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, 2000
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, 2000 (based on the closing sales price as reported on
the NASDAQ National Market System) was $376,614,034.
The number of shares outstanding of the registrant's class of common stock as of
April 7, 2000 was 14,739,232.
The Index to Exhibits begins on Page 29
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EXCALIBUR TECHNOLOGIES CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 2000
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..................................................20
Item 8. Financial Statements and Supplementary Data..................20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..........................20
PART III
Item 10. Directors and Executive Officers of the Registrant...........21
Item 11. Executive Compensation ......................................24
Item 12. Security Ownership of Certain Beneficial Owners and
Management...................................................27
Item 13. Certain Relationships and Related Transactions...............29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.....................................................29
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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 high-performance, accurate,
scalable and secure search-powered multimedia software solutions. Excalibur
offers a suite of intelligent search solutions for corporate intranets, Internet
e-commerce, online publishing, application service providers ("ASP") and
the original equipment manufacturer ("OEM") market that enables individuals to
quickly capture, analyze, index, catalog, access, navigate, retrieve, publish
and share relevant information residing on an enterprise's networks, intranets,
extranets and the Internet. Retrievable assets or data types include paper
documents, text, databases, word processing documents, PDF (Portable Document
Format) files, newsfeeds, groupware systems, e-mails, images, audio and video.
Excalibur's software solutions deliver capabilities for ingesting, analyzing and
encoding analog or digital video, managing video content, video content
rough-cut editing, web publishing, real-time profiling and retrospective search,
combined full-text and database searching, word meaning-based semantic
searching, fault-tolerant pattern recognition-based searching for both text and
images, statistical searching and a full suite of traditional keyword and
Boolean search techniques. Excalibur RetrievalWare(R), an enabling technology
for Intranet enterprise portals, 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
RetrievalWare WebExpress is an advanced search engine designed for use by
web-driven businesses who need to provide their web site prospects and customers
with the most accurate search results. Excalibur Screening Room(R), the
Company's video content management product, has a modular architecture, ASPenVM,
designed to enable interconnected computer networks at end user and ASP
installations to provide secure, scalable and intuitive access to, and
re-purposing and publishing capabilities for, video content over intranets,
extranets and the Internet.
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 core
technologies: semantic network and Adaptive Pattern Recognition Processing
("APRP(TM)"). The semantic network leverages lexical knowledge at the highest
level using built-in knowledge bases 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
analysis and retrieval applications for any type of digital information. By
integrating these two approaches, Excalibur believes that it delivers
complete, powerful, yet easy to use search-powered capabilities. The combined
technology underlies most Excalibur applications.
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, OEM, ASP and other
strategic partners. On November 17, 1999, the Company formally announced the
alignment of its business into two operating segments. The Excalibur
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Applications Group develops, markets and services the Excalibur RetrievalWare
suite of products and targets large corporations and government organizations
building knowledge management intranets and portals, as well as Internet based
e-commerce and online service businesses. The Excalibur Media Services Group
develops, markets and services the Screening Room product line and focuses on
opportunities in association with third party ASPs and OEMs that will host or
embed Screening Room in their product and service offerings for their customers
and end users engaged in media, broadcast, entertainment, training, distance
learning, collaborative media production and corporate communication activities.
Excalibur's wholly owned subsidiary located in the United Kingdom, Excalibur
Technologies International, Ltd. ("ETIL") and a branch of ETIL located in
Germany conduct 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 e-mail at [email protected] and visited at its
web site at www.excalib.com. Information on our web site is not part of this
Form 10-K.
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PRODUCTS
Excalibur offers a suite of intelligent search solutions for corporate
intranets, Internet e-commerce, online publishing and the OEM market through the
Excalibur Applications Group which develops, markets, licenses and services the
Excalibur RetrievalWare suite of multimedia search solutions. This product group
includes Excalibur RetrievalWare, Excalibur RetrievalWare FileRoom, Excalibur
RetrievalWare WebExpress, Excalibur Internet Spider, Excalibur RetrievalWare SDK
and Excalibur EFS. Through the Excalibur Media Services Group, the Company
provides video-centric multimedia solutions with Excalibur Screening Room,
Excalibur Visual RetrievalWare, and Excalibur Video Analysis Engine (VAE). The
Media Services Group's products are targeted at the rapidly emerging market for
managing video content on the Internet and over private computer networks.
Excalibur Application Group Products:
The Excalibur Application Group's products contributed 88%, 94%, and 97% of
total consolidated revenues in fiscal years 2000, 1999 and 1998, respectively.
Excalibur RetrievalWare
Excalibur RetrievalWare offers an advanced componentized approach to content
access and retrieval and is an enabling technology for intranet enterprise
portals, web publishing and e-commerce applications. A high-performance
scalable, more accurate alternative to traditional search and retrieval systems,
Excalibur RetrievalWare is a comprehensive software solution designed for
enterprise-level content access and retrieval and intended to empower users to
find mission critical data across multiple data types, all from a common user
interface. 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. With Excalibur's semantic
networks, users can easily and automatically find required information 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 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 supports more than 200 document formats stored on file
servers, in groupware systems, relational databases, document management
systems, intranets and the Internet. 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.
The latest version of the product, Excalibur RetrievalWare 6.7, was released in
the third quarter of fiscal year 2000. RetrievalWare 6.7 is a major upgrade that
allows end users a wider degree of flexibility through automatic categorization,
enhanced XML support and expert directories. The upgrade also features a new
Power Search Plug-in for Lotus Notes, which allows end users to power search
from inside the Notes environment across data distributed enterprisewide, and
groupware support for FileNET Panagon and Documentum. The groupware plug-ins
further enable users to integrate these platforms and make them searchable with
all other enterprise knowledge assets without taking them out of service. With
the new automatic categorization feature, users can quickly and easily create
categories of interest to them and RetrievalWare 6.7 will automatically and
accurately place information pertaining to certain topics into these categories
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for all users to navigate and/or search on. The Experts Directory is designed to
connect domain experts or others who might have valuable information in a
specific topic or area of research to users seeking to leverage that knowledge.
The Knowledge Contributor enables users to add documents to RetrievalWare
libraries from their desktop. SmartView enables users to view documents in their
original published format, allowing users to view documents with the formatting,
graphics and layout of the application used to create the document, with search
hits highlighted and other RetrievalWare browsing and mark-up features
available. Other features of version 6.7 include the ability to index and
retrieve documents stored in zip archives, language plug-ins and support for
Linux.
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 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.
Excalibur RetrievalWare WebExpress
Excalibur RetrievalWare WebExpress is a stand-alone search and retrieval tool
designed for online service providers and content-rich Internet e-commerce
sites. 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 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 provide deep, broad and repetitive
crawling. 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 RetrievalWare SDK
The Excalibur RetrievalWare SDK (Software Developer's Kit) is a comprehensive
set of tools for building advanced search-based 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.
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Excalibur RetrievalWare Synchronizers
Excalibur RetrievalWare Synchronizers provide document-level security for users
to search the contents of multiple native repositories from a single point of
access including Lotus Notes, Microsoft Exchange, Documentum EDMS 98, FileNET
Panagon, native file systems and relational database management systems.
Excalibur Electronic Filing Software (EFS)
Excalibur EFS version 3.7 is the last version of the product which was
originally introduced in 1991 and has been phased out. Users of EFS have
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.
Excalibur Media Services Group Products:
The Excalibur Media Services Group's products contributed 12%, 6%, and 3% of
total consolidated revenues in fiscal years 2000, 1999 and 1998, respectively.
Excalibur Screening Room
Excalibur Screening Room is a comprehensive solution for video asset management
providing scalable access, search and retrieval of video assets, both analog and
digital, from any desktop. It provides for real-time capturing, encoding,
analyzing, cataloguing, browsing, searching and retrieving video, as well as
related closed-caption text and metadata, over corporate intranets/extranets.
Designed to manage video content in Internet portal and corporate intranet
environments, Excalibur Screening Room also supports media, broadcast and
entertainment video asset management solutions. 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 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 Edit Decision Lists("EDL") 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. Version 2.0, the
latest version of Excalibur Screening Room, includes new functionality that
enables users to search video based on spoken audio content (speech-to-text).
When closed-caption text is not present, Screening Room automatically translates
the spoken portion of the audio track to electronic text that can be searched
using Excalibur RetrievalWare. In the fourth quarter, the Company announced a
new software architecture for its Screening Room product. Called ASPenVM
(Application Service Provider Enabled Network for Video Management), the
architecture establishes a platform that ASP and streaming media platform
partners can use to create capabilities for managing video over intranets and
the Internet.
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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
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.
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 Columbia, Maryland;
Carlsbad, California 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 focuses, in the case of the Excalibur
Applications Group, on the licensing of Excalibur products to end-user customers
through both a direct sales force as well as strategic partners and OEMs. The
Excalibur Media Services Group emphasizes the licensing of Excalibur products to
end-user customers indirectly through industry partners and application service
providers. The targeted customer group for the Company's products includes the
world's largest corporations, government agencies and other institutions, large
computer systems integrators, web-based application service providers and
web-driven businesses. For both business units, members of the North American
sales team are located throughout the United States, and 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, and licenses its Excalibur Screening Room product
to end users through service providers and industry partners that pay monthly
fees for the right to use the product.
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Revenues derived from contracts and orders issued by agencies of the U.S.
Government were approximately $4.4 million, $4.5 million and $5.4 million,
respectively, in the fiscal years ended January 31, 2000, 1999 and 1998. These
revenues, expressed as a percentage of total revenues for the fiscal year, were
approximately 12%, 16% and 24%, respectively. Financial information about the
Company's segments is presented in Note 9 to the consolidated financial
statements contained herein.
Marketing efforts focus on building brand awareness and establishing demand for
the Company's products and include advertising, public relations, trade show
participation, direct mail and electronic marketing campaigns and
telemarketing/lead management activities. The Company also has a home page on
the World Wide Web at www.excalib.com that is an integral part of its marketing
and sales efforts. Customers are able to learn about the suite of Excalibur
products, conduct online demonstrations of products and enroll in training
courses, as well as access passworded areas for technical and other customer
support.
The Company has formed relationships with distributors of its software products
and the strategic partners discussed below as an integral part of its
distribution strategy.
Strategic Alliances
From time to time, the Company enters into contractual arrangements with
customers that provide for the Company's core products to be customized to meet
the specific needs of those customers. In most instances, Excalibur personnel
will align with the customers' personnel to facilitate the development of the
solution to the customers' satisfaction using previously developed and proven
Excalibur products. Generally, when the Company is able to reliably estimate the
costs to be incurred in these efforts, such contractual agreements are accounted
for under the percentage of completion method of accounting. Additionally, the
Company enters into arrangements with certain vendors to enhance existing
products or assist in the development of new products.
In the fourth quarter of fiscal year 2000, the Company announced an agreement
with AT&T Labs that calls for the integration of AT&T Lab's image and audio
processing and speech recognition technologies with the Excalibur Screening Room
product to create an intranet-based video asset management service that will be
marketed by both Excalibur and AT&T. The new version of the product, a
completely outsourced solution for video asset management, enables users to
search, browse and selectively retrieve video content online.
In the third quarter of fiscal year 2000, the Company announced a licensing,
development and distribution agreement with NCR Corporation, a provider of data
warehousing solutions for the retail, financial, communications, airlines and
insurance markets. The agreement gives NCR rights to use the Company's products
in NCR Teradata warehouse solutions and to resell the full Excalibur product
line through its worldwide services and solutions group. The NCR contract is
for licensing, integration and support which the Company is recognizing on a
percentage of completion basis. In addition, NCR will pay the Company ongoing
royalties for data warehouse products it develops that use Excalibur technology.
In the third quarter of fiscal year 2000, the Company signed an agreement with
found.com, an e-commerce Internet search engine. The agreement enables found.com
to utilize Excalibur RetrievalWare WebExpress for advanced search and retrieval
on its e-commerce network.
In the third quarter of fiscal year 2000, the Company announced a technology
licensing, integration and distribution agreement with Parametric Technology
Corporation ("PTC"), a provider of integrated product development and lifecycle
management solutions. The agreement gives PTC rights to integrate Excalibur
RetrievalWare into PTC's product and process lifecycle management software,
Windchill.
In the second quarter of fiscal year 2000, the Company entered into an agreement
with INTERVU, Inc. to deliver a turnkey service for the management of video
content over the Internet. The agreement calls for INTERVU to use Screening Room
to create a service for the management of video content over the Internet.
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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. Under a separate contractual arrangement, the Company
purchased a license from Inso for Hyper Text Markup Language ("HTML") Export and
Viewer technologies to be included in Excalibur products.
In July 1996, the Company authorized the use of its name by Excalibur
Technologies N. V. ("ETNV"), a Belgian company incorporated in June 1996 for the
purpose of selling and marketing the Company's products and services within a
large territory including most of Northern Europe and Italy. In connection with
the formation of ETNV, the Company acquired approximately 13.2% of ETNV's voting
capital stock. The Company granted to ETNV an exclusive license (the "License")
to distribute certain of the Company's products, including Excalibur EFS and
RetrievalWare, to other authorized resellers and end users in the territory for
approximately five years. The License provided for the payment to the Company of
minimum license fees of $1,475,000 for fiscal year 1997 and the payment of
additional minimum license fees in each subsequent fiscal year of the License.
In May 1999, the Company terminated its 1996 distribution agreement with ETNV
because ETNV failed to pay to Excalibur the minimum required license fees for
the quarter ended January 31, 1999 of approximately $900,000 as well as an
additional amount of approximately $400,000 that was due on April 20, 1999.
Promptly after giving notice of such termination Excalibur commenced a lawsuit
in the United States District Court for the Eastern District of Virginia seeking
as damages such unpaid minimum license fees and other amounts due and owing from
ETNV. The lawsuit was settled on July 21, 1999. No payment was made by ETNV as
part of the settlement, and no revenue related to the agreement was recorded in
the current fiscal year.
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 video 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.
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, dictionaries and thesauruses in electronic form, image and audio
processing, and face and speech recognition technologies.
8
<PAGE>
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 $9.5 million, $8.3 million and $6.4
million, respectively, in the fiscal years ended January 31, 2000, 1999 and
1998.
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 also obtains trademark protection for its various product names. The
Company has not obtained patents on any of its technology; however, an
application was filed on August 24, 1998 with the Patent and Trademark Office
to obtain a patent on multimedia document retrieval. The patent application is
pending as of the date of this report. 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 information technology 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.
RetrievalWare's superior language handling capability is also a competitive
advantage. 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's Applications Group competes directly with
companies such as Verity, Inc. and Autonomy, Inc. to provide search solutions to
the corporate intranet, Internet e-commerce, online publishing and the OEM
market. The Company's Media Services Group primarily competes with Virage, Inc.
to provide video content management solutions to Internet portals and corporate
intranets. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competition will not
materially adversely affect the Company's operating results and financial
condition.
The Company's activities currently are subject to no particular regulation by
governmental agencies other than those routinely imposed on corporate businesses
and no such regulation is now anticipated.
EMPLOYEES
The Company had 208 employees at January 31, 2000, of whom 78 were in research
and development, 72 in sales and marketing, 31 in technical support,
professional services 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.
9
<PAGE>
Item 2. Properties
The Company's corporate headquarters facilities are occupied under a lease
agreement that expires in calendar year 2004 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 presently 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 also occupies approximately 10,659 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 4,652 square
feet in the same building under a lease that expires in March 2001. The Company
has signed a new lease to begin in the summer of 2000 at 11000 Broken Land
Parkway, Columbia Maryland for 18,371 square feet. This space will replace the
expiring Columbia, Maryland leases. 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. A three-year lease
for a fourth facility of 3,110 square feet to house software development staff
has been signed to begin in June of 2000 at 1455 Dixon Avenue, Lafayette,
Colorado 80026.
The Company leases office space in Windsor, England and commercial office suites
in Boulogne, Paris, France, and in Munich and Frankfurt, Germany in support of
its international sales operation. Under its agreement, the Company occupies
approximately 3,400 square feet in Windsor. The lease for the Windsor office is
currently on extension periods of three month intervals. Negotiations are
underway to lease new space in a nearby location. The leased three-office space
in Boulogne, Paris, and the three-office space in Munich and the single office
in Frankfurt are on rolling contracts with one to three month notice periods for
cancellation.
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, 2000.
10
<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, 1999 through January
31, 2000, 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, 2000 was 1,127. 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 2000 (February 1, 1999 - January 31, 2000)
First Quarter.................................... $ 19 7/8 $ 8 3/4
Second Quarter................................... 17 5/16 9 9/32
Third Quarter.................................... 12 7/8 7 5/8
Fourth Quarter................................... 25 1/2 9 1/4
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
11
<PAGE>
Item 6. Selected Financial Data
The selected financial data presented below as of January 31, 2000 and 1999, and
for the fiscal years ended January 31, 2000, 1999 and 1998, 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.
Fiscal Years Ended January 31,
-----------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
Statement of Operations Data:
Revenues:
Software.................... $32,649 $22,741 $17,202 $15,866 $15,004
Maintenance................. 5,285 5,198 5,215 4,393 3,671
------- ------- ------- ------- -------
37,934 27,939 22,417 20,259 18,675
------- ------- ------- ------- -------
Expenses:
Cost of software revenues 4,842 3,808 3,039 1,630 1,064
Cost of maintenance revenues 2,143 1,320 1,219 1,618 1,398
Sales and marketing......... 16,210 13,501 13,184 14,430 8,752
Research and product
development.............. 9,456 8,328 6,405 6,288 4,416
General and administrative.. 5,402 4,775 4,884 3,906 3,330
Acquired in-process research
and development.......... - - 1,284 - -
Restructuring costs......... - - 577 - 653
Merger costs................ - - - - 490
------- ------- ------- ------- -------
38,053 31,732 30,592 27,872 20,103
------- ------- ------- ------- -------
Operating loss................. (119) (3,793) (8,175) (7,613) (1,428)
Interest income, net........... 250 239 374 781 544
Equity in net loss of affiliate - (300) (525) (341) -
Write-off of investment in
affiliate...................... (471) - - - -
------- ------- ------- ------- -------
Net loss....................... (340) (3,854) (8,326) (7,173) (884)
Dividends on cumulative,
convertible preferred stock.... 14 14 14 14 14
------- ------- ------- ------- -------
Net loss applicable to
common stock............... $ (354) $(3,868) $(8,340) $(7,187) $ (898)
======= ======= ======= ======= =======
Basic and diluted net loss per
common share................ $ (0.02) $ (0.29) $ (0.64) $ (0.58) $ (0.08)
======= ======= ======= ======= =======
Weighted average number
of common shares
outstanding................. 14,282 13,526 12,934 12,351 11,496
======= ======= ======= ======= =======
Balance Sheet Data (at end of period)(1):
Cash and cash equivalents..... $ 10,884 $ 5,851 $ 4,939 $ 2,685 $ 2,903
Working capital............... 19,349 8,006 9,748 14,566 12,973
Total assets.................. 30,687 19,712 20,045 26,147 23,046
Accumulated deficit........... (56,138) (55,798) (51,945) (43,619) (36,466)
Total shareholders' equity (2) 22,305 13,174 13,098 18,563 15,251
- -------------------
(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.
12
<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, application service providers 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 announced on November 17, 1999 the alignment of the business into
two operating segments. The Excalibur Applications Group develops, markets and
services the Excalibur RetrievalWare suite of products and targets large
corporations and government organizations building knowledge management
intranets and portals, Internet based e-commerce and online service businesses.
The Excalibur Media Services Group develops, markets and services the video
product line and provides software products and services primarily to original
equipment manufacturers and application service providers focusing on Internet
and intranet video content management.
The following chart represents revenues and expenses (dollars in thousands)
attributable to the Applications Group and Media Services Group for the years
ended January 31, 2000, 1999 and 1998. Expenses for each segment consist of
direct and allocated expenses and exclude the write-off of ETNV, restructuring
costs and acquired in-process research and development costs.
Applications Group Media Services Group
------------------ --------------------
Fiscal Years Ending January 31, Fiscal Years Ending January 31,
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------
Total Revenues $ 33,369 $ 26,206 $ 21,791 $ 4,565 $ 1,733 $ 626
Operating Expenses 29,090 24,888 24,209 8,963 6,844 4,522
-------- -------- -------- -------- -------- --------
Operating
Income (Loss) $ 4,279 $ 1,318 $ (2,418) $ (4,398) $(5,111) $ (3,896)
-------- -------- -------- -------- -------- --------
Note: Excludes the write-off of ETNV, 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.
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
13
<PAGE>
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 year
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, 2000, total revenues were $37.9 million,
an increase of 36% over total revenues of $27.9 million in the prior fiscal
year. The net loss for the fiscal year ended January 31, 2000 was $0.3 million,
or $0.02 per common share, compared to a net loss of $3.9 million, or $0.29 per
common share last fiscal year. The net loss for the fiscal year ended January
31, 2000 included a charge of $0.5 million related to the termination of the
Company's relationship with ETNV. Total revenues in fiscal year 1999 increased
25% from fiscal year 1998 revenues of $22.4 million. The net loss for the fiscal
year ended January 31, 1998 was $8.3 million, or $0.64 per common share. The
net loss included 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 following chart summarizes the components of revenues and the categories of
expenses, including the amounts expressed as a percentage of total revenues, for
each of the three fiscal years in the period ended January 31, 2000 and the
percentage changes in the amounts between fiscal years (dollars in thousands).
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease)
from from
1999 1998
to to
Components of Revenue and Expenses 2000 1999
Fiscal years ended January 31,
2000 1999 1998
Revenues: $ % $ % $ % % %
------- ---- ------- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RetrievalWare $28,150 74% $20,859 75% $15,083 67% 35% 38%
EFS 48 - 318 1% 1,591 7% -85% -80%
Video Products 4,452 12% 1,564 6% 528 2% 185% 196%
------- ---- ------- ---- ------- ---- ---- ----
Total software 32,649 86% 22,741 81% 17,202 77% 44% 32%
Maintenance 5,285 14% 5,198 19% 5,215 23% 2% 0%
------- ---- ------- ---- ------- ---- ---- ----
Total revenues $37,934 100% $27,939 100% $22,417 100% 36% 25%
------- ---- ------- ---- ------- ---- ---- ----
Expenses:
Cost of sales $ 6,985 18% $ 5,128 18% $ 4,258 19% 36% 20%
Sales and marketing 16,210 43% 13,501 48% 13,184 59% 20% 2%
Research and product
development 9,456 25% 8,328 30% 6,405 29% 14% 30%
General and
administrative 5,402 14% 4,775 17% 4,884 22% 13% -2%
Acquired in-process
research and
development - - - - 1,284 6% - -100%
Restructuring costs - - - - 577 3% - -100%
------- ---- ------- ---- ------- ---- ---- ----
Total expenses $38,053 100% $31,732 114% $30,592 136% 20% 4%
------- ---- ------- ---- ------- ---- ---- ----
</TABLE>
14
<PAGE>
Revenues
Software revenues increased from $17.2 million in fiscal year 1998 to $22.7
million in fiscal year 1999 and to $32.6 million in fiscal year 2000. The
increase in software revenues in each period was attributable to increasing
market awareness and acceptance of the Company's products in the intranet portal
and Internet based e-commerce and online services markets, as well as
contributions from existing OEM partners and alliances with new partners who
chose the Company as the key search component in their product offerings.
RetrievalWare, which emerged as the Company's dominant product line in fiscal
year 1998, continued that trend into fiscal years 1999 and 2000. Software
revenues from RetrievalWare increased 35% in fiscal year 2000 to $28.2 million
from $20.9 million in the prior year. Software revenues for RetrievalWare were
$15.1 million in fiscal year 1998. For fiscal year 2000, RetrievalWare product
revenue represented 86% of software revenues, compared to 92% and 88%, in fiscal
years 1999 and 1998, respectively. With the availability of RetrievalWare
FileRoom, EFS software revenues represented a negligible percentage of total
software revenues in fiscal year 2000, compared to 1% and 9%, respectively, in
fiscal years 1999 and 1998. Software revenues from video products increased 185%
in fiscal year 2000 to $4.5 million from $1.6 million in 1999. Software revenues
from video products were $0.5 million in fiscal year 1998. Revenues from video
products were 14% of software revenues in fiscal year 2000 compared to 7% and
3%, respectively, in fiscal years 1999 and 1998.
Revenue increases in fiscal year 2000 were driven by three primary areas. These
included sales to large corporations and government organizations building
knowledge management intranets and corporate portals, sales to Internet
businesses and web content providers, and indirect sales via major integration
and distribution partnerships. Also in this fiscal year, the Company initiated a
new program to become a supplier to the ASP market by providing Screening Room
to those ASPs that are looking to add video content management capabilities to
their service offerings.
The first area of revenue growth came from sales of RetrievalWare to
organizations with large intranets seeking to implement high performance search
and retrieval software or replace existing search technology. Typically these
are maturing corporate intranet sites dealing with expanding amounts of content
and multimedia data types that need to be effectively accessed and utilized by
the organization. For the year ended January 31, 2000, intranet or knowledge
management market sales were approximately 38% of total license revenues.
A second area of revenue growth came from sales of Excalibur RetrievalWare and
WebExpress to Internet web portals, e-commerce businesses and online service
providers looking to provide their customers with an enhanced search experience.
Typically these are online businesses that place a high value on their content
and whose customers demand accurate search results from a large amount of
information. There are now approximately 70 companies using Excalibur products
to power online information services and e-commerce applications. For the year
ended January 31, 2000, online services and e-commerce sales were approximately
29% of total license revenues.
The third area of growth came from new and existing OEM partners such as NCR,
Lombard, Techmath, KDN and OCS. During the second quarter of this year, the
Company completed its delivery to StorageTek under the terms of that contract.
Revenue of approximately $5.1 million was recognized from the StorageTek
agreement from its inception in July 1998. Revenue of approximately $2.8 million
was recognized from the StorageTek agreement in fiscal year 2000.
The licensing, development and distribution agreement with NCR gives NCR rights
to use the Company's products in NCR Teradata warehouse solutions. NCR also has
rights under the agreement to resell the full Excalibur product line. In
addition, NCR will pay the Company ongoing royalties for data warehouse products
it develops that use Excalibur technology. For the year ended January 31, 2000,
the Company recognized revenues of approximately $4.3 million from the NCR
agreement, which is being accounted for on a percentage of completion basis.
The Company's indirect sales strategy continues to focus on strategic OEM
agreements that provide potentially significant revenue opportunities. For the
year ended January 31, 2000, OEM relationships provided approximately 33% of
total license revenues.
15
<PAGE>
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"), is headquartered
in the United Kingdom, with a branch office located in Germany. International
revenues excluding Canada grew 25% in fiscal year 2000 to $9.2 million from $7.3
million in fiscal year 1999. Comparable international revenues were $7.8 million
in fiscal year 1998. The Company terminated its relationship with ETNV, a
Belgian Company incorporated in June 1996 to sell and market the Company's
products and services within a territory that included most of Northern Europe
and Italy, in the first quarter of fiscal year 2000. No revenues related to the
ETNV agreement were recognized in fiscal year 2000.
Software maintenance and customer support revenues were $5.3 million in fiscal
year 2000 and $5.2 million in fiscal years 1999 and 1998. The increase in
maintenance revenue in fiscal year 2000 was primarily attributable to an
increase in the number of RetrievalWare customers. Flat maintenance revenues in
fiscal year 1999 compared to 1998 were attributable to the transition of the
business from EFS to RetrievalWare, as well as the increase in revenues from OEM
agreements that do not have a significant maintenance component.
Operating Expenses
Costs of sales increased 36% to $7.0 million in fiscal year 2000 from $5.1
million in fiscal year 1999. The increase in fiscal year 2000 was related
primarily to the sales volume increase and greater royalty expense associated
with new features included in the products. In fiscal year 1999, cost of sales
increased 20% from $4.3 million in fiscal year 1998. The increase in fiscal year
1999 was attributable to higher revenues and increased ETIL cost of sales due to
higher royalties for new language versions of RetrievalWare and greater use of
partners. Costs of sales represented 18%, 18% and 19% of revenues in fiscal
years 2000, 1999 and 1998, respectively.
Sales and marketing expenses increased 20% to $16.2 million in fiscal year 2000
from $13.5 million in fiscal year 1999. In fiscal year 1998, sales and marketing
costs were $13.2 million. Growth in marketing program expenses and the opening
of the new Germany sales office were responsible for the increase in fiscal year
2000 expenses. The increase in sales and marketing expenses in fiscal year 1999
was due to personnel growth in ETIL and the marketing department. Sales and
marketing expenses were 43% of revenues in fiscal year 2000 compared to 48% in
fiscal year 1999 and 59% of revenues in fiscal year 1998.
Research and product development costs increased 14% to $9.5 million in fiscal
year 2000 from $8.3 million in fiscal year 1999, representing 25% and 30% of
revenues, respectively. The fiscal year 2000 increase was largely due to
expenses associated with the development agreement with StorageTek. Text and
video research and development expenses also increased in the current year
compared to last year as the Company continued to invest in the enhancement of
its RetrievalWare and video products. The increase in fiscal year 1999, from
$6.4 million in fiscal year 1998, or 29% of revenue, was mainly attributable to
the establishment of the joint development lab with StorageTek in the third
quarter.
General and administrative expenses increased in fiscal year 2000 to $5.4
million from $4.8 million in fiscal year 1999, representing 14% and 17% of
revenues, respectively. The increase in fiscal year 2000 was driven by increased
corporate expenses including legal and accounting costs. In fiscal year 1999,
general and administrative costs declined from $4.9 million in fiscal year 1998.
Bad debt expense in fiscal years 2000, 1999 and 1998 was $0.8 million, $0.5
million and $0.3 millon, 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 Software Corporation ("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
16
<PAGE>
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 2000, including those discussed above, resulted
in total expenses of $38.1 million, a 20% increase from total expenses of $31.7
million in the prior fiscal year. In fiscal year 1999, total expenses increased
by 4% from $30.6 million in fiscal year 1998. The total number of employees
increased from 201 at the beginning of the current fiscal year to 208 at January
31, 2000. The Company had 168 employees at January 31, 1998.
Net interest income increased to $0.3 million in fiscal year 2000 from $0.2
million in 1999. Net interest income was $0.4 million in 1998. As discussed in
Note 3 to the consolidated financial statements contained herein, the Company
recorded in the fiscal year ended January 31, 2000 a charge related to the
termination of the agreement with ETNV of $0.5 million. The charge in fiscal
year 1999 related to the Company's equity in the net loss of ETNV was $0.3
million, and $0.5 million in fiscal year 1998.
Liquidity and Capital Resources
In the fiscal year ended January 31, 2000, the Company's combined balance of
cash, cash equivalents and short term investments increased by $5.2 million to
$11.1 million as summarized below (in thousands). At January 31, 2000,
investments consisted of a certificate of deposit pledged to collateralize a
letter of credit.
January 31, January 31,
2000 1999 Change
----------- ----------- ----------
Cash and cash
equivalents $ 10,884 $ 5,851 $ 5,033
Investments 178 - 178
----------- ----------- ----------
Total $ 11,062 $ 5,851 $ 5,211
=========== =========== ==========
The Company's operating activities used cash of $3.3 million in fiscal year
2000. The net loss of $0.3 million was offset by non-cash charges of $2.8
million, including $1.4 million in depreciation and amortization, $0.8 million
in bad debt expense and $0.5 million for the write-off of the Company's
investment in ETNV. Increases in accounts receivable used $8.7 million while
increases in accounts payable and accrued expenses provided $0.5 million.
Reductions in prepaid expenses and an increase in deferred revenues together
provided $2.5 million. 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 $2.3 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.
During fiscal year 2000, investing activities used $1.2 million principally due
to the purchase of equipment and leasehold improvements. In 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.
Financing activities provided $9.4 million in fiscal year 2000. Net proceeds of
$4.7 million were provided by a private placement of 500,000 shares of common
stock sold at $10.00 per share to unaffiliated accredited investors. Cash of
$4.7 million was provided from the exercise of employee stock options and
issuances of stock under the employee stock purchase plan. 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.
The number of days sales outstanding ("DSO") at January 31, 2000 was 106 days,
an increase of 45 days from January 31, 1999. The variance in DSO was in large
part due to a sizable up front cash payment that was made by a customer in the
quarter ended January 31, 1999. Management believes that the allowance for
doubtful accounts of $0.8 million at January 31, 2000 is adequate.
17
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The Company has available a $3,000,000 line of credit under an agreement with a
bank which expires on September 20, 2000. Up to $250,000 of borrowings may be in
the form of letters of credit. The line of credit is collateralized by
substantially all corporate assets. Borrowings under the line of credit bear
interest at the lender's prime rate plus up to 1% (8.5% at January 31, 2000).
The agreement requires the Company to comply with certain financial covenants
that are computed on a monthly basis and prohibit additional borrowings without
the bank's approval. As of January 31, 2000, no borrowings were outstanding
under the line of credit.
As of January 31, 2000, the Company's balances of cash and cash equivalents were
$11.1 million. The Company believes that its current balance of cash, cash
equivalents and its funds generated from operations, if any, will be sufficient
to fund the Company's current projected cash needs for the foreseeable future.
Historically, the Company has primarily used cash provided by sales of its
common stock to finance its operations. 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
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, 2000, the Company had net operating loss carryforwards
("NOLs") of approximately $64.7 million. 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 $0.3 million for the fiscal year ended January 31, 2000. The accumulated
deficit of the Company at January 31, 2000 was $56.1 million. 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.
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.
18
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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 Update
On July 29, 1998, the Securities and Exchange Commission issued additional
guidance on disclosures that public companies should make related to the Year
2000. In the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1999, the Company discussed its state of readiness, costs, key
considerations and contingency plans for becoming Year 2000 compliant and
updated the status of its readiness in subsequent interim reports on Form 10-Q
throughout the fiscal year ended January 31, 2000. The Company successfully
transitioned to the Year 2000, and as of the date of this report, the Company's
information technology systems ("IT systems") and its own development
information technology systems ("Non-IT systems") are Year 2000 compliant in all
material respects. Additionally, the Company has not experienced any material
problems with third party products or services. The costs of remediation were
not material. The Company resolved IT systems compliance issues through normal
replacement and upgrades of software. Most of the non-IT systems remedial
activity involved applying low or zero cost patches to operating systems and
platforms using existing MIS resources to achieve a date compliance level.
Although the Company believes that the transition into the Year 2000 has been
completed successfully, there can be no assurance that the Company will not be
adversely affected in the future by Year 2000 issues.
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
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, as amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133," 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 Nos. 133
and 137, which will be effective for the quarter ending April 30, 2001, will not
have a material effect on the financial statements.
In December 1999, the SEC released Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." This bulletin establishes more clearly
defined revenue recognition criteria than previously existing accounting
pronouncements. This bulletin will become effective for the Company for the
quarter ending April 30, 2000. The Company is currently evaluating the full
impact of this bulletin to determine the impact on its financial position,
results of operations and cash flows but does not anticipate that it will have a
material effect.
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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 24% of total revenues in fiscal year
2000. International sales are made mostly from the Company's foreign subsidiary
and are typically denominated in British pounds. The Company's exposure to
foreign exchange rate fluctuations arises in part from intercompany accounts in
which royalties on ETIL sales are charged to ETIL and recorded as intercompany
receivables on the books of the U.S. parent company. 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.
20
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PART III
Item 10. Directors and Executive Officers of the Registrant
Information Concerning Directors and Executive Officers
Name Age Position
Donald R. Keough 73 Chairman of the Board of Directors
Patrick C. Condo 43 President and
Chief Executive Officer,
Director
Richard M. Crooks, Jr. 60 Director
John S. Hendricks 48 Director
W. Frank King III 60 Director
John G. McMillian 73 Director
Philip J. O'Reilly 62 Director
Harry C. Payne 53 Director
Donald R. Keough has been Chairman of the Board of Directors and a Director of
the Company since June 1996. Since April 15, 1993, Mr. Keough has been Chairman
of the Board of Allen & Company Incorporated, a New York investment banking firm
that is the Company's largest shareholder. 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. He served as an Advisor to the
Board of Directors of The Coca-Cola Company from April 1993 to April 1998. 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, USA Networks, Inc. and Yankee Nets L.L.C.
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.
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 director of Internet
Pictures Corporation, a provider of visual content solutions for the Internet;
TiVo, Inc., a provider of personal television services and equipment; and a
member of the boards of various cable television industry groups, educational
institutions and other organizations promoting natural history and science.
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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 PSW
Technologies, Inc.; Auspex, Inc., a computer server manufacturer;
EonCommunications, a provider of Linux based communication servers; Perficient,
Inc., a provider of outsourced services to Internet software companies; Natural
Microsystems, Inc., a developer of telephone products; and several private
technology companies.
John G. McMillian was elected a Director in June 1996. He is the Chairman and
CEO of Chaparral Resources, Inc. Mr. McMillian has interest in Peter Hughes
Diving Company, a charter company, and Contender Boats, Inc., a boat
manufacturer, and serves on those boards. He also serves on the boards of
Steadman Hawkins Sports Medicine Foundation, American Country Insurance Company
and U.S. Ski Educational Foundation, and is a member of the SunTrust/Miami
Advisory Board Committee. 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.
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.
Harry C. Payne is President-Elect of Woodward Academy, Atlanta Georgia.
From 1994-1999, Dr. Payne served as President of Williams College. From 1988
until 1993, Dr. Payne was President of Hamilton College, Clinton, New York.
Dr. Payne is a former Chair of the Board of the National Association of
Independent Colleges and Universities and serves on the board of Barnard
College. He chairs the Academic Advisory Board of New Forum Publishers, Inc.,
Conshohocken, Pennsylvania.
Information Concerning the Board of Directors and Its Committees
The Board of Directors held six meetings during the fiscal year ended January
31, 2000 and acted by unanimous written consent on four occasions. 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 2000
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 four times during fiscal year 2000. 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 once during fiscal 2000. 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 once during fiscal 2000.
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.
22
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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 executive officers,
Messrs. Condo, Buchanan, Khan, Nelson and Nunnerley as well as other 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 43 President and Chief Executive Officer
James H. Buchanan 44 Vice President, Chief Financial Officer,
Treasurer and Secretary
Kamran Khan 36 Senior Vice President and General
Manager, Applications Group
Paul E. Nelson 37 Chief Technology Officer
David Nunnerley 43 Senior Vice President and General
Manager, Media Services Group
Daniel C. Agan 47 Vice President, Corporate Marketing
Nancy McKinley 50 Vice President, Human Resources &
Administration
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.
Kamran Khan was named Senior Vice President and General Manager, Applications
Group in November 1999. Previously, Mr. Khan held several sales management
positions since joining the Company in September 1993, most recently as Vice
President, Worldwide Sales. 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.
Paul E. Nelson was named the Company's Chief Technology Officer in November
1999. Mr. Nelson previously served as Senior Vice President, Product Development
from January 1998 and 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.
David Nunnerley was named Senior Vice President and General Manager, Media
Services Group in November 1999. Mr. Nunnerley previously served as Vice
President, Visual Product Development since 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.
23
<PAGE>
Daniel C. Agan joined the Company as Vice President, Corporate 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, online 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.
Nancy McKinley was named Vice President of Human Resources and Administration in
November 1999 after serving as the Company's Director of Human Resources and
Administration since 1996 during which she developed the human resource function
for the Company. Prior to 1996, Ms. McKinley was Director of Human Resourses
and Administration for the Pelavin Research Institute of the American Institute
for Research as well as holding similar positions in other firms in the high
technology and international areas.
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, 1999 to January 31, 2000 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.
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 2000 fiscal year (collectively, the "Named Executive
Officers") for services rendered in all capacities to the Company for the fiscal
year ended January 31, 2000, as well as the previous two fiscal years:
Long Term Compensation
--------------------------------
Annual Compensation Awards Payouts
----------------------- -------------------- -----------
Other Securities All
Annual Restricted Under- Other
Name and Compen- Stock lying LTIP Compen-
Principal Fiscal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($)
- -------- ---- --------- -------- --- --- -------- --- ---
Patrick C. Condo 2000 275,000 102,369 -- -- 175,000 -- --
Chief Executive 1999 225,000 71,281 -- -- -- -- --
Officer and 1998 200,000 86,000 -- -- 400,000(1) -- --
President
James H. Buchanan 2000 230,000 84,425 -- -- 35,000 -- --
Vice President, 1999 180,000 57,024 -- -- 10,000 -- --
Chief Financial 1998 165,514 70,950 -- -- 150,000(2) -- --
Officer, Secretary
and Treasurer
Paul E. Nelson 2000 181,500 72,725 -- -- -- -- --
Chief Technology 1999 165,000 81,800 -- -- -- -- --
Officer 1998 157,500 69,586 -- -- 84,750(3) -- --
(1) This amount includes options to purchase 300,000 shares that were granted
in prior years and subsequently repriced on May 8, 1997.
24
<PAGE>
(2) This amount includes options to purchase 100,000 shares that were granted
in prior years and subsequently repriced on May 8, 1997.
(3) Represents options to purchase 84,750 shares that were granted in prior
years and subsequently repriced on May 8, 1997.
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning options granted
during fiscal 2000 to the Named Executive Officers.
Potential Realizable
Individual Grants Value at Assumed
----------------- Annual Rates
% of Total of Stock Price
Options Appreciation for
Granted to Exercise Option Term (2)
Employees in or base Expiration ---------------
Name Granted(#) Fiscal Year(1) Price Date 5% ($) 10%($)
- ------- ---------- -------------- ----- ---- ------ ------
Patrick C. 175,000 25.9% $15.00 12/17/09 1,650,848 4,183,574
Condo
James H. 35,000 5.2% $15.00 12/17/09 330,170 836,715
Buchanan
Paul E. -- -- -- -- -- --
Nelson
- -------------------------------------------
(1) These options vest in equal 12-1/2% increments every six months from the
dates of original grant.
(2) The amounts shown are hypothetical gains that would exist for the
respective options if exercised at the end of the option term. The
assumed 5% and 10% rates of stock price appreciation are mandated by
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of future increases in the price of its
Common Stock.
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<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Values
The following table sets forth, as of January 31, 2000, the number of options
and the value of exercised and unexercised options held by the Named Executive
Officers.
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options/SARS at In-the Money
Fiscal Year-End Options/SARS at
Shares (#) Fiscal Year-End($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable(1)
- ---- ----------- ----------- ------------- ----------------
Patrick C. -- -- 350,000/225,000 $6,024,750/$2,027,875
Condo
James H. -- -- 128,750/66,250 $2,191,594/$727,531
Buchanan
Paul E. -- -- 84,750/0 $1,493,719/$0
Nelson
(1) The closing price of the Company's common stock on January 31, 2000, the
last trading day of the Company's fiscal year, was $22.375 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.
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.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during fiscal 2000 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.
26
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 31, 2000, 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) 24.8%
711 Fifth Avenue
New York, NY 10022
Alliance Capital Management L.P. 794,100 (4) 5.4%
Donald R. Keough 155,500 (5) 1.1%
Patrick C. Condo 364,325 (6) 2.4%
Richard M. Crooks, Jr. 424,750 (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) *
Harry C. Payne 25,000 (12) *
James H. Buchanan 137,890 (13) *
Paul E. Nelson 322,949 (14) 2.2%
All directors and executive officers 1,697,187 (15) 10.8%
as a group (12 persons)
* Represents less than one percent of the outstanding common stock.
(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 14, 2000 by AXA Financial
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.
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<PAGE>
(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) 100,000
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) 100,000 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) 62,500 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, (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, and (c) 25,000 shares of
common stock issuable upon exercise of stock options of the Company at a
price of $26.00 per share expiring February 17, 2010. 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) Represents 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 $4.875 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.
(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) Represents 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 $8.188 per share expiring August 25, 2009.
(13) Includes (a) 30,000 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 September 13, 2005; (b) 70,000 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) 31,250 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 August 13, 2007; and (d) 5,000 shares of common
stock owned beneficially but not of record, issuable upon exercise of
stock options of the Company at a price of $6.25 per share expiring
September 1, 2008.
(14) Includes 84,750 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options of the Company at
price of $4.75 per share expiring July 20, 2005.
(15) Includes 983,623 shares of common stock owned beneficially but not of
record, issuable upon the exercise of options to purchase common stock of
the Company.
28
<PAGE>
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.
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 Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations and Other Comprehensive 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
year ended January 31, 1998
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)
29
<PAGE>
3.02 Amendment of the Certificate of Incorporation dated
June 28, 1996. (6)
3.03 Bylaws of Excalibur Technologies Corporation. (1)
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. (8)
10.10 Employment agreement with James H. Buchanan, dated
September 7, 1995. (8)
10.11 Office lease (11000 Broken Land Parkway, Columbia
Maryland), commencing June 15, 2000.
21.01 Subsidiaries of Excalibur Technologies Corporation.
23.01 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.02 Consent of Arthur Andersen 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.
(8) Incorporated herein by reference to Form 10-K for the year ended
January 31, 1999, filed April 30, 1999.
(b) Reports on Form 8-K.
None
30
<PAGE>
Index to Consolidated Financial Statements Page
Reports of Independent Accountants F-1, F-2, F-18
Consolidated Balance Sheets
As of January 31, 2000 and 1999 F-3
Consolidated Statements of Operations and Other Comprehensive Loss
For the fiscal years ended January 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Shareholders' Equity
For the fiscal years ended January 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows
For the fiscal years ended January 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7
Schedule II - Valuation and Qualifying Accounts
For the fiscal years ended January 31, 2000, 1999 and 1998 F-19
31
<PAGE>
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, 2000 and 1999, and the results of their operations and their cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule for the years ended January 31, 2000 and 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 audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
McLean, Virginia
March 8, 2000
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Excalibur Technologies Corporation:
We have audited the accompanying consolidated statement of operations,
shareholders' equity and cash flows of Excalibur Technologies Corporation (a
Delaware corporation) and subsidiaries for the year 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Excalibur
Technologies Corporation and subsidiaries for the year ended January 31, 1998
in conformity with generally accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
Vienna, Virginia,
February 27, 1998
F-2
<PAGE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
As of January 31,
--------------------
ASSETS 2000 1999
-------- --------
Current Assets:
Cash and cash equivalents ....................... $ 10,884 $ 5,851
Short term investments........................... 178 -
Accounts receivable, net of allowance for
doubtful accounts of $830 and $660,
respectively .................................. 14,254 6,402
Prepaid expenses and other ...................... 2,354 2,291
-------- --------
Total current assets ........................ 27,670 14,544
Equipment and leasehold improvements, net of
accumulated depreciation of $7,594 and
$6,986, respectively ............................. 1,766 2,034
Other assets ....................................... 1,251 3,134
-------- --------
Total assets ................................ $ 30,687 $ 19,712
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................ $ 1,982 $ 1,933
Accrued expenses ................................ 2,474 1,915
Deferred revenues ............................... 3,926 2,690
-------- --------
Total current liabilities ................... 8,382 6,538
-------- --------
Commitments and Contingencies
Shareholders' Equity:
5% Cumulative convertible preferred stock,
$0.01 par value, preference in liquidation
$10 per share plus dividends, 1,000 shares
authorized; 27 shares issued and outstanding.. 271 271
Common stock, $0.01 par value, 40,000
shares authorized; 14,646 and 13,689
shares issued and outstanding ................ 146 137
Additional paid-in capital ...................... 78,024 68,631
Accumulated deficit ............................. (56,138) (55,798)
Accumulated other comprehensive income (loss).... 2 (67)
-------- --------
Total shareholders' equity .................. 22,305 13,174
-------- --------
Total liabilities and shareholders' equity .. $ 30,687 $ 19,712
======== ========
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 LOSS
(in thousands, except per share data)
For the Fiscal Years Ended
January 31,
-------- -------- --------
2000 1999 1998
-------- -------- --------
Revenues:
Software ................................ $ 32,649 $ 22,741 $ 17,202
Maintenance ............................. 5,285 5,198 5,215
-------- -------- --------
37,934 27,939 22,417
-------- -------- --------
Expenses:
Cost of software revenues ............... 4,842 3,808 3,039
Cost of maintenance revenues ............ 2,143 1,320 1,219
Sales and marketing ..................... 16,210 13,501 13,184
Research and product development ........ 9,456 8,328 6,405
General and administrative .............. 5,402 4,775 4,884
Restructuring costs ..................... - - 577
Acquired in-process research
and development ....................... - - 1,284
-------- -------- --------
38,053 31,732 30,592
-------- -------- --------
Operating loss ............................ (119) (3,793) (8,175)
Other income (expenses):
Interest income, net .................... 250 239 374
Equity in net loss of affiliate ......... - (300) (525)
Write off of investment in affiliate .... (471) - -
-------- -------- --------
Net loss .................................. $ (340) $ (3,854) $ (8,326)
Dividends on preferred stock .............. 14 14 14
-------- -------- --------
Net loss applicable to common shareholders. $ (354) $ (3,868) $ (8,340)
======== ======== ========
Basic and diluted net loss per common share $ (0.02) $ (0.29) $ (0.64)
======== ======== ========
Weighted-average number of common shares
outstanding - basic and diluted......... 14,282 13,526 12,934
======== ======== ========
Other comprehensive loss:
Net loss .................................. $ (340) $ (3,854) $ (8,326)
Foreign currency translation adjustment . 69 7 (31)
-------- -------- --------
Comprehensive loss ........................ $ (271) $ (3,847) $ (8,357)
======== ======== ========
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 Additional hensive
--------------- ------------ Paid-in Accumulated Income
Shares Amount Shares Amount Capital Deficit (Loss) Total
------ ------ ------ ------ -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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, net of
issuance costs............ - - 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
Private Placement, net of
issuance costs............ - - 500 5 4,653 - - 4,658
Issuance of common stock
upon exercise of options.. - - 434 4 4,522 - - 4,526
Issuance of common stock
for Employee Stock
Purchase Plan............. - - 23 - 218 - - 218
Foreign Currency
Translation adjustment.... - - - - - - 69 69
Net loss.................. - - - - - (340) - (340)
------ ----- ------ ---- -------- --------- ------ --------
Balance, January 31, 2000. 27 $ 271 14,646 $146 $78,024 $(56,138) $ 2 $22,305
====== ===== ====== ==== ======== ========= ====== ========
</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,
--------------------------------
2000 1999 1998
-------- -------- --------
Cash Flows from Operating Activities:
Net loss ................................... $ (340) $ (3,854) $ (8,326)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ........... 1,441 1,486 1,540
Bad debt expense ........................ 838 493 250
Acquired in-process research
and development costs ................... - - 1,284
Equity in net loss of affiliate ......... - 300 525
Write off of investment in affiliate .... 471 - -
Loss on disposal of assets .............. - - 2
Changes in operating assets and liabilities:
Accounts receivable ..................... (8,712) 2,349 4
Prepaid expenses and other .............. 1,223 (3,425) 527
Accounts payable and accrued expenses ... 579 (296) (193)
Deferred revenues ....................... 1,248 (35) 11
-------- -------- --------
Net cash used in operating activities ... (3,252) (2,982) (4,376)
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of investments ................. (178) (984) (22,301)
Proceeds from maturities of investments . - 2,480 29,231
Purchases of equipment and
leasehold improvements .................. (1,008) (1,141) (757)
Other assets ............................ - (256) (95)
Purchase of business .................... - - 55
Net cash provided by (used in) -------- -------- --------
investing activities ................... (1,186) 99 6,133
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds from the issuance of common stock 5,218 3,387 285
Proceeds from the exercise of stock
options ............................... 4,520 435 333
Cost incurred in connection with issuance
of common stock ....................... (342) - (5)
Repayment of notes payable .............. - - (40)
-------- -------- --------
Net cash provided by financing activities 9,396 3,822 573
-------- -------- --------
Effect of Exchange Rate Changes on Cash .... 75 (27) (76)
-------- -------- --------
Net Increase in Cash and Cash Equivalents .. 5,033 912 2,254
Cash and Cash Equivalents, beginning of year 5,851 4,939 2,685
-------- -------- --------
Cash and Cash Equivalents, end of year ..... $ 10,884 $ 5,851 $ 4,939
======== ======== ========
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, markets and supports high performance, accurate,
scalable and secure search- powered software solutions. Excalibur offers a suite
of intelligent search solutions for corporate intranets, Internet e-commerce,
online publishing, application service providers ("ASP") and the original
equipment manufacturer ("OEM") market that enables individuals to quickly
capture, analyze, index, catalog, access, navigate, retrieve, publish and share
relevant information residing on an enterprise's networks, intranets, extranets
and the Internet. 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, application service providers and other strategic partners.
The Company has incurred cumulative losses of approximately $12.5 million over
the last three fiscal years and the accumulated deficit of the Company at
January 31, 2000 was $56.1 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, 2000 and its
funds generated from operations, if any, are expected to provide sufficient cash
to meet the Company's current projected needs for the foreseeable future.
Historically, the Company has used cash provided primarily from sales of its
common stock to fund its operations. If the Company fails to achieve its
operating plan for fiscal year 2001, 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
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.
F-7
<PAGE>
The remainder of the purchase price was allocated to intangible assets related
to the completed technology base, the assembled workforce and trade names
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 fiscal years ended January 31, 2000, 1999 and 1998 was approximately
$118,000, $110,000 and $82,000, respectively, and accumulated amortization was
$310,000, $192,000 and $82,000 at January 31, 2000, 1999 and 1998, respectively.
(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
Revenue from the sale of software licenses is recognized upon shipment of
product, provided that the fee is fixed and determinable, persuasive evidence of
an arrangement exists and collection of the resulting receivable is considered
probable. Software revenues include revenues from licenses, training and system
implementation services. Historically, the Company has not experienced
significant returns or exchanges of its products from direct sales to customers.
Revenue related to customer support agreements is deferred and recognized
ratably over the term of respective agreements. When the Company provides a
software license and the related customer support arrangement for one bundled
price, the fair value of the customer support, based on the price charged for
that element separately, is deferred and recognized ratably over the term of the
respective agreement.
Customization work is sometimes required to ensure that the Company's software
functionality meets the requirements of its customers. 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.
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 for the Company
generally occurs upon 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 Short Term Investments
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist of funds deposited in money market accounts. Consequently, the carrying
amount of cash and cash equivalents approximates fair value. The balance of
short term investments at January 31, 2000 consisted of a certificate of deposit
pledged to collateralize a letter of credit required for a leased facility.
F-8
<PAGE>
Income Taxes
Deferred taxes are provided utilizing the liability method, 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, 2000 and 1999, 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 and leased assets are provided on a straight-line
basis over the shorter of the term of the applicable lease or the useful life of
the asset.
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 loss per common share 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 common 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 2,676,955 shares of common
stock and cumulative convertible preferred stock that were outstanding at
January 31, 2000 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 common share amounts are identical.
Translation of Foreign Financial Statements
The functional currency of the Company's foreign subsidiary is the local
currency. Accordingly, assets and liabilities of the Company's foreign
subsidiary are translated into U.S. dollars at exchange rates in effect at the
balance sheet date. Income and expense items are translated at average rates for
the period. Foreign currency translation adjustments are accumulated in a
separate component of shareholders' equity. Foreign currency transaction gains
or losses are recorded in operating expenses and were not significant for the
years ended January 31, 2000, 1999 and 1998.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash equivalents 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 $830,000 and $660,000, respectively, at January 31, 2000
and 1999.
F-9
<PAGE>
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 market value, based on discontinued future cash flows of the
related assets. The Company has not recorded any provision for impairment of
goodwill or other intangible or long lived assets.
(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 the first quarter of fiscal year 2000, the Company
terminated its 1996 distribution agreement with ETNV because ETNV failed to pay
to Excalibur the minimum required license fees for the quarter ended January 31,
1999 of approximately $900,000 as well as an additional amount of approximately
$400,000 that was due on April 20, 1999. Promptly after giving notice of such
termination Excalibur commenced a lawsuit in the United States District Court
for the Eastern District of Virginia seeking as damages such unpaid minimum
license fees and other amounts due and owing from ETNV. The lawsuit was settled
on July 21, 1999. No payment was made by ETNV as part of the settlement.
The original investment exceeded the Company's share of the underlying net
assets of ETNV by approximately $827,000. The excess was 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 is included in equity in net
loss of affiliate in the accompanying consolidated statements of operations for
the fiscal years ended January 31, 2000, 1999 and 1998. The net balance of the
investment in and advances to ETNV of $471,000 was included in other assets in
the accompanying consolidated balance sheet at January 31, 1999. This account
was written off in the quarter ended April 30, 1999. No revenue related to the
agreement was recorded in the current year. The Company recorded total revenues
of $938,675 and $1,656,000 related to ETNV in the fiscal years ended January 31,
1999 and 1998, respectively.
(4) CAPITALIZATION
Stock Offerings
In March 1999, the Company completed a private placement of 500,000 shares (the
"Shares") of its common stock to unaffiliated accredited investors. The Shares
were sold at a purchase price of $10.00 per share, resulting in net proceeds to
the Company of approximately $4.7 million. Net proceeds from the placement are
being used to fund ongoing operations and for general corporate purposes of the
Company. The Shares were sold pursuant to an exemption from the registration
requirements of the Securities Act of 1933. A registration statement under the
Securities Act of 1933 covering resale of the Shares was declared effective by
the Securities and Exchange Commission on July 14, 1999.
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 $3.3
million. 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.
F-10
<PAGE>
Cumulative Convertible Preferred Stock
The Company has issued 27,180 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, 2000
is approximately $70,000.
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 2000, 1999 or 1998. Of the total number of shares authorized for
stock options, options to purchase 2,676,955 shares are outstanding and 645,839
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 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, 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
Granted .......................... 675,450 7.88 - 24.00 13.60
Exercised ........................ (433,890) 3.11 - 17.02 10.43
Canceled ......................... (126,028) 4.38 - 19.13 9.36
---------- --------------- -------
Balance, January 31, 2000 ........ 2,676,955 $ 1.04 - 24.00 $ 9.09
========== =============== =======
Options to purchase 1,716,382, 1,796,090 and 1,530,918 shares of the Company's
common stock were vested and exercisable at January 31, 2000, 1999 and 1998,
respectively, at weighted-average exercise prices of $7.70, $8.64 and $8.89 per
share, respectively.
F-11
<PAGE>
The following table summarizes additional information about stock options
outstanding at January 31, 2000:
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 $4.63 198,036 6.55 years $ 4.35 194,286 $ 4.36
$ 4.75 949,380 5.47 4.75 880,407 4.75
$ 4.88 to $10.38 602,731 8.36 7.84 239,720 7.55
$10.50 to $15.00 589,039 8.27 13.62 154,874 11.98
$15.25 to $24.00 337,769 4.89 18.35 247,095 18.30
---------------- --------- ----------- ------ ----------- ------
2,676,955 6.74 years $ 9.09 1,796,382 $ 7.70
========= =========== ====== =========== ======
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 would be 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 2000, 1999 and 1998 consistent with the method of
SFAS No.123, the Company's net loss and loss per common share would have been
increased to the pro forma amounts indicated below (amounts in thousands except
per share data).
2000 1999 1998
-------- -------- --------
Net loss, as reported $ (340) $ (3,854) $ (8,326)
Pro forma compensation expense 3,765 4,046 3,898
-------- -------- --------
Pro forma net loss $ (4,105) $ (7,900) $(12,224)
======== ======== ========
Basic and diluted net loss
per common share, as reported $ (0.02) $ (0.29) $ (0.64)
Basic and diluted net loss
per common share, pro forma $ (0.28) $ (0.58) $ (0.95)
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.
2000 1999 1998
------------ ------------ ----------
Expected volatility 70% 65% 65%
Risk free interest rates 5.0% to 6.3% 4.5% to 5.6% 5.7% to 6.5%
Dividend yield None None None
Expected lives 5 years 5 years 5 years
The weighted average fair value per share for stock option grants that were
awarded in fiscal years 2000, 1999 and 1998 was $8.55, $4.77 and $4.24,
respectively.
F-12
<PAGE>
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, 23,096,
18,652 and 40,252 shares were purchased by employees in fiscal years 2000, 1999
and 1998, 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 2000, 1999 and
1998, deferred compensation of $6,000, $161,000 and $654,000, 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 2000, 1999 or 1998.
(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, 2000, the Company had net operating loss
carryforwards ("NOLs") of approximately $64,656,000 that expire at various dates
through fiscal year 2020. The realization of the benefits of the NOLs is
dependent on sufficient taxable income in future fiscal years. Lack of future
earnings, a change in the ownership of the Company, or the application of the
alternative minimum tax rules could adversely affect the Company's ability to
utilize the NOLs.
The Company's net deferred tax assets at January 31, 2000 and 1999 were as
follows (in thousands):
2000 1999
Deferred tax assets -------- --------
Net operating loss carryforwards,
not yet utilized $ 24,569 $ 27,053
Other 1,188 513
--------- ---------
Total deferred tax assets 25,757 27,566
Valuation allowance (25,197) (27,435)
--------- ---------
560 131
(560) (131)
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 the full carrying
value of the deferred tax assets due to the Company's lack of prior earnings and
the amount of the accumulated deficit.
F-13
<PAGE>
(7) COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company conducts its operations using leased office facilities. The leases
terminate at various dates through fiscal year 2005 with options to renew.
Certain leases provide for scheduled rent increases and obligate the Company to
pay shared portions of the operating expenses such as taxes, maintenance and
repair costs. 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, 2000 are as
follows (in thousands):
Year Ending
January 31,
-----------
2001 $ 1,751
2002 1,574
2003 1,099
2004 1,097
2005 909
-------
$ 6,430
=======
Total rental expense under operating leases, net of sublease income, was
approximately $1,700,000, $1,303,000 and $1,190,000 in fiscal years 2000, 1999
and 1998, respectively. The sublease income in fiscal years 1999 and 1998 was
$102,064 and $292,425, respectively. There was no sublease income in fiscal year
2000.
(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 REPORTING
Beginning in fiscal year 2000, the Company aligned its business into two
operating segments. The Excalibur Applications Group develops, markets and
services the Excalibur RetrievalWare suite of products and focuses on large
corporations and government organizations building knowledge management
intranets and portals, as well as Internet based e-commerce and online service
businesses. The Excalibur Media Services Group develops, markets and services
the video product line and provides software products and services primarily to
original equipment manufacturers and application service providers focusing on
Internet and intranet video content management.
Prior to the second quarter of the current year, the Company operated as a
single segment. During the second quarter of the current year, the revenue model
for the Media Services Group segment became differentiated from the Applications
Group segment. Media Services Group revenues are generated primarily from OEM
and ASP transactions, which may involve development and customization by the
Company. While OEM deals are a significant component of the Applications Group
revenues, the majority of revenue is generated from licensing the RetrievalWare
suite of products directly to corporations and government organizations building
intranets and Internet based e-commerce and online service businesses. Until the
second quarter of the current year, the Media Services Group was not forecast to
meet any of the 10% significance tests as outlined in Financial Accounting
Standards Board ("FASB") SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information."
The Company does not identify or allocate assets by operating segment.
F-14
<PAGE>
The following chart represents revenues and expenses (in thousands of dollars)
attributable to the Applications Group and Media Services Group for the years
ended January 31, 2000, 1999 and 1998. Expenses for each segment consist of
direct and allocated expenses and exclude the write-off of ETNV, restructuring
costs and acquired in-process research and development costs.
<TABLE>
<CAPTION>
Applications Group Media Services Group Total
------------------------- ------------------------- -------------------------
Fiscal Years Ending Fiscal Years Ending Fiscal Years Ending
January 31, January 31, January 31,
2000 1999 1998 2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues $33,369 $26,206 $21,791 $ 4,565 $ 1,733 $ 626 $37,934 $27,939 $22,417
Operating
Expenses 29,090 24,888 24,209 8,963 $ 6,844 $ 4,522 38,053 31,732 28,731
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating
Income (Loss) $ 4,279 $ 1,318 $(2,418) $(4,398) $(5,111) $(3,896) $ (119) $(3,793) $(6,314)
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Operations by Geographic Area
The following table presents information about the Company's operations by
geographical area (in thousands):
Fiscal Years Ended January 31,
---------------------------------------------
2000 1999 1998
---- ---- ----
Sales to customers:
United States $ 28,495 $ 20,336 $ 14,134
United Kingdom 4,842 4,490 3,460
All Other 4,597 3,113 4,823
---------- ---------- ----------
$ 37,934 $ 27,939 $ 22,417
=========== =========== ===========
Long-lived assets:
United States $ 2,871 $ 5,072 $ 3,255
All Other 146 96 95
---------- ---------- ----------
$ 3,017 $ 5,168 $ 3,350
=========== =========== ===========
Major Customers
Revenues derived from contracts and orders issued by agencies of the U.S.
Government were approximately $4.4 million, $4.5 million and $5.4 million,
respectively, in the fiscal years ended January 31, 2000, 1999 and 1998. These
revenues, expressed as a percentage of total revenues for the fiscal year, were
approximately 12%, 16% and 24%, respectively. In fiscal year 2000, revenues
derived from one customer accounted for 12% of the Company's total revenues. In
fiscal year 1999, revenues derived from one customer 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 year ended January 31, 1998.
(10) OTHER FINANCIAL DATA
a) Prepaid expenses and other at January 31, 2000 and 1999 consisted of
the following (in thousands):
2000 1999
---- ----
Prepaid licenses $ 1,620 $ 1,510
Prepaid other 734 781
--------- ---------
$ 2,354 $ 2,291
========= =========
F-15
<PAGE>
b) Equipment and leasehold improvements at January 31, 2000 and 1999
consisted of the following (in thousands):
2000 1999
---- ----
Computer equipment $ 7,474 $ 7,269
Office furniture 1,448 1,348
Leasehold improvements 438 403
--------- ---------
9,360 9,020
Less accumulated depreciation (7,594) (6,986)
--------- ---------
$ 1,766 $ 2,034
========= =========
Assets acquired under capital leases included in equipment above was $49,775 at
January 31, 2000 and related accumulated depreciation was $17,680. There were no
assets under capital leases at January 31, 1999.
Depreciation expense for fiscal years 2000, 1999 and 1998 was $1,324,891,
$1,374,963 and $1,458,644, respectively.
c) Other assets at January 31, 2000 and 1999 consisted of the following
(in thousands):
2000 1999
---- ----
Prepaid licenses $ 948 $ 2,214
Other 303 920
--------- ---------
$ 1,251 $ 3,134
========= =========
d) Accrued expenses at January 31, 2000 and 1999 consisted of the
following (in thousands):
2000 1999
---- ----
Accrued payroll $ 2,098 $ 1,469
Other 376 446
-------- ---------
$ 2,474 $ 1,915
========= =========
(11) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, as amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133," 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 Nos. 133
and 137, which will be effective for the quarter ending April 30, 2001, will not
have a material effect on the financial statements.
In December 1999, the SEC released Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." This bulletin establishes more clearly
defined revenue recognition criteria than previously existing accounting
pronouncements. This bulletin will become effective for the Company for the
quarter ending April 30, 2000. The Company is currently evaluating the full
impact of this bulletin to determine the impact on its financial position,
results of operations and cash flows but does not anticipate that it will have a
material effect.
F-16
<PAGE>
(12) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(in thousands)
For the Fiscal Years
Ended January 31,
-----------------------
2000 1999
-------- --------
Supplemental Disclosures of Noncash
Investing and Financing Activities:
Stock options exercised under deferred
compensation arrangements.............. $ 6 $ 100
======== ========
(13) LINE OF CREDIT
The Company has available a $3,000,000 line of credit under an agreement with a
bank which expires on September 20, 2000. Up to $250,000 of borrowings may be in
the form of letters of credit. The line of credit is collateralized by
substantially all corporate assets. Borrowings under the line of credit bear
interest at the lender's prime rate (8.5% at January 31, 2000) plus up to 1%.
The agreement requires the Company to comply with certain financial covenants
that are computed on a monthly basis and prohibits additional borrowings without
the bank's approval. The Company was in compliance with all covenants at January
31, 2000. As of January 31, 2000, no borrowings were outstanding under the line
of credit.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Excalibur Technologies Corporation:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated statement of operations, shareholders' equity
and cash flows of Excalibur Technologies Corporation for the year 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
Vienna, Virginia,
February 27, 1998
F-18
<PAGE>
SCHEDULE II
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED JANUARY 31, 2000, 1999 AND 1998
Translation
Balance at Additions Deductions Adjustment Balance
Beginning Charged From During at End
Description of Year to Expense Reserves the Period of Year
- ------------ ------- ---------- -------- ---------- -------
2000
- ----
Deducted from
accounts receivable:
For doubtful accounts $660,000 $838,000 $667,000 (a) $(1,000) $830,000
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
Note (a) - Uncollected receivables written off, net of recoveries.
F-19
<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, 2000
- --------------------- Officer and Director --------------
Patrick C. Condo (Principal Executive Officer)
/s/Donald R. Keough April 24, 2000
- ---------------------- Chairman of the Board --------------
Donald R. Keough
/s/James H. Buchanan Chief Financial Officer April 28, 2000
- --------------------- Secretary and Treasurer (Principal --------------
James H. Buchanan Financial and Accounting Officer)
/s/Richard M. Crooks, Jr. April 26, 2000
- ------------------------- Director --------------
Richard M. Crooks, Jr.
/s/John S. Hendricks April 24, 2000
- --------------------- Director --------------
John S. Hendricks
/s/W. Frank King III April 28, 2000
- --------------------- Director --------------
W. Frank King III
/s/John G. McMillian April 27, 2000
- --------------------- Director --------------
John G. McMillian
/s/Philip J. O'Reilly April 25, 2000
- --------------------- Director --------------
Philip J. O'Reilly
/s/Harry C. Payne April 27, 2000
- --------------------- Director --------------
Harry C. Payne
<PAGE>
Exhibit 21.01
SUBSIDIARIES OF EXCALIBUR TECHNOLOGIES CORPORATION
January 31, 2000
Jurisdiction of Incorporation
-----------------------------
1. Excalibur Technologies International, Ltd. United Kingdom
2. Excalibur Acquisition Corporation Maryland
3. EXCA Acquisition Corporation Delaware
<PAGE>
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.
333-79955, 33-79794, 33-90734, 33-65333, 333-01595, 333-5185, 333-17433 and
333-34705) and on Form S-8 (File Nos. 333-87621, 333-89144, 333-15369 and
333-40873) of our report dated March 8, 2000 related to the consolidated
financial statements and financial statement schedule, which appears in this
Form 10-K.
/s/PricewaterhouseCoopers LLP
McLean, Virginia
April 28, 2000
<PAGE>
Exhibit 23.02
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-3 (File No. 333-79955) and on Form S-8 (File
No. 333-87621).
/s/ARTHUR ANDERSEN LLP
Vienna, Virginia,
April 26, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 10884
<SECURITIES> 178
<RECEIVABLES> 15084
<ALLOWANCES> 830
<INVENTORY> 0
<CURRENT-ASSETS> 27670
<PP&E> 9360
<DEPRECIATION> 7594
<TOTAL-ASSETS> 30687
<CURRENT-LIABILITIES> 8382
<BONDS> 0
0
271
<COMMON> 146
<OTHER-SE> 21888
<TOTAL-LIABILITY-AND-EQUITY> 30687
<SALES> 32649
<TOTAL-REVENUES> 37934
<CGS> 4842
<TOTAL-COSTS> 23195
<OTHER-EXPENSES> 14858
<LOSS-PROVISION> 838
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (340)
<INCOME-TAX> 0
<INCOME-CONTINUING> (340)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (340)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
MARYLAND FULL-SERVICE OFFICE LEASE
SEVENTY COLUMBIA CORPORATE CENTER
THIS LEASE is made and entered into as of April 11, 2000 by and between
SEVENTY COLUMBIA CORPORATE CENTER LIMITED PARTNERSHIP, a Maryland limited
partnership ("Landlord") by ROUSE PROPERTY MANAGEMENT, INC., Managing Agent,
and EXCALIBUR TECHNOLOGIES CORP., a Delaware corporation ("Tenant").
In consideration of the rents hereinafter reserved and the agreements
hereinafter set forth, Landlord and Tenant mutually agree as follows:
1. SUMMARY OF TERMS.
The following is a summary of the principal terms of the Lease. Any
capitalized term set forth below shall, for the purposes of this Lease, have the
meaning ascribed to it in this Section 1.
A. Description of Premises
(1) Building: The building known as Seventy Columbia
Corporate Center and located at 11000 Broken Land Parkway, Columbia, Maryland
21044.
(2) Business Community: Columbia Town Center
(3) Premises: Approximately 18,371 square feet of Rental
Area on the eighth floor of the Building as shown on Schedule A.
(4) Property: means the Building, the land upon which the
Building is situated, the Common Area, and such additional facilities in
subsequent years as may be determined by Landlord to be reasonably necessary or
desirable for the management, maintenance or operation of the Building.
B. Rent
(1) Annual Basic Rent:
PSF Annual Monthly
Period Basic Rent Basic Rent Installment
Year 1: $24.50 $450,089.50 $37,507.46
Year 2: $25.24 $463,684.04 $38,640.34
Year 3: $26.00 $477,646.00 $39,803.83
Year 4: $26.78 $491,975.38 $40,997.95
Year 5: $27.58 $506,672.18 $42,222.68
<PAGE>
(2) Advance Rent: None.
(3) Security Deposit: Thirty-seven Thousand Five Hundred
Seven Dollars and Forty-six Cents ($37,507.46) to be held by Landlord as
provided in Section 6.4.
C. Adjustments.
(4) Adjustment Period Consumer Price Index. Intentionally
omitted.
D. Term
(1) Term: Five (5) years, subject to Section 4.
(2) Lease Commencement Date: June 15, 2000, subject to
Section 4.
(3) Termination Date: June 14, 2005, subject to Section 4.
E. Notice and Payment
(1) Tenant Notice Address:
Ms. Nancy McKinley, Director of Human Resources and
Administration
Excalibur Technologies
1921 Gallows Road
Suite 200
Vienna, Virginia 22182
(2) Landlord Notice Address:
Columbia Management, Inc.
10420 Little Patuxent Parkway
Suite 420
Columbia, Maryland 21044
with a copy to:
Rouse Property Management, Inc.
c/o The Rouse Company
10275 Little Patuxent Pkwy
Columbia, Maryland 21044
Attention: General Counsel
(3) Landlord Payment Address:
Rouse Office Management, Inc.
P.O. Box 64078
Columbia, Maryland 21264-4078
F. Broker
The Manekin Corporation
7165 Columbia Gateway Drive
Columbia, Maryland 21046
and
Mr. David Cravedi
The Fred Ezra Company
4520 East West Highway
Bethesda, Maryland 20817
<PAGE>
2. DEFINITIONS.
For purposes of this Lease, the Schedules attached and made a part
hereof and all agreements supplemental to this Lease, the following terms shall
have the respective meanings as set forth in the following Section, subsection,
paragraph and Schedule references:
Reference
Additional Rent.........................................................6.3
Alterations............................................................15.1
Annual Basic Rent.......................................................1.B
Bankruptcy Code........................................................19.1
Building................................................................1.A
Casualty...............................................................17.1
Common Area............................................................10.1
Default Rate............................................................6.5
Event of Default.......................................................20.1
Event of Tenant's Bankruptcy...........................................19.1
Insolvency Laws........................................................19.1
Landlord Notice Address.................................................1.E
Landlord Payment Address................................................1.E
Lease Commencement Date.................................................1.D
Mortgage.................................................................27
Mortgagee................................................................27
Premises................................................................1.A
Property................................................................1.A
Public Areas.....................................................Schedule C
Renewal Term............................................................4.3
Rental Area...............................................................3
Rental Year.............................................................6.1
Rules and Regulations.....................................................9
Security Deposit.....................................................1.B.(3)
Tenant Notice Address...................................................1.E
Tenant's Personal Property.............................................15.3
Term....................................................................4.1
Termination Date........................................................1.D.
Transfer.................................................................25
<PAGE>
3. LEASED PREMISES; MEASUREMENT.
3.1. Leased Premises. Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, the Premises as shown on the plan attached hereto
as Schedule A, together with the right to use, in common with others, the Common
Area. The rental area of the Premises ("Rental Area") has been computed in
accordance with the applicable formula set forth in Schedule X attached hereto
and made a part hereof.
4. TERM AND COMMENCEMENT OF TERM.
4.1. Term. The term of this Lease (the "Term") shall commence on the
Lease Commencement Date and shall be for the period of time specified in Section
1.D.(1) plus the part of the month, if any, from the Lease Commencement Date to
the first day of the first full calendar month in the Term, unless earlier
terminated pursuant to any other provision of this Lease or pursuant to law. At
Landlord's request, Tenant shall promptly enter into one or more supplementary
written agreements, in such form as Landlord shall reasonably prescribe,
specifying the Lease Commencement Date and the Termination Date.
4.2. Option to Renew. Provided Tenant is in possession of the Premises
and is not in default of any term, covenant or condition of this Lease, Tenant
shall have the option to renew the Term of this Lease for one (1) additional
period of five (5) years ("Renewal Term") to commence immediately upon the
expiration of the initial Term.
Said Renewal Term shall be upon the same terms, covenants and
conditions as contained in this Lease, except that (i) the Annual Basic Rent
during said Renewal Term shall be at the "Prevailing Market Rate" and (ii) there
shall be no further option to renew except as specifically provided herein and
(iii) there shall be no abatement of rent, and (iv) Landlord shall not be
obligated to construct, pay for or grant an allowance with respect to tenant
improvements unless otherwise specifically provided for in this Lease.
"Prevailing Market Rate" shall mean the current market rental rate for the
Premises as determined by Landlord but shall not be more than the rate at which
Landlord would offer such space or space of approximately the same size and
location to a third party. In no event, however, shall the Annual Basic Rent
during the Renewal Term be less than the Annual Basic Rent reserved under this
Lease for the Rental Year immediately preceding the Renewal Term for which the
determination is being made.
In order to exercise the option granted herein, Tenant shall notify
Landlord, in writing, not less than six (6) months prior to the expiration of
the initial Term that it is considering exercising its option to renew the Term.
On receipt of such notice, Landlord will, in writing, not later than thirty (30)
days after receipt of the notice from Tenant, quote to Tenant what the new
Annual Basic Rent will be for the ensuing Renewal Term. Tenant shall then notify
Landlord, in writing, not later than fifteen (15) days after notice received of
such Annual Basic Rent, as to whether or not it will exercise the option herein
granted and if no such notice of exercise of the option is received, the option
shall be deemed waived. In the event Tenant exercises the option, Landlord and
Tenant shall execute a modification to this Lease acknowledging such renewal and
setting forth the new Annual Basic Rent.
The option shall be void if, at the time of exercise of such option,
Tenant is not in possession of the Premises or if there is an Event of Default
under this Lease or if Tenant fails to deliver the requisite notice thereof
within the time period specified above. The option granted herein shall not be
severed from this Lease, separately sold, assigned or transferred.
<PAGE>
5. TENANT IMPROVEMENTS AND ACCEPTANCE OF PREMISES.
5.1. Delivery of Premises. Landlord shall deliver, and Tenant agrees to
accept, the Premises broom clean and in "as-is" condition. By occupying the
Premises, Tenant shall be deemed to have (a) accepted the Premises in their
present condition, (b) acknowledged that the Premises are suitable for Tenant's
intended use, and (c) agreed that Landlord shall not be required to make any
repairs or improvements to the Premises.
6. RENT.
6.1. Annual Basic Rent. Tenant shall pay to Landlord during each Rental
Year of the Term fixed rent equal to the Annual Basic Rent as set forth in
Section 1.B.(1). Annual Basic Rent shall be payable in advance on the first day
of each month of the Term in equal monthly installments, without notice, demand,
abatement (except as otherwise specifically provided in this Lease), deduction
or set-off. If the Term of this Lease shall commence on a day other than the
first day of a month, the first payment shall include any prorated Annual Basic
Rent for the period from the Lease Commencement Date to the first day of the
first full calendar month of the Term.
"Rental Year" shall mean each successive twelve (12) calendar month
period occurring during the Term of this Lease, or portion of such a period,
with the first Rental Year commencing as of the Lease Commencement Date and
ending on the last day of the twelfth full calendar month thereafter and the
last Rental Year ending on the Termination Date. For any Rental Year of less or
more than twelve full months, Annual Basic Rent shall be adjusted accordingly.
All Annual Basic Rent and Additional Rent shall be paid to Landlord at the
Landlord Payment Address.
6.2. Intentionally omitted.
6.3. Additional Rent. Tenant shall pay to Landlord as additional rent
("Additional Rent") all other sums of money which shall become due and payable
hereunder. Unless a date for payment is otherwise specified herein, all
Additional Rent shall be due and payable within thirty (30) days of invoicing by
Landlord.
6.4 Advance Rent; Security Deposit.
A. Advance Rent. Intentionally Deleted.
B. Security Deposit. Tenant shall, upon execution of this
Lease, deposit with Landlord the Security Deposit to assure Tenant's performance
of all terms, provisions and conditions of this Lease. Landlord shall have the
right, but not the obligation, at any time, to apply the Security Deposit to
cure any breach by Tenant under this Lease and, in that event, Tenant shall
immediately pay Landlord any amount necessary to restore the Security Deposit to
its original amount. To the extent permitted by law, Landlord shall be entitled
to the full use of the Security Deposit and shall not be required either to keep
the Security Deposit in a separate account or to pay interest on account
thereof. Any portion of the Security Deposit which is not utilized by Landlord
for any purpose permitted under this Lease shall be returned to Tenant within
forty-five (45) days after the end of the Term provided Tenant has performed all
of the obligations imposed upon Tenant pursuant to this Lease.
<PAGE>
6.5. Late Charge. If Tenant fails to make any payment of Annual Basic
Rent, Additional Rent, or other sums required to be paid hereunder on or before
the date when payment is due, Tenant shall pay to Landlord, as Additional Rent,
a late charge to cover extra administrative costs and loss of use of funds equal
to (a) six percent (6%) of the amount due for the first month or portion thereof
that such amount is past due plus (b) interest on the amount remaining unpaid
thereafter at the rate of eighteen percent (18%) per annum or six percent (6%)
above the prime rate charged by Citibank, N.A., as of the due date of such
amount, whichever rate is the greater; provided, however, that should such late
charge at any time violate any applicable law, the late charge shall be reduced
to the highest rate permitted by law (the foregoing rate being herein referred
to as the "Default Rate"). Landlord's acceptance of any rent after it has become
due and payable shall not excuse any delays with respect to future rental
payments or constitute a waiver of any of Landlord's rights under this Lease.
7. INTENTIONALLY OMITTED.
8. USE, CARE AND REPAIR OF PREMISES BY TENANT.
8.1. Permitted Uses. Tenant shall use and occupy the Premises solely
for general office purposes in accordance with applicable zoning regulations and
for no other purpose. Tenant shall not do anything or permit anything to be done
in or on the Premises, or bring or keep anything therein which will, in any way,
obstruct, injure, annoy or interfere with the rights of Landlord or other
tenants, or subject Landlord to any liability for injury to persons or damage to
property, or interfere with the good order of the Building, or conflict with the
laws, rules or regulations of any Federal, state or city authority.
8.2. Care of Premises. Tenant shall, at its sole expense, keep the
Premises and the improvements and appurtenances therein in good order and
condition consistent with the operation of a first-class office building, and at
the expiration of the Term, or at the sooner termination of this Lease as herein
provided, deliver up the same broom clean and in as good order and condition as
at the beginning of the Term, ordinary wear and tear and damage by fire or other
casualty excepted. Tenant, at its sole expense, shall promptly replace damaged
or broken doors and glass in and about the interior of the Premises and shall be
responsible for the repair and maintenance of all special or custom Tenant
Improvements and Alterations, including, without limitation, the repair and
replacement of appliances and equipment installed specifically for Tenant such
as refrigerators, disposals, computer room air conditioning, sinks and special
plumbing, special light fixtures and bulbs for those fixtures, non-standard
outlets and plug-in strips, and special cabinetry. Consistent with the
provisions of Section 22, Tenant shall pay for all property damage sustained by
other tenants or occupants of the Building, due to any waste, misuse or neglect
by Tenant of the Premises and any fixtures and appurtenances related thereto or
due to any breach of this Lease by Tenant, its employees, agents,
representatives or invitees.
8.3. Hazardous Substances. For purposes of this provision, "Hazardous
Substances" shall mean any hazardous or toxic substance, material or waste, now
or hereafter defined or regulated under the Resource Conservation and Recovery
Act (42 U.S.C. _ 6901 et seq.), the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. _ 9601 et seq.), the Clean Water Act
(33 U.S.C. _ 1251 et seq.), the Clean Air Act (42 U.S.C. _ 7401 et seq.), and
the Toxic Substances Control Act (15 U.S.C. _ 2601 et seq.), and all similar
federal, state and local statutes, laws, rules and regulations in connection
with environmental conditions, health and safety, including without limitation,
asbestos and petroleum products (collectively, "Environmental Laws"). Tenant
covenants and agrees that it will not use or allow the Premises to be used for
the storage, use, treatment or disposal of any Hazardous Substance, without
Landlord's prior written consent. Notwithstanding the foregoing, Landlord's
prior written consent shall not be required with respect to Tenant's use,
storage or sale of certain supplies or products, which might contain or might be
considered a Hazardous Substance, in the normal course of Tenant's business in
accordance with the specific use permitted by this Lease, provided, however,
that Tenant shall (i) comply with all other provisions of this Section; (ii)
notify Landlord in writing from time to time of the identity and approximate
quantity of such Hazardous Substance; and (iii) keep each such Hazardous
<PAGE>
Substance on the Premises in quantities as small as reasonably practicable, but
in no event large enough to activate reporting requirements under any
Environmental Law. Tenant, at Tenant's sole cost and expense shall promptly
contain and remediate any release of a Hazardous Substance on the Property to
the extent such release arises directly from the actions of Tenant, its agents,
servants and employees.
Tenant shall indemnify, reimburse and hold harmless Landlord, its
partners and affiliates agents from and against any damages, claims, judgments,
fines, penalties, costs, liabilities (including sums paid in settlement of
claims) or loss including reasonable attorneys' fees, reasonable consultants'
fees, and reasonable expert fees incurred by any of them to the extent resulting
from Tenant's use, handling, generation, treatment, storage, disposal, other
management or release of any Hazardous Substance at or from the Premises or the
Property, whether or not Tenant has acted negligently with respect to such
Hazardous Substance. This indemnity shall survive the expiration or earlier
termination of this Lease.
As of the Lease Commencement Date, Landlord warrants and represents to
Tenant that to Landlord's actual knowledge, there are no Hazardous Substances in
violation of any Environmental Laws in the Property of which the Premises are a
part.
From and after the date of execution of this Lease, Landlord will not
use or allow the Property to be used for the storage, use, treatment or disposal
of any Hazardous Substance, in violation of any Environmental Laws. Landlord
shall promptly contain and remediate any release of a Hazardous Substance on the
Property to the extent such release arises directly from the actions of
Landlord, its agents, servants and employees, and not solely from Landlord's
position as an owner or operator of the Property.
Landlord shall indemnify, reimburse and hold harmless and defend
Tenant, its servants and employees, from and against all claims, actions, losses
and expenses made or incurred by third parties (including attorneys' and other
professional fees), arising from any conduct, activity, act, omission, or
operation involving the use, handling, generation, treatment, storage, disposal,
or release of any Hazardous Substance in, from, or to the Property, to the
extent caused directly by the actions of Landlord, its servants and employees,
and not arising solely out of Landlord's position as an owner or operator of the
Property. This indemnity shall survive the expiration or earlier termination of
this Lease.
8.4. Compliance with Laws. Tenant, at its sole cost and expense, shall
conform to and comply with and shall cause the Premises to conform to and comply
with all federal, state, county, municipal and other governmental statutes,
laws, rules, orders, regulations, and ordinances applicable to Tenant or
resulting from Tenant's use or occupancy of the Premises or the Property or any
part thereof.
Landlord warrants and represents to Tenant that, as of the Lease
Commencement Date, Landlord is in the process of implementing a compliance plan
for the Property, which is intended to comply substantially with the
requirements of The Americans With Disabilities Act of 1990, and Landlord will
proceed to execute such plan throughout the Term, subject to the provisions of
Sections 7 and 15.1 of this Lease.
<PAGE>
9. RULES AND REGULATIONS.
Tenant and its agents and invitees shall abide by and observe the rules
and regulations attached hereto as Schedule C for the operation and maintenance
of the Building or any new rules and regulations which may from time to time be
issued by Landlord ("Rules and Regulations"), provided that any new rules or
regulations are not inconsistent with the provisions of this Lease. Nothing in
this Lease shall be interpreted to impose upon Landlord any duty or obligation
to enforce any such rules and regulations against any other tenant in the
Building, and Landlord shall not be liable to Tenant for any violation of these
rules and regulations by any other tenant or its agents or invitees.
All rules and regulations promulgated by Landlord shall be reasonable,
shall not materially alter the terms of this Lease and any enforcement shall be
uniform with respect to all tenants' use and occupancy of the Building and
Common Area.
10. COMMON AREA.
10.1. Definition of Common Area. As used herein, "Common Area" means
those areas and facilities which may be furnished by Landlord on or near the
Property, as designated by Landlord from time to time, intended for the general
common use and benefit of all tenants of the Building and their agents,
representatives, licensees, employees and invitees, including, without
limitation, any and all stairs, landings, roofs, utility and mechanical rooms
and equipment, service closets, corridors, elevators, lobbies, lavatories and
other public areas of the Building and all parking areas, access roads,
pedestrian walkways, plazas and landscaped areas.
10.2. Use of Common Area. Tenant shall have the non-exclusive right to
use the Common Area in common with Landlord, other tenants in the Building, and
others entitled to the use thereof, subject to such reasonable rules and
regulations governing the use of the Common Area as Landlord may from time to
time prescribe and subject to such easements therein as Landlord may from time
to time grant to others. Tenant shall not obstruct in any way any portion of the
Common Area or in any way interfere with the rights of other persons entitled to
use the Common Area and shall not, without the prior written consent of
Landlord, use the Common Area in any manner, directly or indirectly, for the
location or display of any merchandise or property belonging to Tenant or for
the location of signs relating to Tenant's operations in the Premises. The
Common Area shall at all times be subject to the exclusive reasonable control
and management of Landlord.
10.3. Alterations to the Common Area. Landlord reserves the right at
any time and from time to time (i) to change or alter the location, layout,
nature or arrangement of the Common Area or any portion thereof, including but
not limited to the arrangement and/or location of entrances, passageways, doors,
corridors, stairs, lavatories, elevators, parking areas, and other public areas
of the building, and (ii) to construct additional improvements on the Property
and make alterations thereof or additions thereto and build additional stories
on or in any such buildings or build adjoining same; provided, however, that no
such change or alteration shall deprive Tenant of access to the Premises,
materially interfere with Tenant's use of the Premises or reduce the Rental Area
of the Premises, unless such reduction is required by Federal, State or local
laws or regulations, in which event, a reduction in the Premises shall be
permitted with a commensurate reduction in rent. Landlord shall have the right
to close temporarily all or any portion of the Common Area to such extent as
may, in the reasonable opinion of Landlord, be necessary to prevent a dedication
thereof to the public, provided that Tenant is not thereby denied access to the
Premises, or for repairs, replacements or maintenance to the Common Area,
provided such repairs, replacements or maintenance are performed expeditiously
and in such a manner as not to deprive Tenant of access to the Premises.
10.4. Maintenance. Landlord covenants to keep, maintain, manage and
operate the Common Area in a manner consistent with the operation of a first
class office building and to keep the sidewalks and driveways, if any,
constituting a portion of the Common Area clean and reasonably clear of snow and
ice. Landlord reserves the right of access to the Common Area through the
Premises for the purposes of operation, decoration, cleaning, maintenance,
safety, security, alterations and repairs.
<PAGE>
11. SERVICES AND UTILITIES.
So long as Tenant is not in an Event of Default under this Lease,
Landlord shall provide the following facilities and services to Tenant, the cost
of such facilities and services to be included in Landlord's Operating Costs
(except as otherwise provided herein):
a. At least one elevator (if the building contains an elevator) subject
to call at all times, including Sundays and holidays. The holidays observed by
Landlord are New Year's Day, Memorial Day observed, Independence Day, Labor Day,
Thanksgiving, and Christmas.
b. During "normal business hours" as hereinafter defined, central
heating and air conditioning during the seasons of the year when these services
are normally and usually furnished, and within the temperature ranges and in
such amounts normally or usually furnished in comparable office buildings in the
immediate vicinity. For the purposes of this paragraph b, the term "normal
business hours" shall mean the periods from 8:00 a.m. until 6:00 p.m. on
business days and from 8:00 a.m. until 12:00 p.m. on Saturdays. Landlord shall
provide the aforesaid services at other times, at Tenant's expense, provided
Tenant gives Landlord notice by 1:00 p.m. on weekdays for after-hour service on
the next weekday, by 1:00 p.m. the day before a holiday for service on a
holiday, and by 1:00 p.m. on Friday for after-hour service on Saturday or
service on Sunday. Such after-hour, holiday or special weekend service shall be
charged to Tenant at rates to be calculated by Landlord based on Landlord's
costs, which rates shall be given to Tenant on request. Landlord reserves the
right to adjust, from time to time, the rate at which such services shall be
provided corresponding to adjustments in Landlord's costs. Tenant shall pay for
such service, as Additional Rent, promptly upon receipt of an invoice with
respect thereto.
c. Reasonable amounts of electric current for lighting and normal and
customary items of office equipment (subject to the provisions of Section 12
below).
d. Cleaning in Landlord's standard manner attached hereto as
Schedule D.
e. Replacement of light tubes or bulbs for building standard lighting
fixtures. All light tube or bulb replacements for special non-standard lighting
fixtures shall be furnished and installed by Landlord at Tenant's expense.
f. Rest room facilities and necessary lavatory supplies, including hot
and cold running water at the points of supply, as provided for general use of
all tenants in the Building and routine maintenance, painting, and electric
lighting service for all public areas of the Building in such manner as Landlord
deems reasonable.
<PAGE>
Any failure by Landlord to furnish the foregoing services, resulting
from circumstances beyond Landlord's reasonable control or from interruption of
such services due to repairs or maintenance, shall not render Landlord liable in
any respect for damages to either person or property, nor be construed as an
eviction of Tenant, nor cause an abatement of rent hereunder, nor relieve Tenant
from any of its obligations hereunder. If any public utility or governmental
body shall require Landlord or Tenant to restrict the consumption of any utility
or reduce any service for the Premises or the Building, Landlord and Tenant
shall comply with such requirements, whether or not the utilities and services
referred to in this Section 11 are thereby reduced or otherwise affected,
without any liability on the part of Landlord to Tenant or any other person or
any reduction or adjustment in rent payable hereunder. Landlord and its agents
shall be permitted reasonable access to the Premises for the purpose of
installing and servicing systems within the Premises deemed necessary by
Landlord to provide the services and utilities referred to in this Section 11 to
Tenant and other tenants in the Building.
Landlord reserves the right to charge Tenant the reasonable cost, based
on usage, of the removal of all trash and the reasonable cost of water/sewerage
or electric service to the extent Tenant's trash disposal, water/sewerage and/or
electrical usage exceeds, in Landlord's reasonable opinion, normal usage for an
office tenant.
In the event any failure to supply services continues uninterrupted for
a period of greater than fourteen (14) consecutive calendar days and thereby
renders the Premises wholly or partially untenantable, the rent shall be abated
to the extent of such untenantability.
12. ELECTRIC CURRENT.
Landlord shall be under no obligation to furnish electrical energy to
Tenant in amounts greater than needed for lighting and normal and customary
items of equipment for general office purposes, and Tenant shall not install or
use on the Premises any electrical equipment, appliance or machine which shall
require amounts of electrical energy exceeding the standard wattage provided for
the Building, unless the installation and use of such additional electrical
equipment, appliance, or machine has been approved by Landlord pursuant to terms
and conditions set forth in a separate agreement, which approval may be
conditioned upon the payment by Tenant, as Additional Rent, of the cost of the
additional electrical energy and modifications to the Building's electrical
system required for the operation of such electrical equipment, appliance, or
machine.
13. LOSS, DAMAGE AND INJURY.
To the maximum extent permitted by law, Tenant shall occupy and use the
Premises, the Building and the Common Area at Tenant's own risk. Consistent with
the provisions of subsection 16.4, Tenant's Personal Property and personal items
of those claiming by, through or under Tenant, located in or on the Premises or
the Building shall be and remain at the sole risk of Tenant or such other
person.
No representation, guaranty, assurance, or warranty is made or given by
Landlord that the communications or security systems, devices or procedures
used, if any, will be effective to prevent injury to Tenant or any other person
or damage to, or loss (by theft or otherwise) of any of Tenant's Personal
Property or of the property of any other person, and Landlord reserves the right
to discontinue or modify at any time such communications or security systems,
devices, or procedures without liability to Tenant.
<PAGE>
14. REPAIRS BY LANDLORD.
Landlord shall keep the Premises and the Building and all machinery,
equipment, fixtures and systems of every kind attached to, or used in connection
with the operation of, the Building, including all electrical, heating,
mechanical, sanitary, sprinkler, utility, power, plumbing, cleaning,
refrigeration, ventilating, air conditioning and elevator systems and equipment
(excluding, however, lines, improvements, systems and machinery for water, gas,
steam and electricity owned and maintained by any public utility company or
governmental agency or body) in good order and repair consistent with the
operation of the Building as a first-class office building. Landlord, at its
expense (subject to reimbursement by Tenant pursuant to Section 7), shall make
all repairs and replacements necessary to comply with its obligations set forth
in the immediately preceding sentence, except for (a) repairs required to be
made by Tenant pursuant to Section 8 and (b) repairs caused by the willful
misconduct of Tenant, its agents, employees, invitees and guests, which repairs
shall be made by Landlord at the cost of Tenant, and for which Tenant shall pay
promptly, as Additional Rent, upon receipt of an invoice setting forth the cost
of such repairs. There shall be no abatement in rents due and payable hereunder
and no liability on the part of Landlord by reason of any inconvenience or
annoyance arising from Landlord's making repairs, additions or improvements to
the Building in accordance with its obligations hereunder.
15. ALTERATIONS, TITLE AND PERSONAL PROPERTY.
15.1. Alterations. Tenant shall in no event make or permit to be made
any alteration, modification, substitution or other change of any nature to the
mechanical, electrical, plumbing, HVAC, and sprinkler systems within or serving
the Premises. After completion of Tenant's Improvements within the Premises,
Tenant shall not make or permit any other improvements, alterations, fixed
decorations, substitutions or modifications, structural or otherwise, to the
Premises or the Building ("Alterations") without the prior written approval of
Landlord. Landlord shall not unreasonably withhold or delay its consent to
Alterations which do not affect the structural, mechanical, plumbing or
electrical elements or systems of the Building and which are not visible from
outside the Premises, provided such work conforms with the design criteria,
standards and architectural guidelines for the Building. Landlord's approval
shall include the conditions under which acceptable Alterations may be made.
Alterations shall include, but not be limited to, the installation or
modification of carpeting, walls, partitions, counters, doors, shelves, lighting
fixtures, hardware, locks, ceiling, window and wall coverings; but shall not
include the initial Tenant's Improvements placed within the Premises pursuant to
Section 5.1. All Alterations shall be based on complete plans and specifications
prepared and submitted by Tenant to Landlord for approval, except in the
instance of cosmetic changes, such as painting and carpeting, in which case
Tenant shall provide Landlord with samples showing colors, styles, etc. All
Alterations shall be made by Landlord at Tenant's sole cost, payable by Tenant,
as Additional Rent, within thirty (30) days after receipt of an invoice for same
from Landlord, which cost shall include Landlord's standard construction
management fee, which such fee as of the Lease Commencement Date is thirteen and
a half percent (13.5%). Tenant shall be responsible for the cost of any
additional improvements within the Premises or the Common Area required by The
Americans with Disabilities Act of 1990 as a result of Tenant's Alterations.
If Tenant makes any Alterations without the prior consent of Landlord,
then, in addition to Landlord's other remedies, Landlord may correct or remove
such Alterations and Tenant shall pay the cost thereof, as Additional Rent,
within ten (10) days of receipt of invoice from Landlord.
<PAGE>
15.2. Title. The Tenant Improvements, all Alterations and all
equipment, machinery, furniture, furnishings, and other property or improvements
installed or located in the Premises by or on behalf of Landlord or Tenant,
other than Tenant's Personal Property, (a) shall immediately become the property
of Landlord and (b) shall remain upon and be surrendered to Landlord with the
Premises as a part thereof at the end of the Term. Notwithstanding the
foregoing, Landlord may, upon notice to Tenant at the time Alterations are made,
elect that any Alterations be removed at the end of the Term, and thereupon,
Landlord shall at Tenant's sole expense, cause such Alterations to be removed
and restore the Premises to its condition prior to the making of such
Alterations, reasonable wear and tear excepted. Tenant shall promptly reimburse
Landlord, as Additional Rent, for the cost of such work, which reimbursement
obligation shall survive termination of the Lease.
15.3. Tenant's Personal Property. "Tenant's Personal Property" means
all equipment, machinery, furniture, furnishings and/or other property now or
hereafter installed or placed in or on the Premises by and at the sole expense
of Tenant with respect to which Tenant has not been granted any credit or
allowance by Landlord and which (a) is not used, or was not procured for use, in
connection with the operation, maintenance or protection of the Premises or the
Building; (b) is removable without damage to the Premises or the Building; and
(c) is not a replacement of any property of Landlord, whether such replacement
is made at Tenant's expense or otherwise. Notwithstanding any other provision of
this Lease, Tenant's Personal Property shall not include any Alterations or any
improvements or other property installed or placed in or on the Premises as part
of Tenant's Improvements, whether or not installed at Tenant's expense. Tenant
shall promptly pay all personal property taxes on Tenant's Personal Property, as
applicable. Provided that Tenant is not then in default of any of its
obligations under this Lease, Tenant may remove all Tenant's Personal Property
from the Premises at the termination of this Lease. Any property belonging to
Tenant or any other person which is left in the Premises after the date the
Lease is terminated for any reason shall be deemed to have been abandoned. In
such event, Landlord shall have the right to declare itself the owner of such
property and to dispose of it in whatever manner Landlord considers appropriate
without waiving its right to claim from Tenant all expenses and damages caused
by Tenant's failure to remove such property, and Tenant shall not have any right
to compensation or claim against Landlord as a result.
16. INSURANCE.
16.1. Tenant's Insurance. Tenant, at its expense, shall obtain and
maintain in effect as long as this Lease remains in effect and during such other
time as Tenant occupies the Premises or any part thereof insurance policies in
accordance with the following provisions.
A. Coverage.
(i) commercial general liability insurance policy, including
insurance against assumed or contractual liability under this Lease, with
respect to the Property, to afford protection with limits, per occurrence, of
not less than Two Million Dollars ($2,000,000), combined single limit, with
respect to personal injury, bodily injury, including death, and property damage
and Four Million Dollars ($4,000,000) aggregate (occurrence form), such
insurance to provide for no deductible;
(ii) all-risk property insurance policy, including theft,
written at replacement cost value and with replacement cost endorsement,
covering all of Tenant's Personal Property in the Premises, and covering loss of
income resulting from casualty, such insurance to provide for no deductible
greater than Five Thousand Dollars ($5,000).
<PAGE>
(iii) worker's compensation or similar insurance policy
offering statutory coverage and containing statutory limits, which policy shall
also provide Employer's Liability Coverage of not less than Five Hundred
Thousand Dollars ($500,000) per occurrence.
(iv) Tenant shall require any construction contractor retained
by it to perform work on the Premises to carry and maintain, at no expense to
Landlord, during such times as contractor is working in the Premises, a
non-deductible (a) commercial general liability insurance policy, including, but
not limited to, contractor's liability coverage, contractual liability coverage,
completed operations coverage, broad form property damage endorsement and
contractor's protective liability coverage, to afford protection with limits per
person and for each occurrence, of not less than Two Million Dollars
($2,000,000), combined single limit, and with respect to personal injury and
death and property damage, Four Million Dollars ($4,000,000) aggregate
(occurrence form) and Two Million Dollars ($2,000,000) aggregate completed
operations; (b) automobile liability insurance in the amount of One Million
Dollars ($1,000,000) combined single limit for bodily injury and property
damage; (c) worker's compensation insurance or similar insurance in form and
amounts as required by law; and (d) any other insurance reasonably required of
Tenant by Landlord or any Mortgagee.
(v) Notwithstanding anything set forth above in this
subsection 16.1 to the contrary, all dollar limits specified herein shall be
increased from time to time as reasonably necessary to effect economically
equivalent insurance coverage, or coverage deemed adequate in light of then
existing circumstances.
B. Policies.
Such policies shall be maintained with companies licensed to do
business in the State where the Premises are located and in form reasonably
acceptable to Landlord and will be written as primary policy coverage and not
contributing with, or in excess of, any coverage which Landlord shall carry.
Such policies shall be provided on an occurrence form basis unless otherwise
approved by Landlord and shall include Landlord and its managing agent as
additional insured as to coverage under paragraphs 16.1.A.(i) and 16.1.A.(iv).
Such policies shall also contain a waiver of subrogation provision and a
provision stating that such policy or policies shall not be canceled,
non-renewed, reduced in coverage or materially altered except after thirty (30)
day's written notice, said notice to be given in the manner required by this
Lease to Landlord, Attention: Risk Management Department. All such policies of
insurance shall be effective as of the date Tenant occupies the Premises and
shall be maintained in force at all times during the Term of this Lease and all
other times during which Tenant shall occupy the Premises. Tenant shall deposit
the policy or policies of such required insurance or certificates thereof with
Landlord prior to the Lease Commencement Date.
16.2. Tenant's Failure to Insure. If Tenant shall fail to obtain
insurance as required under this Section 16, Landlord may, but shall not be
obligated to, obtain such insurance, and in such event, Tenant shall pay, as
Additional Rent, the premium for such insurance upon demand by Landlord.
16.3. Compliance with Policies. Tenant shall not do or allow to be
done, or keep, or allow to be kept, anything in, upon or about the Premises
which will contravene Landlord's policies insuring against loss or damage by
fire, other casualty, or any other cause, including without limitation, public
liability, or which will prevent Landlord from procuring such policies in
companies acceptable to Landlord. If any act or failure to act by Tenant in and
about the Building and the Premises shall cause the rates with respect to
Landlord's insurance policies to be increased beyond those rates that would
normally be applicable for such limits of coverage, Tenant shall pay, as
Additional Rent, the amount of any such increases upon demand by Landlord.
<PAGE>
16.4. Waiver of Right of Recovery. Except as provided in Section 8.3,
neither party, including Landlord's managing agent, shall be liable to the other
party, including Landlord's managing agent, or to any insurance company (by way
of subrogation or otherwise) insuring the other party, for any loss or damage to
any building, structure or other tangible property, or loss of income resulting
therefrom, or losses under worker's compensation laws and benefits even though
such loss or damage might have been occasioned by the negligence of such party,
its agents or employees. The provisions of this Section 16.4 shall not limit the
indemnification for liability to third parties pursuant to Section 22.
16.5. Landlord's Insurance. Landlord shall carry commercial general
liability insurance with regard to the Property and all-risk property insurance
on the Property, including Tenant Improvements and Alterations but excluding
Tenant's Personal Property.
Landlord shall not be obligated to repair any damage to Tenant's
Personal Property or replace the same.
17. DAMAGE AND DESTRUCTION.
17.1. Landlord's Obligation to Repair and Reconstruct. If, as the
result of fire, the elements, accident or other casualty (any of such causes
being referred to herein as a "Casualty"), the Premises shall be rendered wholly
or partially untenantable (damaged to such an extent as to preclude Tenant's use
of the Premises for the purposes originally intended), then, subject to the
provisions of subsection 17.2, Landlord shall cause such damage to be repaired,
including Tenant Improvements and Alterations, and the Annual Basic Rent and
Additional Rent (but not any Additional Rent due Landlord either by reason of
Tenant's failure to perform any of its obligations hereunder or by reason of
Landlord's having provided Tenant with additional services 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. Landlord shall not be liable for interruption to Tenant's
business or for damage to or replacement or repair of Tenant's Personal
Property, all of which replacement or repair shall be undertaken and completed
by Tenant, at Tenant's expense.
If the Premises shall be damaged by Casualty, but the Premises shall
not be thereby rendered wholly or partially untenantable, Landlord shall
promptly cause such damage to be repaired and there shall be no abatement of
rent reserved hereunder.
17.2. Termination of Lease. (A) If the Premises are (1) rendered wholly
untenantable, or (2) damaged as a result of any cause which is not covered by
Landlord's insurance, or (B) if the Building is damaged to the extent of fifty
percent (50%) or more of the gross leasable area thereof, or (C) if, for reasons
beyond Landlord's control or by virtue of the terms of any financing of the
Building, sufficient insurance proceeds are not available for the reconstruction
or restoration of the Building or Premises, then, in any of such events,
Landlord may elect to terminate this Lease by giving to Tenant notice of such
election within sixty (60) days after the occurrence of such event, or after the
insufficiency of such proceeds becomes known to Landlord, whichever is
applicable. If such notice is given, the rights and obligations of the parties
shall cease as of the date set forth in such notice, and the Annual Basic Rent
and Additional Rent (but not any Additional Rent due Landlord either by reason
of Tenant's failure to perform any of its obligations hereunder or by reason of
Landlord's having provided Tenant with additional services hereunder) shall be
adjusted as of the date set forth in such notice, or, if the Premises were
rendered untenantable, as of the date of the Casualty.
<PAGE>
Within ninety (90) days following a Casualty, Landlord shall notify
Tenant in writing of the date on which Landlord, in its best professional
judgment, estimates restoration will be substantially completed. If restoration
is expected to exceed one hundred eighty (180) days after the date of Landlord's
notice, then Tenant shall have the right to terminate this Lease on written
notice to Landlord within fifteen (15) days after receipt of Landlord's notice
unless Landlord, at its sole expense, temporarily relocates Tenant to comparable
office space within another building in the Business Community for the duration
of the restoration. In the event of such a relocation, the rent per square foot
payable by Tenant for the temporary space shall equal the lesser of (i) the
rents per square foot reserved under this Lease for the Premises or (ii) the
current market rental rate for the temporary space as determined by Landlord,
which shall not be more than the rate at which Landlord would offer such space
to any other third party.
17.3. Demolition of the Building. If the Building shall be so
substantially damaged that it is reasonably necessary, in Landlord's judgment,
to demolish the Building for the purpose of reconstruction, Landlord may
demolish the same, in which event the Annual Basic Rent and Additional Rent (but
not any Additional Rent due Landlord either by reason of Tenant's failure to
perform any of its obligations hereunder or by reason of Landlord's having
provided Tenant with additional services hereunder) shall be abated to the same
extent as if the Premises were rendered wholly untenantable by a Casualty.
17.4. Insurance Proceeds. If the Lease is not terminated pursuant to
subsection 17.2, Landlord shall, subject to the terms of any Mortgage, disburse
and apply any insurance proceeds received by Landlord to the restoration and
rebuilding of the Building in accordance with subsection 17.1 hereof. All
insurance proceeds payable with respect to the Premises and the Building shall
belong to and shall be payable to Landlord. Notwithstanding anything to the
contrary, Tenant shall be entitled to receive all proceeds payable with respect
to Tenant's Personal Property.
18. CONDEMNATION.
18.1. Termination. If either the entire Premises or the Building shall
be acquired or condemned by any governmental authority under its power of
eminent domain for any public or quasi-public use or purpose, this Lease shall
terminate as of the date of vesting or acquisition of title in the condemning
authority and the rents hereunder shall be abated on that date. If less than the
whole but more than fifty percent (50%) of the Rental Area of the Premises or
more than fifty percent (50%) of the total area of the Building (even if the
Premises are unaffected) or such portion of the Common Area as shall render the
Premises or the Building untenantable should be so acquired or condemned,
Landlord and Tenant shall each have the option to terminate this Lease by notice
given to the other within ninety (90) days of such taking. In the event that
such a notice of termination is given, this Lease shall terminate as of the date
of vesting or acquisition of title in the condemning authority and the Annual
Basic Rent and Additional Rent (but not any Additional Rent due Landlord either
by reason of Tenant's failure to perform any of its obligations hereunder, or by
reason of Landlord's having provided Tenant with additional services hereunder)
shall be adjusted as of such date.
If (a) neither Landlord nor Tenant shall exercise their respective
options to terminate this Lease, as hereinabove set forth, or (b) some lesser
portion of the Premises or the Building or Common Area, which does not give rise
to a right to terminate pursuant to this subsection 18.1, is taken by the
condemning authority, this Lease shall continue in force and effect, but from
and after the date of the vesting of title in the condemning authority, the
Annual Basic Rent payable hereunder during the unexpired portion of the Term
<PAGE>
shall be reduced in proportion to the reduction in the total Rental Area of the
Premises, and any Additional Rent (but not any Additional Rent due Landlord
either by reason of Tenant's failure to perform any of its obligations
hereunder, or by reason of Landlord's having provided Tenant with additional
services hereunder) payable pursuant to the terms hereof shall be adjusted to
reflect the diminution of the Premises and/or the Building, as the case may be.
18.2. Rights to Award. Tenant shall have no claim against Landlord
arising out of the taking or condemnation, or arising out of the cancellation of
this Lease as a result of any such taking or condemnation, or for any portion of
the amount that may be awarded as damages as a result of any taking or
condemnation, or for the value of any unexpired portion of the Term, or for any
property lost through condemnation, and Tenant hereby assigns to Landlord all
its right, title and interest in and to any such award with regard to the
Premises; provided, however, that, in the event of a total taking, Tenant may
assert any claim it may have against the condemning authority for compensation
for Tenant's Personal Property lost thereby, loss of income, and for any
relocation expenses compensable by statute and receive such awards therefor as
may be allowed in the condemnation proceedings provided that such awards shall
be made in addition to, and stated separately from, the award made for the
Building, the underlying land and the Premises. Landlord shall have no
obligation to contest any taking or condemnation.
19. BANKRUPTCY.
19.1. Event of Bankruptcy. For purposes of this Lease, each of the
following shall be deemed an "Event of Tenant's Bankruptcy":
(a) if Tenant becomes insolvent, as defined in the
Bankruptcy Code, or under the Insolvency Laws;
(b) the commencement of any action or proceeding for the
dissolution or liquidation of Tenant or for the
appointment of a receiver or trustee of the property
of Tenant, whether instituted by or against Tenant,
if not bonded or discharged within thirty (30) days
of the date of the commencement of such proceeding or
action;
(c) if Tenant files a voluntary petition under the
Bankruptcy Code or Insolvency Laws;
(d) if there is filed an involuntary petition against
Tenant as the subject debtor under the Bankruptcy
Code or Insolvency laws, which is not dismissed
within sixty (60) days of filing, or results in
issuance of an order for relief against the debtor;
and
(e) if Tenant makes or consents to an assignment of its
assets, in whole or in part, for the benefit of
creditors, or to a common law composition of
creditors.
As used herein, (i) "Bankruptcy Code" means title 11 of the United
States Code, 11 U.S.C. Section 101 et. seq. as amended or any successor statute
and (ii) Insolvency Laws means the insolvency laws of any state or territory of
the United States.
<PAGE>
19.2. Assumption by Trustee. If Tenant becomes the subject debtor in a
case pending under the Bankruptcy Code, Landlord's right to terminate this Lease
under Section 20 hereof shall be subject to the applicable rights (if any) of
the Trustee in Bankruptcy to assume or assign this Lease as then provided for in
the Bankruptcy Code. However, the Trustee in Bankruptcy must give to Landlord
and Landlord must receive proper written notice of the Trustee's assumption or
rejection of this Lease, within sixty (60) days (or such other applicable period
as is provided for in the Bankruptcy Code) after the date of the Trustee's
appointment. The failure of the Trustee to give notice of the assumption within
the period shall conclusively and irrevocably constitute the Trustee's rejection
of this Lease and waiver of any rights of the Trustee to assume or assign this
Lease. The Trustee shall not have the right to assume or assign this Lease
unless the Trustee (i) promptly and fully cures all defaults under this Lease,
(ii) promptly and fully compensates Landlord for all monetary damages incurred
as a result of such default, and (iii) provides to Landlord adequate assurance
of future performance. In the event Tenant is unable to: (i) cure its defaults,
(ii) reimburse Landlord for its monetary damages, or (iii) pay the Rent due
under this Lease on time, then Tenant hereby agrees in advance that it has not
met its burden to provide adequate assurance of future performance, and this
Lease may be terminated by Landlord in accordance with Section 20.
19.3. Tenant's Guarantor's Bankruptcy. Notwithstanding any of the other
provisions of this Lease, in the event Tenant's obligations under this Lease are
guaranteed by a guarantor, and said guarantor shall voluntarily or involuntarily
come under the jurisdiction of the Bankruptcy Code, and thereafter said
guarantor or its trustee in bankruptcy, under the authority of and pursuant to
applicable provisions thereof, shall determine to assign the guarantee
obligations of said guarantor hereunder, Tenant and its said guarantor agree
that (a) said guarantor or its trustee will provide Landlord sufficient
information enabling it to independently determine whether Landlord will incur
actual and substantial detriment by reason of such assignment, and (b) "adequate
assurance of future performance" in regard to such guarantee obligations of said
guarantor, as that term is generally defined under the Bankruptcy Code, will be
provided to Landlord by said guarantor or its trustee and its assignee as a
condition of said assignment.
20. DEFAULT PROVISIONS AND REMEDIES.
20.1. Events of Default. Each of the following shall be deemed an
Event of Default by Tenant under this Lease:
a. failure of Tenant to pay Annual Basic Rent, Additional
Rent, or any other sum required to be paid under the terms of this Lease,
including late charges, within ten (10) days after notice from Landlord of
non-payment;
b. failure by Tenant to perform or observe any other term,
covenant, agreement or condition of this Lease, on the part of Tenant to be
performed (other than those obligations of Tenant set forth in subsection 16.2
for which Tenant shall be entitled to receive no prior notice, and other than
the conditions set forth in paragraphs 20.1.a, c, d, e, f and g, which shall be
governed solely by the provisions set forth herein), within ten (10) days after
notice thereof from the Landlord, unless such performance shall reasonably
require a longer period, in which case Tenant shall not be deemed in default if
Tenant commences the required performance promptly and thereafter pursues and
completes such action diligently and expeditiously and in any event within not
more than thirty (30) days;
c. the filing of a tax or mechanic's lien against any property
of Tenant which is not bonded or discharged within thirty (30) days of the date
such lien is filed;
<PAGE>
d. abandonment of the Premises by Tenant; provided, however,
that Tenant shall not be deemed to be in default hereunder so long as Tenant
shall continue the payment of Annual Basic Rent and Additional Rent under this
Lease;
e. an Event of Tenant's Bankruptcy;
f. the sale of Tenant's interest in the Premises under
attachment, execution or similar legal process; and
g. the failure of Tenant to vacate the Premises upon the
expiration of the Term, or the earlier termination thereof pursuant to the
other provisions hereof.
20.2. Remedies. Upon the occurrence of an Event of Default, Landlord,
without notice to Tenant in any instance (except where expressly provided for
below or by applicable law) may do any one or more of the following:
(a) Intentionally deleted
(b) 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 payable by Tenant to Landlord, as
Additional Rent, upon demand. Notwithstanding the provisions
of this clause (b) and regardless of whether an Event of
Default shall have occurred, Landlord may exercise the remedy
described in clause (b) without any notice to Tenant if
Landlord, in its good faith judgment, believes it would be
materially injured by failure to take rapid action or if the
unperformed obligation of Tenant constitutes an emergency;
(c) elect to terminate this Lease and the tenancy created hereby
by giving notice of such election to Tenant, and reenter the
Premises, by summary proceedings or otherwise, and remove
Tenant and 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 for any loss or damage occasioned
thereby;
(d) declare any option which Tenant may have to renew the Term or
expand the Premises to be null and void and of no further
force and effect; or
(e) exercise any other legal or equitable right or remedy which it
may have.
Any costs and expenses incurred by Landlord and Tenant (including,
without limitation, reasonable attorneys' fees) in enforcing any of its rights
or remedies under this Lease shall be paid to Landlord by Tenant, as Additional
Rent, upon demand.
<PAGE>
20.3. Damages. If this Lease is terminated by Landlord pursuant to
Section 20.2.(c), Tenant nevertheless shall remain liable for (a) any Annual
Basic Rent, Additional Rent, and damages which may be due or sustained prior to
such termination, and (b) all reasonable costs, fees and expenses including, but
not limited to, attorneys' fees, costs and expenses incurred by Landlord in
pursuit of its remedies hereunder or in renting the Premises to others from time
to time. In addition, Landlord may recover from Tenant additional damages to
compensate Landlord for loss of rent resulting from termination of the Lease,
which, at the election of Landlord, shall be either:
(i) An amount equal to the rent which, but for 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
such damages shall be computed and payable in monthly
installments, in advance, on the first day of each calendar
month following termination of the Lease and continuing until
the date on which the Term would have expired but for such
termination; any suit or action brought to collect any such
damages for any month shall not in any manner prejudice the
right of Landlord to collect any damages for any subsequent
month by a similar proceeding; or
(ii) an amount equal to the present worth (as of the date of such
termination) of rent which, but for termination of this Lease,
would have become due during the remainder of the Term, in
which case such damages shall be payable to Landlord in one
lump sum on demand and shall bear interest at the Default Rate
until paid. For purposes of this clause (ii), "present worth"
shall be computed by discounting such amount to present worth
at a discount rate equal to one percentage point above the
discount rate then in effect at the Federal Reserve Bank
nearest to the location of the Property. Notwithstanding
anything to the contrary contained in this paragraph, Landlord
agrees to limit its right to accelerate and collect the
present worth of Annual Basic Rent due, to successive eighteen
(18) month periods following the date of the Default until the
Lease Termination Date.
Damages shall be due and payable immediately upon demand by Landlord
following any termination of this Lease pursuant to Section 20.2.
If this Lease is terminated pursuant to Section 20.2., Landlord may
re-lease the Premises or any part thereof, alone or together with other
premises, for such term(s) (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, in its sole discretion, may determine. The failure or
refusal of Landlord to re-lease the Premises or any part or parts thereof shall
not release or affect Tenant's liability for damages.
Nothing contained in this Lease shall limit or prejudice the right of
Landlord to prove and obtain in proceedings for the termination of this Lease by
reason of bankruptcy or insolvency, an amount equal to the maximum allowed by
any statute or rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or not the amount be
greater, equal to, or less than the amount of the loss or damages referred to
above.
<PAGE>
Notwithstanding anything to the contrary in this Section 20.3, Landlord
shall use reasonable efforts to re-lease the Premises, provided that Landlord
shall not be required to (i) use methods or procedures other than its usual
methods and procedures for finding tenants for comparable space in the Building;
(ii) lease the Premises in preference to any other space in the Building
available for lease, regardless of when such other space became available for
lease; (iii) lease the Premises at rents lower than the rate at which Landlord
would otherwise offer such space to a third party; (iv) to make improvements to
the Premises at Landlord's expense; and (v) lease the Premises for any purpose
or use other than that specifically permitted by this Lease. Landlord shall not
be liable to Tenant for Landlord's failure to re-lease the Premises despite the
exercise of reasonable efforts pursuant to this paragraph, and no such
re-leasing shall relieve Tenant of its obligations under the terms of this
Lease, including, without limitation, the payment of rent as set forth herein.
20.4. No Waiver. No act or omission by Landlord shall be deemed to be
an acceptance of a surrender of the Premises or a termination of Tenant's
liabilities hereunder, unless Landlord shall execute a written release of
Tenant. Tenant's liability hereunder shall not be terminated by the execution by
Landlord of any new lease for all or any portion of the Premises or the
acceptance of rent from any assignee or subtenant.
20.5. Remedies Not Exclusive. All rights and remedies of Landlord set
forth in this Lease shall be cumulative, and none shall exclude any other right
or remedy, now or hereafter allowed by or available under any statute,
ordinance, rule of court, or the common law, either at law or in equity, or
both. For the purposes of any suit brought or based hereon, this Lease shall be
construed to be a divisible contract, to the end that successive actions may be
maintained on this Lease as successive periodic sums shall mature hereunder. The
failure of Landlord to insist, in any one or more instances, upon a strict
performance of any of the covenants, terms and conditions of this Lease or to
exercise any right or option herein contained shall not be construed as a waiver
or a relinquishment for the future, of such covenant, term, condition, right or
option, but the same shall continue and remain in full force and effect unless
the contrary is expressed by Landlord in writing. The receipt by Landlord of
rents hereunder, with knowledge of the breach of any covenant hereof or the
receipt by Landlord of less than the full rent due hereunder, shall not be
deemed a waiver of such breach or of Landlord's right to receive the full rents
hereunder, and no waiver by Landlord of any provision hereof shall be deemed to
have been made unless expressed in writing and signed by Landlord.
20.6. Persistent Failure to Pay Rent. In addition to any other remedies
available to Landlord pursuant to this Lease or by law, Landlord may, at any
time throughout the Term of this Lease, terminate this Lease upon Tenant's
default on three (3) separate occasions during any twelve (12) month period
under subsection 20.1.a, regardless of whether or not such prior defaults have
been cured. Termination, pursuant to this subsection 20.6, shall be effective
upon Landlord's delivery to Tenant of a notice of termination.
21. Intentionally Deleted.
<PAGE>
22. INDEMNITY.
To the maximum extent permitted by law, Tenant shall indemnify, hold
harmless and (at Landlord's option) defend Landlord, its agents, servants and
employees from and against all claims, actions, losses, costs and expenses
(including attorneys' and other professional fees), judgments, settlement
payments, and, whether or not reduced to final judgment, all liabilities,
damages, or fines paid, incurred or suffered by any third parties to the extent
arising directly or indirectly from (a) any default by Tenant under the terms of
this Lease, (b) the use or occupancy of the Property by Tenant or any person
claiming through or under Tenant, and/or (c) any acts or omissions of Tenant or
any contractor, agent, employee, invitee or licensee of Tenant in or about the
Property. The foregoing indemnity is in addition to, and not in substitution
for, any indemnity given by Tenant to Landlord under Section 8.3.
To the maximum extent permitted by law, Landlord shall indemnify, hold
harmless and defend Tenant, its agents, servants and employees from and against
all claims, actions, losses, costs and expenses (including attorneys' and other
professional fees), judgments, settlement payments, and, whether or not reduced
to final judgment, all liabilities, damages, or fines paid, incurred or suffered
by any third party to the extent arising directly or indirectly from (a) any
default by Landlord under the terms of this Lease, (b) the use or occupancy of
the Common Area by Landlord or its contractors, agents, or employees, and/or (c)
any acts or omissions of Landlord or any contractor, agent, or employee of
Landlord in or about the Common Area.
23. LIMITATION ON LANDLORD LIABILITY.
The term "Landlord" as used in this Lease shall mean only the owner or
the Mortgagee or its trustees, as the case may be, then in possession of the
Property so that in the event of any transfer by Landlord of its interest in the
Property, the Landlord in possession immediately prior to such transfer shall
be, and hereby is, entirely released and discharged from all covenants,
obligations and liabilities of Landlord under this Lease accruing after such
transfer. In consideration of the benefits accruing hereunder, Tenant, for
itself, its successors and assigns, covenants and agrees that, in the event of
any actual or alleged failure, breach or default hereunder by the Landlord, and
notwithstanding anything to the contrary contained elsewhere in this Lease, the
remedies of Tenant under this Lease shall be solely and exclusively limited to
Landlord's interest in the Property.
24. LANDLORD OBLIGATIONS.
Landlord agrees to perform all of its obligations under this Lease in a
first class manner consistent with the standards applicable to similar buildings
in the vicinity of the Building. Landlord and Tenant shall be excused for the
period of any delay in the performance of any of its obligations when the delay
is due to any cause or causes beyond Landlord's control which include, without
limitation, acts of God, all labor disputes, governmental regulations or
controls, civil unrest, war, adverse weather condition, fire or other casualty,
inability to obtain any material, services, or financing unless otherwise
provided for in this Lease. Except where specifically set forth in this Lease,
there shall be no abatement, set-off or deduction of Annual Basic Rent or
Additional Rent due under this Lease.
<PAGE>
25. ASSIGNMENT AND SUBLETTING.
25.1. Prohibited Without Landlord's Consent. Tenant agrees for itself
and its permitted successors and assigns in interest hereunder that it will not
(a) assign or otherwise transfer, mortgage or otherwise encumber this Lease or
any of its rights hereunder; (b) sublet the Premises or any part thereof or
permit the occupancy or use of the Premises or any part thereof by any person
other than Tenant; and/or (c) permit the assignment or other transfer of this
Lease or any of Tenant's rights hereunder by operation of law (each of the
events referred to in the foregoing clauses (a), (b) and (c) being hereinafter
referred to as a "Transfer"), without the prior written consent of Landlord in
each instance first obtained, which consent may be given or withheld in
Landlord's sole and absolute subjective discretion, and any consent given shall
not constitute a consent to any subsequent Transfer. Any attempted Transfer
without Landlord's consent shall be null and void and shall not confer any
rights upon any purported transferee, assignee, mortgagee, sublessee, or
occupant. No Transfer, regardless of whether Landlord's consent has been granted
or withheld, shall be deemed to release Tenant from any of its obligations
hereunder or to alter, impair or release the obligations of any person
guaranteeing the obligations of Tenant hereunder. Tenant hereby indemnifies
Landlord against liability resulting from any claim made against Landlord by any
assignee or subtenant or by any broker claiming a commission in connection with
the proposed Transfer. In the event Landlord shall consent to a Transfer of this
Lease, any option which Tenant may have to renew the Term shall be null and
void.
Notwithstanding the foregoing, Landlord shall not unreasonably withhold
its consent to a sublet or assignment of this Lease by Tenant provided that: (a)
the proposed transferee has a financial capacity and net worth sufficient to
fulfill the terms of this Lease, as determined by Landlord based on financial
information about such transferee provided by Tenant or such transferee; (b) the
proposed use of the Premises by the proposed transferee is permitted by this
Lease and is compatible with the operation of the Building; (c) the proposed
transferee is not an existing tenant in the Building or was not a prospect for
the Building within six (6) months prior to the proposed Transfer, and (d) an
Event of Default does not exist under this Lease.
Provided Tenant is not in default of any term, covenant or condition of
this Lease, Tenant shall have the right to assign this Lease or sublet the
Premises to a parent, subsidiary or affiliate corporation of Tenant without the
consent of Landlord. Tenant shall deliver written notice to Landlord of any such
Transfer. The foregoing waiver of right to consent does not constitute a waiver
of the right of Landlord to consent to any Transfer not specifically permitted
hereby.
25.2. Stock Transfer. If Tenant or any Guarantor is a privately-held
corporation, then each of the following events shall be deemed a prohibited
Transfer under this Section 25 if such event results in a change in control of
Tenant or Guarantor: any transfer of Tenant's or Guarantor's issued and
outstanding capital stock; any issuance of additional capital stock; or the
redemption of any issued and outstanding stock. If Tenant or any Guarantor is a
partnership, any Transfer of any interest in the partnership or any other change
in the composition of the partnership, which results in a change in management
of Tenant or Guarantor from the person or persons managing the partnership as of
the date hereof, shall be deemed a prohibited Transfer under this Section 25.
Notwithstanding the foregoing, Landlord shall not unreasonably withhold
its consent to a transfer or change of ownership of the voting corporate stock
of Tenant which results in a change in control of Tenant, provided that (a) the
net assets of the Tenant are not substantially decreased by the change in the
corporate stock ownership; (b) Tenant, on demand from Landlord, properly
documents any changes in the net assets of Tenant caused by the change in
control of Tenant, so that Landlord can make an accurate judgment as to (a)
hereof; and (c) Tenant, after the change in control, continues to use the
Premises for uses permitted under this Lease and operates its business in a
manner which is consistent with the standards of operation for this Building.
The foregoing does not constitute a waiver of the right of Landlord to consent
to any subletting or any assignment.
<PAGE>
25.3. Rents from Transfer. In the event Landlord shall consent to a
Transfer of this Lease and the amount of the rents (or other compensation) to be
paid to Tenant by any such transferee is greater than the rents required to be
paid by Tenant to Landlord pursuant to this Lease or a premium is to be paid to
Tenant for an assignment of this Lease, Tenant shall pay to Landlord fifty
percent (50%) of any such excess or any such premium, as the case may be, upon
receipt thereof by Tenant from such transferee.
25.4. Procedure for Obtaining Landlord's Consent.
A. In the event that, at any time or from time to time prior to or
during the Term, Tenant desires to Transfer this Lease in whole or in part,
whether by operation of law or otherwise, Tenant shall submit to Landlord for
its consideration (a) in writing, the name and address of the proposed subtenant
or assignee, a reasonably detailed statement of the proposed subtenant's or
assignee's business and reasonably detailed financial references and information
concerning the financial condition of the proposed subtenant or assignee, (b) a
disclosure of the rents to be paid by any subtenant in excess of the rents
reserved hereunder or the premium to be paid for the assignment, and (c) if a
subletting, a description of the area of the Premises to be sublet. Tenant
agrees to pay Landlord, as Additional Rent, all costs incurred by Landlord in
connection with any actual or proposed Transfer, including, without limitation,
the costs of making investigations as to the acceptability of a proposed
subtenant or assignee and legal costs incurred in connection with any requested
consent.
B. Landlord's consent to an assignment of this Lease shall be effective
upon the execution by Tenant, the assignee, and Landlord of an assignment
document prepared by Landlord in which the assignee shall agree to assume,
observe, perform, and be bound by, all of Tenant's obligations under this Lease
and Tenant shall agree to remain primarily liable for such obligations.
Any consent by Landlord to a subletting of all or a portion of the
Premises shall be deemed to have been given only upon the delivery by Landlord
to Tenant of a consent document prepared and executed by Landlord expressly
consenting to such subletting.
26. HOLDING OVER.
Tenant agrees to vacate the Premises at the end of the Term, and
Landlord shall be entitled to the benefit of all summary proceedings to recover
possession of the Premises at the end of the Term. If Tenant remains in
possession of the Premises after the expiration of the Term, such action shall
not renew this Lease by operation of law and nothing herein shall be deemed as a
consent by Landlord to Tenant's remaining in the Premises. If Tenant fails to
vacate the Premises as required, Landlord may consider Tenant as either (a) a
"Tenant-at-Will" (i.e. month-to-month tenant) liable for the payment of rent at
the then market rate as determined by Landlord or (b) as a "Tenant-Holding Over"
liable for an amount equal to the actual damages incurred by Landlord as a
result of Tenant's holding over, including, without limitation, all incidental,
prospective and consequential damages and attorney's fees, but in no event shall
such amount be less than an amount equal to one hundred and fifty percent (150%)
of the Annual Basic Rent, and Additional Rent, reserved hereunder applicable to
the period of the holdover. In either event, all other covenants of this Lease
shall remain in full force and effect.
<PAGE>
27. SUBORDINATION AND ATTORNMENT.
This Lease is subject and subordinate to the liens of all mortgages,
deeds of trust and other security instruments now or hereafter placed upon the
Building or the Property or any portion thereof and all ground and other
underlying leases from which Landlord's interest is derived (said mortgages,
deeds of trust, other security instruments, and ground leases being hereinafter
referred to as "Mortgages" and the mortgagees, beneficiaries, secured parties,
and ground lessors thereunder from time to time being hereinafter called
"Mortgagees"), and to any and all renewals, extensions, modifications, or
refinancings thereof, without any further act of the Tenant. If requested by
Landlord, however, Tenant shall promptly execute any certificate or other
document confirming such subordination. Tenant agrees that, if any proceedings
are brought for the foreclosure of any of the Mortgages, Tenant, if requested to
do so by the purchaser at the foreclosure sale, shall attorn to the purchaser,
recognize the purchaser as the landlord under this Lease, and make all payments
required hereunder to such new landlord without any deduction or set-off of any
kind whatsoever. Tenant waives the provisions of any law or regulation, now or
hereafter in effect, which may give, or purport to give, Tenant any right to
terminate this Lease or to alter the obligations of Tenant hereunder in the
event that any such foreclosure or termination or other proceeding is prosecuted
or completed.
Notwithstanding anything contained herein to the contrary, any
Mortgagee may at any time subordinate the lien of its Mortgages to the operation
and effect of this Lease without obtaining the Tenant's consent thereto, by
giving the Tenant written notice thereof, in which event this Lease shall be
deemed to be senior to such Mortgages without regard to the respective dates of
execution and/or recordation of such Mortgages and this Lease and thereafter
such Mortgagee shall have the same rights as to this Lease as it would have had
were this Lease executed and delivered before the execution of such Mortgages.
If, in connection with obtaining financing for the Building, a
Mortgagee shall request reasonable modifications in this Lease as a condition to
such financing, Tenant will not unreasonably withhold, delay or defer its
consent thereto, provided that such modifications do not materially adversely
increase the obligations of Tenant hereunder, or materially adversely affect the
leasehold interest hereby created or Tenant's use and enjoyment of the Premises,
or increase the amount of Annual Basic Rent and Additional Rent payable
hereunder.
Upon Tenant's written request, Landlord shall use reasonable efforts,
excluding the payment of money, to obtain a non-disturbance agreement from
Landlord's Mortgagee with respect to this Lease. Landlord agrees to submit to
such Mortgagee on Tenant's behalf a non-disturbance agreement prepared by
Tenant, however, Landlord makes no representation that its Mortgagee will
execute any such agreement.
28. ESTOPPEL CERTIFICATES.
Tenant shall, without charge, at any time and from time-to-time, within
fifteen (15) days after receipt of request therefor by Landlord, execute,
acknowledge and deliver to Landlord a written estoppel certificate, in such form
as may be determined by Landlord, certifying to Landlord, Landlord's Mortgagee,
any purchaser of Landlord's interest in the Building, or any other person
designated by Landlord, as of the date of such estoppel certificate, the
following, without limitation: (a) whether Tenant is in possession of the
Premises; (b) whether this Lease is in full force and effect; (c) whether there
have been any amendments to this Lease, and if so, specifying such amendments;
(d) whether there are then existing any set-offs or defenses against the
enforcement of any rights hereunder, and if so, specifying such matters in
detail; (e) the dates, if any, to which any rent or other charges have been paid
in advance and the amount of any Security Deposit held by Landlord; (f) that
Tenant has no knowledge of any then existing defaults of Landlord under this
Lease, or if there are such defaults, specifying them in detail; (g) that Tenant
has no knowledge of any event having occurred that authorizes the termination of
this Lease by Tenant, or if such event has occurred, specifying it in detail;
<PAGE>
and (h) the address to which notices to Tenant under this Lease should be sent.
Any such certificate may be relied upon by the person or entity to whom it is
directed or by any other person or entity who could reasonably be expected to
rely on it in the normal course of business. The failure of Tenant to execute,
acknowledge and deliver such a certificate in accordance with this Section 28
within fifteen (15) days after a request therefor by Landlord shall constitute
an acknowledgment by Tenant, which may be relied on by any person who would be
entitled to rely upon any such certificate, that such certificate as submitted
by Landlord to Tenant is true and correct.
29. PEACEFUL AND QUIET POSSESSION.
Tenant, if and so long as it pays all rents due hereunder and performs
and observes the other terms and covenants to be performed and kept by it as
provided in this Lease, shall have the peaceable and quiet possession of the
Premises during the Term free of any claims of Landlord or anyone lawfully
claiming by, through or under Landlord, subject, however, to the terms of this
Lease and to matters of public record existing as of the date of this Lease.
30. LANDLORD'S ACCESS TO PREMISES.
Landlord and its agents may at any reasonable time and without
incurring any liability to Tenant, other than liability arising under Section
22, enter the Premises to inspect them or to make alterations or repairs or for
any purpose which Landlord considers necessary for the repair, operation, or
maintenance of the Building; provided, however, that in the case of an
emergency, Landlord may enter the Premises at any time. Tenant shall allow the
Premises to be exhibited by Landlord (a) at any time to any representative of a
lender or to any prospective purchaser of the Building or Landlord's interest
therein or (b) within six (6) months of the end of the Term to any persons who
may be interested in leasing the Premises.
Notwithstanding the foregoing, Landlord shall use reasonable efforts to
telephone Tenant twenty-four (24) hours prior to any inspection except in cases
of emergencies. Emergencies for the purpose of this Section shall be deemed to
mean anyone or anything in the Premises, Building and/or Common Area requiring
immediate response. In any event, Tenant agrees to cooperate when access to the
Premises is requested by Landlord.
31. Intentionally Omitted.
32. BROKERS, COMMISSIONS, ETC.
Landlord and Tenant acknowledge, represent and warrant each to the
other that, except as listed in Section 1.F., no broker or real estate agent
brought about or was involved in the making of this Lease and that no brokerage
fee or commission is due to any other party as a result of the execution of this
Lease. Each of the parties hereto agrees to indemnify and hold harmless the
other against any claim by any broker, agent or finder based upon the execution
of this Lease and predicated upon a breach of the above representation and
warranty.
Notwithstanding the forgoing, Landlord and Tenant acknowledge and agree
that Landlord shall not be responsible or liable for any brokerage commissions
resulting from this Lease.
<PAGE>
33. RECORDATION.
Neither Landlord nor Tenant shall record this Lease, any amendment to
this Lease or any other memorandum of this Lease without the prior written
consent of the other party, which consent may be withheld in the sole discretion
of either party and, in the event such consent is given, the party requesting
such consent and recording shall pay all transfer taxes, recording fees and
other charges in connection with such recording. Notwithstanding the above,
Tenant covenants that if at any time the recordation of this Lease shall be
required by any valid governmental order, or if any governmental authority
having jurisdiction in the matter shall assess and be entitled to collect
transfer taxes, documentary stamp taxes, or both, on this Lease, Tenant, upon
the request of Landlord, shall execute such instruments, including a Memorandum
of this Lease, as may be necessary to record this Lease, and shall pay all
recording fees, transfer taxes and documentary stamp taxes, payable on, or in
connection with, this Lease or such recordation; provided, however, if
Landlord's Mortgagee requires such recordation, Landlord shall pay all such
recording fees, transfer taxes and documentary stamp taxes.
34. MISCELLANEOUS.
34.1. Separability. If any term or provision of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
34.2. Applicable Law. This Lease shall be given effect and construed
by application of the laws of the state where the Property is located, and any
action or proceeding arising hereunder shall be brought in the courts of the
State where the Premises are located.
34.3. Authority. If Tenant is a corporation or partnership, the person
executing this Lease on behalf of Tenant represents and warrants that Tenant is
duly organized and validly existing; that this Lease has been authorized by all
necessary parties, is validly executed by an authorized officer or agent of
Tenant and is binding upon and enforceable against Tenant in accordance with its
terms.
The undersigned agent of Landlord represents and warrants that it is
authorized and empowered to enter into this Lease Agreement on behalf of the
Landlord.
34.4. No Discrimination. It is Landlord's policy to comply with all
applicable state and federal laws prohibiting discrimination in employment based
on race, age, color, sex, national origin, disability, religion, or other
protected classification. It is further intended that the Building shall be
operated so that all perspective tenants thereof, and all customers, employees,
licensees and invitees of all tenants shall have equal opportunity to obtain all
the goods, services, accommodations, advantages, facilities and privileges of
the Building without discrimination because of race, age, color, sex, national
origin, disability, or religion. 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, age, color, sex, religion, national origin
or other protected classification of such person or group of persons.
34.5. Integration of Agreements. This writing is intended by the
parties as a final expression of their agreement and is a complete and exclusive
statement of its terms, and all negotiations, considerations and representations
between the parties hereto are incorporated herein. No course of prior dealings
between the parties or their agents shall be relevant or admissible to
supplement, explain, or vary any of the terms of this Lease. Acceptance of, or
acquiescence to, a course of performance rendered under this Lease or any prior
agreement between the parties or their agents shall not be relevant or
admissible to determine the meaning of any of the terms or covenants of this
Lease. Other than as specifically set forth in this Lease, no representations,
understandings or agreements have been made or relied upon in the making of this
Lease. This Lease can only be modified by a writing signed by each of the
parties hereto.
<PAGE>
34.6. Third Party Beneficiary. Except as expressly provided elsewhere
in this Lease, nothing contained in this Lease shall be construed so as to
confer upon any other party the rights of a third party beneficiary.
34.7. Captions; Gender. The captions used in this Lease are for
convenience only and do not in any way limit or amplify the terms and provisions
hereof. As used in this Lease and where the context so requires, the singular
shall be deemed to include the plural and the masculine shall be deemed to
include the feminine and neuter, and vice versa.
34.8. Successors and Assigns. Subject to the express provisions of this
Lease to the contrary (e.g., Section 25), the terms, provisions and covenants
contained in this Lease shall apply to, inure to the benefit of, and be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns.
34.9. Waiver of Jury Trial. Landlord and Tenant hereby expressly waive
trial by jury in any action or proceeding or counterclaim brought by either
party hereto against the other party on any and every matter, directly or
indirectly arising out of or with respect to this Lease, including, without
limitation, the relationship of Landlord and Tenant, the use and occupancy by
Tenant of the Premises, any statutory remedy and/or claim of injury or damage
regarding this Lease.
34.10. Joint and Several Liability. In the event that two (2) or more
persons (i.e., natural persons, corporations, partnerships, associations and
other legal entities) shall sign this Lease as Tenant, the liability of each
such party to pay all rents due hereunder and perform all the other covenants of
this Lease shall be joint and several. In the event Tenant is a general
partnership or a limited partnership with two or more general partners, the
liability of each partner, or general partner, under this Lease shall be joint
and several.
34.11. Notices. All notices, demands and requests required under this
Lease shall be in writing. All such notices, demands and requests shall be
deemed to have been properly given if sent by United States certified mail,
return receipt requested, postage prepaid, or hand delivered, or overnight
delivery, addressed to Landlord or Tenant, at the Landlord Notice Address and
Tenant Notice Address, respectively. Either party may designate a change of
address by written notice to the other party, in the manner set forth above.
Notice, demand and requests which shall be served by certified mail in the
manner aforesaid, shall be deemed to have been given three (3) days after
mailing. Notices sent by overnight delivery shall be deemed to have been given
the day after sending. Without intending to limit the generality of the
foregoing requirement that all notices, demands and requests be in writing,
there are certain provisions in this Lease where, for emphasis alone, such
requirement is reiterated.
34.12. Effective Date of this Lease. Unless otherwise expressly
provided, all terms, conditions and covenants by Tenant contained in this Lease
shall be effective as of the date first above written.
<PAGE>
34.13. Mechanics' Liens. In the event that any mechanics' or
materialmen's liens shall at any time be filed against the Premises purporting
to be for work, labor, services or materials performed or furnished to Tenant or
anyone holding the Premises through or under Tenant, Tenant shall cause the same
to be discharged of record or bonded within thirty (30) days after the filing
thereof. If Tenant shall fail to cause such lien to be discharged or bonded
within thirty (30) days after the filing thereof, then, in addition to any other
right or remedy of Landlord, Landlord may, but shall not be obligated to,
discharge the same by paying the amount claimed to be due; and the amount so
paid by Landlord, and all costs and expenses, including reasonable attorneys'
fees incurred by Landlord in procuring the discharge of such lien, shall be due
and payable by Tenant to Landlord, as Additional Rent, on the first day of the
next succeeding month. Notice is hereby given that Landlord shall not be liable
for any labor or materials furnished to Tenant upon credit and that no
mechanics', materialmen's or other liens for any such labor or materials shall
attach to or affect the estate or interest of Landlord in and to the land and
improvements of which the Premises are a part.
34.14. Waiver of Right of Redemption. Tenant hereby expressly waives
(to the extent legally permissible) for itself and all persons claiming by,
through or under it, any right of redemption or right to restore the operation
of this Lease under any present or future law in the event Tenant is
dispossessed for any proper cause, or in the event Landlord shall obtain
possession of the Premises pursuant to the terms of this Lease. Tenant
understands that the Premises are leased exclusively for business, commercial
and mercantile purposes and therefore shall not be redeemable under any
provision of law.
34.15. Mortgagee's Performance. If requested by any Mortgagee, Tenant
shall give such Mortgagee written notice of any default by Landlord under this
Lease and a reasonable opportunity to cure such default. Tenant shall accept
performance of any of Landlord's obligations hereunder by any ground lessor or
mortgagee relating to the financing of the Property.
34.16. Mortgagee's Liability. No mortgagee or ground lessor relating
to the financing of the Property, not in possession of the Premises or the
Building, shall have any liability whatsoever hereunder.
34.17. Schedules. Each writing or plat referred to herein as being
attached hereto as a schedule or exhibit is hereby made a part hereof, with the
same full force and effect as if such writing or plat were set forth in the body
of this Lease.
34.18. Time of Essence. Time shall be of the essence of this Lease
with respect to the performance by Tenant of its obligations hereunder.
34.19. Amendment. This Lease may be amended by and only by an
instrument executed and delivered by each party hereto. No amendments of this
Lease entered into by Landlord and Tenant, as aforesaid, shall impair or
otherwise affect the obligations of any guarantor of Tenant's obligations
hereunder, all of which obligations shall remain in full force and effect and
pertain equally to any such amendments, with the same full force and effect as
if the substance of such amendments was set forth in the body of this Lease.
34.20. Attorneys' Fees. Should Tenant file suit against Landlord in
order to enforce any of its rights under this Lease, then, provided Tenant
prevails, Landlord shall be responsible for Tenant's costs of said suit,
including reasonable attorneys' fees, as such fees are determined by a court of
competent jurisdiction.
<PAGE>
34.21. Contingencies.
(A) Premises. Tenant acknowledges and understands that the Premises is currently
occupied by The Ryland Group, Inc. ("Ryland") and that this Lease is contingent
upon Ryland vacating, surrendering, and releasing the Premises.
Landlord shall not be liable for any delay in the Lease Commencement
Date as a result of Ryland's failure to vacate the Premises. In the event
Landlord shall not recapture the Premises by November 30, 2000, this Lease shall
become null and void and of no force and effect.
(B) Lender's Approval. Tenant acknowledges and understands that the
effectiveness of this Lease is contingent upon Landlord receiving the approval
of its lender.
34.22. Existing Lease. Landlord and Tenant agree that this Lease and
the terms, covenants and provisions contained herein shall be in addition to and
shall not supersede or replace any of the terms, covenants and provisions of
that existing Lease between Landlord and Tenant dated January 9, 1996 ("Existing
Lease"). Both parties agree that the terms, covenants and conditions of the
Existing Lease shall remain the same and continue in full force and effect and
shall be deemed unchanged.
34.23. Parking. During the Term, Landlord shall provide unreserved
parking for Tenant and its employees and customers either in structured or
surface parking areas near the Building at a ratio of four (4) parking spaces
per one thousand (1,000) square feet of Rental Area at no additional charge.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and year first above written.
ATTEST: LANDLORD:
SEVENTY COLUMBIA CORP CTR LIMITED PARTNERSHIP
By: ROUSE PROPERTY MGMT, INC., Managing Agent
/s/Signature By: /s/Signature (SEAL)
- ---------------------------- -----------------------------
Assistant Secretary Vice President
ATTEST: TENANT:
EXCALIBUR TECHNOLOGIES CORP.
/s/Nancy McKinley By: /s/James Buchanan (SEAL)
- ---------------------------- -----------------------------
Secretary of Corporation President
<PAGE>
MARYLAND FULL-SERVICE OFFICE LEASE
SEVENTY COLUMBIA CORPORATE CENTER
by and between
SEVENTY COLUMBIA CORPORATE CENTER LIMITED PARTNERSHIP, Landlord
by ROUSE PROPERTY MANAGEMENT, INC., Managing Agent,
and
EXCALIBUR TECHNOLOGIES CORP., Tenant
<PAGE>
SCHEDULE C
RULES AND REGULATIONS
1. Tenant shall not obstruct the Common Area, and the sidewalks,
driveways, and other public portions of the Property (herein "Public Areas") and
such Public Areas shall not be used for any purpose other than ingress and
egress to and from its Premises. Fire exits and stairways are for emergency use
only, and they shall not be used for any other purpose.
2. No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades or screens shall be attached
to, hung in, or used in connection with any window or door of the Premises.
3. Except as otherwise provided in the Lease, no sign, insignia,
advertisement, lettering, notice or other object shall be exhibited, inscribed,
painted or affixed by Tenant on any part of the exterior or interior of the
Premises or the Building.
4. No bicycles, vehicles, animals (except seeing eye dogs), fish or
birds of any kind shall be brought into or kept in or about the Premises.
5. Nothing shall be done which would impair or interfere with any of
the HVAC, plumbing, electrical, structural components of the Building. No
flammable, combustible or explosive fluid, chemical or substance may be kept on
the Premises.
6. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by Tenant, nor shall any changes be made in locks or the
mechanism thereof. Tenant shall, upon the termination of the Lease, turn over to
Landlord all keys to stores, offices and restrooms. In the event of the loss of
any keys furnished by Landlord, Tenant shall pay to Landlord the cost of
replacement locks and Tenant hereby agrees to pay said cost to Landlord, as
Additional Rent, promptly upon demand.
7. No delivery or moving of any safes, freight, furniture, packages,
boxes, crates or any other such object shall take place between 8:30 a.m. and
5:30 p.m., Monday through Friday.
No hand trucks shall be used for such moving activities except for
those equipped with rubber tires and side guards.
8. Tenant shall not use or occupy its Premises, or permit any portion
thereof to be used or occupied for any use which constitutes a nuisance, or is
hazardous, or, in Landlord's opinion, likely to injure the reputation of a
first-class building.
9. Tenant shall turn off all lights, copying machines and other
electrical equipment when the Premises are vacant. All entrance doors in
Tenant's Premises shall be kept locked when not in use. Entrance doors shall not
be left open at any time.
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10. If Tenant shall request Landlord to perform any work on the
Premises or Property, Tenant shall make such request at the management office
for the Building. Tenant shall not request employees of Landlord to perform any
work or do anything outside of their regular duties, unless under special
instructions from Landlord.
11. Canvassing, soliciting and peddling in the Building are prohibited
and Tenant shall cooperate to prevent the same.
12. Tenant shall not cause or permit any odors of cooking or other
processes, or any unusual or objectionable odors, to emanate from its Premises
which would annoy other tenants or create a public or private nuisance. No
cooking shall be done in Tenant's Premises, except for a household microwave
oven or as is expressly permitted in the Lease.
13. No contract of any kind involving the care and maintenance of the
Premises shall be entered into by Tenant without the prior written consent of
Landlord. Further, no vending machine of any kind shall be installed in the
Building or on or about the Property without the prior written consent of
Landlord.
Landlord shall not be responsible to Tenant for any loss of property
from its Premises however occurring, or for any damage done to the effects of
Tenant by Landlord's janitors or any of its employees, or by any other person or
any other cause.
14. All electrical work must be in accordance with code and is subject
to Landlord's review and approval.
15. Landlord hereby reserves to itself any and all rights not granted
to Tenant hereunder, including, but not limited to, the following rights which
are reserved to Landlord for its purposes in operating the Building:
(a) the exclusive right to use of the name of the Building
for all purposes, except that Tenant may use the name as
its business address and for no other purpose;
(b) the right to change the name or address of the Building,
without incurring any liability to Tenant for so doing;
(c) the right to install and maintain a sign or signs on the
exterior of the Building;
(d) the exclusive right to use the roof of the Building;
(e) the right to limit the space on the directory of the
Building to be allotted to Tenant; and
(f) the right to grant anyone the right to conduct any
particular business or undertaking in the Building.
16. Tenant and its employees shall park their cars only in those
portions of the parking area designated by Landlord.
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17. Tenant shall not permit undue accumulations of garbage, trash,
rubbish or any other refuse, and will keep such refuse in proper containers in
the interior of the Tenant's Premises or other places designated by the
Landlord.
18. Tenant shall not conduct or permit any bankruptcy sales, unless
directed by order of a court of competent jurisdiction, or any fictitious fire
or going out of business sale.
19. Landlord shall have the right to close and securely lock the
Building during generally accepted holidays and during such other times as
Landlord may, in its sole discretion, deem advisable for the security of the
Building and its tenants. Landlord shall give Tenant twenty-four (24) hours
notice before so closing and securely locking the Building except in an
emergency.
20. Landlord reserves the right to rescind, alter, waive or add any
rule or regulation at any time prescribed for the Building when Landlord deems
it necessary or desirable for the reputation, safety, character, security, care,
appearance or interests of the Building, the preservation of good order therein,
the operation or maintenance of the Building or the equipment thereof, or the
comfort of tenants or others in the Building. No rescission, alteration, waiver
or addition of any rule or regulation with respect to one tenant shall operate
as a rescission, alteration or waiver in respect of any other tenant.
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SCHEDULE X
METHOD OF BUILDING MEASUREMENT FOR OFFICE SPACE
I. SINGLE-TENANCY FLOORS
The Rental Area of a single-tenancy floor shall be the area within the
outside walls computed by measuring from the inside surface of the window glass
to the inside surface of the opposite window glass including columns and
projections necessary to the building as well as accessory areas within and
exclusively serving only that floor, with their enclosing walls, toilets,
janitors closets, electrical closets, air-conditioning rooms and fan rooms and
telephone closets, together with four percent (4%) of the sum so determined as a
"Common Area Factor". Rental Area will not include penetrations made by public
stairs, fire towers, public elevator shafts, flues, vents, stacks, pipe shafts
and vertical ducts.
II. DIVIDED FLOORS
The Rental Area of an individual office or a portion of a divided floor
shall be the area computed by measuring from the inside surface of the window
glass to the finished surface of the corridor side of corridor partitions and
from center to center of the partitions that separate the Premises from
adjoining Rental Areas including columns and projections necessary to the
Building together with twelve percent (12%) of the sum so determined as a
"Common Area Factor".
