users to search for visual information
directly from their intranet, a corporate database, the Internet, or other
sources using images or video clips as clues. With the planned release of a
suite of video applications is fiscal 1999, the Company will target media,
entertainment and broadcasting companies.
Text Products:
Excalibur's text retrieval products contributed 97%, 96% and 100% of
consolidated revenue in 1998, 1997 and 1996 respectively.
Excalibur RetrievalWare
Excalibur RetrievalWare offers an advanced componentized approach to knowledge
retrieval and an alternative to traditional search and retrieval systems. It is
a comprehensive software solution designed for enterprise knowledge retrieval
and intended to empower users to find mission critical data across multiple data
types. By integrating the APRP(TM) and semantic network technologies, Excalibur
RetrievalWare delivers superior levels of power and performance throughout the
entire information management process, from data capture and indexing to
searching, retrieval and dissemination. The latest version of the product,
Excalibur RetrievalWare 6.5, was released in the third quarter of the fiscal
year ended January 31, 1998 and among other enhancements extends RetrievalWare's
capabilities to include browsing, searching and viewing paper-based assets in an
online "fileroom." Users can access and retrieve both paper-based and electronic
documents using an industry standard web-browser. Excalibur RetrievalWare
provides real time profiling which enables users to create and save Real Time
Agent Queries (Profiles) that will automatically collect incoming documents of
interest. The RetrievalWare Profiling Server filters, stores and distributes
incoming data from any source including real-time newsfeeds, relational
databases, paper repositories and the RetrievalWare Internet Spider.
With semantic networks, users can easily and automatically find the required
information in text databases by using all of the power and richness of natural
language processing. Excalibur RetrievalWare incorporates syntax, morphology and
the actual meaning of words. The baseline semantic network, created from
complete dictionaries, a thesaurus and other reference sources, gives users a
built-in knowledge base of 400,000 word meanings, 50,000 language idioms and 1.6
million word associations. Users enter straight-forward plain English queries
that are automatically enhanced by the related terms and concepts thereby
increasing the opportunity for the return of relevant data. The software
recognizes words at the root level, idioms and the multiple meanings of words.
An important benefit of this approach is the elimination of the costs associated
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with defining keywords, building topic trees, establishing expert rules and
sorting and labeling information in database fields. Excalibur RetrievalWare
also enables the integration of specialized semantic networks for legal,
medical, finance, engineering and other disciplines.
APRP(TM) identifies patterns in digital information. In text applications, it
provides fuzzy searching with a high degree of precision and recall, giving
end-users the ability to retrieve even approximations of search queries with a
high degree of confidence that all of the requested information will be returned
regardless of errors in spelling or the existence of "dirty data." The software
works at high speed and supports the rapid development of multi-language
text-retrieval systems.
Excalibur RetrievalWare provides access to both unstructured and structured
information across enterprise networks, workgroup LANs, and intranets. The
software may be deployed on a single server or on any number of physical
servers. Excalibur RetrievalWare server solutions can be run on multiple
platforms including leading UNIX and Windows NT platforms.
The Excalibur RetrievalWare product family includes the following components:
Excalibur RetrievalWare SDK
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The Excalibur RetrievalWare SDK (Software Developer's Kit) is a comprehensive
set of tools for building knowledge retrieval solutions. At its core is a highly
scalable, distributed client/server architecture. Independent server processes
maximize the efficiency and reliability of document loading, indexing and query
handling and support security and encryption/decryption features. Dedicated
server processes enable integration of text search and relational database
(DBMS) storage capabilities through an open DBMS gateway. The client environment
is optimized for the development of graphical interfaces using industry standard
tools such as Java and Visual Basic. Excalibur RetrievalWare delivers Visual
Basic custom controls, remote procedure calls and open server capabilities as
well as engine-level, high-level and client/server application program
interfaces (APIs). These features speed the development of systems that can
support thousands of users and contain custom functionality.
Excalibur RetrievalWare FileRoom
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Excalibur RetrievalWare FileRoom is built on Excalibur RetrievalWare technology
and is an optional component to allow loading, indexing, viewing and managing
scanned document, images and text. Users access the FileRoom through a hierarchy
consisting of fileroom documents, where each tier in the hierarchy is a
container for storing documents. Users can directly view the scanned image of a
retrieved document from the FileRoom. Graphs, diagrams, handwritten notations
and signatures in the retrieved document are immediately accessible. "Fuzzy"
searching capabilities provided by APRP(TM) give users a high level of
confidence that their queries will return all of the requested information
regardless of the quality of Optical Character Recognition (OCR) data.
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Excalibur Internet Spider
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Excalibur Internet Spider is a fully automated, scalable web "spider"
application that explores and returns multimedia documents from designated areas
of intranets and the World Wide Web. The highly configurable and multithreaded
Excalibur Internet Spider allows users to monitor topics of interest on
intranets or the Internet based on knowledge profiles. It can also monitor
an unlimited number of internal and external Web pages and actively gather
specific documents which are then automatically indexed for filtering and
retrieval using Excalibur RetrievalWare or an alternate data management system.
Excalibur Electronic Filing Software (EFS)
Excalibur EFS version 3.7 is the latest version of the product which was
originally introduced in 1991 and is in the process of being phased out. Users
of EFS are being migrated to RetrievalWare with FileRoom option. EFS enables
text and images to be entered into the system from computer files, scanners or
facsimile machines (after the scanned image is converted to text by optical
character recognition software) and are automatically filed and indexed in a
replica of a physical file room with file cabinets, drawers, folders, in-baskets
and wastebaskets, utilizing a graphical user interface. EFS provides users with
multiple methods for document retrieval and operates under leading UNIX
operating systems and Windows NT in a client/server environment. Client-only
implementations are available on personal computers running Microsoft Windows
and Apple Macintoshes. EFS also provides links to leading external databases and
APIs that give users the ability to integrate EFS with other software
applications and products. A variation of this software product provides
document image management capability for the World Wide Web.
Visual Products
Excalibur's visual retrieval products contributed 3% and 4% of consolidated
revenue in 1998 and 1997. No revenue was recorded for visual products in 1996.
Excalibur Visual RetrievalWare
Leveraging the APRP(TM) technology, Excalibur Visual RetrievalWare is a visual
retrieval engine and a comprehensive image processing library that enables the
development of client/server knowledge retrieval systems that automatically
index and retrieve digital images. Users can search for visual information
directly from their intranet, a corporate database, the Internet, or other
sources using images or video clips as clues. Visual data is reduced to a
searchable index that is typically less than 10% of the size of the original
image and is automatically recognized based on its shape, color and texture.
Users submit queries using examples of visual data or by authoring a visual clue
with a graphical product. Based on the shape, color and texture of the visual
clue, a list of similar or exact matches is returned. Visual RetrievalWare SDK
2.1 released in the second quarter of fiscal year 1998 contained enhancements
including Java support, multi-threaded support for multi-processor computers and
improvements in the accuracy of fuzzy searching of similar images. The product
delivers its advanced retrieval capabilities in an open, flexible, scalable and
secure architecture and is designed to be easy to implement and ready for
extension.
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Video Analysis Applications
In the fourth quarter of fiscal year 1998, the Company announced its intention
to deliver video applications that will include the Video Analysis Engine
("VAE"), a comprehensive software developers kit and a suite of applications
utilizing both the VAE and RetrievalWare, designed to enable organization and
end users to rapidly analyze, index, retrieve and manipulate analog and digital
video assets in an intranet/Internet environment. The VAE is designed for large
integrators and OEMs interested in developing leading edge video applications.
The Company plans to release a suite of video applications in fiscal 1999,
initially targeted to media, entertainment and broadcasting companies who need
to automate the analysis, indexing, cataloging, viewing, searching and retrieval
of their video assets.
SERVICES
Technical Support, Implementation Support and Training
Excalibur provides technical support, or maintenance, to customers through its
technical support organization located in the Company's Carlsbad, California
facilities and through certain product distributors. Technical support consists
of bug fixing, telephone support and product enhancements. Technical support
typically is provided to customers under a renewable annual contract. All
Excalibur service plan customers have access to the Excalibur Online Technical
Support Web site, which provides the latest product information and general
service updates. The web site also provides electronic forms for opening
technical support cases and suggesting product, service and Company
enhancements.
The Company also provides installation and consulting services to its customers
on-site through employee and independent consultants who have been trained and
certified by the Company. The Company conducts training seminars at its offices
in Vienna, Virginia; Carlsbad, California; and Windsor, UK, as well as on-site
training, for its customers and distribution channel partners. Installation and
consulting services are offered as a package or on a time-and-materials basis.
Training customers typically pay on a per-course basis for regularly scheduled
classes and on a per-day basis for on-site or dedicated courses.
Marketing and Distribution
The Company's sales and marketing strategy emphasizes the direct sale of
Excalibur RetrievalWare products and services, which are designed as an
enterprise knowledge retrieval solution, to end-user customers. The targeted
customer group for the Company's products include the world's largest
corporations and comparable government agencies and other institutions. Members
of the North American sales team are located throughout the United States. Most
of the overseas sales team is located in the United Kingdom. The Company
typically licenses its Excalibur RetrievalWare product family to end users as
either an enterprise-wide or work-group level solution.
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Marketing efforts focus on building brand awareness and demand creating
activities and include public relations, trade show participation, direct mail
campaigns and telemarketing/lead management activities. The Company also has a
home page on the World Wide Web at www.excalib.com as part of its marketing and
sales efforts. Customers are able to learn about the suite of Excalibur
RetrievalWare and Visual RetrievalWare products, conduct on-line demonstrations
of products and enroll in training courses as well as access passworded areas
for technical and other customer support.
The Company leverages relationships with distributors of its software products,
and the strategic partners discussed below, for a substantial portion of its
revenues. Many of these strategic partner relationships began as distribution
arrangements for Excalibur EFS. Beginning in fiscal year 1997 and continuing in
fiscal year 1998, a number of these agreements were amended to provide for the
resale of Excalibur RetrievalWare products as well.
The Company's GSA Contract provides a contractual vehicle for government
agencies to place orders for EFS with the Company. It includes information about
the Company and its products and establishes pricing, terms and conditions of
sales.
Strategic Alliances
In January 1998, the Company announced a marketing and distribution agreement
with Microsoft whereby Excalibur will integrate its Video Analysis Engine
("VAE") with Microsoft NetShow (3.0) and the combined offering will be made
available to Microsoft NetShow developers and users. Microsoft NetShow provides
the ability to stream multimedia content across intranets and the Internet,
giving content providers, developers and web professionals the ability to
integrate audio and video into any web application or site. Under the terms of
the agreement, an evaluation copy of VAE for Microsoft NetShow will be
distributed with each license of Microsoft NetShow. Microsoft NetShow users can
elect to license software development kits and deployment licenses for VAE for
Microsoft NetShow directly from Excalibur.
In January 1998, the Company announced an alliance with Oracle Corporation
whereby Excalibur will deliver its Video Analysis Engine (VAE) as an extension
to the Oracle Video Server(TM) for analysis of video content. VAE, a development
environment for managing analog and digital video assets, allows developers to
create an integrated application with Oracle Video Server, a software solution
enabling application users to store, manage and deliver real-time, full screen
video and high-fidelity audio to web browsers, PCs on networks and set-top
boxes.
In October 1997, the Company entered into an agreement with International
Business Machines in the United Kingdom ("IBM-UK") whereby IBM-UK is the
exclusive reseller of the Company's Knowledge Retrieval Products to certain
government intelligence agencies in the United Kingdom. Under the terms of the
one year agreement, IBM-UK agreed to pay a minimum prepaid royalty to the
Company with provisions for ongoing royalty rates when the prepaid royalty is
depleted. Revenues derived from the Company's agreement with IBM-UK were less
than 10% of the Company's total revenues in the fiscal year ended January 31,
1998.
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In September 1997, Sony Marketing (Japan) Inc. ("SMOJ") announced a
comprehensive licensing, integration and reseller agreement with the Company for
Excalibur's family of knowledge retrieval software products, Excalibur
RetrievalWare and Excalibur Visual RetrievalWare. Under the agreement, SMOJ has
licensed Excalibur RetrievalWare and Excalibur Visual RetrievalWare and has
integrated the Japanese morphology system and dictionary into it for
localization and resale in Japan.
In July 1997, the Company entered into an agreement with Saucedo Enterprises,
who provides integration services to GTE Enterprise Solutions, a division of GTE
Corporation, for the development of a GTE Enterprise Solutions' product called
"The Bastille". The Bastille is a web-based service available to all United
States law enforcement agencies that offers a secure, private network for
information sharing and communication among law officers. Excalibur
RetrievalWare provides search, retrieval and real-time profiling capabilities
across several different data repositories and allows officers to share this
information via a private network on the Internet. Revenues derived from the
Company's agreement with Saucedo Enterprises were less than 10% of the Company's
total revenues in the fiscal year ended January 31, 1998.
In January 1997, the Company entered into an agreement with Computer Associates,
International ("CA") to integrate Excalibur RetrievalWare and Excalibur Visual
RetrievalWare into CA Jasmine, CA's object-oriented database and application
development environment. Included with each license of CA Jasmine is an
evaluation copy of Excalibur RetrievalWare for Jasmine and Excalibur Visual
RetrievalWare's Image Search Class Library. CA Jasmine users can elect to
license software developer kits and deployment licenses for RetrievalWare and
Visual RetrievalWare directly from Excalibur.
In July 1996, the Company authorized the use of its name by Excalibur
Technologies N. V. ("ETNV"), a Belgian company incorporated in June 1996 for the
purpose of selling and marketing the Company's products and services within a
large territory including most of Northern Europe and Italy. In connection with
the formation of ETNV, the Company acquired approximately 13.2% of ETNV's voting
capital stock. The Company granted to ETNV an exclusive license (the "License")
to distribute certain of the Company's products, including Excalibur EFS and
RetrievalWare, to other authorized resellers and end-users in the territory for
approximately five years. The License provided for the payment to the Company of
minimum license fees of $1,475,000 for fiscal year 1997 and the payment of
additional minimum license fees in each subsequent fiscal year of the License.
The shareholders of ETNV include Professional Computer Systems B.V. ("PCS"), a
software distributor that contributed its operations to ETNV. In May 1994, PCS
entered into a software distribution agreement with the Company pertaining to
the Benelux region of Europe that was superseded by the License. Revenues
recognized by the Company under its distribution licenses with both ETNV and PCS
were less than 10% of total revenues in each of the three fiscal years in the
period ended January 31, 1998.
Product Development and Advanced Research
The Company's primary technologies are its semantic network processing
techniques and its proprietary adaptive pattern recognition processing software
(APRP(TM)).
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Excalibur's semantic network leverages lexical knowledge at the highest level,
offering a system to search for specific word meanings enriched by related terms
and concepts. With semantic networks, users find information using natural
language processing. Semantic networks incorporate syntax, morphology and the
actual meaning of words as defined by published dictionaries and other reference
sources.
APRP(TM) consists of a software architecture for processing digital information
to extract patterns in the primary types of computerized data: text, image,
signal and video. The system provides high-speed pattern recognition that can be
used to store, categorize, retrieve and refine data. The processing of digital
patterns provides users with a way to store and use computerized data faster
with more flexibility and with fewer data storage requirements than competing
systems. The Company's pattern recognition methods use neural computing
techniques to process data in a non-algorithmic, parallel fashion by generating
responses to input data. Systems utilizing these methods are unlike traditional
computer systems and are now being used in areas where traditional systems have
been inefficient, such as natural language, machine vision, robotics, pattern
matching and signal recognition. Neural computing systems are "trained" by
processing data, not by programming. Once the system has extracted patterns from
the digital data, these patterns can be sorted, labeled and used to make
decisions.
The Company's research and development program focuses on enhancing and
expanding on the capabilities of its Excalibur RetrievalWare and Visual
RetrievalWare suites of products to address additional markets and exploring and
applying its proprietary pattern recognition technology in new areas such as
image recognition, character recognition and forms recognition. The Company
intends to deliver advanced video analysis technologies based on its pattern
recognition technology to enable organizations and end users to rapidly analyze,
index, retrieve and manipulate analog and digital video assets in an
intranet/Internet environment.
Certain elements of the Company's software products are supplied to the Company
by other independent software vendors under license agreements with varying
terms. Pursuant to these agreements, the Company makes periodic royalty payments
based on either revenues or units. The technologies acquired by the Company in
this manner include word processing filters, optical character recognition
engines and dictionaries and thesauruses in electronic form.
The Company has conducted research and product development of pattern
recognition and natural language systems since 1980. Research and product
development expenditures for the development of new products and enhancements to
existing products were approximately $6.4 million, $6.3 million and $4.4
million, respectively, in the fiscal years ended January 31, 1998, 1997 and
1996.
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Protection of Proprietary Technology
The Company regards its software as proprietary and relies primarily on a
combination of copyright, trademark and trade secret laws of general
applicability, employee confidentiality and invention assignment agreements,
software distribution protection agreements and other intellectual property
protection methods to safeguard its technology and software products. The
Company has not obtained patents on any of its technology. The Company also
relies upon its efforts to design and produce new products and upon improvements
to existing products, to maintain a competitive position in the marketplace.
Competition
Competition in the computer and communications industry in general and the
software development industry in particular, is intense. The Company competes in
multiple markets, including the traditional information retrieval market. This
market has current and potential competitors who are larger and more established
than the Company and have significantly greater financial, technical, marketing
and other resources than the Company. The Company considers its principal
competitive advantage to be the architecture, extensibility to multiple data
types and performance of its products. Specifically, the Company believes that
compared to its primary competition, the Company's products provide users with
more accurate results due to the semantic network and APRP technologies, an
environment which is more scalable due to the distributed search architecture
and more comprehensive searching due to the ability to search multiple types of
data. The Company differentiates its products by using new technology to provide
benefits such as labor savings from reduced manual pre-processing or
organization of data, faster retrieval, access to many kinds of data, full
integration with network architecture and more forgiving interaction in
retrieving information stored in computers. The Company competes with numerous
companies depending on the target market for their products. Most often, the
Company competes directly with companies such as Fulcrum Technologies Inc. and
Verity, Inc. in the information search and retrieval market. Additionally,
Microsoft has announced its intention to market information retrieval software
that will compete with Excalibur's products. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that competition will not materially adversely affect the
Company's operating results and financial condition.
The Company's activities currently are subject to no particular regulation by
governmental agencies other than those routinely imposed on corporate businesses
and no such regulation is now anticipated.
Employees
The Company had 168 employees at January 31, 1998, of whom 56 were in research
and development, 61 in sales and marketing, 29 in technical support and training
and 22 in finance and administration. The employees are not covered by
collective bargaining agreements and the management of the Company considers
relations with employees to be good. Competition for qualified personnel within
the Company's industry is intense. There can be no assurance that the Company
will be able to continue to attract, hire, or retain qualified personnel and the
inability to do so could have a material adverse effect upon the Company's
operating results and financial condition.
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Item 2. Properties.
The Company's corporate headquarters facilities are occupied under two sublease
agreements that expire in calendar year 1999 for a total of approximately 18,700
square feet of space in an office building located at 1921 Gallows Road, Vienna,
Virginia 22182. The lease commenced in May 1996.
The Company leases three facilities that serve primarily as software development
and customer support centers. The Company occupies approximately 31,000 square
feet of space in an office building, under a six-year lease that expires in
November 2001, located at 1959 Palomar Oaks Way, Carlsbad, California 92009. The
Company entered into an agreement in fiscal year 1998 to sublease 7,122 square
feet of the space in its Carlsbad location to a third party. The sublease
agreement expires 4/30/98. The Company also occupies approximately 8,125 square
feet of space in an office building located at 10440 Little Patuxent Parkway,
Columbia, Maryland 21044 under a five-year lease that expires in December 2000.
Additionally the Company leases 2,863 square feet of space in an office building
at 4675 Stevens Creek Boulevard, Santa Clara, California 95051. The three year
lease expires June 30, 2000.
The Company leases office space in Windsor, England and Vitrolles, France in
support of its international sales operation. Under these leases, the Company
occupies approximately 3,400 square feet and 800 square feet, respectively. The
two leases for the Windsor offices expire in 1999 and the Vitrolles lease is
renewable every three years over a nine year period, but may be canceled with
six months notice.
During the fiscal years ended January 31, 1997 and 1996, the Company vacated
leased facilities located in McLean, Virginia and San Diego, California. The
leases for the two facilities expired in May 1997 and January 1998 respectively.
The Company believes that its facilities are maintained in good operating
condition and are adequate for its operations.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which the Company is a party.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to the shareholders for a vote in the three
month period ended January 31, 1998.
11
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's common stock is traded in the over-the-counter market and is
listed on the National Market System of the NASDAQ System under the symbol EXCA.
The following table sets forth, for the period February 1, 1996 through January
31, 1998, the high and low sale prices for the common stock as reported by the
National Market System of NASDAQ. The number of shareholders of record as of
January 31, 1998, was 1,202. The Company has never declared or paid dividends on
its common stock and anticipates that, for the foreseeable future, it will not
pay dividends on its common stock.
High Low
---- ---
Fiscal 1998
(February 1, 1997 - January 31, 1998)
First Quarter.................... $ 13 5/8 $ 4
Second Quarter................... 6 3/4 4
Third Quarter.................... 13 11/16 5 1/2
Fourth Quarter................... 11 7/8 7 1/2
Fiscal 1997
(February 1, 1996 - January 31, 1997)
First Quarter.................... $ 32 $ 22 1/4
Second Quarter................... 26 3/4 14 1/4
Third Quarter.................... 18 3/4 13 5/8
Fourth Quarter................... 19 12
Item 6. Selected Financial Data.
The selected financial data presented below are derived from the Company's
consolidated financial statements and should be read in conjunction with such
consolidated financial statements and notes thereto included elsewhere in this
Annual Report on Form 10-K. The selected financial data presented below as of
January 31, 1996, 1995 and 1994 and for the fiscal years ended January 31, 1995
and 1994 have been derived from consolidated financial statements of the Company
not contained herein. All of the historical information has been restated to
reflect the pooling of interests with ConQuest Software, Inc. ("ConQuest").
12
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended January 31,
----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Software............. $17,202 $ 15,866 $15,004 $ 10,133 $ 10,878
Maintenance.......... 5,215 4,393 3,671 2,505 1,407
--------- --------- -------- --------- ---------
22,417 20,259 18,675 12,638 12,285
--------- --------- -------- --------- ---------
Expenses:
Sales and marketing.. 13,184 14,430 8,752 9,343 10,049
Research and product
development........ 6,405 6,288 4,416 4,597 4,948
Acquired in-process
research and
development........ 1,284 - - - -
General and
administrative..... 4,884 3,906 3,330 5,597 3,758
Cost of software
revenues........... 3,039 1,630 1,064 767 884
Cost of maintenance
revenues........... 1,219 1,618 1,398 1,498 1,428
Restructuring costs.. 577 - 653 776 -
Merger costs......... - - 490 - -
--------- --------- -------- --------- ---------
30,592 27,872 20,103 22,578 21,067
--------- --------- -------- --------- ---------
Operating loss......... (8,175) (7,613) (1,428) (9,940) (8,782)
Interest income, net... 374 781 544 344 463
Equity in net loss of
affiliate............ (525) (341) - - -
Other income........... - - - 208 -
--------- --------- -------- --------- ---------
Net loss (8,326) (7,173) (884) (9,388) (8,319)
Preferred stock
dividends............ 14 14 14 14 14
--------- --------- -------- --------- ---------
Net loss applicable to
common stock......... $(8,340) $ (7,187) $ (898) $ (9,402) $ (8,333)
========= ========= ======== ========= =========
Basic and diluted net
loss per share of
common stock......... $ (0.64) $ (0.58) $ (0.08) $ (0.85) $ (0.79)
========= ========= ======== ========= =========
Weighted average number
of shares of common
stock outstanding.... 12,934 12,351 11,496 11,094 10,532
========= ========= ======== ========= =========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Balance Sheet Data
(at end of period) <F1>:
<S> <C> <C> <C> <C> <C>
Cash and cash
equivalents.......... $ 4,939 $ 2,685 $ 2,903 $ 2,645 $ 1,280
Working capital........ 9,747 14,566 12,973 6,908 1,788
Total assets........... 20,045 26,147 23,046 17,951 18,015
Accumulated deficit.... (51,945) (43,619) (36,446) (35,367) (25,965)
Total shareholders'
equity <F2>.......... 13,098 18,563 15,251 9,475 12,363
- -------------
<FN>
<F1> The Company had no significant long-term debt for any of the periods
presented.
<F2> No dividends have been declared or paid on the Company's common stock.
</FN>
</TABLE>
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
The statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
without limitation statements about the Company's expectations, beliefs,
intentions or strategies regarding the future. All forward-looking statements
included in this report are based on information available to the Company on the
date hereof and the Company assumes no obligation to update any such
forward-looking statements. The forward-looking statements contained herein
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in this report.
The Company principally earns revenues from the licensing of its software
products to commercial businesses and government agencies throughout North
America, Europe and other parts of the world. The Company licenses its software
to end users directly and also distributes its software products through license
agreements with value-added resellers, system integrators, original equipment
manufacturers and other strategic partners. Revenues are provided under software
licenses with new customers and from the related sale of product maintenance,
training and implementation support services. Additions to the number of
authorized users, upgrades to newer product versions and the renewal of product
maintenance arrangements by customers pursuant to existing licenses also provide
revenues to the Company. Under software maintenance contracts, customers are
typically entitled to receive telephone support, software bug fixes and new
releases of particular software products.
The Company believes that it is the technology leader in providing accurate,
scalable, secure, knowledge-retrieval software solutions capable of supporting
knowledge assets of most media types including paper documents, text, images and
video. Excalibur's products enable users to search and retrieve these types of
data through intranets, local-area and wide-area networks, extranets and the
Internet. It believes that these qualities differentiate its software products
from other search engines, toolkits and text retrieval products. The Company's
Excalibur RetrievalWare and Excalibur Visual RetrievalWare products deliver a
unified software solution for text and visual knowledge retrieval. The Company
is committed to empowering organizations by enabling people to transform
information into knowledge and is focused on the high-end of the market for
knowledge retrieval.
The Company's software products are designed to enable individuals to quickly
search and retrieve relevant information residing on a LAN/WAN, intranet,
paper-based archive, extranet, video archive or the Internet. The market today
for the Company's products generally consists of two segments, text knowledge
retrieval and video indexing and retrieval. The market for text knowledge
retrieval products consists of electronic publishing, online information
services, global corporate intranets, paper archival systems as well as market,
business and government intelligence. The market for video indexing and
retrieval solutions includes application and website developers, certain
government agencies as well as commercial media, entertainment and broadcasting
companies.
15
<PAGE>
The Company analyzes its business based on these two business segments. Text
knowledge retrieval products include the RetrievalWare family of products and
EFS. Visual products include Visual RetrievalWare, VAE and the suite of video
applications to be released in fiscal year 1999.
The following chart represents revenues and expenses (in thousands of dollars)
attributable to the text and visual businesses for the years ending January 31,
1998, 1997 and 1996. Expenses for each business consist of expenses directly
attributable to the business unit and allocated expenses and exclude
restructuring costs, merger costs and acquired in-process research and
development costs.
<TABLE>
<CAPTION>
Text Business Visual Business
Fiscal Years Ending Fiscal Years Ending
January 31, January 31,
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total Revenue $21,791 $19,351 $18,675 $ 626 $ 908 $ -
Operating Expenses 24,209 22,879 15,926 4,522 4,993 3,034
------- ------- ------- ------ ------ ------
Operating Income
(Loss) $(2,418) $(3,528) $ 2,749 $(3,896) $(4,085) $(3,034)
</TABLE>
The Company believes that in addition to other competitive advantages, it holds
a competitive advantage in that the Company's products accommodate the indexing
and retrieval of multiple data types. The Company expects that over time, if
video becomes a more common data type, these two markets may merge.
On May 5, 1997, the Company acquired Interpix Software Corporation, located in
Santa Clara, California, a privately-owned company and developer of a commercial
technology enabling the collection, indexing, management and presentation of
multimedia data on the Internet and corporate intranets. The purchase method of
accounting was applied to this acquisition transaction and, accordingly, the
results of operations of Interpix have been included in the Company's
consolidated results of operations for year ended January 31, 1998 from the date
of acquisition. The shareholders of Interpix received 275,000 shares of common
stock of Excalibur in exchange for all of the outstanding common stock of
Interpix. Approximately $1,284,000 of the purchase price was allocated to
research and development projects in process and was expensed in the second
quarter of fiscal year 1998.
The Company reorganized its sales force and made other changes to the overall
organization at the end of the first quarter of fiscal year 1998. In connection
with these changes, the Company reduced its workforce by approximately 10% and
recorded a restructuring charge of $577,000 in the first quarter. The charge
consisted of severance pay and benefits for terminated employees. All payments
associated with the restructuring charge were paid prior to the fiscal year end.
16
<PAGE>
In July 1995, the Company acquired ConQuest Software, Inc, a private company
engaged in the business of providing natural language text management software
tools. The acquisition was effected through the Company's issuance of common
stock and options to purchase common stock to the former ConQuest shareholders
and optionholders in exchange for all of the outstanding common stock of
ConQuest. The business combination was accounted for as a pooling of interests
and, accordingly, the Company's consolidated financial statements and the
discussion and analysis of such statements contained herein reflect the combined
results of the pooled businesses for all of the periods presented.
Results of Operations
For the fiscal year ended January 31, 1998, total revenues were $22,417,000, an
increase of 11% over total revenues of $20,259,000 in the prior fiscal year. The
net loss for the fiscal year ended January 31, 1998 was $8,326,000, or $0.64 per
common share, compared to a net loss of $7,173,000, or $0.58 per common share,
for the same period last fiscal year. Excluding a charge of $1,284,000 for
in-process research and development expenses related to the Interpix acquisition
and $577,000 for restructuring charges, the net loss for the fiscal year ended
January 31, 1998 was $6,465,000. The prior-year total revenues amount
represented an 8% increase over total revenues of $18,675,000 in the fiscal year
ended January 31, 1996. The net loss for fiscal year 1996 was $884,000, or $0.08
per common share.
17
<PAGE>
The following chart summarizes the components of revenues and the categories of
expenses, including the amounts expressed as a percentage of total revenues, for
the three fiscal years in the period ended January 31, 1998 and the percentage
changes in the amounts between fiscal years (dollars in thousands).
<TABLE>
<CAPTION>
Increase
(Decrease)
From fiscal
Fiscal years ended January 31, year
------------------------------------------------ ------------
1998 1997 1996 1997 1996
-------------- -------------- -------------- ---- ----
$ % $ % $ % % %
------- ---- ------- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
RetrievalWare $15,083 67% $ 8,572 42% $ 4,792 26% 76% 79%
EFS 1,591 7% 6,474 32% 10,212 55% -75% -37%
Visual Products
Group 528 2% 820 4% -- -- -36% --%
------- ---- ------- ---- ------- ---- ---- ----
Total software 17,202 77% 15,866 78% 15,004 80% 8% 6%
Maintenance 5,215 23% 4,393 22% 3,671 20% 19% 20%
------- ---- ------- ---- ------- ---- ---- ----
Total revenues $22,417 100% $20,259 100% $18,675 100% 11% 8%
======= ==== ======= ==== ======= ==== ==== ====
Expenses:
Sales and
marketing $13,184 59% $14,429 71% $ 8,752 47% -9% 65%
Research and
product
development 6,405 29% 6,289 31% 4,416 24% 2% 42%
Acquisition of
In-process
research and
development 1,284 6% -- -- -- -- -- --
General and
administrative 4,884 22% 3,906 19% 3,330 18% 25% 17%
Cost of
revenues 4,258 19% 3,248 16% 2,462 13% 31% 32%
Restructure &
merger costs 577 3% -- -- 1,143 6% - -100%
------- ---- ------- ---- ------- ---- ---- -----
Total expenses $30,592 136% $27,872 138% $20,103 108% 10% 39%
======= ==== ======= ==== ======= ==== ==== =====
</TABLE>
18
<PAGE>
Software revenues increased 8% in the current fiscal year to $17,202,000 from
$15,866,000 in the prior fiscal year. During fiscal year 1998 the Company
effectively transitioned from the EFS product line to the Excalibur
RetrievalWare product family. RetrievalWare revenue growth was positively
impacted by the introduction of the RetrievalWare FileRoom product in the third
quarter of fiscal 1998, which allowed the EFS customer base to make a smooth
transition to RetrievalWare. Product revenue from RetrievalWare increased 76% to
$15,083,000 in fiscal year 1998 from $8,572,000 last year. Revenues for
RetrievalWare were $4,792,000 in fiscal year 1996. Excalibur RetrievalWare has
emerged as the Company's dominant product line representing 88% of software
revenues in fiscal 1998 compared to 54% and 32%, in fiscal years 1997 and 1996,
respectively.
The Company continued to attract some of the world's largest organizations as
customers in fiscal year 1998. Some of Excalibur's new customers include Sony
Marketing of Japan and Applied Materials. Excalibur was chosen as the key
retrieval technology for Anheuser Busch, Boeing and the United States Department
of Agriculture. In the broadcasting and entertainment industry, Turner
Entertainment and Viacom were new customers in fiscal year 1998. In
telecommunications, the Company forged new agreements with GTE, Northern Telecom
and Geo-Com.
The Company also earns revenues through software distribution licenses with
strategic partners. In the second quarter of fiscal year 1998 the Company
announced its new partners' program, Excalibur Edge(TM). The Program provides
partners with the Excalibur RetrievalWare family of products and includes
marketing opportunities, comprehensive sales support, product certification and
entry into the knowledge retrieval market. Some of the world's largest
technology companies have become Excalibur partners including Microsoft,
Computer Associates, Sony Marketing of Japan, Sequent Computer Systems, Inc.,
Informix Software Inc., Korea Electric Power Data Network Co. Ltd. ("KDN"),
Trion Technologies, Inc., BTG Inc. and KPMG Peat Marwick LLP.
Revenue growth continued during fiscal year 1998 for the Company's international
sales operation, Excalibur Technologies International, Ltd. ("ETIL"),
headquartered in the United Kingdom. Revenues were $7,838,000, $5,940,000 and
$3,551,000, respectively, in fiscal years 1998, 1997 and 1996. The increases in
revenues in fiscal years 1998 and 1997 over the previous fiscal years were 32%
and 67%, respectively. Overall revenue of the Company's international operations
increased in spite of the Asian financial crisis which had a negative impact on
Excalibur sales in the Pacific Rim. Revenues in the Pacific Rim were 15% less in
fiscal year 1998 compared to 1997. Pacific Rim revenues increased 97% in fiscal
year 1997 compared to 1996. During this three-year period, revenues from
international operations have been provided primarily by software licenses with
various European commercial and government customers and a well-established
European reseller network.
Excalibur continued to expand its government market presence both in the U.S.
and abroad. This included new installations supporting the U.S. Army, Navy, Air
Force and intelligence community, along with new installations for government
entities in Sweden.
19
<PAGE>
The Company's transition to the Excalibur RetrievalWare product line and the
introduction of RetrievalWare FileRoom resulted in the continued downward trend
of EFS software product revenue in fiscal year 1998. Revenues from the licensing
of Excalibur EFS software products, expressed as a percentage of total software
revenue was 9% in fiscal year 1998, compared to 41% and 68%, respectively, in
fiscal years 1997 and 1996. The Company continued to focus development and sales
and marketing expenditures in fiscal year 1998 on RetrievalWare and Visual
RetrievalWare software products. The decline in EFS revenues was more than
offset by increased sales of RetrievalWare products.
Software maintenance and customer support revenues were $5,215,000, $4,393,000
and $3,671,000, respectively, in fiscal years 1998, 1997 and 1996. The increases
in revenues in fiscal years 1998 and 1997 over the previous fiscal years were
19% and 20%, respectively. Additions to the RetrievalWare customer base
accounted for the increased revenues.
Sales and marketing costs decreased 9% in fiscal year 1998, from $14,429,000 in
fiscal year 1997 to $13,184,000 in fiscal year 1998. A reduction in marketing
programs that do not directly relate to revenues in the current fiscal year was
a major component of the decrease. The reorganization in the first quarter of
fiscal year 1998 resulted in significant organizational and management changes.
As part of a company-wide workforce reduction of 10%, the number of sales and
marketing personnel decreased from 66 at the end of fiscal year 1997 to 61 at
the end of fiscal year 1998. As a result, salaries, benefits, travel and other
employee related costs were reduced.
In fiscal year 1997, sales and marketing costs increased by 65% to $14,429,000
from $8,752,000 in fiscal year 1996. During fiscal year 1997 the Company was
focused on building the sales, marketing and business development staffs. A
total of 15 people were added to these departments. As a result, salaries,
benefits, travel, recruiting fees and certain other employee costs increased
significantly between fiscal years. The Company incurred increased costs in
connection with its product promotion and brand recognition programs. The
Company was very active in demonstrating its products at trade shows and
industry meetings, creating new product literature and advertising in computer
industry trade publications. The Company also engaged the services of a public
relations firm to assist its marketing efforts resulting in increased consulting
costs. In fiscal year 1997, the Company also recorded employee severance costs,
including salaries and benefits, amounting to approximately $358,000, related to
the termination of certain sales, marketing and business development personnel.
During fiscal year 1998, the Company continued to develop new products and new
product features while increasing research and product development expenses
modestly. Research and product development costs increased 2% in fiscal year
1998 to $6,405,000 from $6,289,000 in fiscal year 1997. Continued development of
the Excalibur RetrievalWare products was emphasized in fiscal year 1998 while
EFS product development was significantly curtailed. The reduction in costs
associated with the development of the EFS product line was offset by similar
increases in costs for the development of Excalibur RetrievalWare products.
During the year, the Company introduced Excalibur RetrievalWare 6.5 which
features several major enhancements including the introduction of Excalibur
RetrievalWare FileRoom. The FileRoom option represents an upgrade path for users
of the Company's EFS product and is designed to help organizations better
utilize all of their knowledge assets by enabling them to search for both
paper-based and electronic documents as a unified view using an industry
standard web-browser. In addition, Excalibur RetrievalWare 6.5 delivers enhanced
summarization capabilities, search client improvements and metadata clustering.
20
<PAGE>
In the second quarter of fiscal year 1998, the Company recorded a charge to
expense of $1,284,000 for the cost of in-process research and development
acquired in the merger with Interpix. The purchase facilitated the broadening of
the Company's product line with the introduction of Excalibur Internet Spider, a
multimedia web crawler that enables end users and application developers to
access and leverage multimedia information published on intranets and the World
Wide Web. Cost cutting measures taken in the first quarter of fiscal year 1998
helped offset the additional expenses associated with the Interpix development
group. Streamlining of the services department and a reduction of the work force
reduced employee related expenses of research and development. Including the
acquired Interpix employees, personnel in the research and product development
decreased by one person, to 85 in fiscal year 1998.
In fiscal year 1997, the Company made a major investment in product development
in order to develop new products and enhance existing products. During fiscal
year 1997 the Company introduced RetrievalWare Version 6.0 as well as Visual
RetrievalWare, an application development environment product that enables users
to search for visual information directly from their intranets, corporate data
bases, the Internet and other sources. As a result, research and product
development costs increased 42% in fiscal year 1997 to $6,289,000 from
$4,416,000 in fiscal year 1996. Most of the increase was due to the addition of
25 employees to the technical staff, including software engineering and
management personnel and to the expansion of the product development facilities.
Consequently, salaries and other employee costs increased between years as well
as office rent, equipment costs and computer equipment depreciation.
General and administrative expenses increased from $3,330,000 in fiscal year
1996 to $3,906,000 in fiscal year 1997 and to $4,884,000 in fiscal year 1998.
The increases were primarily due to increased staffing and related expenditures
in the areas of human resources, information systems and financial analysis
required to support the Company's growth. Bad debt expense in fiscal years 1998,
1997 and 1996 was $250,000, $150,000 and $91,000, respectively.
In fiscal year 1998, the cost of revenues, expressed as a percentage of total
revenues, was 19%, a 3% increase over the 16% recorded in fiscal year 1997. Cost
of revenues was $4,258,000 and $3,248,000, respectively, in fiscal years 1998
and 1997. The increase relates primarily to the formation of a product
implementation group late in fiscal year 1997, which grew to 8 employees by the
end of fiscal year 1998, resulting in additional salaries expense,
implementation project subcontractors expense, as well as increased overhead
costs. Additionally, cost of revenues in fiscal year 1998 contained amortization
expense of intangible assets associated with the acquisition of Interpix. A
series of Excalibur RetrievalWare releases shipped throughout the year also
factored into the increase. Costs of electronic media, documentation and related
shipping costs all increased as a result. Reorganization and streamlining of the
customer support group in the first quarter of the current fiscal year cut
expenses and decreased the costs of maintenance as compared with the
corresponding costs in fiscal year 1997.
The cost of revenues, expressed as a percentage of total revenues, increased 3%,
to 16% in fiscal year 1997 from 13% in fiscal year 1996. Upgraded training
facilities and additional staffing in the education services department were
primarily responsible for the increase. Increased costs associated with
supporting the larger installed base of Excalibur RetrievalWare end-users were
also a contributing factor.
21
<PAGE>
The Company reorganized its sales force and made other changes to the overall
organization at the end of the first quarter of fiscal year 1998. The Company
reduced its workforce by approximately 10% and recorded a restructuring charge
of $577,000 in the first quarter. The charge consisted of severance pay and
benefits for terminated employees. In fiscal year 1996, the Company recorded a
restructuring charge of $653,000 related to the relocation of its headquarters
from California to the Washington, D.C. area and the consolidation of the
technical teams into two facilities. The costs consisted primarily of severance
payments to terminated employees and leased facility abandonment costs. The
Company also incurred $490,000 in legal, accounting and other costs associated
with the merger with ConQuest.
The activities for fiscal year 1998, including those discussed above, resulted
in total expenses of $30,592,000, a 10% increase from total expenses of
$27,872,000 in the previous fiscal year. In fiscal year 1997, total expenses
increased by 39% to $27,872,000 from $20,103,000 in fiscal year 1996. The total
number of employees decreased from 173 employees at the beginning of the current
fiscal year to 168 at January 31, 1998. The Company had 126 employees at January
31, 1996.
As a result of a decreased level of investments held during fiscal year 1998,
net interest income decreased to $374,000 from $781,000 in fiscal year 1997. Net
interest income increased $237,000 in fiscal year 1997, from $544,000 in fiscal
year 1996, primarily due to a higher level of invested funds. As discussed in
Note 3 to the consolidated financial statements contained herein, the Company
recorded its equity in the net loss of its affiliate, ETNV, for the fiscal year
ended January 31, 1998. This charge in fiscal 1998, including the amortization
of the excess of the Company's investment over the Company's share of the
underlying net assets of ETNV and the elimination by the Company of its share of
its gross profit included in ETNV's prepaid license balance at January 31, 1998,
was $525,000.
Liquidity and Capital Resources
In the fiscal year ended January 31, 1998, the Company's combined balance of
cash, cash equivalents and investments in marketable securities decreased by
$4,677,000 to $6,435,000 as summarized below (in thousands). At January 31, 1998
and 1997, investments in marketable securities consisted of U.S.Treasury Bills
with maturities of less than one year.
January 31 January 31
1998 1997 Change
---------- ----------- -----------
Cash and cash
equivalents $ 4,939 $ 2,685 $ 2,254
Investments 1,496 8,427 (6,931)
---------- ----------- -----------
Total $ 6,435 $ 11,112 $ (4,677)
========== =========== ===========
22
<PAGE>
Cash of $4,376,000, used to fund operations for the fiscal year ended January
31, 1998, was significantly less than the $8,326,000 net loss for the year due
primarily to several non-cash charges. Those charges, which totaled $3,350,000,
included acquired research and development costs of $1,284,000, depreciation and
amortization of $1,540,000 and the Company's share of the net loss of ETNV and
amortization of ETNV warrants totaling $525,000. Reductions in accounts
receivable and prepaid expenses provided $781,000. In fiscal year 1997 cash used
in operations was $8,703,000, consisting primarily of the $7,173,000 loss.
In fiscal year 1998, the exercise of employee stock options provided $613,000.
In fiscal year 1997, $9,722,000 was provided from the issuance of common stock.
In March 1996, the Company completed a private placement sale of its common
stock that provided net cash proceeds of approximately $8,388,000 and the
exercise of stock options by employees provided $1,334,000.
For the year ended January 31, 1998, net cash was provided from the maturity of
Treasury Bills of $6,931,000. Net cash of $55,000 was provided as a result of
the acquisition of Interpix. In the current year, cash was also used to purchase
computer and other equipment with a total cost of $757,000 and to make a $95,000
loan to ETNV. In fiscal year 1997 fixed asset additions totaled $2,394,000. Cash
was used to fund the purchase of furniture, equipment and leasehold improvements
for the Company's new corporate headquarters in Vienna, Virginia. In July 1996,
the Company made a cash investment of $488,000 in ETNV and incurred
organizational costs of approximately $68,000 in connection with its formation,
thereby acquiring approximately 13.2% of the outstanding voting capital stock.
The number of days sales outstanding ("DSO") at January 31, 1998 declined
significantly from the number at January 31, 1997. Management believes that the
allowance for doubtful accounts of $527,000 at January 31, 1998 is adequate.
The Company's current balances of cash, cash equivalents and investments are
expected to provide sufficient cash to meet the Company's current projected
needs for the next fiscal year. Historically, the Company has used cash provided
primarily from sales of its common stock to fund its operating losses. If the
Company fails to achieve its operating plan for fiscal year 1999, the Company's
balance of cash, cash equivalents and marketable securities may be reduced
substantially. The Company may be required to pursue additional external sources
of financing to support its operations and capital requirements. There can be no
assurance that external sources of financing will be available to fund the
Company's ongoing operations or other capital requirements on terms acceptable
to the Company.
23
<PAGE>
Factors That May Affect Future Results
The Company's business environment is characterized by intense competition,
rapid technological changes, changes in customer requirements and emerging new
market segments. Consequently, to compete effectively, the Company must make
frequent new product introductions and enhancements while protecting its
intellectual property, retain its key personnel and deploy sales and marketing
resources to take advantage of new business opportunities. Future operating
results will be affected by the ability of the Company to expand its product
distribution channels and to manage the expected growth of the Company. Future
results may also be impacted by the effectiveness of the Company in executing
future acquisitions and integrating the operations of acquired companies with
those of the Company. Failure to meet any of these challenges could adversely
affect future operating results.
The Company's quarterly operating results have varied substantially in the past
and are likely to vary substantially from quarter to quarter in the future due
to a variety of factors. In particular, the Company's period-to-period operating
results are significantly dependent upon the timing of the closing of large
license agreements. In this regard, the purchase of the Company's products can
require a significant capital investment from a potential customer which the
customer generally views as a discretionary cost that can be deferred or
canceled due to budgetary or other business reasons and can involve long sales
cycles of six months or more. Estimating future revenues is also difficult
because the Company ships its products soon after an order is received and as
such does not have a significant backlog. Thus, quarterly license fee revenues
are heavily dependant upon a limited number of orders for large licenses
received and shipped within the same quarter. Moreover, the Company has
generally recorded a significant portion of its total quarterly license fee
revenues in the third month of a quarter, with a concentration of these revenues
occurring in the last half of that third month. This concentration of revenues
is influenced by customer tendencies to make significant capital expenditures at
the end of a fiscal quarter. The Company expects these revenue patterns to
continue for the foreseeable future.
Despite the uncertainties in its revenue patterns, the Company's operating
expenses are based upon anticipated revenue levels and such expenses are
incurred on an approximately ratable basis throughout a quarter. As a result, if
expected revenues are deferred or otherwise not realized in a quarter for any
reason, the Company's business, operating results and financial condition would
be materially adversely affected.
Primarily due to large operating losses incurred by the Company, its balance of
cash, cash equivalents and investments has declined substantially since the
proceeds of the private placement discussed above were received. Various
factors, including those discussed above, have somewhat inhibited the overall
revenue growth that management had expected for the last four quarters.
24
<PAGE>
As a result, near the end of the first quarter of fiscal year 1998, the
short-term revenue expectations of management were moderated and planned
expenditures were reduced. As discussed previously, the Company reduced its
workforce by approximately 10% from the number of employees at April 30, 1997.
In addition, the Company postponed certain long-range programs and curtailed
other expenses in order to achieve an overall reduction in expenditures.
Marketing efforts were focused on the increase of current year revenues. The
text development staff was focused on the completion of version 6.5 of the
Excalibur RetrievalWare product and the related FileRoom option, a product that
management believes has facilitated the transition of the installed customer
base of Excalibur EFS to Excalibur RetrievalWare. The Company began to ship
these products to customers in October 1997. The Company has also released the
Excalibur Internet Spider, a product that enhances the web crawling and web
publishing capabilities of Excalibur RetrievalWare, or other data management
systems, in Internet and intranet environments. In addition, the Company has
made other organizational changes in order to sharpen the focus of product
development and business development efforts on selected video applications of
the Excalibur Visual RetrievalWare technology.
Management believes that the changes and initiatives discussed above and the
investments of time and money in the training of the sales force, improved sales
productivity and the overall financial performance of the Company in the second,
third and fourth quarters of fiscal year 1998. Revenues for each of these
quarters were increased from first quarter revenues and the level of quarterly
costs and expenses was reduced. As a result, operating losses were reduced in
the second and third quarters of fiscal year 1998 and net income of $80
thousand, or $0.01 per common share was recorded in the fourth quarter of fiscal
year 1998. The use of cash was slowed during this period. Consequently, the
current balance of cash, cash equivalents and investments is expected to be
sufficient to fund the Company's current projected cash needs for the next
fiscal year. Historically, the Company has used primarily cash provided by sales
of its common stock to fund its operating losses. If the actions taken by
management are not effective in achieving profitable operating results, the
Company may be required to pursue additional external sources of financing in
the future to support its operations and capital requirements. There can be no
assurances that external sources of financing will be available if required, or
that such financing will be available on terms acceptable to the Company.
As of January 31, 1998, the Company had significant net operating loss
carryforwards ("NOLs") of approximately $67,066,000. The deferred tax assets
representing the benefits of the NOLs have been offset completely by a valuation
allowance due to the Company's lack of an earnings history. The Company incurred
a net loss of $8,326,000 for the fiscal year ended January 31, 1998 and has
incurred cumulative losses of approximately $16,383,000 over the last three
fiscal years. The accumulated deficit of the Company at January 31, 1998 was
$51,945,000. The realization of the benefits of the NOLs is dependent on
sufficient taxable income in future fiscal years. Lack of future earnings, or a
change in the ownership of the Company, could adversely affect the Company's
ability to utilize the NOLs. Further, because there was a change in the
ownership of ConQuest in fiscal year 1996, the Company's ability to utilize NOLs
relating to ConQuest of approximately $3,233,000 may be limited. Despite the NOL
carryforwards, the Company may have income tax liability in future years due to
the application of the alternative minimum tax rules of the Internal Revenue
Code.
25
<PAGE>
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company believes that inflation has not had a material effect on the results
of its operations to date.
Other Factors
The Company is in the process of identifying operating and application software
challenges related to the year 2000. While the Company expects to resolve year
2000 compliance issues substantially through normal replacement and upgrades of
software, there can be no assurance that there will not be interruption of
operations or other limitations of system functionality or that the Company will
not incur substantial costs to avoid such limitations. Any failure to
effectively monitor, implement or improve the Company's operational, financial,
management and technical support systems could have a material adverse effect on
the Company's business and consolidated results of operations.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board, ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997. SFAS No. 128
requires dual presentation of basic and diluted earnings per share ("EPS").
Basic EPS includes no dilution and is computed by dividing net loss available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted loss per share includes the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The Company has implemented SFAS No.
128 in fiscal year 1998 and it has had no material impact.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" were issued
and are effective for the fiscal year ending January 31, 1999. The Company is
evaluating these statements to determine the impact on its reporting and
disclosure requirements.
The American Institute of Certified Public Accountants has issued Statement of
Position 97-2, "Software Revenue Recognition," ("SOP 97-2") that supersedes
Statement of Position 91-1. SOP 97-2, "Software Revenue Recognition," is
effective for revenue transactions entered into by the Company in its fiscal
year ending January 31, 1999. Management believes that the changes contained in
SOP 97-2 will not have a material adverse financial impact on the Company.
26
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Financial statements and supplementary data of the Company are submitted as a
separate section of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
27
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information on directors and executive officers of the Company will be included
under the heading "Election of Directors" and elsewhere in the Company's
definitive Proxy Statement relating to the Annual Meeting of Shareholders to be
held on June 18, 1998 (the "Proxy Statement") which is incorporated herein by
reference.
Item 11. Executive Compensation.
Information on executive compensation will be included under the heading
"Executive Compensation" of the Proxy Statement incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information of beneficial ownership of the Company's voting securities by each
director and all officers and directors as a group and by any person known to
beneficially own more than 5% of any class of voting security of the Company
will be included under the heading "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information relating to certain relationships and related transactions will be
included under the heading "Certain Relationships and Related Transactions" in
the Proxy Statement incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of Form 10-K
1. Financial Statements:
The following financial statements of the Company are submitted in a
separate section pursuant to the requirements of Form 10-K, Part I,
Item 8 and Part IV, Items 14(a) and 14(d):
Index to Consolidated Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
28
<PAGE>
2. Schedules Supporting Financial Statements:
The following schedule is filed as part of this Annual Report on Form
10-K and should be read in conjunction with the Company's consolidated
financial statements:
Report of Independent Public Accountants, on Schedule
Schedule II, Valuation and Qualifying Accounts
All other schedules are omitted because they are not required,
are inapplicable, or the information is otherwise shown in the
consolidated financial statements or notes to the consolidated
financial statements.
3. Exhibits:
Exhibit Number and Description
------------------------------
2.01 Agreement and Plan of Merger Between Excalibur, Excalibur
Acquisition Corporation and ConQuest Software, Inc., dated
July 5, 1995. (2)
2.02 Agreement of Merger Between Excalibur, EXCA Acquisition
Corporation and Interpix Software Corporation, dated May 2,
1997.
3.01 Certificate of Incorporation of Excalibur Technologies
Corporation. (1)
3.02 Amendment of the Certificate of Incorporation dated
June 28, 1996. (6)
3.03 Bylaws of Excalibur Technologies Corporation. (1)
10.04 Consulting Agreement with James W. Dowe III, dated
July 1, 1990. (1)
10.05 Incentive Stock Option Plan, dated April 1989. (1)
10.06 Agreement and Plan of Merger Between Excalibur, Excalibur
Acquisition Corporation and ConQuest Software, Inc., dated
July 5, 1995. (2)
10.07 Employment Agreement, dated July 20, 1995, with Edwin R.
Addison. (4)
10.08 1995 Incentive Plan, dated November 1995. (3)
10.09 ConQuest Incentive Stock Option Plan, dated August 19,
1993. (4)
10.10 Office Lease (10440 Little Patuxent Parkway, Suite 800,
Columbia, Maryland), commencing January 1, 1996. (4)
29
<PAGE>
10.11 Office Lease (1959 Palomar Oaks Way, Carlsbad, California),
commencing November 15, 1995. (4)
10.12 Office Lease (1921 Gallows Road, Vienna, Va.), commencing
May 1996. (4)
10.13 Excalibur Technologies Corporation Employee Stock Purchase
Plan, effective August 1, 1996. (5)
10.14 Office Lease (4675 Stevens Creek Boulevard, Santa Clara,
California 95051), commencing July 1, 1997
22.01 Subsidiaries of Excalibur Technologies Corporation.
23.01 Consent of Arthur Andersen LLP, Independent Public
Accountants.
- ----------------------
(1) Incorporated herein by reference to Form 10-K for the year ended January
31, 1991, filed April 22, 1991.
(2) Incorporated herein by reference to Form 8-K, filed August 4, 1995.
(3) Incorporated herein by reference to the Proxy Statement for the 1995
Annual Meeting of Shareholders, dated October 16, 1995.
(4) Incorporated herein by reference to Form 10-K for the year ended January
31, 1996, filed April 30, 1996.
(5) Incorporated herein by reference to the Proxy Statement for the 1996
Annual Meeting of Shareholders, dated May 28, 1996.
(6) Incorporated herein by reference to Form 10-K for the year ended January
31, 1997, filed April 28, 1997.
(b) Reports on Form 8-K.
None.
30
<PAGE>
Index to Consolidated Financial Statements Page
Reports of Independent Public Accountants F-1, F-21
Consolidated Balance Sheets
As of January 31, 1998 and 1997 F-2
Consolidated Statements of Operations
For the fiscal years ended January 31, 1998, 1997 and 1996 F-3
Consolidated Statements of Shareholders' Equity
For the fiscal years ended January 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows
For the fiscal years ended January 31, 1998, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-7
Schedule II - Valuation and Qualifying Accounts
For the fiscal years ended January 31, 1998, 1997 and 1996 F-22
31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Excalibur Technologies Corporation:
We have audited the accompanying consolidated balance sheets of Excalibur
Technologies Corporation (a Delaware corporation) and subsidiaries as of January
31, 1998 and 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended January 31, 1998. 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 Excalibur Technologies
Corporation and subsidiaries as of January 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 1998 in conformity with generally accepted accounting
principles.
/s/ARTHUR ANDERSEN LLP
Washington, D.C.,
February 27, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
January 31,
------------------------
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................... $ 4,939 $ 2,685
U.S. government securities, at cost.......... 1,496 8,427
Accounts receivable, net..................... 9,189 9,383
Prepaid expenses and other .................. 1,071 1,655
--------- ---------
Total current assets.................... 16,695 22,150
Equipment and Leasehold Improvements, net....... 2,267 2,939
Other Assets.................................... 1,083 1,058
--------- ---------
$ 20,045 $ 26,147
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................. $ 2,106 $ 1,680
Accrued expenses............................. 1,886 2,310
Deferred revenues............................ 2,708 2,693
Deferred compensation........................ 247 901
--------- ---------
Total current liabilities............... 6,947 7,584
--------- ---------
Shareholders' Equity:
5% Cumulative convertible preferred stock,
$0.01 par value, preference in liquidation
$10 per share, 1,000 shares authorized;
27 shares issued and outstanding........ 271 271
Common stock, $0.01 par value, 40,000
Shares authorized; 13,179 and 12,449
shares issued and outstanding.......... 132 124
Additional paid-in capital................... 64,714 61,830
Accumulated deficit ......................... (51,945) (43,619)
Cumulative translation adjustment............ (74) (43)
--------- ---------
Total shareholders' equity.............. 13,098 18,563
--------- ---------
$ 20,045 $ 26,147
========= =========
The accompanying notes to the consolidated financial statements are an
integral part of these consolidated balance sheets.
</TABLE>
F-2
<PAGE>
<TABLE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
For the Fiscal Years Ended January 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Software ..................... $ 17,202 $ 15,866 $ 15,004
Maintenance .................. 5,215 4,393 3,671
-------- -------- --------
22,417 20,259 18,675
-------- -------- --------
Expenses:
Sales and marketing .......... 13,184 14,430 8,752
Research and product
development ................ 6,405 6,288 4,416
Acquired in-process research
and development ............ 1,284 -- --
General and administrative ... 4,884 3,906 3,330
Cost of software revenues .... 3,039 1,630 1,064
Cost of maintenance revenues.. 1,219 1,618 1,398
Restructuring costs .......... 577 -- 653
Merger costs ................. -- -- 490
-------- -------- --------
30,592 27,872 20,103
-------- -------- --------
Operating loss .................. (8,175) (7,613) (1,428)
Other income (expenses):
Interest income, net ......... 374 781 544
Equity in net loss of
affiliate ................... (525) (341) --
-------- -------- --------
Net loss ........................ (8,326) (7,173) (884)
Dividends on preferred stock .... 14 14 14
-------- -------- --------
Net loss applicable to
common stock ................. $ (8,340) $ (7,187) $ (898)
======== ======== ========
Basic and diluted net loss per
common share ................. $ (0.64) $ (0.58) $ (0.08)
======== ======== ========
Weighted-average number of
common shares outstanding .... 12,934 12,351 11,496
======== ======== ========
The accompanying notes to the consolidated financial statements are an
integral part of these consolidated statements.
</TABLE>
F-3
<PAGE>
<TABLE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<CAPTION>
Preferred Stock Common Stock Add'l Cumulative
--------------- ------------ Paid-in Deferred Accumulated Translation
Shares $ Shares $ Capital Comp. Deficit Adjust. Total
------ ----- ------ ---- -------- ------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1995. 27 $ 271 11,231 $112 $44,523 $ (38) $(35,367) $ (26) $ 9,475
Issuance of common stock
upon exercise of options.. - - 714 7 6,726 - - - 6,733
Issuance of common stock
for services.............. - - 8 - 36 - - - 36
Amortization of deferred
compensation.............. - - - - (13) 38 - - 25
Accrued dividends paid.... - - - - - - (14) - (14)
Translation adjustment.... - - - - - - - 61 61
Adjustment for change in
ConQuest fiscal year...... - - - - - - (181) - (181)
Net loss.................. - - - - - - (884) - (884)
------ ----- ------ ---- -------- ------- --------- ------ --------
Balance, January 31, 1996. 27 $ 271 11,953 $119 $51,272 - $(36,446) $ 35 $15,251
Issuance of common stock
upon exercise of options.. - - 146 1 1,416 - - - 1,417
Sale of common stock, net
of offering costs......... - - 350 4 8,384 - - - 8,388
Issuance of warrants to
ETNV investors............ - - - - 758 - - - 758
Translation adjustment.... - - - - - - - (78) (78)
Net loss.................. - - - - - - (7,173) - (7,173)
------ ----- ------ ---- -------- ------- --------- ------ --------
Balance, January 31, 1997. 27 $ 271 12,449 $124 $61,830 - $(43,619) $ (43) $18,563
Issuance of common stock
upon exercise of options.. - - 415 4 781 - - - 785
Issuance of common stock
for acquisition of
Interpix.................. - - 275 3 1,819 - - - 1,822
Issuance of common stock
for Employee Stock
Purchase Plan............. - - 40 1 284 - - - 285
Translation adjustment.... - - - - - - - (31) (31)
Net loss.................. - - - - - - (8,326) - (8,326)
------ ----- ------ ---- -------- ------- --------- ------ --------
Balance, January 31, 1998. 27 $ 271 13,179 132 $64,714 - $(51,945) $ (74) $13,098
====== ===== ====== ==== ======== ======= ========= ====== ========
The accompanying notes to the consolidated financial statements are an
integral part of these consolidated statements.
</TABLE>
F-4
<PAGE>
<TABLE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
For the Fiscal Years Ended
January 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss ................................... $ (8,326) $ (7,173) $ (884)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ........... 1,540 1,367 1,048
Acquired in-process research and
development costs........................ 1,284 -- --
Equity in net loss of affiliate ......... 525 341 --
Loss on disposal of assets .............. 2 36 66
Compensation paid in common stock ....... -- -- 36
Amortization of deferred compensation ... -- -- 25
Changes in operating assets and liabilities:
Accounts receivable, net ................ 254 (2,324) (3,289)
Prepaid expenses and other .............. 527 (767) (476)
Accounts payable and accrued expenses ... (193) (97) (41)
Deferred revenues ....................... 11 (86) (244)
Adjustment for change in fiscal year
of ConQuest.............................. -- -- (181)
-------- -------- --------
Net cash used in operating activities ... (4,376) (8,703) (3,940)
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of investments ................. (22,301) (17,959) (12,023)
Proceeds from maturities of investments.. 29,231 19,873 10,287
Purchases of equipment and leasehold
improvements............................. (757) (2,394) (541)
Loan to/Investment in affiliate ......... (95) (556) --
Acquisition, net of cash used ........... 55 -- --
-------- -------- --------
Net cash provided by (used in)
investing activities..................... 6,133 (1,036) (2,277)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds from notes payable ............. -- -- 238
Proceeds from the issuance of
common stock............................. 613 9,722 6,688
Dividends paid .......................... -- -- (14)
Repayment of notes payable .............. (40) (39) (549)
-------- -------- --------
Net cash provided by financing
activities............................... 573 9,683 6,363
-------- -------- --------
The Effect of Exchange Rate Changes
on Cash..................................... (76) (162) 112
-------- -------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents............................ 2,254 (218) 258
Cash and Cash Equivalents,
beginning of period......................... 2,685 2,903 2,645
-------- -------- --------
Cash and Cash Equivalents, end of period ... $ 4,939 $ 2,685 $ 2,903
======== ======== ========
The accompanying notes to the consolidated financial statements are an
integral part of these consolidated statements.
</TABLE>
F-5
<PAGE>
<TABLE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued, in thousands)
<CAPTION>
For the Fiscal Years Ended
January 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow
Information:
Cash paid for interest................... $ 2 $ 11 $ 61
========= ========= =========
Supplemental Disclosures of Noncash
Investing and Financing Activities:
Issuance of warrants to purchase
common stock............................. $ - $ 758 $ -
========= ========= =========
Stock options exercised under
deferred compensation arrangements....... $ 457 $ 83 $ 45
========= ========= =========
Issuance of common stock to acquire
Interpix................................. $ 1,822 $ - $ -
========= ========= =========
The accompanying notes to the consolidated financial statements are an
integral part of these consolidated statements .
</TABLE>
F-6
<PAGE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
Operations and Organization
The consolidated financial statements include the accounts of Excalibur
Technologies Corporation ("Excalibur") and its wholly-owned subsidiaries. These
entities are collectively referred to hereinafter as the "Company." All
significant intercompany transactions and accounts have been eliminated. Certain
amounts presented in the prior years' financial statements have been
reclassified to conform with the fiscal year 1998 presentation.
The Company designs, develops and markets knowledge retrieval software products
capable of supporting paper, text, image and video data. The Company offers
consulting, training, product maintenance and systems implementation services in
support of its software products. The Company licenses its software products
directly to commercial businesses and government agencies throughout North
America, Europe and other parts of the world and also distributes its software
products to end users through license agreements with value-added resellers,
system integrators, original equipment manufacturers and other strategic
partners.
The Company has incurred cumulative losses of approximately $16.4 million over
the last three fiscal years and the accumulated deficit of the Company at
January 31, 1998 was $51.9 million. The Company's operations are subject to
certain risks and uncertainties including, among others, the dependence upon the
timing of the closing of large software licenses; actual and potential
competition by entities with greater financial resources, experience and market
presence than the Company; rapid technological changes; the success of the
Company's product marketing and product distribution strategies; the risks
associated with acquisitions and international expansion; the need to manage
growth; the need to retain key personnel and protect intellectual property; and
the availability of additional capital financing on terms acceptable to the
Company.
The Company's current balances of cash, cash equivalents and investments are
expected to provide sufficient cash to meet the Company's current projected
needs for the next fiscal year. Historically, the Company has used cash provided
primarily from sales of its common stock to fund its operating losses. If the
Company fails to achieve its operating plan for fiscal year 1999, the Company's
balance of cash, cash equivalents and marketable securities may be reduced
substantially. The Company may be required to pursue additional external sources
of financing to support its operations and capital requirements. There can be no
assurance that external sources of financing will be available to fund the
Company's ongoing operations or other capital requirements on terms acceptable
to the Company.
F-7
<PAGE>
Acquisition of Interpix Software Corporation
On May 5, 1997, the Company acquired Interpix, located in Santa Clara,
California, a privately-owned company and developer of a commercial technology
enabling the collection, indexing, management and presentation of multimedia
data on the Internet and corporate intranets. The purchase method of accounting
has been applied to this acquisition transaction and, accordingly, the results
of operations of Interpix have been included in the Company's consolidated
results of operations for the period ended January 31, 1998 from the date of
acquisition. The results of operations for Interpix prior to the acquisition
were not material.
The shareholders of Interpix received 275,000 shares of common stock of
Excalibur in exchange for all of the outstanding common stock of Interpix. The
total purchase price included the value of the Excalibur shares totaling
$1,822,000 and out-of-pocket acquisition costs which totaled $45,000. The
purchase price was allocated to the assets purchased and the liabilities assumed
based upon their fair values on the date of acquisition. Approximately
$1,284,000 of the purchase price was allocated to research and development
projects in process and was expensed in the three month period ended July 31,
1997. The excess of the purchase price over the fair value of the net assets of
Interpix was approximately $545,000. This amount represents intangible assets
related to the completed technology base, the assembled workforce and tradenames
acquired and is being amortized on a straight-line basis over five years. The
amount of amortization for the year ended January 31, 1998 was approximately
$81,000.
Acquisition of ConQuest Software, Inc.
In July 1995, Excalibur acquired ConQuest, a private company located in
Columbia, Maryland, engaged in the business of providing natural language text
management software tools. The former shareholders of ConQuest received
approximately 1,427,000 shares of common stock of Excalibur in exchange for all
of the common stock of ConQuest. Outstanding options to purchase common stock of
ConQuest were converted into options to purchase approximately 572,000 shares of
Excalibur common stock. The acquisition was accounted for as a pooling of
interests and, as such, the accompanying consolidated financial statements
reflect the combined results of the pooled businesses for the respective periods
presented. In fiscal year 1996, the Company recorded a charge of approximately
$490,000 for the estimated transaction costs of completing the merger between
Excalibur and ConQuest. The costs included legal, accounting and other
professional fees of $363,000 and other costs of $127,000. These costs were paid
by January 31, 1996.
F-8
<PAGE>
Separate results of Excalibur and ConQuest for the periods preceding the
acquisition are as follows (in thousands):
Fiscal quarter
ended
April 30, 1995
Revenues: --------------
Excalibur, previously reported $ 2,801
ConQuest ...................... 840
---------
Total, as restated .............. $ 3,641
=========
Net Loss:
Excalibur, previously reported $ (466)
ConQuest ..................... (137)
---------
Total, as restated ............. $ (603)
=========
Prior to its acquisition by Excalibur, ConQuest reported operating results on a
calendar year basis. ConQuest's separate results for prior years have not been
restated to conform to the fiscal year of Excalibur. Therefore, ConQuest's
separate results of operations for the month ended January 31, 1995 are not
reflected in the consolidated statement of operations for the fiscal year ended
January 31, 1996. The revenues, operating loss and net loss of ConQuest for the
month ended January 31, 1995 were $138,000, $177,000 and $181,000, respectively.
(2) SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenues from the sale of computer software licenses are recognized upon
shipment of product provided that no significant vendor obligations remain and
that collection of the resulting receivable is considered probable. Revenues
related to agreements with customers that contain future performance
requirements are recognized when the performance requirements are satisfied.
Revenues related to customer support agreements are deferred and recognized
ratably over the term of the respective agreements, which are usually one year
in length.
The American Institute of Certified Public Accountants has issued Statement of
Position 97-2, "Software Revenue Recognition," ("SOP 97-2") that supersedes
Statement of Position 91-1. SOP 97-2, "Software Revenue Recognition," is
effective for revenue transactions entered into by the Company in its fiscal
year ending January 31, 1999. Management believes that the changes contained in
SOP 97-2 will not have a material adverse financial impact on the Company.
F-9
<PAGE>
Research and Development Costs
No product development costs were capitalized and there were no capitalized
costs not yet amortized, during the fiscal years ended January 31, 1998, 1997
and 1996.
Cash and Cash Equivalents
For purposes of the consolidated balance sheets and statements of cash flows,
the Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. U.S. government securities are
considered to be investments and are excluded from cash equivalents regardless
of their maturities. Cash equivalents consist of funds deposited in money market
accounts. Consequently, the carrying amount of cash and cash equivalents
approximates fair value.
Marketable Securities
Under Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," the Company classifies
its marketable securities as held-to-maturity securities. Accordingly,
marketable securities, consisting entirely of U.S. government securities, are
carried at cost, adjusted for premium and discount amortization. At January 31,
1998 and 1997, the aggregate fair value of the securities based upon quoted
market prices was $1,497,000 and $8,428,000 respectively.
Income Taxes
Deferred taxes are provided utilizing the liability method as prescribed by SFAS
No. 109, "Accounting for Income Taxes," whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
Depreciation and Amortization
Depreciation of office furniture and equipment is provided on a straight-line
basis over the estimated useful lives of the assets, generally three to ten
years. Amortization of leasehold improvements is provided on a straight-line
basis over the term of the applicable lease.
F-10
<PAGE>
Net Loss Per Common Share
In February 1997, the Financial Accounting Standards Board, ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997. The Company has
implemented SFAS No. 128 in fiscal year 1998. SFAS No. 128 requires dual
presentation of basic and diluted earnings per share ("EPS"). Basic EPS includes
no dilution and is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted loss per share includes the potential dilution that would occur
if securities or other contracts to issue common stock were exercised or
converted into common stock. Options to purchase 2,631,636 shares of common
stock, and warrants to purchase 148,500 shares of common stock with exercise
prices ranging from $1.04 to $22.50 per share, and cumulative convertible
preferred stock that were outstanding at January 31, 1998 were not included in
the computation of diluted loss per share as their effect would be
anti-dilutive. As a result, the basic and diluted loss per share amounts are
identical.
Translation of Foreign Financial Statements
Assets and liabilities of foreign operations are translated at the year-end rate
of exchange. Statements of operations are translated at the average rates of
exchange during the year. Gains or losses from translating foreign currency
financial statements are accumulated in a separate component of shareholders'
equity.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash equivalents, marketable securities and
accounts receivable. Management believes that the Company's investment policy
limits the Company's exposure to concentrations of credit risk. The Company
sells its products primarily to government agencies and to major corporations,
including distributors that serve a wide variety of U.S. and foreign markets.
The Company extends credit to its corporate customers based on an evaluation of
the customer's financial condition, generally without requiring a deposit or
collateral. Exposure to losses on receivables is principally dependent on each
customer's financial condition. The Company monitors its exposure for credit
losses and maintains an allowance for anticipated losses. The allowance for
doubtful accounts was $527,000 and $367,000 respectively, at January 31, 1998
and 1997.
Impairment of Long-lived Assets
The Company complies with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates whether future undiscounted net cash flows will be less than the
carrying amounts of net assets. Impairment is measured at fair value.
F-11
<PAGE>
(3) INVESTMENT IN AFFILIATE
In July 1996, the Company authorized the use of its name by Excalibur
Technologies N. V. ("ETNV"), a Belgian company incorporated in June 1996 for the
purpose of selling and marketing the Company's products and services within a
large territory including most of Northern Europe and Italy. The Company
contributed approximately $488,000 in cash to ETNV in consideration for 13.2% of
its voting capital stock. In connection with the organization of ETNV, the
Company issued warrants to purchase 148,500 shares of the Company's common stock
to certain shareholders of ETNV. The warrants are exercisable at a price of
$22.00 per share for seven years but only if ETNV achieves certain financial
objectives. The value of the warrants was estimated to be $758,000 and is
included at January 31, 1998 in the investment in affiliate account, net of
amortization, contained in the accompanying consolidated balance sheets.
The Company granted to ETNV an exclusive license (the "License") to distribute
certain of the Company's products to other authorized resellers and customers in
the territory for approximately five years. If the revenues of ETNV in the fifth
year exceed a certain level, the License shall automatically be renewed. If the
License is not renewed, the other shareholders of ETNV may exercise options to
sell their shares to the Company according to a revenue-based formula. The
Company recorded revenue of approximately $1,656,000 and $1,191,000 in the
fiscal years ended January 31, 1998 and 1997, respectively, related to the
License.
After a term of approximately five years, the Company may exercise an option to
purchase all of the capital stock of ETNV under certain conditions and at a
price determined in accordance with a revenue-based formula. In the event that
the Company does not exercise its option, the other shareholders are permitted
to sell their shares, subject to certain limitations, through a private sale or
public offering.
The Company's investment in ETNV is accounted for using the equity method. The
investment exceeded the Company's share of the underlying net assets of ETNV by
approximately $827,000. The excess is being amortized over a five-year period.
The amortization of the excess, as well as the Company's share of ETNV's net
loss for the period and the elimination of the Company's share of gross profit
included in ETNV's prepaid license fees at January 31, 1998 and January 31, 1997
is included in equity in net loss of affiliate in the accompanying consolidated
statements of operations for the fiscal year ended January 31, 1998 and January
31, 1997. At January 31, 1998, the investment balance, included in other assets
in the accompanying consolidated balance sheets net of accumulated amortization
and the Company's share of the net loss of ETNV, was $544,000. At January 31,
1997, the investment balance, included in other assets in the accompanying
consolidated balance sheets net of accumulated amortization and the Company's
share of the net loss of ETNV, was $973,000.
F-12
<PAGE>
(4) CAPITALIZATION
Stock Offerings
On March 8, 1996, the Company completed a private placement of 350,000 shares of
the Company's common stock at an offering price of $25.00 per share, resulting
in net proceeds of approximately $8,388,000. Allen & Company Incorporated
("Allen"), a shareholder of the Company, acted as the placement agent in this
transaction and received a fee of approximately $350,000.
Cumulative Convertible Preferred Stock
The cumulative convertible preferred stock is convertible into common stock at
the rate of 10 shares of common stock per share of cumulative convertible
preferred stock. Holders of the cumulative convertible preferred stock are
entitled to receive cumulative dividends of $0.50 per share per annum, payable
annually on April 1 if declared by the Board of Directors, in cash or shares of
common stock (to be determined by the Board of Directors) valued at the lower of
$1.00 per share or the market price on the date of declaration. The amount of
accumulated dividends that have not been declared or accrued at January 31, 1998
is approximately $42,000.
In the event of voluntary liquidation, dissolution or winding-up of the Company
or upon any distribution of assets, whether voluntary or involuntary, holders of
the convertible preferred stock would have a liquidation preference of $10 per
share, plus accrued and unpaid dividends.
(5) EMPLOYEE BENEFIT PLANS
Stock Options
The Company has adopted certain stock option plans to attract, retain and reward
key employees. The plans are administered by a Committee appointed by the Board
of Directors, which has the authority, among other things, to determine which
officers, directors and key employees are awarded options pursuant to the plans
and the terms and option exercise prices of the stock options. In addition, from
time to time, the Board of Directors awards stock options outside the plans; no
such awards occurred in fiscal years 1998 or 1997. Of the total number of shares
authorized for stock options, options to purchase 2,631,636 shares are
outstanding and 723,631 shares are available for future grants, including the
1,000,000 shares authorized by the Company's shareholders in June 1996.
Each qualified incentive stock option granted pursuant to the plans has an
exercise price equal to the fair market value of the common stock at the date of
grant, a ten-year term and typically a four-year vesting period. A non-qualified
option granted pursuant to the plans may contain an exercise price that is below
the fair market value of the common stock at the date of grant and/or may be
immediately exercisable. The term of non-qualified options is usually five or
ten years. The Company records expense related to certain non-qualified options
and other stock-based compensation based on the difference between the fair
market value of the stock at the date of award and the exercise price, if any,
over the vesting period. There was no expense related to stock-based
compensation awards recorded in the accounts during fiscal years 1998 and 1997.
There was $61,000 of such expense recorded in fiscal year 1996.
F-13
<PAGE>
The following table summarizes the Company's activity for all of its stock
option awards:
<TABLE>
<CAPTION>
Weighted-
Number of Range of Average
Options Exercise Prices Exercise Price
---------- --------------- --------------
<S> <C> <C> <C>
Balance, January 31, 1995 2,416,896 1.00 - 17.02 9.22
Granted 912,150 7.44 - 26.21 15.72
Exercised (713,905) 1.00 - 16.91 9.50
Canceled (197,363) 7.44 - 16.64 11.42
---------- --------------- --------------
Balance, January 31, 1996 2,417,778 1.04 - 26.21 11.41
Granted 473,500 13.00 - 29.64 18.72
Exercised (142,455) 2.07 - 16.64 10.21
Canceled (85,665) 9.54 - 29.64 18.41
---------- --------------- --------------
Balance, January 31, 1997 2,663,158 1.04 - 29.53 12.53
Granted 812,213 4.25 - 13.25 7.35
Exercised (413,060) 1.04 - 11.64 1.91
Canceled (430,675) 4.25 - 28.69 14.53
---------- --------------- --------------
Balance, January 31, 1998 2,631,636 $ 1.04 - 22.50 $ 7.81
========== =============== ==============
</TABLE>
On May 7, 1997, the Board of Directors authorized a repricing program which
allowed active current employees to elect to reprice all or some of their
outstanding options to purchase common stock of Excalibur, granted under the
1989 and the 1995 Incentive Plans and ranging in exercise price from $5.50 to
$29.53 per share, to $4.75, the closing price of Excalibur common stock on May
7, 1997. Options to purchase approximately 1,176,000 shares of common stock were
repriced. Stock options that were already vested and repriced were not
exercisable until November 8, 1997.
Options to purchase 1,530,918, 1,738,246 and 1,534,235 shares of the Company's
common stock were vested and exercisable at January 31, 1998, 1997 and 1996,
respectively, at weighted-average per share exercise prices of $8.89, $10.56 and
$9.37, respectively.
F-14
<PAGE>
The following table summarizes additional information about stock options
outstanding at January 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ---------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number of Contractual Exercise Number Exercise
Exercise Prices Options Life Price Exercisable Price
- ------------------ ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.04 to $ 4.63 319,223 7.41 years $ 3.54 200,847 $ 2.93
$ 4.75 1,218,825 7.47 4.75 655,204 4.75
$ 4.88 to $10.38 488,325 7.94 8.16 127,499 7.44
$10.50 to $17.02 505,013 4.85 14.84 447,275 15.21
$20.56 to $22.50 100,250 8.11 21.53 100,093 21.53
----------------- ----------- ----------- --------- ----------- ---------
2,631,636 7.07 years $ 7.81 1,530,918 $ 8.89
=========== =========== ========= =========== =========
</TABLE>
The Company adopted the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," effective for the Company's January 31, 1997
consolidated financial statements. The Company applies APB Opinion No. 25 and
related Interpretations in accounting for its plans. Accordingly, compensation
cost has been recognized for its stock plans based on the intrinsic value of the
stock option at date of grant (i.e., the difference between the exercise price
and the fair value of the Company's common stock).
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans made in fiscal years 1998, 1997 and 1996 consistent with the method of
SFAS No.123, the Company's net loss and loss per share would have been increased
to the pro forma amounts indicated below (amounts in thousands except per share
data).
1998 1997 1996
-------- -------- --------
Net loss, as reported .............. $ 8,326 $ 7,173 $ 884
Pro forma compensation expense...... 3,898 2,533 1,141
-------- -------- --------
Pro forma net loss.................. $12,224 $ 9,706 $ 2,025
======== ======== ========
Basic and diluted net loss per share,
as reported....................... $ 0.64 $ 0.58 $ 0.08
Basic and diluted net loss per share,
pro forma........................ 0.95 0.79 0.18
F-15
<PAGE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used for the
grants that occurred in fiscal year 1998; no dividend yield, expected volatility
of 65%, risk-free interest rates ranging from 5.7% to 6.5% and expected lives of
five years. Grants that occurred in fiscal years 1997 and 1996 used the
following assumptions; no dividend yield, expected volatility of 60%, a
risk-free interest rate of approximately 6.5% and expected lives of four years.
The weighted average fair value per share for stock option grants that were
awarded in fiscal years 1998, 1997 and 1996 was $4.24, $9.76 and $7.17,
respectively.
Employee Stock Purchase Plan
In June 1996, the Company's shareholders approved the adoption of a
non-compensatory stock purchase plan for all active employees. Of the 250,000
shares of common stock that were reserved for issuance thereunder, 40,252 shares
were purchased by employees in fiscal year 1998. The plan provides that
participating employees may purchase common stock each plan quarter at a price
equal to 85% of the closing price at the end of the quarterly period. Payment
for the shares is made through authorized payroll deductions of up to 10% of
eligible annual compensation.
Deferred Compensation
ConQuest entered into arrangements with certain of its officers, employees and
independent consultants to defer a portion of their compensation. Deferred
compensation of employees is restricted for use in the exercise of stock
options. However, if an employee's options expire because the option terms lapse
or because employment terminates, the employee may request cash redemption one
year after expiration, with 90 days notice. During fiscal years 1998, 1997 and
1996, deferred compensation of $654,000, $99,000 and $45,000, respectively, was
settled. The deferred consulting portion of the deferred compensation balance
was settled in fiscal year 1998. Pursuant to the merger with ConQuest, deferred
compensation of $88,000 was paid in cash in fiscal year 1996. Effective January
1, 1993, ConQuest revised the deferred compensation arrangements and
discontinued the accrual of interest on deferred compensation balances for
employees only. Accrued interest, which is included in the deferred compensation
balances on the accompanying consolidated statements, was $11,000, $73,000 and
$60,000 at January 31, 1998, 1997 and 1996, respectively.
Employee Savings Plan
The Company has an employee savings plan that qualifies under Section 401(k) of
the Internal Revenue Code. Under the plan, participating eligible employees in
the United States may defer up to 20 percent of their pre-tax salary, but not
more than statutory limits. During fiscal year 1996, the Company made a
discretionary contribution of $3,000 to the savings plan; no other such
contributions were made for fiscal years 1998 or 1997. ConQuest had a similar
plan established for the benefit of its employees that was merged into the
Company's plan effective December 31, 1996.
F-16
<PAGE>
(6) INCOME TAXES
As the Company incurred pretax losses for the fiscal year periods presented
herein, there are no income taxes provided in the accompanying statements of
operations. At January 31, 1998, the Company had net operating loss
carryforwards ("NOLs") of approximately $67,066,000 that expire at various dates
beginning in fiscal year 1999 through fiscal year 2013. The realization of the
benefits of the NOLs is dependent on sufficient taxable income in future fiscal
years. Lack of future earnings, a change in the ownership of the Company, or the
application of the alternative minimum tax rules could adversely affect the
Company's ability to utilize the NOLs. Further, because there was a change in
the ownership of ConQuest in fiscal year 1996, the Company's ability to utilize
NOLs related to ConQuest's operations of approximately $3,233,000 may be
limited. The Company's net deferred tax assets at January 31, 1998 and 1997 were
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards of
Excalibur, not yet utilized $ 24,256 $ 21,186
Net operating loss carryforwards of
ConQuest, not yet utilized 1,229 1,229
Other 427 1,113
--------- ---------
Total deferred tax assets 25,912 23,528
Valuation reserve (25,819) (23,464)
--------- ---------
93 64
(93) (64)
Deferred tax liabilities --------- ---------
Net deferred tax assets $ - $ -
========= =========
</TABLE>
Though management believes that future net operating income and taxable income
of the Company may be sufficient to utilize a substantial amount of the benefits
of the Company's net operating loss carryforwards and to realize its deferred
tax assets, a valuation allowance has been recorded to offset completely the
carrying value of the deferred tax assets due to the Company's lack of prior
earnings and the size of the accumulated deficit.
F-17
<PAGE>
(7) COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company conducts its operations using leased office facilities. The leases
terminate at various dates through fiscal year 2003. The Company also has
operating leases for automobiles at its foreign subsidiary that are included in
the figures below. Future minimum rental payments under non-cancelable operating
leases as of January 31, 1998, net of sublease payments, are as follows (in
thousands):
Year Ending
January 31,
-----------
1999 $ 1,138
2000 1,009
2001 777
2002 463
2003 8
----------
$ 3,395
==========
Total rental expense under operating leases, net of sublease income, was
approximately $1,190,000, $1,070,000 and $870,000 in fiscal years 1998, 1997 and
1996, respectively.
Employment Agreements
In connection with the merger with ConQuest, the Company entered into employment
agreements with four former officers of ConQuest. The employment agreements,
which expired in July 1997, provided for minimum aggregate annual salary
compensation of $548,000 plus incentive compensation.
(8) RESTRUCTURING COSTS
The Company reorganized its sales force and made other changes to its overall
organization in April 1997. In connection with these changes, the Company
reduced its workforce by approximately 10% and recorded a restructuring charge
of $577,000 in the first quarter of fiscal year 1998. The charge primarily
consisted of severance pay and medical and other severance benefits for nineteen
terminated employees in sales, development, marketing and administrative
functions. All payments associated with the restructuring charge were paid prior
to the end of fiscal year 1998.
F-18
<PAGE>
In fiscal year 1996, the Company completed an assessment of its personnel and
facilities requirements and finalized a corporate restructuring and relocation
plan. This plan included the relocation of the Company's corporate headquarters
from San Diego, California to Northern Virginia and the consolidation of the
product development and related customer support teams into two facilities. The
relocation was made to move corporate management closer to the Company's major
domestic and European customers and to better organize the technical staff to
support major product development initiatives. Consequently, the Company
recorded a restructuring charge of $653,000 in fiscal year 1996. This charge
consisted of severance payments to terminated employees, including a balance
payable to the Company's former Chief Executive Officer under an employment
agreement and lease abandonment costs. A substantial amount of the balance
accrued at January 31, 1996, was paid during fiscal year 1997, the remaining
balance was paid prior to the end of fiscal year 1998.
(9) OPERATIONS BY GEOGRAPHIC AREA
The major portion of the Company's sales to overseas customers during the three
most recent fiscal years was made by the Company's foreign subsidiary, ETIL,
which was established in the United Kingdom during fiscal year 1993. The
following table presents information about the Company's operations by
geographical area (in thousands):
Fiscal Years Ended January 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
Sales to unaffiliated customers:
North American operations $ 14,579 $ 14,319 $ 15,124
ETIL 7,838 5,940 3,551
--------- --------- ---------
$ 22,417 $ 20,259 $ 18,675
========= ========= =========
Net loss:
North American operations $ (8,165) $ (7,054) $ (597)
ETIL (161) (119) (287)
--------- --------- ---------
$ (8,326) $ (7,173) $ (884)
========= ========= =========
Identifiable assets:
North American operations $ 13,639 $ 21,942 $ 20,528
ETIL 6,406 4,205 2,518
--------- --------- ---------
$ 20,045 $ 26,147 $ 23,046
========= ========= =========
F-19
<PAGE>
(10) OTHER FINANCIAL DATA
a) Equipment and leasehold improvements at January 31, 1998 and 1997 consist of
the following (in thousands):
1998 1997
------ ------
Computer equipment $6,297 $5,693
Office furniture 1,220 1,118
Leasehold improvements 364 307
------ ------
7,881 7,118
Less accumulated depreciation 5,614 4,179
------ ------
$2,267 $2,939
====== ======
b) Accrued liabilities at January 31, 1998 and 1997
consist of the following (in thousands):
1998 1997
------ ------
Accrued compensation $1,292 $1,503
Accrued taxes 171 199
Accrued restructuring costs -- 41
Other 423 567
------ ------
$1,886 $2,310
====== ======
c) The Company paid legal fees and expenses totaling approximately $221,000 and
$361,000 in fiscal years 1997 and 1996 respectively to a law firm in which a
former director of the Company was a partner. No such fees were paid in fiscal
year 1998.
d) Revenues derived from contracts and orders issued by agencies of the U.S.
Government were approximately $5,379,000, $6,004,000 and $4,255,000,
respectively, in the fiscal years ended January 31, 1998, 1997 and 1996. These
revenues, expressed as a percentage of total revenues for the fiscal year, were
approximately 24%, 30% and 23%, respectively. No single customer accounted for
10% or more of the Company's revenue in the fiscal years ended January 31, 1998,
1997 and 1996.
(11) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," and SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information"
were issued and are effective for the fiscal year ending January 31, 1999.
The Company is evaluating these statements to determine the impact on its
reporting and disclosure requirements.
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Excalibur Technologies Corporation:
We have audited in accordance with generally accepted auditing standards,
the financial statements of Excalibur Technologies Corporation included in this
Form 10-K and have issued our report thereon dated February 27, 1998. Our audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ARTHUR ANDERSEN LLP
Washington, D.C.,
February 27, 1998
F-21
<PAGE>
SCHEDULE II
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------------------------
<TABLE>
<CAPTION>
Translation
Balance at Additions Deductions Adjustment Balance
Beginning Charged From During at End
Description of Year to Expense Reserves the Period of Year
- ------------ ------- ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
1998
- ----
Deducted from
accounts receivable:
For doubtful accounts $367,000 $250,000 $ 93,000 (a) $ 3,000 $527,000
1997
- ----
Deducted from
accounts receivable:
For doubtful accounts $375,000 $150,000 $156,000 (a) $(2,000) $367,000
1996
- ----
Deducted from
accounts receivable:
For doubtful accounts $374,000 $ 91,000 $ 96,000 (a) $ 6,000 $375,000
Note (a) - Uncollected receivables written off, net of recoveries.
</TABLE>
F-22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EXCALIBUR TECHNOLOGIES CORPORATION
By: /s/Patrick C. Condo
-------------------
Patrick C. Condo
President and Chief Executive Officer
Date: April 22, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Patrick C. Condo President, Chief Executive April 22, 1998
- --------------------- Officer and Director --------------
Patrick C. Condo (Principal Executive Officer)
/s/Donald R. Keough April 23, 1998
- ---------------------- Chairman of the Board --------------
Donald R. Keough
/s/James H. Buchanan Chief Financial Officer April 22, 1998
- --------------------- Secretary and Treasurer (Principal --------------
James H. Buchanan Financial and Accounting Officer)
/s/Richard M. Crooks, Jr. April 13, 1998
- ------------------------- Director --------------
Richard M. Crooks, Jr.
/s/John S. Hendricks April 15, 1998
- --------------------- Director --------------
John S. Hendricks
/s/W. Frank King III April 22, 1998
- --------------------- Director --------------
W. Frank King III
/s/John G. McMillian April 23, 1998
- --------------------- Director --------------
John G. McMillian
/s/Philip J. O'Reilly April 13, 1998
- --------------------- Director --------------
Philip J. O'Reilly
/s/Shaun C. Viguerie April 16, 1998
- --------------------- Director --------------
Shaun C. Viguerie
[EXECUTION COPY]
AGREEMENT AND PLAN OF MERGER
Between
EXCALIBUR TECHNOLOGIES CORPORATION,
EXCA ACQUISITION CORP.
and
INTERPIX SOFTWARE CORPORATION
Dated as of May 2, 1997
<PAGE>
TABLE OF CONTENTS
Page
AGREEMENT AND PLAN OF MERGER............................................... 1
ARTICLE I............................................................ 1
Section 1.1 The Merger................................... 1
Section 1.2 Effective Time of the Merger................. 1
ARTICLE II .......................................................... 1
Section 2.1 Articles of Incorporation......................... 1
Section 2.2 By-Laws........................................... 1
ARTICLE III - CONVERSION OF SHARES AT EFFECTIVE TIME................. 2
Section 3.1 Conversion of Shares
of Interpix Stock........................................ 2
Section 3.2 Recapitalizations................................. 2
Section 3.3 Closing........................................... 3
Section 3.4 Exchange of Stock Certificates.................... 3
Section 3.5 Legends on Certificates........................... 3
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
OF EXCALIBUR AND EAC.................................. 4
Section 4.1 Corporate Organization
and Good Standing........................................ 4
Section 4.2 Authorization; Binding Agreement................. 4
Section 4.3 Capitalization of Excalibur...................... 4
Section 4.4 Subsidiaries; Other Transactions................. 5
Section 4.5 Financial Statements
and SEC Reports.......................................... 5
Section 4.6 Absence of Certain Changes....................... 5
Section 4.7 No Finders, etc.................................. 5
Section 4.8 Consents and Approvals;
No Violations............................................ 5
Section 4.9 Litigation....................................... 6
Section 4.10 Excalibur Common Stock........................... 6
Section 4.11 Permits and Licenses............................. 6
Section 4.12 No Misrepresentations............................ 6
Section 4.13 Tax Free Status of Merger........................ 6
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF INTERPIX............... 7
Section 5.1 Corporate Organization
and Good Standing........................................ 7
Section 5.2 Authorization; Binding Agreement................. 7
Section 5.3 Capitalization of Interpix....................... 7
Section 5.4 Subsidiaries; Other Transactions................. 8
Section 5.5 Financial Statements............................. 8
Section 5.6 Absence of Certain Changes....................... 8
Section 5.7 No Finders, etc.................................. 8
Section 5.8 Consents and Approvals;
No Violations............................................ 8
Section 5.9 Litigation....................................... 9
Section 5.10 Certain Employment Matters;
Labor Relations.......................................... 9
(i)
<PAGE>
Section 5.11 Employee Benefit Plans........................... 9
Section 5.12 Property; etc.................................... 9
Section 5.13 Vote............................................. 10
Section 5.14 Tax Returns...................................... 10
Section 5.15 Intellectual Property............................ 10
Section 5.16 Contracts; Minutes............................... 12
Section 5.17 Permits and Licenses............................. 13
Section 5.18 Real Property, Environmental Matters............. 13
Section 5.19 No Misrepresentations............................ 13
Section 5.20 Insurance........................................ 14
ARTICLE VI - CONDUCT OF BUSINESS PENDING THE MERGER.................. 14
Section 6.1 Conduct of Business by Interpix Pending the
Merger................................................... 14
Section 6.2 Conduct of Business by Excalibur Pending
the Merger 15
ARTICLE VII - ADDITIONAL AGREEMENTS.................................. 16
Section 7.1 Access to Information............................. 16
Section 7.2 Confidentiality................................... 16
Section 7.3 Shareholders' Approval............................ 17
Section 7.4 Agreement to Cooperate............................ 17
Section 7.5 Public Statements................................. 17
Section 7.6 Employment Agreements............................. 17
Section 7.7 Registration Rights............................... 17
Section 7.8 Excalibur Employee Benefit Plans.................. 17
ARTICLE VIII - CONDITIONS............................................ 18
Section 8.1 Conditions to Each Party's Obligation to
Effect the Merger........................................ 18
Section 8.2 Conditions to Obligation of Interpix to Effect
the Merger............................................... 18
Section 8.3 Conditions to Obligation of Excalibur and EAC
to Effect the Merger..................................... 19
ARTICLE IX - TERMINATION, AMENDMENT AND WAIVER....................... 19
Section 9.1 Termination....................................... 19
Section 9.2 Effect of Termination............................. 20
Section 9.3 Amendment......................................... 20
Section 9.4 Waiver............................................ 20
ARTICLE X - GENERAL PROVISIONS....................................... 21
Section 10.1 Survival of Representations and Warranties
and Agreements........................................... 21
Section 10.2 Material Adverse Effect.......................... 21
Section 10.3 Additional Disclosures........................... 21
Section 10.4 Notices.......................................... 21
Section 10.5 Interpretation................................... 22
Section 10.6 Miscellaneous.................................... 22
Section 10.7 Counterparts..................................... 22
Section 10.8 Parties in Interest.............................. 22
Section 10.9 Arbitration...................................... 23
(ii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May , 1997 (the
"Agreement"), between and among Excalibur Technologies Corporation, a Delaware
corporation ("Excalibur"), EXCA Acquisition Corp., a Delaware corporation
("EAC"), which is a wholly-owned subsidiary of Excalibur, and Interpix Software
Corporation, a California corporation ("Interpix").
WHEREAS, the Boards of Directors of Excalibur, EAC, and Interpix
have approved the merger of Interpix with and into EAC (the "Merger") pursuant
to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
Section 1.1 The Merger. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined in Section 1.2 hereof) in
accordance with the General Corporation Law of the State of Delaware (the
"Delaware Act"), Interpix shall be merged with and into EAC in accordance with
this Agreement and a certificate of merger in the form attached hereto as
Exhibit 1.1 (the "Certificate of Merger"), and the separate existence of
Interpix shall thereupon cease. EAC shall be the surviving corporation in the
Merger (hereinafter sometimes referred to as the "Surviving Corporation").
Section 1.2 Effective Time of the Merger. Effective The Merger shall
become effective at such time (the "Effective Time") as a copy of the duly
completed and executed Certificate of Merger is filed in the Office of the
Secretary of State of the State of Delaware.
ARTICLE II
Section 2.1 Articles of Incorporation. The Articles of Incorporation
of EAC shall be the Articles of Incorporation of the Surviving Corporation after
the Effective Time.
Section 2.2 By-Laws. The By-laws of EAC shall be the By-Laws of the
Surviving Corporation after the Effective Time until the same shall be altered
or amended.
Section 2.3 Directors and Officers of EAC . The directors of EAC
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of EAC
<PAGE>
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed, as the case may be, and qualified.
ARTICLE III
CONVERSION OF SHARES AT EFFECTIVE TIME
Section 3.1 Conversion of Shares of Interpix Stock.
(a) Each share of Interpix Common Stock issued and outstanding at
the Effective Time, shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive .06807 shares
of Excalibur Common Stock (the "Exchange Ratio"). For the purposes of this
Agreement, "Interpix Common Stock" shall mean Interpix's Common Stock, without
par value; and "Excalibur Common Stock" shall mean Excalibur Common Stock, $0.01
par value per share. The Excalibur Common Stock to be received upon the
conversion of Interpix Common Stock pursuant to the Merger shall be referred to
herein as the "Merger Consideration."
(b) No fraction of a share of Excalibur Common Stock shall be
issued. Each holder of a certificate or certificates representing shares of
Interpix Common Stock issued and outstanding immediately prior to the Effective
Time who would otherwise be entitled to receive a fractional share of Excalibur
Common Stock (after taking into account all shares of Interpix Common Stock then
held by such holder) shall receive only the whole number of shares of Excalibur
Common Stock into which such holder's Interpix Common Stock is converted under
Section 3.1(a) above.
(c) Upon surrender and exchange of each outstanding certificate
theretofore representing shares of Interpix Common Stock, there shall be paid to
the record holders of the certificate or certificates of Excalibur Common Stock
issued in exchange therefor the amount, without interest thereon, of dividends
and other distributions declared and paid to shareholders of record subsequent
to the Effective Time with respect to the number of whole shares of Excalibur
Common Stock represented thereby.
Section 3.2 Recapitalizations. If Excalibur shall, at any time
before the Effective Time, (i) issue a dividend in shares of Excalibur Common
Stock, (ii) combine the outstanding Excalibur Common Stock into a smaller number
of shares, (iii) subdivide the outstanding Excalibur Common Stock, (iv)
reclassify the Excalibur Common Stock, or (v) otherwise increase or decrease the
total number of shares of issued and outstanding capital stock of Excalibur,
then, in such event, the Exchange Ratio shall be correspondingly adjusted.
2
<PAGE>
Section 3.3 Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Interpix, at
10:00 a.m., Local Time, on the business day immediately following the date on
which the last of the conditions set forth in Article VIII hereof is fulfilled
or waived, or at such other time and place as Excalibur and Interpix shall
agree.
Section 3.4 Exchange of Stock Certificates. At the Closing, the
Interpix Stockholders will surrender to EAC for cancellation the certificates
theretofore representing all of the shares of Interpix Common Stock issued and
outstanding at the Effective Time, and EAC will deliver to the Interpix
Stockholders certificates representing the Merger Consideration which shall have
been converted pursuant to the provisions of Section 3.1(a) and (b) above.
Section 3.5 Legends on Certificates. Each certificate representing
Excalibur Common Stock issued pursuant to this Agreement shall bear legends in
the form set forth below. Excalibur shall issue certificates without the first
of such legends upon (i) expiration of the applicable holding period then in
effect under Rule 144 under the Securities Act of 1933, as amended, or (ii)
transfer of such shares pursuant to a registration statement, whichever occurs
first; and shall issue certificates without the second of such legends upon
expiration of the applicable period of the Resale Agreement which is Exhibit
8.3(c) hereto (the "Resale Agreement").
TRANSFER OF THE SHARES REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR UNDER ANY SECURITIES OR SIMILAR LAWS OF ANY
STATE. THE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, TRANSFERRED
OR OTHERWISE DISPOSED OF, IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SUCH ACT AND LAWS, OR UNLESS SOLD PURSUANT TO
RULE 144 OF SUCH ACT.
TRANSFER OF THE SHARES REPRESENTED HEREBY IS SUBJECT TO A RESALE AGREEMENT
BETWEEN EXCALIBUR TECHNOLOGIES CORPORATION AND THE REGISTERED HOLDER
HEREOF, A COPY OF WHICH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF SUCH CORPORATION.
3
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EXCALIBUR AND EAC
Excalibur and its subsidiaries represent and warrant to Interpix as
follows:
Section 4.1 Corporate Organization and Good Standing. Excalibur and
each of its subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of their respective jurisdiction of
incorporation, with all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as it is now being
conducted, and is qualified or licensed to do business and is in good standing
in each jurisdiction in which the ownership or leasing of property by it or the
conduct of its business requires such licensing or qualification, except for
such failures to be so qualified or licensed which would not have a Material
Adverse Effect (as defined in Section 10.2 hereof) on Excalibur or any of its
subsidiaries.
Section 4.2 Authorization; Binding Agreement. Excalibur and EAC have
all requisite corporate power and authority to execute and deliver this
Agreement and to perform their obligations hereunder. The execution, delivery
and performance of this Agreement by Excalibur and EAC, and the consummation by
Excalibur and EAC of the transactions contemplated hereby, have been duly
authorized by Excalibur's Board of Directors and EAC's Board of Directors and
security holders, and no other corporate action or proceeding is necessary for
the execution, delivery and performance of this Agreement by Excalibur and EAC.
This Agreement has been duly and validly executed and delivered by Excalibur and
EAC and is a legal, valid and binding obligation of Excalibur and EAC,
enforceable against them in accordance with its terms except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditor's rights generally, by general
equitable principles and by any limitations on enforcement or indemnification
obligations in connection with the violation of laws as may be required by
public policy.
Section 4.3 Capitalization of Excalibur. As of the date hereof,
Excalibur and EAC have the authorized and outstanding capital stock set forth on
Schedule 4.3 Except as reflected on Schedule 4.3 or in the Excalibur SEC
Reports, as defined in Section 4.5, there are no outstanding subscriptions,
options, warrants, conversion rights or other rights or other agreements or
commitments providing for the issuance by Excalibur of any shares of capital
stock of Excalibur or any stock appreciation rights.
4
<PAGE>
Section 4.4 Subsidiaries; Other Transactions. Except as set forth in
Schedule 4.4 hereof, there are no subsidiaries of Excalibur. Excalibur owns the
issued and outstanding securities of such subsidiaries as described in Schedule
4.4 or in the SEC Reports.
Section 4.5 Financial Statements and SEC Reports. Excalibur
heretofore has delivered to Interpix true and complete copies of its Annual
Report on Form 10-K for the fiscal years ended January 31, 1996 and 1995, its
Form 10-Q for the period ended October 31, 1996, and its proxy statement
relating to its last meeting of its shareholders (these documents being
hereinafter referred to as "Excalibur SEC Reports"). As of their respective
dates, the Excalibur SEC Reports (i) complied in all material respects with the
applicable requirements of the Securities Act of 1933, as amended ("Securities
Act") and the Securities Exchange Act of 1934, as amended ("Exchange Act"), as
the case may be, and (ii) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The audited financial statements included in the
Excalibur SEC Reports were prepared in conformity with generally accepted
accounting principles applied on a consistent basis, and present fairly the
consolidated financial position, results of operations and cash flows of
Excalibur as of the dates and for the periods indicated.
Section 4.6 Absence of Certain Changes. At no time prior to the
Effective Time shall Excalibur or any of its subsidiaries have suffered any
Material Adverse Effect, or taken, failed to take or permitted to exist any
action that if taken, not taken or permitted to exist after the date of this
Agreement would constitute a breach of any of the covenants set forth herein.
Section 4.7 No Finders, etc. Neither Excalibur, EAC, nor any person
on behalf of either of them has employed any broker or finder or incurred any
liability for any financial advisory, brokerage or finder's fees or commissions
in connection with the transactions contemplated herein.
Section 4.8 Consents and Approvals; No Violations.
(a) Except for applicable requirements of the Exchange Act, the
Securities Act, state securities laws, and the filing of the Certificate of
Merger, no filing or registration with, no notice to and no permit,
authorization, consent or approval of any public or governmental body or
authority is necessary for the consummation by Excalibur and EAC of the
transactions contemplated by this Agreement.
(b) The execution, delivery and performance of this Agreement by
Excalibur and EAC will not (i) conflict with or result in any breach of any
5
<PAGE>
provision of the Certificate or Articles of Incorporation or By-laws of
Excalibur or any of its subsidiaries, (ii) result in a violation or breach of,
or constitute a default by Excalibur or any of its subsidiaries under any of the
terms of any agreement or other instrument or obligation to which Excalibur or
any of its subsidiaries is a party or by which any of them may be bound, or
(iii) violate any order, statute, rule or regulation of any court or
governmental authority applicable to Excalibur or any of its subsidiaries.
Section 4.9 Litigation. There is no lawsuit or similar proceeding or
investigation pending or, to the knowledge of Excalibur, threatened against or
involving Excalibur or any of its subsidiaries which would individually or in
the aggregate, if adversely determined, have a Material Adverse Effect on
Excalibur or any of its subsidiaries.
Section 4.10 Excalibur Common Stock. The Excalibur Common Stock
which will be issued in accordance with this Agreement has been duly authorized
and, when issued as contemplated hereby, will be validly issued, fully paid and
nonassessable.
Section 4.11 Permits and Licenses. Excalibur and each of its
subsidiaries has acquired and currently holds all permits, licenses, franchises,
authorizations, approvals and other certificates of authority as may be required
for Excalibur or its subsidiaries to conduct its business and the absence of
which would have a Material Adverse Effect on the business or operations of
Excalibur or any of its subsidiaries.
Section 4.12 No Misrepresentations. No representation or warranty by
Excalibur or EAC pursuant to this Agreement, contains or shall contain any
untrue statement of material fact or omits or shall omit to state a material
fact.
Section 4.13 Tax Free Status of Merger. Excalibur and EAC
acknowledge that the Merger is intended to qualify as a "reorganization" within
the meaning of Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as
amended (the "Code") and that the Merger is intended to be pursuant to a "plan
of reorganization" within the meaning of Section 354(a)(1) of the Code.
Excalibur and EAC agree to report the Merger in accordance with such intent for
United States income tax purposes. Excalibur represents that it has and at the
Closing will have no plan or intention to take any action and covenants to take
no action that would cause the Merger to fail to qualify as a "reorganization"
within the meaning of Section 368(a)(2)(D) of the Code.
6
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF INTERPIX
Interpix represents and warrants to Excalibur and EAC as follows:
Section 5.1 Corporate Organization and Good Standing. Interpix is a
corporation duly organized, validly existing and in good standing under the laws
of California, with all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as it is now being
conducted. Other than California, there is no jurisdiction in which the
ownership or leasing of property by it or the conduct of its business requires
such licensing or qualification. Interpix has delivered to Excalibur true and
correct copies of its Articles of Incorporation and By-laws as in effect on the
date hereof.
Section 5.2 Authorization; Binding Agreement. Interpix has all
requisite corporate powers and authority to execute and deliver this Agreement
and, subject to the requisite approval of its stockholders, to perform its
obligations hereunder. The execution, delivery and performance of this Agreement
by Interpix, and the consummation by Interpix of the transactions contemplated
hereby, have been duly authorized by Interpix's Board of Directors and no other
corporate action or proceeding on the part of Interpix is necessary for the
execution, delivery and performance of this Agreement by Interpix and the
consummation of the transactions contemplated hereby except for obtaining the
requisite approval of Interpix's shareholders. This Agreement has been duly and
validly executed and delivered by Interpix and is a legal, valid and binding
obligation of Interpix, enforceable against it in accordance with its terms
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, by general equitable principles and by any
limitations or enforcement or indemnification obligations in connection with the
violation of laws as may be required by public policy.
Section 5.3 Capitalization of Interpix. As of the date hereof, the
authorized capital stock of Interpix consists of 10,000,000 shares of Interpix
Common Stock, without par value. As of the date hereof, there were issued and
outstanding 4,040,000 shares of Interpix Common Stock. All of the outstanding
shares of Interpix Common Stock have been duly authorized and validly issued,
were not issued in violation of any person's preemptive rights and are fully
paid and nonassessable. There are no other outstanding options, warrants,
subscriptions, conversion rights or other rights, agreements or commitments
obligating Interpix to issue any additional shares of capital stock of Interpix
or any other securities convertible into, exchangeable for or evidencing the
right to subscribe for or acquire from Interpix any shares of the capital stock
7
<PAGE>
of Interpix, or any stock appreciation rights. To the knowledge of Interpix
there are no voting agreements, voting trusts or other restrictions on the
transfer of the shares of the capital stock of Interpix or limiting the voting
rights of any such shares, except for customary restrictions imposed by federal
and state securities laws.
Section 5.4 Subsidiaries; Other Transactions. There are no
subsidiaries of Interpix. Interpix does not own, directly or indirectly, any
capital stock or other equity securities of any corporation or have any direct
or indirect equity or ownership interest in any other business.
Section 5.5 Financial Statements. Schedule 5.5 consists of the
Balance Sheet of Interpix as of December 31, 1996 and a Statement of Net Income
for the 11 month period ended December 31, 1996, as prepared by Kim and Cha (the
"Financial Statements"). The Financial Statements fairly present the financial
condition of Interpix at December 31, 1996 and the results of operations of
Interpix for the period then ended. At December 31, 1996, Interpix did not have
any liabilities or obligations of any kind, including, to the best knowledge of
Interpix any contingent liabilities, which are not reflected in the Financial
Statements.
Section 5.6 Absence of Certain Changes. Since December 31, 1996,
Interpix has not and prior to Closing shall not have suffered any Material
Adverse Effect or taken, failed to take or permitted to exist any action that if
taken, not taken or permitted to exist after the date of this Agreement would
constitute a breach of any of the covenants set forth herein.
Section 5.7 No Finders, etc. Neither Interpix, nor any person on its
behalf, has incurred any liability for any financial advisory, brokerage or
finder's fee or commissions in connection with the transactions contemplated
herein.
Section 5.8 Consents and Approvals; No Violations.
(a) To the knowledge of Interpix, Interpix is not in violation of
any applicable law, order, rule, regulation, judgment, order, grant, license or
other governmental authorization or approval, issued or entered by any court or
governmental authority relating to or affecting the operation, conduct or
ownership of the property or business of Interpix.
(b) Except for applicable requirements of the Exchange Act, the
Securities Act, state securities laws, and the filing of Certificate of Merger,
no filing or registration with, no notice to and no permit, authorization,
consent or approval or any public or governmental body or authority is necessary
for the consummation by Interpix of the transactions contemplated by this
Agreement or to enable Interpix to continue to conduct its business after the
Effective Time in a manner which is consistent with that in which it is
presently conducted.
8
<PAGE>
(c) Except as set forth in Schedule 5.8(c), the execution, delivery
and performance of this Agreement by Interpix will not (i) conflict with or
result in any breach of any provisions of the Articles of Incorporation or
By-laws of Interpix, (ii) result in a violation or breach of, or constitute a
default by Interpix under any of the terms of any agreement or other instrument
or obligation to which Interpix is a party or by which it or any of its assets
may be bound or (iii) violate any order, statute, rule or regulation of any
court or governmental authority applicable to Interpix or any of its assets.
Section 5.9 Litigation. There is no lawsuit or similar proceeding or
investigation pending or, to the knowledge of Interpix, threatened against or
involving Interpix, or any properties or rights of Interpix.
Section 5.10 Certain Employment Matters; Labor Relations. Except as
set forth in Schedule 5.10(a), there are no written employment or consulting
agreements or contracts in effect between Interpix and any of its employees nor
any oral contracts or understandings of employment or consultation which are not
terminable upon the giving of notice not to exceed thirty (30) days. Except as
set forth on Schedule 5.10(b), Interpix has complied with all applicable laws,
rules and regulations relating to the employment of labor which could have a
Material Adverse Effect on the business of Interpix; and Interpix has no
unaccrued liability for any arrears of wages or any taxes or penalties for
failure to comply with any of the foregoing. Except as set forth in Schedule
5.10(b), there are no controversies pending, threatened or reasonably
anticipated between Interpix and any employee or former employee.
Section 5.11 Employee Benefit Plans. Interpix has no pension or
profit sharing plans, deferred compensation, consultant, bonus or group
insurance contract, or any other incentive, welfare, or employee benefit plan or
agreement maintained for the benefit of employees or former employees of
Interpix (for purposes of this Section 5.11, the "Benefit Plans").
Section 5.12 Property; etc. Except for leased property and as
specified in Schedule 5.12, Interpix has good, marketable and insurable title to
all of the property, tangible or intangible, owned or used by it, free and clear
of all encumbrances of any nature. All machinery, equipment, tools, furniture
and fixtures owned or leased by Interpix are in good operating condition and
repair. There are no outstanding enforcement actions or notices of violation
issued or threatened by any federal, state, county or municipal authority having
jurisdiction over any such property.
9
<PAGE>
Section 5.13 Vote. The affirmative vote of a majority of the votes
that holders of the outstanding shares of Interpix Common Stock, voting together
as a class, are entitled to cast is the only vote of the holders of Interpix's
capital stock necessary to approve this Agreement and the Certificate of Merger
and the transactions contemplated hereby.
Section 5.14 Tax Returns. As of the date hereof, Interpix has filed
all federal, state and other tax returns and reports required to be filed for
all periods on or before the due date (as extended by any valid extensions of
time) and has paid all taxes shown to be due by said returns. Interpix has not
been given or been requested to give waivers of any statutes of limitations
relating to the payment of taxes for any taxable period. Furthermore, to the
best knowledge of Interpix, no fact exists which would constitute grounds for
assessment of any further tax liability.
Section 5.15 Intellectual Property. As used herein, "Intellectual
Property Rights" means any and all rights existing from time to time in the
United States or any specified foreign jurisdiction under patent law, copyright
law, moral rights law, trade-secret law, semiconductor chip protection law,
trademark law, unfair competition law, or other similar rights.
(a) Schedule 5.15 sets forth all Intellectual Property Rights owned
by Interpix, including computer programs, computer software and proprietary
information, relating to products, processes therefor, apparatus and maintenance
thereof, research, computer software, manufacturing techniques, program files,
flow charts, drawings, techniques, source and executable codes, standards,
specifications, improvements, inventions, statistical data, development plans,
technologies, and manuals (both design and end-user), and all licenses or other
proprietary rights associated with any of the foregoing owned by Interpix and
all applications for any of the foregoing (together with all related trade
secrets and know-how, the "Interpix Intellectual Property Rights"). The Interpix
Intellectual Property Rights, together with the intellectual property rights
licensed by Interpix under agreements identified in Schedule 5.15 and other
information in the public domain, constitute all of the intellectual property
necessary to enable Interpix to conduct and to continue to conduct all phases of
its business (including products under development) in the manner presently
conducted or contemplated. To the best of its knowledge, Interpix has good title
to all of the Interpix Intellectual Property Rights set forth in Schedule 5.15,
free and clear of all liens, charges, encumbrances, licenses (exclusive or
nonexclusive) or grants of any other rights of any nature whatsoever, except as
set forth in Schedule 5.15. To the best of its knowledge, each of the Interpix
Intellectual Property Rights is valid and enforceable, and the making, using,
selling, reproductions in copies thereof, preparation of derivative works based
thereon, distribution of copies by sale or other transfer of ownership, or
otherwise, and the licensing and sublicensing of others, to do any of the
aforementioned acts with regard to any of the products or works under such
Interpix Intellectual Property Rights do not infringe any rights owned or held
by any other person.
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(b) To the best of Interpix's knowledge, the conduct of the business
of Interpix carried on is free from any infringement of Intellectual Property
Rights of others and there is no pending, or to the best of Interpix's
knowledge, threatened claim against Interpix for any infringement of any of the
foregoing. Neither Interpix, nor to its knowledge, any of their respective
employees or agents, has notified any persons or entity that it believes such
person or entity is infringing, or making any preparation to infringe, or
contributing to or inducing others to infringe, any of the Interpix Intellectual
Property Rights.
(c) Interpix has taken all reasonable measures to protect the
secrecy, confidentiality and value of its trade secrets and the Interpix
Intellectual Property Rights, and the same have not been disclosed to others
except pursuant to reasonable confidentiality agreements. All of the Interpix
Intellectual Property Rights subject to a patent or copyright are presently
valid and protectable and are not part of the public knowledge, nor to
Interpix's knowledge have they been used, divulged or appropriated for the
benefit of any past or present employees or other persons, or to the detriment
of Interpix.
(d) Other than the proceedings and challenges listed and identified
in Schedule 5.15 hereto, there is no pending or, to the knowledge of Interpix,
threatened, action, suit or other proceeding before any court, the United States
Patent Office, any foreign patent office, arbitrator or federal or state
administrative agency involving Interpix (i) that in any manner draws into
question the validity or enforceability of any of the Interpix Intellectual
Property Rights, or alleges that the products, systems or processes made or
practiced by Interpix infringe upon any patents, copyrights or other
intellectual property rights of others, (ii) in which there is a reasonable
possibility of an adverse decision or decisions which could otherwise prevent or
have a Materially Adverse Effect upon the right of Interpix to use, sell or
license the Interpix Intellectual Property Rights or (iii) in which Interpix or
its agents is or was alleged to have violated any legal restrictions, including
any competition law, with respect to such Interpix Intellectual Property Rights.
(e) Interpix's use of the trade names and trademarks listed in
Schedule 5.15, if any, has been continuous, and such names have never been
abandoned by Interpix.
(f) Except as shown on Schedule 5.15 hereto, Interpix is not aware
of (i) any circumstances that would prevent, delay or condition the issuance of
a pending patent or a copyright application covering any of the Interpix
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Intellectual Property Rights, or that would modify or reduce the coverage of
such patent or copyright as described in the application therefor, a copy of
which has been delivered to Excalibur, (ii) any prior art with respect to any
pending or issued patent or copyright or any of the Interpix Intellectual
Property Rights, or (iii) any protest, objection or challenge to any pending
patent or copyright application covering the Interpix Intellectual Property
Rights.
(g) Interpix has delivered true and correct copies of each patent,
copyright registration and applications therefor to Excalibur.
Section 5.16 Contracts; Minutes. Schedule 5.16A sets forth a
complete and correct list of the following contracts, whether written or oral,
to which Interpix is a party: (a) mortgages, debentures, notes or installment
obligations, or other instruments or contracts for the borrowing or lending of
money, including, without limitation, any agreements or arrangements relating to
the maintenance of compensating balances or the availability of a line of
credit; (b) license or development agreements, sales agency agreements,
marketing or distribution agreements (including rights licensed to Interpix by
another person); (c) guarantees of any obligation; (d) agreements for the sale
of any properties or assets of Interpix other than sales of products in the
ordinary course of business; (e) contracts, pursuant to which Interpix is or may
be obligated to make payments, contingent or otherwise, on account of or arising
out of the acquisition, prior, pending or future, of the business or other
assets of another enterprise; (f) secrecy or invention agreements under which
Interpix or, to Interpix's knowledge, any of the present officers or employees
of Interpix, has any obligation; (g) requirements contracts with Interpix as
purchaser or seller or other agreements for the purchase or sale of goods or
services not terminable without liability by Interpix on 30 days' notice; (h)
agreements of Interpix with, or loans or advances by Interpix to or from, or
other obligations of Interpix to or from any officer or director of Interpix;
(i) leases of real or personal property (whether as lessor or lessee), of
Interpix, involving rents of more than $25,000 per year; (j) agreements or
arrangements limiting the freedom of Interpix or, to Interpix's knowledge, any
of its present officers or employees, to compete in any line of business with
any person or other entity or in any geographical area, (k) insurance policies
(including fidelity and surety bonds) covering Interpix having a currently
unexpired term; (l) joint venture agreements or partnership, profit sharing or
other agreements; (m) agreements pursuant to which Interpix has indemnified or
shared tax liability with any party; (n) policies and procedures manuals with
respect to the Interpix employees; and (o) contracts, commitments or agreements
involving an annual commitment of $25,000 or more that are not referred to above
in Section 5.16 or in any other Schedule to this Agreement which relate to or
affect Interpix. Except as provided in Schedule 5.16B hereto, To the best of its
knowledge, Interpix and its subsidiaries are in compliance with all material
contracts and agreements to which Interpix is a party or by which Interpix is
bound (regardless of type of contract or annual sales volume), and to the
knowledge of Interpix, no other party is in breach thereof. Interpix has
provided to Excalibur and EAC true, correct and complete copies of all minutes
and/or consents of all actions taken by the shareholders and Board of Directors
of Interpix since the date of incorporation of Interpix.
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Section 5.17 Permits and Licenses. Interpix has acquired and
currently holds all permits, licenses, franchises, authorization, approvals and
other certificates of authority as may be required for Interpix to conduct its
business and the absence of which would have a Material Adverse Effect on the
business or operations of Interpix and copies of all such documents have been
provided to Excalibur. Interpix is in material compliance with all the terms
thereof, and Interpix is not aware of any reason why any such permit, license,
franchise, authorization, approval or other certificates of authority could not
be renewed on terms at least as advantageous to Interpix as the current license,
franchise, authorization, approval and other certificates of authority held by
Interpix. Interpix is not aware of any change in any law, rule or regulation,
whether or not yet effective, which is likely to require Interpix to obtain in
the future any additional license, franchise, authorization, approval or any
other certificates of authority, the absence of which would have a Material
Adverse Effect on the business or operations of Interpix.
Section 5.18 Real Property, Environmental Matters. Interpix does not
own any real property and is not a party to any agreement to acquire ownership
of any real property or any interests in real property other than leases of real
property, copies of which have been provided to Excalibur. Except as disclosed
on Schedule 5.18, Interpix has not (either with or without negligence) caused or
permitted the escape, disposal or release in violation of applicable law of any
biologically active or other hazardous substances, or materials causing harm in
or on any real property occupied by Interpix or utilized by Interpix in
conducting its business (the "Interpix Premises").
Section 5.19 No Misrepresentations. No representation or warranty by
Interpix in this Agreement, nor any statement, certificate or schedule furnished
or to be furnished by or on behalf of Interpix pursuant to this Agreement, when
taken together with the foregoing, contains or shall contain any untrue
statement of material fact or omits or shall omit to state a material fact.
Interpix has delivered true and complete copies of all documents referred to in
this Article V (or in any Schedule delivered by Interpix) to Excalibur or EAC.
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Section 5.20 Insurance. Interpix maintains insurance for the
protection of its business, properties and assets against such hazards and in
such amounts as is customary among businesses of a like size and nature as
Interpix. All such insurance is in full force and effect, and Interpix has
neither received nor given any notice of termination or reduction in coverage
thereunder.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Conduct of Business by Interpix Pending the Merger.
Except as otherwise expressly contemplated hereby, prior to the Effective Time,
Interpix shall:
(a) conduct its business in the ordinary and usual course of
business and consistent with past practice;
(b) not (i) amend or propose to amend its charter, by-laws, stock
purchase or option agreements, or other comparable organizational documents; or
(ii) split, combine or reclassify its outstanding capital stock or declare, set
aside or pay any dividend or distribution payable in cash, stock, property or
otherwise;
(c) not (i) authorize the issuance of, or issue, sell, pledge or
dispose of, or agree to issue, sell, pledge or dispose of, any additional shares
of, or any options, warrants or rights of any kind to acquire any shares of, its
capital stock or any securities convertible into or exchangeable for such
capital stock, except issuance of shares of Interpix Common Stock pursuant to
the exercise of stock options outstanding on the date hereof; (ii) sell, lease,
dispose of or encumber any material assets or interests therein; except in the
ordinary course of business (iii) redeem, purchase, acquire or offer to purchase
or acquire any shares of its capital stock; (iv) borrow additional funds or make
additional advances as loans; or (v) enter into any agreement or arrangement
with respect to any of the foregoing;
(d) use its best efforts to preserve intact its business
organization and goodwill, keep available the services of its present officers
and key employees, and preserve the goodwill and business relationships with
suppliers, distributors, customers, and others having business relationships
with it;
(e) promptly notify Excalibur of any event having a Material Adverse
Effect on Interpix or any of its subsidiaries;
(f) not acquire any substantial part of the business or capital
stock of any person not a party to this Agreement;
(g) not initiate, solicit, encourage or respond positively to, and
will direct any officer, director, employee, or agent employed or retained by
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Interpix not to initiate, solicit, encourage or respond positively to any
proposal or offer to acquire all or any substantial part of the business and
properties or capital stock of Interpix or to provide information about Interpix
to any prospective acquirer;
(h) promptly notify Excalibur if it receives any proposal or offer
to acquire all or any substantial part of the business and properties or capital
stock of Interpix;
(i) not enter into or amend any employment, severance, bonus,
special pay arrangement with respect to termination of employment or other
similar arrangements or agreements with any directors or officers;
(j) not adopt, enter into or amend any bonus sharing, compensation,
stock option, pension, retirement, deferred compensation, health care,
employment or other employee benefit plan, agreement, trust, fund or arrangement
for the benefit or welfare of any employee or retiree, except as required to
comply with changes in applicable law occurring after the date hereof;
(k) not transfer or license to any person or entity or otherwise
extend, amend or modify any rights to the Interpix Intellectual Property Rights
other than in the ordinary course of business;
(l) not to initiate any lawsuit or similar proceeding, except for
the routine collection of invoices;
(m) not to make, or commit to make, any expenditures, individually
or in the aggregate, in excess of $25,000.
(n) not take or agree to take any action which would or which, with
the passage of time, would make any representation or warranty contained in
Article V untrue or incorrect in any material respect as of the time of the
Closing.
Section 6.2 Conduct of Business by Excalibur Pending the Merger.
Except as otherwise expressly contemplated hereby, prior to the Effective Time,
Excalibur and each of its subsidiaries shall:
(a) conduct its businesses in the ordinary and usual course of
business and consistent with past practice;
(b) use its best efforts to preserve intact its business
organization and goodwill, keep available the services of its present officers
and key employees, and preserve the goodwill and business relationships with
suppliers, distributors, customers, and others having business relationships
with it, to the extent that such relationships are deemed to be in the best
interest of Excalibur or its subsidiaries;
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(c) promptly notify Interpix of any event having a Material Adverse
Effect on Excalibur or its subsidiaries;
(d) not take or agree to take any action which would or which, with
the passage of time, would make any representation or warranty contained in
Article IV untrue or incorrect in any material respect as of the time of the
Closing.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information. (a) Interpix shall afford to
Excalibur and its accountants, counsel, and other representatives reasonable
access during normal business hours and upon reasonable notice throughout the
period prior to the Effective Time such information concerning its business,
properties and personnel as Excalibur may reasonably request. Interpix shall
promptly advise Excalibur in writing of any change or occurrence of any event
after the date of this agreement having, or which, insofar as can reasonably be
foreseen, in the future may have, a Material Adverse Effect on Interpix.
(b) Excalibur and its subsidiaries shall afford to Interpix and its
accountants, counsel and other representatives reasonable access during normal
business hours and upon reasonable notice throughout the period prior to the
Effective Time such information concerning their respective businesses,
properties and personnel as Interpix may reasonably request. Excalibur and its
subsidiaries shall promptly advise Interpix in writing of any change or
occurrence of any event after the date of this Agreement having, or which,
insofar as can reasonably be foreseen, in the future may have, a Material
Adverse Effect on Excalibur.
Section 7.2 Confidentiality. Each of Excalibur and its subsidiaries
and Interpix acknowledges that it has had access to confidential information
relating to the others' business, and hereby covenants and agrees that it shall
not directly or indirectly use it for its own behalf or divulge to any third
party any confidential information or trade secrets of the other. As used
herein, confidential information shall consist of all information, knowledge or
data furnished pursuant to this Article VII or otherwise, relating to the
business of either party (including without limitation the Interpix Intellectual
Property Rights, and all other information relating to inventions, production
methods, customer and prospective customer lists, prices and trade practices)
which is not in the public domain or otherwise published or publicly available.
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Section 7.3 Shareholders' Approval. Concurrent with the execution of
this Agreement, all of the shareholders of Interpix shall have executed a
consent, approving this Agreement and the transactions contemplated hereby.
Section 7.4 Agreement to Cooperate. Each of the parties hereto shall
use reasonable efforts to do all things necessary, proper or advisable to cause
all of the conditions herein to Closing to be satisfied and to consummate and
make effective the transactions contemplated by this Agreement.
Section 7.5 Public Statements. The parties shall consult with each
other prior to issuing any public announcement or statement with respect to this
Agreement or the transactions contemplated hereby and shall not issue any such
public announcement or statement prior to such consultation, except as may be
required by law.
Section 7.6 Employment Agreements. At the Closing, Excalibur shall
enter into employment and confidentiality agreements with the employees of
Interpix listed on Schedule 7.6 hereto in the forms set forth in Exhibit 7.6.
Section 7.7 Registration Rights.
(a) Excalibur shall prepare and file with the Securities and
Exchange Commission ("SEC") and use its reasonable best efforts to cause to
become effective registration statements covering the shares of Excalibur Common
Stock to be issued pursuant to this Agreement in accordance with a schedule
approved by the Board of Directors of Excalibur that shall be consistent with
the terms of the Resale Agreement. Registration of the Common Stock issued
pursuant to this Agreement shall be according to the Registration Schedule and
shall commence twelve (12) months after the date of Closing. The parties hereto
acknowledge that in accordance with Rule 144 under the Securities Act, Excalibur
Common Stock issued pursuant to this Agreement should, as a matter of law, be
eligible for public sale without the requirement of registration with the SEC
after one year from issuance.
Section 7.8 Excalibur Employee Benefit Plans. After the Effective
Time, all Excalibur employees who had formerly been employees of Interpix shall
be entitled to all of the employee benefit plans and agreements presently or
hereafter maintained or adopted for the benefit of Excalibur employees, and for
purposes thereof, each such former Interpix employee shall be deemed to have
been employed by Excalibur beginning on the date that he or she became employed
by Interpix.
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ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) This Agreement and the transactions contemplated hereby shall
have been approved and adopted by the requisite vote of the shareholders of
Interpix, under applicable law, as herein provided;
(b) No order or decree by any federal or state court which affects
the Merger shall have been issued and effective as of the Effective Time;
(c) All governmental consents and approvals required by law for the
consummation of the Merger shall have been obtained and be in effect at the
Effective Time.
Section 8.2 Conditions to Obligation of Interpix to Effect the
Merger. The obligation of Interpix to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Each of Excalibur or EAC shall have performed in all material
respects its agreements contained in this Agreement required to be performed by
it at or prior to the Effective Time and the representations and warranties of
Excalibur and EAC contained in this Agreement shall be true and correct in all
material respects as of the Effective Time, and Interpix shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of
Excalibur to that effect;
(b) Interpix shall have received an opinion addressed to Interpix
from Werbel & Carnelutti, counsel to Excalibur dated the Effective Time,
substantially in the form set forth in Exhibit 8.2(b) hereto;
(c) Since the date hereof, no event having a Material Adverse Effect
on Excalibur or any of its subsidiaries shall have occurred;
(d) Excalibur and EAC shall deliver to Interpix such certificates
and other documents as Interpix shall reasonably request;
(e) Excalibur shall enter into employment and confidentiality
agreements with the employees of Interpix listed on Schedule 7.6 hereto in the
forms set forth in Exhibit 7.6.
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Section 8.3 Conditions to Obligation of Excalibur and EAC to Effect
the Merger. The obligation of Excalibur and EAC to effect the Merger shall be
subject to the fulfillment or written waiver by Excalibur and EAC at or prior to
the Effective Time of the additional following conditions:
(a) Interpix shall have performed in all material respects its
agreements contained in this Agreement required to be performed by it at or
prior to the Effective Time and the representations and warranties of Interpix
contained in this Agreement shall be true and correct in all material respects
as of the Effective Time, and Excalibur shall have received a Certificate of the
Chief Executive Officer and Chief Financial Officer of Interpix to that effect;
(b) Excalibur shall have received an opinion from Brian Fraser,
counsel to Interpix, dated the Effective Time, substantially in the form set
forth in Exhibit 8.3(b) hereto;
(c) Each of the shareholders of Interpix shall enter into Resale
Agreements with the Company in the form of Exhibit 8.3(c) hereof;
(d) Since the date hereof, no event having a Material Adverse Effect
on Interpix or any of its subsidiaries shall have occurred; and
(e) Interpix shall deliver to Excalibur and EAC such certificates
and other documents as Excalibur and EAC shall reasonably request.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, whether before or after approval by the shareholders of Interpix.
(a) by mutual consent of Excalibur and Interpix; or
(b) by either Excalibur or Interpix if any court of competent
jurisdiction in the United States or any State shall have issued an order,
judgment or decree (other than a temporary restraining order) restraining,
enjoining or otherwise prohibiting the Merger; or
(c) by Excalibur or EAC (i) if there has been (A) a material breach
of any covenant or agreement herein on the part of Interpix which has not been
cured within 15 business days following receipt of notice of such breach, or (B)
any material representation or warranty of Interpix or any of its subsidiaries
herein is untrue or misleading in any substantial respect, or (ii) if a
condition to Excalibur's or EAC's obligation to close the Merger as set forth in
Sections 8.1 or 8.3 is not satisfied or waived by Excalibur or EAC in writing on
or before May 9, 1997; or
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(d) by Interpix (i) if there has been (A) a material breach of any
covenant or agreement herein on the part of Excalibur or any of its subsidiaries
which has not been cured within 15 business days following receipt of notice of
such breach or (B) any material representation or warranty of Excalibur or any
of its subsidiaries herein is untrue or misleading in any substantial respect,
or (ii) if a condition to Interpix's obligation to close the Merger as set forth
in Sections 8.1 or 8.2 is not satisfied or waived by Interpix in writing on or
before May 9, 1997.
Section 9.2 Effect of Termination. In the event of termination of
this Agreement by either Excalibur or Interpix, as provided in Section 9.1, this
Agreement shall forthwith become void, and there shall be no liability on the
part of either Interpix or Excalibur or their respective officers or directors,
provided that nothing in this Section 9.2 shall relieve any party to this
Agreement from liability for its material breach of any covenant or agreement
hereunder, or any material breach of any representation or warranty known to
such party to be untrue at the time it is made or that was not otherwise made by
such party in good faith. Upon any termination of this agreement, the parties
shall return to the other, or destroy, all confidential information received
from the other and shall confirm in writing to the other such return or
destruction.
Section 9.3 Amendment. This Agreement may be amended by the parties
hereto, at any time before or after approval hereof by the shareholders of
Interpix and before the Effective Time but, after any such approval, no
amendment that materially adversely affects the rights of the Interpix
shareholders or the Merger Consideration to be received by them shall be made
without the further approval of such shareholders. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 9.4 Waiver. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein; provided, however, that waiver of
compliance with any agreements or conditions herein shall not limit the parties'
obligations to comply with all other agreements or conditions herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
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ARTICLE X
GENERAL PROVISIONS
Section 10.1 Survival of Representations and Warranties and
Agreements. All representations, warranties and agreements in this Agreement
shall expire as of the Effective Time.
Section 10.2 Material Adverse Effect. For purposes of this
Agreement, "Material Adverse Effect" shall mean any materially adverse change in
or effect on the business, operations, properties, assets, liabilities,
financial condition, results of operations or prospects of a party to this
Agreement and its subsidiaries taken as a whole.
Section 10.3 Additional Disclosures. From time to time prior to the
Effective Time, each party hereto shall promptly provide written disclosures to
the other with respect to any matter which is necessary to correct any
information contained in any representation or warranty of such party that has
been rendered inaccurate thereby. Notwithstanding the foregoing, any additional
disclosure shall not be deemed to modify any representation or warranty set
forth herein, provided that if the Merger does occur, such representations and
warranties, without any further action by any of the parties hereto, shall be
deemed amended as of the date of this Agreement to include such disclosure, and
no breach of warranty or representation shall be deemed to have occurred as a
result of such disclosure or discovery.
Section 10.4 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or mailed by registered or certified mail (return receipt requested) or sent by
a private delivery service such as Federal Express, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) If to Excalibur, to:
Excalibur Technologies Corporation
1921 Gallows Road, Suite 200
Vienna, VA 22182
Attn.: Patrick C. Condo, President
with a copy to:
Werbel & Carnelutti
711 Fifth Avenue
New York, NY 10022
Attn.: Robert H. Werbel, Esq.
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(b) If to Interpix, to:
Interpix Software Corporation
4675 Stevens Creek Boulevard
Santa Clara, CA 95051
Attn.: Alex Ho, President
with a copy to:
Brian Fraser, Attorney-at-Law
6114 LaSalle Avenue, Suite 646
Oakland, CA 94611
Section 10.5 Interpretation. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Disclosure of any fact or item in
any disclosure schedule hereto referenced by a particular section in this
Agreement shall, should the existence of the fact or item or its contents be
relevant to any other section, be deemed to be disclosed with respect to that
other section whether or not an explicit cross reference appears.
Section 10.6 Miscellaneous. This Agreement (including the documents
and instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties or any of them, with respect to the subject matter hereof; (b)
is not intended to confer upon any third party other than the Interpix
stockholders, to the extent specified herein, any rights or remedies hereunder;
(c) shall not be assigned by operation of law or otherwise; and (d) shall be
governed in all respects, including validity, interpretation and effect, by the
laws of the State of Delaware (without giving effect to the provisions thereof
relating to conflicts of law). The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
Section 10.7 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement. Facsimile signatures shall be
binding on all parties upon delivery thereof.
Section 10.8 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto and the Interpix
stockholders, to the extent specified herein, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under this Agreement.
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Section 10.9 Arbitration. Except for any claim or dispute which
gives rise or could give rise to equitable relief under this Agreement, any
disagreement, dispute or controversy arising under this Agreement shall be
settled exclusively and finally by arbitration. The arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA Rules") in Santa Clara County, California or
in such other city as the parties to the dispute may designate by mutual
consent. The arbitration tribunal shall consist of three arbitrators (or such
lesser number as may be agreed upon by the parties) selected according to the
procedure set forth in the AAA Rules in effect on the date hereof. The chairman
of the arbitration tribunal shall be appointed by the American Arbitration
Association from among the three arbitrators so selected. The fees and expenses
of the arbitration tribunal incurred in connection with such arbitration shall
be borne equally by the parties to the arbitration or otherwise as the
arbitrators may determine.
IN WITNESS WHEREOF, each of the parties hereto have executed this
agreement on the date first above written.
EXCALIBUR TECHNOLOGIES CORPORATION
By: /s/Gordon Short
---------------------
Name: Gordon Short
Title: Vice President
EXCA ACQUISITION CORP.
By: /s/Gordon Short
---------------------
Name: Gordon Short
Title: Vice President
INTERPIX SOFTWARE CORPORATION
By: /s/David Steele
---------------------
Name: David Steele
Title: CEO
92198
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SCHEDULES
TO
AGREEMENT AND PLAN OF MERGER
AMONG
EXCALIBUR TECHNOLOGIES CORPORATION,
EXCA ACQUISITION CORP.
AND
INTERPIX SOFTWARE CORPORATION
Schedule 4.3 Capitalization of Excalibur
Schedule 4.4 Subsidiaries of Excalibur
Schedule 5.5 Financial Statements of Interpix
Schedule 5.8(c) Requisite Consents
Schedule 5.10(a) Interpix Employment and Consulting Agreements
Schedule 5.10(b) Certain Interpix Employment Matters
Schedule 5.12 Interpix Exceptions to Title to Property
Schedule 5.15 Intellectual Property of Interpix
Schedule 5.16A Interpix Contracts
Schedule 5.16B Interpix Non-Compliance with Contracts
Schedule 5.18 Interpix Environmental Matters
Schedule 7.6 Interpix Employees Executing Employment Agreements
92198
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STANDARD OFFICE LEASE
1. Basic Lease Provisions ("Basic Lease Provisions")
1.1 Parties: This Lease, dated, for reference purposes only, July 1 , 1997
, is made by and between STEVENS CREEK OFFICE CENTER OF SANTA CLARA , (herein
called "Landlord") and EXCALIBUR TECHNOLOGIES CORPORATION, a Delaware
corporation, , (herein called the "Tenant").
1.2 Building: Commonly described as being located at 4675 Stevens Creek
Boulevard , in the City of Santa Clara, County of Santa Clara, State of
California, as more particularly described in Exhibit "A" hereto, and as defined
in paragraph 2.
1.3 Premises: Suite Number(s) #230 , on the second floor, consisting of
approximately 1,339 rentable square feet , more or less, as defined in paragraph
2 and subject to Attached Addendum to Lease , and as shown on Exhibit(s) "B@ and
"B-1" , hereto (the Premises").
1.4 Use: General office and administrative, including software engineering,
as well as other landlord approved uses, subject to paragraph 6.
1.5 Term: Thirty-six (36) months, commencing July 1, 1997 ("Commencement
Date") and ending June 30, 2000, ("Termination Date") as defined in paragraph 3.
1.6 Base Rent: : See: Attached Addendum to Lease, per month, payable on the
first (1st) day of each month, per paragraph 4.1
1.7 Base Rent Increase: See: Attached Addendum to Lease the monthly Base
Rent payable under paragraph 1.6 above shall be adjusted as provided in the
Addendum to Lease.
1.8 Rent Paid Upon Execution: Four Thousand Nine Hundred Ninety-Six Dollars
and Eighty-Five Cents ($4,996.85) : for the month of July 1997 for Suite #230,
September 1997 for Suite #220 and November 1997 for Suite #224 .
1.9 Security Deposit: Two Thousand Dollars and No Cents ($2,000.), is
currently being held by Landlord for the benefit of Interpix Software
Corporation, said Tenant having been acquired by Excalibur Technologies
Corporation. Said sum is being transferred from that certain Lease Agreement
dated June 5, 1996, between Stevens Creek Office Center (Landlord) and Interpix
Software Corporation (Tenant) upon expiration of said Lease for the benefit of
Excalibur Technologies. Tenant hereby agrees to increase said deposit by the sum
of Three Thousand Dollars and No Cents ($3,000.) increasing the security deposit
to a total sum of Five Thousand Dollars and No Cents ($5,000.) upon execution of
this lease agreement.
1.10 Tenant's Share of Operating Expense Increase: 4.050 % as defined in
paragraph 4.2.
2. Premises, Parking and Common Areas.
<PAGE>
2.1 Premises: The Premises are a portion of a building, herein referred to
as the "Building" in paragraph 1.2 of the Basic Lease Provisions. "Building"
shall include adjacent parking structures used in connection therewith. The
Premises, the Building, the Common Areas, the land upon which the same are
located, along with all other buildings and improvements thereon or thereunder,
are herein collectively referred to as the "Office Building Project". Landlord
hereby leases to Tenant and Tenant leases from Landlord for the term, at the
rental, and upon all of the conditions set forth herein, the real property
referred to in the Basic Lease Provisions, paragraph 1.3, as the "Premises",
including rights to the Common Areas as hereinafter specified.
2.2 Vehicle Parking: So long as Tenant is not in default, and subject to
the rules and regulations attached hereto, and as established by Landlord from
time to time, Tenant shall be entitled to rent and use Six (6) unassigned
parking spaces in the Office Building Project at the monthly rate applicable
from time to time for monthly parking as set by Landlord and/or its licensee.
2.2.1 If Tenant commits, permits or allows any of the prohibited activities
described in the Lease or the rules then in effect, then Landlord shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove or tow away, in connection with parking, the vehicle involved
and charge the cost to the Tenant, which cost shall be immediately payable upon
demand by Landlord.
2.2.2 The monthly parking rate per parking space will be $ (0) per month at
the commencement of the term of this Lease, and is subject to change upon five
(5) days prior written notice to Tenant. Monthly parking fees shall be payable
one month in advance prior to the first day of each calendar month.
2.3 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Landlord
from time to time for the general non-exclusive use of Landlord, Tenant and of
other Tenants of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
<PAGE>
2.4 Common Areas - Rules and Regulations. Tenant agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit C with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Landlord
or such other person(s) as Landlord may appoint shall have the exclusive control
and management of the Common Areas and shall have the right, from time to time,
to modify, amend and enforce said non-discriminatory rules and regulations.
Except that Landlord shall do all it can do to enforce such rules and
regulations and to the best of its ability to mitigate any non-compliance,
Landlord shall not be responsible to Tenant for the noncompliance with said
rules and regulations by other Tenants, their agents, employees and invitees of
the Office Building Project.
2.5 Common Areas - Changes. Landlord shall have the right, in Landlord's
sole discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms,
driveways, entrances, parking spaces, parking areas, loading and unloading
areas, ingress, egress, direction of traffic, decorative walls, landscaped
areas and walkways; provided, however, that any such changes shall not
materially deprive Tenant of the Premises leased hereunder and as more
particularly set forth in Section 1.3, above. Landlord shall at all times
provide the parking facilities required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries of
the Office Building Project to be a part of the Common Areas, provided that
such other land and improvements have a reasonable functional relationship
to the Office Building Project.
(d) To add additional buildings and improvements to Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Office Building Project as
Landlord may, in the exercise of sound business judgment deem to be
reasonably appropriate.
Landlord Initials:____________
FULL SERVICE - GROSS
Tenant Initials:____________
<PAGE>
3. Term.
3.1 Term. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Except in the event of willful acts of Landlord,
its agents or employees, or for causes within the reasonable control of
Landlord, notwithstanding said Commencement Date, if for any reason Landlord
cannot deliver possession of the Premises to Tenant on said date and subject to
paragraph 3.2.2, Landlord shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease or the obligations of
Tenant hereunder or extend the term hereof; but, in such case, Tenant shall not
be obligated to pay rent or perform any other obligation of Tenant under the
terms of this Lease, except as may be otherwise provided in this Lease, until
possession of the Premises is tendered to Tenant, as hereinafter defined;
provided, however, that if Landlord shall not have delivered possession of the
Premises within ninety (90) days following said Commencement Date, as the same
may be extended under the terms of a Work Letter executed by Landlord and
Tenant, Tenant may, at Tenant's option, by notice in writing to Landlord within
ten (10) days thereafter cancel this Lease, in which event the parties shall be
discharged from all obligations hereunder: provided, however, that, as to
Tenant's obligations, Tenant first reimburses Landlord for all costs incurred
for Non-Standard improvements and as to Landlord's obligations, Landlord shall
return any money previously deposited by Tenant (less any offsets due Landlord
for Non-Standard Improvements): and provided further, that if such written
notice by Tenant is not received by Landlord within said ten (10) day period,
Tenant's right to cancel this Lease hereunder shall terminate and be of no
further force or effect.
3.2.1 Possession Tendered-Defined. Possession of the Premises shall be
deemed tendered to Tenant ("Tender of Possession") when (1) the improvements to
be provided by Landlord under this Lease are substantially completed, (2) the
Building utilities are ready for use In the Premises. (3) Tenant has reasonable
access to the Premises and, (4) ten (10) days shall have expired following
advance written notice to Tenant of the occurrence of the matters described in
(1),(2) and (3). above of this paragraph 3.2.1.
3.2.2 Delays Caused by Tenant. There shall be no abatement of rent, and the
sixty (60) day period following the Commencement Date before which Tenant's
right to cancel this Lease accrues under paragraph 3.2. shall be deemed extended
to the extent of any delays caused by acts or omissions of Tenant, Tenant's
agents, employees and contractors.
3.3 Early Possession. If Tenant occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date and Tenant shall pay
rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the Lease term is
defined as the completion of the improvements, Tenant and Landlord shall execute
an amendment to this Lease establishing the date of Tender of Possession (as
defined In paragraph 3.2.1) or the actual taking of possession by Tenant,
whichever first occurs, as the Commencement Date.
<PAGE>
4. Rent
4.1 Base Rent. Subject to adjustment as hereinafter provided In paragraph
4.3 and except as may be otherwise expressly provided in this Lease, Tenant
shall pay to Landlord the Base Rent for the Premises set forth in paragraph 1.6
of the Basic Lease Provisions, without offset or deduction. Tenant shall pay
Landlord upon execution hereto the advance Base Rent described in paragraph 1.8
of the Basic Lease Provision. Rent for any period during the term hereof which
Is for less than one month shall be prorated based upon the actual number of
days of the calendar month involved. Rent shall be payable in lawful money of
the United States to Landlord at the address stated herein or to such other
persons or at such other places as Landlord may designate In writing.
4.2 Operating Expense Increase. Tenant shall pay to Landlord during the
term hereof, in addition to the Base Rent, Tenant's Share, as hereinafter
defined, of the amount by which all Operating Expenses, as hereinafter defined,
for each Comparison Year exceeds the amount of all Operating Expenses for the
Base Year, such excess being hereinafter referred to as the "Operating Expense
increase" in accordance with the following provisions:
(a) "Tenant's Share" Is defined, for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage
of the Premises by the total approximate square footage of the rentable
space contained in the Office Building Project. it is understood and agreed
that the square footage figures set forth in the Basic Lease Provisions are
approximations which Landlord and Tenant agree are reasonable and shall not
be subject to revision except in connection with an actual change In the
size of the Premises or a change in the space available for lease In the
Office Building Project.
(b) "Base Year" is defined as 1996 .
(c) "Comparison Year" is defined as each calendar year during the term
of this Lease subsequent to the Base Year: Tenant's Share of the Operating
Expense Increase for the first and last Comparison Years of the Lease Term
shall be prorated according to that portion of such Comparison Year as to
which Tenant Is responsible for a share of such increase.
(d) "Operating Expenses " is defined, for purposes of this Lease, to
include all costs, if any, incurred by Landlord in the exercise of Its
reasonable discretion, for:
(i) The operation, repair, maintenance, and replacement, in neat,
clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces, coverings,
decorative items, carpets, drapes and window coverings, and
including parking areas, loading and unloading areas, trash
areas, roadways, sidewalks, walkways, stairways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities, building exteriors and
roofs, fences and gates:
<PAGE>
(bb) All heating, air conditioning, plumbing, electrical
systems, life safely equipment, telecommunication and other
equipment used in common by, or for the benefit of, Tenants or
occupants of the Office Building Project, including elevators and
escalators, Tenant directories, fire detection systems Including
sprinkler system maintenance and repair,
(ii) Trash disposal, janitorial and security services:
(iii) Any other service to be provided by Landlord that is
elsewhere in this Lease stated to be an "Operating Expense":
(iv) The cost of the premiums for the liability and property
Insurance policies to be maintained by Landlord under paragraph 8
hereof:
(v) The amount of the real property taxes to be paid by Landlord
under paragraph 10.1 hereof:
(vi) The cost of water, sewer, gas, electricity and other
publicly mandated services to the Office Building Project:
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the
Office Building Project and accounting and a management fee
attributable to the operation of the Office Building Project:
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby
amortized over its useful life according to federal income tax
regulations or guidelines for depreciation thereof (Including interest
on the unamortized balance as is then reasonable in the judgment of
Landlord's accountants):
(ix) Replacements of equipment or improvements that have a useful
life for depreciation purposes according to Federal income tax
guidelines of five (5) years or less, as amortized over such life.
Landlord Initials:____________
FULL SERVICE - GROSS
Tenant Initials:____________
<PAGE>
(e) Operating Expenses shall not include the costs of replacements of
equipment or improvements that have a useful life for Federal income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii), in which case their cost shall be included as above
provided;
(f) Operating Expenses shall not Include any expenses paid by any
Tenant directly to third parties, or as to which Landlord Is otherwise
reimbursed by any third party, other Tenant, or by insurance proceeds.
(g) Tenant's Share of Operating Expense Increase shall be payable by
Tenant within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Tenant by Landlord. At Landlord's option, however,
an amount may be estimated by Landlord from time to time In advance of
Tenant's Share of the Operating Expense Increase for any Comparison Year,
and the same shall be payable monthly or quarterly, as Landlord shall
designate, during each Comparison Year of the Lease term, on the same day
as the Base Rent Is due hereunder. In the event that Tenant pays Landlord's
estimate of Tenant's Share of Operating Expense Increase as aforesaid,
Landlord shall deliver to Tenant within ninety (90) days after the
expiration of each Comparison Year a reasonably detailed statement showing
Tenant's Share of Operating Expense Increase next falling due. If Tenant's
payments under this paragraph during said Comparison Year were less than
Tenant's Share as indicated on said statement, Tenant shall pay to Landlord
the deficiency within ten (10) days after delivery by Landlord to Tenant of
said detailed statement showing Tenant's Share of the actual Operating
Expense Increase incurred during the year, If Tenant's payments under this
paragraph 4.2(g) during said Comparison Year exceed Tenant's Share as
indicated on said statement, Tenant shall be entitled to a credit in the
amount of such overpayment against future payments of Base Rent to
Landlord. Landlord and Tenant shall forthwith adjust between them by cash
payment any balance determined to exist with respect to that portion of the
last Comparison Year for which Tenant Is responsible as to Operating
Expense increases, notwithstanding that the Lease term may have terminated
before the end of such Comparison Year.
<PAGE>
4.3 Rent Increase. (This section marked out and deleted)
5. Security Deposit. Tenant shall deposit with Landlord upon execution hereof
the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Tenant's faithful performance of Tenant's obligations hereunder If
Tenant fails to pay rent or other charges due hereunder. or otherwise defaults
with respect to any provision of this Lease, Landlord may use, apply or retain
all or any portion of said deposit for the payment of any rent or other charge
in default for the payment of any other sum to which Landlord may become
obligated by reason of Tenant's default, or to compensate Landlord for any loss
or damage which Landlord may suffer thereby if Landlord so uses or applies all
or any portion of said deposit, Tenant shall within ten (10) days after written
demand therefor deposit cash with Landlord in an amount sufficient to restore
said deposit to the full amount then required of Tenant. Landlord shall not be
required to keep said security deposit separate from its general accounts. If
Tenant performs all of Tenant's obligations hereunder, said deposit, or so much
thereof as has not heretofore been applied by Landlord shall be returned,
without payment of interest or other increment for its use, to Tenant (or, at
Landlord's option, to the last assignee, if any, of Tenant's interest hereunder)
at the expiration of the term hereof, and after Tenant has vacated the Premises.
No trust relationship is created herein between Landlord and Tenant with respect
to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
<PAGE>
6.2 Compliance with Law.
(a) Landlord warrants to Tenant that the Premises, in the state existing
on the date that the lease term commences, but without regard to alterations or
improvements made by Tenant or the use for which Tenant will occupy the
Premises, does not violate any covenants or restrictions of record, or any
applicable building code, regulation or ordinance in effect on such Lease term
Commencement Date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Landlord, after written notice
from Tenant, to promptly, at Landlord's sole cost and expense, rectify any such
violation.
(b) Except as provided in paragraph 6.2(a) Tenant shall, at Tenant's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Tenant of the Premises.
Tenant shall conduct its business in a lawful manner and shall not use or permit
the use of the Premises or the Common Areas in any manner that will tend to
create waste or a nuisance or shall tend to disturb other occupants of the
Office Building Project.
6.3 Condition of Premises.
(a) Landlord shall deliver the Premises to Tenant in a clean condition on
the Lease Commencement Date (unless Tenant is already in possession) and
Landlord warrants to Tenant that the plumbing, lighting, air conditioning, and
heating system in the Premises shall be in good operating condition. In the
event that it Is determined that this warranty has been violated, then it shall
be the obligation of Landlord, after receipt of written notice from Tenant
setting forth with specificity the nature of the violation, to promptly, at
Landlord's sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Tenant hereby accepts the
Premises and the Office Building Project in their condition existing as of the
Lease Commencement Date or the date that Tenant takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions or record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Tenant acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Landlord nor Landlord's agent or agents has made
any representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Tenant's
business.
Landlord Initials:____________
FULL SERVICE - GROSS
Tenant Initials:____________
<PAGE>
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Landlord's Obligations. Landlord shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and Common Areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Landlord shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9 5. there shall be no
abatement of rent or liability of Tenant on account of any injury or
interference with Tenant's business with respect to any improvements,
alterations or repairs made by Landlord to the Office Building Project or any
part thereof. Tenant expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford Tenant the right to make
repairs at Landlord's expense or to terminate this Lease because of Landlord's
failure to keep the Premises in good order, condition and repair.
7.2 Tenant's Obligations.
(a) Notwithstanding Landlord's obligation to keep the Premises in good
condition and repair, Tenant shall be responsible for payment of the cost
thereof to Landlord as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Tenant or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Tenant shall be responsible for the cost of
painting, repairing or replacing wall coverings and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Landlord may, at its option, upon reasonable
notice, elect to have Tenant perform any particular such maintenance or repairs
the cost of which is otherwise Tenant's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner termination,
Tenant shall surrender the Premises to Landlord in the same condition as
received, ordinary wear and tear excepted, clean and free of debris. Any damage
or deterioration of the Premises shall not be deemed ordinary wear and tear if
the same could have been prevented by good maintenance practices by Tenant.
Tenant shall repair any damage to the Premises occasioned by the installation or
removal of Tenant's trade fixtures, alterations. furnishings and equipment.
Except as otherwise stated in this Lease. Tenant shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
(a) Tenant shall not, without Landlord's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in, on or
about the Premises, or the Office Building Project. As used in this paragraph
7.3 the term "Utility Installation" shall mean carpeting, window and wall
coverings, power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Landlord may require the removal of
any or all of said alterations, improvements, additions or Utility
Installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Tenant's expense. Should Landlord permit
Tenant to make its own alterations, improvements, additions or Utility
Installations, Tenant shall use only such contractor as has been expressly
<PAGE>
approved by Landlord, and 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 and materialmen's liens and to
insure completion of the work. Should Tenant make any alterations. improvements,
additions or Utility Installations without the prior approval of Landlord, or
use a contractor not expressly approved by Landlord, Landlord may, at any lime
during the term of this Lease, require that Tenant remove any part or all of the
same.
(b) Any alterations, improvements, additions or Utility Installations in
or about the Premises or the Office Building Project that Tenant shall desire to
make shall be presented to Landlord in written form, with proposed detailed
plans. If Landlord shall give its consent to Tenant's making such alteration,
improvement. addition or Utility Installation, the consent shall be deemed
conditioned upon Tenant acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Landlord prior to the
commencement of the work, and compliance by Tenant with all conditions of said
permit in a prompt and expeditious manner.
(c) Tenant shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Tenant shall give Landlord not less than ten (10) days' notice prior
to the commencement of any work in the Premises by Tenant, and Landlord shall
have the right to post notices of non-responsibility in or on the Premises or
the Building as provided by law. If Tenant shall, in good faith, contest the
validity of any such lien, claim or demand, then Tenant shall, at its sole
expense defend itself and Landlord against the same and shall pay and satisfy
any such adverse judgment that may be rendered thereon before the enforcement
thereof against the Landlord or the Premises, the Building or the Office
Building Project, upon the condition that if Landlord shall require, Tenant
shall furnish to Landlord a surely bond satisfactory to Landlord in an amount
equal to such contested lien claim or demand indemnifying Landlord against
liability for the same and holding the Premises, the Building and the Office
Building Project free from the effect of such lien or claim. In addition,
Landlord may require Tenant to pay Landlord's reasonable attorneys' fees and
costs in participating in such action if Landlord shall decide it is to
Landlord's best interest so to do.
(e) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Tenant),
which may be made to the Premises by Tenant, including but not limited to, floor
coverings, paneling, doors, drapes, built-ins, moldings, sound attenuation, and
lighting and telephone or communication systems, conduit, wiring and outlets,
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Landlord and
remain upon and be surrendered with the Premises at the expiration of the Lease
term, unless Landlord requires their removal pursuant to paragraph 7.3(a).
Provided Tenant is not In default, notwithstanding the provisions of this
paragraph 7.3(e), Tenant's personal property and equipment, other than that
which Is affixed to the Premises so that it cannot be removed without material
damage to the Premises or the Building, and other than Utility Installations,
shall remain the property of Tenant and may be removed by Tenant subject to the
provisions of paragraph 7.2.
<PAGE>
(f) Tenant shall provide Landlord with as-built plans and specifications
for any alterations, improvements, additions or Utility Installations.
7.4 Utility Additions, Landlord reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Landlord or Tenant, or any other Tenant of the Office Building
Project, including, but not by way of limitation, such utilities as plumbing,
electrical systems, communication systems, and fire protection and defection
systems, so long as such installations do not unreasonably interfere with
Tenant's use of the Premises.
8. Insurance; Indemnity.
8.1 Liability Insurance-Tenant. Tenant shall, at Tenant's expense, obtain and
keep in force during the term of this Lease a policy of Comprehensive General
Liability insurance utilizing an Insurance Services Office standard form with
Broad Form General Liability Endorsement (GLO404), or equivalent. in an amount
of not less than $1,000,000 per occurrence of bodily Injury and property damage
combined or In a greater amount as reasonably determined by Landlord and shall
insure Tenant with Landlord as an additional insured against liability arising
out of the use, occupancy or maintenance of the Premise's. Compliance with the
above requirement shall not, however, limit the liability of Tenant hereunder.
8.2 LiabilIty Insurance-Landlord. Landlord shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Landlord deems advisable from time to time, insuring Landlord, but not Tenant,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Protect in an amount not less than $5,000,000.00 per
occurrence.
8.3 Property Insurance-Tenant. Tenant shall, at Tenant's expense, obtain and
keep in force during the term of this Lease for the benefit of Tenant,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Tenant's
personal property, fixtures, equipment and Tenant improvements.
8.4 Property Insurance-Landlord. Landlord shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Office Building Project improvements, but not Tenant's personal property,
fixtures, equipment or Tenant improvements, in the amount of the
Landlord Initials:____________
FULL SERVICE - GROSS
Tenant Initials:____________
<PAGE>
full replacement cost thereof, as the same may exist from time to time,
utilizing Insurance Services Office standard form, or equivalent, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, plate glass, and such other
perils as Landlord deems advisable or may be required by a lender having a lien
on the Office Building Project. In addition, Landlord shall obtain and keep in
force, during the term of this Lease, a policy of rental value insurance
covering a period of one year, with toss payable to Landlord, which insurance
shall also cover all Operating Expenses for said period. Tenant will not be
named in any such policies carried by Landlord and shall have no right to any
proceeds therefrom. The policies required by these paragraphs 8.2 and 8.4 shall
contain such deductibles as Landlord or the aforesaid lender may determine. In
the event that the Premises shall suffer an insured loss as defined In paragraph
9.1(f) hereof, the deductible amounts under the applicable insurance policies
shall be deemed an Operating Expense. Tenant shall not do or permit to be done
anything which shall invalidate the insurance policies carried by Landlord.
Tenant shall pay the entirety of any increase in the property insurance premium
for the Office Building Project over what it was immediately prior to the
commencement of the term of this Lease if the increase Is specified by
Landlord's Insurance carrier as being solely caused by the nature of Tenant's
occupancy or any act or omission of Tenant.
8.5 Insurance Policies, Tenant shall deliver to Landlord copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Landlord. Tenant shall, at least thirty (30) days prior
to the expiration of such policies, furnish Landlord with renewals thereof.
8.6 Waiver of Subrogation, Tenant and Landlord each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party. whether due to the
negligence of Landlord or Tenant or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 Indemnity. Tenant shall indemnify and hold harmless Landlord and its
agents, Landlord's master or ground Landlord, partners and lenders, from and
against any and all claims for damage to the person or properly of anyone or any
entity arising from Tenant's use of the Office Building Project, or from the
conduct of Tenant's business or from any activity, work or things done,
permitted or suffered by Tenant in or about the Premises or elsewhere and shall
further indemnify and hold harmless Landlord from and against any and all
claims, costs and expenses 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 Tenant, or any of Tenant's agents,
contractors, employees, or invitees and from and against all costs, attorney's
fees, expenses and liabilities incurred by Landlord as the result of any such
use, conduct, activity, work, things done, permitted or suffered, breach,
default or negligence, and in dealing reasonably therewith, including but not
limited to the defense or pursuit of any claim or any action or proceeding
involved therein, and in case any action or proceeding be brought against
Landlord by reason of any such matter. Tenant upon notice from Landlord shall
defend the same at Tenant's expense by counsel reasonably satisfactory to
<PAGE>
Landlord and Landlord shall cooperate with Tenant in such defense. Landlord need
not have first paid any such claim in order to be so indemnified. Tenant, as a
material part of the consideration to Landlord, hereby assumes all risk of
damage to property of Tenant or injury to persons, in, upon or about the Office
Building Project arising from any cause and Tenant hereby waives all claims in
respect thereof against Landlord.
8.8 Exemption of Landlord from Liability. Tenant hereby agrees that Landlord
shall not be liable for injury to Tenant's business or any loss of income
therefrom or for loss of or damage to the goods, wares or merchandise or other
property of Tenant, Tenant's employees, Invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Landlord be
liable for injury to the person of Tenant, Tenant's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair; alteration or Improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible. Landlord shall not be liable
for any damages arising from any act or neglect of any other Tenant, occupant or
user of the Office Building Project, nor from the failure of Landlord to enforce
the provisions of any other lease of any other Tenant of the Office Building
Project.
8.9 No Representation of Adequate Coverage. Landlord makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Tenant's property or obligations under this Lease.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged or destroyed
to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of which
the Premises are a part is damaged or destroyed to the extent that the cost to
repair Is less than fifty percent (50%) of the then Replacement Cost of the
building.
(c) "Premises Building Total Destruction" shall mean If the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the buildings on
the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean If
the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
<PAGE>
(f) "Insured Loss" shall mean damage or destruction which was caused by an
event required to be covered by the insurance described in paragraph 8. The fact
that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by Tenants, other than those installed by Landlord at Tenant's expense.
9.2 Premises Damage: Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5, if
at any time during the term of this Lease there is damage which is an Insured
Loss and which falls into the classification of either Premises Damage or
Premises Building Partial Damage, then Landlord shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Landlord's expense, repair such
damage (but not Tenant's fixtures, equipment or Tenant improvements originally
paid for by Tenant) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is not an
Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Tenant (in which event Tenant shall make the repairs at Tenant's expense), which
damage prevents Tenant from making any substantial use of the Premises, Landlord
may at Landlord's option either (i) repair such damage as soon as reasonably
possible at Landlord's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Tenant within thirty (30) days
after the date of the occurrence of such damage of Landlord's intention to
cancel and terminate this Lease as of the date of the occurrence of such damage,
in which event this Lease shall terminate as of the date of the occurrence of
such damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Landlord
may at Landlord's option either (i) repair such damage or destruction as soon as
reasonably possible at Landlord's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Tenant's fixtures, equipment or
Tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Tenant within thirty (30) days after the date of
occurrence of such damage of Landlord's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
Landlord Initials:____________
FULL SERVICE - GROSS
Tenant Initials:____________
<PAGE>
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last twelve
(12) months of the term of this Lease there is substantial damage to the
Premises, Landlord may at Landlord's option cancel and terminate this Lease as
of the date of occurrence of such damage by giving written notice to Tenant of
Landlord's election to do so within 30 days after the dale of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Tenant has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Tenant shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Tenant duly exercises such
option during said twenty (20) day period, Landlord shall, at Landlord's
expense, repair such damage, but not Tenant's fixtures, equipment or Tenant
Improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. If Tenant fails to exercise such option during said
twenty (20) day period, then Landlord may at Landlord's option terminate and
cancel this Lease as of the expiration of said twenty (20) day period by giving
written notice to Tenant of Landlord's election to do so within ten (10) days
after the expiration of said twenty (20) day period, notwithstanding any term or
provision in the grant of option to the contrary.
9.5 Abatement of Rent; Tenant's Remedies.
(a) In the event Landlord repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises are
not usable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Tenant's Share of Operating Expense
Increase) for the period during which such damage, repair or restoration
continues shall be abated, provided (1) the damage was not the result of the
negligence of Tenant, and (2) such abatement shall only be to the extent the
operation and profitability of Tenant's business as operated from the Premises
is adversely affected. Except for said abatement of rent, if any, Tenant shall
have no claim against Landlord for any damage suffered by reason of any such
damage, destruction, repair or restoration.
(b) If Landlord shall be obligated to repair or restore the Premises or
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Landlord shall not complete the restoration and repair within six (6) months
after such occurrence, Tenant may at Tenant's option cancel and terminate this
Lease, by giving Landlord written notice of Tenant's election to do so at any
time prior to the commencement or completion, respectively, of such repair or
restoration. In such event this Lease shall terminate as of the date of such
notice.
(c) Tenant agrees to cooperate with Landlord in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6Termination-Advance Payments. Upon termination of this Lease pursuant to
this paragraph 9, an equitable adjustment shall be made concerning advance rent
and any advance payments made by Tenant to Landlord. Landlord shall, in
addition, return to Tenant so much of Tenant's security deposit as has not
theretofore been applied by Landlord.
<PAGE>
9.7 Waiver. Landlord and Tenant waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Landlord shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Tenant of Tenant's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Tenant shall not be responsible for paying any
increase in real properly lax specified In the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Office
Building Project by other Tenants or by Landlord for the exclusive enjoyment of
any other Tenant. Tenant shall, however, pay to Landlord at the lime that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Tenant or at Tenant's request.
10.3 Definition of "Real Property Tax": As used herein, the term "real
properly tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or Indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Landlord in the Office Building Project or in any
portion thereof, as against Landlord's right to rent or other income therefrom,
and as against Landlord's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax:' or (ii) the nature of which was hereinbefore included within the
definition of "real property tax:' or (iii) which is imposed as a result of a
change in ownership, as defined by applicable local statutes for property tax
purposes, of the Office Building Project or which is added to a tax or charge
hereinbefore included within the definition of real property tax by reason of
such change of ownership, or (iv) which is imposed by reason of this
transaction, any modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the improvements or property, the taxes for which
are to be paid separately by Tenant under paragraph 10.2 or 10.5 are not
separately assessed, Tenant's portion of that tax shall be equitably determined
by Landlord from the respective valuations assigned in the assessor's work
sheets or such other information (which may include the cost of construction) as
may be reasonably available. Landlord's reasonable determination thereof, in
good faith, shall be conclusive.
10.5 Personal Property Taxes.
(a) Tenant shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant contained in the Premises or elsewhere.
<PAGE>
(b) If any of Tenant's said personal properly shall be assessed with
Landlord's real property, Tenant shall pay to Landlord the taxes attributable to
Tenant within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Tenant's property.
11. Utilities.
11.1 Services Provided by Landlord. Landlord shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 Services Exclusive to Tenant. Tenant shall pay for all water, gas, heat,
light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Tenant,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Tenant shall pay at Landlord's option, either Tenant's Share or
a reasonable proportion to be reasonably determined by Landlord of all charges
jointly metered with other premises in the Building.
11.3 Hours of Service. Said services and utilities shall be provided during
generally accepted business days and hours or such other days or hours as may
hereafter be set forth, Utilities and services required at other times shall be
subject to advance request and reimbursement by Tenant to Landlord of the cost
thereof.
11.4 Excess Usage by Tenant. Tenant shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Landlord shall require
Tenant to reimburse Landlord for any excess expenses or costs that may arise out
of a breach of this subparagraph by Tenant. Landlord may, in its sole
discretion, install at Tenant's expense supplemental equipment and/or separate
metering applicable to Tenant's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Landlord shall
not be liable in any respect whatsoever for the inadequacy stoppage.
interruption or discontinuance of any utility or service due to riot. strike,
labor dispute, breakdown, accident, repair or other cause beyond Landlord's
reasonable control or in cooperation with governmental request or directions.
Landlord Initials:____________
FULL SERVICE - GROSS
Tenant Initials:____________
<PAGE>
12.1 Landlord's Consent Required. Tenant shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Tenant's interest in the Lease or in the Premises,
without Landlord's prior written consent, which Landlord shall not unreasonably
withhold. Landlord shall respond to Tenant's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Tenant under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating, (a) If Tenant is a corporation, more than
forty-five percent (45%) of the voting stock of such corporation, or (b) if
Tenant is a partnership, more than twenty-five percent (25%) of the profit and
loss participation in such partnership.
12.2 Tenant Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Tenant may assign or sublet the Premises, or any portion thereof,
without Landlord's consent, to any corporation which controls, is controlled by
or is under common control with Tenant, or to any corporation resulting from the
merger or consolidation with Tenant, or to any person or entity which acquires
all the assets of Tenant as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Tenant Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Tenant under this Lease and (b) Landlord
shall be given written notice of such assignment and assumption. Any such
assignment shall not, in any way, affect or limit the liability of Tenant under
the terms of this Lease even if after such assignment or subletting the terms of
this Lease are materially changed or altered without the consent of Tenant, the
consent of whom shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Landlord's consent, no assignment or subletting shall
release Tenant of Tenant's obligations hereunder or after the primary liability
of Tenant to pay the rent and other sums due Landlord hereunder Including
Tenant's Share of Operating Expense Increase, and to perform all other
obligations to be performed by Tenant hereunder.
(b) Landlord may accept rent from any person other than Tenant pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment or
subletting, nor the acceptance of rent, shall constitute a waiver or estoppel of
Landlord's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(d) If Tenant's obligations under this Lease have been guaranteed by third
parties, then an assignment or sublease, and Landlord's consent thereto, shall
not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by Landlord to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Tenant or to
any subsequent or successive assignment or subletting by the sub-tenant.
However, Landlord may consent to subsequent subletting's and assignments of the
sublease or any amendments or modifications thereto without notifying Tenant or
anyone else liable on the Lease or sublease and without obtaining their consent
<PAGE>
and such action shall not relieve such persons from liability under this Lease
or said sublease: however, such persons shall not be responsible to the extent
any such amendment or modification enlarges or increases the obligations of the
Tenant or sub-tenant under this Lease or such sublease.
(f) In the event of any default under this Lease, Landlord may proceed
directly against Tenant, any guarantors or any one else responsible for the
performance of this Lease, including the sub-tenant, without first exhausting
Landlord's remedies against any other person or entity responsible therefor to
Landlord, or any security held by Landlord or Tenant.
(g) Landlord's written consent to any assignment or subletting of the
Premises by Tenant shall not constitute an acknowledgment that no default then
exists under this Lease of the obligations to be performed by Tenant nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Landlord at the time.
(h) The discovery of the fact that any financial statement relied upon by
Landlord in giving its consent to an assignment or subletting was materially
false shall, at Landlord's election, render Landlord's said consent null and
void.
12.4 Additional Terms and Conditions Applicable to Subletting. Regardless of
Landlord's consent, the following terms and conditions shall apply to any
subletting by Tenant of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) Tenant hereby assigns and transfers to Landlord all of Tenant's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Tenant, and Landlord may collect such rent and income and
shall apply same toward Tenant's obligations under this Lease: provided,
however; that until a default shall occur in the performance of Tenant's
obligations under this Lease, Tenant may receive, collect and enjoy the rents
accruing under such sublease. Landlord shall not, by reason of this or any other
assignment of such sublease to Landlord nor by reason of the collection of the
rents from a sub-tenant, be deemed liable to the sub-tenant for any failure of
Tenant to perform and comply with any of Tenant's obligations to such sub-tenant
under such sublease. Tenant hereby irrevocably authorizes and directs any such
sub-tenant, upon receipt of a written notice from Landlord stating that a
default exists in the performance of Tenant's obligations under this Lease, to
pay to Landlord the rents due and to become due under the sublease. Tenant
agrees that such sub-tenant shall have the right to rely upon any such statement
and request from Landlord; and that such sub-tenant shall pay such rents to
Landlord without any obligation or right to inquire as to whether such default
exists and notwithstanding any notice from or claim from Tenant to the contrary.
Tenant shall have no right or claim against said sub-tenant or Landlord for any
such rents so paid by said sub-tenant to Landlord.
(b) No sublease entered into by Tenant shall be effective unless and until
it has been approved in writing by Landlord. In entering Into any sublease,
Tenant shall use only such form of sub-tenant as is satisfactory to Landlord;
and once approved by Landlord, such sublease shall not be changed or modified
without Landlord's prior written consent. Any sublease shall, by reason of
entering into a sublease under this Lease, be deemed, for the benefit of
Landlord; to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by Tenant other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease to which
Landlord has expressly consented in writing.
<PAGE>
(c) In the event Tenant shall default in the performance of its
obligations under this Lease, Landlord at Its option and without any obligation
to do so, may require any sub-tenant to attorn to Landlord, in which event
Landlord shall undertake the obligations of Tenant under such sublease from the
time of the exercise of said option to the termination of such sublease:
provided, however; Landlord shall not be liable for any prepaid rents or
security deposit paid by such sub-tenant to Tenant or for any other prior
defaults of Tenant under such sublease.
(d) No sub-tenant shall further assign or sublet all or any part of the
Premises without Landlord's prior written consent.
(a) With respect to any subletting to which Landlord has consented,
Landlord agrees to deliver a copy of any notice of default by Tenant to the
sub-tenant. Such sub-tenant shall have the right to cure a default of Tenant
within three (3) days after service of said notice of default upon such
sub-Tenant, and the sub-tenant shall have a right of reimbursement and offset
from and against Tenant for any such defaults cured by the sub-tenant.
12.5 Landlord's Expenses. In the event Tenant shall assign or sublet the
Premises or request the consent of Landlord to any assignment or subletting or
If Tenant shall request the consent of Landlord for any act Tenant proposes to
do then Tenant shall pay Landlord's reasonable costs and expenses incurred in
connection therewith, including attorneys, architects, engineers' or other
consultants' fees.
12.6 Conditions to Consent. Landlord reserves the right to condition any
approval to assign or sublet upon Landlord's determination that (a) the proposed
assignee or sub-tenant shall conduct a business on the Premises of a quality
substantially equal to that of Tenant and consistent with the general character
of the other occupants of the Office Building Project and not In violation of
any exclusives or rights then held by other Tenants, and (b) the proposed
assignee or sub-tenant be at least as financially responsible as Tenant was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever Is greater.
Landlord Initials:____________
FULL SERVICE - GROSS
Tenant Initials:____________
<PAGE>
13. Default; Remedies.
13.1Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Tenant:
(a) The vacation or abandonment of the Premises by Tenant. Vacation of the
Premises shall Include the failure to occupy the Premises for a continuous
period of sixty (60) days or more, whether or not the rent Is paid, except where
damage to the Premises prevents such occupancy.
(b) The breach by Tenant of any of the covenants, conditions or provisions
of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or subletting),
13.1(a) (vacation or abandonment), 13.1(e) (Insolvency), 13.1(f) (false
statement), 16(a) (estoppel certificate), 30(b) (subordination), 33 (auctions),
or 41.1 (easements), all of which are hereby deemed to be material, non-curable
defaults without the necessity of any notice by Landlord to Tenant thereof.
(c) The failure by Tenant to make any payment of rent or any other payment
required to be made by Tenant hereunder, as and when due, where such failure
shall continue for a period of three (3) days after written notice thereof from
Landlord to Tenant. In the event that Landlord serves Tenant with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(d)The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Landlord to Tenant, provided, however, that if the nature of
Tenant's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Tenant shall not be deemed to be in default if
Tenant commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law, such
thirty (30) day notice shall constitute the sole and exclusive notice required
to be given to Tenant under applicable Unlawful Defamer statutes.
(e) (i) The making by Tenant of any general arrangement or general
assignment for the benefit of creditors; (ii) Tenant becoming a "debtor" as
defined in 11 U.S.C. ss.101 or any successor statute thereto (unless, in the
case of a petition filed against Tenant, the same is dismissed within sixty (60)
days. (iii) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days, or (iv) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Landlord that any financial statement given to
Landlord by Tenant, or its successor in interest or by any guarantor of Tenant's
obligation hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this Lease
by Tenant, Landlord may at any time thereafter; with notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have by reason of such default:
<PAGE>
(a) Terminate Tenant's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Tenant
shall immediately surrender possession of the Premises to Landlord. In such
event Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of re-letting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
Tenant loss for the same period that Tenant proves could be reasonably avoided;
that portion of the leasing commission paid by Landlord pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Tenant's right to possession in which case this Lease shall
continue in effect whether or not Tenant shall have vacated or abandoned the
Premises. In such event Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Tenant
under the terms of this Lease shall bear interest from the date due at the
maximum rate the allowable by law.
13.3 Default by Landlord. Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time, but
in no event later than thirty (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to Tenant
In writing, specifying wherein Landlord has failed to perform such obligation;
provided, however, that If the nature of Landlords obligation is such that more
than thirty (30) days are required for performance then Landlord shall not be in
default if Landlord commences performance within such 30-day period and
thereafter diligently pursues the same to completion.
13.4 Late Charges. Tenant hereby acknowledges that late payment by Tenant to
Landlord of Base Rent, Tenant's Share of Operating Expense Increase or other
sums due hereunder will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Landlord by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly If any installment
of Base Rent, Operating Expense Increase, or any other sum due from Tenant shall
not be received by Landlord or Landlords designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Tenant,
Tenant shall pay to Landlord a late charge equal to 6% of such overdue amount.
The parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event constitute a waiver
of Tenant's default with respect to such overdue amount, nor prevent Landlord
from exercising any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
<PAGE>
authority takes title or possession, whichever first occurs; provided that if so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Tenant's business conducted from the Premises, Tenant shall
have the option, to be exercised only in writing within thirty (30) days after
Landlord shall have given Tenant written notice of such taking (or in the
absence of such notice, within thirty (30) days after the condemning authority
shall have taken possession), to terminate this Lease as of the date the
condemning authority takes such possession. If Tenant does not terminate this
Lease In accordance with the foregoing, this Lease shall remain in full force
and effect as to the portion of the Premises remaining, except that the rent and
Tenant's Share of Operating Expense Increase shall be reduced in the proportion
that the floor area of the Premises taken bears to the total floor area of the
Premises. Common Areas taken shall be excluded from the Common Areas usable by
Tenant and no reduction of rent shall occur with respect thereto or by reason
thereof. Landlord shall have the option In its sole discretion to terminate this
Lease as of the taking of possession of the Premises by the condemning
authority, by giving written notice to Tenant of such election within thirty
(30) days after receipt of notice of a taking by condemnation of any part of the
Premises or the Office Building Project. Any award for the taking of all or any
part of the Premises or the Office Building Project under the power of eminent
domain or any payment made under threat of the exercise of such power shall be
the property of Landlord. whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however; that Tenant shall be entitled to any
separate award for loss of or damage to Tenant's business, trade fixtures,
removable personal property and unamortized Tenant improvements that have been
paid for by Tenant. For that purpose the cost of such improvements shall be
amortized over the original term of this Lease excluding any options. In the
event that this Lease Is not terminated by reason of such condemnation, Landlord
shall to the extent of severance damages received by Landlord In connection with
such condemnation, repair any damage to the Premises caused by such condemnation
except to the extent that Tenant has been reimbursed therefor by the condemning
authority. Tenant shall pay any amount in excess of such severance damages
required to complete such repair.
Landlord Initials:____________
FULL SERVICE - GROSS
Tenant Initials:____________
<PAGE>
15. Broker's Fee.
(a) The brokers involved in this transaction are --(none)--
as "listing broker" and --(none)--as "cooperating broker:'
licensed real estate broker(s). A "cooperating broker" is defined as any broker
other than the listing broker entitled to a share of any commission arising
under this Lease. Upon execution of this Lease by both parties, Landlord shall
pay to said brokers jointly, or In such separate shares as they may mutually
designate in writing, a fee as set forth in a separate agreement between
Landlord and said broker(s), or In the event there Is no separate agreement
between Landlord and said broker(s), the sum of $ (N/A) for brokerage services
rendered by said broker(s) to Landlord in this transaction.
(b) Landlord further agrees that (I) if Tenant exercises any Option, as
defined In paragraph 39.1 of this Lease, which Is granted to Tenant under this
Lease, or any subsequently granted option which Is substantially similar loan
Option granted to Tenant under this Lease, or (II) If Tenant acquires any rights
to the Premises or other premises described In this Lease which are
substantially similar to what Tenant would have acquired had an Option herein
granted to Tenant been exercised, or (iii) if Tenant remains In possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property In which Landlord has an Interest, or (v) If the
Base Rent is Increased, whether by agreement or operation of an escalation
clause contained herein, then as to any of said transactions or rent increases,
Landlord shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) In effect at the time of execution of this Lease. Said fee shall be
paid at the time such increased rental is determined.
(c) Landlord agrees to pay said fee not only on behalf of Landlord but also
on behalf of any person, corporation, association, or other entity having an
ownership Interest in said real property or any part thereof, when such fee Is
due hereunder. Any transferee of Landlord's Interest In this Lease, whether such
transfer is by agreement or by operation of law shall be deemed to have assumed
Landlord's obligation under this paragraph 15. Each listing and cooperating
broker shall be a third party beneficiary of the provisions of this paragraph 15
to the extent of their Interest in any commission arising under this Lease and
may enforce that right directly against Landlord; provided, however, that all
brokers having a right to any part of such total commission shall be necessary
party to any suit with respect thereto.
(d) Tenant and Landlord each represent and warrant to the other that neither
has had any dealings with any person, firm, broker or finder (other than the
person(s), if any, whose names are set forth In paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee In connection with said
transaction and Tenant and Landlord do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker; finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
<PAGE>
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less than
fifteen (15) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease Is unmodified and in full force and
effect (or, If modified; stating the nature of such modification and certifying
that this Lease, as so modified, Is In full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Tenant.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Landlord is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Landlord desires to finance, refinance, or sell the Office Building
Project, or any pad thereof, Tenant hereby agrees to deliver to any lender or
purchaser designated by Landlord such financial statements of Tenant as maybe
reasonably required by such lender or purchaser Such statements shall include
the past three (3) years' financial statements of Tenant. All such financial
statements shall be received by Landlord and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Landlord's Liability. The term "Landlord" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a Tenant's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest, Landlord herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Landlord's obligations thereafter to be performed,
provided that any funds In the hands of Landlord or the then grantor at the time
of such transfer; in which Tenant see has an interest, shall be delivered to the
grantee, The obligations contained in this Lease to be performed by Landlord
shall subject as aforesaid, be binding on Landlord's successors and assigns,
only during their respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction shall In no way affect the
validity of any other provision hereof,
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Landlord not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due, Payment of such interest
shall not excuse or cure any default by Tenant under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Tenant
nor on any amounts upon which late charges are paid by Tenant.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease,
<PAGE>
21. Additional Rent. All monetary obligations of Tenant to Landlord under the
terms of this Lease, Including but not limited to Tenant's Share of Operating
Expense Increase and any other expenses payable by Tenant hereunder shall be
deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified In writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Tenant hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Landlord or any employee or agents of any of said persons has made any oral
or written warranties or representations to Tenant relative to the condition or
use by Tenant of the Premises or the Office Building Project and Tenant
acknowledges that Tenant assumes all responsibility regarding the Occupational
Safety Health Act, the legal use and adaptability of the Premises and the
compliance thereof with all applicable laws and regulations in effect during the
term of this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered mail
or by overnight delivery service, and shall be deemed sufficiently given if
delivered or addressed to Tenant or to Landlord at the address noted below or
adjacent to the signature of the respective parties, as the case may be. Mailed
notices shall be deemed given upon actual receipt at the address required, or
forty-eight hours following deposit in the mail, postage prepaid, whichever
first occurs. Either party may by notice to the other specify a different
address for notice purposes except that upon Tenant's taking possession of the
Premises, the Premises shall constitute Tenant's address for notice purposes. A
copy of all notices required or permitted to be given Landlord hereunder shall
be concurrently transmitted to such party or parties at such addresses as
Landlord may from time to time hereafter designate by notice to Tenant.
Landlord Initials:____________
FULL SERVICE - GROSS
Tenant Initials:____________
<PAGE>
24. Waivers. No waiver by either party of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Tenant of
the same or any other provision. A party's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of that party's consent
to or approval of any subsequent act by Tenant. The acceptance of rent hereunder
by Landlord shall not be a waiver of any preceding breach by Tenant of any
provision hereof, other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach, at the
time of acceptance of such rent.
25. Recording. Either Landlord or Tenant shall, upon request of the other;
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Tenant, without Landlord's consent, remains in possession
of the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Tenant, except that the rent payable
shall be two hundred percent (200%) of the rent payable immediately preceding
the termination date of this Lease, and all Options, if any, granted under the
terms of this Lease shall be deemed terminated and be of no further effect
during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by Tenant
shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Tenant and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted hereby, at
Landlord's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof, notwithstanding such subordination, Tenant's right to quiet possession
of the Premises shall not be disturbed if Tenant is not in default and so tong
as Tenant shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to Its terms, if
any mortgagee, trustee or ground Landlord shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Tenant, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or, ground lease or the date of recording
thereof.
<PAGE>
(b) Tenant agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be, Tenant's failure to execute such documents within fifteen (15) days
after written demand shall constitute a material default by Tenant hereunder
without further notice to Tenant or; at Landlord's option, Landlord shall
execute such documents on behalf of Tenant as Tenant's attorney-in-fact, Tenant
does hereby make, constitute and irrevocably appoint Landlord as Tenant's
attorney-In-fact and In Tenant's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. Attorneys' Fees.
31.1 If either party or the broker(s) named herein bring an action to enforce
the terms hereof or declare rights hereunder; the prevailing party in any such
action, trial or appeal thereon, shall be entitled to his reasonable attorneys'
fees to be paid by the losing party as fixed by the court in the same or a
separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder,
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably Incurred in good faith,
31.3 Landlord shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred In the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
32. Landlord's Access.
32.1 Landlord and Landlord's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same, performing
any services required of Landlord, showing the same to prospective purchasers,
lenders, or Tenants, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Landlord may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Tenant's use of the
Premises. Landlord may at any time place on or about the Premises or the
Building any ordinary "For Sale" signs and Landlord may at any time during the
last 120 days of the term hereof place on or about the Premises any ordinary
"For Lease" signs,
32.2 All activities of Landlord pursuant to this paragraph shall be without
abatement of rent, nor shall Landlord have any liability to Tenant for the same.
32.3 Landlord shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forceable or unlawful entry or
detainer of the Premises or an eviction. Tenant waives any charges for damages
or injuries or interference with Tenant's property business in connection
therewith.
<PAGE>
33. Auctions. Tenant shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Landlord's prior written consent. Notwithstanding
anything to the contrary in this Lease, Landlord shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. Signs. Tenant shall not place any sign upon the Premises or the Office
Building Project without Landlord's prior written consent. Under no
circumstances shall Tenant place a sign on any roof or windows of the Office
Building Project.
35. Merger. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, or a termination by Landlord; shall not work a
merger; and shall, at the option of Landlord; terminate all or any existing
sub-tenancies or may, at the Option of Landlord; operate as an assignment to
Landlord of any or all of such sub-tenancies.
36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Tenant under this Lease.
Landlord Initials:____________
FULL SERVICE - GROSS
Tenant Initials:____________
<PAGE>
38. Quiet Possession. Upon Tenant paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Tenant's part
to be observed and performed hereunder; Tenant shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Landlord represent and
warrant to Tenant that they are fully authorized and legally capable of
executing this Lease on behalf of Landlord and that such execution is binding
upon all parties holding an ownership interest in the Office Building Project.
39. Options.
39.1Definition. As used in this paragraph the word "Option" has the following
meaning: (a) the right or option to extend the term of this Lease or to extend
or renew any lease that Tenant has on other property of Landlord: (b) the option
of right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other space within the
Office Building Project or other property of Landlord or the right of first
offer to lease other space within the Office Building Project or other property
of Landlord: (c) the right or option to purchase the Premises or the Office
Building Project, or the right of first refusal to purchase the Premises or the
Office Building Project or the right of first offer to purchase the Premises or
the Office Building Project, or the right or option to purchase other property
of Landlord, or the right of first refusal to purchase other property of
Landlord or the right of first offer to purchase other property of Landlord.
39.2 Options Personal. Each Option granted to Tenant in this Lease is
personal to the original Tenant and may be exercised only by the original Tenant
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Tenant: provided, however; that an Option may be
exercised by or assigned to any Tenant Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Tenant are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner; either by reservation or otherwise.
39.3 Multiple Options. In the event that Tenant has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Tenant shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary, (i) during the time commencing
from the date Landlord gives to Tenant a notice of default pursuant to paragraph
13.1(c) or 13.1(d) and continuing until the noncompliance alleged in said notice
of default is cured, or (ii) during the period of time commencing on the day
after a monetary obligation to Landlord is due from Tenant and unpaid (without
any necessity for notice thereof to Tenant) and continuing until the obligation
is paid, or (iii) In the event that Landlord has given to Tenant three or more
notices of default under paragraph 13.1(c), or paragraph 13.1(d), whether or not
the defaults are cured, during the 12 month period of time immediately prior to
the time that Tenant attempts to exercise the subject Option, (iv) If Tenant has
committed any non-curable breach, including without limitation those described
in paragraph 13.1(b). or is otherwise In default of any of the terms. covenants
or conditions of this Lease.
<PAGE>
(b) The period of time with which an Option may be exercised shall not be
extended or enlarged by reason of Tenant's inability to exercise an Option
because of the provisions of paragraph 39.4(a).
(c) All rights of Tenant under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Tenant's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease. (i) Tenant fails to pay to Landlord a monetary obligation of Tenant for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Landlord to give notice thereof to Tenant), or (ii) Tenant fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Landlord gives notice to Tenant of such default and/or
Tenant fails thereafter to diligently prosecute said cure to completion, or
(iii) Landlord gives to Tenant three or more notices of default under paragraph
13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if
Tenant has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease.
40. Security Measures-Landlord's Reservations.
40.1 Tenant hereby acknowledges that Landlord shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Tenant assumes all
responsibility for the protection of Tenant, its agents, and invitees and the
property of Tenant and of Tenant's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Landlord, at Landlord's sole
option, from providing security protection for the Office Building Project or
any part thereof, in which event the cost thereof shall be included within the
definition of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Landlord shall have the following rights:
(a) To change the name, address or title of the Office Building Project or
building In which the Premises are located upon not less than 90 days prior
written notice:
(b) To, at Tenant's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Landlord shall reasonably deem appropriate:
(c) To permit any Tenant the exclusive right to conduct any business as
long as such exclusive does not conflict with any rights expressly given herein:
(d) To place such signs, notices or displays as Landlord reasonably deems
necessary or advisable upon the roof, exterior of the buildings or the Office
Building Project or on pole signs In the Common Areas:
40.3 Tenant shall not:
(a) Use a representation (photographic or otherwise) of the Building or
the Office Building Project or their name(s) in connection with Tenant's
business:
(b) Suffer or permit anyone, except in emergency, to go upon the roof of
the Building.
<PAGE>
41. Easements.
41.1 Landlord reserves to Itself the right, from time to time, to grant such
easements, rights and dedications that Landlord deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps end restrictions do not unreasonably
interfere with the use of the Premises by Tenant. Tenant shall sign any of the
aforementioned documents upon request of Landlord and failure to do so shall
constitute a material default of this Lease by Tenant without the need for
further notice to Tenant.
41.2 The obstruction of Tenant's view air; or light by any structure erected
in the vicinity of the Building, whether by Landlord or third parties, shall in
no way affect this Lease or impose any liability upon Landlord.
42. Performance Under Protest.. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. if it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as It was not legally required to pay under the provisions of
this Lease.
Landlord Initials:____________
FULL SERVICE - GROSS
Tenant Initials:____________
<PAGE>
43. Authority. If Tenant is a corporation, trust, or general or limited
partnership, Tenant, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Tenant is a corporation,
trust or partnership, Tenant shall, within thirty (30) days after execution of
this Lease, deliver to Landlord evidence of such authority satisfactory to
Landlord, if requested in writing by Landlord.
44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Landlord or Landlord's agent and
submission of same to Tenant shall not be deemed an offer to Tenant to lease.
This Lease shall become binding upon Landlord and Tenant only when fully
executed by both parties.
46. Lender Modification. Tenant agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Landlord or Tenant herein, except as otherwise expressly provided herein, the
obligations of the Landlord or Tenant herein shall be the joint and several
responsibility of all persons or entities named herein as such Landlord or
Tenant, respectively.
48. Work Letter. This Lease is supplemented by that certain Work Letter of even
date executed by Landlord and Tenant, attached hereto as Exhibit D, and
incorporated herein by this reference.
49. Attachments. Attached hereto, including the Addendum, are the following
documents constitute a part of this Lease:
Exhibit "A" Property Description
Exhibit "B" Floor Plans
Exhibit "B-1" Demised Premises
Exhibit "C" Rules & Regulations
Exhibit "D" Work Letter Agreement
Exhibit "D-1" Space Plan
<PAGE>
LANDLORD AND TENANT HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND , BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND TENANT WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES
AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF
THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL
RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LANDLORD: TENANT:
STEVENS CREEK OFFICE CENTER EXCALIBUR TECHNOLOGIES CORPORATION
OF SANTA CLARA a Delaware corporation
By /s/Louie P. Tersini By /s/James H. Buchanan
-------------------- --------------------
Louie P. Tersini James H. Buchanan
Owner
Its Chief Financial Officer
Federal Tax I.D. #85-0278207
<PAGE>
Exhibit "A"
Property Description
All that certain property situated in the City of Santa Clara, County of Santa
Clara, State of California, described as follows:
Parcel One:
Parcel 1, as shown on that certain map entitled, "Parcel Map of a portion of the
Quito Rancho for Red Barn Systems, Inc., Santa Clara California," filed for
record June 16, 1969, in Book 255 of Maps, at Page 16, Santa Clara Records.
Parcel Two:
Easement and right of way for the purpose of accessibility in the case of
service or emergency over a strip of land 20 feet in width lying westerly of and
contiguous to the Westerly boundary of Board of the Southern Baptist Convention,
a Texas corporation, to Paul H. Magnuson, recorded July 16, 1982 in Book G905,
Page 327 of Official Records.
APN#: 296-21-008
<PAGE>
Exhibit "B"
FLOOR PLAN
THIS EXHIBIT is made this 1st day of July ,1997, by and between STEVENS CREEK
OFFICE CENTER OF SANTA CLARA, ("Landlord"), and, EXCALIBUR TECHNOLOGIES
CORPORATION, a Delaware corporation, ("Tenant").
<PAGE>
Exhibit "B-1"
DEMISED PREMISES
THIS EXHIBIT is made this 1st day of July ,1997, by and between STEVENS CREEK
OFFICE CENTER OF SANTA CLARA, ("Landlord"), and, EXCALIBUR TECHNOLOGIES
CORPORATION, a Delaware corporation, ("Tenant").
<PAGE>
Exhibit "C"
RULES and REGULATIONS
THIS EXHIBIT is made this 1st day of July ,1997, by and between STEVENS CREEK
OFFICE CENTER OF SANTA CLARA, ("Landlord"), and, EXCALIBUR TECHNOLOGIES
CORPORATION, a Delaware corporation, ("Tenant").
Landlord and Tenant agree that the following Rules and Regulations shall be and
hereby are made a part of this Lease, and Tenant agrees that Tenant's employees
and agents, or any others permitted by Tenant to occupy or enter the Premises,
will at all times abide by said Rules and Regulations:
GENERAL RULES
1. The sidewalks, entries, passages, corridors, stairways and elevators of the
Building shall not be obstructed by Tenant, or Tenant's agents or employees, or
used for any purpose other than ingress to and egress from the Premises.
2. Furniture, equipment or supplies will be moved in or out of the Building only
upon the elevator designated by Landlord and then only during such hours and in
such manner as may be prescribed by Landlord and upon no less than forty-eighty
(48) hours prior notice to Landlord. Landlord shall have the right to approve or
disapprove the movers or moving company employed by Tenant. Tenant shall cause
its ,movers to use only the ;loading facilities and elevator designated by
Landlord. In the event Tenant's movers damage the elevator or any part of the
Building, Tenant shall forthwith pay to Landlord the amount required to repair
said damage. Tenant shall insure that deliveries of materials and supplies to
the Premises are made through such entrances, elevators and corridors and at
such times as may from time to time be designated by Landlord, and shall
promptly pay or cause to be paid to Landlord the costs of repairing any damage
in or to the Building or Building Complex caused by any person making such
deliveries.
3. All removals, or the carrying in or out of any safes, freight, furniture,
construction material, bulky matter or heavy equipment of any description must
take place during the hours which Landlord or its agent may determine from time
to time. Landlord reserves the fight to prescribe the weight and position of all
safes, which must be placed upon two-inch thick plank strips to distribute the
weight. The moving of safes, freight, furniture, fixtures, bulky matter or heavy
equipment of any kind must be made upon previous notice to the Building Manager
and in a manner and at times prescribed by same, and the persons employed y
Tenant for such work are subject to Landlord's prior approval. Landlord reserves
the right to inspect all safes, freight or other bulky articles to be brought in
the Building, and to exclude from the Building all safes, freight or other bulky
articles which violate any of these Rules and Regulations or the Lease of which
these Rules and Regulations a part.
4. During the entire term of this Lease, Tenant shall, at Tenant's expense
install and maintain under each and every caster chair a vinyl chair pad to
protect the carpeting.
5. No sign, advertisement, notice, lettering, decoration or other thing shall be
exhibited, inscribed, painted or affixed by Tenant on any part of the outside or
inside of the Premises or of the Building, without the prior written consent of
Landlord. In the event of the violation of the foregoing by Tenant, Landlord may
remove same without any liability, and may charge the expense incurred by such
removal to Tenant.
<PAGE>
6. Tenant shall not do or permit anything to be done in the Premises, or bring
or keep anything therein which would in any way increase the rate of fire
insurance on the Building or on property kept therein, constitute a nuisance or
waste, or obstruct or interfere with the rights of other Tenants, or in any way
injure or annoy them, or conflict with any of the rules or ordinances of the
Fire Department or of the Department of Health of the City and County where the
Building is located.
7. The water and wash closets and other plumbing fixtures shall not be used for
any purposes other than those for which they were constructed, and no sweepings,
rubbish, rages or other substances shall be thrown therein. All damages
resulting from any misuse of the fixtures shall be borne by Tenant to the extent
that Tenant or Tenant's agents, servants, employees, contractors, visitors or
licensees shall have caused the same.
8. No animal or bird of any kind shall be brought into or kept in or about the
Premises or the Building, except seeing-eye dogs or other seeing-eye animals.
9. No vehicles, including bicycles, shall be permitted in the offices, halls,
corridors, and elevators in the Building nor shall any vehicles by permitted to
obstruct the sidewalks or entrances of the Building.
10. Tenant shall not make, or permit to be made any unseemly or disturbing
noises or disturb or interfere with occupants of the building, or those having
business with them. Tenant shall not throw anything out of the doors, windows or
skylights or down the passageways.
11. Neither Tenant nor any of Tenant's agents, servants, employees, contractors,
visitors or licensees shall at any time bring or keep upon the Premises any
flammable, combustible or explosive fluid, chemical or substance.
12. No additional locks, bolts or mail slots of any kind shall be placed upon
any of the doors or windows by Tenant, nor shall any change be made in existing
locks or the mechanism thereof. Tenant must, upon the termination of the
tenancy, restore to Landlord all keys of stores, offices, toilet rooms and mail
box, either furnished to, or otherwise procured by Tenant, and in the event of
the loss of any keys so furnished, Tenant shall pay to Landlord the cost
thereof.
13. No window shades, blinds, screens, draperies or other window coverings will
be attached or detached by Tenant without Landlord's prior written consent.
Tenant agrees to abide by Landlord's rules with respect to maintaining uniform
curtains, draperies and/or linings at all windows and hallways.
14. No awnings shall be placed over any window.
15. If Tenant desires telegraphic, telephonic, telecommunications or other
similar connections, Landlord or Landlord's agent will designate the location of
such installations. Any such installation and connection shall be made at
Tenant's expense.
16. Any painting or decorating as may be agreed to be done by and at the expense
of Landlord hall be done during regular weekday working hours. Should Tenant
desire such work on Saturdays, Sundays, holidays or outside or regular working
hours, Tenant shall pay for the extra cost thereof. Tenant shall carry out
Tenant's repair, maintenance, alterations and improvements in the Premises only
during times agreed to in advance by Landlord and in a manner which will not
interfere with the rights of other Tenants in the Building.
<PAGE>
17. Except as permitted by Landlord or except for normal office decorating,
Tenant shall not mark upon, paint signs upon, cut, drill into, drive nails or
screws into, or in any way deface the walls, ceilings, partitions or floors of
the Premises or of the Building, and any defacement, damage or injury caused by
Tenant, Tenant's agents or employees, shall be paid for by Tenant.
18. No water cooler, air conditioning unit or system or other apparatus shall be
installed or used by Tenant without the written consent of Landlord.
19. Canvassing, soliciting and peddling in the Building are prohibited and
Tenant shall cooperate to prevent the same.
20. Landlord shall at all times have the right, by Landlord's representatives or
agents, to enter the Premises and show the same to persons wishing to lease
them, and may, at any time within sixty (60) days preceding the termination of
Tenant's Lease term, place upon the doors and windows of the Premises a "For
Rent" sign, which notice shall not be removed by Tenant.
21. Tenant shall not obstruct or interfere with the rights of other Tenants of
the Building, or of persons having business in the Building, or in any way
injure or annoy such Tenants or persons.
22. Tenant shall not commit any act or permit anything in or about the Building
which shall or might subject Landlord to any liability or responsibility for
injury to any person or property by reason of any business or operation being
carried on in or bout the Building or for any other reason.
23. Tenant shall not use the Building for lodging, sleeping, cooking, or for any
immoral or illegal purpose or for any purpose that will damage the Building, or
the reputation thereof, or for any purposes other than those specified in the
Lease.
24. Tenant shall not bring any Hazardous Materials onto the Premises except for
those which are in general commercial use and are incidental to Tenant's
business office operations and only in quantities suitable for immediate use.
25. Smoking is prohibited in all enclosed Common Areas of the Building,
including, without limitation, the main lobby, atrium, all hallways, all
elevators, all elevator lobbies, all restrooms and the parking structure.
26. Landlord reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on any other days between the hours of 6:30 p.m.
and of 6:30 a.m. of the following day. If Tenant uses the Premises during such
periods, Tenant shall be responsible for securely locking any doors it may have
opened for entry.
PARKING RULES
1. Parking areas shall be used only for parking vehicles no longer than full
size, passenger automobiles herein called "Permitted Size Vehicles". Vehicles
other that Permitted Size Vehicles are herein referred to as "Oversized
Vehicles".
2. Tenant shall not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees, agents, suppliers, shippers,
customers or invitees to be loaded, unloaded, or parked in areas other than
those designated by Landlord for such activities.
<PAGE>
3. Landlord reserves the right to relocate all or a part of parking spaces from
floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances and
regulations.
4. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
5. Landlord will not be responsible for any damage to vehicles, injury to
persons or loss of property, all of which risks are assumed by the party using
the parking area.
6. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is strictly prohibited.
7. Tenant shall be responsible for seeing that all of its employees, agents and
invitees comply with the applicable parking rules, regulations, laws and
agreements.
8. Landlord reserves the right to modify these rules and/or adopt such other
reasonable and on discriminatory rules and regulations as it may deem necessary
for the proper operation of the parking area.
9. Such parking use as is herein provided is intended merely as a license only
and no bailment is intended or shall be created hereby.
Landlord Initials:___________
Tenant Initials:___________
<PAGE>
Exhibit "D"
WORK LETTER AGREEMENT
THIS EXHIBIT is made this 1st day of July ,1997, by and between STEVENS CREEK
OFFICE CENTER OF SANTA CLARA, ("Landlord"), and, EXCALIBUR TECHNOLOGIES
CORPORATION, a Delaware corporation, ("Tenant").
1. Landlord shall, at Landlord's expense, complete the construction of the
improvements to the Premises as described and delineated in the space plans
attached hereto as Exhibit "D-1" and in accordance with the building standards.
Landlord shall cause to be prepared final drawings for the Tenant Improvements
that are consistent with the space plans and the building standards. As soon as
such Construction Drawings are completed, Landlord shall deliver the same to
Tenant. Such Constriction Drawings shall be reviewed and approved by Tenant
within three (3) business days after delivery by Landlord and four (4) copies of
such Construction Drawings shall be initialed and dated by Landlord and Tenant.
2. Tenant shall be solely responsible for the suitability for the Tenant's needs
and business of the design and function of the Tenant Improvements. Tenant shall
also be responsible for procuring or installing in the Premises any trade
fixtures, equipment, furniture, furnishings, telephone equipment or other
personal property to be used in the Premises by Tenant, and the cost of such
personal property shall be paid by Tenant. Tenant shall conform to the Building
wiring standards in installing any telephone equipment and shall be subject to
any and all rules of the site construction.
3. If Tenant shall request any change, addition or alteration in the plans, the
building standards or the approved Construction Drawings, Landlord shall
promptly give Tenant a written estimate of (a) the cost of engineering and
design services to prepare a change order ("Change Order") in accordance with
such request, (b) the cost of the work to be performed pursuant to such Change
Order, and (c) the time delay expected because of such requested Change Order>
Within three (3) business days following Tenant's receipt of the foregoing
written estimate, Tenant shall notify Landlord in writing whether it approves
such written estimate. If Tenant approves such written estimate, Tenant shall
accompany such approval with a good check made payable to Landlord in the amount
of the estimated cost of preparing the Change Order and performing the work
thereof, and the foregoing shall constitute Landlord's authorization to proceed.
If such written authorization and check are not received by Landlord within such
three (3) business days period, Landlord shall not be obligated to prepare the
Change Order or perform any work in connection therewith. Upon completion of the
work of the Change Order and submission of the final cost thereof by Landlord to
Tenant, Tenant shall promptly pay any such additional amounts due Landlord; any
savings shall, at Landlord's option, either by refunded to Tenant or credited
against any other Change Order sums which are due Landlord by Tenant.
4. If the completion of the Tenant Improvements in the Premises is delayed (i)
at the request of Tenant, (ii) by Tenant's failure to comply with the foregoing
provisions, (iii) by changes in the work requested (whether or not Tenant
authorizes Landlord to proceed therewith) or ordered by Tenant or by extra work
ordered by Tenant, or (iv) because Tenant chooses to have additional work
performed by Landlord, then Tenant shall be responsible for all limitation, any
costs and expenses attributable to increases in labor or materials, and there
shall be no delay in the commencement of Tenant's obligation to pay Rent if the
completion of the Tenant Improvements is delayed as a result of the foregoing.
<PAGE>
5. Landlord and Tenant agree that the Tenant Improvements shall be completd in
three (3) phases, subject to the expansion space commencement dates. Suite 230
will be completed within forty-five days (45) following Tenants occupancy of
Suites 220 and 224, pursuant to Section 3.2 of the Lease.
IN WITNESS WHEREOF, the parties have executed this Work Letter Agreement this
9th day of July, 1997.
LANDLORD: TENANT:
STEVENS CREEK OFFICE CENTER EXCALIBUR TECHNOLOGIES CORPORATION.
OF SANTA CLARA a Delaware corporation
By:/s/Louie P. Tersini By: /s/James H. Buchanan
---------------------- -------------------------
Louie P. Tersini Its: Chief Financial Officer
Owner
<PAGE>
Exhibit "D - 1"
SPACE PLAN
THIS EXHIBIT is made this 1st day of July ,1997, by and between STEVENS CREEK
OFFICE CENTER OF SANTA CLARA, ("Landlord"), and, EXCALIBUR TECHNOLOGIES
CORPORATION, a Delaware corporation, ("Tenant").
<PAGE>
ADDENDUM
THIS ADDENDUM TO LEASE is made this 1st day of July ,1997, by and between
STEVENS CREEK OFFICE CENTER OF SANTA CLARA, ("Landlord"), and, EXCALIBUR
TECHNOLOGIES CORPORATION, a Delaware corporation, ("Tenant").
50. Base Rent: Tenant shall pay to Landlord "Base Rent" for the Premises,
Suite #230, as follows:
Months 1 - 12 $2,276.30 per month, $27,315.60 per annum
Months 13 - 24 $2,343.25 per month, $28,119.00 per annum
Months 25 - 36 $2,410.20 per month, $28,922.40 per annum
Total rent obligation is $84,357.00, pursuant to the terms and conditions of
paragraph 4.3, hereinabove.
51.Expansion Space: Landlord and Tenant have mutually agreed that Tenant shall
lease Premises known as Suite #220 and #224, following the expiration of the
current Tenant's, in possession, lease agreements, i.e., July 31, 1997 and
October 31, 1997, respectively. The Expansion Space commencement date shall
be the earlier of (i) the date Tenant occupies the Expansion space, or (ii)
the date on which Substantial Completion of the expansion space improvements
has been achieved. For purposes of the Addendum, the term "Substantial
Completion" shall mean the date upon which Landlord's General Contractor has
issued a notice of substantial completion with respect to the Expansion Space
Improvements
a. Expansion of Suite #220; Effective as of the Expansion Space Commencement
Date, Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, that certain space, consisting of 865 Rentable square feet and as
shown on Exhibit "B-1". Effective as of the Expansion Space Commencement
Date. Whenever the term "Premises" is used in the Lease, such term shall
include the original Premises and the Expansion Space as if it were part of
the original Premises. The lease by Tenant of the Expansion Space shall
continue until the expiration of the original term pursuant to Section 1.5 of
the Lease.
(i) Adjustments: Commencing from and after the Expansion Commencement
Date, the Expansion Space shall be deemed to be a part of the Premises and
shall be subject to all the terms, covenants and conditions of the Lease,
except that the following terms shall be deemed amended to provide as
follows:
(a) Premises: The Premises shall be adjusted from 1,339 rentable square
feet to 2,204 rentable square feet.
(b) Expansion Space Commencement Date: August 1, 1997
pursuant to Section 1.5 of the Lease.
(c) Base Rent:: The Base Rent then being paid shall be increased by the
sum of One Thousand Six Hundred Dollars and Twenty-Five Cents ($1,600.25),
per month (which sum shall be prorated if the expansion space commencement
date occurs on a date other that the first day of a calendar month on the
basis of a thirty (30) day month. The Base Rent pursuant to Section 50, shall
be increased on the respective anniversary dates hereinabove, as follows:
<PAGE>
Months 13 - 24 $1,643.50 per month, $19,722.00 per annum
Months 25 - 36 $1,686.75 per month, $20,241.00 per annum
(d) Operating Expense Increase: Tenant's share of the Operating Expense
Increase shall be increased from 4.05% to 6.666% as define in Sections 1.10
and 4.2 of the Lease.
(e) Parking Spaces: The number of parking spaces shall be increase from
Six (6) to Nine (9) .
(f) Delay in Possession: Possession shall be deliverd by Landlord to
Tenant pursuant to Section 3.2 of the Lease.
(g) Tenant Improvements: Landlord shall construct the
expansion space improvements, as defined in Exhibit(s) "D"
and "D-1", attached hereto.
b. Expansion of Suite #224; Effective as of the Expansion Space Commencement
Date, Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, that certain space, consisting of 659 Rentable square feet and as
shown on Exhibit "B-1". Effective as of the Expansion Space Commencement
Date. Whenever the term "Premises" is used in the Lease, such term shall
include the original Premises and the Expansion Space as if it were part of
the original Premises. The lease by Tenant of the Expansion Space shall
continue until the expiration of the original term pursuant to Section 1.5 of
the Lease.
(i) Adjustments: Commencing from and after the Expansion Commencement
Date, the Expansion Space shall be deemed to be a part of the Premises and
shall be subject to all the terms, covenants and conditions of the Lease,
except that the following terms shall be deemed amended to provide as
follows:
(a) Premises: The Premises shall be adjusted from 2,204 rentable square
feet to 2,863 rentable square feet.
(b) Expansion Space Commencement Date: November 1, 1997 and ending
pursuant to Section 1.5 of the Lease.
(c) Base Rent: The Base Rent then being paid shall be increased by the
sum of One Thousand One Hundred Twenty Dollars and Thirty Cents ($1,120.30),
per month (which sum shall be prorated if the expansion space commencement
date occurs on a date other that the first day of a calendar month on the
basis of a thirty (30) day month. The Base Rent pursuant to Section 50 and
Section 51a(b) herein, shall be increased on the respective anniversary
dateshereinabove, as follows:
Months 13 - 24 $1,153.25 per month, $13,839.00 per annum
Months 25 - 36 $1,186.20 per month, $14,234.40 per annum
<PAGE>
(d) Operating Expense Increase: Tenant's share of the Operating Expense
Increase shall be increased from 6.666% to 8.659% as define in Sections 1.10
and 4.2 of the Lease.
(e) Parking Spaces: The number of parking spaces shall be increase from
Nine (9) to Twelve (12) .
(e) Delay in Possession: Possession shall be deliverd by Landlord to
Tenant pursuant to Section 3.2 of the Lease.
(f) Tenant Improvements: Landlord shall construct the
expansion space improvements, as defined in Exhibit(s) "D" and "D-1",
attached hereto.
52. Option to Renew: Provided that Tenant is not in default of the terms and
conditions of this Lease, Tenant shall have one (1) option to extend the Term of
this Lease for an additional period of three (3) years on the same terms and
conditions provided herein, except that the Base Rent for the extended term
shall be adjusted by Ninety-Five (95%) of the then Prevailing Market Rental
Value. However, in no event shall the Base Annual Rent be less than amount
payable under the terms of the Lease immediately prior to the commencement of
the applicable Option Term. The Option shall be exercised by written notice to
Landlord one hundred twenty (120) days prior to the expiration of the Lease.
Exhibit 22.01
SUBSIDIARIES OF EXCALIBUR TECHNOLOGIES CORPORATION
January 31, 1998
1. Excalibur Technologies International, Ltd.
2. Excalibur Acquisition Corporation
3. EXCA Acquisition Corporation
Exhibit 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 27, 1998 included in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-3, File Nos. 33-79794,
33-90734, 33-65333, 333-01595, 333-5185, 333-17433 and 333-34705 and on Form
S-8, File nos. 33-89144, 333-15369 and 333-40873.
/s/ARTHUR ANDERSEN LLP
Washington, D.C.,
April 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 4,939
<SECURITIES> 1,496
<RECEIVABLES> 9,716
<ALLOWANCES> 527
<INVENTORY> 0
<CURRENT-ASSETS> 16,695
<PP&E> 7,881
<DEPRECIATION> 5,614
<TOTAL-ASSETS> 20,045
<CURRENT-LIABILITIES> 6,947
<BONDS> 0
0
271
<COMMON> 132
<OTHER-SE> 12,695
<TOTAL-LIABILITY-AND-EQUITY> 20,045
<SALES> 17,202
<TOTAL-REVENUES> 22,417
<CGS> 3,039
<TOTAL-COSTS> 17,442
<OTHER-EXPENSES> 8,266
<LOSS-PROVISION> 250
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> (8,326)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,326)
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<NET-INCOME> (8,326)
<EPS-PRIMARY> (0.64)
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