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, 1999
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 7, 1999 (based on the closing sales price as reported on
the NASDAQ National Market System) was $191,229,080.
The number of shares outstanding of the registrant's class of common stock as of
April 7, 1999 was 14,316,976.
The Index to Exhibits begins on Page 31
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EXCALIBUR TECHNOLOGIES CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
TABLE OF CONTENTS
Page
PART I
Item 1. Business ............................................. 1
Item 2. Properties ........................................... 10
Item 3. Legal Proceedings .................................... 10
Item 4. Submission of Matters to a Vote of Security Holders .. 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters .................................. 11
Item 6. Selected Financial Data .............................. 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 13
Item 7A. Market Risk .......................................... 21
Item 8. Financial Statements and Supplementary Data .......... 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .................. 22
PART III
Item 10. Directors and Executive Officers of the Registrant ... 23
Item 11. Executive Compensation ............................... 26
Item 12. Security Ownership of Certain Beneficial Owners
and Management ....................................... 29
Item 13. Certain Relationships and Related Transactions ....... 31
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K ............................................. 31
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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 and digital asset management software
solutions. Excalibur's comprehensive suite of products which includes Excalibur
RetrievalWare, Excalibur RetrievalWare WebExpress, Excalibur RetrievalWare
FileRoom, Excalibur Internet Spider, Excalibur EFS, Excalibur Visual
RetrievalWare, Excalibur Screening Room and Excalibur Video Analysis Engine,
enables individuals to quickly capture, analyze, index, catalog, browse, access,
search, retrieve and use 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 (Portable Document Format) 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, the
Company's flagship product, 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.
It offers users a web-based unified view of all information assets and enables
highly accurate search and retrieval over these assets. Excalibur offers its
software solutions to information systems for workgroups, enterprises and
distributed wide area networks, including the Internet and World Wide Web. The
Company also offers training, consulting and maintenance services to facilitate
implementation and use of Excalibur technology.
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
search and retrieval capabilities available today. The combined technology
powers 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. Revenues derived from contracts and
orders issued by agencies of the U.S. Government were approximately $4.5
million, $5.4 million and $6.0 million, respectively, in the fiscal years ended
January 31, 1999, 1998 and 1997. These revenues, expressed as a percentage of
total revenues for the fiscal year, were approximately 16%, 24% and 30%,
respectively. Financial information about the Company's operations by geographic
area is presented in Note 9 to the consolidated financial statements contained
herein.
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
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 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.
In July 1995, the Company acquired ConQuest Software, Inc., ("ConQuest") 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 option holders 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.
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 WebExpress, Excalibur RetrievalWare
FileRoom, Excalibur Internet Spider, and Excalibur EFS, 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. Excalibur Video
Analysis Engine (VAE) targets developers, programmers and owners of video assets
with the need to construct applications capable of analyzing video content and
detecting event changes. Excalibur Screening Room's markets include media and
entertainment companies, broadcasting/news organizations, video production
companies, corporations and government agencies.
Text Products:
Excalibur's text retrieval products contributed 94%, 97%, and 96% of total
consolidated revenue in 1999, 1998 and 1997, respectively.
Excalibur RetrievalWare
Excalibur RetrievalWare offers an advanced componentized approach to knowledge
retrieval, an enabling technology to knowledge management. A high-performance
scalable, more accurate alternative to traditional search and retrieval systems,
Excalibur RetrievalWare is a comprehensive software solution designed for
enterprise knowledge retrieval and intended to empower users to find mission
critical data across multiple data types, all through a unified view. 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 6.6, was released in the second quarter of the fiscal
year 1999. It extends access and retrieval from major groupware platforms such
as Microsoft Exchange and Lotus Notes. Other enhancements include extended
security features, the ability to recognize and highlight proper names and
entities and an enhanced user interface. Overall, Excalibur RetrievalWare now
supports more than 200 document formats including Microsoft Office '97.
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 Excalibur's 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 500,000 word meanings, 50,000 language
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idioms and 1.6 million word associations. Users enter straightforward plain
English queries that are automatically enhanced by the related terms and
concepts thereby increasing the opportunity for the return of highly 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 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
The Excalibur RetrievalWare SDK (Software Developer's Kit) is a comprehensive
set of tools for building advanced content management 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
Excalibur RetrievalWare FileRoom is built on Excalibur RetrievalWare technology
and is an optional component to allow loading, indexing, viewing and managing
scanned documents, 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.
Document-level security lets organizations control user access at the fileroom
(library), cabinet, drawer, folder and document level.
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Excalibur RetrievalWare WebExpress
Excalibur RetrievalWare WebExpress is a search and retrieval tool designed for
online service providers and content-rich Internet portals. RetrievalWare
WebExpress offers superior search accuracy, performance and scalability,
supporting high numbers of concurrent users searching large and heterogeneous
document collections.
Excalibur Internet Spider
Excalibur Internet Spider is a multimedia, high-performance web spider/crawler
for augmenting the knowledge retrieval capabilities of Excalibur RetrievalWare,
for stand-alone use, or for integration with other applications. In addition to
HTML-based web pages, Excalibur Internet Spider also retrieves word processing,
PDF, and multimedia assets including audio, video, and images. It is highly
configurable and multi-threaded and can crawl as deeply, broadly, and as often
as is necessary. Users who want immediate notification when items of interest
arrive can post Agent Profiles to pull links to related documents to their
desktops. Components can be deployed on multiple machines for optimum
performance and bandwidth.
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 the 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 6%, 3% and 4% of total
consolidated revenue in 1999, 1998 and 1997, respectively.
Excalibur Visual RetrievalWare
Leveraging the APRP(TM) technology, Excalibur Visual RetrievalWare is a visual
retrieval engine and a comprehensive image processing library and programmer's
toolkit that enables the development of client/server systems that automatically
index and retrieve digital images. Applications range from electronic shopping
and digital libraries to document imaging and positive identification. 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
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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.
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.
Excalibur Video Analysis Engine (VAE)
Excalibur Video Analysis Engine is a toolkit that enables developers and
programmers to construct applications that analyze and re-purpose video content.
VAE analyzes any kind of multi-media/video asset whether it is analog or
digital, allows programmers to create multi-threaded applications and has
enhanced scalability. The toolkit is available as a Microsoft DirectShow filter
or C Library Developer's Kit. Based on the APRP(TM) technology, VAE plugs into
applications, enabling highly accurate event-change detection. VAE uses a
caching technique which compares a series of video frames based upon "event
detectors" dynamically selected by the calling program. The event detectors look
for specific occurrences in the video, triggering "event alarms" appropriate to
the developer's application. Events include cuts, fades, and dissolves.
Excalibur Screening Room
Excalibur Screening Room, which became generally available in the third quarter
of fiscal year 1999, is a comprehensive solution for real-time capturing,
analyzing, cataloguing, browsing, searching and retrieving video, as well as
related closed-caption text and metadata, over corporate intranets/extranets.
Excalibur Screening Room is aimed at entertainment organizations
(film/television), news organizations, video production companies, advertising
agencies, publishing companies, government agencies, Global 1,000 organizations
and universities with large video archives in enterprise training and
communications departments. It enables users to easily capture analog or digital
video, automatically create an intelligent video storyboard, and play it back in
any of the industry's standard video file formats. Screening Room users can then
automatically browse, search, and retrieve precisely what video clips they are
looking for without having to play or watch the video in its entirety. Excalibur
Screening Room combines the APRP(TM) technology for video analysis with
Excalibur RetrievalWare's indexing capabilities. Excalibur Screening Room
consists of four components: Capture Client, Edit Client, Browser Client, and
Video Asset Server. The Capture Client captures, analyzes and storyboards analog
or digital video assets, including live feeds and associated closed caption text
and annotations, for fast, efficient playback. The Edit Client is for use by
persons responsible for quality assurance and editorial control of storyboards
and metadata. It allows browsing, searching, editing, and annotation of
storyboards. Users can additionally output new rough cut edit segments to EDL
(Edit Decision Lists) for import into higher-end offline editing systems like
AVID and Media 100. The Browser Client allows user access to catalogs of video
assets through any standard Web browser. The Video Asset Server indexes and
stores captured video assets for instantaneous browsing, search and retrieval in
a client/server environment. Excalibur Screening Room version 1.1, released in
the third quarter of fiscal year 1999, features expanded streaming media and
database support for the RealNetworks G2 Media Player, the Sybase Adaptive
Server, and added server support for the Sun Solaris platform.
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SERVICES
Technical Support, Implementation Support and Education
Excalibur provides technical support, or maintenance, to customers through its
technical support personnel located in the Company's Carlsbad, California;
Columbia, Maryland and Windsor, United Kingdom 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, general service updates and Web forums
for technical discussions. The web site also provides electronic forms for
opening technical support cases and suggesting product, service and Company
enhancements.
The Company also provides on-site implementation and consulting services to its
customers through employee and independent consultants who have been trained and
certified by the Company. Implementation and consulting services are offered as
a package or on a time-and-materials basis. 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. 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 products to end-user customers. The targeted customer group for the
Company's products includes 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.
Marketing efforts focus on building brand awareness and establishing demand for
the Company's products 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 products, conduct on-line demonstrations of
products and enroll in training courses as well as access passworded areas for
technical and other customer support. Excalibur Video Analysis Engine (VAE) and
technical support for VAE can be purchased via the website.
The Company leverages relationships with distributors of its software products,
and the strategic partners discussed below, for a substantial portion of its
revenues.
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Strategic Alliances
In the fourth quarter of fiscal year 1999, the Company signed an agreement with
Inso Corporation whereby Inso will integrate Excalibur RetrievalWare with the
Inso Media Bank media asset management solution and with their product data
management solution. The arrangement also provides the basis for advanced
functionality in the form of HTML (Hypertext Markup Language) export and viewer
technology to be included in future versions of all Excalibur products.
In the fourth quarter of fiscal year 1999, the Company completed an agreement
with FileNET Corporation. As part of the development agreement, Excalibur will
integrate RetrievalWare with FileNET Panagon, FileNET's document management
software. This new synchronizer product enables end users to seamlessly execute
a single search for information in a variety of FileNET document repositories,
and other libraries and databases, including Lotus Notes and Microsoft Exchange,
and externally on the Internet.
In August 1998, the Company announced a multi-year, multi-million dollar
licensing, development and distribution agreement with Storage Technology
Corporation ("StorageTek"), a provider of network storage. The agreement gives
StorageTek rights to bundle Excalibur's advanced search and retrieval products
with its high-performance network storage products and then sell the packages as
enhanced solutions for knowledge management and digital content management
initiatives. Under the agreement, StorageTek gains distribution rights for the
full Excalibur product line, including Excalibur RetrievalWare and Excalibur
Screening Room.
In August 1998, the Company announced an agreement with Lernout & Hauspie
("L&H") whereby L&H will distribute Excalibur RetrievalWare and also integrate
RetrievalWare into its multilingual language libraries enabling it to create
products capable of simultaneous cross-lingual searches. Cross-lingual searches
are of particular benefit to online publishing applications as well as
multinational corporate intranet implementations.
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, 1999.
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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 accounts for the investment in ETNV under the equity
method since it exercises significant influence over the operating and financial
policies of ETNV. 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. In the fourth quarter of fiscal year 1999, ETNV did not make the
contractually required payment totaling approximately $900,000.
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)).
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 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 believes
the market is emerging for search products that can index and retrieve
unstructured text and multimedia data types. To that end, the Company has begun
development of a multimedia server architecture to provide integrated multimedia
search and retrieval.
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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 $8.3 million, $6.4 million, and $6.3
million, respectively, in the fiscal years ended January 31, 1999, 1998 and
1997.
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; however on August 24,
1998, the Company filed an application with the Patent and Trademark Office to
obtain a patent on multimedia document retrieval. 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(TM) 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 Verity, Inc. and Autonomy, Inc.
in the information search and retrieval market. The Company primarily competes
with Virage, Inc. in its visual product markets. 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.
10
<PAGE>
Employees
The Company had 201 employees at January 31, 1999, of whom 78 were in research
and development, 73 in sales and marketing, 23 in technical support and training
and 27 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.
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 Company has signed a new lease for the space that begins
upon termination of the current sublease in fiscal year 2000. The new lease
expires in calendar year 2004.
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 1999 to sublease 7,122 square
feet of the space in its Carlsbad location to a third party. The sublease
agreement expires 5/31/99. 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
and 2,832 square feet in the same building under a lease assignment that expires
in March 2001. 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 420 square feet, respectively. The
two leases for the Windsor offices expire in calendar year 1999; negotiations
are underway to extend the leases. The Vitrolles lease is a rolling contract
that requires a one-month cancellation notice.
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, 1999.
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 Stock Market under the symbol
EXCA.
The following table sets forth, for the period February 1, 1998 through January
31, 1999, 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, 1999 was 1,171. 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 1999
(February 1, 1998 - January 31, 1999)
First Quarter......................... $13 $10 1/4
Second Quarter........................ 14 9/16 9 1/2
Third Quarter......................... 11 1/2 4 1/2
Fourth Quarter........................ 12 1/16 5 1/2
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
Item 6. Selected Financial Data.
The selected financial data presented below as of January 31, 1999 and 1998 and
for the fiscal years ended January 31, 1999, 1998 and 1997 have been 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. All of the historical
information has been restated to reflect the pooling of interests with ConQuest.
12
<PAGE>
Fiscal Years Ended January 31,
----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except per share data)
Statement of Operations Data:
Revenues:
Software............. $22,741 $17,202 $15,866 $15,004 $10,133
Maintenance.......... 5,198 5,215 4,393 3,671 2,505
--------- --------- --------- --------- ---------
27,939 22,417 20,259 18,675 12,638
--------- --------- --------- --------- ---------
Expenses:
Cost of software
revenues........... 3,808 3,039 1,630 1,064 767
Cost of maintenance
revenues........... 1,320 1,219 1,618 1,398 1,498
Sales and marketing.. 13,501 13,184 14,430 8,752 9,343
Research and product
development........ 8,328 6,405 6,288 4,416 4,597
General and
administrative..... 4,775 4,884 3,906 3,330 5,597
Acquired in-process
research and
development........ - 1,284 - - -
Restructuring costs.. - 577 - 653 776
Merger costs......... - - - 490 -
--------- --------- --------- --------- ---------
31,732 30,592 27,872 20,103 22,578
--------- --------- --------- --------- ---------
Operating loss......... (3,793) (8,175) (7,613) (1,428) (9,940)
Interest income, net... 239 374 781 544 344
Equity in net loss of
affiliate............ (300) (525) (341) - -
Other income........... - - - - 208
--------- --------- --------- --------- ---------
Net loss............... (3,854) (8,326) (7,173) (884) (9,388)
Dividends on cumulative,
convertible, preferred
stock................ 14 14 14 14 14
Net loss applicable to
common stock......... $(3,868) $(8,340) $(7,187) $ (898) $(9,402)
========= ========= ========= ========= =========
Basic and diluted net
loss per common share $ (0.29) $ (0.64) $ (0.58) $ (0.08) $ (0.85)
========= ========= ========= ========= =========
Weighted average number
of common shares
outstanding.......... 13,526 12,934 12,351 11,496 11,094
========= ========= ========= ========= =========
13
<PAGE>
Balance Sheet Data
(at end of period) (1)
Cash and cash
equivalents.......... $ 5,851 $ 4,939 $ 2,685 $ 2,903 $ 2,645
Working capital........ 8,006 9,748 14,566 12,973 6,908
Total assets........... 19,712 20,045 26,147 23,046 17,951
Accumulated deficit.... (55,854) (51,945) (43,619) (36,446) (35,367)
Total shareholders'
equity (2)........... 13,174 13,098 18,563 15,251 9,475
- -------------
(1) The Company had no significant long-term debt for any of the periods
presented.
(2) No dividends have been declared or paid on the Company's common stock.
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 when and if they are released.
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 through a unified
web-based user interface. There are generally two markets today for the
Company's products, 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. Text knowledge retrieval products
include the RetrievalWare family of products and EFS. Visual products include
Visual RetrievalWare, VAE and Screening Room, an advanced end-to-end solution
for real-time capturing, analyzing, cataloguing, browsing, searching and
retrieving video over intranets and extranets, that began shipping in the second
quarter of fiscal year 1999.
The following chart represents revenues and expenses (in thousands of dollars)
attributable to the text and visual product lines for the years ending January
31, 1999, 1998 and 1997. Expenses for each product line consist of direct and
allocated expenses and exclude restructuring costs and acquired in-process
research and development costs.
15
<PAGE>
Text Products Visual Products
Fiscal Years Ending Fiscal Years Ending
January 31, January 31,
---------------------------- ----------------------------
1999 1998 1997 1999 1998 1997
---------------------------- ----------------------------
Total Revenue $26,206 $21,791 $19,351 $ 1,733 $ 626 $ 908
Operating Expenses 24,888 24,209 22,879 6,844 4,522 4,993
---------------------------- ----------------------------
Operating Income
(Loss) $ 1,318 $(2,418) $(3,528) $(5,111) $(3,896) $(4,085)
---------------------------- ----------------------------
Note: Excludes acquired in-process R&D and restructuring costs
-----------------------------------------------------------------
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, as
video becomes a more common data type, these two markets will 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 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 of fiscal 1998.
The charge consisted of severance pay and benefits for terminated employees. All
payments associated with the restructuring charge were paid prior to the end of
fiscal year 1998.
Results of Operations
For the fiscal year ended January 31, 1999, total revenues were $27.9 million,
an increase of 25% over total revenues of $22.4 million in the prior fiscal
year. The net loss for the fiscal year ended January 31, 1999 was $3.9 million,
or $0.29 per common share, compared to a net loss of $8.3 million, or $0.64 per
common share, for the same period last fiscal year. Excluding a charge of $1.3
million for in-process research and development expenses related to the Interpix
acquisition and $0.6 million for restructuring charges, the net loss for the
fiscal year ended January 31, 1998 was $6.5 million. Total revenues in fiscal
year 1998 increased 11% from fiscal year 1997 revenues of $20.3 million. The net
loss for fiscal year 1997 was $7.2 million, or $0.58 per common share.
16
<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, 1999 and the percentage
changes in the amounts between fiscal years (dollars in thousands).
<TABLE>
<CAPTION>
Increase
(Decrease)
-----------
Components of Revenue and Expenses From From
Fiscal years ended January 31, 1998 1997
------------------------------------------------ to to
1999 1998 1997 1999 1998
-------------- -------------- -------------- ----- -----
$ % $ % $ % % %
-------------- -------------- -------------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
RetrievalWare $20,859 75% $15,083 67% $ 8,572 42% 38% 76%
EFS 318 1% 1,591 7% 6,474 32% -80% -75%
Visual Products Group 1,564 6% 528 2% 820 4% 196% -36%
-------------- -------------- -------------- ---- ----
Total software $22,741 81% 17,202 77% 15,866 78% 32% 8%
Maintenance 5,198 19% 5,215 23% 4,393 22% 0% 19%
-------------- -------------- -------------- ---- ----
Total revenues $27,939 100% $22,417 100% $20,259 100% 25% 11%
============== ============== ============== ==== ====
Expenses:
Cost of sales $ 5,128 18% $ 4,258 19% $ 3,248 16% 20% 31%
Sales and marketing 13,501 48% 13,184 59% 14,430 71% 2% -9%
Research and product
development 8,328 30% 6,405 29% 6,288 31% 30% 2%
General and administrative 4,775 17% 4,884 22% 3,906 19% -2% 25%
Acquired In-process
research and development - - 1,284 6% - - -100% -
Restructuring costs - - 577 3% - - -100% -
-------------- -------------- -------------- ----- ----
Total expenses $31,732 114% $30,592 136% $27,872 138% 4% 10%
============== ============== ============== ===== ====
</TABLE>
Revenues
Software revenues increased from $15.9 million in fiscal year 1997 to $17.2
million in fiscal year 1998 and to $22.7 million in fiscal year 1999. The
increase in software revenues in each period was attributable to increasing
market awareness and acceptance of the Company's text knowledge retrieval
products, contributions from existing OEM partners and alliances with new
partners who chose the Company as the key search component in their product
offering.
17
<PAGE>
RetrievalWare, which emerged as the Company's dominant product line in fiscal
year 1998, continued that trend into fiscal year 1999. Software revenues from
RetrievalWare increased 38% in fiscal year 1999 to $20.9 million from $15.1
million in the prior year. Software revenues for RetrievalWare were $8.6 million
in fiscal year 1997. RetrievalWare product revenue now represents 92% of all
software revenues, compared to 88% and 54%, in fiscal years 1998 and 1997,
respectively. With the availability of RetrievalWare FileRoom, EFS software
revenues represented only 1% of total software revenue in fiscal year 1999,
compared to 9% and 41%, respectively, in fiscal years 1998 and 1997. Software
revenues from the Visual Products Group increased 196% in fiscal year 1999 to
$1.6 million from $0.5 million in the prior fiscal year. Revenues from the
Visual Products Group were 7% of software product revenue in fiscal year 1999
compared to 3% and 5%, respectively, in fiscal years 1998 and 1997.
The Company generated record revenues by continuing to attract prominent
corporate customers in fiscal year 1999. While maintaining the Company's current
customer base, Excalibur attracted new customers seeking industry leading
retrieval technology including ABC Inc., Copley Press, ICI Chemical, British
Gas, the Capital Group and Virginia Power. In October 1998, the Company released
RetrievalWare WebExpress, a high-performance, search and retrieval software
solution developed specifically for web publishers, online services and content
providers seeking more accurate and comprehensive access to large volumes of
diverse information ranging from scanned paper to electronic text, images and
video. New Excalibur customers choosing Excalibur WebExpress included
Encyclopedia Britannica, Powerize.com, Careerpath.com and several government
online customers.
In fiscal year 1999, the Company generated increased revenues through major
integration and software distribution licenses with strategic partners. In July
1998, the Company signed a strategic licensing, development and distribution
agreement with Storage Technology Corporation ("StorageTek"). Excalibur's
advanced retrieval software has been coupled with StorageTek's high-performance
network storage products to create advanced solutions called Network Appliances.
StorageTek committed to a prepaid license for licensing fees over 18 months and
will also pay royalties on resale of current Excalibur products and future
products to be jointly developed. The Company recognized $2.3 million in fiscal
year 1999 related to the agreement using the percentage-of-completion method
based on the relationship of actual costs incurred to total costs estimated to
be incurred over the duration of the contract; the remainder of the prepaid
license payments will be recognized in fiscal year 2000. In the fourth quarter
of fiscal year 1999, the Company signed an agreement with Inso Corporation
whereby Inso will integrate Excalibur RetrievalWare with the Inso Media Bank
media asset management solution and with their product data management solution.
The arrangement also provides the basis for advanced functionality in the form
of HTML export and viewer technology to be included in future versions of all
Excalibur products. The Company recognized $3 million of revenue from the
agreement in the fourth quarter of fiscal year 1999 relative to a five-year paid
up license to Inso Corporation.
Revenues from international operations are provided primarily by software
licenses with various European commercial and government customers and a
well-established European reseller network. The Company's international sales
operation, Excalibur Technologies International, Ltd. ("ETIL"), headquartered in
the United Kingdom experienced decreased revenues in the current fiscal year.
International revenues excluding Canada dropped 6% in fiscal year 1999 to $7.3
18
<PAGE>
million from $7.8 million in fiscal year 1998. International revenues excluding
Canada were $5.9 million in fiscal year 1997. International software revenues
were negatively impacted by financial difficulties of ETNV, the Company's
primary continental European distribution channel. The Company recognized $0.8
million of software revenue related to the ETNV contract in fiscal year 1999
compared to $1.5 million in fiscal year 1998. A payment of 32,000,000 Belgian
Francs, or approximately $0.9 million, was due from ETNV to Excalibur in January
1999. The payment was not made and accordingly, no revenue from ETNV was
recorded in the fourth quarter. The Company's revenues from international
operations were also negatively affected by the Asian financial crisis that
impacted Excalibur sales in the Pacific Rim. Revenues from the Pacific Rim were
10% less in fiscal year 1999 compared to 1998 and decreased 15% in fiscal year
1998 compared to fiscal year 1997.
Software maintenance and customer support revenues were $5.2 million in fiscal
year 1999 and $5.2 million and $4.4 million, respectively, in fiscal years 1998
and 1997. Flat maintenance revenues in fiscal year 1999 compared to 1998 were
attributable to the transition of the business from EFS to RetrievalWare. The
EFS customer base in general is not renewing their maintenance contracts. While
this is somewhat offset by growth in the RetrievalWare base of maintenance
contracts as RetrievalWare license sales grow, the overall effect was a
flattening of maintenance in the current fiscal year. Maintenance revenues
increased 19% in fiscal year 1998 compared to 1997. That increase was attributed
to additions to the RetrievalWare customer base.
Operating Expenses
Cost of sales increased from $3.2 million in fiscal year 1997 to $4.3 million in
fiscal year 1998 and to $5.1 million in fiscal year 1999, representing 16%, 19%
and 18% of total sales, respectively. The cost of sales increase in fiscal year
1999 was attributable to the higher revenues and increased ETIL cost of sales
due to higher royalties for new language versions of RetrievalWare and greater
use of partners. The increase in cost of sales in fiscal year 1998 related
primarily to the formation of a product implementation group at the end of
fiscal year 1997 which resulted in additional salaries expense, implementation
project subcontractors expense, and increased overhead costs in fiscal year
1998. Additionally, due to the acquisition of Interpix in fiscal year 1998, cost
of sales contained associated amortization expense of intangible assets.
Sales and marketing expenses increased 2% in fiscal year 1999, from $13.2
million in fiscal year 1998 to $13.5 million in fiscal year 1999. The increase
in expenses resulted from personnel growth in ETIL and the marketing department.
Sales and marketing expenses were 48% of revenues in fiscal year 1999 compared
to 59% in fiscal year 1998. In fiscal year 1998, sales and marketing costs
decreased 9% to $13.2 million from $14.4 million in fiscal year 1997. The
reduction in expenses in fiscal year 1998 resulted from the reorganization in
the first quarter of fiscal year 1998.
Research and product development costs increased from $6.3 million in fiscal
year 1997 to $6.4 million in fiscal year 1998 and to $8.3 million in fiscal year
1999, representing 31%, 29% and 30% of revenues, respectively. The majority of
the increase in fiscal year 1999 was attributable to the establishment of the
joint development lab with StorageTek. The lab has integrated StorageTek
products with Excalibur's advanced products for crawling, indexing, searching,
retrieving and distributing all enterprise digital content, to create advanced
solutions that make enterprise-wide information assets easier to archive, access
19
<PAGE>
and leverage. Established in the third quarter of fiscal 1999, the lab focused
efforts to complete development of StorageTek network appliance products, the
first of which was delivered in March of 1999. Text and visual expenses also
increased as the Company continued to invest in the enhancement of its
RetrievalWare and visual product lines. In fiscal year 1998, continued
development of Excalibur RetrievalWare products was emphasized while EFS product
development was significantly curtailed. Increased costs associated with the
development of RetrievalWare products were offset by the diminished expenses
associated with the EFS products. As a result, research and product development
costs increased only 2% in fiscal year 1998.
General and administrative expenses decreased 2% in fiscal year 1999 to $4.8
million from $4.9 million in fiscal year 1998, representing 17% and 22% of
revenues, respectively. The majority of the decrease in fiscal year 1999 was due
to a reduction in corporate expenses. In fiscal year 1998, general and
administrative expenses increased 25% from $3.9 million in fiscal year 1997. The
increase was the result of 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 1999, 1998 and
1997 was $493,000, $250,000, and $150,000, respectively.
In the second quarter of fiscal year 1998, the Company recorded an expense of
$1.3 million for the cost of in-process research and development acquired in the
merger with Interpix. This acquisition 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.
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 $0.6 million in the first quarter. The charge consisted of severance pay and
benefits for terminated employees. All expenditures relative to this
restructuring charge were made in fiscal year 1998.
The activities for fiscal year 1999, including those discussed above, resulted
in total expenses of $31.7 million, a 4% increase from total expenses of $30.6
million in the prior fiscal year. In fiscal year 1998, total expenses increased
by 10% from $27.9 million in fiscal year 1997. The total number of employees
increased from 168 at the beginning of the current fiscal year to 201 at January
31, 1999. The Company had 173 employees at January 31, 1997.
Due to a decreased level of invested funds, net interest income decreased from
$0.8 million in 1997 to $0.4 million in 1998 and to $0.2 million in 1999. 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, 1999. This charge in fiscal 1999, 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, 1999, was $0.3 million. The corresponding charge was $0.5 million in fiscal
year 1998 and $0.3 million in fiscal year 1997.
20
<PAGE>
Liquidity and Capital Resources
In the fiscal year ended January 31, 1999, the Company's combined balance of
cash, cash equivalents and investments in marketable securities decreased by
$0.6 million to $5.9 million as summarized below (in thousands). At January 31,
1998 investments in marketable securities consisted of U.S. Treasury Bills with
maturities of less than one year.
January 31, January 31,
1999 1998 Change
-------- --------- ---------
Cash and
cash equivalents $ 5,851 $ 4,939 $ 912
Investments - 1,496 (1,496)
-------- --------- ---------
Total $ 5,851 $ 6,435 $ (584)
======== ========= =========
The Company's operating activities used cash of $3.0 million in fiscal year
1999. The net loss of $3.9 million was offset by non-cash charges of $1.8
million, including $1.5 million in depreciation and amortization, $0.5 million
in bad debt expense and $0.3 million for the Company's share of the net loss of
ETNV and amortization of ETNV warrants. Reductions in accounts receivable
provided $2.3 million while increases in prepaid expenses used $3.4 million.
Reductions in accounts payable, accrued expenses and deferred revenues used $0.3
million.
In fiscal year 1998, cash of $4.4 million used to fund operations was
significantly less than the $8.3 million net loss for the year due primarily to
several non-cash charges. Those charges, which totaled $3.4 million, included
acquired research and development costs of $1.3 million, depreciation and
amortization of $1.5 million and the Company's share of the net loss of ETNV and
amortization of ETNV warrants totaling $0.5 million. Reductions in accounts
receivable and prepaid expenses provided $0.5 million.
During fiscal year 1999, investing activities provided $0.1 million. Net cash
provided from the maturity of U.S. Treasury Bills totaled $1.5 million while
purchases of computer and other equipment used $1.1 million. Loans to and
investments in the Company's affiliate, ETNV, included in other assets, used
$0.2 million. In fiscal year 1998, investing activities provided $6.1 million.
Net cash of $6.9 million was provided from the maturity of U.S. Treasury Bills.
Cash of $0.1 million was also provided as a result of the acquisition of
Interpix. Cash was used to purchase computer and other equipment totaling $0.8
million and to make a $0.1 million loan to ETNV.
Financing activities provided $3.8 million in fiscal year 1999. A private
placement of 325,000 shares of common stock to an unaffiliated financial
institution at a purchase price of $10.00 per share provided $3.3 million. Cash
of $0.6 million was provided from the exercise of employee stock options and
issuances of stock under the employee stock purchase plan. In fiscal year 1998,
the exercise of employee stock options and issuances of stock under the employee
stock purchase plan provided $0.6 million.
21
<PAGE>
The number of days sales outstanding ("DSO") at January 31, 1999 was 61, a
decrease from 116 days at January 31, 1998. Management believes that the
allowance for doubtful accounts of $0.7 million at January 31, 1999 is adequate.
As of January 31, 1999, the Company's balances of cash and cash equivalents was
$5.9 million. The Company completed a private placement of 500,000 shares of its
common stock in March 1999 at a purchase price of $10 per share. Net proceeds of
$4.7 million from the placement will be used to fund ongoing operations and
general corporate purposes of the Company. 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 primarily used 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.
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 dependent 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
22
<PAGE>
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.
As of January 31, 1999, the Company had net operating loss carryforwards
("NOLs") of approximately $67,957,000. 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
$3,854,000 for the fiscal year ended January 31, 1999. The accumulated deficit
of the Company at January 31, 1999 was $55,798,000. 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.
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
Year 2000
On July 29, 1998, the Securities and Exchange Commission issued additional
guidance on disclosures that public companies should make related to the Year
2000. The new release was effective for the Company's October 31, 1998 interim
reporting. In addition to historical information, the disclosure contains
forward-looking statements within the meaning of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Such statements are based
on management's current expectations and are subject to a number of factors,
risks and uncertainties which could cause actual results to differ materially
from those described in the forward-looking statements.
State of Readiness
The Company currently has facilities in six locations, each of which is
responsible for its own development information technology systems, herein known
as "Non-IT systems", while corporate information technology systems, herein
known as "IT systems", are managed by the Company's Management Information
Systems department ("MIS"). For the purposes of Year 2000 compliance, the
corporate MIS department is managing the task of verifying that all Company
systems are date compliant, including reviewing and analyzing all development
23
<PAGE>
platforms, not directly under MIS control. This umbrella process was initiated
in order to ensure the Company would be able to continue developing its products
without disruption after January 1, 2000. To ensure that Non-IT and IT systems
are, or will be, compliant; the Company has undertaken a full survey of all
systems within the Company at all locations. This survey covers all user desktop
and laptop systems; all IT systems, servers, and operating systems; all critical
applications, including financial, accounting, corporate database, human
resources and administrative systems; and all Non-IT systems, servers, operating
systems and third party coding products. The majority of the Company's efforts
regarding Year 2000 readiness are associated with internal data processing
systems. In all material respects, products manufactured by the Company are
already Year 2000 compliant, although the individual platforms upon which
product(s) are developed are still under review and analysis. Due to the recent
upgrade of many of the Company's IT systems, the majority of these systems are
either currently prepared for Year 2000 in all material respects or are in the
process of being upgraded to standardized systems and applications which will
meet this objective. Most IT systems and applications which are deemed Year 2000
compliant by the software vendors are tested by the Company to verify these
claims. At this time, critical financial, accounting and corporate database
systems have been tested, and Non-IT systems are in the process of being tested.
These testing proportions are related to both the magnitude and perceived risk
of system non-compliance and future testing will be scheduled in accordance with
these criteria. For the remaining IT systems and the Non-IT systems, plans with
critical dates are being developed to monitor the Company's progress toward the
overall objective of Year 2000 compliance. The Company's anticipates readiness
for Year 2000 by early in the fourth quarter of fiscal year 2000.
Costs to Address Year 2000 Issues
Historical and estimated costs of remediation to this point have not been
material. The Company has resolved IT systems compliance issues through normal
replacement and upgrades of software. Non-IT systems are being addressed on a
case by case basis through the use of existing MIS resources. Most of the Non-IT
systems remedial activity to this point has involved applying low or zero cost
patches to operating systems and platforms using existing MIS resources to
achieve a date compliance level. The Company will continue to monitor Year 2000
remediation costs and will update its estimate of future remediation costs, if
any, as it completes its Non-IT systems analysis.
Key Considerations and Contingency Plans
At the current time, the Company's Year 2000 readiness plan anticipates that
both IT and Non-IT systems and applications will be Year 2000 compliant in all
material respects by early in the fourth quarter of fiscal year 2000. This
assessment is based on the Company's analysis to date and detailed findings at
its Vienna, Virginia and Columbia, Maryland locations. There can be no
assurance, however, of complete compliance based on the status to date. However,
since the Company is not dependent upon any single IT or Non-IT system for the
majority of its revenue, it is unlikely that any single system will have an
adverse effect on the Company as a whole. Contingency plans will involve the
procurement of newer platforms for Non-IT systems and the temporary use of
standardized commercial off-the-shelf replacement modules for IT applications
and business functions. While at present there are no indications that any
contingency plans will be necessary or that there will be revenue disruptions,
there can be no assurances that this will necessarily be the case.
24
<PAGE>
EURO Conversion
On January 1, 1999, the exchange rates of eleven countries (Germany, France, the
Netherlands, Austria, Italy, Spain, Finland, Ireland, Belgium Portugal, and
Luxembourg) were fixed amongst one another and became the currencies of the
EURO. The currencies of the eleven countries will remain in circulation until
mid-2002. The EURO currency will be introduced on January 1, 2002. The Company
does not expect future balance sheets and statements of earnings and cash flows
to be materially impacted by the EURO Conversion.
New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," during the first quarter of fiscal 1999.
SFAS 130 requires additional disclosures with respect to certain changes in
assets and liabilities that previously were not required to be reported as
results of operations for the period.
In 1998, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information." FAS
131 supercedes FAS 14, "Financial Reporting for Segments of a Business
Enterprise", replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. FAS 131 also requires
disclosures about products and services, geographic areas and major customers.
The adoption of FAS 131 did not affect results of operations or financial
position but did affect the disclosures of segment information. The Company
accounts for all operations as one segment.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which will
be effective for the Company's fiscal year 2001. This statement establishes
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other contracts, be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement also requires that changes in the derivative's fair
value be recognized in earnings unless specific hedge accounting criteria are
met. The Company believes the adoption of SFAS No. 133 will not have a material
effect on the financial statements.
The American Institute of Certified Public Accountants has issued Statement of
Position 98-9, "Modification of SOP-97-2, Software Revenue Recognition, With
Respect to Certain Transactions." SOP 98-9 is effective for revenue transactions
entered into in the Company's fiscal year 2001. The Company has evaluated SOP
98-9 and does not believe its adoption will have a material effect on the
financial statements.
25
<PAGE>
Item 7A. Market Risk
The Company's market risk is principally confined to changes in foreign currency
exchange rates and potentially adverse effects of differing tax structures.
International revenues from ETIL, the Company's foreign sales subsidiary located
in the United Kingdom, were approximately 26% of total revenue in fiscal year
1999. International sales are made mostly from the Company's foreign subsidiary
and are typically denominated in British pounds, the local currency.
Additionally, the subsidiary incurs most of its expenses in the local currency.
Accordingly, the local currency is ETIL's functional currency.
The Company's exposure to foreign exchange rate fluctuations arises in part from
intercompany accounts in which costs incurred in the United States are charged
to ETIL. The Company is also exposed to foreign exchange rate fluctuations as
the financial results of ETIL are translated into U.S. dollars in consolidation.
As exchange rates vary, those results when translated may vary from expectations
and adversely impact overall expected profitability.
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.
26
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information Concerning Directors and Executive Officers
Name Age Position
- ---- --- --------
Donald R. Keough 72 Chairman of the Board of Directors
Patrick C. Condo 42 President and Chief Executive Officer,
Director
Richard M. Crooks, Jr. 59 Director
John S. Hendricks 47 Director
W. Frank King III 59 Director
John G. McMillian 72 Director
Philip J. O'Reilly 61 Director
Donald R. Keough has been Chairman of the Board of Directors and a Director of
the Company since June 1996. Mr. Keough has been an advisor to the Board of
Directors of the Coca-Cola Company since April 15, 1993, and Chairman of the
Board of Allen & Company Incorporated, a New York investment banking firm that
is the Company's largest shareholder, since April 15, 1993. Mr. Keough retired
as President, Chief Operating Officer and a Director of the Coca-Cola Company on
April 15, 1993, where he had been employed since 1950. From 1986 to 1993, he
also served as Chairman of the Board of Coca-Cola Enterprises, Inc., the world's
largest bottling system. Mr. Keough serves on the Board of Directors of Allen &
Company Incorporated, H.J. Heinz Company, The Washington Post Company,
McDonald's Corporation and USA Networks, Inc.
Patrick C. Condo was named President and Chief Executive Officer in November
1995, and a Director in January 1996. Mr. Condo was President from May 1995 to
November 1995. He became Executive Vice President in January 1995 after serving
as the Director of Business Development from November 1992. From October 1987 to
November 1992, Mr. Condo held several manager level positions for Digital
Equipment Corporation's Image, Video and Voice Business Unit and Software
Business Group in New Hampshire.
Richard M. Crooks, Jr. has been a Director of the Company since June 1990 and
was Chairman of the Board from June 1990 to June 1996. Mr. Crooks has been
President of RMC Consultants, a financial advisory services firm, since June
1990. Mr. Crooks is a director of and consultant to Allen & Company
Incorporated. Mr. Crooks served as a Managing Director of Allen & Company
Incorporated for more than five years prior to June 1990. Mr. Crooks is a
director of Cypress Bioscience Inc., a biotechnology company engaged in
developing, manufacturing and marketing products for the treatment of
immune-related diseases and cancers.
27
<PAGE>
John S. Hendricks was appointed as a Director of the Company in May 1997. He has
been Chairman and Chief Executive Officer of Discovery Communications, Inc., a
privately held, diversified media company, since he founded the company in 1982
in order to develop a new cable television service. The effort resulted in the
launch of the Discovery Channel in 1985, which has become one of the world's
largest cable television networks. Mr. Hendricks is a member of the boards of
various cable television industry groups, educational institutions and other
organizations promoting natural history and science. Mr. Hendricks is Chairman
of the Board of Governors of the National Academy of Cable Programming.
W. Frank King III was elected a Director of the Company in June 1992. He is
presently a private investor. Dr. King served as President, Chief Executive
Officer, and a Director of PSW Technologies, Inc., a leading provider of
technology for open systems computing, from 1992 to August 1998. From 1988 to
November 1991, Dr. King was a Senior Vice President of Development of Lotus
Development Corporation. Prior to joining Lotus, Dr. King held various positions
with IBM over 19 years, the most recent as Vice President of Development in its
Entry Systems Division. Dr. King is a director of SystemSoft Corporation, a
software engineering company; Auspex, Inc., a computer server manufacturer; Best
Software Inc., a provider of human resource, asset and payroll management
software solutions; and Natural Microsystems, Inc., a developer of telephony
products.
John G. McMillian was elected a Director in June 1996. Mr. McMillian owns a half
interest in Peter Hughes Diving Company, a charter company, and Contender Boats,
Inc., a boat manufacturer. He was Chairman and Chief Executive Officer of
Allegheny & Western Energy Corporation, a natural gas production and
distribution company, from July 1987 until July 1995, when the company was sold.
Mr. McMillian serves on the Advisory Committee of Sun Trust Miami, N.A.
Philip J. O'Reilly has been a Director of the Company since April 1988. Mr.
O'Reilly is a partner in the law firm of O'Reilly, Marsh, Kearney & Corteselli
P.C., in Mineola, New York. Mr. O'Reilly has been in private practice for more
than the past five years. Mr. O'Reilly is a director of Cypress Bioscience Inc.,
a biotechnology company engaged in developing, manufacturing and marketing
products for the treatment of immune-related diseases and cancers.
Information Concerning the Board of Directors and Its Committees
The Board of Directors held six meetings during the fiscal year ended January
31, 1999. Each incumbent director attended more than 75% of the aggregate number
of meetings of the Board of Directors and appropriate Committees held during
fiscal year 1999 since their election.
The Board of Directors has established a number of Committees. The Audit
Committee, consisting of Mr. McMillian (Chairman), Dr. King and Mr. O'Reilly,
met seven times during fiscal year 1999. The Audit Committee meets with the
Company's management, including its Chief Financial Officer, and its independent
accountants several times a year to discuss internal controls and accounting
matters, the Company's financial statements, and the scope and results of the
auditing programs of the independent accountants. The Compensation Committee,
currently composed of three directors, Messrs. Crooks (Chairman), Hendricks and
O'Reilly, administers management compensation and makes recommendations in that
regard to the Board. The Compensation Committee met on two occasions during
fiscal 1999. The Stock Option Plan Administration Committee, which currently
consists of Messrs. Crooks (Chairman) and O'Reilly, administers the Company's
Stock Option Plans. The Stock Option Administration Committee met twice during
fiscal 1999.
28
<PAGE>
Each non-employee director is paid $5,000 for each meeting of the Board or its
Committees attended, whether in person or by telephone, up to a maximum of
$20,000 per fiscal year. Messrs. Keough and Crooks are not paid the foregoing
fees. All directors are reimbursed for their expenses in attending meetings of
the Board or its Committees. Each non-employee director receives options to
purchase 25,000 shares of common stock of Excalibur upon joining the Board and
additional options to purchase 25,000 shares of common stock of Excalibur after
each subsequent five-year period of service as a member of the Board. The
Chairman may be granted additional options to purchase 25,000 shares of common
stock of Excalibur upon being elected Chairman and after each subsequent
five-year period of service. Mr. Keough has not been granted any stock options.
Executive Officers and Key Employees of the Registrant
Each year, the Board of Directors appoints the executive officers of the Company
to serve until the next Annual Meeting of Shareholders and until their
successors have been duly appointed and qualified. The following information
indicates the position, age and business experience of the current executive
officers, Messrs. Condo, Buchanan and Nelson, as well as key employees of the
Company. There are no family relationships between any of the executive officers
of the Company.
Name Age Position
- ---- --- --------
Patrick C. Condo 42 President and Chief Executive Officer
James H. Buchanan 43 Vice President, Chief Financial Officer,
Treasurer and Secretary
Paul E. Nelson 36 Senior Vice President, Product Development
Daniel C. Agan 46 Vice President, Worldwide Marketing
Steven S. Biegler 50 Vice President, Customer Services
Kamran Khan 35 Vice President, Worldwide Sales
David Nunnerley 42 Vice President, Visual Product Development
See the discussion included in the preceding section for the business experience
of Mr. Condo.
James H. Buchanan joined the Company as Chief Financial Officer in September
1995. Mr. Buchanan was elected Secretary and Treasurer of the Company on
November 17, 1995. From March 1991 to August 1995, Mr. Buchanan was Vice
President, Controller and Treasurer of Legent Corporation, a software
development company. Prior to that, he held several financial management
positions with Norfolk Southern Corporation and PepsiCo. Mr. Buchanan is a
certified public accountant.
29
<PAGE>
Paul E. Nelson was named the Company's Senior Vice President, Product
Development in January 1998. Mr. Nelson served as a Director of the Company from
January 1, 1997 to July 21, 1997. He joined the Company as Vice President, Text
Products in July 1995 in connection with the Company's acquisition of ConQuest
Software, Inc. ("ConQuest"), a company that Mr. Nelson co-founded in 1990. Mr.
Nelson was Senior Vice President of Product Development and a Director of
ConQuest.
Daniel C. Agan joined the Company as Vice President, Worldwide Marketing in
September 1996. From 1991 through 1996, Mr. Agan was President and Chief
Executive Officer of Agan Associates, Limited, a marketing consulting firm with
experience providing executive-level service to a diverse range of clients in
the technology, on-line and broadcasting industries. Prior to this, Mr. Agan
spent fifteen years with the Public Broadcasting Service (PBS) where he served
in a variety of capacities, most notably as Senior Vice President for National
Programming and Promotion.
Steven S. Biegler was named Vice President, Customer Services in February 1998.
Since joining the Company in May 1996 as Director of Professional Services, Mr.
Biegler has overseen technical support, implementation services, education
services and software manufacturing, shipping and receiving. From 1995 to 1996,
Mr. Biegler was Vice President of Operations for Seiko Computer Systems. Prior
to that, he was Vice President of Product Support and Installations for Summit
Information Systems since 1993.
Kamran Khan was named Vice President, Worldwide Sales in May 1997. Previously,
Mr. Khan held several sales management positions since joining the Company in
September 1993. Mr. Khan served as general manager of the Company's
international sales operation and wholly-owned subsidiary Excalibur
Technologies, Ltd., located in the United Kingdom, from August 1995 until his
appointment to Vice President. Prior to joining the Company, Mr. Khan held
various positions, including regional business manager, with PAFEC Limited, a
leading firm in the United Kingdom involved with the development and
implementation of computer-aided engineering and engineering document management
software systems.
David Nunnerley was named Vice President, Visual Product Development in February
1998 and has been instrumental in the development of the Company's visual
products since joining the Company in 1996. From 1994 to 1996, Mr. Nunnerley was
Vice President of Engineering for Videopress Software, a software company
providing video delivery products and solutions to cable companies deploying
cable modems. Prior to that, Mr. Nunnerley held various product
management/marketing roles and management positions with Digital Equipment
Corporation.
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 and regulations of the SEC
thereunder require the Company's executive officers and directors, and persons
who own more that ten percent of a registered class of the Company's equity
securities, to file reports of initial ownership and changes in ownership with
the SEC. Based solely on its review of copies of such forms received by the
Company, or on written representations from certain reporting persons that no
other reports were required for such persons, the Company believes that during
or with respect to the period from February 1, 1998 to January 31, 1999 all of
the Section 16(a) filing requirements applicable to its executive officers,
directors and ten percent shareholders were complied with on a timely basis.
30
<PAGE>
Item 11. Executive Compensation.
Summary Compensation Table
The following table presents information concerning the compensation of the
Chief Executive Officer and each of the other most highly compensated executive
officers during the 1999 fiscal year (collectively, the "Named Executive
Officers") for services rendered in all capacities to the Company for the fiscal
year ended January 31, 1999, as well as the previous two fiscal years:
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------
Annual Compensation Awards Payouts
---------------------------- ---------------------- ----------------
Other Securities All
Annual Restricted Under- Other
Compen- Stock lying LTIP Compen-
Name and Principal Fiscal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SAR's(#) ($) ($)
- -------------------- ---- --------- -------- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Patrick C. Condo 1999 225,000 71,281 -- -- -- -- --
Chief Executive 1998 200,000 86,000 -- -- 400,000 <F1> -- --
Officer and President 1997 200,000 46,200 -- -- -- -- --
James H. Buchanan 1999 180,000 57,024 -- -- 10,000 -- --
Vice President, Chief 1998 165,514 70,950 -- -- 150,000 <F2> -- --
Financial Officer, 1997 155,688 34,650 -- -- -- -- 1,395 <F3>
Secretary and Treasurer
Paul E. Nelson 1999 165,000 81,800 -- -- -- -- --
Senior Vice President, 1998 157,500 69,586 -- -- 84,750 <F4> -- --
Product Development 1997 150,000 34,650 -- -- -- -- --
<FN>
<F1> This amount includes options to purchase 300,000 shares that were granted
in prior years and subsequently repriced on May 8, 1997.
<F2> This amount includes options to purchase 100,000 shares that were granted
in prior years and subsequently repriced on May 8, 1997.
<F3> Other compensation includes the reported value of a quota club trip
attended by the officer's spouse.
<F4> Represents options to purchase 84,750 shares that were granted in prior
years and subsequently repriced on May 8, 1997.
</FN>
</TABLE>
31
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning options granted
during fiscal 1999 to the Named Executive Officers.
Potential Realizable
Individual Grants Value at Assumed
----------------- Annual Rates of
% of Total Stock Price
Options Appreciation for
Granted to Exercise Option Term(2)
Options Employees in or Base Expiration -------------
Name Granted (#) Fiscal Year (1) Price Date 5%($) 10%($)
- ----------- ----------- --------------- -------- ---------- ----- ------
Patrick C.
Condo -- -- -- -- -- --
James H.
Buchanan 10,000 4.0% $6.25 9/01/08 39,306 99,609
Paul E.
Nelson -- -- -- -- -- --
- -------------------------------------------
(1) These options vest in equal 12-1/2% increments every six months from the
dates of original grant.
(2) The amounts shown are hypothetical gains that would exist for the respective
options if exercised at the end of the option term. The assumed 5% and 10%
rates of stock price appreciation are mandated by rules of the Securities
and Exchange Commission and do not represent the Company's estimate or
projection of future increases in the price of its Common Stock.
32
<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Values
The following table sets forth, as of January 31, 1999, the number of options
and the value of exercised and unexercised options held by the Named Executive
Officers.
- ------------------------------------------------------------------
Number of
Securities
Underlying Value of
Unexercised Unexercised
Shares Options/SARS In-the Money
Acquired at Fiscal Options/SARS at
on Value Year-End (#) Fiscal Year-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable (1)
- ---------------- -------- -------- --------------- -------------------
Patrick C. Condo -- -- 287,500/112,500 $1,742,988/$494,212
James H. Buchanan -- -- 87,500/ 72,500 $516,387/$334,693
Paul E. Nelson -- -- 74,156/ 10,594 $468,147/ $66,880
(1) The closing price of the Company's common stock on January 29, 1999, the
last trading day of the Company's fiscal year, was $11.063 per share.
Employment Agreements
Under an agreement between the Company and Patrick C. Condo, President and Chief
Executive Officer entered into in May 1998, Mr. Condo will be paid an amount
equal to twelve months of base salary plus bonus compensation and continuation
of his employee benefits for one year in the event Mr. Condo's employment is
terminated or he is removed from his position as Chief Executive Officer within
six months following certain "change of control" events relating to the Company.
Such arrangement was approved by the full Board of Directors. For fiscal 1999,
Mr. Condo's annual salary and bonus amounted to $296,281.
The offer of employment letter dated September 7, 1995 for James H. Buchanan,
Chief Financial Officer, Secretary and Treasurer of the Company, stipulates that
Mr. Buchanan will be paid an amount equal to twelve months of base salary in
semi-monthly installments should his employment be terminated by the Company
without cause.
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<PAGE>
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during fiscal 1999 were Messrs.
Crooks, Hendricks and O'Reilly, none of whom is an officer or employee of the
Company or its subsidiaries. No member of the Compensation Committee or
executive officer of the Company has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of March 29, 1999, information concerning the
ownership of Common Stock of the Company of (i) all persons known to the Company
to beneficially own 5% or more of the Company's Common Stock, (ii) each director
of the Company, (iii) each Named Executive Officer and (iv) all directors and
executive officers of the Company as a group.
Amount and Nature Percent
Name and Address of Beneficial of Class
of Beneficial Owner Ownership (1) Owned
- ------------------- ------------- -----
Allen & Company Incorporated 3,725,846 (2)(3) 26.6%
711 Fifth Avenue
New York, NY 10022
Alliance Capital Management L.P. 818,100 (4) 5.9%
Donald R. Keough 130,000 (5) *
Patrick C. Condo 313,997 (6) 2.2%
Richard M. Crooks, Jr. 399,750 (7) 2.9%
John S. Hendricks 25,000 (8) *
W. Frank King III 38,000 (9) *
John G. McMillian 40,000 (10) *
Philip J. O'Reilly 55,000 (11) *
James H. Buchanan 110,062 (12) *
Paul E. Nelson 363,185 (13) 2.6%
All directors and executive
officers as a group (9 persons) 1,474,994 (14) 10.2%
* Represents less than one percent of the outstanding common stock.
34
<PAGE>
(1) To the Company's knowledge, each person listed has sole voting and
investment power as to the shares indicated, except as described below.
(2) Does not include shares owned by persons, including Messrs. Keough and
Crooks and entities which, together with Allen & Company Incorporated, may
be considered a "group," as such term is defined by Section 13(d) of the
Securities Exchange Act of 1934, because (as reported on Schedule 13D filed
with the SEC on July 21, 1997) many of these persons or entities are Allen
stockholders, officers, directors, relatives or affiliates of the foregoing.
No person or entity included in this possible "group," with the exception of
Allen & Company Incorporated, owns 5% or more of the outstanding common
stock.
(3) Includes 271,800 shares of common stock issuable upon conversion of 27,180
shares of the Company's cumulative convertible preferred stock.
(4) Based on information contained in a Schedule 13G filed with the Securities
and Exchange Commission on February 16, 1999 by The Equitable Companies
Incorporated and other entities as parent holding companies of Alliance
Capital Management L.P.
(5) Does not include shares owned by Allen & Company Incorporated, of which Mr.
Keough is Chairman of the Board, and as to which shares Mr. Keough disclaims
beneficial ownership.
(6) Includes (a) 10,000 shares of common stock owned beneficially but not of
record upon exercise of stock options at a price of $4.75 per share expiring
November 13, 2002; (b) 15,000 shares of common stock owned beneficially but
not of record upon exercise of stock options at a price of $4.75 per share,
expiring January 4, 2004; (c) 75,000 shares of common stock owned
beneficially but not of record upon exercise of stock options at a price of
$4.75 per share, expiring December 6, 2004; (d) 87,500 shares of common
stock owned beneficially but not of record, issuable upon exercise of stock
options at a price of $4.75 per share, expiring June 2, 2005; (e) 87,500
shares of common stock owned beneficially but not of record, issuable upon
exercise of stock options at a price of $4.75 per share expiring November 1,
2005; and (f) 37,500 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options at a price of $7.63 per
share expiring August 13, 2007.
(7) Includes (a) 50,000 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options of the Company at a price of
$16.10 per share expiring June 28, 2000, and (b) 50,000 shares of common
stock issuable upon exercise of stock options of the Company at a price of
$20.56 per share expiring November 27, 2005. Does not include shares owned
by Allen & Company Incorporated, of which Mr. Crooks is a director and as to
which shares Mr. Crooks disclaims beneficial ownership.
(8) Includes 25,000 shares of common stock owned beneficially but not of record,
issuable upon exercise of stock options the Company at a price of $4.875 per
share expiring June 2, 2007.
(9) Includes (a) 13,000 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options of the Company at a price of
$12.50 per share, expiring July 2, 2002; and (b) 25,000 shares of common
stock owned beneficially but not of record, issuable upon exercise of stock
options of the Company at a price of $4.75 per share, expiring May 8, 2007.
35
<PAGE>
(10)Includes (a) 25,000 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options of the Company at a price of
$22.50 per share, expiring June 28, 2006, and (b) 10,000 shares of common
stock owned beneficially but not of record, issuable upon exercise of stock
options of the Company at a price of $14.00 per share, expiring October 28,
2006.
(11)Includes (a) 25,000 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options of the Company at a price of
$13.00 per share expiring March 12, 2003; and (b) 25,000 shares of common
stock owned beneficially but not of record, issuable upon exercise of stock
options of the Company at a price of $6.75 per share expiring December 1,
2008.
(12)Includes (a) 26,250 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options of the Company at a price of
$4.75 per share expiring September 13, 2005; (b) 61,250 shares owned
beneficially but not of record, issuable upon exercise of stock options of
the Company at a price of $4.75 per share expiring November 1, 2005; (c)
18,750 shares of common stock owned beneficially but not of record, issuable
upon exercise of stock options of the Company at a price of $4.75 per share
expiring August 13, 2007; and (d) 2,500 shares of common stock owned
beneficially but not of record, issuable upon exercise of stock options of
the Company at a price of $6.25 per share expiring September 1, 2008.
(13)Includes 74,156 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options of the Company at a price of
$4.75 per share expiring July 20, 2005.
(14)Includes 743,406 shares of common stock owned beneficially but not of
record, issuable upon the exercise of options to purchase common stock of
the Company.
Item 13. Certain Relationships and Related Transactions.
Donald R. Keough, the Chairman of the Board of Directors of the Company, is the
Chairman of the Board of Allen & Company Incorporated ("Allen"). Richard M.
Crooks, Jr., a director of the Company, is a director of and consultant to
Allen.
The Company's policy is that it will not make loans to, or enter into other
transactions with directors, officers or affiliates unless such loans or
transactions are approved by a majority of the Company's independent
disinterested directors, may reasonably be expected to benefit the Company, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
See also "Compensation Committee Interlocks and Insider Participation" above.
36
<PAGE>
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
Reports of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations and
Other Comprehensive Income (Loss)
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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 II for the years
ended January 31, 1998 and 1997
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. (7)
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)
37
<PAGE>
10.01 Incentive Stock Option Plan, dated April 1989. (1)
10.02 Agreement and Plan of Merger Between Excalibur,
Excalibur Acquisition Corporation and ConQuest
Software, Inc., dated July 5, 1995. (2)
10.03 1995 Incentive Plan, dated November 1995. (3)
10.04 ConQuest Incentive Stock Option Plan, dated August 19, 1993. (4)
10.05 Office Lease (10440 Little Patuxent Parkway, Suite 800,
Columbia, Maryland), commencing January 1, 1996. (4)
10.06 Office Lease (1959 Palomar Oaks Way, Carlsbad,
California), commencing November 15, 1995. (4)
10.07 Excalibur Technologies Corporation Employee Stock
Purchase Plan, effective August 1, 1996. (5)
10.08 Office Lease (4675 Stevens Creek Boulevard, Santa Clara,
California 95051), commencing July 1, 1997. (7)
10.09 Office Lease (1921 Gallows Road, Vienna, Virginia 22182),
commencing May 1, 1999.
10.10 Employment agreement with James H. Buchanan,
dated September 7, 1995.
21.01 Subsidiaries of Excalibur Technologies Corporation.
23.01 Consent of PricewaterhouseCoopers LLP, Independent Public
Accountants.
27.01 Financial Data Schedule
- ----------------------
(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.
(7) Incorporated herein by reference to Form 10-K for the year ended January
31, 1998, filed April 23, 1998.
38
<PAGE>
(b) Reports on Form 8-K.
Two Forms 8-K were filed during the last quarter of fiscal year 1999. On
November 4, 1998, the Company filed a Form 8-K for Item 4, reporting the
disengagement of its independent accounting firm. On November 9, 1998, the
Company filed a Form 8-K for Item 4, reporting the engagement of its new
independent accounting firm.
Index to Consolidated Financial Statements Page
- ------------------------------------------ ----
Reports of Independent Public Accountants F-1, F-2,
F-21
Consolidated Balance Sheets
As of January 31, 1999 and 1998 F-3
Consolidated Statements of Operations and Other
Comprehensive Income (Loss)
For the fiscal years ended January 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Shareholders' Equity
For the fiscal years ended January 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows
For the fiscal years ended January 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
Schedule II - Valuation and Qualifying Accounts
For the fiscal years ended January 31, 1999, 1998 and 1997 F-22
39
<PAGE>
F-3
Report of Independent Accountants
To the Stockholders and Board of Directors of
Excalibur Technologies Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of Excalibur Technologies Corporation and its subsidiaries at
January 31, 1999, and the results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule for
the year ended January 31, 1999, listed in the index appearing under Item
14(a)(2) presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/PricewaterhouseCoopers LLP
McLean, Virginia
February 26, 1999, except for Note 1, Paragraph 4, as to which the date is
March 30, 1999.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Excalibur Technologies Corporation:
We have audited the accompanying consolidated balance sheet of Excalibur
Technologies Corporation (a Delaware corporation) and subsidiaries as of January
31, 1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the two 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 the results of their
operations and their cash flows for each of the two 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-2
<PAGE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
January 31,
--------------------
ASSETS 1999 1998
-------- --------
Current Assets:
Cash and cash equivalents ....................... $ 5,851 $ 4,939
U.S. government securities, at cost ............. -- 1,496
Accounts receivable, net ........................ 6,402 9,189
Prepaid expenses and other ...................... 2,291 1,071
-------- --------
Total current assets ........................ 14,544 16,695
Equipment and leasehold improvements, net .......... 2,034 2,267
Other assets ....................................... 3,134 1,083
-------- --------
$ 19,712 $ 20,045
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................ $ 1,933 $ 2,106
Accrued expenses ................................ 1,829 1,886
Deferred revenues ............................... 2,690 2,708
Deferred compensation ........................... 86 247
-------- --------
Total current liabilities ................... 6,538 6,947
-------- --------
Commitments and Contingencies
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; 13,689 and 13,179
shares issued and outstanding ................ 137 132
Additional paid-in capital ...................... 68,631 64,714
Accumulated deficit ............................. (55,798) (51,945)
Accumulated other comprehensive loss ............ (67) (74)
-------- --------
Total shareholders' equity .................. 13,174 13,098
-------- --------
$ 19,712 $ 20,045
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
OTHER COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
For the Fiscal Years Ended
January 31,
-------- -------- --------
1999 1998 1997
-------- -------- --------
Revenues:
Software ................................ $ 22,741 $ 17,202 $ 15,866
Maintenance ............................. 5,198 5,215 4,393
-------- -------- --------
27,939 22,417 20,259
-------- -------- --------
Expenses:
Cost of software revenues ............... 3,808 3,039 1,630
Cost of maintenance revenues ............ 1,320 1,219 1,618
Sales and marketing ..................... 13,501 13,184 14,430
Research and product development ........ 8,328 6,405 6,288
General and administrative .............. 4,775 4,884 3,906
Restructuring costs ..................... -- 577 --
Acquired in-process research
and development ....................... -- 1,284 --
-------- -------- --------
31,732 30,592 27,872
-------- -------- --------
Operating loss ............................ (3,793) (8,175) (7,613)
Other income (expenses):
Interest income, net .................... 239 374 781
Equity in net loss of affiliate ......... (300) (525) (341)
-------- -------- --------
Net loss .................................. $ (3,854) $ (8,326) $ (7,173)
Dividends on preferred stock .............. 14 14 14
-------- -------- --------
Net loss applicable to common stock ....... $ (3,868) $ (8,340) $ (7,187)
======== ======== ========
Basic and diluted net loss per common share $ (0.29) $ (0.64) $ (0.58)
Weighted-average number of
common shares outstanding............... 13,526 12,934 12,351
Other comprehensive income (loss):
Net loss .................................. $ (3,854) $ (8,326) $ (7,173)
Foreign currency translation adjustment . 7 (31) (78)
-------- -------- --------
Comprehensive loss ........................ $ (3,847) $ (8,357) $ (7,251)
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands) Accumulated
Other
Compre-
Preferred Stock Common Stock Add'l hensive
--------------- ------------ Paid-in Accumulated Income
Shares $ Shares $ Capital Deficit (Loss) Total
------ ----- ------ ---- -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Foreign Currency
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
Foreign Currency
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
Private Placement......... - - 325 3 3,247 - - 3,250
Issuance of common stock
upon exercise of options.. - - 167 2 533 - - 535
Issuance of common stock
for Employee Stock
Purchase Plan............. - - 19 - 137 - - 137
Foreign Currency
Translation adjustment.... - - - - - - 7 7
Net loss.................. - - - - - (3,854) - (3,854)
------ ----- ------ ---- -------- --------- ------ --------
Balance, January 31, 1999. 27 $ 271 13,689 $137 $68,631 $(55,798) $ (67) $13,174
====== ===== ====== ==== ======== ========= ====== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Fiscal Years Ended
January 31,
--------------------------------
1999 1998 1997
-------- -------- --------
Cash Flows from Operating
Activities:
Net loss ................................... $ (3,854) $ (8,326) $ (7,173)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ........... 1,486 1,540 1,367
Bad debt expense ........................ 493 250 150
Acquired in-process research
and development costs ................... -- 1,284 --
Equity in net loss of affiliate ......... 300 525 341
Loss on disposal of assets .............. -- 2 36
Changes in operating assets and liabilities:
Accounts receivable, net ................ 2,349 4 (2,474)
Prepaid expenses and other .............. (3,425) 527 (767)
Accounts payable and accrued expenses ... (296) (193) (97)
Deferred revenues ....................... (35) 11 (86)
-------- -------- --------
Net cash used in operating activities ... (2,982) (4,376) (8,703)
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of investments ................. (984) (22,301) (17,959)
Proceeds from maturities of investments . 2,480 29,231 19,873
Purchases of equipment and
leasehold improvements .................. (1,141) (757) (2,394)
Other assets ............................ (256) (95) (556)
Purchase of business, net of cash used .. -- 55 --
Net cash provided by (used in) -------- -------- --------
investing activities ................... 99 6,133 (1,036)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds from the issuance of common stock 3,822 613 9,722
Repayment of notes payable .............. -- (40) (39)
-------- -------- --------
Net cash provided by financing activities 3,822 573 9,683
-------- -------- --------
Effect of Exchange Rate Changes on Cash .... (27) (76) (162)
-------- -------- --------
Net Increase (Decrease) in Cash
and Cash Equivalents ...................... 912 2,254 (218)
Cash and Cash Equivalents, beginning of year 4,939 2,685 2,903
-------- -------- --------
Cash and Cash Equivalents, end of year ..... $ 5,851 $ 4,939 $ 2,685
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
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.
The Company designs, develops and markets enterprise-wide accurate, scalable and
secure knowledge retrieval and digital asset management software solutions
capable of supporting paper, text, image and video data. The Company offers
consulting, training, product maintenance and system 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 $19.4 million over
the last three fiscal years and the accumulated deficit of the Company at
January 31, 1999 was $55.8 million. The Company's operations are subject to
certain risks and uncertainties including, among others, the dependence upon the
timing of the closing on sales 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 balances of cash and cash equivalents at January 31, 1999, in
addition to net proceeds of $4.7 million from a private placement in March 1999,
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 2000, the Company's
balance of cash and cash equivalents 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.
Acquisition of Interpix Software Corporation
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
F-7
<PAGE>
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 were included in the Company's consolidated
results of operations 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 that 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 upon the effective date of the acquisition.
The excess of the purchase price over the fair value of the net assets of
Interpix was approximately $575,000. This amount represents intangible assets
related to the completed technology base, the assembled workforce and tradenames
acquired, is included in other assets in the consolidated balance sheet, and is
being amortized on a straight-line basis over five years. Amortization expense
for the year ended January 31, 1999 was approximately $111,000 and accumulated
amortization at January 31, 1999 was $192,000.
(2) SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
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. The Company has implemented SOP 97-2 in fiscal year
1999 and it has not had a material financial impact on the Company.
Revenues from the sale of computer software licenses are recognized upon
shipment of product provided that the fee is fixed and determinable, persuasive
evidence of an agreement exists and 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.
Customization is sometimes involved in the development of a software solution by
the Company. Under these circumstances, the Company's revenues are derived from
fixed price contracts and revenue is recognized using the
percentage-of-completion method based on the relationship of actual costs
incurred to total costs estimated to be incurred over the duration of the
contract.
F-8
<PAGE>
Research and Development Costs
Software development costs are included in research and development and are
expensed as incurred. Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Cost of Computer Software to be Sold, Leased or
Otherwise Marketed" requires the capitalization of certain software development
costs once technological feasibility is established, which the Company generally
defines as completion of a working model. Capitalization ceases when the
products are available for general release to customers, at which time
amortization of the capitalized costs begins on a straight-line basis over the
estimated product life, or on the ratio of current revenues to total projected
product revenues, whichever is greater. To date, the period between achieving
technological feasibility and the general availability of such software has been
short, and software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs.
Cash, Cash Equivalents and Marketable Securities
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. 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, the aggregate fair value
of the securities based upon quoted market prices was $1.5 million.
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. The Company
has provided a full valuation allowance against its net deferred tax asset as of
January 31, 1999 and 1998, respectively.
Equipment and Leasehold Improvements
Office furniture and computer equipment are recorded at cost. 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 shorter
of the term of the applicable lease or the useful life of the asset.
F-9
<PAGE>
Expenditures for normal repairs and maintenance are charged to operations as
incurred. The cost of property and equipment retired or otherwise disposed of
and the related accumulated depreciation or amortization are removed from the
accounts and any resulting gain or loss is reflected in current operations.
Net Loss Per Common Share
Basic earnings per share 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 2,561,423
shares of common stock, 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, 1999 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 major corporations, including distributors that
serve a wide variety of U.S. and foreign markets, and to government agencies.
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 $660,000 and $527,000 respectively, at January 31, 1999
and 1998.
Impairment of Long-lived Assets
The Company periodically evaluates the recoverability of its long-lived assets.
This evaluation consists of a comparison of the carrying value of the assets
with the assets' expected future cash flows, undiscounted and without interest
costs. Estimates of expected future cash flows represent management's best
estimate based on reasonable and supportable assumptions and projections. If the
expected future cash flow, undiscounted and without interest charges, exceeds
the carrying value of the asset, no impairment is recognized. Impairment losses
are measured as the difference between the carrying value of long-lived assets
and their fair value.
F-10
<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 a term of seven years but only if ETNV achieves certain
financial objectives. The value of the warrants on the date of grant was
estimated to be $758,000 and is included, net of amortization, in other assets
in the consolidated balance sheets.
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, 1999 and 1998 is included
in equity in net loss of affiliate in the accompanying consolidated statements
of operations for the fiscal years ended January 31, 1999, 1998 and 1997. The
net balances of the investment in and advances to ETNV is included in other
assets in the accompanying consolidated balance sheets. At January 31, 1999 and
1998, the investment balance was $471,000 and $544,000, respectively.
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 an option to
sell their shares to the Company according to a revenue-based formula. The
Company recorded total revenues of $938,675 and $1,656,000 in the fiscal years
ended January 31, 1999 and 1998, respectively, related to the License. In the
fourth quarter of fiscal year 1999, ETNV did not make its contractually required
payment totaling approximately $900,000.
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.
F-11
<PAGE>
(4) CAPITALIZATION
Stock Offerings
During the second quarter of fiscal year 1999, the Company completed a private
placement of 325,000 shares (the "Shares") of its common stock to an
unaffiliated financial institution. The Company sold the Shares at a purchase
price of $10.00 per share, representing the approximate fair market value of the
stock on the date of issuance, resulting in proceeds to the Company of
$3,250,000. The transaction was placed directly by the Company. The Shares were
sold pursuant to an exemption from the registration requirements of the
Securities Act of 1933.
Cumulative Convertible Preferred Stock
The Company has issued 271,000 shares of 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, 1999
is approximately $56,000.
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 over holders of the Company's common
stock.
(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 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 1999, 1998 or 1997. Of the total number of shares authorized for
stock options, options to purchase 2,561,423 shares are outstanding and 557,530
shares are available for future grants.
Each qualified incentive stock option granted pursuant to the plans has an
exercise price equal to the fair market value of the underlying 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
F-12
<PAGE>
non-qualified options and other stock-based compensation based on the difference
between the fair market value of the underlying common 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 year 1999, 1998 or 1997.
The following table summarizes the Company's activity for all of its stock
option awards:
Weighted-
Average
Number of Range of Exercise
Options Exercise Prices Price
------- --------------- -----
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
Granted .......................... 249,501 5.50 - 13.88 8.10
Exercised ........................ (166,815) 1.04 - 10.38 3.20
Canceled ......................... (152,899) 4.14 - 16.02 7.94
---------- --------------- -------
Balance, January 31, 1999 ........ 2,561,423 $ 1.04 - 22.50 $ 8.14
========== =============== =======
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 shares of the Company's common stock, 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 1,796,090, 1,530,918 and 1,738,246 shares of the Company's
common stock were vested and exercisable at January 31, 1999, 1998 and 1997,
respectively, at weighted-average exercise prices of $8.64, $8.89 and $10.56 per
share, respectively.
F-13
<PAGE>
The following table summarizes additional information about stock options
outstanding at January 31, 1999:
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
---------------- --------- ----------- ------ ----------- ------
$ 1.04 to $4.63 203,571 7.48 years $ 4.35 171,695 $ 4.31
$ 4.75 1,094,388 6.41 4.75 838,887 4.75
$ 4.88 to $ 8.56 522,000 7.50 7.29 203,798 7.46
$ 8.63 to $17.02 641,464 5.01 13.72 481,710 14.78
$20.56 to $22.50 100,000 7.11 21.53 100,000 21.53
---------------- --------- ----------- ------ ----------- ------
2,561,423 6.40 years $ 8.14 1,796,090 $ 8.64
========= =========== ====== =========== ======
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 1999, 1998 and 1997 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).
1999 1998 1997
------- ------- -------
Net loss, as reported $ 3,854 $ 8,326 $ 7,173
Pro forma compensation expense 4,046 3,898 2,533
------- ------- -------
Pro forma net loss $ 7,900 $12,224 $ 9,706
======= ======= =======
Basic and diluted net loss
per common share, as reported $ 0.29 $ 0.64 $ 0.58
Basic and diluted net loss
per common share, pro forma $ 0.58 $ 0.95 $ 0.79
The fair value of each option was estimated on the date of grant using the
Black-Scholes option-pricing model. The following table shows the assumptions
used for the grants that occurred in each fiscal year.
F-14
<PAGE>
1999 1998 1997
------------ ------------ ----------
Expected volatility 65% 65% 60%
Risk free interest rates 4.5% to 5.6% 5.7% to 6.5% 6.5%
Dividend yield None None None
Expected lives 5 years 5 years 4 years
The weighted average fair value per share for stock option grants that were
awarded in fiscal years 1999, 1998 and 1997 was $4.77, $4.24 and $9.76,
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, 18,652,
40,252 and 3,253 shares were purchased by employees in fiscal year 1999, 1998
and 1997, respectively. 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 Software Inc., a private software company acquired in June 1995 by the
Company, 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 1999, 1998 and
1997, deferred compensation of $161,000, $654,000 and $99,000, respectively, was
settled. The portion of the deferred compensation balance related to independent
consultants was settled in fiscal year 1998.
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. ConQuest had a similar plan established for the
benefit of its employees that was merged into the Company's plan effective
December 31, 1996. The Company did not make any contributions to the employee
savings plan in fiscal years 1999, 1998, or 1997.
(6) INCOME TAXES
As the Company incurred pretax losses for the fiscal years presented herein,
there are no income taxes provided in the accompanying consolidated statements
of operations. At January 31, 1999, the Company had net operating loss
carryforwards ("NOLs") of approximately $67,957,000 that expire at various dates
through fiscal year 2014. 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
F-15
<PAGE>
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, 1999 and 1998 were as
follows (in thousands):
1999 1998
Deferred tax assets -------- --------
Net operating loss carryforwards of
Excalibur, not yet utilized $ 25,824 $ 24,256
Net operating loss carryforwards of
ConQuest, not yet utilized 1,229 1,229
Other 513 427
--------- ---------
Total deferred tax assets 27,566 25,912
Valuation reserve (27,435) (25,819)
--------- ---------
131 93
(131) (93)
Deferred tax liabilities --------- ---------
Net deferred tax assets $ - $ -
========= =========
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.
(7) COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company conducts its operations using leased office facilities. The leases
terminate at various dates through fiscal year 2004. 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, 1999 are as follows (in thousands):
Year Ending
January 31,
-----------
2000 $ 1,375
2001 1,446
2002 1,035
2003 579
2004 596
----------
$ 5,031
==========
Total rental expense under operating leases, net of sublease income of $102,064,
$292,425, and $253,484 in fiscal years 1999, 1998 and 1997, respectively, was
approximately $1,303,000, $1,190,000 and $1,070,000, respectively.
F-16
<PAGE>
Employment Agreements
Under an agreement between the Company and Patrick C. Condo, President and Chief
Executive Officer entered into in May 1998, Mr. Condo will be paid an amount
equal to twelve months of base salary plus bonus compensation and continuation
of his employee benefits for one year in the event Mr. Condo's employment is
terminated or he is removed from his position as Chief Executive Officer within
six months following certain "change of control" events relating to the Company.
Such arrangement was approved by the full Board of Directors.
The offer of employment letter dated September 7, 1995 for James H. Buchanan,
Chief Financial Officer, Secretary and Treasurer of the Company, stipulates that
Mr. Buchanan will be paid an amount equal to twelve months of base salary in
semi-monthly installments should his employment be terminated by the Company
without cause.
(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.
(9) SEGMENT INFORMATION
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, Excalibur
Technologies International, Ltd. ("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,
------------------------------
1999 1998 1997
---- ---- ----
Sales to unaffiliated customers:
United States $20,336 $14,134 $14,222
United Kingdom 4,490 3,460 1,915
All Other 3,113 4,823 4,122
------- ------- -------
$27,939 $22,417 $20,259
======= ======= =======
Long-lived assets:
United States $ 5,072 $ 3,255 $ 3,897
All Other 96 95 100
------- ------- -------
$ 5,168 $ 3,350 $ 3,997
======= ======= =======
F-17
<PAGE>
Major Customers
Revenues derived from contracts and orders issued by agencies of the U.S.
Government were approximately $4,493,000, $5,379,000, and $6,004,000,
respectively, in the fiscal years ended January 31, 1999, 1998 and 1997. These
revenues, expressed as a percentage of total revenues for the fiscal year, were
approximately 16%, 24%, and 30%, respectively. Revenues derived from Inso
Corporation in fiscal year 1999 of $2,958,000 accounted for 11% of the Company's
total revenues. No single customer accounted for 10% or more of the Company's
revenue in the fiscal years ended January 31, 1998 and 1997.
(10) OTHER FINANCIAL DATA
a) Prepaid expenses and other at January 31,1999 and 1998 consisted of the
following (in thousands):
1999 1998
------ ------
Prepaid licenses $1,510 $ -
Prepaid other 781 1,071
------ ------
$2,291 $1,071
====== ======
b) Equipment and leasehold improvements at January 31, 1999 and 1998 consisted
of the following (in thousands):
1999 1998
------ ------
Computer equipment $7,269 $6,297
Office furniture 1,348 1,220
Leasehold improvements 403 364
------ ------
9,020 7,881
Less accumulated depreciation (6,986) (5,614)
------ ------
$2,034 $2,267
====== ======
c) Other assets at January 31, 1999 and 1998 consist of the following
(in thousands):
1999 1998
------ ------
Prepaid licenses $2,214 $ -
Other 920 1,083
------ ------
$3,134 $1,083
====== ======
F-18
<PAGE>
d) Accrued expenses at January 31, 1999 and 1998 consist of the
following (in thousands):
1999 1998
------ ------
Accrued payroll $1,469 $1,292
Other 360 594
------ ------
$1,829 $1,886
====== ======
e) The Company paid legal fees and expenses totaling approximately $221,000 in
fiscal year 1997 to a law firm in which a former director of the Company was a
partner. No such fees were paid in fiscal years 1999 and 1998.
(11) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," during the first quarter of fiscal 1999.
SFAS 130 requires additional disclosures with respect to certain changes in
assets and liabilities that previously were not required to be reported as
results of operations for the period.
In 1998, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information." FAS
131 supercedes FAS 14, "Financial Reporting for Segments of a Business
Enterprise", replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. FAS 131 also requires
disclosures about products and services, geographic areas and major customers.
The adoption of FAS 131 did not affect results of operations or financial
position but did affect the disclosures of segment information. The Company
accounts for all operations as one segment.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which will
be effective for the Company's fiscal year 2001. This statement establishes
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other contracts, be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement also requires that changes in the derivative's fair
value be recognized in earnings unless specific hedge accounting criteria are
met. The Company believes the adoption of SFAS No. 133 will not have a material
effect on the financial statements.
The American Institute of Certified Public Accountants has issued Statement of
Position 98-9, "Modification of SOP-97-2, Software Revenue Recognition, With
Respect to Certain Transactions." SOP 98-9 is effective for revenue transactions
entered into in the Company's fiscal year 2001. The Company has evaluated SOP
98-9 and does not believe its adoption will have a material effect on the
financial statements.
F-19
<PAGE>
(12) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(in thousands)
For the Fiscal Years Ended
January 31,
-----------------------------
1999 1998 1997
------- ------- -------
Supplemental Disclosures of Cash
Flow Information:
Cash paid for interest.................. $ - $ 2 $ 11
======= ======= =======
Supplemental Disclosures of Noncash
Investing and Financing Activities:
Issuance of warrants to
purchase common stock................... $ - $ - $ 758
======= ======= =======
Stock options exercised under
deferred compensation arrangements...... $ 100 $ 457 $ 83
======= ======= =======
Issuance of common stock to
acquire Interpix........................ $ - $ 1,822 $ -
======= ======= =======
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Excalibur Technologies Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated balance sheet of Excalibur Technologies Corporation as of
January 31, 1998 and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the two years in the period
ended January 31, 1998 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, 1999, 1998 AND 1997
------------------------------------------------------
Translation
Balance at Additions Deductions Adjustment Balance
Beginning Charged From During at End
Description of Year to Expense Reserves the Period of Year
- ------------ ------- ---------- -------- ---------- -------
1999
- ----
Deducted from
accounts receivable:
For doubtful accounts $527,000 $493,000 $356,000 (a) $(4,000) $660,000
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
Note (a) - Uncollected receivables written off, net of recoveries.
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 28, 1999
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 28, 1999
- --------------------- Officer and Director --------------
Patrick C. Condo (Principal Executive Officer)
/s/Donald R. Keough April 21, 1999
- ---------------------- Chairman of the Board --------------
Donald R. Keough
/s/James H. Buchanan Chief Financial Officer April 28, 1999
- --------------------- Secretary and Treasurer (Principal --------------
James H. Buchanan Financial and Accounting Officer)
/s/Richard M. Crooks, Jr. April 29, 1999
- ------------------------- Director --------------
Richard M. Crooks, Jr.
/s/John S. Hendricks April 23, 1999
- --------------------- Director --------------
John S. Hendricks
/s/W. Frank King III April 27, 1999
- --------------------- Director --------------
W. Frank King III
/s/John G. McMillian April 27, 1999
- --------------------- Director --------------
John G. McMillian
/s/Philip J. O'Reilly April 29, 1999
- --------------------- Director --------------
Philip J. O'Reilly
TYSONS INTERNATIONAL PLAZA
OFFICE LEASE AGREEMENT
by and between
485 PROPERTIES, LLC
(Landlord)
and
EXCALIBUR TECHNOLOGIES CORPORATION
(Tenant)
Date: March 4, 1999
<PAGE>
TYSONS INTERNATIONAL PLAZA
OFFICE LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is executed in five (5) counterparts
and made as of the ____ day of _____________ 1999, by and between 485
PROPERTIES, LLC, a Delaware limited liability company ("Landlord"), and
EXCALIBUR TECHNOLOGIES CORPORATION, a Delaware corporation ("Tenant"), Landlord
and Tenant having the following notice addresses on the date of this Lease:
Landlord: with a copy to:
- --------- ---------------
485 Properties, LLC
c/o Teachers Insurance and Annuity LaSalle Partners Limited
Association of America 1921 Gallows Road
730 Third Avenue Suite 400
New York, New York 10017-3206 Vienna, Virginia 22182
Attn: Director, Mortgage and Real Estate Attn: General Manager
With an additional copy to:
- ---------------------------
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017-3206
Attn: Vice President, Real Estate and Mortgage Law
Tenant: with a copy to:
- ------- ---------------
Excalibur Technologies Corporation Werbel & Carnelutti,
1921 Gallows Road, Suite 200 a Professional Corporation
Vienna, Virginia 22182 711 Fifth Avenue
Attn: Ms. Nancy McKinley New York, New York 10022
Attn: Robert H. Werbel, Esquire
SUMMARY OF FUNDAMENTAL LEASE PROVISIONS
The provisions set forth below represent the agreement of the parties
hereto as to certain fundamental lease provisions ("Fundamental Lease
Provisions"). Specified Section, Schedule and Article references designate some
of the other places in this Lease where additional applicable provisions appear.
The monetary charges payable by Tenant set forth in the Summary of Fundamental
Lease Provisions shall not be construed to constitute an exhaustive list of all
amounts which may become payable under this Lease.
<PAGE>
(a) Main Term: Premises Portion #1 ---- Five (5) years (See ss.3.3)
Premises Portion #2 ---- Five (5) years
Premises Portion #3 ---- Five (5) years, five (5)
months and six (6) days
(b) Premises Number: Premises Portion #1 - Suite 200 (Tower II, 2nd Floor)
(See Sch. A)
Premises Portion #2 - Suite 455 (Tower II, 4th Floor)
Premises Portion #3 - Suite 750 (Tower II, 7th Floor)
(c) Gross Rentable
Area in Premises: Premises Portion #1 - 11,125 square feet (See ss.1.2)
Premises Portion #2 - 3,075 square feet
Premises Portion #3 - 4,491 square feet
------
Total 18,691 square feet
(d) [INTENTIONALLY DELETED]
(e) [INTENTIONALLY DELETED]
(f) [INTENTIONALLY DELETED]
(g) Base Rent: $28.50 per sq. ft of GRA per .(See ss.4.3, ss.4.4)
Lease Year (full service), with 3% annual
escalations, for an annual Base Rent of:
Lease Year Rental Rate/s.f.
1 $28.50
2 $29.36
3 $30.24
4 $31.14
5 $32.08
(h) Security Deposit: $178,000.00 Letter of Credit (See ss.4.8)
(i) Permitted Use: General Office (See Art. 5)
(j) Commencement Date: Premises Portion #1 - October 6, 1999 (See ss. 4.2)
Premises Portion #2 - October 6, 1999 Premises
Portion #3 - May 1, 1999
<PAGE>
TABLE OF CONTENTS
Page Number
ARTICLE 1 INTRODUCTORY PROVISIONS...............................1
Section 1.1. General Definitions................................1
Section 1.2. Table of Defined Terms.............................2
Section 1.3. Changes to Project.................................2
ARTICLE 2 PREMISES AND TENANT'S WORK............................3
Section 2.1. Lease of Premises..................................3
Section 2.2. Leasehold Improvements and Refurbishments..........3
Section 2.3. Allowance..........................................4
Section 2.4. [INTENTIONALLY DELETED]............................5
Section 2.5. [INTENTIONALLY DELETED]............................5
Section 2.6. Tenant's Occupancy of Premises.....................5
Section 2.7. Mechanics' and Other Liens.........................5
Section 2.8. Tenant's Property................................. 6
ARTICLE 3 TERM................................................. 6
Section 3.1. Term.............................................. 6
Section 3.2. Preliminary Term.................................. 7
Section 3.3. "Main Term," "Lease Year" Defined................. 7
Section 3.4. Termination....................................... 7
Section 3.5. Holding Over...................................... 7
ARTICLE 4 RENT................................................. 8
Section 4.1. Tenant's Agreement to Pay Rent.................... 8
Section 4.2. Commencement Date..................................8
Section 4.3. Base Rent..........................................8
Section 4.4. Annual Rent Increase...............................8
Section 4.5. Additional Rent....................................9
Section 4.6. Payment of Rent....................................9
Section 4.7. Interest Charge....................................9
Section 4.8. Security Deposit...................................9
ARTICLE 5 USE..................................................10
Section 5.1. Prompt Occupancy and Use..........................10
Section 5.2. Operating Hours...................................10
Section 5.3. Operational Requirements..........................11
Section 5.4. Signs; Painting; Displays.........................12
<PAGE>
TABLE OF CONTENTS
Page Number
-----------
ARTICLE 6 TAXES................................................12
Section 6.1. Real Estate Taxes.................................12
Section 6.2. Payment of Tenant's Taxes.........................13
Section 6.3. Taxes on Rent and Other Taxes.....................14
ARTICLE 7 COMMON AREAS.........................................14
Section 7.1. Use and Management................................14
Section 7.2. Operating Costs Defined...........................15
Section 7.3. Tenant's Operating Costs Charge...................17
Section 7.4. Parking...........................................19
Section 7.5. Overtime HVAC.....................................19
ARTICLE 8 ENVIRONMENTAL MATTERS................................20
Section 8.1. Environmental Covenants...........................20
Section 8.2. Environmental Laws................................20
Section 8.3. Indemnity.........................................20
Section 8.4. Pre-existing Conditions...........................20
Section 8.5. Survival..........................................21
ARTICLE 9 MAINTENANCE, REPAIRS AND ALTERATIONS.................21
Section 9.1. Landlord's Duty to Maintain Structure.............21
Section 9.2. Tenant's Duty to Maintain Premises................21
Section 9.3. Tenant's Duty to Repair Damage....................22
Section 9.4. Alterations by Tenant.............................22
Section 9.5. Landlord's Right of Access........................23
Section 9.6. Disruption in Business Operations.................23
ARTICLE 10 INDEMNITY AND INSURANCE.............................23
Section 10.1. Tenant's Insurance...............................23
Section 10.2. Tenant's Contractor's Insurance..................24
Section 10.3. Policy Requirements..............................24
Section 10.4. Indemnities by Tenant and Landlord...............25
Section 10.5. Landlord Not Responsible for Acts of Others......26
Section 10.6. Landlord's Insurance.............................26
Section 10.7. Increase in Insurance Premiums...................26
Section 10.8. Waiver of Right of Recovery......................27
ARTICLE 11 CASUALTY............................................27
Section 11.1. Obligation to Repair and Reconstruct.............27
Section 11.2. Option to Terminate Lease........................28
Section 11.3. Insurance Proceeds...............................28
ARTICLE 12 CONDEMNATION........................................28
Section 12.1. Effect of Taking.................................28
Section 12.2. Condemnation Awards..............................29
<PAGE>
ARTICLE 13 ASSIGNMENT AND SUBLETTING...........................29
Section 13.1. Landlord's Consent Required......................29
Section 13.2. Transfer; Issuance of Corporate Shares...........30
Section 13.3. Acceptance of Rent from Transferee...............30
Section 13.4. Conditions of Consent............................30
Section 13.5. Profits from Use or Transfer.....................31
ARTICLE 14 DEFAULT.............................................31
Section 14.1. "Event of Default" Defined.......................31
Section 14.2. Remedies.........................................32
Section 14.3. Damages..........................................33
ARTICLE 15 SUBORDINATION, ATTORNMENT
AND NON-DISTURBANCE......................35
Section 15.1. Subordination....................................35
Section 15.2. Mortgagee's Unilateral Subordination.............35
Section 15.3. Attornment and Non-disturbance...................36
ARTICLE 16 QUIET ENJOYMENT.....................................36
ARTICLE 17 NOTICES.............................................36
Section 17.1. Sending of Notices...............................36
Section 17.2. Notices to Mortgagees............................36
Section 17.3. Estoppel Certificate.............................37
ARTICLE 18 MISCELLANEOUS.......................................37
Section 18.1. Modification.....................................37
Section 18.2. No Recordation...................................37
Section 18.3. Remedies Cumulative..............................38
Section 18.4. Successors and Assigns...........................38
Section 18.5. Compliance with Laws and Regulations.............38
Section 18.6. Captions and Headings............................39
Section 18.7. Joint and Several Liability....................39
Section 18.8. Brokers' Commissions...........................39
Section 18.9. No Discrimination..............................39
Section 18.10. No Joint Venture................................40
Section 18.11. Conflicts; Schedules............................40
Section 18.12. Severability....................................40
Section 18.13. No Third Party Beneficiary......................40
Section 18.14. Corporate Tenants...............................40
Section 18.15. Applicable Law..................................41
Section 18.16. Waiver of Jury Trial............................41
Section 18.17. Limitation of Liability.........................41
Section 18.18. No Accord and Satisfaction......................42
Section 18.19. Time of Essence.................................42
Section 18.20. "Person(s )"Defined.............................42
Section 18.21. Consents........................................43
Section 18.22. Integration of all Prior Agreements and
Execution of Lease..........................43
<PAGE>
SCHEDULES
A..... Drawing showing approximate location of the Premises
A-1... Legal Description of the Project Site
B..... Landlord Services
C..... [INTENTIONALLY DELETED]
D..... [INTENTIONALLY DELETED]
E..... Form of Commencement Date Notice
F..... Rules and Regulations
G..... Form of Subordination, Non-disturbance and Attornment Agreement
H..... Form of Tenant Estoppel
I..... Bids
<PAGE>
TABLE OF DEFINED TERMS
Defined In
Defined Term Section
ADA ................................................................2.3(e)
Additional Rent ....................................................4.5
Affiliate .........................................................13.1(b)
Allowance ..........................................................2.3 (a)
Base Rent...........................................................4.3
Base Year...........................................................6.1(a)
Building............................................................1.1(a)
Casualty...........................................................11.1
Capital Expenditures................................................7.2(b)(i)
Commencement Date ..................................................4.2
Commencement Date Notice ...........................................2.6
Common Areas........................................................1.1(b)
Default Rate........................................................1.1(c)
Event of Default...................................................14.1
Excess Costs .......................................................2.3 (d)
General Contractor..................................................2.2(b)(i)
GRA.................................................................1.1(d)
GRA Fraction........................................................1.1(e)
GRA Tax Fraction....................................................1.1(f)
Landlord......................................Introductory Paragraph
Landlord's Management Agent.........................................1.1(g)
Lease Year..........................................................3.3(b)
Letter of Credit ...................................................4.8
Liquidated Damages.................................................14.3(a)
Main Term...........................................................3.3(a)
Market Rent.........................................................3.4(d)
Mortgage...........................................................15.1(a)
Mortgagee..........................................................15.1(a)
Operating Costs.....................................................7.2(a)
Parking Garage......................................................7.4(a)
Permitted Use.......................................................5.1
<PAGE>
Person(s)..........................................................18.20
Preliminary Term....................................................3.2
Premises............................................................1.1(h)
Project.............................................................1.1(a)
Rent................................................................4.1
Rental Tax..........................................................6.3
Security Deposit....................................................4.8
Taxes...............................................................6.1(a)
Tenant......... ..........................Introductory Paragraph
Tenant's Operating Costs Charge.....................................7.3(a)(i)
Tenant's Property...................................................2.8(a)
Tenant's Taxes......................................................6.1(b)
Term................................................................3.1
Termination Damages................................................14.3(a)
Transfer...........................................................13.1(a)
Tysons International Plaza..........................................1.1(a)
<PAGE>
ARTICLE 1
INTRODUCTORY PROVISIONS
Section 1.1. General Definitions.
As used herein, the term:
(a) "Building" means the referenced tower of a two-building multi-story
office and retail project located in Fairfax County, Virginia. The "Project"
consists of two office/retail towers and a multi-level parking facility, plus
surface parking. The Project is known as "Tysons International Plaza," and is
located at 1919 and 1921 Gallows Road, Vienna, Virginia 22182 (Tower I being
located at 1919 Gallows Road and Tower II being located at 1921 Gallows Road); a
legal description of the Project site is attached hereto as Schedule A-1.
Landlord represents and warrants that the estates and improvements therein
comprising the Building and the Project are owned by the Landlord in fee simple.
The Landlord's fee simple estate is subject to a Mortgage securing debt to
Teachers Insurance and Annuity Association of America.
(b) "Common Areas" means those areas and facilities which may be
furnished, from time to time, by Landlord at the Building, for the non-exclusive
general or limited common use of Landlord, Tenant, other tenants, subtenants and
other occupants of the Project, their officers, agents, employees, customers,
suppliers and materialmen, and those areas and facilities used for maintenance,
management and marketing of the Project, and all loading docks, ramps and areas,
delivery passages, freight elevators, service corridors, sidewalks, walkways,
roadways, alleyways, parking areas, courts, courtyards, ramps, fountains,
retaining walls, stairways, escalators, elevators, fire corridors, fire escapes,
park areas, first-aid stations, maintenance and mechanical areas, rest rooms,
meeting rooms, management offices, promotional offices, utility plants,
distribution equipment, fire command centers and security systems equipment and
service lines, pipes, tanks, pumps, exhaust fans, transformers and conduits for
heat, ventilation, light and air conditioning, and other similar areas,
facilities or improvements serving the Project.
(c) "Default Rate" means an annual rate of interest equal to the lesser of
(i) the maximum rate of interest for which Tenant may lawfully contract in the
Commonwealth of Virginia from time to time, or (ii) twenty percent (20%).
(d) "GRA" means with respect to the area being measured, the number of
square feet of rentable area for the exclusive use by a tenant for general
office purposes. Said area shall be measured in accordance with the modified
BOMA method of measurement. From time to time during the Term, Landlord may give
Tenant notice of the total GRA in the Building and in the Project, as such GRA
may be revised because of additions to (or subtractions from) the Building
and/or the Common Areas and/or the Project, or as such GRA may be adjusted
pursuant to provisions in the leases of other tenants or occupants. The GRA in
the Premises and in all other areas set aside for tenants within the Building
shall be utilized to calculate the GRA Fraction and to make any other
calculations required to determine Tenant's proportionate share of certain
charges set forth in this Lease.
<PAGE>
(e) "GRA Fraction" means a fraction, the numerator of which shall be the
GRA in the Premises and the denominator of which shall be the average annual
aggregate of the total square footage in the Project which is leased to tenants
from time to time, which denominator shall in no event be less than that number
which is 95% of the total GRA in the Project.
(f) "GRA Tax Fraction" means a fraction, the numerator of which shall be
the GRA in the Premises and the denominator of which shall be the total GRA in
the Project.
(g) "Landlord's Management Agent" means the person or persons designated
by Landlord from time to time to lease, manage, operate, and/or supervise the
operations of the Building for and on behalf of Landlord.
(h) "Premises" means that portion of the Building as shown on Schedule A,
having the square footage of floor area specified in clause (c) of the
Fundamental Lease Provisions. The Premises shall consist of the Premises Portion
#1, the Premises Portion #2 and the Premises Portion #3.
Section 1.2. Table of Defined Terms.
The Section reference for definitions of all other capitalized terms used
in this Lease are contained in the Table of Defined Terms immediately following
the Table of Contents.
Section 1.3. Changes to Project.
As between Landlord and Tenant, Landlord may at any time and from time to
time eliminate or add any improvements, or change or consent to a change in the
shape, size, location, number, height or extent of the improvements to any
portion of the Building and/or the Project. Nothing herein contained, however,
shall be deemed to permit Landlord to change the dimensions or location of the
Premises or materially adversely affect the access to the Premises from the
Common Areas adjacent thereto, if any, or materially adversely affect the
appearance or occupancy by Tenant of the Premises, without Tenant's consent,
unless any such changes are required by reason of any federal, state or local
environmental or other law, rule, regulation, guideline, judgment, order or
action.
<PAGE>
ARTICLE 2
PREMISES AND TENANT'S WORK
Section 2.1. Lease of Premises.
Landlord, in consideration of the Rent to be paid and the covenants to be
performed by Tenant, hereby leases to Tenant, and Tenant hereby leases and takes
from Landlord, for the Term, the Premises, at the rental and upon the covenants
and conditions herein set forth.
Section 2.2. Leasehold Improvements and Refurbishments.
(a) Tenant shall accept the Premises in its "AS IS" condition;
provided, however, that after the Commencement Date, Landlord shall make certain
improvements and refurbishments to the Premises as follows: Landlord shall patch
(as necessary) and paint the walls of the Premises and shall replace the carpet
in the Premises with mutually acceptable commercial grade carpeting. Any such
refurbishments and improvements shall comport with building standard.
(b) (i) At Landlord's sole cost and expense (subject, however, to
Tenant's obligation to pay for any Excess Costs, as set forth in Section 2.3(d)
below), Landlord shall contract with a general contractor (the "General
Contractor") to complete the leasehold improvements and refurbishments in
accordance with this Section 2.2. Landlord shall bid the general contractor work
to at least three (3) general contractor bidders. Each of the general contractor
bidders shall submit a fixed price bid including the subcontractor or "trade"
work, bid by the general contractor to at least three (3) subcontractor bidders.
The selection of the General Contractor shall be made by Landlord in its
commercial good faith.
(ii) Landlord or its affiliate, at no cost to Tenant, shall
administer, supervise and manage the refurbishments and improvements to the
Premises pursuant to this Section 2.2.
(iii) Tenant has designated Ms. Nancy McKinley to be its
construction coordinator who shall be entitled to inspect the refurbishments and
improvements and otherwise act on Tenant's behalf during such time. Tenant's
construction coordinator shall have full authority to make all decisions on
behalf of Tenant with respect to material or design changes and change orders
(to be documented, submitted to and executed by the parties prior to
commencement of such work), and any decisions made in the field by such person
shall be binding upon Tenant. Landlord agrees that it shall cooperate, and shall
cause the General Contractor and Landlord's construction manager to cooperate,
with Tenant's construction coordinator. Landlord agrees that it shall not effect
change orders without the written approval of Tenant or Tenant's construction
coordinator.
(iv) The improvements to the Premises contemplated in Section
2.2(a) hereof shall be performed by Landlord upon forty-five (45) days' written
notice from Tenant.
<PAGE>
(c) The Premises is currently constructed and improved as office
space. Landlord shall maintain all life safety systems, and, except as otherwise
provided herein, Landlord shall comply with all requirements of all prevailing
governmental authorities having or claiming jurisdiction over the Building, the
Project or the Common Areas concerning the same.
Section 2.3. Allowance
(a) Tenant shall receive a total improvement and refurbishment
allowance (the "Allowance") which shall be applied towards leasehold
improvements and refurbishments as set forth in Section 2.2 (including signage,
as set forth in Section 5.4 (c) hereof); the Allowance shall be in the total sum
of Fifty-Two Thousand Dollars ($52,000.00).
(b) The cost of the leasehold improvements and refurbishments shall
be paid monthly by Landlord out of the Allowance based upon the draw schedule
and work in place. Tenant and Tenant's construction coordinator shall receive a
copy of each monthly requisition. It is hereby agreed that all permanently
affixed leasehold improvements, if any, shall immediately become the property of
Landlord upon completion unless otherwise agreed to in writing.
(c) In the event the total cost of the leasehold improvements and
refurbishments is less than the Allowance, Landlord shall retain such amount as
its property and there shall be no payment to Tenant or abatement of Rent with
respect thereto.
(d) In the event the total cost of completing the improvements and
refurbishments to the Premises shall exceed the Allowance (the "Excess Costs"),
said Excess Costs shall be paid by Tenant to Landlord in cash, in full, within
thirty (30) days after Landlord's demand therefor; provided, however, that at
Tenant's election such Excess Costs (but not to exceed Two Dollars [$2.00] per
square foot of GRA in the Premises) may be amortized as additional Base Rent
over the Main Term, calculated using an interest factor of twelve percent (12%).
Attached hereto as Schedule I is a copy of bills received by Landlord with
respect to the performance of the initial improvements to the Premises.
(e) Landlord represents and warrants that, upon the Commencement
Date and completion of the improvements and refurbishments to the Premises to be
performed by Landlord pursuant to Section 2.2 hereof, the Premises are and shall
be in compliance with all requirements of the Americans with Disabilities Act of
1990 (the "ADA"). Upon completion of the improvements and refurbishments,
Landlord shall be responsible for ADA compliance issues with respect to the
Common Areas and Tenant shall be responsible for all ADA compliance issues
within the Premises.
Section 2.4 . [INTENTIONALLY DELETED].
Section 2.5. [INTENTIONALLY DELETED].
Section 2.6. Tenant's Occupancy of Premises.
Within fifteen (15) days following the Commencement Date, Tenant and
Landlord shall execute a "Commencement Date Notice" in the form attached hereto
as Schedule E.
<PAGE>
Section 2.7. Mechanics' and Other Liens.
(a) With respect to any work performed by Tenant in furnishing or
equipping the Premises hereunder, and with respect to any alterations performed
pursuant to Section 9.4, Tenant will not permit to be created and has no
authority to permit to be created or to remain undischarged any lien,
encumbrance or charge (arising out of any work done or materials or supplies
furnished by an contractor, subcontractor, mechanic, laborer or materialman, or
any mortgage, security agreement or otherwise by or for Tenant), which might be
or become a lien or encumbrance or charge upon the Premises, or Tenant's
leasehold estate therein, the Project or any income therefrom. Tenant will not
suffer any other matter or thing whereby the estate, rights and interests of
Landlord in the Project might be encumbered or impaired.
(b) If any mechanics' lien on account of any alleged debt of Tenant, or
any person acting on Tenant's behalf, shall be filed against the Premises, the
Project or any income therefrom, Tenant shall take and diligently prosecute
appropriate action to have the same discharged or bonded and released of record
at Tenant's sole expense within thirty (30) days of the filing of such lien.
Upon Tenant's failure so to do, Landlord, in addition to any other right or
remedy that it may have, may cause said lien to be discharged or bonded and take
such other action as may be reasonably necessary to protect its interest, and
Tenant shall pay any amounts paid by Landlord in connection with such action,
and all reasonable legal and other costs and expenses incurred by Landlord in
connection therewith (including reasonable attorneys' fees, court costs (if
awarded post-judgment) and other necessary disbursements). Any such amounts paid
by Landlord and the amount of any such expenses or costs incurred by Landlord,
if not paid by Tenant to Landlord within thirty (30) days after the date Tenant
receives written notice from Landlord of the amount thereof and demand for
payment of the same, shall, together with interest thereon at the Default Rate
from the date of the receipt by Tenant of the aforesaid written notice to the
date of payment thereof by Tenant, be treated as Additional Rent, and shall be
payable by Tenant to Landlord not later than thirty (30) days after the giving
of such written notice and demand. Nothing herein contained shall obligate
Tenant to pay or discharge any lien created by Landlord.
(c) Except with respect to the initial improvements and refurbishments to
the Premises to be performed by Landlord pursuant to Section 2.2 hereof, Tenant
shall promptly pay all persons furnishing labor or materials with respect to any
work performed by or on behalf of Tenant in, on or about the Premises. No work
which Landlord permits Tenant to perform shall be deemed to be for the immediate
use and benefit of Landlord so that no mechanics' or other lien shall be allowed
against the estate of Landlord by reason of any consent given by Landlord to
Tenant to improve the Premises. This Lease expressly provides that the interest
of Landlord shall not be subject to liens for improvements made for or on behalf
of Tenant, and Tenant shall notify each of Tenant's contractors of the foregoing
provisions.
(d) To the extent permitted by law, Landlord shall have the right to post
such other notices as Landlord may deem to be appropriate for the protection of
its interests in the Premises. The provisions of this Section 2.7 shall apply
with respect to any work performed by or on behalf of Tenant in, on or about the
Premises during the Term thereof.
<PAGE>
Section 2.8. Tenant's Property.
(a) All trade fixtures, furniture and equipment (as distinguished from
leasehold improvements) owned by Tenant and installed in the Premises ("Tenant's
Property") shall be and remain the property of Tenant and shall be removable at
any time, including upon the expiration of the Term, provided (i) Tenant shall
not at such time be in default of any term, covenant or provision of this Lease
beyond any applicable grace, notice or cure period, and (ii) Tenant shall repair
to the satisfaction of Landlord any damage to the Premises caused by the removal
of any of Tenant's Property.
(b) If Tenant's Property, or any portion thereof, is not removed from the
Premises upon the expiration of the Term or any earlier termination of this
Lease in accordance with the foregoing, such remaining Tenant's Property shall,
at the election of Landlord, become the personal property of Landlord, and
Tenant's rights therein shall cease upon the exercise of such election by
Landlord.
ARTICLE 3
TERM
Section 3.1. Term.
The term of this Lease ("Term") shall include the Preliminary Term and the
Main Term.
Section 3.2. Preliminary Term.
The "Preliminary Term" shall begin as of the date of this Lease and,
unless sooner terminated as herein provided, continue thereafter through the day
immediately prior to the Commencement Date.
Section 3.3. "Main Term," "Lease Year" Defined.
(a) "Main Term" means the period commencing on the Commencement Date and,
subject to the provisions of Article 14 and the other terms and conditions of
this Lease, continuing for the number of years specified in clause (a) of the
Fundamental Lease Provisions.
(b) "Lease Year" means each successive twelve (12) calendar month period
commencing on the Commencement Date, as defined in Section 4.2.
(c) It is intended that Base Rent and any other payments required to be
made by Tenant hereunder be calculated with reference to the Lease Year. All
other charges for which Tenant is responsible are to be based upon the calendar
year or partial calendar year, whichever is applicable.
Section 3.4. Termination.
Unless sooner terminated pursuant to the provisions hereof, this Lease
shall terminate on the expiration of the Term without the necessity of any
notice from either Landlord or Tenant to terminate the same, and Tenant hereby
waives notice to vacate or quit the Premises and agrees that Landlord shall be
<PAGE>
entitled to the benefit of all remedies at law or equity respecting the summary
recovery of possession of the Premises from a Tenant holding over, to the same
extent as if statutory notice had been given. For a period of twelve (12) months
prior to the expiration of the Term, Landlord shall have the right to show the
Premises and all parts thereof, upon reasonable advance notice to Tenant, to
prospective tenants during normal business hours.
Section 3.5. Holding Over.
If Tenant shall be in possession of the Premises after the termination of
this Lease, in the absence of any written agreement extending the Term, the
tenancy under this Lease shall become one from month-to-month, terminable by
Landlord on thirty (30) days' prior written notice, at a monthly rental equal to
(i) one hundred fifty percent (150%) of the sum of the monthly installment of
Base Rent payable during the last calendar month of the Term, plus (ii) Tenant's
Operating Charge and Tenant's Taxes as otherwise calculated hereunder for any
such month. Tenant shall also pay as Additional Rent all other charges payable
under the terms of this Lease, prorated for each month during which Tenant
remains in possession. Such month-to-month tenancy shall be subject to all other
conditions, provisions and obligations of this Lease. Tenant shall not interpose
any counterclaims in a summary proceeding or other action based on holdover. At
any time after a termination under this Section becomes effective, Landlord may
reenter and take possession of the Premises, any rule of law or equity to the
contrary notwithstanding.
ARTICLE 4
RENT
Section 4.1. Tenant's Agreement to Pay Rent.
Tenant hereby agrees to pay to Landlord during the Term, at the times and
in the manner herein provided, Base Rent, as may be increased from time to time,
and Additional Rent (collectively, "Rent"). Tenant's obligation to pay Rent
during the Term shall survive the termination of this Lease.
Section 4.2. Commencement Date.
"Commencement Date" means (i) October 6, 1999, with respect to the
Premises Portion #1 and the Premises Portion #2; and (ii) May 1, 1999, with
respect to the Premises Portion #3.
Section 4.3. Base Rent.
For the first Lease Year during the Term, Tenant shall pay Landlord the
annual Base Rent amount set forth in clause (g) of the Fundamental Lease
Provisions ("Base Rent"), which shall be payable in twelve (12) equal monthly
installments, in advance, on the first (1st) day of each calendar month
(provided, however, that Base Rent with respect to the Premises Portion #1 and
Premises Portion #2 for the partial month commencing on October 6, 1999, shall
be due and payable on or before October 6, 1999).
<PAGE>
Section 4.4. Annual Rent Increase.
For each Lease Year during the Term after the first Lease Year, the annual
Base Rent shall be that amount which is the sum equaling the product obtained by
multiplying the Base Rent for the immediately preceding Lease Year by 103%. A
schedule of the Base Rent increases is found at clause (g) of the Fundamental
Lease Provisions. With respect to the Premises Portion #3, the first annual Base
Rent increase shall be effective on October 6, 2000, i.e. the first anniversary
of the Commencement Date with respect to the Premises Portion #1 and the
Premises Portion #2; to the end that the Base Rent rate shall be the same with
respect to the entire Premises at all times during the Term of the Lease.
Section 4.5. Additional Rent.
In addition to Base Rent, Tenant shall pay all other sums of money or
charges of whatever nature required to be paid by Tenant to Landlord pursuant to
this Lease (collectively, "Additional Rent"), whether or not the same are
designated as Additional Rent. Any Additional Rent accruing under any provision
of this Lease shall, except as is otherwise set forth in this Lease, be due and
payable in the installment of the Base Rent the next falling due after such
Additional Rent accrues becomes due and payable, unless the Landlord makes
written demand upon the Tenant for payment thereof at any earlier time, in which
event such Additional Rent shall be due and payable at such time.
Section 4.6. Payment of Rent.
Except as otherwise provided herein, Tenant shall pay all Rent when due
and payable, without any set-off, deduction, notice or prior demand therefor
whatsoever. If Tenant shall fail to pay any Rent within ten (10) business days
after the same is due, Tenant shall be obligated to pay a late payment charge
equal to the greater of (a) One Hundred Dollars ($100.00) or (b) ten percent
(10%) of any Rent payment not paid when due, to reimburse Landlord for its
additional administrative costs. Rent and any reports and statements required of
Tenant shall be paid and delivered to Landlord at the designated management
office in the Project between the hours of 8:00 a.m. and 6:00 p.m., Monday
through Friday (except holidays), or at such other place as Landlord may, from
time to time, designate in a notice to Tenant. Any payment by Tenant or
acceptance by Landlord of a lesser amount than shall be due shall be treated as
a payment on account. The acceptance by Landlord of a check for a lesser amount
with an endorsement thereon, or upon any letter accompanying such check, that
such lesser amount is payment in full shall be given no effect, and Landlord may
accept such check without prejudice to any other rights or remedies which
Landlord may have against Tenant.
Section 4.7. Interest Charge.
In addition to any late payment charge which might otherwise be due, any
Rent payable by Tenant under this Lease that is not paid when due shall bear
interest at the Default Rate from the first day due until such Rent, plus all
interest accrued thereon, are paid in full.
<PAGE>
Section 4.8. Security Deposit.
As a security deposit ("Security Deposit"), Tenant, at Tenant's expense,
and on or before the Commencement Date with respect to the Premises Portion #3,
shall deliver to and deposit with Landlord an irrevocable unconditional letter
of credit (the "Letter of Credit") drawn on NationsBank and redeemable upon
presentation at a location in New York City, naming Landlord as the beneficiary
thereof and otherwise in form and substance reasonably acceptable to Landlord,
to be held as security for the payment of any Rent (including Additional Rent)
payable by Tenant and for the faithful performance of all covenants of Tenant
hereunder. The original principal amount of the Letter of Credit shall be One
Hundred Seventy-Eight Thousand Dollars ($178,000.00), and the Letter of Credit
shall remain issued and outstanding throughout the Term; provided, however,
that, absent an Event of Default by Tenant which remains outstanding after any
applicable notice, grace or cure period, the principal amount of the Letter of
Credit may be reduced at the beginning of each of the second, third and fourth
Lease Years with respect to Premises Portion #3 by an amount equal to twenty
percent (20%) of the initial principal amount (i.e., $35,600.00). The Letter of
Credit shall provide Landlord with not less than thirty (30) days' notice of
expiration, cancellation, renewal or non-renewal thereof. Tenant shall deliver
to Landlord evidence of any renewal thereof within ten (10) business days prior
to the expiration thereof; a failure of Tenant to obtain a renewal of the Letter
of Credit or post satisfactory substitute collateral hereunder shall constitute
an Event of Default hereunder. Upon the occurrence of an Event of Default, the
Security Deposit may, at Landlord's option, be applied on account of the default
up to the amount reasonably needed to cure such an Event of Default. Landlord
shall deliver the Letter of Credit to any purchaser of Landlord's interest in
the Premises, in the event that such interest be sold; and, thereafter, Landlord
shall be discharged from any further liability with respect thereto, and Tenant
agrees to look solely to such purchaser for the return of the Security Deposit.
ARTICLE 5
USE
Section 5.1. Prompt Occupancy and Use.
Tenant shall occupy the Premises upon commencement of the Main Term and
thereafter shall continuously occupy and use the Premises for the permitted use
as set forth in clause (i) of the Fundamental Lease Provisions ("Permitted Use")
and for no other purpose whatsoever without the prior written consent of
Landlord. If Tenant abandons any portion of the Premises at any time during the
Term, then Landlord shall be entitled (but not obligated) to terminate this
Lease; provided, that if Tenant is not otherwise in default hereunder, then
Landlord shall not be entitled to accelerate Rent or collect any damages beyond
the date of termination.
Section 5.2. Operating Hours.
The operating hours for office tenants at the Building are 8:00 a.m.
until 6:00 p.m. Mondays through Fridays and 8:00 a.m. until 1:00 p.m.
Saturdays, legal holidays excepted.
<PAGE>
Section 5.3. Operational Requirements.
(a) A schedule of standard building services to be performed or provided
by Landlord at, to or within the Building is attached hereto as Schedule B. The
cost of providing or performing the services are included within the Base Rent
to be paid by Tenant pursuant to the terms of this Lease.
(b) In regard to the use and occupancy of the Premises, Tenant shall, at
Tenant's expense: (i) keep the inside and outside of all glass doors of the
Premises clean; (ii) replace promptly any cracked or broken glass with glass of
like kind and quality; (iii) maintain the Premises in a clean, orderly and
sanitary condition; (iv) keep all mechanical apparatus free of vibration and
noise which may be transmitted beyond the interior of the Premises; (v) comply
with all federal, state, county and city laws, ordinances, codes, rules,
regulations and reasonable recommendations of Landlord's insurer or applicable
fire insurance rating organizations now or hereafter in effect; (vi) comply with
and observe all rules and regulations established by Landlord from time to time
for the Building, a copy of which current rules and regulations are attached
hereto as Schedule F; and (vii) conduct its business in all respects in a
dignified manner in accordance with the highest standards of a first-class
office project in the Tysons Corner, Virginia area. Notwithstanding the
foregoing, Tenant shall have no obligation to make any alterations to the
Premises, whether structural or otherwise, unless such obligation hereunder
arises as a result of the use or occupancy thereof by Tenant for any purpose not
authorized as a Permitted Use herein or the conduct by Tenant of its business in
the Premises in a manner different from the ordinary and proper conduct of such
business.
(c) In regard to the use and occupancy of the Premises and the Common
Areas, Tenant shall not; (i) place or maintain any trash, refuse or other
articles in any vestibule, service corridor or entry way of the Premises, on the
footwalks or any corridors adjacent thereto or elsewhere on the exterior of the
Premises so as to obstruct any driveway, corridor or any other Common Areas;
(ii) permit the parking of vehicles so as to unreasonably interfere with the use
of any Common Area or other area within the Project; (iii) receive or ship
articles of any kind outside the designated loading area for the Project; (iv)
obstruct the Common Areas adjacent to the Premises; (v) use or permit the use of
any portion of the Premises in a manner likely to injure the reputation of the
Project or which will be in violation of law, nor permit any part of the
Premises to be used for any unlawful, disreputable or immoral purpose whatsoever
or for any other activity of a type which is not generally considered
appropriate for urban office centers conducted in accordance with the highest
standards of operation; (vi) use or permit the use of any portion of the
Premises for any activity which constitutes a nuisance or is hazardous; (vii)
place a load upon any floor which exceeds the floor load which the floor was
designed to carry; or (viii) operate its heating or air-conditioning in such a
manner as to drain heat or air-conditioning from the Common Areas or from the
premises of any other tenant or other occupant of the Project.
Section 5.4. Signs; Painting; Displays.
(a) Tenant shall not place or suffer to be placed or maintained on the
exterior of the Premises any signs, advertising matter or any other thing of any
kind, and Tenant will not place or maintain any matter on any window, door or
<PAGE>
other portions of the Premises in such a manner as to be visible from the
exterior of the Premises, unless otherwise approved in writing by Landlord.
Tenant shall, at its expense, maintain any such sign or other thing as may be
permitted hereunder in good condition and repair at all times.
(b) Tenant shall not paint or decorate any part of the exterior of the
Premises, or any part of the interior visible from the exterior thereof, without
first obtaining Landlord's approval.
(c) Landlord maintains a Building directory in the lobby of the Building,
and Landlord shall maintain Tenant's pro rata share of the directory strips
(being two [2] strips) identifying Tenant and such of Tenant's employees as
Tenant may designate from time to time. The cost of initial installation and
maintenance of the directory listings allocated to Tenant at initial occupancy
shall be borne by Landlord; any costs of changing the listings at Tenant's
request from time to time shall be borne by Tenant. Landlord shall provide
Tenant with building standard suite entry signage and partial floor directional
signs with respect to the Premises Portion #1, the Premises Portion #2 and the
Premises Portion #3; the cost thereof shall be paid for out of the Allowance.
ARTICLE 6
TAXES
Section 6.1. Real Estate Taxes.
(a) Beginning January 1, 2000, and continuing thereafter, Tenant shall
pay, as Additional Rent, Tenant's proportionate share of the increases for the
remainder of the Term in all Taxes over those Taxes paid by Landlord for the
Project with respect to calendar year 1999 (the "Base Year"). As used herein,
"Taxes" shall mean amounts payable by Landlord with respect to personal property
taxes (excluding any personal property taxes of the Landlord for equipment or
items not used directly in the operation or maintenance of the Building),
intangible taxes, real estate taxes, ad valorem taxes, general and special
assessments, taxes on real estate rental receipts, taxes on Landlord's gross
receipts, or any other Tax imposed upon or levied against real estate or upon
owners of real estate rather than persons generally, payable with respect to or
allocable to the Project (including, but not limited to, any payments in lieu of
any Taxes, and fees of attorneys, consultants and appraisers in contesting any
Taxes).
(b) The amount of Tenant's proportionate share of the increase in Taxes
over the Base Year (which proportionate share of the increase is called
"Tenant's Taxes") shall be computed by multiplying the amount of the increase in
such Taxes over those Taxes paid or incurred for the Base Year by the GRA Tax
Fraction. In the last Lease Year of the Term, the provisions of this Section 6.1
shall apply, but Tenant's liability for its proportionate share of the increase
in Taxes for such year shall be subject to a pro rata adjustment based upon the
number of days of such Lease Year falling within the calendar year in question.
Tenant expressly agrees that Tenant shall have no right to appear or contest any
Taxes assessed, allocated or imposed with respect to the Project and Tenant
hereby expressly waives any and all rights now or hereafter conferred upon it by
law to independently contest any Taxes.
(c) Taxes shall not include: (i) federal, state or local income taxes;
(ii) franchise, gift, transfer, capital stock, estate, succession, or
<PAGE>
inheritance taxes; (iii) penalties or interest for late payment of Taxes; or
(iv) any increases in Taxes which result solely from the creation of additional
rentable area in the Project or in the Building or from improvements or
alterations made by Landlord or other tenants. Any increase in Taxes for the
Building, land or Project resulting from a refinancing or sale shall be added to
the Base Year.
(d) If the Taxes are phased in during the Lease Term for any reason, or
should the Taxes be abated or reduced, for any reason, for the Base Year, then
the Taxes for the Base Year shall be adjusted so that they are computed on the
same tax basis as those Taxes for Lease Years in which the phase-in, abatement
or reduction did not occur. In addition, if Landlord receives a tax refund for
any Lease Year or partial Lease Year during the Term, Landlord shall deliver to
Tenant its pro rata share of any such refund.
Section 6.2. Payment of Tenant's Taxes.
(a) Tenant's Taxes shall be paid by Tenant in twelve (12) equal monthly
installments in advance in such amounts as are estimated and billed for each
applicable Lease Year by Landlord, each such installment being due with the
monthly installment of Base Rent.
(b) Within sixty (60) days after the date upon which Landlord shall be
obligated to pay any Tax or Taxes, or such reasonable (in Landlord's
determination) time thereafter, Landlord shall certify to Tenant the amount of
Taxes allocated and assessed for the period in question and the amount of
Tenant's proportionate share thereof. The proportionate share paid or payable
for each such period shall be adjusted between Landlord and Tenant, the parties
hereby agreeing that Tenant shall pay Landlord or Landlord shall credit to
Tenant's account, or (if such adjustment is at the end of the Term) pay Tenant,
as the case may be, within thirty (30) days of Tenant's receipt of such
certification, such amounts as may be necessary to effect such adjustment to the
agreed upon proportionate share. The failure of Landlord to provide such
certification within the time prescribed above shall not relieve Tenant of its
obligations generally or for the specific Lease Year in which any such failure
occurs.
Section 6.3. Taxes on Rent and Other Taxes.
In addition to Tenant's Taxes, Tenant shall pay to Landlord (if Landlord
is required by law to collect, or has any liability for the payment of, such
taxes) any excise or other tax which may in the future be levied, imposed or
assessed by any governmental authority or other taxing authority upon any Rent
payable hereunder (collectively, "Rental Tax"); provided, that if such Rental
Tax is assessed in lieu of the Taxes, than the amount of Taxes paid for the Base
Year shall be deducted from the total Rental Tax prior to the calculation of
Tenant's proportionate share thereof. Tenant shall pay such Rental Tax to
Landlord with each payment of Rent (including payments of Base Rent and
Additional Rent). Tenant shall also pay, prior to the time the same shall become
delinquent or payable with penalty, all personal property taxes imposed on
Tenant's furniture, trade fixtures, apparatus, equipment and leasehold
improvements installed by Tenant or by Landlord on behalf of Tenant (except to
the extent such leasehold improvements shall be covered by Taxes referred to in
Section 6.1 hereof), and except as otherwise specifically provided for herein,
and any other property of Tenant. Landlord may require that Tenant's leasehold
improvements be separately assessed by the taxing authority.
<PAGE>
ARTICLE 7
COMMON AREAS
Section 7.1. Use and Management.
(a) Upon the express agreement of Tenant that it will use the Common Areas
in harmony with Landlord, other tenants and licensees of other portions of the
Project, Landlord grants to Tenant and its agents, employees and customers, a
non-exclusive license to use the Common Areas, subject to the exclusive control
and management thereof at all times by Landlord, and subject further to the
rights of Landlord set forth in the next paragraph.
(b) Landlord shall operate and maintain, or cause to be operated and
maintained, any areas designated by Landlord as Common Areas in a manner deemed
by Landlord to be consistent with first-class office projects in the Tysons
Corner, Virginia, area. Landlord shall have the right from time to time to take
the following actions: (i) to establish, modify and enforce rules and
regulations governing the use and operation by all tenants, including but not
limited to Tenant, in, on, about, or with respect to the Common Areas which
Landlord shall deem necessary or desirable in order to assure the highest level
of quality and character of operation of the Common Areas; (ii) to add to or
subtract from the Common Areas, provided that the ingress to and egress from the
Premises shall not be materially and adversely affected; (iii) to enter into,
modify or terminate easements and other agreements pertaining to the use and
maintenance of the Common Areas, and any portions thereof; (iv) to close any or
all portions of the Common Areas to such extent as may, in the opinion of
Landlord, be necessary to prevent a dedication thereof or the accrual of any
rights by any person or by the public therein; (v) to close temporarily any or
all portions of the Common Areas; and (vi) to do and perform such other acts in,
on, to and with respect to the Common Areas and improvements therein as, in the
exercise of good business judgment, Landlord shall reasonably determine to be
advisable or necessary.
Section 7.2. Operating Costs Defined.
(a) "Operating Costs" means any and all costs and expenses incurred by
Landlord for services performed by Landlord or by others on behalf of Landlord
with respect to the operation and maintenance of the Project, the Building
(including the Premises) and the Common Areas located therein and serving or
allocable to the Project or the Building, including, without limitation, except
as specifically set forth herein, all costs and expenses of:
(i) operating, maintaining, repairing, lighting, signing, cleaning,
removing trash, painting, striping, controlling of traffic, controlling of
rodents, and policing and securing the Common Areas (including, without
limitation, the costs of uniforms, equipment, assembly permits, supplies and
alarm systems);
(ii) purchasing and maintaining in full force insurance for the
Project (including, without limitation, liability insurance for personal injury,
death and property damage, rent insurance, insurance against fire, extended
coverage, theft or other casualties, worker's compensation insurance covering
personnel, fidelity bonds for personnel, insurance against liability for
defamation and claims of false arrest occurring on or about the Project, and
plate glass insurance);
<PAGE>
(iii) removing snow, ice, water and debris;
(iv) operating, maintaining and repairing machinery, furniture,
accessories and equipment used in the operation and maintenance of the Project,
and the personal property taxes and other charges incurred in connection with
such machinery, furniture, accessories and equipment except as otherwise
specifically excluded herein;
(v) maintaining and repairing paving, curbs, walkways, drainage,
pipes, ducts, conduits, grease traps, and lighting fixtures throughout the
Project;
(vi) planting and replanting flowers, shrubbery, trees, grass and
planters;
(vii) providing, electricity and heating, ventilation and air
conditioning to the Project and operating, maintaining and repairing any
equipment used in connection therewith (to the extent not specifically excluded
from Operating Costs);
(viii) water and sanitary sewer services and other services, if any,
furnished to the Project for the non-exclusive use of tenants;
(ix) enforcing any operating agreements pertaining to the Project or
any portions thereof, and any easement and/or rights agreements entered into by
Landlord for the benefit and use of all tenants of the Project, or any
arbitration or judicial actions undertaken with respect to the same;
(x) maintaining and repairing the Project, including, without
limitation, exhaust systems, sprinkler systems, pumps, fans, switchgear, loading
docks and ramps, freight elevators, passenger elevators, stairways, services
corridors, delivery passage, utility plants, transformers, doors, walls, floors,
skylights, ceiling and windows; and
(xi) audits, management fees and expenses, payroll, payroll taxes
and employee benefits of all on-site personnel including, without limitation,
security and maintenance personnel, secretaries and bookkeepers (including,
specifically, uniforms and working clothes and the cleaning thereof, tools,
equipment and supplies used by such personnel, and the expenses imposed on or
allocated to Landlord or its agents pursuant to any collective bargaining or
other agreement) and management office rent.
(b) By way of illustration and not limitation, Operating Costs (for the
Building, Common Areas or the Project, whether or not specifically set forth)
shall not include, among other expenses or costs, any expenses or costs incurred
or paid by Landlord for the following items:
(i) "Capital Expenditures", which include any capital replacement,
capital repair, capital improvement or major structural restoration or
correction made to the Building, the Common Areas, the land or the Project and
any other expense which would be deemed to be a capital expenditure under
generally accepted accounting principles, consistently applied but excluding
those capital expenditures intended and reasonably expected to reduce the cost
of operating the building, which may be included in Operating Costs. Capital
Expenditures of $1,000 or less may be included in Operating Costs;
<PAGE>
(ii) Depreciation or amortization of the Project, the Building or
their contents or components;
(iii) Expenses for the preparation of space or other work which
Landlord performs for any tenant or prospective tenant of the Building or the
Project;
(iv) Interest, amortization or other costs, including legal fees,
associated with any mortgage, loan or refinancing of the Project, the land, the
Building, or the Common Areas;
(v) The cost of any item or service which Tenant separately
reimburses Landlord or pays to third parties, or that Landlord provides
selectively to one or more tenants of the Building or the Project, other than
Tenant, whether or not Landlord is reimbursed by such other tenant(s). This
category shall include the actual cost of real estate taxes separately billed to
other tenants, or any special electrical, heating, ventilation or air
conditioning required by any tenant that exceeds normal building standards or
that is required during times other than the business hours;
(vi) Any amount paid to an entity or individual related to Landlord
which exceeds the amount which would be paid for similar goods or services on an
arms' length basis between unrelated parties;
(vii) Leasing commissions paid to lease space in the Project;
(viii) Advertising and marketing costs to attract potential tenants
for leasing of the Project;
(ix) Wages, salaries and other compensation to employees or
officers, directly or indirectly, who are not actively involved in the
management of the Project, except where payment is made for specific work
performed in the Project;
(x) The cost of any item or expenditure for which Landlord is
reimbursed or compensated by insurance or warranties;
(xi) Landlord's income taxes;
(xii) Legal fees and expenses of Landlord for collection of rent and
other amounts due Landlord from other tenants;
(xiii) Expenses resulting from the negligent or tortious acts of
Landlord or its agents or employees; or
(xiv) Any other cost or expense which, under generally accepted
accounting principles consistently applied, would not be considered to be an
Operating Cost of the Project.
Section 7.3. Tenant's Operating Costs Charge.
(a) (i) Beginning January 1, 2000, and continuing thereafter for the
remainder of the Term, Tenant shall pay to Landlord, as Additional Rent, a
proportionate share of the increases to Operating Costs over those Operating
Costs incurred by Landlord for the Project during the Base Year, which share of
such increases ("Tenant's Operating Costs Charge") shall be computed by
multiplying the increases in Operating Costs for the period in question over
those Operating Costs incurred for the Base Year by the GRA Fraction.
<PAGE>
(ii) Tenant's Operating Costs Charge shall be paid by Tenant in
monthly installments in such amounts as are estimated and billed by Landlord,
each installment being due with the monthly Base Rent installment.
(b) If at any time during the Lease Term, less than 95% of the total
rentable area of the Project is leased by tenants, or Landlord is not supplying
services to 95% of the total rentable area of the Project at any time during any
calendar year, the Operating Costs for such calendar year shall be reasonably
determined to be an amount equal to the expenses that would normally be expected
to be incurred had such occupancy been 95% of the total rentable area of the
Project and had Landlord been supplying services to 95% of the total rentable
area of the Project throughout the calendar year. The only costs which shall be
adjusted in this manner shall be variable expenses where the amount is directly
related to the level of occupancy or square foot area receiving a particular
service. Landlord will indicate which expenses were adjusted in this manner in
the Operating Costs statement.
(c) If a new category of expense is incurred after the Base Year, the
first full year's expense for such item shall be added to the Operating Costs
for the Base Year, commencing with the first full calendar year that such
expense is incurred, so that Tenant shall only be required to pay subsequent
increases in such expense.
(d) Within one hundred twenty (120) days (or such additional time as is
reasonable under the circumstances) after the end of each such Lease Year,
Landlord shall deliver to Tenant an itemized statement broken down in categories
with reasonable detail of the Operating Costs for such period, and the monthly
installments paid or payable shall be adjusted between Landlord and Tenant, the
parties hereby agreeing that Tenant shall pay Landlord or Landlord shall credit
Tenant's account (or if such adjustment is at the end of the Term, pay Tenant,
as the case may be), within thirty (30) days of receipt of such statement, such
amounts as may be necessary to effect adjustment to the agreed proportionate
share for such Lease Year. The failure of Landlord to provide such statement
within the time prescribed above shall not relieve Tenant of its obligations
generally or for such period in which any such failure occurs.
(e) The Operating Costs and the books and records of Landlord for a Lease
Year, including those for the Base Year, may be audited by Tenant's certified
public accountant or other authorized representative, at Landlord's designated
management office during normal business hours, upon at least ten (10) days'
prior notice to Landlord, at any time during the Lease Year following the Lease
Year that is the subject of such audit.
(f) If Tenant challenges Landlord's computations of the Base Year
Operating Costs, the amount of Operating Costs or Taxes, Tenant shall give
Landlord notice stating Tenant's objections. If Tenant's audit of Operating
Costs or Taxes for the Base Year or any subsequent year indicates that Tenant
was overcharged for the same and Landlord is in agreement, Landlord shall
promptly, but within thirty (30) days, repay all such overpayments to Tenant and
adjust Tenant's Base Year, if necessary. If Tenant's audit of the Operating
Costs for the Base Year or any subsequent year indicates that Tenant was
overcharged for the Operating Costs or Taxes, by an amount which is greater than
or equal to five percent (5%) of the amount which should have been paid by
Tenant, Landlord shall promptly reimburse Tenant for all of Tenant's actual and
reasonable costs associated with the audit.
<PAGE>
Section 7.4. Parking.
(a) Tenant acknowledges that it has been advised by Landlord that the
Building includes a multi-level parking garage operated by a third party other
than Landlord (the "Parking Garage").
(b) During the Main Term, Landlord shall cause the Parking Garage operator
to provide to Tenant, at the then-prevailing market rate specified from time to
time by the Parking Garage operator (and verified in writing, at Tenant's
expense, by an independent third-party mutually acceptable to Landlord and
Tenant), parking spaces based on the parking ratio of 3.5 spaces per 1,000
rentable square feet of the Premises (i.e., sixty-five (65) spaces). The current
market rate charged by the parking garage operator is Fifty Dollars ($50.00) per
space per month. The parking spaces shall be located within the Parking Garage
for Tenant's non-exclusive use. Parking spaces shall be available and accessible
to Tenant for Tenant's use twenty-four (24) hours per day, seven (7) days per
week.
(c) Landlord hereby reserves the right, but shall have no obligation, to
establish a parking validation system for the Project pursuant to which
customers and patrons of all tenants in the Project shall be entitled to park
within the Parking Garage at reduced rates, provided that they obtain a
validation stamp from one or more of the tenants within the Project. In the
event that Landlord shall establish such a parking validation system, Tenant
hereby agrees to participate in such Parking Validation System in accordance
with the rules and regulations established by Landlord, and to pay to Landlord
its proportionate share of the costs and expenses thereof, which costs and
expenses shall be included in Operating Costs.
Section 7.5. Overtime HVAC.
Landlord shall provide HVAC services to the Premises during the hours of
8:00 a.m. through 6:00 p.m., Monday through Friday, and 8:00 a.m. through 1:00
p.m. on Saturdays, legal holidays excepted. Landlord will use its commercially
reasonable efforts to provide such services within the reasonable maximum
allowable temperatures commensurate with first class office space in the Tysons
Corner, Virginia area. Landlord shall, at Tenant's request and expense, upon 24
hours' notice, furnish HVAC services to the Premises during hours other than
those stated above.
ARTICLE 8
ENVIRONMENTAL MATTERS
Section 8.1. Environmental Covenants.
In its use of the Premises and the remainder of the Building, the Project
and the land, Tenant shall not (either with or without negligence) cause or
permit the escape, disposal or release of any biologically or chemically active
or other hazardous substances or materials, or allow the storage or use of such
substances or materials in any manner, or allow any such materials or substances
to be brought onto the Project or the land.
Section 8.2. Environmental Laws.
For the purposes of this Lease, "hazardous substances and materials" shall
include, without limitation those described in the Comprehensive Environmental
<PAGE>
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. sections
9601 et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C.
sections 6901 et seq.), any applicable state or local laws, and the regulations
adopted under these acts.
Section 8.3. Indemnity.
If any lender or governmental agency ever requires testing to ascertain
whether or not there has been any release of hazardous materials on the Premises
while this Lease is in effect, then Tenant's proportional share of the
reasonable costs thereof shall be reimbursed by the Tenant to Landlord upon
demand as additional charges if such requirement applies to the Premises. Tenant
shall execute affidavits, representations and the like from time to time at
Landlord's request concerning Tenant's best knowledge and belief regarding the
presence of hazardous substances or materials on the Premises. Tenant shall
defend, indemnify and hold harmless Landlord against and from any liability,
claim of liability or expense arising out of any release of hazardous substances
or materials on the Premises occurring while Tenant is in possession thereof, or
elsewhere if caused by Tenant or any person acting under Tenant.
Section 8.4. Pre-existing Conditions.
Notwithstanding anything contained herein to the contrary, Tenant shall
not be liable, and shall have no obligation to indemnify Landlord, with respect
to the environmental conditions of the Premises existing at the Commencement
Date, and Tenant shall not be liable or responsible for escalation or Operating
Costs or direct reimbursement obligations for remediation of any such
pre-existing conditions.
Section 8.5. Survival.
The foregoing covenants shall survive the expiration or earlier
termination of this Lease.
ARTICLE 9
MAINTENANCE, REPAIRS AND ALTERATIONS
Section 9.1. Landlord's Duty to Maintain Structure.
Landlord shall use its best efforts to maintain or cause to be maintained
the structure of the Building and shall be responsible for: (a) repairs to any
sprinkler system or HVAC system installed by or on behalf of Landlord and
serving the Premises, and (b) structural repairs to the exterior walls,
structural columns and structural floors which collectively enclose the Premises
(excluding, however, all doors, door frames, sliding doors, windows and any
glass therein); provided (i) Tenant shall give Landlord notice of the necessity
for such repairs, and (ii) the necessity for such repairs shall not have arisen,
in whole or in part, from the negligence or willful acts or omissions of Tenant,
its agents, concessionaires, officers, employees, licensees, invitees or
contractors.
Section 9.2. Tenant's Duty to Maintain Premises.
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(a) Tenant shall, at all times from and after delivery of possession of
the Premises to Tenant, at its own cost and expense, maintain the Premises in
good and tenantable condition, and Tenant shall make all repairs to the Premises
or any installations, equipment or facilities therein (except for any
maintenance and repairs required to be made by Landlord pursuant to Section 9.1
or reconstruction required to be made by Landlord pursuant to Section 11.1).
Without limiting the generality of the foregoing, Tenant shall: (i) keep the
interior of the Premises, together with all electrical, plumbing and other
mechanical installations therein, in good order and repair and shall make all
replacements thereof from time to time required by any governmental agency
having jurisdiction thereover; (ii) surrender the Premises at the expiration of
the Term or at such other time as Tenant may vacate the Premises in as good
condition as when received, except for (A) ordinary wear and tear, (B) damage by
Casualty (other than such damage by Casualty which is caused, in whole or in
part, by the negligence or willful acts or omissions of Tenant, its agents,
concessionaires, officers, employees, licensees, invitees or contractors and
which is not wholly covered by Landlord's hazard insurance policy), or (C) acts
of God; and (iii) take care not to overload the electrical wiring serving the
Premises or within the Premises, and install at its expense, subject to the
provision of Section 9.4, any additional electrical, mechanical, plumbing or any
other equipment which may be required in connection with the Permitted Use.
Except for the provisions of Section 9.3 hereof, nothing herein shall be
construed to require Tenant to maintain or make any repairs outside of the
Premises or to the structural components of the Building passing through the
Premises or any building systems found therein.
(b) Any damage or injury sustained by any person because of mechanical,
electrical, plumbing or any other equipment or installation, the maintenance and
repair of which is the responsibility of Tenant pursuant to this Section 9.2,
shall be paid for by Tenant, and Tenant shall indemnify and hold Landlord and
any Mortgagee harmless from and against all claims, actions, damages and
liabilities in connection therewith, including, but not limited to, attorneys'
and other professional fees and any other costs which Landlord or any Mortgagee
incurs by reason thereof, regardless of whether formal legal proceedings are
instituted.
Section 9.3. Tenant's Duty to Repair Damage.
Tenant shall repair promptly, at its expense, any damage to the Premises
(and upon demand, shall reimburse Landlord for the cost of the repair of any
damage occurring elsewhere in the Project), caused by Tenant, Tenant's
contractors, Tenant's suppliers, independent contractors, agents, employees,
concessionaires or licensees or any other persons in bringing into the Premises
any property for Tenant's use, or by the installation or removal of such
property, regardless of fault or by whom such damage shall be caused (unless
caused solely by Landlord, its agents, employees or contractors). Any repairs or
alterations to the Premises which may affect the structure or appearance of the
Premises, any Common Areas or any portion of the Building or the Project, shall
require the prior written consent thereto by Landlord and Landlord shall have
the absolute right to withhold its consent and require alternative methods of
repair and alteration if the making thereof will, in Landlord's reasonable
opinion, adversely affect the Premises, the Common Areas, the Building or the
Project. In default of the making of such repairs by Tenant, at the expiration
of ten (10) calendar days after notice to Tenant, Landlord may make such repairs
or cause the same to be made, and Tenant agrees to pay to Landlord the cost
thereof promptly upon Landlord's demand, as Additional Rent, with interest at
the Default Rate until paid.
<PAGE>
Section 9.4. Alterations by Tenant.
Tenant shall not make any alterations, renovations, improvements or other
installations to the Premises (including, without limitation, any alterations of
the signs, structural alterations or any cutting or drilling into any part of
the Premises) unless and until: (i) Tenant shall have caused detailed plans and
specifications therefor to have been prepared and delivered, at Tenant's
expense, by a licensed architect or other duly qualified person, and (ii) Tenant
shall have obtained Landlord's prior written approval thereof, which approval
shall not be unreasonably withheld, conditioned or delayed. If approval is
granted, Tenant shall cause the work described in such plans and specifications
to be performed, at its expense, promptly, efficiently and competently by duly
qualified or licensed persons or entities without interference with or
disruption of the operations of tenants or other users and occupants of the
Building or the Project. All such work shall comply with all applicable
governmental codes, rules, regulations and ordinances.
Section 9.5. Landlord's Right of Access.
Landlord and its authorized representatives may: (a) enter the Premises
(i) during normal business hours for the purpose of inspecting any repairs and
alterations being made or required to be made by Tenant hereunder, or (ii) at
any other time Landlord deems reasonably necessary to prevent waste and
deterioration of the Premises, the Building or the Project; (b) use exclusively
all or any part of the roof, if any, of the Premises, the Building or the
Project for any purpose, including, without limitation, the erecting of
temporary scaffolds and other aids to construction on the exterior of the
Premises, the Building or the Project, provided access to the Premises shall not
be denied; (c) install, maintain, use, repair and replace within the Premises
pipes, ducts, conduits, wires, access doors and all other mechanical equipment
serving other parts of the Building or the Project, the same to be at such
locations within the Premises as will not unreasonably deny Tenant's use
thereof; and (d) make any use it desires of the side or rear walls of the
Premises, provided that such use shall not encroach on the interior of the
Premises.
Section 9.6. Disruption in Business Operations.
Landlord shall take all reasonable measures to minimize disruption to and
impact on the business operations of Tenant with respect to any actions taken
herein. If, however, Tenant's business operations within the Premises are
materially disrupted due to any act of Landlord or any of its employees, agents,
representatives, successors or assigns, and such material disruption continues
for more than three (3) consecutive business days, Tenant's obligation to pay
Rent (other than any Additional Rent due by reason of Tenant's failure to
perform any of its other obligations hereunder) shall be abated during any such
time.
ARTICLE 10
INDEMNITY AND INSURANCE
Section 10.1. Tenant's Insurance.
At all times from and after entry by Tenant into the Premises (including
for the purpose of completing the equipping or furnishing of the Premises prior
to the commencement of occupancy), Tenant shall take out and keep in full force
and effect, at its expense:
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(a) Commercial general liability insurance (1986 ISO Form or the
equivalent) with a combined single limit of not less than Three Million Dollars
($3,000,000.00) per occurrence and Four Million Dollars ($4,000,000.00) in the
General Aggregate - each location;
(b) All-risk property insurance (including the perils of theft and glass
breakage) written at full replacement cost value and with an agreed amount
clause endorsement covering (i) all of Tenant's Property, including, without
limitation, inventory, trade fixtures, floor coverings, furniture, electronic
data processing equipment and any other property removable by Tenant under the
provisions of this Lease, and (ii) all leasehold improvements installed in the
Premises by or on behalf of Tenant, regardless of the source of funding thereof;
(c) Worker's compensation to the extent and in the amounts required by law
and including the All Other States Endorsement;
(d) Employer's liability insurance, in an amount not less than Five
Hundred Thousand Dollars ($500,000.00); and
(e) Business automobile liability insurance on all owned, non-owned or
hired automobiles to be used by Tenant, with a combined single limit of not less
than One Million Dollars ($1,000,000.00).
Section 10.2. Tenant's Contractor's Insurance. Tenant shall
require any contractor of Tenant performing work in, on or about the
Premises to take out and keep in full force and effect, at no expense to
Landlord:
(a) Commercial general liability insurance, in an amount not less than One
Million Dollars ($1,000,000.00) Endorsement, in an amount not less than One
Million Dollars ($1,000,000.00) combined single limit per occurrence and Two
Million Dollars ($2,000,000.00) General Aggregate each project;
(b) Business automobile liability insurance, with a combined single limit
of not less than One Million Dollars ($1,000,000.00) covering all owned,
non-owned or hired automobiles;
(c) Worker's compensation in form and amounts required by law and
including All Other States Endorsement; and
(d) Employers liability coverage, including All States Endorsement in an
amount not less than Five Hundred Thousand Dollars ($500,000.00).
Section 10.3. Policy Requirements.
(a) The company or companies writing any insurance which Tenant is
required to take out and maintain or cause to be taken out or maintained
pursuant to Sections 10.1 and 10.2, as well as the form of such insurance, shall
at all times be subject to Landlord's approval, and any such company or
companies shall be admitted to do business in the Commonwealth of Virginia and
have a current Best rating of at least A-VII. Commercial liability and all-risk
property insurance policies evidencing such insurance shall name Landlord and/or
its designees (including, without limitation, any Mortgagee) as additional
insureds, shall be primary and noncontributory, and shall also contain a
provision by which the insurer agrees that such coverage shall not be canceled,
materially reduced, terminated or non-renewed except after thirty (30) days'
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advance written notice to Landlord and/or such designees. Certificates
evidencing coverage shall be deposited with Landlord promptly upon commencement
of Tenant's obligation to procure the same. None of the insurance which Tenant
is required to carry shall contain deductible provisions in excess of $2,500.00,
unless approved in writing in advance by Landlord. If Tenant shall fail to
perform any of its obligations pursuant to this Article 10, Landlord may perform
the same and the cost thereof shall be payable upon Landlord's demand therefor
as Additional Rent, with interest thereon at the Default Rate until paid in
full.
(b) Landlord and Tenant agree that on January 1, 2001, and on January 1 of
every second (2nd) year thereafter, Landlord will have the right to request a
change in the character and/or amounts of insurance required to be carried by
Tenant pursuant to the provisions of this Article 10. Provided that such changes
are consistent with insurance required to be carried by tenants in first-class
office projects in the Washington, D.C. - Northern Virginia area, Tenant shall
comply with the requested change in character and/or amount within thirty (30)
days of Landlord's request therefor.
Section 10.4. Indemnities by Tenant and Landlord.
(a) Notwithstanding any policies of insurance required of Tenant, Tenant,
for itself and its successors and assigns, to the extent permitted by law, shall
defend, indemnify and hold harmless Landlord and any Mortgagee against and from
all liability or claims asserted by any person against, or incurred by Landlord
in connection with: (i) the use, occupancy or management of the Premises by
Tenant or any of its agents, contractors, servants, employees, licensees,
concessionaires, suppliers or materialmen during the Term; or (ii) any breach or
default in performing any of the obligations under the provisions of this Lease
and/or applicable law by Tenant or any of its agents, contractors, servants,
employees, licensees, suppliers or materialmen during the Term; or (iii) any
negligent, intentionally tortious or other act or omission by Tenant or any of
its agents, contractors, servants, employees, licensees, concessionaires,
suppliers, materialmen or invitees during the Term; or (iv) any injury to or
death of any person or any damage to any property occurring upon the Premises,
and from and against all costs, expenses and liabilities incurred in connection
with any claim, action, demand, suit at law, in equity or before any
administrative tribunal, arising in whole or in part by reason of any of the
foregoing (including, by way of example rather than of limitation, the fees of
attorneys, investigators and experts), all regardless of whether such claim,
action or proceeding is asserted before or after the expiration of the Term or
any earlier termination of this Lease.
(b) If any such claim, action or proceeding is brought against Landlord
and/or any Mortgagee, Tenant shall promptly, if requested by Landlord or such
Mortgagee, and at Tenant's expense, resist or defend such claim, action or
proceeding or cause it to be resisted or defended by an insurer. Landlord shall,
at its option, be entitled to participate in the selection of counsel,
settlement and all other matters pertaining to such claim, action or proceeding,
all of which shall be subject, in any case, to the prior written approval of
Landlord.
(c) Subject to the provisions of Section 10.5, Landlord hereby agrees for
itself and its successors and assigns to indemnify and save Tenant harmless from
and against any liability or claims of liability arising solely out of the gross
negligence or intentional acts and omissions of Landlord, its agents or
employees.
<PAGE>
Section 10.5. Landlord Not Responsible for Acts of Others.
Landlord shall not be responsible or liable to Tenant, or to those
claiming by, through or under Tenant, for any loss or damage which may be
occasioned by or through the acts or omissions of persons occupying or using
space adjoining the Premises or any part of the premises adjacent to or
connecting with the Premises or any other part of the Building or the Project,
or for any loss or damage resulting to Tenant (or those claiming by, through or
under Tenant) its or their property, from the breaking, bursting, stoppage or
leaking of electrical cable and wires, and water, gas, sewer or steam pipes. To
the maximum extent permitted by law, Tenant agrees to use and occupy the
Premises, and to use such other portions of the Building and the Project, as
Tenant is herein given the right to use, at Tenant's own risk.
Section 10.6. Landlord's Insurance.
During the Term, to the extent deemed reasonable or necessary in
Landlord's sole discretion, Landlord shall maintain (a) insurance on the
Building and the Project against loss or damage by fire and all of the hazards
included in the extended coverage endorsement, in an amount deemed reasonable by
Landlord, (b) comprehensive liability and property damage insurance with respect
to the Common Areas, against claims for personal injury or death or property
damage suffered by others occurring in, on or about the Building and the
Project, such public liability insurance to afford protection in limits deemed
reasonable by Landlord, and (c) any other insurance, in such form and in such
amounts as are deemed reasonable by Landlord, including, without limitation,
rent continuation and business interruption insurance, theft insurance and
worker's compensation, flood and earthquake, and boiler and machinery insurance.
The costs and expenses of any and all insurance carried by Landlord pursuant to
the provisions of this Section 10.6 shall be deemed a part of Operating Costs.
Section 10.7. Increase in Insurance Premiums.
Tenant shall not do or suffer to be done, or keep or suffer to be kept,
anything in, upon or about the Premises which will contravene Landlord's
policies of hazard or liability insurance or which will prevent Landlord from
procuring such policies from companies acceptable to Landlord. If anything done,
omitted to be done or suffered by Tenant to be kept in, upon or about the
Premises shall cause the rate of fire or other insurance on the Premises or on
other property of Landlord or of others within the Building or the Project to be
increased beyond the minimum rate from time to time applicable to the Premises
or to any such other property for the use or uses made thereof, Tenant shall pay
to Landlord, as Additional Rent, the amount of any such increase upon Landlord's
demand therefor.
Section 10.8. Waiver of Right of Recovery.
All policies covering real or personal property which either party obtains
affecting the Premises, the Building or the Project shall include a clause or
endorsement denying the insurer any rights of subrogation against the other
party to the extent rights have been waived by the insured before the occurrence
of injury or loss. Notwithstanding anything herein contained to the contrary,
Landlord and Tenant waive any rights of subrogation or recovery against the
other for damage or loss to their respective property due to hazards covered or
which should be covered by policies of insurance obtained or which should be or
have been obtained pursuant to this Lease, to the extent of the injury or loss
covered or which should have been covered thereby, assuming that any deductible
shall be deemed to be insurance coverage.
<PAGE>
ARTICLE 11
CASUALTY
Section 11.1. Obligation to Repair and Reconstruct.
If the Building shall be damaged by fire, the elements, accident or other
casualty (collectively, "Casualty"), but the Premises shall not thereby be
rendered wholly or partially untenantable, then, subject to the provisions of
Section 11.2, Landlord shall promptly cause such damage to be repaired and there
shall be no abatement of Rent. If as the result of Casualty, the Premises shall
be rendered wholly or partially untenantable, then, subject to the provisions of
Section 11.2, Landlord shall cause such damage to be repaired and all Rent
(other than any Additional Rent due Landlord by reason of Tenant's prior failure
to perform any of its obligations hereunder) shall be abated proportionately as
to the portion of the Premises rendered untenantable during the period of such
untenantability. All such repairs shall be made at the expense of Landlord, but
Landlord shall not be required to repair any work performed by or on behalf of
Tenant or to expend any amounts in excess of the net proceeds of insurance
received by Landlord. In performing its rebuilding obligations hereunder,
Landlord shall have the right to make modifications to the structures comprising
the Building, the Project and the Premises. Landlord shall not be liable for
interruption to Tenant's business or for damage to or replacement or repair of
Tenant's Property or to any leasehold improvements installed in the Premises by
or on behalf of Tenant, all of which damage, replacement or repair shall be
undertaken and completed promptly by Tenant at Tenant's expense.
Section 11.2. Option to Terminate Lease.
If (a) the Premises are rendered wholly untenantable, or (b) the Premises
are damaged as a result of any cause which is not covered by Landlord's
insurance, or (c) the Premises are damaged or destroyed in whole or in part
during the last two (2) Lease Years of the Term, or (d) the Building is damaged
to the extent of fifty percent (50%) or more of its GRA, or (e) the Building is
so substantially damaged that Landlord determines, in Landlord's sole judgment,
to demolish the Building, then and in any of such events, Landlord or Tenant may
elect to terminate this Lease by giving Tenant or Landlord, as the case may be,
notice of such election within ninety (90) days after the occurrence of such
event. If such notice is given, the rights and obligations of the parties shall
cease as of the date of such notice, and Rent (other than any Additional Rent
due Landlord by reason of Tenant's failure to perform any of its obligations
hereunder) shall be adjusted as of the date of such termination.
Section 11.3. Insurance Proceeds.
If Landlord does not elect to terminate this Lease pursuant to Section
11.2, then, subject to the prior rights of any Mortgagee, Landlord shall
disburse and apply any net insurance proceeds received by Landlord to the
restoration and rebuilding of the Building in accordance with Section 11.1. All
insurance proceeds payable with respect to the Premises (excluding proceeds
payable to Tenant pursuant to Section 10.1), shall belong to and shall be
payable to Landlord.
<PAGE>
ARTICLE 12
CONDEMNATION
Section 12.1. Effect of Taking.
If the whole or any part of the Premises shall be taken pursuant to the
power of eminent domain, whether by condemnation or deed in lieu thereof, this
Lease shall terminate as to the part so taken as of the date of such taking.
Landlord shall make such repairs and alterations as may be necessary in order to
restore the part of the Premises not taken to a useful condition and all Rent
(other than any Additional Rent due Landlord by reason of Tenant's prior failure
to perform any of its obligations hereunder) shall be reduced in the same
proportion as the portion of the Premises so taken. If any partial taking
renders the remainder of the Premises unusable for the Permitted Use, either
party may terminate this Lease as of the date of such taking by giving notice to
the other party within thirty (30) days after such date. Notwithstanding
anything contained herein to the contrary, if fifty percent (50%) or more of the
Premises is taken as aforesaid, Tenant may elect to terminate this Lease as of
the date of such taking, by providing written notice of such termination to
Landlord within thirty (30) days of such date. If ten percent (10%) or more of
the Building is taken as aforesaid, Landlord may elect to terminate this Lease
as of the date of such taking by giving notice of such election to Tenant within
ninety (90) days after such date. If any notice of termination is given pursuant
to this Section 12.1, this Lease and the rights and obligations of the parties
hereunder shall cease on the date specified in such notice and all Rent (other
than any Additional Rent due Landlord by reason of Tenant's prior failure to
perform any of its obligations hereunder) shall be adjusted as of the date of
such termination.
Section 12.2. Condemnation Awards.
All compensation awarded for any taking of the Premises or any portion of
the Building or any interest in any of them shall belong to and be the property
of Landlord or any Mortgagee, and Tenant hereby assigns to Landlord all rights
with respect thereto; provided, however, nothing contained herein shall prevent
Tenant from seeking in a separate action reimbursement from the condemning
authority (if permitted by law) for moving expenses and expenses for removal of
Tenant's Property, but if and only if such action shall not reduce the amount of
the award or other compensation otherwise recoverable from the condemning
authority by Landlord or any Mortgagee.
ARTICLE 13
ASSIGNMENT AND SUBLETTING
Section 13.1. Landlord's Consent Required.
(a) Except as otherwise provided hereinbelow, throughout the Term Tenant
shall not assign this Lease, in whole or in part, nor sublet all or any part of
the Premises, nor otherwise permit any other Person to occupy or use any portion
of the Premises (collectively a "Transfer"), without in each instance first
obtaining the written consent of Landlord, which consent shall not be
unreasonably withheld, conditioned or delayed. Landlord's consent shall be
deemed to be reasonably withheld if any proposed Transfer is to a governmental
or quasi-governmental entity, if the proposed Transferee would detrimentally
alter the Permitted Use of the Premises or use the Premises in a manner not in
<PAGE>
keeping with the image of the Project, or if the financial condition of the
proposed Transferee is not reasonably acceptable to Landlord. This prohibition
includes any subletting or assignment which would otherwise occur by operation
of law or by an assignment or subletting to or by a receiver or trustee in any
Federal or State bankruptcy or similar proceeding. Consent by Landlord to any
Transfer shall not constitute a waiver of the requirement for such consent to
any subsequent assignment, subletting, licensing or other Transfer, or relieve
Tenant from its obligations under this Lease.
(b) Notwithstanding the foregoing, Tenant shall be entitled to assign or
sublet the Premises, in whole or in part, without the prior written consent of
Landlord, to any Affiliate (defined below) of Tenant. Tenant shall give Landlord
written notice of any such Transfer at least thirty (30) days prior thereto. As
used in this Section 13.1, the term "Affiliate" means any entity which directly
or indirectly controls or is controlled by or is under common control with
Tenant. For purposes of this definition, "control" (including the correlative
meaning of the terms "controlled by" and "under common control with") shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such an entity, whether through the
ownership of voting stock or securities or by contract or otherwise.
Section 13.2. Transfer; Issuance of Corporate Shares.
If Tenant is a corporation (other than a corporation the outstanding
voting stock of which is listed on an "exchange," as defined in the Securities
Exchange Act of 1934), Tenant shall give Landlord notice within fifteen (15)
days following the date upon which additional voting stock shall be issued by
Tenant, or any part or all of the corporate shares of Tenant shall be
Transferred, in the event that such Transfer results in a change in the present
control of Tenant or if more than fifty percent (50%) of said corporate shares
are Transferred. In the event of a Transfer in which more than fifty percent
(50%) of Tenant's voting stock is sold to a party that is unaffiliated with
Tenant, which Transfer shall result in Tenant vacating the Premises or
undergoing a material change in the business conducted by Tenant, and whether or
not Tenant has given such notice, Landlord may elect, in Landlord's sole
discretion, to either terminate this Lease at any time thereafter by written
notice to Tenant (and in the event of any termination, all Rent shall be
adjusted as of the date of such termination), or deem the Transfer to be an
Event or Default, entitling Landlord to the rights and remedies set forth in
Section 14.2.
Section 13.3. Acceptance of Rent from Transferee.
The acceptance by Landlord of the payment of Rent from any person
following any Transfer prohibited by this Article shall not be deemed to be a
consent by Landlord to such Transfer, nor shall the same be deemed to be a
waiver of any right or remedy of Landlord's hereunder.
Section 13.4. Conditions of Consent.
(a) If Tenant receives consent to a Transfer under Section 13.1 above,
then, in addition to any other terms and conditions imposed by Landlord in the
giving of such consent, Tenant and the Transferee shall execute and deliver, on
demand, an agreement prepared by Landlord which agreement in any event shall
provide: (i) that the Transferee shall be directly bound to Landlord to perform
all obligations of Tenant hereunder including, without limitation, the
obligation to pay all Rent and other amounts provided for herein; (ii) that
<PAGE>
there shall be no subsequent Transfer of this Lease or of the Premises or of any
interest therein without the prior consent of Landlord pursuant to Section 13.1
above; (iii) that Tenant as originally named herein shall remain fully liable
for all obligations of Tenant hereunder, including the obligation to pay all
Rent provided herein and including any and all obligations arising out of any
subsequent amendments to this Lease made between Landlord and the Transferee
(whether or not consented to by Tenant), jointly and severally with the
Transferee; and (iv) such other provisions as Landlord shall reasonably require.
(b) All costs incurred by Landlord in connection with any request for
consent to a Transfer, including costs of investigation and the reasonable fees
of Landlord's counsel, shall be paid by Tenant on demand as a further condition
of any consent which may be given.
Section 13.5. Profits from Use or Transfer. Tenant agrees that in the
event of a Transfer, Tenant shall pay Landlord fifty percent (50%) of all
amounts received by Tenant or payable to Tenant in connection with such Transfer
in excess of Tenant's obligations hereunder (less Tenant's actual out-of-pocket
expenses associated with such Transfer).
ARTICLE 14
DEFAULT
Section 14.1. "Event of Default" Defined.
Any one or more of the following events shall constitute a default under
the terms of this Lease ("Event of Default"):
(a) failure of Tenant to pay any Rent or other sum of money due hereunder
to Landlord or any other person within ten (10) calendar days after written
notice thereof from Landlord that the same is due;
(b) sale of Tenant's interest in the Premises under attachment, execution
or similar legal process or otherwise without Landlord's approval;
(c) filing of a petition proposing the adjudication of Tenant as a
bankrupt or insolvent, or the reorganization of Tenant, or an arrangement by
Tenant with its creditors, whether pursuant to the Federal Bankruptcy Act or any
similar Federal or state proceeding, unless such petition is filed by a party
other than Tenant and is withdrawn or dismissed within sixty (60) days after the
date of its filing;
(d) admission in writing by Tenant of its inability to pay its debts when
due;
(e) appointment of a receiver or trustee for the business or property of
Tenant, unless such appointment shall be vacated within thirty (30) days of its
entry;
(f) making by Tenant of an assignment for the benefit of its
creditors; and
(g) default by Tenant in the performance or observance of any covenant or
agreement of this Lease to be performed or observed by Tenant (other than as set
forth in clauses (a) through (f) above), which default is not cured within
thirty (30) days after the giving of notice thereof by Landlord, unless such
<PAGE>
default is of such nature that it cannot be cured within said thirty (30) day
period, in which event an Event of Default shall not be deemed to have occurred
if Tenant institutes a cure within such thirty (30) day period and thereafter
diligently and continuously prosecutes the curing of same until completion, but
in no event shall such cure period exceed ninety (90) days.
Provided, however, that if Tenant shall default in the performance of the
same or any similar covenant or agreement two (2) or more times in any twelve
(12) month period, then notwithstanding that such defaults have each been cured
by Tenant, any further similar defaults shall be deemed an Event of Default
without the ability to cure.
Section 14.2. Remedies.
Upon the occurrence of an Event of Default, Landlord, without notice to
Tenant in any instance (except where expressly provided for below), may do any
one or more of the following:
(a) Landlord may accelerate the Rent and any other charges, whether or not
stated to be Additional Rent hereunder, for the entire balance of the Term and
any renewal or extension thereof, or any part of such Rent, and any costs and
sheriff's or other commissions, whether chargeable to Landlord or Tenant,
including watchmen's wages, as if by the terms of this Lease the balance of the
Rent and other charges were on that date payable in advance.
(b) Landlord may elect to terminate this Lease and the tenancy created
hereby by giving notice to Tenant without any right on the part of Tenant to
save the forfeiture by payment of any sum due or by other performance of
condition or covenant broken. Landlord may also elect to terminate Tenant's
possessory rights and all other rights of Tenant without thereby terminating
this Lease. Landlord may, without notice, reenter the Premises, breaking open
locked doors, if necessary, to effect entrance, for the purpose of recovering
possession of the Premises, and may proceed to recover possession of the
Premises by process of law, any notice to quit or of intention to re-enter the
Premises being expressly waived by Tenant. Landlord may remove Tenant and remove
all other persons and property from the Premises, and store such property in a
public warehouse or elsewhere at the cost of and for the account of Tenant
without resort to legal process and without Landlord being deemed guilty of
trespass or becoming liable in any way for any loss or damage occasioned
thereby, and take possession of and sell under such lien the goods and chattels
found in the Premises.
(c) When this Lease shall be terminated by reason of an Event of Default
or when the Term has expired, any attorney for Landlord may proceed in any
competent court for judgment in ejectment against Tenant and all persons
claiming under Tenant for the recovery of possession of the Premises. If for any
reason after such action shall have been commenced, it shall be canceled or
suspended and possession of the Premises remains in or is restored to Tenant,
Landlord shall have the right upon any subsequent default or upon the expiration
or termination of this Lease to bring one or more actions to recover possession
of the Premises.
(d) If, in any action for the enforcement of this Lease, Landlord is
required to file a copy of this Lease, it shall not be necessary to file the
original, notwithstanding any law or practice to the contrary. Tenant hereby
waives all procedural errors in any proceedings taken by Landlord, whether by
virtue of the powers of attorney contained in this Lease or not, and all
<PAGE>
liability therefor. Tenant further waives the right to any notice to remove or
any similar or successor provision of any applicable law, and agrees that five
(5) days' notice shall be sufficient in any case where a longer period may be
statutorily specified.
(e) Landlord may perform, on behalf and at the expense of Tenant, any
obligation of Tenant under this Lease which Tenant has failed to perform and of
which Landlord shall have given Tenant notice, the cost of which performance by
Landlord, together with interest thereon at the Default Rate from the date of
such expenditure, shall be deemed Additional Rent and shall be payable by Tenant
to Landlord upon demand therefor.
(f) Landlord may exercise any other legal or equitable right or remedy
which it may have at law or in equity, including rights of specific performance
and/or injunctive relief, where appropriate.
Section 14.3. Damages.
(a) If this Lease is terminated by Landlord pursuant to Section 14.2,
Tenant shall remain liable for any Rent and damages which may be due or
sustained prior to such termination and all reasonable costs and expenses,
including, without limitation, sheriffs' or other commissions (whether
chargeable to Landlord or Tenant), watchmen's wages, brokers' and attorneys'
fees, and repair and renovation costs incurred by Landlord in pursuit of its
remedies hereunder, and/or in connection with any bankruptcy proceedings of
Tenant, and/or in connection with renting the Premises to others from time to
time (all such Rent, damages, costs, fees and expenses being referred to herein
as "Termination Damages"), plus additional damages for all Rent treated as in
arrears ("Liquidated Damages") which, at the election of Landlord, shall be an
amount equal to either:
(i) the Rent which, but for the termination of this Lease, would
have become due during the remainder of the Term, less the amount of rent, if
any, which Landlord shall receive during such period from others to whom the
Premises may be rented (other than any additional rent received by Landlord as a
result of any failure of such other person to perform any of its obligations to
Landlord), in which case Liquidated Damages shall be computed and payable in
monthly installments, in advance, on the first day of each calendar month
following the termination of this Lease and shall continue until the date on
which the Term would have expired but for such termination, and any action or
suit brought to collect any such Liquidated Damages for any month shall not in
any manner prejudice the right of Landlord to collect any Liquidated Damages for
any subsequent months by similar preceding; or
(ii) the present worth (as of the date of such termination) of the
Rent which, but for the termination of this Lease, would have become due during
the remainder of the Term, less the fair rental value of the Premises, as
determined by an independent real estate appraiser selected by Landlord, in
which case such Liquidated Damages shall be payable to Landlord in one lump sum
on demand and shall bear interest at the Default Rate until paid. "Present
worth" shall be computed by discounting such amount to present worth at a rate
equal to one percentage point above the discount rate then in effect at the
Federal Reserve Bank. In no event shall Landlord be required to account to
Tenant for any amounts by which the fair rental value shall have exceeded the
stipulated Rent at the time of such termination.
<PAGE>
(b) If this Lease is terminated pursuant to Section 14.2, Landlord may
(without so obligating itself) relet the Premises or any part thereof, alone or
together with other premises, for such term or terms (which may be greater or
less than the period which otherwise would have constituted the balance of the
Term) and on such terms and conditions (which may include concessions or free
rent and alterations of the Premises) as Landlord may determine, in its
commercially reasonable discretion, but Landlord shall not be liable for, nor
shall Tenant's obligations hereunder be diminished by reason of, any failure by
Landlord to relet the Premises or any failure by Landlord to collect any rent
due upon such reletting.
(c) Notwithstanding anything to the contrary set forth in this Section
14.3, in the event (i) Landlord must initiate legal action to enforce any one or
more of the provisions of this Lease against Tenant, its successors or assigns,
or (ii) Landlord must consult with and/or engage an attorney(s) in order (A) to
enforce any one or more of the provisions of this Lease against Tenant or its
successors or assigns, or (B) in connection with any bankruptcy proceeding of
Tenant, whether or not such consultation and/or engagement results in the
initiation of any judicial action or termination of this Lease, then and in any
of such events, Tenant, its successors and assigns, undertakes and agrees to pay
all costs incurred by Landlord in connection therewith, including, by way of
illustration and not of limitation, all reasonable attorneys' fees (inclusive of
consultation fees, research costs and correspondence fees), court costs (if
awarded post-judgment) and any similar professional fees or costs associated
therewith, which costs shall accrue interest at the Default Rate until paid in
full.
ARTICLE 15
SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
Section 15.1. Subordination.
(a) Unless a Mortgagee shall otherwise elect as provided in Section 15.2,
Tenant's rights under this Lease are and shall remain subject and subordinate to
the operation and effect of any mortgage, deed of trust or other security
instrument constituting a lien upon the Building, whether the same shall be in
existence at the date hereof or created hereafter (any such lease, mortgage,
deed of trust or other security instrument being referred to herein as a
"Mortgage," and the party or parties having the benefit of the same, whether as
mortgagee, beneficiary, trustee or noteholder, being referred to hereinafter
collectively as a "Mortgagee"). Tenant's acknowledgment and agreement of
subordination as provided for in this Section 15.1 is self-operative and no
further instrument of subordination shall be required; however, Tenant shall
execute, within ten (10) days after request therefor, such further assurances
thereof as shall be requisite or as may be requested from time to time by
Landlord or any Mortgagee. Notwithstanding the foregoing, Tenant shall be
entitled to condition its agreement to subordinate this Lease as aforesaid to
the providing to Tenant of assurances of non-disturbance from any such
Mortgagee.
(b) Landlord hereby directs Tenant, upon (i) the occurrence of an event of
default by Landlord, as mortgagor under any Mortgage, (ii) the receipt by Tenant
of a notice of the occurrence of such event of default under such Mortgage from
Landlord or such Mortgagee, and (iii) a direction by the Mortgagee under such
Mortgage to Tenant to pay all Rent thereafter to such Mortgagee, to make such
payments to such Mortgagee, and Landlord agrees that in the event that Tenant
makes such payments to such Mortgagee, as aforesaid, Tenant shall not be liable
to Landlord for the same.
<PAGE>
Section 15.2. Mortgagee's Unilateral Subordination.
If a Mortgagee shall so elect by notice to Tenant or by the recording of a
unilateral declaration of subordination, this Lease and Tenant's rights
hereunder shall be superior and prior in right to the Mortgage of which such
Mortgagee has the benefit, with the same force and effect as if this Lease had
been executed, delivered and recorded prior to the execution, delivery and
recording of such Mortgage, subject, nevertheless, to such conditions as may be
set forth in any such notice or declaration.
Section 15.3. Attornment and Non-disturbance.
If any person shall succeed to all or any part of Landlord's interest in
the Premises, whether by purchase, foreclosure, deed in lieu of foreclosure,
power of sale, termination of lease, or otherwise, and if such
successor-in-interest requests or requires, Tenant shall attorn to such
successor-in-interest and shall execute within ten (10) days after receipt
thereof such agreement in confirmation of such attornment in accordance with
that form attached hereto as Schedule G. Failure to respond within such (10) day
period shall be deemed to be a confirmation by Tenant of the facts and matters
set forth therein. Tenant hereby agrees that any suit, action or other
proceeding commenced by any Mortgagee in order to realize upon Landlord's
interest in, under and to this Lease, or any part of the Building, shall not, by
operation of law or otherwise, result in the cancellation or termination of this
Lease or of the obligations of Tenant hereunder.
ARTICLE 16
QUIET ENJOYMENT
Landlord covenants and agrees with Tenant that Tenant shall and may
peaceably and quietly have, hold and enjoy the Premises for the Term, free from
any interference whatsoever by, from or through Landlord or anyone claiming by,
from or through Landlord, except as may be otherwise provided herein.
ARTICLE 17
NOTICES
Section 17.1. Sending of Notices.
Any notice or other communication given or required to be given under this
Lease shall be in writing and shall be deemed to have been given on the third
(3rd) day following the day on which the same shall have been mailed by United
States registered or certified mail, return receipt requested, with all postal
charges prepaid, or given the next day if sent by national overnight courier
service with receipt acknowledged in writing, in either case addressed to
Landlord or Tenant to the respective notice addresses set forth in the preamble
paragraph of this Lease and/or such other addresses as either party may
designate to the other by notice in accordance with this Section 17.1.
Section 17.2. Notices to Mortgagees.
If any Mortgagee shall notify Tenant that it is the holder of a Mortgage
affecting the Premises, and shall thereby request copies of all notices from
Tenant, no notice, request or demand thereafter sent by Tenant to Landlord shall
<PAGE>
be effective unless and until a copy of the same shall also be sent to such
Mortgagee in the manner prescribed in Section 17.1 and to such address as such
Mortgagee shall designate.
Section 17.3. Estoppel Certificate.
Tenant agrees from time to time, upon not less than ten (10) days' prior
written request by Landlord, to execute, acknowledge and deliver to Landlord a
statement in writing, in the form attached as Schedule H, certifying that this
Lease is unmodified and in full force and effect and that Tenant has no
defenses, offsets or counterclaims against its obligations to pay the Base Rent
and Additional Rent and to perform its other obligations under this Lease, and
that there are no uncured defaults of Landlord or Tenant under this Lease, and
the dates through which all Rent has been paid, and all such other or further
matters as are set forth therein. The statement delivered pursuant to this
Section 17.3 may be relied upon by any purchaser or Mortgagee, or prospective
purchaser or Mortgagee, of the Building.
ARTICLE 18
MISCELLANEOUS
Section 18.1. Modification.
It is a condition that this Lease is subject to the approval of Teachers
Insurance and Annuity Association of America. In addition, if in the future and
in connection with obtaining any financing for the Building, a lender shall
request reasonable modifications in this Lease as a condition to such financing,
Tenant will not unreasonably withhold, delay or defer Tenant's consent thereto;
provided, that the modification would not increase the obligations of Tenant
hereunder or materially adversely affect the leasehold interest hereby created
or Tenant's rights granted hereunder.
Section 18.2. No Recordation.
Tenant hereby agrees that Tenant shall not record this Lease or any
memorandum of this Lease, unless expressly consented to in writing by Landlord.
The recordation of this Lease or memorandum hereof by Tenant in derogation of
this Section 18.2 shall be deemed an Event of Default hereunder, and Landlord
shall have all of the rights and remedies set forth in Section 14.2, including,
but not limited to, the right to terminate this Lease and declare all sums of
Rent accruing under this Lease immediately due and payable. In addition, Tenant
hereby appoints Landlord as its attorney-in-fact for the purpose of executing
such documents as may be required to nullify and/or release this Lease or any
memorandum hereof from the public records.
<PAGE>
Section 18.3. Remedies Cumulative.
No reference to any specified right or remedy shall preclude Landlord from
exercising any other right or from having any other remedy or from maintaining
any action to which it may otherwise be entitled at law or in equity. No failure
by Landlord to insist upon the strict performance of any agreement, term,
covenant or condition hereof, or to exercise any right or remedy consequent upon
a breach hereof, and no acceptance of full or partial Rent during the
continuance of any such breach, shall constitute a waiver of any such breach,
agreement, term, covenant or condition. No waiver by Landlord of any breach by
Tenant under this Lease or of any breach by any other tenant under any other
lease of any portion of the Building or the Project shall affect or alter this
Lease in any way whatsoever.
Section 18.4. Successors and Assigns.
Landlord may, at any time, assign collaterally or otherwise transfer any
or all of its right, title and interest in the Building, or any portion thereof,
and this Lease and the covenants and conditions herein contained shall inure to
the benefit of and be binding upon Landlord, its successors and assigns, and
shall be binding upon Tenant, its successors and assigns, and shall inure to the
benefit of Tenant and, subject to the provisions of Article 12, only such
assigns of Tenant to whom the assignment of this Lease by Tenant has been
consented to by Landlord. Upon any sale or other transfer by Landlord of its
interest in the Premises, Landlord shall be relieved of any obligations under
this Lease accruing thereafter.
Section 18.5. Compliance with Laws and Regulations.
Tenant, at its expense, shall comply with and shall cause the Premises to
comply with (a) all federal, state, municipal and other governmental statutes,
laws, rules, orders, regulations and ordinances (including, without limitation,
ADA, environmental laws, rules, orders, regulations and ordinances) affecting
the Premises or any part thereof, or the use thereof, including those which
require the making of any unforeseen or extraordinary changes, whether or not
any such statutes, laws, rules, orders, regulations or ordinances which may be
hereafter enacted involve a change of policy on the part of the governmental
body enacting the same, and (b) all rules, orders and regulations of the
National Board of Fire underwriters or Landlord's fire insurance rating
organization or other bodies exercising similar functions in connection with the
prevention of fire or the correction of hazardous conditions, which apply to the
Premises. In addition, Tenant shall be solely responsible for obtaining, at its
sole cost and expense, all occupational or business licenses or permits
necessary to operate the Premises for the Permitted Use, and the inability to
obtain the same shall not relieve Tenant from liability hereunder.
<PAGE>
Section 18.6. Captions and Headings.
The Table of Contents and the Article and Section captions and headings
are for convenience of reference only and in no way shall be used to construe or
modify the provisions set forth in this Lease.
Section 18.7. Joint and Several Liability.
If two or more individuals, corporations, limited liability companies,
partnerships or other business associations (or any combination of two or more
thereof) shall sign this Lease as Tenant, the liability of each individual,
corporation, limited liability company, partnership or other business
association to pay Rent and perform all other obligations hereunder shall be
deemed to be joint and several, and all notices, payments and agreements given
or made by, with or to any one of such individuals, corporations, limited
liability companies, partnerships or other business associations shall be deemed
to have been given or made by, with or to all of them. In like manner, if Tenant
shall be a partnership or other business association, the members of which are,
by virtue of any statute or federal law, subject to personal liability, the
liability of each such member shall be joint and several.
Section 18.8. Brokers' Commissions.
Tenant represents and warrants to Landlord that it has dealt directly with
and only with Spaulding & Slye Colliers ("SSC") as Tenant's authorized
representative, and Landlord, Landlord's Management Agent and Insignia (defined
below) recognize SSC as Tenant's authorized representative. Landlord shall pay
SSC for its services in connection with this Lease pursuant to a separate
agreement. Landlord represents that Landlord has dealt directly with and only
with Insignia/ESG, Inc. ("Insignia") as its authorized representative, and
Tenant and SSC recognize Insignia as Landlord's authorized representative.
Landlord shall pay Insignia for its services in connection with this Lease
pursuant to a separate agreement. Each party further represents to the other
that it has dealt with no other broker, finder or other person who may be
entitled to brokerage commissions or finders fees in connection with the
execution of this Lease other than as specifically set forth above. Each party
hereby agrees to defend, indemnify and hold harmless the other against and from
all liability arising from any breach of such representation or obligation by
the indemnifying party, including without limitation the costs of reasonable
attorneys' fees in connection therewith.
Section 18.9. No Discrimination.
It is intended that the Building shall be developed so that all
prospective tenants thereof and all customers, employees, licensees and invitees
of all tenants hereof shall have the opportunity to obtain all of the goods,
services, accommodations, advantages, facilities and privileges of the Building
without discrimination because of race, color, religion, sex or national origin.
To that end, Tenant shall not discriminate in the conduct and operation of its
business in the Premises against any person or group of persons because of the
race, color, religion, sex or national origin of such person or group of
persons.
Section 18.10. No Joint Venture.
Any intention to create a joint venture or partnership relationship
between the parties hereto is expressly disclaimed.
<PAGE>
Section 18.11. Conflicts; Schedules.
If there is any conflict between any of the Fundamental Lease Provisions
and any other provisions of this Lease, the former shall control. Any documents
attached hereto as Schedules, together with all drawings and documents, if any,
prepared pursuant thereto or referred to therein, are hereby incorporated herein
and made a part hereof.
Section 18.12. Severability.
If any term or provision, or any portion thereof, of this Lease, or the
application thereof to any person or circumstances, shall, to any extent, be
rendered invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held specifically invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
Section 18.13. No Third Party Beneficiary.
Nothing contained in this Lease shall be construed so as to confer upon
any other party the rights of a third party beneficiary, except rights contained
herein for the benefit of any Mortgagee.
Section 18.14. Corporate Tenants.
In the event Tenant is a corporation, the person executing this Lease on
behalf of Tenant hereby covenants and warrants that: (a) Tenant is a duly
constituted corporation qualified to do business in the Commonwealth of
Virginia; (b) all of Tenant's franchise and corporate taxes have been paid to
date; (c) all future forms, reports, fees and other documents necessary for
Tenant to comply with applicable laws shall be filed by Tenant when due; and (d)
such persons are duly authorized by the board of directors of such corporation
to execute and deliver this Lease on behalf of the corporation.
Section 18.15. Applicable Law.
This Lease and the rights and obligations of the parties hereunder shall
be construed in accordance with the laws of the Commonwealth of Virginia, and
any action or proceeding arising hereunder shall be brought in the United States
District Court for the Commonwealth of Virginia or any successor court thereto.
<PAGE>
SECTION 18.16 WAIVER OF JURY TRIAL.
WITH RESPECT TO ANY AND ALL ISSUES ARISING UNDER OR IN ANY MANNER
CONNECTED WITH THE ENTRY INTO OR PERFORMANCE UNDER THIS LEASE, TENANT AND
LANDLORD, ON BEHALF OF THEMSELVES AND THEIR SUCCESSORS AND ASSIGNS, HEREBY
MUTUALLY WAIVE THE RIGHT TO REQUEST A TRIAL BY JURY, IN ANY ACTION OR PROCEEDING
BETWEEN THE PARTIES OR IN WHICH THE PARTIES HEREBY AND OTHER PERSONS HAVE BEEN
JOINED.
Section 18.17 Limitation of Liability.
Anything contained in any provision of this Lease to the contrary
notwithstanding, in consideration of the benefits accruing hereunder, Tenant,
for itself and its successors and assigns, covenants and agrees that in the
event of any actual or alleged failure, breach or default hereunder by Landlord,
its successors or assigns:
(a) the sole and exclusive remedy shall be against the entity then
constituting Landlord and shall be limited to Landlord's equity interest in and
to the Building and the Project;
(b) no partner, officer, director or stockholder of Landlord, or partner,
trustee, officer, director or stockholder of any entity having a direct or
indirect financial interest in Landlord, and no employees or agents of any such
entities, shall be sued or named as a party in any suit or action;
(c) no service of process shall be made against any partner, officer,
director or stockholder of Landlord, or partner, trustee, officer, director or
stockholder of any entity having a direct or indirect financial interest in
Landlord;
(d) no partner, officer, director or stockholder of Landlord, or partner,
trustee, officer, director or stockholder of any entity having a direct or
indirect financial interest in Landlord, and no employees or agents of any such
entities, shall be required to answer or otherwise plead to any service of
process;
(e) no judgment shall be taken against any partner, officer, director or
stockholder of Landlord, or partner, trustee, officer, director or stockholder
of any entity having a direct or indirect financial interest in Landlord, or
against any employee or agent of any such entities;
(f) any judgment taken against any partner, officer, director or
stockholder of Landlord, or partner, trustee, officer, director or stockholder
of any entity having a direct or indirect financial interest in Landlord, or
against any employee or agent of any such entities, may be vacated and set aside
at any time nunc pro tunc;
(g) no writ of execution shall ever be levied against the assets of any
partner, officer, director or stockholder of Landlord, or any assets of Landlord
or of any partner, trustee, officer, director or stockholder of any entity
having a direct or indirect financial interest in Landlord, or against the
assets of any trustee, employee or agent of any such entities, other than as
specified in clause (a) of this Section 18.17; and
<PAGE>
(h) Landlord shall, in no event, be in default in the performance of its
obligations hereunder unless and until Landlord shall have failed to perform
such obligations within thirty (30) days, or such additional time as is
reasonably required to correct any default, after notice to Landlord specifying
the notice of such alleged default. In no event shall Landlord be liable to
Tenant for indirect or consequential damages.
Section 18.18 No Accord and Satisfaction.
The acceptance by Landlord of any sums from Tenant (whether as Rent or
otherwise) in amounts which are less than the amounts due and payable by Tenant
hereunder is not intended, nor shall be construed, to constitute an accord and
satisfaction of any dispute between Landlord and Tenant regarding sums due and
payable by Tenant hereunder, unless Landlord specifically deems it as such in
writing.
Section 18.19 Time of Essence.
Time is of the essence in each and every instance hereunder with respect
to the covenants, undertakings and conditions to be performed hereunder by
Tenant.
Section 18.20 "Person(s)" Defined.
The words "person" or "persons" as used herein, shall mean individual(s),
corporation(s), limited liability company(ies) partnership(s), firm(s), other
business association(s), or governmental entity or entities, whichever is
required by the context, or all of the foregoing if the context so requires.
Section 18.21 Consents.
Whenever Tenant shall claim under any provision of this Lease that
Landlord has unreasonably withheld, conditioned or delayed its consent or
approval to some request of Tenant, which consent Landlord has specifically
agreed herein not to unreasonably withhold, condition or delay, Tenant shall
have no claim for damages by reason of such alleged withholding, conditioning or
delaying, and Tenant's sole remedy therefor shall be declaratory or injunctive
relief, but in any event without the recovery of damages. Unless Landlord has
specifically agreed herein not to unreasonably withhold, condition or delay its
consent in a given instance, all consents or approvals of Landlord required
herein may be granted or refused in Landlord's sole discretion. Whenever
Landlord agrees in this Lease that a required consent shall not be unreasonably
withheld, conditioned or delayed, it is agreed that Landlord may withhold,
condition or delay its consent if any Mortgagee shall have withheld, conditioned
or delayed any consent which may be required of it.
<PAGE>
Section 18.23 Integration of all Prior Agreements and Execution
of Lease.
THIS WRITING IS INTENDED BY THE PARTIES AS A FINAL EXPRESSION OF THEIR
AGREEMENT AND AS A COMPLETE AND EXCLUSIVE STATEMENT OF THE TERMS THEREOF, WITH
ALL NEGOTIATIONS, CONSIDERATIONS AND REPRESENTATIONS BETWEEN THE PARTIES HAVING
BEEN INCORPORATED HEREIN. NO COURSE OF PRIOR DEALINGS BETWEEN THE PARTIES OR
THEIR OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES SHALL BE RELEVANT OR ADMISSIBLE
TO SUPPLEMENT, EXPLAIN, OR VARY ANY OF THE TERMS OF THIS LEASE. ACCEPTANCE OF,
OR ACQUIESCENCE IN, A COURSE OF PERFORMANCE RENDERED UNDER THIS LEASE OR ANY
PRIOR AGREEMENT BETWEEN THE PARTIES OR THEIR AFFILIATES SHALL NOT BE RELEVANT OR
ADMISSIBLE TO DETERMINE THE MEANING OF ANY OF THE TERMS OF THIS LEASE. NO
REPRESENTATIONS, UNDERSTANDINGS OR AGREEMENTS HAVE BEEN MADE OR RELIED UPON IN
THE MAKING OF THIS LEASE OTHER THAN THOSE SPECIFICALLY SET FORTH HEREIN. ALL
PRIOR COMMUNICATIONS FROM LANDLORD WITH RESPECT TO ESTIMATED CHARGES PAYABLE BY
TENANT HEREUNDER ARE FOR INFORMATION ONLY AND ARE NOT TO BE CONSTRUED AS
REPRESENTATIONS OF THE ACTUAL CHARGES WHICH TENANT IS REQUIRED TO PAY HEREUNDER,
OR AS BINDING UPON LANDLORD IN ANY MANNER WHATSOEVER. THIS LEASE CAN BE MODIFIED
ONLY BY A WRITING SIGNED BY EACH OF THE PARTIES HERETO.
THE SUBMISSION OF THIS LEASE FOR EXAMINATION DOES NOT CONSTITUTE A
RESERVATION OF OR OPTION FOR THE PREMISES OR ANY OTHER SPACE WITHIN THE
BUILDING. THIS LEASE SHALL BECOME EFFECTIVE ONLY UPON EXECUTION AND LEGAL
DELIVERY THEREOF BY THE PARTIES HERETO. THIS LEASE MAY BE EXECUTED IN MORE THAN
ONE COUNTERPART, AND EACH SUCH COUNTERPART SHALL BE DEEMED AN ORIGINAL DOCUMENT.
If Tenant is a corporation, the authorized officers must sign on behalf of
the corporation, and by doing so such officers make the covenants and warranties
contained in Section 18.14. This Lease must be executed for Tenant, if a
corporation, by the president or a vice-president and by the secretary or an
assistant secretary, unless the by-laws or a resolution of the board of
directors shall provide that other officers are authorized to execute this
Lease, in which event, a certified copy of the by-laws and resolutions must be
furnished to Landlord.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
hereto, by their duly authorized representatives, have executed this Lease as of
the day and year first above written.
ATTEST OR WITNESS: LANDLORD:
485 PROPERTIES, LLC
/s/Joseph By:/s/Harry St.Clair (SEAL)
Name:Harry St.Clair
Title:ASSISTANT SECRETARY
ATTEST OR WITNESS: TENANT:
EXCALIBUR TECHNOLOGIES CORPORATION
/S/Nancy J. Mckinley By:/s/James Buchanan (SEAL)
Name:James Buchanan
Title:CFO
<PAGE>
TYSONS INTERNATIONAL PLAZA
SCHEDULE A-1
LEGAL DESCRIPTION OF PROJECT
Part One:
Beginning at the point of intersection of the southerly right-of-way line
of Boone Boulevard, Route 786 and the easterly right-of-way line of Gallows
Road, Route 650; thence departing from said line of Gallows Road and running
along and with the said line of Boone Boulevard the following two (2) courses:
South 54(Degree)37'51" East, 543.23 feet to a point; thence
28.24 feet along the arc of a curve deflecting to the right and having a
radius of 18.00 feet and a chord bearing and distance of South 09(Degree)41'06"
East, 25.43 feet to a point in the westerly right-of-way line of Aline Avenue,
Route 3402; thence departing from said line of Boone Boulevard and running along
and with the said line of Aline Avenue the following seven (7) courses:
South 35(Degree)15'39" West, 163.75 feet to a point; thence
South 43(Degree)52'28" West, 76.78 feet to a point; thence
127.72 feet along the arc of a curve deflecting to the right and having a
radius of 103.55 feet and a chord bearing and distance of South 70(Degree)35'47"
West, 119.78 feet to a point; thence
94.56 feet along the arc of a curve deflecting to the left and having a
radius of 500.44 feet and a chord bearing and distance of North 79(Degree)28'54"
West, 94.42 feet to a point; thence,
North 05(Degree)06'19" East, 8.50 feet to a point; thence,
120.63 feet along the arc of a curve deflecting to the left and having a
radius of 508.94 feet and a chord bearing and distance of South 88(Degree)18'55"
West, 120.34 feet to a point; thence,
49.72 feet along the arc of a curve deflecting to the right and having a
radius of 38.00 feet and a chord bearing and distance of North 60(Degree)59'32"
West, 46.25 feet to a point in the aforesaid easterly right-of-way line of
Gallows Road; thence departing from said line of Aline Avenue and running along
and with the said line of Gallows Road the following three (3) courses;
508.47 feet along the arc of a curve deflecting to the right and having a
radius of 590.62 feet and a chord bearing and distance of North 01(Degree)09'13"
East, 492.91 feet to a point; thence,
North 35(Degree)18'33" East, 37.35 feet to a point; thence,
North 89(Degree)12'32" East, 34.78 feet to the point of beginning.
Containing 210,909 square feet or 4.8418 acres.
<PAGE>
Part Two:
Beginning at the point of intersection of the westerly right-of-way line
of Aline Avenue, Route 3402 and the northerly right-of-way line of Gallows Road,
Route 650; thence departing from said line of Aline Avenue and running along and
with the said line of Gallows Road the following four (4) courses:
28.75 feet along the arc of a curve deflecting to the left and having a
radius of 212.00 feet and a chord bearing and distance of North 49(Degree)58'23"
West, 28.73 feet to a point; thence,
99.67 feet along the arc of a curve deflecting to the right and having a
radius of 578.62 feet and a chord bearing and distance of North 48(Degree)55'25"
West, 99.55 feet to a point; thence,
80.06 feet along the arc of a curve deflecting to the right and having a
radius of 33.00 feet and a chord bearing and distance of North 25(Degree)30'53"
East, 61.82 feet to a point; thence,
North 05(Degree)01'05" East, 8.50 feet to a point in the southerly
right-of-way line of Relocated Aline Avenue, Route 3402; thence departing from
said line of Gallows Road and running along and with the said line of Relocated
Aline Avenue the following two (2) courses;
81.04 feet along the arc of a curve deflecting to the right and having a
radius of 425.44 feet and a chord bearing and distance of South 79(Degree)31'30"
East, 80.91 feet to a point; thence,
82.56 feet along the arc of a curve deflecting to the left and having a
radius of 178.55 feet and a chord bearing and distance of South 87(Degree)18'51"
East, 81.82 feet to a point in the aforesaid westerly right-of-way line of Aline
Avenue; thence departing from said line of Relocated Aline Avenue and running
along and with the said line of Aline Avenue,
South 35(Degree)15'39" West, 158.72 feet to the point of beginning.
Containing 15,995 square feet or 0.3672 of an acre.
<PAGE>
Part Three:
Beginning at a point in the southerly right-of-way line of Gallows Road,
Route 650, said point also being the north easterly corner of Tysons Square
Office Condo; thence departing from Tysons Square Office Condo and running along
and with the said line of Gallows Road the following two (2) courses:
106.24 feet along the arc of a curve deflecting to the left and having a
radius of 674.12 feet and a chord bearing and distance of South 13(Degree)29'50"
East, 106.13 feet to a point; thence,
83.02 feet along the arc of a curve deflecting to the right and having a
radius of 56.50 feet and a chord bearing and distance of South 24(Degree)04'52"
West, 75.75 feet to a point in the northerly right-of-way line of Old Courthouse
Road, Route 677; thence departing from said line of Gallows Road and running
along and with the said line of Old Courthouse Road the following two (2)
courses:
51.85 feet along the arc of a curve deflecting to the right and having a
radius of 55.33 feet and a chord bearing and distance of North 86(Degree)58'42"
West, 49.98 feet to a point; thence,
North 60(Degree)07'51" West, 52.60 feet to a point in the easterly line of
the aforesaid Tysons Square Office Condo property; thence departing from said
line of Old Courthouse Road and running along and with the said line of Tysons
Square Office Condo,
North 35(Degree)18'33" East, 175.88 feet to the point of beginning.
Containing 12,175 square feet or 0.2795 of an acre.
All three parts combined to total 239,079 square feet or 5.4885 acres.
<PAGE>
TYSONS INTERNATIONAL PLAZA
SCHEDULE B
LANDLORD'S SERVICES
I. CLEANING
A. Office Area
Daily: (Monday through Friday, inclusive, Saturdays, Sundays and
holidays excepted.)
1. Empty and clean all waste receptacles and ashtrays and remove waste
material from the Premises; wash receptacles as necessary.
2. Sweep and dust mop all uncarpeted areas using a dust-treated mop.
3. Vacuum all rugs and carpeted areas.
4. Hand dust and wipe clean with treated cloths all horizontal surfaces
including furniture, office equipment, window sills, file, telephones within
normal reach.
5. Wash clean all water fountains.
6. Remove and dust under all desk equipment and telephone and replace
same.
7. Wipe clean all brass and other bright work.
8. Hand dust all grill work within normal reach.
9. Spot clean walls around light switches, door frame and glass
partitions.
10. Upon completion of cleaning, all lights will be turned off and doors
locked, leaving the Premises in an orderly condition.
Weekly:
1. Dust coat racks, and the like.
2. Remove all finger marks from private entrance doors, light switches and
doorways.
3. Damp mop all hard surface floors.
<PAGE>
Quarterly:
Render high dusting not reached in daily cleaning to include:
1. Dusting all pictures, frames, charts, graph, and similar wall hangings.
2. Dusting all vertical surfaces, such as walls, partitions, doors and
ducts.
3. Dusting of all pipes, ducts, and high molding.
4. Dusting of all venetian blinds.
B. Lavatories
Daily: (Monday through Friday, inclusive; Saturdays, Sundays and
holidays, excepted).
1. Sweep and damp mop floors.
2. Clean all mirrors, powder shelves, dispensers and receptacles, bright
work, flushometers, piping, and toilet seat hinges.
3. Wash both sides of all toilet seats.
4. Wash all basins, bowls and urinals.
5. Dust and clean all powder room fixtures.
6. Empty and clean paper towel and sanitary disposal receptacles.
7. Remove waste paper and refuse.
8. Refill tissue holders, soap dispensers, towel dispensers, vending
sanitary dispensers; materials to be furnished by Landlord.
9. Spot clean walls, partitions and entry doors.
10. A sanitizing solution will be used in all lavatory cleaning.
<PAGE>
Monthly:
1. Machine scrub lavatory floors. Reseal if needed.
2. Wash all partitions and tile walls in lavatories.
C. Main Lobby, Elevators, Building Exterior and Corridors
Daily: (Monday through Friday, inclusive; Saturdays, Sundays and holidays
expected).
1. Sweep and wash all floors.
2. Vacuum all rugs and carpeted areas.
3. Wash all rubber mats.
4. Wash, clean and empty all ashtrays.
5. Wash or vacuum floors, wipe down walls and doors.
6. Spot clean any metal work inside lobby.
7. Spot clean any metal work surrounding Building Entrance doors.
Monthly: All resilient tile floors in public areas to be treated
equivalent to spray buffing.
Semi-annually:
1. Shampoo (dry or wet as needed) all carpeting in public areas including
walk off-mats.
2. Strip and refinish all hard surface flooring.
D. Window Cleaning
Windows of exterior walls will be washed quarterly inside and
outside.
E. Other Services
Tenant requiring services in excess of those described above shall request
same through Landlord, at Tenant's expense.
<PAGE>
II. HEATING, VENTILATING, AIR CONDITIONING
A. Landlord shall, as part of the Operating Expenses for the Property,
furnish space heating and cooling as normal seasonal changes may require to
provide reasonable comfortable space temperature and ventilation for occupants
of the Premises under normal business operation, daily from 8:00 A.M. to 6:00
P.M., Saturdays, 8:00 A.M. to 1:00 P.M.; Sundays and holidays excepted. No
credit shall be given to Tenant for any periods during these hours when HVAC
service is not required by Tenant. If Tenant shall require air conditioning or
heating or ventilation outside the hours and days specified above, Landlord
shall furnish such service at Tenant's expense, upon at least 24 hours' notice.
B. The air conditioning system is based upon an occupancy of not more than
one person per 150 square feet of floor area, and upon a combined lighting and
standard electrical load not to exceed 6.0 watts per square foot of usable area,
unless as otherwise set forth in the Lease or the Addendum. In the event Tenant
exceeds this condition or introduces on the Premises equipment which overloads
the system, and/or in any other way causes the system to not adequately perform
to their proper functions, supplementary systems may, at Landlord's option, be
provided by Landlord at Tenant's expense.
III. WATER
Cold water at temperatures supplied by the City of Falls Church water
mains for drinking, lavatory, kitchen, restaurant and toilet purposes and hot
water for lavatory purposes only from regular building supply at prevailing
temperatures; provided, however, that Landlord may, at Landlord's expense,
install a meter or meters to measure the water supplied to any kitchen
(including dishwashing) and restaurant areas in the Premises, in which case
Tenant shall, upon Landlord's request, reimburse Landlord for the cost of the
water (including heating thereof) consumed in such areas and the sewer use
charges resulting therefrom.
IV. ELEVATORS
The passenger elevator system shall be in automatic operation and
available to Tenant at all times. The use of the service elevator will be
scheduled with the Landlord and coordinated with the needs of the other tenant.
V. ELECTRICAL SERVICE
Landlord shall provide electric power for up to 1.8 watts per square foot
of usable area for lighting plus 0.5 watts per square foot of usable area for
office machines through standard receptacles for the typical office space.
Landlord will furnish and install at Tenant's expense all replacement lighting
tubes, lamps, and ballasts required by Tenant. Landlord will clean lighting
fixtures on a regularly scheduled basis at Tenant's expense.
VI. SECURITY AND ACCESS
Landlord shall provide a security card system at the first floor entry
lobby of both buildings and at no less than one entrance of the garage for after
hours tenant entry. Tenant shall have access to the building and garage 24 hours
per day, 365 days per year. The cost for security entry cards shall be paid for
by Tenant.
<PAGE>
TYSONS INTERNATIONAL PLAZA
SCHEDULE E
FORM OF COMMENCEMENT DATE NOTICE
THIS COMMENCEMENT DATE NOTICE is entered into this _______ day of
____________________ 199__, by 485 PROPERTIES, LLC, a Delaware limited liability
company ("Landlord"), and _________________________, a _____________________
("Tenant"), pursuant to the provisions of a certain lease dated
_____________________, 199__, by and between Landlord and Tenant ("Lease")
covering certain space in the office/retail complex known as Tysons
International Plaza ("Building") located in Fairfax County, Virginia and more
particularly described in the Lease ("Premises"). All terms used herein shall
have the meaning assigned to such terms in the Lease.
W I T N E S S E T H:
1. The Building, the Premises, the parking facilities and all other
improvements required to be constructed and furnished by Landlord in accordance
with the terms of the Lease have been satisfactorily completed by the Landlord
and accepted by the Tenant, subject to the completion of "punch list" items and
the improvements described in Section 2.2 of the Lease.
2. The Premises have been delivered to, and accepted by, the Tenant.
3. The Commencement Date of the Lease is the _____ day of
___________________ 199__, and the Expiration Date is the _____ day of
- ----------------, -----.
4. The total GRA of the Tenant's Premises consists of ________ rentable
square feet on the ____________ (_____) floor(s) of the Building, subject to the
provision of the Lease regarding determination of the rentable square footage of
the Premises.
<PAGE>
IN WITNESS THEREOF, Landlord and Tenant have executed and sealed this
Commencement Date Notice as of the day and year first above-written.
LANDLORD:
485 PROPERTIES, LLC,
a Delaware limited liability company
By:
Name:
Title:
TENANT:
------------------------------,
a _____________________________
By:
Name:
Title:
<PAGE>
TYSONS INTERNATIONAL PLAZA
SCHEDULE F
CURRENT RULES AND REGULATIONS
1. The sidewalks, lobbies, passages, elevators and stairways shall not be
obstructed by Tenant and used by Tenant for any purposes other than ingress and
egress from and to Tenant's offices. Landlord shall in all cases retain the
right to control or prevent access thereto by any person whose presence, in
Landlord's reasonable judgment, would be prejudicial to the safety, peace,
character or reputation of the Building or the Project or of any tenant of the
Project.
2. The toilet rooms, water closets, sinks, faucets, plumbing and other
service apparatus of any kind shall not be used by Tenant for any purpose other
than those for which they were installed, and no sweepings, rubbish, rags,
ashes, chemicals or other refuse or injurious substances shall be placed therein
or used in connection therewith by Tenant, or left by Tenant in the lobbies,
passages, or stairways of the Building.
3. No skylight, window, door or transom of the Building shall be covered
or obstructed by Tenant, and no window shade, blind, curtain, screen, storm
window, awning or other material shall be installed or placed on any window or
in any window space, except as approved in writing by Landlord. If Landlord has
installed or hereafter installs any shade, blind or curtain in the Premises,
Tenant shall not remove it without first obtaining Landlord's written approval
thereto. Tenant shall have the right to install Building standard window
blinds/systems in the Premises.
4. No sign, lettering, insignia, advertisement, notice or other thing
shall be inscribed, painted, installed, erected or placed in any portion of the
Premises which may be seen from outside the Building, or on any window, window
space or other part of the exterior or interior of the Building, unless first
approved in writing by Landlord. Names on suite entrances shall be provided by
and only by Landlord in accordance with the Lease, using in each instance
lettering of a design and in a form consistent with the other lettering in the
Building, and first approved in writing by Landlord. Tenant shall/will not erect
any stand, booth or showcase or other article or matter in or upon the Premises
and/or the Building and/or the Project without first obtaining Landlord's
written approval thereto.
5. Tenant shall not place any additional lock, security devises, or
graphics upon any door or wall within or outside the Premises or elsewhere
within the Project without Landlord's approval, and Tenant shall surrender all
keys for all such locks at the end of the Term. Landlord shall provide Tenant
with one set of keys to the Premises when Tenant assumes possession thereof.
6. Tenant shall not do or permit to be done anything which obstructs or
interferes with the rights of any other tenant of the Project. Tenant shall not
keep anywhere within the Project any matter having an offensive odor, or any
kerosene, gasoline, benzine, camphene, fuel or other explosive or highly
flammable material. No bird, fish or other animal shall be brought into or kept
in or about the Premises.
<PAGE>
7. So that the Premises may be kept in a good state of preservation and
cleanliness, Tenant shall, while in the possession of the Premises, permit only
Landlord's employees and contractors to clean the Premises unless prior thereto
Landlord otherwise consents in writing. Landlord shall not be responsible to
Tenant for any damage done to any furniture or other property of Tenant or any
other person caused by any of Landlord's employees or any other person, for any
loss sustained by any of the Tenant's employees, or for any loss of property of
any kind in or from the Premises, except where caused by the negligence, gross
negligence or willful misconduct of Landlord or those for whom Landlord is
legally responsible. Tenant shall make reasonable efforts to see each day that
the windows are closed and the doors securely locked before leaving the
Premises, and that all lights and standard office equipment within the Premises
are turned off.
8. If Tenant desires to install signaling, telegraphic, telephonic,
protective alarm or other wires, apparatus or devices within the Premises,
Landlord shall approve where and how they are to be installed and, except as so
directed, no installation, boring or cutting shall be permitted. Landlord shall
have the right (a) to prevent or interrupt the transmission of excessive,
dangerous current of electricity or otherwise into or through the Premises, the
Building or the Project, (b) to require the changing of wiring connections or
layout, at Tenant's expense, to the extent that Landlord may reasonably deem
necessary, (c) to require compliance with such reasonable rules as Landlord may
establish relating thereto, and (d) in the event of noncompliance with such
requirements or rules, immediately to cut wiring and/or to do whatever else it
considers necessary to remove the danger, annoyance or electrical interference
with apparatus in any part of the Building or the Project. Each wire installed
by the Tenant must be clearly tagged at each distributing board and junction box
and elsewhere where required by Landlord, with the number of the office to such
wire leads and the purpose for which it is used, together with the name of
Tenant or other concern, if any, operating or using it.
9. A main lobby directory will be provided by Landlord on which the
Tenant's name will be placed.
10. No furniture or large equipment may be received in the Building,
except during such hours as are designated for such purpose by Landlord, and
only after Tenant gives notice thereof to Landlord. Landlord shall have
exclusive right to prescribe the method and manner in which any of the same is
brought into or taken out of the Building, and the right to exclude from the
Building any heavy furniture, safe or other article which may create a hazard
and to require it to be located at a designated place in the Premises. Tenant
shall not place any weight anywhere beyond the safe carrying capacity of the
Building. The cost of repairing any damage to the Building or any other part of
the Project caused by taking any of the same in or out of the Premises, or any
damage caused while it is in the Premises or the rest of the Building or the
Project, shall be borne by Tenant as Additional Rent.
11. Without Landlord's prior written consent: (a) no connection shall be
made to any electrical wire for running any fan, motor or other apparatus,
device or equipment, (b) no large machinery of any kind, other than customary
small business machinery, shall be allowed in the Premises, and (c) no mechanic
shall be allowed to work in areas that may affect the base building systems in
or about the Building, other than one employed by Landlord, unless approved in
writing by Landlord.
<PAGE>
12. Landlord shall in no event be responsible for admitting or excluding
any person from the Premises. In case of invasion, hostile attack, insurrection,
mob violence, riot, public excitement or other commotion, explosion, fire or any
casualty, Landlord shall have the right to bar or limit access to the Building
to protect the safety of occupants of the Project, or any property within the
Project.
13. Landlord shall, as prescribed in the Lease, have the right to rescind,
suspend or modify the Rules and Regulations and to promulgate such other Rules
or Regulations as, in Landlord's reasonable judgment, are from time to time
needed for the safety, care, maintenance, operation and cleanliness of the
Building and the Project, or for the preservation of good order therein. Upon
Tenant's having been given notice of the taking of any such action, the Rules
and Regulations as so rescinded, suspended, modified, or promulgated shall have
the same force and effect as if in effect at the time at which Tenant's Lease
was entered into (except that nothing in the Rules and Regulations shall be
deemed in any way to alter or impair any provisions of such Lease).
14. The use of any room within the Building or the Project as sleeping
quarters is strictly prohibited at all times.
15. Tenant shall keep the windows and doors of the Premises (including
those opening on corridors and all doors between rooms entitled to receive
heating or air conditioning service and rooms not entitled to receive such
service), closed while the heating or air conditioning system is operating, in
order to minimize the energy used by, and to conserve the effectiveness of, such
system. Tenant shall comply with all reasonable Rules and Regulations from time
to time promulgated by Landlord with respect to such system or their use.
16. Nothing in these Rules and Regulations shall give Tenant any right or
claim against Landlord or any other person if Landlord does not enforce any of
them against any other tenant or person (whether or not Landlord has the right
to enforce them against such tenant or person), and no such nonenforcement with
respect to any tenant shall constitute a waiver of the right to enforce them as
to Tenant or any other tenant or person.
<PAGE>
TYSONS INTERNATIONAL PLAZA
SCHEDULE G
AGREEMENT OF SUBORDINATION
NON-DISTURBANCE AND ATTORNMENT
Attached to and made part of Lease dated ______________, 199__ Between
485 PROPERTIES, LLC, Landlord
and _______________, Tenant
THIS AGREEMENT MADE THE ___________ day of _______________________, 199__,
by and among TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York
corporation, having its principal office and post office address at 730 Third
Avenue, New York, New York 10017 ("Teachers") and
____________________________________________________________ ("Tenant"),
W I T N E S S E T H:
WHEREAS, 485 PROPERTIES, LLC, a Delaware limited liability company
("Landlord"), is the owner in fee simple of those certain premises situate,
lying and being in Fairfax County, Virginia, as more particularly described in
Exhibit A attached hereto (the "Property"); and
WHEREAS, Teachers is the holder of and payee under a certain Promissory
Note dated December 29, 1989, secured by a Deed of Trust and Security Agreement
of even date therewith, recorded in Book 7520 at Page 723, in the Office of the
Land Records, Fairfax County, Virginia, and under another certain Promissory
Note dated June 4, 1990, secured by a First Supplement to Deed of Trust and
Security Agreement of even date therewith, recorded in Book 7608 at Page 1700,
in the Office of the Land Records, Fairfax County, Virginia (the "Deed of
Trust"), constituting a first lien upon the fee simple estate of Landlord;
WHEREAS under the terms of a certain lease dated ___________, 199__,
("Lease"), Landlord did lease, let and demise, subject to the Deed of Trust, a
portion of the Property as therein more particularly described ("Premises");
WHEREAS, the parties hereto desire to establish additional rights of quiet
and peaceful possession for the benefit of Tenant under the Lease and further to
define the terms, covenants and conditions precedent for such additional rights.
<PAGE>
NOW, THEREFORE, in consideration of the respective demises and of the sum
of One Dollar ($1.00) and other good and valuable consideration, each to the
other in hand paid, it is hereby mutually covenanted and agreed as follows:
1. That Teachers (in its capacity as the beneficiary under the Deed
of Trust) does hereby represent, covenant and warrant:
(a) That the Deed of Trust is in full force and effect and
unmodified.
(b) That there is no existing default under the provisions of the
Deed of Trust or in the performance of any of the terms, covenants, conditions
or warranties thereof on the part of either Teachers or Landlord to be observed
and performed thereunder.
2. That Teachers (in its capacity as beneficiary under the Deed of Trust)
consents to and approves the Lease.
3. That Teachers (in its capacity as beneficiary under the Deed of Trust)
and Tenant do hereby covenant and agree that the Deed of Trust shall be and the
same is hereby made SUBORDINATE to the Lease with the same force and effect as
if the Lease had been executed, delivered and recorded prior to the execution,
delivery and recordation of the Deed of Trust,
EXCEPT, HOWEVER, that this Subordination shall not affect nor be
applicable to and does hereby expressly exclude:
(a) The prior right and claim under and the prior lien of the Deed
of Trust in, to and upon any award or other compensation heretofore or hereafter
to be made for any taking by eminent domain of any part of the Premises, and as
to the right of disposition thereof in accordance with the provisions of the
Deed of Trust,
(b) The prior right and claim under and the prior lien of the Deed
of Trust, in, to and upon any proceeds payable under all policies of fire and
rent insurance upon the Premises and as to the right of disposition thereof in
accordance with the terms of the Deed of Trust, and
(c) Any lien, right, power or interest, if any, which may have
arisen or intervened in the period between the recording of the Deed of Trust
and the execution of the Lease.
4. That in the event of foreclosure under the Deed of Trust or sale in
lieu thereof, or the exercise of any other rights thereunder or under the note
which it secures or any related documents prior to the expiration date of the
Lease, including any extensions and renewals of the Lease now provided
thereunder, and subject to the observance and performance by Tenant of all of
the terms, covenants and conditions of the Lease on the part of Tenant to be
observed and performed, Teachers does hereby covenant and warrant as follows:
<PAGE>
(a) The quiet and peaceful possession by Tenant of the Premises
under the Lease.
(b) That the Lease shall continue in full force and effect and
Teachers shall recognize the Lease and the Tenant's rights thereunder and will
thereby establish direct privity of estate and contract as between Teachers and
Tenant, with the same force and effect and with the same relative priority in
time and right as though the Lease were originally made directly from Teachers
in favor of Tenant, but not in respect of any amendment to such Lease not
previously approved in writing by Teachers.
(c) To assume such of the obligations on the part of the Landlord
under the Lease which are deemed to run with the land and for so long as
Teachers shall be the owner in fee of the Premises; provided, however, Teachers
shall not in any way or to any extent be liable to Tenant:
(1) For restoration of improvements following any casualty not
required to be insured under the Lease or for the costs of any restoration in
excess of the proceeds recovered under any insurance required to be carried
under the Lease;
(2) For any prepayment of rent or deposit, rental security or
any other sums deposited with the original or any prior landlord under the Lease
and not delivered to Teachers; or
(3) For any restrictions on competition beyond the Premises.
5. That in the event of default under the Deed of Trust and upon notice
from Teachers to Tenant, prior to the expiration date of the Lease, including
any extensions and renewals of the Lease now provided thereunder, Tenant hereby
covenants and agrees to make full and complete attornment to Teachers, for the
balance of the term of the Lease, including any extensions and renewals thereof,
now provided thereunder, upon the same terms, covenants and conditions as
therein provided, so as to establish direct privity of estate and contract as
between Teachers and Tenant and with the same force and effect and relative
priority in time and right as though the Lease were originally made directly
from Teachers to Tenant, and Tenant will thereafter make all rent payments
thereafter directly to Teachers.
6. That the terms, covenants and conditions hereof shall inure to the
benefit of and be binding upon the respective parties hereto, their respective
heirs, executors, administrators, successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this writing to be
signed, sealed and delivered in their respective names and behalf, and, if a
corporation, by its officers duly authorized, the day and year first above
written.
Very truly yours,
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: _______________________________
STATE OF _____________ )
) To Wit:
COUNTY OF ___________ )
I HEREBY CERTIFY that on this ______ day of ___________ 199_, before
me, the undersigned, a Notary Public of said State, personally appeared
_____________________ known to me to be the person whose name is subscribed to
the within instrument, and acknowledged that he executed the same for the
purposes contained therein.
WITNESS my hand and Notarial Seal.
Notary Public
My Commission Expires:____________________
<PAGE>
TENANT'S AGREEMENT
The undersigned, as Tenant under the Lease herein described, does hereby
accept and agree to the terms of the foregoing Subordination, which shall inure
to the benefit of and be binding upon the undersigned and the heirs, executors,
administrators, legal representatives, successors and assigns of the
undersigned.
---------------------------------,
a ________________________________
By:
Name:
Title:
STATE OF )
-----------
) To Wit:
COUNTY OF )
I HEREBY CERTIFY that on this ______ day of ___________ 199 , before
me, the undersigned, a Notary Public of said State, personally appeared
_____________________ known to me to be the person whose name is subscribed to
the within instrument, and acknowledged that he executed the same for the
purposes contained therein.
WITNESS my hand and Notarial Seal.
Notary Public
My Commission Expires:_______________________
<PAGE>
TYSONS INTERNATIONAL PLAZA
SCHEDULE H
STATEMENT OF TENANT IN RE: LEASE
Teachers Insurance and Annuity Date:_____________
Association of America
730 Third Avenue
New York, NY 10017
Re: Address:__________________________
Your Appl. No.________________________
Gentlemen:
It is our understanding that you have committed to place a mortgage upon
the subject premises and as a condition precedent thereof have required this
certification by the undersigned.
The undersigned, as Lessee, under that certain lease dated
____________________, made with 485 PROPERTIES, LLC, as Lessor, hereby certifies
that:
1. the undersigned has entered into occupancy of the premises
described in said lease on ________________; and
2. the undersigned is presently open and conducting business with
the public in the premises; and
3. the base rental in the annual amount of $___________ was
payable from the date of occupancy;
4. said lease is in full force and effect and has not been assigned,
modified, supplemented or amended in any way (except by agreement(s) dated
____________), and neither party thereto is in default thereunder; and
5. the same represents the entire agreement between the parties
as to this leasing; and
6. the Term of said lease expires on _______________; and
7. all conditions under said lease to be performed by the Lessor have been
satisfied, including but without limitation, all co-tenancy requirements
thereunder; and,
8. all required contributions by Lessor to Lessee on account of
Lessee's improvements have been received; and,
9. on this date there are no existing defenses or offsets which
the undersigned has against the enforcement of said lease by the Lessor;
and,
<PAGE>
10. no rental has been paid through ___________, 19___, and no
security (or in the amount of $____________) has been deposited with the
lessor; and,
11. rental for ___________, 19___, has been paid.
Very truly yours,
(Tenant)_____________________________
By: _________________________________
Name:
Title:
<PAGE>
TYSONS INTERNATIONAL PLAZA
SCHEDULE I
BIDS
(Attached)
EXCALIBUR TECHNOLOGIES
2000 Corporate Ridge Suite 1095 McLean, VA 22102
Tel (703)790-2110 FAX (703)790-2111
September 7, 1995
James Buchanan
236 Meadowbrook Drive
Cranberry Township, PA 16066
Dear James,
It is my pleasure to offer you the position of Chief Financial Officer for
Excalibur Technologies Corporation. As agreed upon, your start date will be
September 13, 1995 and your place of employment will be 2000 Corporate Ridge in
McLean, Virginia.
Alon with this letter, I am enclosing two copies of Excalibur's standard
Confidentiality Agreement. Please sign and return both copies of the agreement
to me prior to commencement of your employment. A fully executed copy will be
returned to you for your records.
Your compensation will be as follows:
Salary
$150.000 annual salary, paid semi-monthly.
Revenue Attainment Bonus
A potential pro-rated bonus of $15,000, evaluated and paid quarterly,
based on Excalibur meeting its FY96 corporate revenue budget each quarter,
as approved or modified by the Board of Directors.
Profitability Bonus
A potential pro-rated bonus of $15,000, evaluated and paid after the final
financial figures for FY96 are known, based on Excalibur achieving
profitability for the second half of FY96, as reported on the Net Profit
line on Excalibur's financial statements, but not including this bonus or
similar bonuses paid to other executives of Excalibur.
Performance Bonus
A potential pro-rated bonus of $7,500, evaluated and paid at the end of
FY96, based on a subjective evaluation of your performance during FY96 by
Excalibur's Board of Directors.
<PAGE>
James Buchanan
September 7, 1995
Page 2
Stock Options
Upon start of your employment you will be granted options under the
Excalibur Incentive Plan to purchase 30,000 shares of Excalibur stock.
An additional grant of 30,000 shares of Excalibur stock will be granted
upon the first anniversary of your employment.
An additional grant of 40,000 shares of Excalibur stock will be granted
upon your second anniversary of employment bringing the total shares of
stock granted to 100,000.
Such grants are made at the market price at the time of grant (average of
closing price of stock for the ten trading days preceding the date of
grant), and vest 12.5% every six months.
The options are subject to the rules and requirements of the Excalibur
Incentive Plan, the IRS Code, and any changes made by a a third party
which may effect the issuance of or accounting for these options by the
Company. This clause is valid as long as you are employed by Excalibur
and are not released for cause.
Relocation Bonus
At the time you relocate your personal residence to the McLean, Virginia
area, you will be paid a relocation bonus of $50,000 (before taxes are
deducted). If you resign from Excalibur, or are terminated for cause
(definition of "cause" attached), anytime within the first two years of
employment, you agree to repay a pro-rated amount of the net after-tax
Relocation Bonus you receive.
Discharge of Employee
Should you be let from Excalibur for any reason other than cause you will
receive an amount equal to 12 months compensation of your annual salary
upon the date of your discharge. You will be paid the foregoing amount
periodically, as though you were still on Excalibur's semi-monthly
payroll.
If you are terminated for cause you will not receive any further
compensation. If you resign you will not receive any further
compensation.
Expenses
Out-of-pocket and travel expenses will be approved on a case-by-case
basis and must be documented and filed on Excalibur's expense report
forms. Mileage for business travel will be reimbursed at the IRS standard
rate.
Other Benefits
Your are eligible for coverage by the company's health insurance plan for
full-time employees and will receive 3 weeks paid vacation per year,
which accrues at ten (10) hours per month with a maximum accrual of 120
hours. After 90 days of employment you will be eligible to participate in
Excalibur's 401(k) plan.
<PAGE>
James Buchanan
September 7, 1995
Page 3
This letter outlines the basis for your compensation in the position of Chief
Financial Officer for Excalibur Technologies Corporation for the remainder of
fiscal year 1996. Nothing in this letter should be interpreted to imply a
duration of employment. You will be an employee at will with Excalibur
Technologies Corporation.
If you have any questions regarding any of the above, pleas do not hesitate to
contact me.
Sincerely,
/s/Patrick C. Condo
Patrick C. Condo
President
Cc: Personnel File
Please sign and return a copy of this letter documenting your understanding and
acceptance of these terms and conditions.
James Buchanan: /s/James Buchanan Date: 9/13/95
----------------------- -------------
<PAGE>
James Buchanan
September 7, 1995
Page 4
ATTACHMENT
DEFINITION OF CAUSE
CAUSE: "Cause" shall mean any or all of the following: (i) the willful and
continued failure by Employee to perform his duties (other than any such failure
resulting from Employee's incapacity due to physical or mental illness or
injury) after demand for performance is delivered by the Company that
specifically identifies the manner in which the Company believes Employee has
not substantially performed his duties, which failure is not cured within 30
days after written notice is given; (ii) conduct by Employee involving fraud,
dishonesty, moral turpitude, willful or grossly negligent misconduct, bad faith
or other conduct amounting to a breach of Employee's fiduciary duties to the
Company (provided, however, that in the cause of grossly negligent misconduct
amounting to a breach of Employee's fiduciary duties to the company that, by its
nature, is susceptible to cure by subsequent acts of Employee, Employee shall
have 30 days after demand by the Company to cure such grossly negligent
misconduct); or (iii) a failure by Employee to comply with any material
provision of this Compensation Letter which failure is not cured within 30 days
after written notice of such noncompliance has been given by the Company to
Employee. For purposes of this definition of Cause, no act, or failure to act,
by Employee shall be considered "willful" unless done, or omitted to be done, by
him not in good faith and without reasonable belief that his action or omission
was in the best interest of the Company.
Exhibit 21.01
SUBSIDIARIES OF EXCALIBUR TECHNOLOGIES CORPORATION
January 31, 1999
Jurisdiction of
Incorporation
--------------
1. Excalibur Technologies International, Ltd. United Kingdom
2. Excalibur Acquisition Corporation Maryland
3. EXCA Acquisition Corporation Delaware
Exhibit 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Excalibur Technologies Corporation and Subsidiaries 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. 333-89144, 333-15369 and 333-40873) of our report dated
February 26, 1999 on our audit of the consolidated financial statements and
financial statement schedule of Excalibur Technologies Corporation and
Subsidiaries as of January 31, 1999 and for the year then ended, which report is
included in this Annual Report on Form 10-K.
/s/PricewaterhouseCoopers, LLP
McLean, Virginia
April 26, 1999
<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-31-1999
<PERIOD-END> JAN-31-1999
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<SECURITIES> 0
<RECEIVABLES> 7,062
<ALLOWANCES> 660
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<PP&E> 9,020
<DEPRECIATION> 6,986
<TOTAL-ASSETS> 19,712
<CURRENT-LIABILITIES> 6,538
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0
0
<COMMON> 137
<OTHER-SE> 12,710
<TOTAL-LIABILITY-AND-EQUITY> 19,712
<SALES> 22,741
<TOTAL-REVENUES> 27,939
<CGS> 3,808
<TOTAL-COSTS> 18,629
<OTHER-EXPENSES> 8,328
<LOSS-PROVISION> 493
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,854)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,854)
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