<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended March 29, 1998, or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the period from ______________ to ______________.
Commission file number: 0-12378
APERTUS TECHNOLOGIES INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1349953
- ------------------------------ -------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7275 Flying Cloud Drive
Eden Prairie, Minnesota 55344
- ------------------------------ ----------
Address of principal executive (ZIP Code)
offices)
Registrant's telephone number, including area code: (612) 828-0300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.05 per share
Common Stock purchase rights
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this From 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of voting stock held by non-affiliates of the
registrant as of June 5, 1998 was approximately $20,334,000 (based on the last
sale price of $1.21875 as reported by The Nasdaq National Market).
As of June 5, 1998, 16,684,133 shares of the registrant's Common Stock, par
value $.05 per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of this Form 10-K incorporates by reference information from the
registrant's Annual Report to Shareholders for the year ended March 29, 1998
(the "Annual Report to Shareholders"), copies of which were filed with the
Commission on June 19, 1998. Part III of this Form 10-K incorporates by
reference information from the registrant's Proxy Statement for its 1998 Annual
Meeting of Shareholders (the "Proxy Statement"), which was filed with the
Commission on June 19, 1998.
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PART I
ITEM 1. BUSINESS
Apertus Technologies Incorporated develops and markets software products that
provide data integration solutions for business critical applications such as
data warehousing and application conversions.
In October 1997, the Company acquired Carleton Corporation, a leading provider
of advanced data warehousing software solutions, and sold the Company's Internet
Solutions Division. This major restructuring allows the Company to focus
exclusively on the data integration market. The Company has two major products
- -Passport and Enterprise /Integrator - that focus on data extraction and
preparation of data for new application environments.
The Company, a Minnesota corporation, was incorporated in March 1979. As used
herein, the "Company" and "Apertus" refer to Apertus Technologies Incorporated
together with its wholly owned subsidiaries.
MARKET
BACKGROUND
Data warehouses and data marts are increasingly becoming strategic to
organizations that seek competitive advantages in the marketplace. Warehouses
help companies discover new insights for improving revenue growth, cost
management and customer retention. The value of a warehouse grows as business
line managers uncover meaningful trends and information from the data. As users
discover the value, they begin to have requirements for new sources of data as
well as wanting to better understand the definitions behind data elements.
Having timely, integrated and reliable data is critical for such analyses.
Similarly, organizations are increasingly moving to packaged enterprise
applications, such as those from Baan, Oracle, PeopleSoft, and SAP, in order to
improve competitiveness and reduce information technology development and
maintenance costs. Adoption of these applications generally requires significant
development effort to convert and enhance existing data for use in these new
environments. It is not unusual for conversion projects to span several years
with a cost in the millions of dollars. Subsequently, these organizations are
seeking tools and professional services to streamline the data conversion effort
and reduce the overall project time and associated costs.
The success of data warehousing initiatives is dependent on a business
organization's ability to cost effectively extract, transform, cleanse, merge
and integrate data for new applications. These needs can be met with tools that
allow the business organization to modify the structure of data, enhance or
change context, eliminate redundancies and improve the overall quality of the
data. The Company's products are tools to address such needs.
TARGET MARKET
The Company's products are marketed to data intensive Fortune 1000 companies
that are building data warehouses or converting to new packaged applications.
The companies have complex environments that require significant data
re-engineering to create reliable and useable information for the business
analysis. Many of the Company's customers are in the insurance, manufacturing,
financial and telecommunications marketplace.
The Company distributes its products primarily in North America through direct
sales and channel partners including value added resellers and systems
integrators.
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PRODUCTS
Passport
Passport offers an extensive extraction capability that automates the data
migration process. It can source data from a wide range of mainframe sources,
such as IDMS, IMS, and ADABAS, as well as AS/400 and relational databases.
Extract programs pull data from the production systems for use in the data
warehouse. Passport also handles multiple source extraction in a single pass,
making the process even more efficient.
In addition, Passport offers powerful transformation capabilities. It can handle
the simple to complex requirements for transformation. Data can be reformatted,
restructured, changed to add new field values and record types, as well as
summarized and aggregated. Passport also offers a full range of audit reports to
help ensure that the activities have been implemented successfully.
Enterprise/Integrator
Enterprise/Integrator provides advanced data cleansing, matching and
consolidation capabilities with strong support for "entity-centric"
applications, such as customer, patient, supplier, and product integration. It
operates on a Windows NT or UNIX environment. This solution helps organizations
develop customer profiles that can be used for cross selling, retention
management or profitability measurement.
MARKETING AND CUSTOMERS
The Company is exclusively focused on the data warehouse and application
conversion markets. The Company distributes its technology and professional
services through direct sales and channel partners primarily in North America.
Most of the Company's employees are located at its two primary locations in
Minneapolis, Minnesota and Billerica, Massachusetts with some sales people
located elsewhere in the United States and Canada. Given the Company's level of
total sales revenue and the sales amount resulting from each direct licensing
agreement, there are several customers with whom the Company did business
resulting in more than 10% of the Company's revenues.
BACKLOG
The Company attempts to ship orders to end-user customers within 30 days.
Because of this short delivery cycle, the Company does not believe backlog is a
meaningful indicator of future revenues.
CUSTOMER SERVICE
The Company works with customers on a direct service basis out of its locations
in Minneapolis and Billerica to provide prompt and reliable support for products
installed at end-user facilities. Company employees also provide software
product maintenance through its technical services group.
PRODUCT DEVELOPMENT
The Company continues to invest significantly in ongoing research, development
and engineering to make improvements in its products. Improvements are focused
on product performance, ease of use and added features that address the needs of
the developers building data warehouses or migrating data to new packaged
applications.
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YEAR 2000
The Year 2000 effect is not expected to have a material impact on the Company.
The software that the Company uses to process its internal records is a package
obtained from an outside vendor and is Year 2000 compliant. The Company believes
that the products that it sells are also Year 2000 compliant. The Company
continues with on-going internal testing to verify that its software products
are Year 2000 compliant. Future developments could have a material adverse
effect on the Company.
COMPETITION
The Company's products compete with various vendors who provide varying degrees
of data extraction, transformation, cleansing and integration. These competitors
include a small number of established tool vendors with a traditional focus on
data extraction for large-scale data warehousing (e.g. Prism and Evolutionary
Technologies), as well as vendors more focused on development of departmental
data marts (e.g. Constellar, Informatica, Ardent). The most significant
competitor to the Company's products, however, is in-house development by
companies trying to satisfy their needs by doing everything with no outside
assistance.
SERVICE AND MAINTENANCE
The Company offers service and maintenance programs for all its products and
generally customers choose to take advantage of those programs to provide
coverage for software support and upgrades to new releases of software. The
Company's products generally support industry standard network management
standards and have extensive remote diagnostic capabilities.
INTELLECTUAL PROPERTIES
The Company relies on a combination of copyright, trademark and trade secret
laws, employee and third-party nondisclosure agreements and other industry
standard methods for protecting ownership of its proprietary software. There can
be no assurance, however, that, in spite of these precautions, an unauthorized
third party will not copy or reverse-engineer certain portions of the Company's
products or obtain and use information that the Company regards as proprietary.
EMPLOYEES
As of June 1, 1998, the Company employed 73 persons, including 29 in research,
development and engineering, 18 in sales and marketing, 14 in professional
services and 12 in finance and administration. None of the Company's employees
is covered by a collective bargaining agreement, and the Company believes that
it maintains good relations with its employees.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive officers of
the Company:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert D. Gordon ............ 49 Chairman of the Board, Chief Executive Officer and President
Alexander F. Collier ........ 46 Corporate Vice President, Research and Development
David M. Haggerty ........... 46 Corporate Vice President, Professional Services
Travis M. Richardson ........ 35 Corporate Vice President, Marketing
Steven L. Thimjon .......... 41 Corporate Vice President, Chief Financial Officer and Corporate Secretary
Eugene E. Waara, Jr ......... 40 Corporate Vice President, Sales
</TABLE>
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ROBERT D. GORDON has been Chairman of the Board and Chief Executive Officer of
the Company since April 1990 and President of the Company since December 1988.
Mr. Gordon was first employed by the Company as Senior Vice President in July
1987 and subsequently served as Chief Financial Officer from August 1987 to May
1988, Secretary from January 1988 to September 1988, and Group Vice President,
Sales and Marketing from April 1988 to December 1988. From April 1984 to July
1987, Mr. Gordon was Executive Vice President of First Bank System, Inc. Mr.
Gordon has been a director of the Company since August 1987.
ALEXANDER F. COLLIER has served as the Company's Corporate Vice President,
Research and Development, since November 1997 and came to the Company in
connection with the acquisition of Carleton Corporation. Mr. Collier served as
Vice President of Product Development of Carleton Corporation from June 1997 to
October 1997. From November 1996 to June 1997, Mr. Collier was Vice President of
Development for Asyst Automation, a manufacturer of semi-conductor automation
equipment. Prior to Asyst Automation, Mr. Collier served as President of
Position Sensitive Robots, a provider of software products for real time
industrial control applications founded by Mr. Collier in 1991.
DAVID M. HAGGERTY has served as the Company's Corporate Vice President,
Professional Services, since February 1998. Prior to his current position, Mr.
Haggerty held the position of Director - Software Development and Director -
Engineering. Mr. Haggerty has been employed by the Company since November 1992.
TRAVIS M. RICHARDSON has held the position of Corporate Vice President,
Marketing, since February 1998. Prior to his current position, Mr. Richardson
served as Chief Technical Officer and Director of Planning. Mr. Richardson has
been employed by the Company since October 1988.
STEVEN L. THIMJON has been Corporate Vice President and Chief Financial Officer
since his hiring in September 1997. From June 1995 to August 1997, Mr. Thimjon
was Vice President of Finance for Sanofi Diagnostics Pasteur, Inc., a
manufacturer and marketer of human diagnostics products. Prior to June 1995, he
was a Senior Manager in the audit department of Ernst & Young LLP in
Minneapolis.
EUGENE E.WAARA, JR. has been Corporate Vice President, Sales, since February
1998. Prior to his current position, Mr. Waara served as Sales Director. Mr.
Waara has been employed by the Company since October 1982.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to, the following: decreased demand for the Company's
products; heightened competition; market acceptance risk; risk of lengthening
sales cycles; risk of technological obsolescence of the Company's products;
inability to manage the Company's cost structure; risks associated with sales of
products outside the United States; increased expenses; failure to obtain new
customers or retain existing customers; inability to carry out marketing and
sales plans; loss or retirement of key executives; risks associated with the
Company's dependence on proprietary technology, including those related to
adequacy of copyright, trademark and trade secret protection; risks associated
with single sources of supply for certain components used in the Company's
products; and changes in interest rates. The forward-looking statements herein
are qualified in their entirety by the cautions and risk factors set forth under
"Cautionary Statement" filed as Exhibit 99.1 to this Annual Report on Form 10-K.
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ITEM 2. PROPERTIES
In July 1990, the Company moved its principal office and manufacturing facility
to 60,000 square feet of leased space in a building located in Eden Prairie,
Minnesota. In February 1996, the Company signed a Second Amendment to the Lease
for the Eden Prairie office in which the Company assumed the remaining space
(expanding from 60,000 square feet to 76,462 square feet) and extended the terms
of the original lease through July 2002. The lease requires future base rent
payments totaling approximately $2.7 million subsequent to March 1998. The
Company is also responsible for real estate taxes and operating costs. In July
1997, the Company entered into a sublease agreement with a tenant in Eden
Prairie for 14,715 square feet. The sublease runs through August 2000 and
requires total base lease payments of approximately $498,000 subsequent to March
1998. In April 1998, the Company entered into an agreement with Best Buy Co.,
Inc. to take over the entire lease obligation on the Eden Prairie facility. The
Company has until September 30, 1998 to relocate to another location. The
Company is currently looking for a relocation site in the same general area.
The Company also leases 11,881 square feet of space in a building in Billerica,
Massachusetts. The lease runs through September 2001 and requires future fixed
rent payments of approximately $527,000 subsequent to March 1998. The Company is
also responsible for its share of operating costs.
The Company continues to lease 11,729 square feet of space at One Penn Plaza in
New York, which lease term expires in October 2001. This space has been divided
and sublet to two separate companies. The resulting annual lease payments are
approximately $20,000, net of sublease rental receipts, and the resulting
shortfall over the remaining term of the lease has been accrued for.
The Company also remains as the lessee on space in a building in the United
Kingdom. Computer Network Technology Corporation (CNT) assumed the obligations
of the Company under the lease (including payment of all future rents) in
conjunction with the sale of the Company's Internet Solutions Division to CNT,
and the Company is currently working to get released from the agreement.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a complaint filed on May 29, 1998 in the U.S.
district Court for the District of Massachusetts (case no. 98-11026WGY) by Case
Associates, NV and Carleton Europe, NV. The complaint seeks injunctive relief
and monetary damages arising out of an alleged breach of contract and
infringement by Carleton Corporation and the Company (as successor to Carleton
Corporation) of a copyright in certain "Passport" computer software held by the
plaintiffs. The Company's answer to the complaint denied the allegations and
asserted certain counterclaims. Discovery in the lawsuit has not yet commenced.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained under the heading "Dividend Policy and Price Range of
Common Stock" on the inside back cover of the Annual Report to Shareholders is
incorporated herein by reference.
Pursuant to an Agreement and Plan of Merger dated October 24, 1997 (the "Merger
Agreement") between the Company and Carleton Corporation ("Carleton"), the
Company acquired Carleton, effective October 31, 1997, for approximately 2.8
million shares of the Company's common stock plus accreting notes ("Notes") with
an aggregate initial principal amount of approximately $2.0 million. The
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final principal amounts of the Notes are subject to reduction and provide a
source of offset to the Company for certain indemnification obligations as set
forth in the Merger Agreement. Pursuant to the Merger Agreement, each share of
Carleton's issued and outstanding stock was converted into a combination of a
Note and Company common stock, except that shareholders holding 20,000 shares or
less of Carleton common stock received $1.06 per share in cash in lieu of such
Note and Company common stock. A total of 2,161,191 shares of the Company's
common stock was issued to eight Carleton shareholders, each of whom was an
accredited investor. Such shares were issued without registration in reliance on
an exemption under Rule 506 of the Securities Act of 1933, as amended. In
connection with the acquisition, the Company also assumed outstanding Carleton
stock options and warrants, which became exercisable for shares of the Company's
common stock.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the heading "Selected Historical Financial Data"
on page 16 of the Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 2 and 3 of
the Annual Report to Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The independent auditors' report, consolidated financial statements and notes to
consolidated financial statements on pages 4 through 15 of the Annual Report to
Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the heading "Election of Directors" on pages 2
and 3 of the Proxy Statement is incorporated herein by reference. The
information contained under the heading "Executive Officers of the Registrant"
in Part I hereof is also incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading "Executive Compensation" on pages 4
through 11 of the Proxy Statement is incorporated herein by reference, except
that the information set forth under the captions "Report of Compensation
Committee on Annual Compensation" and the "Comparative Stock Performance" graph
are not incorporated herein by reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Security Ownership of Certain
Beneficial Owners and Management" on page 12 of the Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Certain Transactions" on page 11 of
the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) Exhibits, Financial Statements, Financial Statement Schedules
1. Financial Statements Page Reference in
-------------------- Exhibit 13 to this
Form 10-K
Annual Report
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Consolidated Statements of Operations for the Fiscal Years
Ended March 29, 1998, March 30, 1997 and March 31, 1996............ 4
Consolidated Balance Sheets as of March 29, 1998 and March 30, 1997.. 5
Consolidated Statements of Cash Flows for the Fiscal Years
Ended March 29, 1998, March 30, 1997 and March 31, 1996............ 6
Consolidated Statement of Shareholders' Equity for the Fiscal
Years Ended March 29, 1998, March 30, 1997 and March 31, 1996...... 7
Notes to Consolidated Financial Statements........................... 8 - 14
Report of Independent Auditors....................................... 15
The financial statements listed above are included in Exhibit 13 and are hereby
incorporated by reference.
2. Financial Statement Schedules Page Number in
----------------------------- This Form 10-K
Annual Report
-------------
Independent Auditor's Report on
Supplemental Financial Schedule......................................Exhibit 23
Schedule II Valuation and Qualifying Accounts and Reserve for
the Years Ended March 29, 1998, March 30, 1997 and March 31, 1996.. 12
All other schedules are omitted since the required information is not
represented or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
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3. Exhibits
Exhibit
Number Description
- ------ -----------
2.1 Agreement and Plan of Merger between the Company and Carleton
Corporation, dated as of October 24, 1997, including form of Note (1)
2.2 Asset Purchase Agreement between CNT Acquisition I Corporation,
Computer Network Corporation and the Company and certain of its
subsidiaries, dated as of October 24, 1997 (1)
3.1 Restated Articles of Incorporation, as amended (2)
3.2 Restated Bylaws, as amended (2)
4 Amended and Restated Rights Agreement, dated September 4, 1996, between
the Company and Norwest Bank Minnesota, N.A., as Rights Agent (2)
10.1 *Amended 1990 Long Term Incentive Plan (4)
10.2(a) Office Warehouse Lease, dated May 10, 1990, between the Company and
Real Estate Income Partners III, a Limited Partnership (5)
10.2(b) Second Amendment to Lease, dated February 18, 1996, between the Company
and Real Estate Income Partners III, Limited Partnership (6)
10.2(C) Assignment and Assumption of Lease, dated April 16, 1998, between the
Company and Best Buy Co., Inc.
10.3 Lease, dated July 25, 1996, between Technology Park VIII L.P. and
Carleton Corporation (for the Billerica facility)
10.4(a) *1998 Management Bonus Plan description (7)
10.4(b) *1999 Management Bonus Plan description
10.5(a) *Stock Acquisition Loan Assistance Program (3)
10.5(b) *1993 Stock Acquisition Loan Assistance Program (4)
10.6 Agreement of Lease, dated November 1, 1995, between the Company and Two
Penn Plaza Associates (6)
10.7 *1995 Employee Stock Purchase Plan (6)
10.8 *Form of Deferred Compensation Agreement (6)
10.9 *Separation Agreement and Mutual Release, each dated October 10, 1997
between the Company and Julie Cummins Brady (8)
10.10 *Letter of Mutual Resignation Agreement dated January 12, 1998, between
the Company and Paul Fluckiger (8)
13 Annual Report to Shareholders for the fiscal year ended March 29, 1998
21 Subsidiaries of the Registrant
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23 Consent of Ernst & Young LLP
24 Powers of Attorney
27 Financial Data Schedule
99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
- ----------
* Denotes management contracts and compensatory plans, contracts, and
arrangements.
(1) Incorporated by reference to the Company's Report on Form 8-K filed
November 10, 1997 (SEC file number 0-12378).
(2) Incorporated by reference to the Company's Report on Form 8-K filed
September 5, 1996 (SEC file number 0-12378).
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 28, 1993 (SEC file number 0-12378).
(4) Incorporated by reference to the Company's Registration Statement on
Form S-8 filed March 31, 1994 (SEC file number 33-77176).
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended April 1, 1990 (SEC file number 0-12378).
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1996 (SEC file number 0-12378).
(7) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 30, 1997 (SEC file number 0-12378).
(8) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended December 28, 1997 (SEC file number 0-12378)
(b) Reports on Form 8-K.
In connection with the Company's acquisition of Carleton Corporation
and the sale of the Internet Solutions Division to CNT, the Company
filed a report on Form 8-K/A on January 9, 1998 to include, under
Item 7, the following pro forma financial information:
Pro Forma Condensed Balance Sheet as of September 28, 1997 (Unaudited)
Pro Forma Condensed Statement of Operations for the Year Ended
March 30, 1997 (Unaudited)
Pro Forma Condensed Statement of Operations for the Six Months Ended
September 28, 1997 (Unaudited)
Notes to Pro Forma Condensed Financial Statements (Unaudited)
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SIGNATURE
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.
Date: June 25, 1998 APERTUS TECHNOLOGIES INCORPORATED
By: /s/ Robert D. Gordon
-------------------------------
Robert D. Gordon
Chairman of the Board,
Chief Executive Officer
and President
<TABLE>
<S> <C> <C>
Robert D. Gordon* Chairman of the Board, )
Chief Executive Officer, )
President and Director )
(Principal Executive Officer) )
)
)
Steven L. Thimjon* Chief Financial Officer )
(Principal Financial Officer and ) By: /s/ Robert D. Gordon
Principal Accounting Officer) ) ----------------------------
) Robert D. Gordon
) Pro Se and Attorney-in-Fact
)
Nicholas J. Covatta, Jr.* Director )
)
Michael Dexter-Smith* Director )
) Date: June 25, 1998
)
Robert W. Fischer* Director )
)
George E. Hubman* Director )
)
Arch J. McGill* Director )
)
Clarence W. Spangle* Director )
</TABLE>
- ----------
* Executed on behalf of the indicated persons by Robert D. Gordon
pursuant to the Power of Attorney included as Exhibit 24 to this annual
report.
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APERTUS TECHNOLOGIES INCORPORATED
Schedule II -- Valuation and Qualifying Accounts and Reserve
for the Years Ended March 29, 1998, March 30, 1997 and March 31, 1996
(Dollars in Thousands)
Allowance for Doubtful Accounts: (A)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Balance at
Description Beginning of Period Costs and Expenses Deductions(B) End of Period
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended:
March 29, 1998 $3,606 $ 147(C) $3,568(D) $ 185
March 30, 1997 $1,839 $2,681 $ 914 $3,606(E)
March 31, 1996 $ 865 $1,137(F) $ 163 $1,839(E)
</TABLE>
- ----------
(A) The allowance has been netted against accounts receivable as of the
respective balance sheet dates.
(B) Write-offs net of recoveries.
(C) Includes $56 of allowance acquired in the Carleton Corporation
acquisition.
(D) Includes $2,253 of allowance sold with the Internet Solutions Division
divestiture.
(E) Includes $250 and $300 of allowance allocated to installment
receivables at March 30, 1997 and March 31, 1996, respectively.
(F) Includes $150 of allowance acquired in the BlueLine Software, Inc.
acquisition.
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Apertus Technologies Incorporated
Index of Exhibits
Annual Report on Form 10-K
For the Year Ended March 29, 1998
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
10.2(C) Assignment and Assumption of Lease, dated April 16, 1998
between the Company and Best Buy Co., Inc. Electronically Filed
10.3 Lease, dated July 25, 1996, between Technology Part VIII L.P.
and Carleton Corporation (for the Billerica facility) Electronically Filed
10.4(b) 1999 Management Bonus Plan description Electronically Filed
13 Annual Report to Shareholders for the fiscal year Electronically Filed
ended March 29, 1998
21 Subsidiaries of the Registrant Electronically Filed
23 Consent of Ernst & Young LLP Electronically Filed
24 Powers of Attorney Electronically Filed
27 Financial Data Schedule Electronically Filed
99.1 Cautionary Statement for Purposes of the "Safe Harbor" Electronically Filed
Provisions of the Private Securities Litigation Reform
Act of 1995
</TABLE>
<PAGE>
Exhibit 10.2(c)
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment") is made
effective as of April 16 , 1998, by and between APERTUS TECHNOLOGIES
INCORPORATED, a Minnesota corporation ("Assignor") and Best Buy Co., Inc., a
Minnesota corporation ("Assignee").
RECITALS
A. Pursuant to an Office/Warehouse Lease dated May 10, 1990, as amended
by Amendment No. 1, dated July 23, 1990, and by a Second Amendment to Lease,
dated February 18, 1996 (said Office/Warehouse Lease, Amendment No. 1 and Second
Amendment to Lease being herein collectively referred to as the "Lease") Real
Estate Income Partners III, Limited Partnership ("Landlord") has leased to
Assignor, as Tenant, demised premises consisting of approximately 76,297 square
feet (the "Demised Premises") being all of the building known as Creekedge
Business Center and located at 7275-7279 Flying Cloud Drive, Eden Prairie,
Minnesota 55344. A true and correct copy of the Lease including all of the
Riders and Exhibits thereto is attached to this Assignment as Exhibit A and
incorporated herein by reference.
B. The term of the Lease expires on July 31, 2002.
C. A portion of the Demised Premises (the "Subleased Premises") has
been subleased by Assignor to Famous Dave's of America, Inc., a Minnesota
corporation, (the "Sublessee"), pursuant to a Sublease Agreement dated July 30,
1997 (the "Sublease Agreement") for a term beginning September 1, 1997 and
ending August 31, 2000. A true and correct copy of the Sublease Agreement is
attached to this Assignment as Exhibit B and incorporated herein by reference.
D. Assignor has agreed to assign to Assignee all of Assignor's right,
title and interest in and to the Lease and the Sublease, upon the terms and
conditions stated herein and subject to Assignor's right to continue in
occupancy and possession of the "Leaseback Premises" as defined in and subject
to the terms and conditions of Paragraph 3 of this Assignment.
NOW, THEREFORE, in consideration of the foregoing Recitals, and of One
Dollar and other good and valuable consideration, Assignor and Assignee agree as
follows:
1. INCORPORATION OF RECITALS. Recital Paragraphs A through D, above,
are incorporated in and made a part of this Assignment in their entirety.
<PAGE>
2. ASSIGNMENT OF LEASE AND SUBLEASE.
a. Assignor hereby assigns, transfers, sets over and delivers to Assignee,
effective May 1, 1997 (the "Effective Date") all of Assignor's right,
title and interest in, to and under the Lease and the Sublease.
Assignee acknowledges it has received complete copies of the Lease and
the Sublease and is familiar with all of the terms, covenants,
conditions and provisions thereof. The assignment of Assignor's right,
title and interest in the Lease and the Sublease is subject to: i) the
Sublease and the right, title and interest of the Sublessee thereunder;
ii) the rights of Assignor with respect to the Leaseback Premises as
stated in Paragraph 3 of this Assignment; and iii) the consent of the
Landlord as provided in Paragraph 6 of this Assignment.
b. Commencing on the Effective date, Assignee shall assume and does hereby
agree to assume, comply with and perform all of the Assignor's
liabilities, agreements, undertakings and obligations under and with
respect to the Lease and the Sublease including, but not limited to,
payment of all Base Rent, Real Estate Taxes and Operating Expenses (as
said phrases are defined in the Lease) and other sums due to the
Landlord, as if Assignee had executed the Lease, as Tenant and the
Sublease, as Sublessor.
c. Assignee agrees it shall protect, indemnify and hold Assignor harmless
from and against any and all claims, liabilities, obligations, legal
actions, damages, costs and expenses, including reasonable attorneys'
fees, arising out of or relating to the Lease, the Sublease or the
Demised Premises which result or arise from any occurrence or event
occurring from and after the Effective Date with the exception of any
liabilities of Assignor arising solely under the Leaseback Agreement
specifie in Paragraph 3 of this Assignment.
d. Assignor agrees it shall protect, indemnify and hold Assignee harmless
from and against any and all claims, liabilities, obligations, legal
actions, damages, costs and expenses, including reasonable attorneys'
fees, arising out of or relating to the Lease, the Sublease or the
Demised Premises which result from any occurrence or event occurring
prior to the Effective Date, including, but not limited to, any
violations of law, governmental ordinances or codes by Assignor on or
before the Effective Date.
e. Subject to obtaining the consent of the Landlord, Assignor warrants
that it has the right to assign its interest in the Lease and the
Sublease free from all liens or encumbrances arising through or under
Assignor other than the Sublease.
f. On or before the Effective Date, Assignor will obtain an Estoppel
Certificate from the Sublessee in the form of Exhibit E attached hereto
and deliver such Estoppel Certificate to Assignee.
2
<PAGE>
g. On the Effective Date, Assignor shall assign, transfer and deliver to
Assignee all of the $17,168.00 security deposit held by Assignor
pursuant to Paragraph 9 of the Sublease together with any accrued
interest thereon through the Effective Date which Assignor may be
obligated to pay with respect to said security deposit under the
provisions of the Sublease. Upon payment of said security deposit to
Assignee, Assignee shall be solely responsible for the security deposit
and shall indemnify and hold Assignor harmless from any and all claims,
liabilities, damages, costs and expenses related thereto.
3. LEASEBACK AGREEMENT. From and after the Effective Date, Assignor
shall be entitled to continue in possession and occupancy of a portion of the
Demised Premises consisting of approximately 18,274 square feet as depicted in
Exhibit C attached hereto and incorporated herein by reference (the "Leaseback
Premises") as a Sublessee of Assignee, upon and subject to the following terms
and conditions (the "Leaseback Agreement"):
a. Assignor shall be entitled to occupy the Leaseback Premises as a
Sublessee of Assignee's from the Effective Date until September 30,
1998, subject to Assignor's right to terminate the Leaseback Agreement
before September 30, 1998, as hereinafter provided.
b. Assignor shall pay Assignee base rent for the Leaseback Premises in the
amount of $11,421.25, per month, commencing on May 1, 1998 and
continuing on the first day of each and every successive month
thereafter until the termination of the Leaseback Agreement.
c. Assignor shall also pay Assignee 23.95 percent of each monthly
installment of "Operating Expenses" and "Real Estate Taxes" (as said
phrases are defined in the Lease) due to the Landlord with respect to
the Demised Premises commencing on the Effective Date and terminating
on the date of termination of the Leaseback Agreement.
d. From and after the Effective Date, Assignor shall pay all utility
charges specifically attributable to its use and occupancy of the
Leaseback Premises. In the event the utilities provided to the
Leaseback Premises are not separately metered or sub metered for any
particular utility, from and after the Effective Date Assignor shall
pay 23.95 percent of the utility charges for the entire Demised
Premises for the particular utility that is not separately metered or
submetered.
e. Assignor agrees that the Leaseback Agreement and its use and possession
of the Leaseback Premises shall be subject and subordinate to the terms
of the Lease. Assignee agrees that it shall deliver to Assignor copies
of all notices, demands or other documents received by Assignee from
the Landlord relating to any default under the Lease.
3
<PAGE>
f. Assignor and Assignee agree Assignor shall be entitled to terminate the
Leaseback Agreement and Assignor's obligations under this Paragraph 3,
effective on the last day of any calendar month prior to September 30,
1998, by serving a notice of termination on Assignee no later the 15th
day of the calendar month in which the Leaseback Agreement and
Assignor's obligations under this Paragraph 3 are to terminate. Upon
service of such notice of termination, the Leaseback Agreement and all
of Assignor's obligations under this Paragraph 3 shall terminate on the
last day of such calendar month.
g. Assignor and Assignor's employees and invitees shall be entitled to use
forty-five (45) parking spaces in the parking lot adjacent to the
Leaseback Premises. Assignor and Assignor's employees and invitees
shall also be entitled to use ten (10) visitor and handicap spaces in
that portion of the parking lot adjacent to the main entrance of the
Leaseback Premises to be shared between Assignor and Assignee. Assignor
shall also have unrestricted access to the loading docks serving the
Leaseback Premises.
h. The base rent, Real Estate Taxes and Operating Expenses payable to
Assignee under this Paragraph 3 shall be payable to Assignee at: 7075
Flying Cloud Drive, Eden Prairie, Minnesota 55344, Attention: Lease
Administration, and shall be received on or before the due date
therefore.
4. DELIVERY OF DEMISED PREMISES.
a. On the Effective Date, Apertus shall deliver the Demised Premises,
other than the Subleased Premises and the Leaseback Premises, to
Assignee, and Assignor shall remove all of Assignor's personal property
therefrom. Assignor shall also surrender the Leaseback Premises to
Assignee at the end of the term of the Leaseback Agreement, as provided
in Paragraph 3 of this Assignment, and Assignor shall remove of
Assignor's personal property from the Leaseback Premises. Assignor and
Assignee further agree that the fixtures identified in Exhibit D to
this Assignment shall remain the property of Assignor and may be
removed from the Demised Premises by Assignor even though said fixtures
are attached to the building in which the Demised Premises are located.
b. Assignor represents to Assignee that, as of the date of this
Assignment, Assignor has no knowledge of any violations of any law,
governmental ordinance or code, including the Americans With
Disabilities Act, applicable to the Demised Premises as currently used
by Assignor and/or Sublessee. Assignee acknowledges that, in the event
Assignee remodels or reconstructs the second level of the Demised
Premises, the installation of an elevator may be required at Assignee's
expense. With the exception of the foregoing representation, Assignee
agrees it is leasing and accepts the Demised Premises "as is", "where
is" and with all faults. Without limiting the generality of the
foregoing, Assignor shall have no obligation to make, supply or perform
any alteration, services, material, fixtures, equipment or decorations
to the
4
<PAGE>
Demised Premises nor shall Assignor have any obligations regarding
compliance of the Demised Premises and Assignee's use thereof with the
Americans With Disabilities Act. In entering into this Assignment,
Assignee has relied solely on its own investigation, examinations and
inspections of the Demised Premises, and Assignee acknowledges Assignor
has afforded Assignee the opportunity for a full and complete
investigation, examination and inspection of the Demised Premises.
c. Assignor agrees Assignee shall be entitled to take possession of the
Demised Premises, other than the Subleased Premises and the Leaseback
Premises, prior to the Effective Date at such time as written consent
of the Landlord to this Assignment has been obtained in accordance with
the provisions of Paragraph 6 hereof, subject to the following
conditions:
i) Assignee shall not be obligated to pay Base Rent, Operating
Expenses or Real Estate Taxes prior to the Effective Date, but
Assignee shall pay for all utility services provided to that
portion of the Demised Premises occupied by Assignee; and
ii) Prior to occupying the Demised Premises, Assignee shall
provide Assignor with Certificates of Insurance complying with
the requirements of the Lease and this Assignment.
d. Assignee acknowledges it is required by the terms of the Lease to
obtain the Landlord's approval prior to performing any modifications or
improvements to the Demised Premises. In the event Assignee undertakes
any tenant improvement or construction work prior to the end of the
term of the Leaseback Agreement, Assignee agrees to perform such work
in a manner that will not unreasonably interfere with the conduct of
Assignor's business within the Leaseback Premises.
5. RECONCILIATION OF REAL ESTATE TAXES AND OPERATING EXPENSES. Assignor
and Assignee agree Assignor shall only be responsible for the actual "Real
Estate Taxes" (as defined in the Lease) and "Operating Expenses" (as defined in
the Lease) payable with respect to the Demised Premises, excluding the Subleased
Premises, prior to the Effective Date, and payable with respect to the Leaseback
Premises during the term of the Leaseback Agreement as provided in Paragraph 3
of this Assignment. Assigne shall look only to Sublessee for the payment of any
Real Estate Taxes or Operating Expenses payable with respect to the Subleased
Premises, and Assignor shall have no liability to Assignee for the Real Estate
Taxes and Operating Expenses payable with respect to the Subleased Premises. At
the time of reconciliation of the actual Real Estate Taxes and Operating
Expenses for the calendar year 1998, as required by the last paragraph of
Article 3 of the Lease, Assignor or Assignee, as the case may be, shall
reimburse the other party for any overpayment or underpayment by Assignor of
Real Estate Taxes or Operating Expenses payable with respect to the Demised
Premises or the Leaseback Premises during the calendar year 1998. Assignee
agrees to provide Assignor with copies of all documents received by Assignor or
available
5
<PAGE>
to Assignor relating to the reconciliation of the actual Real Estate Taxes and
Operating Expenses for the calendar year 1998.
6. CONSENT OF LANDLORD.
a. It shall be a condition of the continued validity of this
Assignment that the Landlord shall give its written consent to
this Assignment in accordance with the provisions of the
Lease. Assignee shall not be entitled to take possession of
the Demised Premises or assume Assignor's interest under the
Sublease unless and until the Landlord has consented to this
Assignment.
b. Assignor shall not be obligated to take any action or to incur
any cost or liability in order to obtain the consent of the
Landlord to this Assignment, other than to request such
consent from the Landlord and proceed with reasonable
diligence to secure such consent in accordance with the terms
of the Lease.
c. Assignee agrees that it shall fully cooperate with Assignor in
obtaining the consent of the Landlord to this Assignment, and
agrees that it shall execute and deliver any document or
agreement and provide all information that the Landlord shall
reasonably require, promptly following Assignor' or the
Landlord's request. Assignor and Assignee acknowledge that
they intend to request that the Landlord release Apertus from
all liability under the Lease from and after the Effective
Date, and Assignee agrees to request such release and
cooperate with Assignor in obtaining the Landlord's agreement
to release Assignor from liability from and after the
Effective Date. However, any consent by Landlord to this
Assignment shall not be deemed to release Apertus from
liability under the Lease unless such consent, by its terms,
expressly releases Apertus from such liability.
d. If for any reason whatsoever, the Landlord shall fail or
refuse to give its consent to this Assignment on or before the
Effective Date then, at any time after the Effective Date and
prior to such time as the Landlord's consent shall be given
and the parties shall be notified that the consent has been
given, either of the parties may cancel this Assignment by
giving written notice to the other whereupon this Assignment
shall be null and void and shall have no further force or
effect.
7. INSURANCE. From and after the Effective Date, Assignee shall
maintain insurance coverage complying with the requirements of the Lease,
provided, however, that until the termination of the Leaseback Agreement and
Assignor's obligations under Paragraph 3 of this Assignment, Assignor shall
maintain insurance covering Assignor's continued use and occupancy of the
Leaseback Premises complying with the requirements of the Lease. On or before
the Effective Date, Assignor and Assignee shall each furnish the other party
with a Certificate of Insurance evidencing that Assignor and Assignee are
maintaining the insurance coverages required by this Assignment and the Lease.
6
<PAGE>
8. CHANGES. This Assignment cannot be changed or amended in any manner
other than by a written agreement executed by Assignor and Assignee.
9. SUCCESSORS AND ASSIGNS. Except as may be otherwise specifically
provided in this Assignment, the provisions hereof shall extend to, bind and
inure to the benefit of the parties hereto and their respective successors and
assigns.
10. BROKERAGE. Assignor and Assignee represent to one another that they
have not dealt with any broker or agent in connection with this Assignment, nor
do they have any knowledge of any broker who has been involved or who has
claimed to be involved or instrumental in bringing about this Assignment, other
than Welsh Companies and William Ritter ("Assignor's Brokers") and Jerry Portnoy
("Assignee's Broker"). Assignee shall indemnify, defend and hold Assignor
harmless from and against all losses, damages, costs and liabilities (including,
without limitation, reasonable attorneys' fees) arising in connection with
claims made by any broker, agent or other person, other than Assignor's Brokers
and Assignee's Broker, for a brokerage commission, finder's fees or similar
compensation, by reason of or in connection with this Assignment, if such other
broker or other person claims to have dealt with Assignee. The broker's
commission payable to Assignor's Brokers shall be payable by Assignor in
accordance with a separate agreement between Assignor and Assignor's Brokers and
the broker's commission payable to Assignor's Brokers shall be divided between
Assignor's Brokers and Assignee's Broker in accordance with their separate
agreement.
11. NOTICES. All notices, requests, approvals, waivers, consents,
deliveries or other communications that either party is required or desires to
send to the other in connection with this Assignment shall be in writing,
executed by the party sending the notice, and sent by registered or certified
mail, return receipt requested, with postage prepaid, or by a
nationally-recognized overnight courier service which provides a written return
receipt, addressed as follows: (a) if to Assignee, to its address at 7075 Flying
Cloud Drive, Eden Prairie, Minnesota 55344, Attention: James Istis; and (b) if
to Assignor, to its address at:7275 Flying Cloud Drive, Eden Prairie, Minnesota
55344, Attention: Steve Thimjon. Except in any instance where it may be
otherwise specifically provided in this Assignment, notice shall be deemed given
on the date which is two (2) business days after such notice is deposited with
the United States Postal Service
12. INTERPRETATION, MISCELLANEOUS PROVISIONS.
a. This Assignment shall be governed by and construed in
accordance with the law of the State of Minnesota.
b. If any provision of this Assignment or the application thereof
to any person or circumstances shall, for any reason or to any
extent, be invalid or unenforceable, the remainder of this
Assignment and the application of that provision to other
persons or circumstances shall not be affected but rather
shall be enforced to the extent permitted by law.
7
<PAGE>
c. The captions, headings and titles contained in this Assignment
are solely for convenience of reference and shall not affect
its interpretation.
d. This Assignment shall be construed without regard to any
presumption or other rule requiring construction against the
party causing this Assignment to be drafted.
e. All of the terms, conditions, covenants, liabilities and
obligations of Assignor and Assignee under this Assignment
shall survive and be enforceable after the Effective Date.
13. COMPLETE AGREEMENT. There are no representations, agreements,
arrangements or understandings, oral or written, between the parties relating to
the subject matter of this Assignment which are not fully expressed in this
Assignment.
14. ATTORNEYS' FEES. The parties hereby agree that the prevailing party
in any action or legal proceeding commenced by either party arising out of or
concerning this Assignment shall be entitled to recover from the other party, in
addition to all other relief at law or in equity, reasonable attorneys' fees and
disbursements as fixed by a Court.
IN WITNESS WHEREOF, Assignor and Assignee have executed and delivered
this Assignment effective as of the date stated in the first paragraph of this
Assignment.
APERTUS TECHNOLOGIES INCORPORATED
Date: April 16, 1998 By /s/ Steven Thimjon
-------------------------------
Its Vice President and CFO
BEST BUY CO., INC.
Date: April 15, 1998 By /s/ Allen Lenzmeier
--------------------
Its Executive Vice President
8
<PAGE>
Exhibit 10.3
LEASE BETWEEN
TECHNOLOGY PARK VII LIMITED PARTNERSHIP
AND
CARLETON CORPORATION
FOR
BUILDING IX, 700 TECHNOLOGY PARK DRIVE
BILLERICA, MASSACHUSETTS
INDEX
Page No.
--------
REFERENCE DATA 1
- --------------
Paragraph 1.1 Subject Referred To 1
Paragraph 1.2 Exhibits 2
ARTICLE II - PREMISES AND TERM: 3
- ------------------------------
Paragraph 2.1 Premises 3
Paragraph 2.2 Term 3
ARTICLE III - CONSTRUCTION: 3
- --------------------------
Paragraph 3.1 Initial Construction 3
Paragraph 3.2 Preparation of Premises for Occupancy 4
Paragraph 3.3 General Provisions Applicable to Construction 5
Paragraph 3.4 Representatives 5
ARTICLE IV - RENT: 5
- -----------------
Paragraph 4.1 Rent 5
Paragraph 4.2 Operating Cost Escalation 6
Paragraph 4.3 Payments 8
ARTICLE V - LANDLORD'S COVENANTS: 8
- --------------------------------
Paragraph 5.1 Landlord's Covenants during the Term 8
Paragraph 5.2 Interruptions 9
ARTICLE VI - TENANT'S COVENANTS: 9
- -------------------------------
Paragraph 6.1 Tenant's Covenants during the Term 9
<PAGE>
ARTICLE VII - CASUALTY AND TAKING: 14
- ---------------------------------
Paragraph 7.1 Casualty and Taking 14
Paragraph 7.2 Reservation of Award 15
ARTICLE VIII - RIGHTS OF MORTGAGEE: 15
- ----------------------------------
Paragraph 8.1 Priority of Lease 15
Paragraph 8.2 Limitation on Mortgagee's Liability 15
Paragraph 8.3 Mortgagee's Election 16
Paragraph 8.4 No Prepayment or Modification, etc. 16
Paragraph 8.5 No Release or Termination 16
Paragraph 8.6 Continuing Offer 17
Paragraph 8.7 Mortgagee's Approval 17
Paragraph 8.8 Submittal of Financial Statement 17
ARTICLE IX - DEFAULT: 17
- ---------------------
Paragraph 9.1 Events of Default 17
Paragraph 9.2 Tenant's Obligations After Termination 18
ARTICLE X - MISCELLANEOUS: 19
- -------------------------
Paragraph 10.1 Titles 19
Paragraph 10.2 Notice of Lease 19
Paragraph 10.3 Relocation 19
Paragraph 10.4 Notices from One Party to the Other 19
Paragraph 10.5 Bind and Inure 19
Paragraph 10.6 No Surrender 19
Paragraph 10.7 No Waiver, etc. 20
Paragraph 10.8 No Accord and Satisfaction 20
Paragraph 10.9 Cumulative Remedies 20
Paragraph 10.10 Partial Invalidity 20
Paragraph 10.11 Landlord's Right to Cure 21
Paragraph 10.12 Estoppel Certificate 21
Paragraph 10.13 Waiver of Subrogation 21
Paragraph 10.14 Brokerage 21
ARTICLE XI - SECURITY DEPOSIT 22
- -----------------------------
<PAGE>
Date of Lease Execution: July 25, 1996
REFERENCE DATA
1.1 SUBJECTS REFERRED TO:
Each reference in this Lease to any of the following subjects shall
incorporate the data stated for that subject in this Section 1.1.
LANDLORD: Technology Park VIII Limited Partnership
MANAGING AGENT: The Gutierrez Company
LANDLORD'S AND MANAGING AGENT'S ADDRESS: Burlington Office Park
One Wall Street
Burlington, Massachusetts 01803
LANDLORD'S REPRESENTATIVE: John A. Cataldo
TENANT: Carleton Corporation
TENANT'S ADDRESS (FOR NOTICE & BILLING): 700 Technology Park Drive - Building IX
Billerica Massachusetts 01821
TENANT REPRESENTATIVE: Hem Desai
LANDLORD'S MORTGAGEE: Teachers Insurance and Annuity Association of America
730 Third Avenue, New York, New York 10017
BUILDING: Building IX 700, Technology Park Drive FLOOR: Second
RENTABLE FLOOR AREA OF TENANT'S SPACE: 11.881 SQUARE FEET
TOTAL RENTABLE FLOOR AREA OF THE BUILDING: 43.675 SQUARE FEET
TENANT'S DESIGN COMPLETION DATE: JULY 29, 1996
CHECK ONE: COMPLETE PLANS [ ] INTERIOR SELECTION [X]
SCHEDULED TERM COMMENCEMENT DATE: October 1, 1996
OUTSIDE DELIVERY DATE: November 1, 1996
<PAGE>
TERM EXPIRATION DATE: September 30, 2001 APPROXIMATE TERM: 5 Years
FIXED RENT: $162,175.65/YEAR MONTHLY FIXED RENT: $13,514.64
ANNUAL ESTIMATED OPERATING COSTS: $251,131.25 / $5.75/RSF
ESTIMATED COST OF ELECTRICAL SERVICE TO TENANTS SPACE
(Included in Fixed Rent): $8,910.75 / $0.75/RSF
FIRST FISCAL YEAR FOR TENANT'S PAYING OPERATING COSTS ESCALATION-
YEAR ENDING December 31, 1997
SECURITY DEPOSIT: N/A GUARANTOR N/A
TENANT IMPROVEMENT REIMBURSEMENT TO LANDLORD: N/A
PERMITTED USES: General Office
REAL ESTATE BROKER(S): The Leggat Company
Samuel E. Oddo, Inc.
PUBLIC LIABILITY INSURANCE: BODILY INJURY AND PROPERTY DAMAGE
EACH OCCURRENCE: $1,000,000
AGGREGATE: $2,000,000
SPECIAL PROVISIONS: Landlord will build-out Premises at Landlord's sole cost
in accordance with Exhibits A & C.
1.2 EXHIBITS
The Exhibits listed below in this Section are incorporated in this
Lease by reference and are to be construed as part of this Lease:
EXHIBIT A Plan Showing Tenant's Space
EXHIBIT B Riders (not applicable)
EXHIBIT C Specifications of Leasehold Improvements and Tenant
Layout
(if applicable)
EXHIBIT D Landlord's Services
EXHIBIT E Rules and Regulations
EXHIBIT F Guaranty (not applicable)
EXHIBIT G Estoppel Certificate
EXHIBIT H Option to Extend
2
<PAGE>
ARTICLE II
PREMISES AND TERM
2.1 PREMISES
Subject to and with the benefit of the provisions of this Lease and any
ground lease or land disposition agreement relating to the parcel on which the
Building is located (the "Lot"), Landlord hereby leases to Tenant and Tenant
leases from Landlord, Tenant's Space in the Building, excluding exterior faces
of exterior walls, the common facilities area and building service fixtures and
equipment serving exclusively or in common other parts of the Building. Tenant's
Space, with such exclusions, is hereinafter referred to as "the Premises."
Tenant shall have, as appurtenant to the Premises, the right to use in
common with others entitled thereto, subject to reasonable rules of general
applicability to tenants of the Building from time to time made by Landlord of
which Tenant is given notice: (a) the common facilities included in the Building
or on the Lot, including the parking facility, if any, to the extent from time
to time designated by Landlord; and (b) the building service fixtures and
equipment serving the Premises.
Landlord reserves the right from time to time, without unreasonable
interference with Tenant's use (a) to install repair, replace, use, maintain and
relocate for service to the Premises and to other parts of the Building or
either, building service fixtures and equipment wherever located in the
Building, and (b) to alter or relocate any other common facility provided that
substitutions are substantially equivalent or better.
2.2 TERM
To have and to hold for a period (the "Term") commencing on the latter
of: a) when the Premises are deemed ready for occupancy as provided in Section
3.2, or b) if no work is to be performed by Landlord pursuant to Article m, on
the Scheduled Term Commencement Date (whichever of said dates is appropriate
being hereafter referred to as the "Commencement Date") and continuing until the
Expiration Date, unless sooner terminated as provided in Section 3.2 or 7.1 or
in Article IX.
ARTICLE III
CONSTRUCTION
3.1 INITIAL CONSTRUCTION
Tenant shall on or before Tenant's Design Completion Date, provide to
Landlord for approval a plan of the Premises "marked" to show the appropriate
fit-up work to be performed by Landlord in accordance with the attached "Exhibit
C" hereto.
3
<PAGE>
Tenant's interior furnishings, i.e., specification, coordination,
supply and installation of furniture, furnishings, computer equipment,
telephones and movable equipment will be the responsibility of Tenant. All of
Tenant's construction, installation of furnishings, and later changes or
additions shall be coordinated with any work being performed by Landlord in such
a manner as to maintain harmonious labor relations and not damage the Building
or Lot or interfere with Building operations. Except for installation of
furnishings, including carpets, the installation of telephone systems, and
computer network, which must be performed by Tenant's telephone contractor at
Tenant's direction and expense (all telephone equipment, including the telephone
interface, shall be installed within tenant's area), all such work shall be
performed by Landlord's general contractor and Tenant shall pay therefor an
amount equal to the cost of any changes requested by Tenant from the
specifications in Exhibit C, including the cost to Landlord of the general
contractor's overhead and profit, which amount shall be due and payable as
additional rent, on the Commencement Date. Tenant shall have the right to
install a wall in the lab area, as long as Landlord approves the plan, which
approval shall not be unreasonably withheld, and Tenant obtains all necessary
permits for such work. Landlord will not approve any construction, alterations,
or additions requiring unusual expense to readapt the Premises to normal offic
use on lease termination or increasing the cost of construction, insurance or
taxes on the Building or of Landlord's services called for by Section 5.1,
unless Tenant first gives assurances acceptable to landlord that such
readaptation will be made prior to such termination without expense to Landlord
and makes provisions acceptable to Landlord for payment of such increased cost.
Landlord will also disapprove any alterations or additions requested by Tenant
which will delay completion of the Premises or the Building. All changes and
additions shall be part of the Building, except such items as by writing at the
time of approval the parties agree either shall be removed by Tenant on
termination of this Lease, or shall be removed or left at Tenant's election.
3.2 PREPARATION OF PREMISES FOR OCCUPANCY
If Landlord is obligated to perform construction work pursuant to
Exhibit C, Landlord agrees to use reasonable efforts to have the Premises ready
for occupancy on or before the Scheduled Term Commencement Date, which shall,
however, be extended for a period equal to that of any delays due to
governmental regulations, unusual scarcity of or inability to, obtain labor or
materials, labor difficulties, casualty or other causes reasonably beyond
Landlord's control. The Premises shall be deeme ready for occupancy on the
latter of:
(a) The Scheduled Term Commencement Date; or
(b) The date on which the Tenant's improvements, as specified in
Exhibit C, are substantially completed as certified by
Landlord's architect;
provided, however, that if Landlord is unable to complete construction due to
delay in Tenant's compliance with the provisions of Section 3.1 of this Lease,
then the Premises shall be deemed ready for occupancy no later than the
Scheduled Term Commencement Date.
Landlord shall permit Tenant access for installing equipment and
furnishings in the Premises prior to the Term when it can be done without
material interference with Landlord's remaining work.
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In the event of Tenant's failure to comply with the provisions of
Section 3.1 of this Lease to submit information or to deliver construction
drawings and specifications which meet Landlord's approval, Landlord may, at
Landlord's option, exercisable by notice to Tenant, terminate this Lease on the
date specified in said notice to Tenant, and upon such termination Landlord
shall have all the rights provided in event of Tenant's default in Article IX of
this Lease. Notwithstanding the foregoing provisions, if the Premises are not
deemed ready for occupancy on or before the Outside Delivery Date for whatever
reason, other than Tenant's default, Tenant may elect to cancel this Lease at
any time thereafter while the Premises are not deemed ready for occupancy by
giving notice to Landlord of such cancellation which shall be effective when
given, it being understood that said election shall be Tenant's sole remedy at
law or in equity for Landlord's failure to have the Premises ready for
occupancy.
3.3 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION
All construction work required or permitted by this Lease, whether by
Landlord or by Tenant, shall be done in a good and workmanlike manner and in
compliance with all applicable laws and all lawful ordinances, regulations and
orders of governmental authority and insurers of the Building. Either party may
inspect the work of the other at reasonable times and shall promptly give notice
of observed defects. Landlord's obligations under Section 3.1 shall be deemed to
have been performed when Tenant commences to occupy any portion of the Premises
for the Permitted Uses except for items which are incomplete or do not conform
with the requirements of Section 3.1 and as to which Tenant shall, in either
case, have given written notice to Landlord prior to such commencement. If
Tenant shall not have commenced to occupy the Premises for the Permitted Uses
within 30 days after they are deemed ready for occupancy as provided in Section
3.2, a certificate of completion by a licensed architect or registered engineer
shall be conclusive evidence that Landlord has performed all such obligations
except for items stated in such certificate to be incomplete or not in
conformity with such requirements.
3.4 REPRESENTATIVES
Each party authorizes the other to rely in connection with their
respective rights and obligations under this Article m upon approval and other
actions on the party's behalf by Landlord's Representative in the case of
Landlord or Tenant's Representative in the case of Tenant or by any person
designated in substitution or addition by notice to the party relying.
ARTICLE IV
RENT
4.1 RENT
Tenant agrees to pay, without any offset or reduction whatever, fixed
rent equal to 1/12th of the Fixed Rent in equal installments in advance on the
first day of each calendar month included in the Term; and for any portion of a
calendar month at the beginning or end of the Term, at the rate payable for such
portion in advance. Notwithstanding the foregoing, the Fixed Rent shall be
abated for the first seven (7) days of the Lease Term.
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4.2 OPERATING COST ESCALATION
With respect to the First Fiscal Year for Tenant's Paying Operating
Cost Escalation, or fraction thereof, and any Fiscal Year or fraction
thereafter, Tenant shall pay to Landlord, as additional rent, Operating Cost
Escalation (as defined below), if any, on or before the thirtieth (30th) day
following receipt by Tenant of Landlord's Statement (as defined below). As soon
as practicable after the end of each Fiscal Year ending during the Term and
after Lease termination, Landlord shall rende a statement ("Landlord's
Statement") in reasonable detail and according to usual accounting practices
certified by Landlord and showing for the preceding Fiscal Year or fraction
thereof, as the case may be, Landlord's Operating Costs,
EXCLUDING the interest and amortization on mortgages for the Building
and Lot or leasehold interests therein and the cost of special services rendered
to tenants (including Tenant) for which a special charge is made,
BUT INCLUDING, without limitation: real estate taxes on the Building
and Lot; installments and interest on assessments for public betterments or
public improvements; expenses of any proceedings for abatement of taxes and
assessments with respect to any Fiscal Year or fraction of a Fiscal Year;
premiums for insurance; compensation and all fringe benefits, workmen's
compensation, insurance premiums and payroll taxes paid by Landlord to, for or
with respect to all persons engaged in the operating, maintaining, or cleaning
of the Building and Lot; steam, water, sewer, electric, gas, telephone, and
other utility charges not billed directly to tenants by Landlord or the utility,
but not including the cost to Landlord of electricity furnished for lighting,
electrical facilities, equipment, machinery, fixtures and appliances used by
Tenant in Tenant's Space (other than Building heating, ventilating and air
conditioning equipment) as set forth in Paragraph VII of Exhibit D; costs of
building and cleaning supplies and equipment (including rental); cost of
maintenance, cleaning and repairs; cost of snow plowing or removal, or both, and
care of landscaping; payments to independent contractors under service contracts
for cleaning, operating, managing, maintaining and repairing the Building and
Lot (which payments may be to affiliates of Landlord provided the same are at
reasonable rates consistent with the type of occupancy and the services
rendered); imputed cost equal to the loss of rent by Landlord for making
available to the managing agent space for a Building office on the ground floor
or above (limited to 200 square feet); if the building is located in an office
park, the Building's pro rata share (as reasonably determined by landlord) of
the cost of operating, maintaining and repairing the common areas and facilities
within such park (such as, but not limited to, snow plowing, landscaping, common
area and street lighting, security and management); and all other reasonable and
necessary expenses paid in connection with the operation, cleaning, maintenance,
and repair of the Building and Lot, or either, and properly chargeable against
income, it being agreed that if Landlord installs a new or replacement capital
item for the purpose of reducing Landlord's Operating Costs, the costs thereof
as reasonably amortized by Landlord, with legal interests on the unamortized
amount, shall be included in Landlord's Operating Costs. If the Building is not
fully occupied, Landlord's Statement shall also show the average number of
square feet of the Building which were occupied for the preceding Fiscal Year or
fraction thereof.
If the management fee is reduced by reason of a tenant's default in the
payment of fixed or additional rent, Landlord shall reduce the Annual Estimated
Operating Costs by the amount of such reduction in the management fee. In case
of services which are not rendered to all areas on a comparable basis, the
proportion allocable to the Premises shall be the same proportion which the
Rentable Floor Area of Tenant's
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Space bears to the total rentable floor area to which such service is so
rendered (such latter area to be determined in the same manner as the Total
Rentable Floor Area of the Building).
"Operating Cost Escalation" shall be equal to the difference, if any,
between:
(a) the product of Landlord's Operating Costs per rentable square
foot as indicated in Landlord's Statement times the Rentable
Floor Area of Tenant's Space; and
(b) the product of the Annual Estimated Operating Costs (as
reduced pursuant to this Section 4.2) per rentable square foot
times the Rentable Floor Area of Tenant's Space.
If, with respect to any Fiscal Year or fraction thereof during the
Term, Tenant is obligated to pay Operating Cost Escalation, then Tenant shall
pay, as additional rent, on the first day of each month of each ensuing Fiscal
Year thereafter, until Landlord's Statement for an ensuing Fiscal Year reflects
that Tenant is not obligated to pay Operating Cost Escalation, Estimated Monthly
Escalation Payments equal to 1/12th of the annualized Operating Cost Escalation
for the immediately preceding Fiscal Year. Estimated Monthly Escalation Payments
for each ensuing Fiscal Year shall be made retroactively from the first day of
such Fiscal Year and on account of the payment to be made pursuant to the first
sentence of this Section 4.2 for such Fiscal Year, with an appropriate
additional payment or refund to be made within thirty (30) days after Landlord's
Statement is delivered.
The term "real estate taxes" as used above shall mean all taxes of
every laud and nature assessed by any governmental authority on the Lot, the
Building and improvements, or both, which the Landlord shall become obligated to
pay because of or in connection with the ownership, leasing and operation of the
Lot, the Building and improvements, or both, subject to the following: There
shall be excluded for such taxes all income taxes, excess profits taxes, excise
taxes, franchise taxes, estate, succession, inheritance and transfer taxes,
provided, however, that if at any time during the Term the present system of ad
valorem taxation of real property shall be changed so that in lieu of the whole
or any part of the ad valorem tax on real property, there shall be assessed on
Landlord a capital levy or other tax on the gross rents received with respect to
the Lot, Building and improvements, or both, a federal, state, county,
municipal, or other local income, franchise, excise or similar tax, assessment,
levy or charge (distinct from any now in effect) measured by or based, in whole
or in part, upon any such gross rents, then any and all of such taxes,
assessments, levies or charges, to the extent so measured or based, shall be
deemed to be included within the term "real estate taxes."
Landlord shall have the right from time to time to change the periods
of accounting under this Section 4.2 to any annual period other than the Fiscal
Year and upon any such change all items referred to in this Section shall be
appropriately apportioned. In all Landlord's Statements, rendered under this
Section, amounts for periods partially within and partially without the
accounting periods shall be appropriately apportioned, and any items which are
not determinable at the time of a Landlord's Statement shall be included therein
on the basis of Landlord's estimate, and with respect thereto Landlord shall
render promptly after determination a supplemental Landlord's Statement, and
appropriate adjustment shall be made according thereto. All Landlord's
Statements shall be prepared on an accrual basis of accounting.
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Notwithstanding any other provision of this Section 4.2, if the Term
expires or is terminated as of a date other than the last day of a Fiscal Year
at the end of the Term, Tenant's last payment to Landlord under this Section 4.2
shall be made on the basis of Landlord's best estimate of the items otherwise
includable in Landlord's Statement and shall be made on or before the later of
(a) 10 days after Landlord delivers such estimate to Tenant, or (b) the last day
of the Term, with an appropriate payment or refund to be made upon submission of
Landlord's Statement.
4.3 PAYMENTS
All payments of fixed and additional rent shall be made to Managing
Agent, or to such other person as Landlord may from time to time designate by
notice to Tenant. If any installment of rent, fixed or additional or on account
of leasehold improvements is paid more than 5 days after the due date thereof,
at Landlord's election, it shall bear interest at a rate equal to the average
prime commercial rate from time to time established by the three largest bars in
Boston, Massachusetts, plus two percent (2%) per annum from such due date, which
interest shall be immediately due and payable as further additional rent.
ARTICLE V
LANDLORD'S COVENANTS
5.1 LANDLORD'S COVENANTS DURING THE TERM
Landlord covenants during the Term:
5.1.1 Building Services - To furnish, through Landlord's employees
or independent contractors, the services listed in Exhibit D;
5.1.2 Additional Building Services - To furnish, through Landlord's
employees or independent contractors, reasonable additional
Building operation services upon reasonable advance request of
Tenant at equitable rates from time to time established by
Landlord to be paid by Tenant;
5.1.3 Repairs - Except as otherwise provided in Article VII, to make
such repairs to the roof, exterior walls, floor slabs and
common facilities of the Building as may be necessary to keep
them in serviceable condition; and
5.1.4 Quiet Enjoyment - That Landlord has the right to make this
Lease and that Tenant, on paying the rent and performing its
obligations hereunder, shall peacefully and quietly have, hold
and enjoy the Premises throughout the Term without any manner
of hindrance or molestation from Landlord or anyone claiming
under Landlord, subject, however, to all the terms and
provisions hereof.
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5.1.5 Landlord represents that the description of the Premises, the
Building and the Lot in the Lease Proposal is true, accurate
and complete in all materials respects, and that the heating,
ventilation and air conditioning systems and all utilities
serving the Premises will be in good working order on the
Commencement Date.
5.1.6 Indemnity - To defend, with counsel reasonably acceptable to
Tenant, save harmless, and indemnify Tenant from any liability
for injury, loss, accident or damage to any person or property
and from any claims, actions, proceedings and expenses and
costs in connection therewith (including, without implied
limitation, reasonable counsel fees): (i) arising from the
omission fault, willful act, negligence or other misconduct of
Landlord or its agents and representatives; or (ii) resulting
from the failure of Landlord to perform and discharge its
covenants and obligations under this Lease.
5.1.7 Insurance - Landlord shall insure the Building with full
replacement cost coverage.
5.2 INTERRUPTIONS
Landlord shall not be liable to Tenant for any compensation or
reduction of rent by reason of inconvenience or annoyance or for loss of
business arising from power losses or shortages or from the necessity of
Landlord's entering the Premises for any of the purposes in this Lease
authorized, or for repairing the Premises or any portion of the Building or Lot.
In case Landlord is prevented or delayed from making any repairs, alterations or
improvements, or furnishing any service or performing any other covenant or duty
to be performed on Landlord's part, by reason of any cause reasonably beyond
Landlord's control, Landlord shall not be liable to Tenant therefore, nor,
except as expressly otherwise provided in Article VII, shall Tenant be entitled
to any abatement or reduction of rent by reason thereof, nor shall the same give
rise to a claim in Tenant's favor that such failure constitutes, actual or
constructive, total or partial, eviction from the Premises.
Landlord reserves the right to stop any service or utility system when
necessary by reason of accident or emergency or until necessary repairs have
been completed. Except in case of emergency repairs, Landlord will give Tenant
reasonable advance notice of any contemplated stoppage and will use reasonable
efforts to avoid unnecessary inconvenience to Tenant by reason thereof.
ARTICLE VI
TENANT'S COVENANTS
6.1 TENANTS COVENANTS DURING THE TERM
Tenant covenants during the Term and such further time as Tenant
occupies any part of the Premises:
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6.1.1 Tenant's Payments - To pay when due (a) all Fixed Rent and
additional rent, (b) all taxes which may be imposed on
Tenant's personal property in the Premises (including, without
limitation, Tenant's fixtures and equipment) regardless to
whomever assessed, (c) all charges by public utility for
telephone and other utility services (including service
inspections therefor) rendered to the Premises not otherwise
required hereunder to be furnished by Landlord without charge
and not consumed in connectio with any services required to be
furnished by Landlord without charge, and (d) as additional
rent, all charges of Landlord for services rendered pursuant
to Section 5.1.2 hereof;
6.1.2 Repairs and Yielding Up - Except as otherwise provided in
Article VII and Section 5.1.3, to keep the Premises in good
order, repair and condition, reasonable wear only excepted,
and at the expiration or termination of this Lease peaceably
to yield up the Premises and all changes and additions therein
in such order, repair and condition, first removing all goods
and effects of Tenant and any items, the removal of which is
required by agreement or specified therein to be removed at
Tenant's electio and which Tenant elects to remove, and
repairing all damage caused by such removal and restoring the
Premises and leaving them clean and neat; any property not so
removed shall be deemed abandoned and may be removed and
disposed of by Landlord, in such manner as Landlord shall
determine, and Tenant shall pay Landlord the entire cost and
expense incurred by it by effecting such removal and
disposition and in making any incidental repairs and
replacements to the Premises for use and occupancy durin the
period after the expiration of the term; it being agreed that
the acceptance of reasonable use and wear shall not apply so
as to permit Tenant to keep the Premises in anything less than
suitable, tenantable and usable condition, considering the
nature of the Premises and the use reasonably made thereof, or
in less than good and tenantable repair;
6.1.3 Occupancy and Use - Continuously from the Commencement Date,
to use and occupy the Premises only for the Permitted Uses;
and not to injure or deface the Premises, Building or Lot; and
not to permit in the Premises any auction sale, nuisance, or
the emission from the Premises of any objectionable noise or
odor; nor any use thereof which is improper, offensive,
contrary to law or ordinances, or liable to invalidate or
increase the premiums for any insurance on the Building or its
contents or liable to render necessary any alteration or
addition to the Building;
6.1.4 Rules and Regulations - To comply with the Rules and
Regulations set forth in Exhibit E and all other reasonable
Rules and Regulations hereafter made by Landlord, of which
Tenant has been given notice, for the care and use of the
Building and Lot and their facilities and approaches, it being
understood that Landlord shall not be liable to Tenant for the
failure of other tenants of the Building to conform to such
Rules and Regulations;
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6.1.5 Safety Appliances - To keep the Premises equipped with all
safety appliances required by law or ordinance or any other
regulation of any public authority because of any use made by
Tenant and to procure all licenses and permits so required
because of such use and, if requested by Landlord, to do any
work so required because of such use, it being understood that
the foregoing provisions shall not be construed to broaden in
any way Tenant's Permitted Uses;
6.1.6 Assignment and Subletting - Not without prior written consent
of Landlord (which consent shall not be unreasonably withheld)
to assign this Lease, to make any sublease, or to permit
occupancy of the Premises or any part thereof by anyone other
than Tenant, voluntarily or by operation of law, and as
additional rent, to reimburse Landlord promptly for reasonable
legal and other expenses incurred by Landlord in connection
with any request by Tenant for consent to assignment or
subletting; no assignment or subletting shall affect the
continuing primary liability of Tenant (which, following
assignment, shall be joint and several with the assignee); no
consent to any of the foregoing in a specific instance shall
operate as waiver in any subsequent instance. Any rental
received by Tenant from sub-tenant must be remitted to
Landlord. Anything contained in the foregoing provisions of
this section to the contrary notwithstanding, neither Tenant
nor any other person having interest in the possession, use,
occupancy or utilization of the Premises shall enter into any
lease, sublease, license, concession or other agreement for
use, occupancy or utilization of space in the Premises which
provides for rental or other payment for such use, occupancy
or utilization based, in whole or in part, on the net income
or profits derived by any person from the Premises leased,
used, occupied or utilized (other than an amount based on a
fixed percentage or percentages of receipts or sales), and any
such purported lease, sublease, license, concession or other
agreement shall be absolutely void and ineffective as a
conveyance of any right or interest in the possession use,
occupancy or utilization of any part of the Premises. Tenant
shall have the right, without the consent of Landlord, to
assign its interest under the Lease I to any natural person,
partnership, corporation or other form of business or legal
association or entity which (i) acquires all or substantially
all of Tenant's assets, either by merger or consolidation; and
(ii) has a net worth, determined in accordance with generally
accepted accounting principles consistently applied,
immediately after the assignment which is at least as great as
the net worth of Tenant (determined in the same manner)
immediately before the assignment;
6.1.7 Indemnity - To defend, with counsel reasonably acceptable to
Landlord, save harmless, and indemnify Landlord from any
liability for injury, loss, accident or damage to any person
or property and from any claims, actions, proceedings and
expenses and costs in connection therewith (including, without
implied limitation, reasonable counsel fees): (i) arising from
the omission, fault, willful act, negligence or other
misconduct of Tenant or from any use made or thing done or
occurring on
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the Premises not due to the omission, fault, willful act,
negligence or other misconduct of Landlord, or (ii) resulting
from the failure of Tenant to perform and discharge its
covenants and obligations under this Lease;
6.1.8 Tenant's Liability Insurance - To maintain public liability
insurance in the Premises in amounts which shall, at the
beginning of the Term, be at least equal to the limits set
forth in Section 1.1 and from time to time during the Term,
shall be for such higher limits, if any, as are customarily
carried in the area in which the Premises are located on
property similar to the Premises and used for similar purposes
and to furnish Landlord with the certificates thereof;
6.1.9 Tenant's Workmen's Compensation Insurance - To keep all
Tenant's employees working in the Premises covered by
workmen's compensation insurance in statutory amounts and to
furnish Landlord with certificates thereof;
6.1.10 Landlord's Right of Entry - To permit Landlord and Landlord's
agents entry; to examine the Premises at reasonable times and,
if Landlord shall so elect, to make repairs or replacements;
to remove, at Tenant's expense, any changes, additions, signs,
curtains, blinds, shades, awnings, aerials, flagpoles, or the
like not consented to in writing; and to show the Premises to
prospective tenants during the 12 months preceding expiration
of the Term and to prospective purchasers and mortgagees at
all reasonable times, provided that Landlord and Landlord's
agents use reasonable efforts to minimize interference with
the operation of Tenant's business caused by any entry
described above;
6.1.11 Loading - Not to place a load upon the Premises exceeding an
average rate of 60 pounds of live load per square foot of
floor area; and not to move any safe, vault or other heavy
equipment in, about or out of the Premises except in such a
manner and at such times as Landlord shall in each instance
approve; Tenant's business machines and mechanical equipment
which cause vibration or noise that may be transmitted to the
Building structure or to any other leased space in the
Building shall be placed and maintained by Tenant in settings
of cork, rubber, spring, or other types of vibration
eliminators sufficient to eliminate such vibration or noise;
6.1.12 Landlord's Costs - In case Landlord shall, without any fault
on its part, be made party to any litigation commenced by or
against Tenant or by or against any parties in possession of
the Premises or any part thereof claiming under Tenant, to
pay, as additional rent, all costs including, without implied
limitation, reasonable counsel fees incurred by or imposed
upon Landlord in connection with such litigation and as
additional rent, also to pay all such costs and fees incurred
by Landlord in connection with the successful enforcement by
Landlord of any obligations of Tenant under this Lease;
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6.1.13 Tenant's Property - All the furnishings, fixtures, equipment,
effects and property of every kind, nature and description of
Tenant and of all persons claiming by, through or under Tenant
which, during the continuance of this Lease or any occupancy
of the Premises by Tenant or anyone claiming under Tenant, may
be on the Premises or elsewhere in the Building or on the Lot
shall be at the sole risk and hazard of Tenant, except for
Landlord's negligence or willful act of omission, and if the
whole or any part thereof shall be destroyed or damaged by
fire, water or otherwise, or by the leakage or bursting of
water pipes, steam pipes, or other pipes, by theft, or from
any other cause, no part of said loss or damage is to be
charged to or to be borne by Landlord;
6.1.14 Labor or Materialmen's Liens - To pay promptly when due the
entire cost of any work done on the premises by Tenant, its
agents, employees, or independent contractors; not to cause or
permit any liens for labor or material performed or furnished
in connection therewith to attach to the Premises; and
immediately to discharge any such liens which may so attach;
6.1.15 Changes or Additions - Not to make any material changes or
additions to the Premises without Landlord's prior written
consent; and
6.1.16 Holdover - To pay to Landlord 1.75 times the total of the
Fixed and additional rent then applicable for each month or
portion thereof Tenant shall retain possession of the Premises
or any part thereof after the termination of this Lease,
whether by lapse of time or otherwise, and also to pay all
damages sustained by Landlord on account thereof; the
provisions of this subsection shall not operate as a waiver by
Landlord of any right of re-entry provided in this Lease; at
the option of the Landlor exercised by a written notice given
to Tenant while such holding over continues, such holding over
shall constitute an extension of this Lease for a period of a
month to month tenancy at 1.75 times the Fixed and additional
rent.
6.1.17 Hazardous Materials - Tenant shall not (either with or without
negligence) cause or permit the escape, disposal or release of
any biologically or chemically active or other hazardous
substances, or materials onto or in the vicinity of the
Premises. Tenant shall not allow the storage or use of such
substances or materials in any manner not sanctioned by law or
by the highest standards prevailing in the industry for the
storage and use of such substances or materials, nor allow to
be brought into the Premises any such materials or substances
except to use in the ordinary course of Tenant's business, and
then only after written notice is given to Landlord of the
identity of such substances or materials. Without limitation,
hazardous substances and materials shall include those
described in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C.
Section 9601 et seq., the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. Section 6901 et seq., the
Massachusetts Hazardous Waste Management Act, as amended,
M.G.L. c.21C, the Massachusetts Oil and Hazardous Material
Release Prevention and
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Response Act, as amended, M.G.L. c.21E, any applicable local
ordinance or bylaw, and the regulations adopted under these
acts, (collectively, the "Hazardous Waste Laws"). If any
lender or governmental agency shall ever require testing to
ascertain whether or not there has been any release of
hazardous materials, then the reasonable costs thereof shall
be reimbursed by Tenant to Landlord upon demand as additional
charges if such requirement applies to the Premises, and onl
if such release of hazardous materials was caused by Tenant.
If Tenant receives from any federal, state or local
governmental agency any notice of violation or alleged
violation of any Hazardous Waste Law, or if Tenant is
obligated to give any notice under any Hazardous Waste Law,
Tenant agrees to forward to Landlord a copy of any such notice
within three (3) days of Tenant's receipt or transmittal
thereof. In addition, Tenant shall execute affidavits,
representations and the like from time to time at Landlord's
request concerning Tenant's best knowledge of belief regarding
the presence of hazardous substances or materials on the
Premises. In all events, Tenant shall indemnify Landlord in
the manner elsewhere provided in this lease from any release
of hazardous materials on the Premises occurring while Tenant
is in possession, or elsewhere on the Lot if caused by Tenant
or persons acting under Tenant. Landlord retains the right to
inspect the Premises at all reasonable times, upon reasonable
notice t Tenant, to ensure compliance with this paragraph. The
within covenants shall survive the expiration or earlier
termination of the lease term.
ARTICLE VII
CASUALTY AND TAKING
7.1 CASUALTY AND TAKING
In case during the Term all or any substantial part of the Premises,
the Building, or Lot or any one or more of them (i.e. requiring greater than ten
months to rebuild in Landlord's judgment) are damaged materially by fire or any
other cause or by action of public or other authority in consequence thereof or
are taken by eminent domain or Landlord receives compensable damage by reason of
anything lawfully done in pursuance of public or other authority, this Lease
shall terminate at Landlor or Tenant's election, which may be made,
notwithstanding Landlord's entire interest may have been divested, by notice
given to each other within 30 days after (i) the occurrence of the event giving
rise to the election to terminate and (ii) notice from Landlord to Tenant of
Landlord's estimate of the approximate construction period to repair the
casualty, which notice will be given to Tenant within 60 days after the
occurrence, which notice shall specify the effective date of termination which
shall be no less than 30 nor more than 60 days after the date of notice of such
termination. If in any such case the Premises are rendered unfit for use and
occupation and the Lease is not so terminated, Landlord shall use due diligence
to put the Premises, or in case of taking, what may remain thereof (excluding
any items installed or paid for by Tenant which Tenant may be required or
permitted to remove) into proper condition for use and occupation to the extent
permitted by the net award of insurance or damages, and a just proportion of the
Fixed Rent and additional rent according to the nature and extent of the injury
shall be abated until the Premises or such remainder shall have been put by
Landlord
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in such condition; and in case of a taking which permanently reduces the area of
the Premises, a just proportion of the Fixed Rent and additional rent shall be
abated for the remainder of the Term and an appropriate adjustment shall be made
to the Annual Estimated Operating Expenses.
7.2 RESERVATION OF AWARD
Landlord reserves to itself any and all rights to receive awards made
for damages to the Premises, Building or Lot and the leasehold hereby created,
or any one or more of them, accruing by reason of exercise of eminent domain or
by reason of anything lawfully done in pursuance of public or other authority.
Tenant hereby releases and assigns to Landlord all Tenant's rights to such
awards, and covenants to deliver such further assignments and assurances thereof
as Landlord may from time to time request, hereby irrevocably designating and
appointing Landlord as its attorney-in-fact to execute and deliver in Tenant's
name and behalf all such further assignments thereof. It is agreed and
understood, however, that Landlord does not reserve to itself and Tenant does
not assign to Landlord, any damages payable for (i) movable trade fixtures
installed by Tenant or anybody claiming under Tenant, at its own expense, or
(ii) relocation expenses recoverable by Tenant from such authority in a separate
action.
ARTICLE VIII
RIGHTS OF MORTGAGEE
8.1 PRIORITY OF LEASE
Landlord shall have the option to subordinate this Lease to any
mortgagee or deed of trust of the Lot or Building, or both ("the mortgaged
premises"), provided that the holder thereof enters into an agreement with
Tenant by the terms of which the holder will agree to recognize the rights of
Tenant under this Lease and to accept Tenant as tenant of the Premises under the
terms and conditions of this Lease in the event of acquisition of title by such
holder through foreclosure proceedings or otherwise and Tenant will agree to
recognize the holder of such mortgage as Landlord in such event, which agreement
shall be made to expressly bind and inure to the benefit of the successors and
assigns of Tenant and of the holder and upon anyone purchasing the mortgaged
premises at any foreclosure sale. Any such mortgage to which this Lease shall be
subordinated may contain such terms, provisions and conditions as the holder
deems usual or customary. Unless Landlord exercises such option, this Lease
shall be superior to and shall not be subordinated to any mortgage or other
voluntary lien or other encumbrance on the mortgaged premises.
8.2 LIMITATION ON MORTGAGEE'S LIABILITY
Upon entry and taking possession of the mortgaged premises for any
purpose other than foreclosure, the holder of a mortgage shall have all rights
of Landlord, and during the period of such possession, the duty to perform all
Landlord's obligations hereunder. Except during such period of possession, no
such holder shall be liable, either as mortgagee or as holder of a collateral
assignment of this Lease, to perform, or be liable in damages for failure to
perform any of the obligations of Landlord unless
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and until such holder shall enter and take possession of the mortgaged premises
for the purpose of foreclosing a mortgage. Upon entry for the purpose of
foreclosing a mortgage, such holder shall be liable to perform all of the
obligations of Landlord, subject to the provisions of Section 8.3 provided that
a discontinuance of any foreclosure proceeding shall be deemed a conveyance
under the provisions of Section 10.5 to the owner of the equity of the mortgaged
premises.
8.3 MORTGAGEE'S ELECTION
Notwithstanding any other provision to the contrary contained in this
Lease, if prior to the substantial completion of Landlord's obligations under
Article III, any holder of a first mortgage on the mortgaged premises enters and
takes possession thereof for the purpose of foreclosing the mortgage, such
holder may elect by written notice given to Tenant and Landlord at any time
within 90 days after such entry and taking of possession, not to perform
Landlord's obligations under Article III, and in such event such holder and all
persons claiming under it shall be relieved of all obligations to perform, and
all liability for failure to perform, said Landlord's obligations under Article
III, and Tenant may terminate this Lease and all its obligations hereunder by
written notice to Landlord and such holder given within 30 days after the day on
which such holder shall have given its notice as aforesaid.
8.4 NO PREPAYMENT OR MODIFICATION, ETC.
No Fixed Rent, additional rent, or any other charge shall be paid more
than ten days prior to the due dates thereof, and payments made in violation of
this provision shall (except to the extent that such payments are actually
received by a mortgagee in possession or in the process of foreclosing its
mortgage) be a nullity as against such mortgagee, and Tenant shall be liable for
the amount of such payments to such mortgagee. No assignment of this Lease and
no agreement to make or accept any surrender, termination or cancellation of
this Lease and no agreement to modify so as to reduce the rent, change the Term,
or otherwise materially change the rights of Landlord under this Lease, or to
relieve Tenant of any obligations or liability under this Lease, shall be valid
unless consented to in writing by Landlord's mortgagees of record, if any.
8.5 NO RELEASE OR TERMINATION
No act or failure to act on the part of Landlord which would entitle
Tenant under the terms of this Lease, or by law, to be relieved of Tenant's
obligations hereunder or to terminate this Lease, shall result in a release or
termination of such obligations or a termination of this Lease unless (i) Tenant
shall have first given written notice of Landlord's act or failure to act to
Landlord's mortgagees of record, if any, specifying the act or failure to act on
the part of Landlord which coul or would give basis to Tenant's rights, and (ii)
such mortgagees, after receipt of such notice, have failed or refused to correct
or cure the condition complained of within a reasonable time thereafter, but
nothing contained in this Section 8.5 shall be deemed to impose any obligation
on any such mortgagee to correct or cure any such condition. "Reasonable time"
as used above means and includes a reasonable time to obtain possession of the
mortgaged premises, if the mortgagee elects to do so, and a reasonable time to
correct or cure the condition if such condition is determined to exist.
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8.6 CONTINUING OFFER
The covenants and agreements contained in this Lease with respect to
the rights, powers and benefits of a mortgagee (particularly, without limitation
thereby, the covenants and agreements contained in this Article VIII) constitute
a continuing offer to any person, corporation or other entity, which by
accepting or requiring an assignment of this Lease or by entry or foreclosure
assumes the obligations herein set forth with respect to such mortgagee, and
such mortgagee shall be entitled to enforce such provisions in its own name.
Tenant agrees on request of Landlord to execute and deliver from time to time
any reasonable agreement which may reasonably be deemed necessary to implement
the provisions of this Article VIII.
8.7 MORTGAGEE'S APPROVAL
Landlord's obligation to perform its covenants and agreements hereunder
is subject to the condition precedent that this Lease be approved by the holder
of any mortgage of which the Premises are a part. Unless Landlord gives Tenant
written notice within thirty (30) days after the date hereof that such holder or
issuer, or both, disapprove this Lease, then this condition shall be deemed to
have been satisfied or waived and the provisions of this Section 8.7 shall be of
no further force or effect.
8.8 SUBMITTAL OF FINANCIAL STATEMENT
At any time and from time to time during the term of this Lease, within
fifteen (15) days after request therefor by Landlord, Tenant shall supply to
Landlord and/or any Mortgagee a current financial statement or such other
financial information as may be reasonably required by any such party.
ARTICLE IX
DEFAULT
9.1 EVENTS OF DEFAULT
If any default by Tenant continues after certified notice, in case of
Fixed Rent or additional rent for more than ten days, or in any other case for
more than 30 days and such additional time, if any, as is reasonably necessary
to cure the default if the default is of such a nature that it cannot reasonably
be cured in 30 days; or if Tenant or Guarantor makes any assignment for the
benefit of creditors, or files a petition under any bankruptcy or insolvency
law; or if such a petition is filed against Tenant or any Guarantor and is not
dismissed within 30 days; or if a receiver or similar officer becomes entitled
to Tenant's leasehold hereunder and it is not returned to Tenant within 90 days;
or if such leasehold is taken on execution or other process of law in any action
against Tenant; then, and in any such cases, Landlord and the agents and
servants of Landlord may, in addition to and not in derogation of any remedies
for any preceding breach of covenant,
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immediately or at any time thereafter while such default continues and without
further notice and with or without process of law enter into and upon the
Premises or any part thereof in the name of the whole or mail a notice of
termination addressed to Tenant at the Premises and repossess the same as of
Landlord's former estate and expel Tenant and those claiming through or under
Tenant and remove its and their effects (forcibly, if necessary) without being
deemed guilty of any manner of trespass and without prejudice to any remedies
which might otherwise be used for arrears of rent or prior breach of covenant,
and upon such entry or mailing as aforesaid, this Lease shall terminate, but
Tenant shall remain liable as hereinafter provided. Tenant hereby waives all
statutory rights including, without limitation, rights of redemption, if any) to
the extent such rights may be lawfully waived, and Landlord, without notice to
Tenant, may store Tenant's effects and those of any person claiming through or
under Tenant at the expense and risk of Tenant and, if Landlord so elects, may
sell such effects at public auction or private sale and apply the net proceeds
to the payment of all sums due to Landlord from Tenant, if any, and pay over the
balance, if any, to Tenant.
9.2 TENANTS OBLIGATIONS AFTER TERMINATION
In the event that this Lease is terminated under any of the provisions
contained in Section 9.1 or shall be otherwise terminated for breach of any
obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as
compensation, the excess of the total rent reserved for the residue of the Term
over the rental value of the Premises for said residue of the Term. In
calculating the rent reserved, there shall be included, in addition to the Fixed
Rent and all additional rent, the value of all other consideration agreed to be
paid or performed by Tenant for said residue. Tenant further covenants as an
additional and cumulative obligation after any such ending to pay punctually to
Landlord all the sums and perform all the obligations which Tenant covenants in
this Lease to pay and to perform in the same manner and to the same extent and
at the same time as if this Lease had not been terminated. In calculating the
amounts to be paid by Tenant under the next foregoing covenant, Tenant shall be
credited with any amount paid to Landlord as compensation as provided in the
first sentence of this Section 9.2 and also with the net proceeds of any rents
obtained by Landlord by reletting the Premises, after deducting all Landlord's
reasonable expenses in connection with such reletting, including, without
implied limitation, all repossession costs, brokerage commissions, fees for
legal services and expense of preparing the Premises for such reletting, it
being agreed by Tenant that Landlord may (i) relet the Premises or any part or
parts thereof for a term or terms which may, at Landlord's option, be equal to
or less than or exceed the period which would otherwise have constituted the
balance of the Term and may grant such concessions and free rent as Landlord in
its reasonable judgment considers advisable or necessary to relet the same, and
(ii) make such alterations, repairs and decorations in the Premises as Landlord
in its reasonable judgment considers advisable or necessary to relet the same,
and no action of Landlord in accordance with the foregoing or failure to relet
or to collect rent under reletting shall operate or be construed to release or
reduce Tenant's liability as aforesaid.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, 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.
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ARTICLE X
MISCELLANEOUS
10.1 TITLES
The titles of the Articles are for convenience and are not to be
considered in construing this Lease.
10.2 NOTICE OF LEASE
Upon request of either party, both parties shall execute and deliver,
after the Term begins, a short form of this Lease in a form appropriate for
recording or registration, and if this Lease is terminated before the Term
expires, an instrument in such form acknowledging the date of termination.
10.3 RELOCATION
(Not Applicable)
10.4 NOTICES FROM ONE PARTY TO THE OTHER
No notice, approval, consent requested or election required or
permitted to be given or made pursuant to this Lease shall be effective unless
the same is in writing. Communications shall be addressed, if to Landlord, at
Landlord's Address, or at such other address as may have been specified by prior
notice to Tenant and, if to Tenant, at Tenant's Address or at such other place
as may have been specified by prior notice to Landlord. Any communication so
addressed shall be deemed duly served if mailed by registered or certified mail,
return receipt requested, delivered by hand, or by overnight express service by
a carrier providing a receipt of delivery. Notices shall be deemed received on
the earlier of (a) actual receipt, or (b) five business days after being mailed
as provided above.
10.5 BIND AND INURE
The obligations of this Lease shall run with the land, and this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Landlord named herein and
each successive owner of the Premises shall be liable only for the obligations
accruing during the period of its ownership. Neither the Landlord named herein
nor any successive owner of the Premises whether an individual trust, a
corporation or otherwise shall have any personal liability beyond their equity
interest in the Premises.
10.6 NO SURRENDER
The delivery of keys to any employees of Landlord or to Landlord's
agent or any employee thereof shall not operate as a termination of this Lease
or a surrender of the Premises.
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10.7 NO WAIVER, ETC.
The failure of Landlord or of Tenant to seek redress for violation of,
or to insist upon the strict performance of any covenant or condition of this
Lease or, with respect to such failure of Landlord, any of the Rules and
Regulations referred to in Section 6.1.4, whether heretofore or hereafter
adopted by Landlord, shall not be deemed a waiver of such violation nor prevent
a subsequent act, which would have originally constituted a violation, from
having all the force and effect of an original violation, nor shall the failure
of Landlord to enforce any of said Rules and Regulations against any other
tenant in the Building be deemed a waiver of any such Rules or Regulations. The
receipt by Landlord of Fixed Rent or additional rent with knowledge of the
breach of any covenant of this Lease shall not be deemed a waiver of such breach
by Landlord, unless such waiver be in writing signed by Landlord. No consent or
waiver, express or implied, by Landlord or Tenant to or of any breach of an
agreement or duty shall be construed as a waiver or consent to or of any other
breach of the same or any other agreement or duty.
10.8 NO ACCORD AND SATISFACTION
No acceptance by Landlord of a lesser sum than the Fixed Rent and
additional rent then due shall be deemed to be other than on account of the
earliest installment of such rent due, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as rent be deemed as
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such installment or
pursue any other remedy in this Lease provided.
10.9 CUMULATIVE REMEDIES
The specific remedies to which Landlord may resort under the terms of
this Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which it may be lawfully entitled in case of any
breach or threatened breach by Tenant of any provisions of this Lease. In
addition to the other remedies provided in this Lease, Landlord shall be
entitled to the restraint by injunction of the violation or attempted or
threatened violation of any of the covenants, conditions or provisions of this
Lease or to a decree compelling specific performance of any such covenants,
conditions or provisions.
10.10 PARTIAL INVALIDITY
If any term of this Lease, or the application thereof to any person or
circumstances shall to any extent be invalid or unenforceable, the remainder of
this Lease, or the application of such term to persons or circumstances other
than those as to which it is invalid or unenforceable, shall not be affected
thereby, and each term of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
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10.11 LANDLORD'S RIGHT TO CURE
If Tenant shall at any time default in the performance of any
obligation under this Lease, Landlord shall have the right, but shall not be
obligated, to enter upon the Premises and to perform such obligation,
notwithstanding the fact that no specific provision for such substituted
performance by Landlord is made in this Lease with respect to such default. In
performing such obligation, Landlord may make any payment of money or perform
any other act. All sums so paid by Landlord (together with interest at the rate
of two percent (2%) per annum in excess of the then prime rate of interest being
charged by a majority of the banks in Boston), and all necessary incidental
costs and expenses in connection with the performance of any such acts by
Landlord, shall be deemed to be additional rent under this Lease and shall be
payable to Landlord immediately on demand. Landlord may exercise the foregoing
rights without waiving any other of its rights or releasing Tenant from any of
its obligations under this Lease.
10.12 ESTOPPEL CERTIFICATE
Tenant agrees on the Commencement Date, and from time to time
thereafter, upon not less than 15 days' prior written request by Landlord, to
execute, acknowledge and deliver to Landlord a statement in writing in the form
attached hereto as Exhibit G, certifying that this Lease is unmodified and in
full force and effect; that Tenant has no defenses, offsets or counterclaims
against its obligations to pay the Fixed Rent and additional rent and to perform
its other covenants under this Lease; that there are no uncured defaults of
Landlord or Tenant under this Lease (or, if there are any defenses, offsets,
counterclaims, or defaults, setting them forth in reasonable detail); and the
dates to which the Fixed Rent, additional rent and other charges have been paid.
Any such statements delivered pursuant to this Section 10.12 may be relied upon
by any prospective purchaser or mortgage of premises which include the Premises
or any prospective assignee of any such mortgagee. Landlord agrees to execute,
acknowledge and deliver a similar estoppel certificate to Tenant as soon as
reasonably possible after receipt of such request from Tenant.
10.13 WAIVER OF SUBROGATION
Any insurance carried by either party with respect to the Premises and
property therein or occurrences thereon, shall if the other party so requests
and it can be so written without additional premium or with any additional
premium which the other party agrees to pay, include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrence of injury or
loss. Each party, notwithstanding any provisions of this Lease to the contrary,
hereby waives any rights of recovery against the other for injury or loss due to
hazards covered by insurance containing such clause or endorsement to the extent
of the indemnification received thereunder.
10.14 BROKERAGE
Tenant and Landlord represent and warrant to the other that they have
dealt with no broker, other than those listed in Section 1.1, in connection with
this transaction and agree to defend, indemnify and save each other harmless
from and against any and all claims for a commission arising out of this Lease
made by anyone, other than those listed in Section 1.1.
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ARTICLE XI
SECURITY DEPOSIT
(Not Applicable)
EXECUTED as a sealed instrument in two or more counterparts on the day and year
first above written.
TENANT: LANDLORD:
CARLETON CORPORATION TECHNOLOGY PARK VIII
LIMITED PARTNERSHIP
By: The Gutierrez Company
Managing Agent
By: /s/ Hem Desai By: /s/ Arturo J. Gutierrez
------------------------- --------------------------------
Hem Desai Arturo J. Gutierrez
Chief Financial Officer President
and Treasurer
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EXHIBIT "C"
(SPECIFICATIONS OF LANDLORD'S CONSTRUCTION)
CARLETON CORPORATION - 11,881 RSF
700 Technology Park Drive
Building IX
Billerica, Massachusetts
Description of "Landlord's Work":
1. Repaint only (no wall covering) damaged walls with one coat of latex
paint as shown on attached Exhibit "A".
2. Patch and repair damaged walls as shown on attached Exhibit "A".
3. Repair and/or replace damaged doors, frames and hardware as shown on
attached Exhibit "A".
4. Furnish and install new door frames and hardware only in the area where
the door frames are missing as shown on attached Exhibit "A".
5. Replace damaged acoustical ceiling tiles.
6. Construct a hallway opening connecting the former RJO Enterprises and
HFS suite(s) as shown on attached Exhibit "A".
7. Remove electrical outlets in the computer room and install normal 120
volt outlets necessary for normal office use at locations as determined
by Landlord.
8. Remove wall in office adjacent to UniKix space, and patch carpet, etc.
9. Change lock on emergency exit door to normal egress hardware.
10. Provide Tenant with keys to all offices.
<PAGE>
EXHIBIT "D"
LANDLORD'S SERVICES
I. CLEANING
A. General
1. All cleaning work will be performed between 8:00 AM and
midnight, Monday through Friday, unless otherwise necessary
for stripping, waxing, etc.
2. Abnormal waste removal (e.g., computer installation paper,
bulk packaging, wood or cardboard crates, refuse from
cafeteria operation, etc.) shall be Tenant's responsibility.
B. Daily Operations (5 times per week)
1. Tenant Areas
a. Empty and clean all waste receptacles. Wash
receptacles as necessary.
b. Vacuum all rugs and carpeted areas.
c. Empty, damp-wipe and dry all ashtrays.
2. Lavatories
a. Sweep and wash floors with disinfectant.
b. Wash both sides of toilet seats with disinfectant.
c. Wash all mirrors, basins, bowls, urinals.
d. Spot-clean toilet partitions.
e. Empty and disinfect sanitary napkin disposal
receptacles.
f. Refill toilet tissue, towel, soap and sanitary napkin
dispensers.
3. Public Areas
a. Wipe down entrance doors and clean glass (interior
and exterior).
b. Vacuum elevator carpets and wipe down doors and
walls.
C. Operations as Needed (but not less than every other day)
1. Tenant and Public Areas
a. Buff all resilient floor areas every other day.
b. Clean water coolers.
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D. Weekly Operations
1. Tenant Areas, Lavatories, Public Areas
a. Hand dust and wipe clean all horizontal surfaces with
treated cloths to include furniture, office
equipment, window sills, door ledges, chair rails,
baseboards, convector tops, etc. within normal reach.
b. Remove finger marks from private entrance doors,
light switches, and doorways.
c. Sweep all stairways.
E. Monthly Operations
1. Tenant and Public Areas
a. Thoroughly vacuum seat cushions on chairs, sofas,
etc. b. Vacuum and dust grillwork.
2. Lavatories
a. Wash down interior walls and toilet partitions.
F. As Required and Weather Permitting (but not less than three times per
year)
1. Entire Building
a. Clean inside of all windows.
b. Clean outside of all windows.
G. Yearly
1. Tenant and Public Areas
a. Strip and wax all resilient tile floor areas.
II. HEATING, VENTILATING AND AIR CONDITIONING
1. Heating, ventilation and air conditioning as required to
provide reasonably comfortable temperatures for normal
business day occupancy (except holidays), Monday through
Friday, from 8:00 AM to 6:00 PM and Saturday from 8:00 AM to
1:00 PM.
2. Maintenance on any additional or special air conditioning
equipment and the associated operating cost will be at
Tenant's expense.
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III. WATER
Hot water for lavatory purposes and cold water for drinking, lavatory
and toilet purposes.
IV. ELEVATORS (If building is elevated)
Elevators for the use of all tenants and the general public for access
to and from all Doors of the Building, programming of elevators
(including, but not limited to, service elevators), shall be as
Landlord from time to time determines best for the Building as a whole.
V. RELAMPING OF LIGHT FIXTURES
Tenant will reimburse Landlord for relamping, ballasts and starters
within the Premises.
VI. CAFETERIA, VENDING AND PLUMBING INSTALLATIONS
1. Any space to be used primarily for lunchroom or cafeteria
operation shall be Tenant's responsibility to keep clean and
sanitary. Cafeteria, vending machines or refreshment service
installations by Tenant must be approved by Landlord in
writing. All maintenance, repairs and additional cleaning
necessitated by such installations shall be at Tenant's
expense.
2. Tenant is responsible for the maintenance and repair of
plumbing fixtures and related equipment installed in the
leased premises for its exclusive use (such as in coffee room,
cafeteria or employee exercise area).
VII. ELECTRICITY
Tenant shall pay for all electricity consumed in Tenant's space. If not
metered separately, Landlord shall reasonably estimate the cost of such
electrical usage for Tenant's lights and plugs, and Tenant shall
reimburse Landlord for such costs on a monthly basis. If Tenant's use
of electrical energy in Tenant's Space is disproportionate to other
tenants' use of electrical energy, Tenant shall also pay for all excess
electricity consumed in Tenant's space as estimated by Landlord.
Tenant's use of electrical energy in Tenant's space shall not at any
time exceed the capacity of any of the electrical conductors or
equipment in or otherwise serving Tenant's space. To ensure that such
capacity is not exceeded and to avert possible adverse effects upon the
Building's electrical system, Tenant shall not, without prior written
notice to Landlord in each instance, connect to the Building electric
distribution system any fixtures, appliances or equipment which
operates on a voltage in excess of 120 volts nominal, or which requires
a single (dedicated) circuit without so providing, or make any
alteration or addition to the electric system of the Tenant's space.
Unless Landlord shall reasonably object to the connection of any such
fixtures, appliances or equipment, all additional risers or other
equipment required therefore shall be provided by Landlord and the cost
thereto shall be paid by Tenant upon Landlord's demand.
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EXHIBIT "E"
RULES AND REGULATIONS
1. The entrance, lobbies, passages, corridors, elevators and stairways
shall not be encumbered or obstructed by Tenant, Tenant's agents,
servants, employees, licensees, and visitors be used by them for any
purpose other than for ingress and egress to and from the Premises. The
moving in or out of all safes, freight, furniture, or bulky matter of
any description must take place during the hours which Landlord may
determine from time to time. Landlord reserves the right to inspect all
freight and bulky matter to be brought into the Building and to exclude
from the Building all freight and bulky matter which violates any of
these Rules and Regulations or the Lease of which these Rules and
Regulations are a part.
2. No curtains, blinds, shades, screens, or signs other than those
furnished by Landlord shall be attached to, hung in, or used in
connection with any window or door of the Premises without the prior
written consent of the Landlord. Interior signs on doors shall be
painted or affixed for Tenant by Landlord or by sign painters first
approved by Landlord, at the expense of Tenant, and shall be of a size,
color and style acceptable to Landlord.
3. 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
existing locks or the mechanism thereof without the prior written
consent of Landlord. Tenant must, upon the termination of its tenancy,
restore to Landlord all keys of stores, shops, booths, stands, offices
and toilet rooms, either furnished to or otherwise procured by Tenant;
and in the event of the loss of any keys so furnished, Tenant shall pay
to Landlord the cost thereof.
4. Canvassing, soliciting and peddling in the Building are prohibited, and
Tenant shall cooperate to prevent the same.
5. Tenant may request heating and/or air conditioning during other periods
in addition to normal working hours by submitting their request in
writing to the Building Manager's office no later than 2:00 PM the
preceding workday (Monday through Friday) on forms available from the
Building Manager. The request shall clearly state the start and stop
hours of the "off-hour" service. Tenant shall submit to the Building
Manager a list of personnel who are authorized to make such requests.
Charges are t be determined by the Building Manager on the additional
hours of operations and shall be fair and reasonable and reflect the
additional operating costs involved.
6. Tenant shall comply with all security measures from time to time
established by Landlord for the Building.
7. Should Tenant's organization have a non-smoking policy presently in
effect for their visitors and/or employees or institute such a policy
during the term of this lease, Tenant shall set aside a smoking area
within the leased premises, properly ventilated and/or with smoke
filtration units, so as not to interfere with any fire protection
devices, such as smoke detectors, or the quality of air recirculated in
the building's HVAC system.
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EXHIBIT "G"
ESTOPPEL CERTIFICATE
THIS CERTIFICATE is made to _________________ with respect to a Lease
between _________________ as Landlord and the undersigned, covering a building
located in ________________ , such lease being dated, _____________________ as
amended by (list all amendments):
The undersigned has been advised that Teachers Insurance and Annuity
Association of America, as Trustee as aforesaid, with an address at 730 Third
Avenue, New York, NY 10017 (the "Bank"), is about to enter into a transaction
whereby the Bank is making a loan secured by the aforesaid real estate and the
Lease to the undersigned, and under which the Bank may acquire an ownership
interest in such real estate. In connection with this transaction, the entire
interest of the Landlord under the Lease to the undersigned will be assigned to
the Bank. The undersigned acknowledges that the Bank is and will be relying upon
the truth, accuracy and completeness of this letter in proceeding with the
transaction described above.
The undersigned, for the benefit of the bank, their successors and
assigns, hereby certifies, represents, warrants, agrees and acknowledges that:
1. The Lease is in full force and effect in accordance with its terms
without modification or amendment except as noted above and the
undersigned is the holder of the Tenant's interest under the Lease.
2. The undersigned is in possession of all of the Premises described in
the Lease under and pursuant to the Lease and is doing business
thereon; and the premises are completed as required by the Lease.
3. To the knowledge of the undersigned, the undersigned has no claims or
offsets with respect to any of its obligations as Tenant under the
Lease, and neither the undersigned nor the Landlord is claimed to be in
default under the Lease.
4. The undersigned has not paid any rental or installments thereof in
advance of the due date as set forth in the Lease.
5. The undersigned has no notice of prior assignment, hypothecation or
pledge of rents of the Lease or the Landlord's interest thereunder or
of the Tenant's interest thereunder.
6. The term of the Lease has commenced and is presently scheduled to
expire on ___________. If there are any rights of extension or renewal
under the terms of the Lease, the same have not, as of the date of this
letter, been exercised.
Page 1 of 2
<PAGE>
7. Until such time as the Bank shall become the Landlord, if the
undersigned should assert a claim that the Landlord has failed to
perform an obligation to the undersigned under the terms of the Lease
or otherwise, notice thereof shall promptly be furnished to the Bank at
the address set forth above; and the undersigned agrees that the
undersigned will not exercise any rights which the undersigned might
otherwise have on account of any such failure until notice thereof has
been give to the Bank, and the Bank has had the same opportunity to
cure any such failure as the Landlord may have under the terms of the
Lease.
8. Each of the statements set forth in Paragraphs 1 through 7 are true,
accurate and complete except as follows (state specifically any
exception):
DATED:
ATTEST:
By:
----------------------------
By:
----------------------------
Page 2 of 2
<PAGE>
EXHIBIT "H"
OPTION TO EXTEND
Provided Tenant is not in default under this Lease at the time of the
exercise thereof, Tenant shall have one option to extend the term of this Lease
for a period of three years, commencing at the expiration of the initial Lease
Term, and such option to extend to be exercised by Tenant notifying Landlord in
writing thereof, at least nine (9) months prior to the end of the initial Lease
Term. The exercise of such option shall without the necessity of additional
documentation, automatically extend the term of this Lease, except that: (i)
there shall be no additional options to extend after the termination of this
option; and (ii) the applicable Annual Base Rent shall be the "Market Rent" as
set forth herein:
The Market Rent for the Premises shall be determined as follows:
(a) The Market Rent shall be proposed by Landlord within 45 days of receipt
of Tenant's notice that it intends to exercise its option to extend the
term (the "Landlord's Proposed Market Rent"). The Landlord's Proposed
Market Rent shall be the Market Rent unless Tenant notifies Landlord,
within 30 days of Tenant's receipt of Landlord's Proposed Market Rent,
that Landlord's Proposed Market Rent is not satisfactory to Tenant
("Tenant's Rejection Notice").
(b) If the Market Rent is not otherwise agreed upon by Landlord and Tenant
within 30 days after Landlord's receipt of Tenant's Rejection Notice,
then the Market Rent shall be determined by the following appraisal
procedure. Tenant shall provide Landlord with notice specifying the
name and address of the appraiser designated by Tenant (the "Tenant's
Appraisal Notice").
Landlord shall within five days after receipt of Tenant's Appraisal
Notice, notify Tenant of the name and address of the appraiser designated by
Landlord. Such two appraisers shall, within 20 days after the designation of the
second appraiser, make their determinations of the Market Rent in writing and
give notice thereof to each other and to Landlord and Tenant. Such two
appraisers shall have 20 days after the receipt of notice of each other's
determination to confer with each other and to attempt to reach agreement as to
the determination of the Market Rent. If such appraisers shall concur in such
determination, they shall give notice thereof to Landlord and Tenant and such
concurrence shall be final and binding upon Landlord and Tenant. If such
appraisers shall fail to concur as to such determination within said 20 day
period, they shall give notice thereof to Landlord and Tenant and shall
immediately designate a third appraiser. If the two appraisers shall fail to
agree upon the designation of such third appraiser within five days after said
20 day period, then they or either of them shall give notice of such failure to
agree to Landlord and Tenant, and if Landlord and Tenant fail to agree upon the
selection of such third appraiser within five days after the appraiser(s)
appointed by the parties give notice as aforesaid, then either party on behalf
of both may apply to the American Arbitration Association, or any successor
thereto, or on his or her failure, refusal, or inability to act, to a court of
competent jurisdiction, for the designation of such third appraiser.
Page 1 of 2
<PAGE>
All appraisers shall be real estate appraisers or consultants who shall
have had at least seven years continuous experience in the business of
appraising real estate in the suburban Boston area.
The third appraiser shall conduct such hearings and investigations as
he or she may deem appropriate and shall within ten days after the date of his
or her designation, make an independent determination of the Market Rent.
If none of the determinations of the appraisers varies from the mean of
the determinations of the other appraisers by more than ten percent (10%), the
mean of the determinations of the three appraisers shall be the Market Rent for
the Premises. If, on the other hand, the determination of any single appraiser
varies from the mean of the determinations of the other two appraisers whose
determinations are closest in number by more than 10%, then the average of the
determinations of the two closest appraisers shall be the Market Rent.
The determination of the appraisers, as provided above, shall be
conclusive upon the parties and shall have the same force and effect as a
judgment made in a court of competent jurisdiction.
Each party shall pay fees, costs and expenses of the appraiser selected
by it and its own counsel fees and one-half of all other expenses and fees of
any such appraisal.
Notwithstanding the foregoing, the Annual Fixed Rent for the Extension
Term shall not be less than the Annual Fixed Rent for the initial Lease Term.
Page 2 of 2
<PAGE>
Exhibit 10.4(b)
1999 Management Bonus Plan
Under the 1999 Management Bonus Plan, key employees of the Company (including
executive officers of the Company) may be entitled to receive amounts ranging
from 5% to 118% of their base pay in the form of cash bonuses. Payment of
bonuses will depend upon achievement of annual incentive plan operating targets
relating to corporate revenue and profitability goals.
<PAGE>
1998 ANNUAL REPORT
Year Ended March 29, 1998
[LOGO]
Apertus Technologies Incorporated
<PAGE>
Board of Directors
Robert D. Gordon
Chairman of the Board,
Chief Executive Officer,
President
Apertus Technologies Incorporated
Nicholas J. Covatta, Jr.
Chairman of the Board
Atlantis Group, Inc.
Michael Dexter-Smith
Chief Executive Officer
VenturCom, Inc.
Robert W. Fischer
President
Robert W. Fischer & Co., Inc.
George E. Hubman
Independent Consultant
Arch J. McGill
President
Chardonnay, Inc. Group
Clarence W. Spangle
Independent Consultant
Corporate Officers
Robert D. Gordon
Chairman of the Board,
Chief Executive Officer,
President
Alexander F. Collier
Corporate Vice President, Research & Development
David M. Haggerty
Corporate Vice President, Professional Services
Travis M. Richardson
Corporate Vice President, Marketing
Steven L. Thimjon
Corporate Vice President,
Chief Financial Officer and
Corporate Secretary
Eugene E. Waara, Jr.
Corporate Vice President, Sales
<PAGE>
MESSAGE TO SHAREHOLDERS
Fiscal 1998 was a year of significant strategic change at Apertus
Technologies Incorporated. In October of 1997, the Company announced its
intention to restructure and focus all of its resources on the growing data
integration tools and services market. As part of this decision, the Company
concluded the sale of its historical network gateway business and, concurrently,
acquired Carleton Corporation, a leading provider of data extraction tools.
In May of 1998, the Company announced its intention to adopt the name
Carleton Corporation, capitalizing on the strength of Carleton's name
recognition as a data warehousing industry founder. The Company also adopted the
tag line "Pure data Pure results" to reflect its exclusive focus and commitment
to provide data integration solutions for business critical applications.
This change was in the best long-term interests of the shareholders. While
we are a smaller company today than we were a year ago, we have a clear business
focus in a major growth market. The new Company has powerful tools and services
that allow organizations to create applications that access and prepare
operational data for use in data warehouses, data marts or new enterprise
applications like BAAN, Peoplesoft or SAP. Data warehouses and data marts enable
corporations to better understand their customers, sales, products and cost
structures. The Company, most importantly, has a highly motivated and talented
employee base and the financial resources to capitalize on its opportunity.
The benefits of our new strategy are starting to show. In our fourth
quarter, the Company achieved 90% sequential quarterly revenue growth. License
revenue grew from the addition of several major new customers, such as Federal
Express, VALIC, Health Management Systems and State of Colorado. Significant
professional service revenue was generated from our successful implementations,
including Bestfoods, Cargill and 3M. We have strengthened our partnerships with
organizations like Sybase and Computer Sciences Corporation. These partnerships
are an important part of the current and future growth in our revenue.
A major focus for this coming year will be increased business development
through expanded direct sales activity, more partnerships with systems
integrators and greater promotional activity to increase the Company's market
visibility. The Company recently made a significant investment in expanding its
value-based selling process. It is utilizing Michael Bosworth's respected
technology Solution Selling framework to enhance the effectiveness of its
selling process.
We continue to invest in enhancing the value of our products to increase
the customer's return on investment. Product initiatives will focus on improving
the ease of use through a new graphical interface, integrating our products more
closely through meta data exchange and extending our conversion support for
packaged applications, like SAP. These enhancements build on the solid product
foundation the Company achieved in its first months of consolidated operation.
We are also planning for significant growth in our implementation services.
Increasingly, our customers are looking for us to work with them to accelerate
the development of key data integration applications driven by critical business
needs. These organizations face growing programming resource constraints as well
as time to market pressures for their strategic warehouses or new applications.
Our ability to provide a proven approach, critical design guidance and
experienced data integration professionals enables us to meet this increasing
customer demand and is critical to our growth plans for fiscal 1999.
I would also like to acknowledge the retirement of Clarence Spangle from
the Board of Directors and thank Clarence for his years of valuable advice and
guidance to the Company.
We are excited about the future. A clear business focus, a new identity,
powerful products and expert services are combining to create an exciting
future. I look forward to updating you on our progress.
/s/ Robert D. Gordon
Chairman, CEO & President
1
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
Overview
During fiscal 1998, the Company completed a major restructuring that
transformed the Company into a powerful new player exclusively focused on the
dynamic data integration market with tools for data extraction and for
preparation of data for new application environments. In October 1997, the
Company acquired Carleton Corporation, a leading provider of advanced data
warehousing management software solutions, and sold its Internet Solutions
Division. The new Company provides a powerful solution allowing organizations to
easily restructure their operational data for use by the new generation of
advance business analysis tools.
The sale of the Internet Solutions Division required treatment as a
discontinued operation. Accordingly, the operating results for fiscal 1997 and
1996 have been restated to give effect to the discontinued operation. The
results for fiscal 1996 are difficult to compare with fiscal 1997 and 1998 due
to the significance of business with two customers in fiscal 1996.
Results of Continuing Operations
Fiscal Year 1998 Compared to Fiscal Year 1997
Fiscal 1998 revenues were $3,048,000 compared to $2,794,000 in fiscal 1997
or an increase of $254,000 or 9%. The increase was the due to the acquisition of
Carleton Corporation in October 1997 and its operations being included with the
Company beginning in November 1997. The fourth quarter of the fiscal year, or
the first full quarter as the new Company, accounted for almost 48% of the years
revenues. In the fourth quarter, the Company won license business with several
new customers, had other customers complete successful warehousing projects
using its products and also began to work effectively with its channel partners.
The mix of revenues for the year had a higher percentage of professional
services which contributed to the higher cost of revenues.
Research, development and engineering costs increased significantly from
$766,000 in fiscal 1997 to $2,519,000 in fiscal 1998. The increase was due in
part to the acquisition of Carleton Corporation, increased level of investment
and no capitalization of development costs in fiscal 1998. The Company will
continue to invest in making improvements to the products with a focus on
product performance, ease of use and added features that address the needs of
the developers building data warehouses or migrating data to new packaged
applications. Selling, general and administrative expenses increased to
$5,100,000 in fiscal 1998 from $4,545,000 in fiscal 1997. The increase is due
primarily to the acquisition of Carleton Corporation and the operation of both
locations. Management reviewed the level of combined expenses prior to the
acquisition and actions were taken to minimize any "excess" spending. Other
charges in fiscal 1998 include expensing the purchased research and development
of $9,521 resulting from the Carleton acquisition and an $858 write off of
capitalized software.
Net interest income increased from $282,000 in fiscal 1997 to $488,000 due
to the increased level of funds available to invest throughout the year.
2
<PAGE>
Fiscal Year 1997 Compared to Fiscal Year 1996
Fiscal 1997 revenues decreased significantly from $6,332,000 in fiscal 1996
to $2,794,000 in fiscal 1997. The decrease was due to fiscal 1996 having the
benefit of sales to two significant customers that were doing large projects
using the predecessor product to Enterprise/Integrator. The full
commercialization of Enterprise/Integrator did not occur until later in 1997.
However, these two customers had experienced significant enterprise problems
that required some solution. They had contracted with the Company in fiscal 1995
and the work carried over into fiscal 1996 as well. The Company made a conscious
decision in fiscal 1996 and 1997 to slow down in its efforts to get new business
until the product was available for full commercialization. The increased cost
of sales in fiscal 1997 reflected a higher mix of professional services.
The reduced level of research, development and engineering costs in fiscal
1997 was due to fewer outside contracting services being employed. Selling,
general and administrative expense increased from $4,153,000 in fiscal 1996 to
$4,545,000 in fiscal 1997 due primarily to more focus, and investment in, in the
portion of the business that now is continuing operations. Other charges in
fiscal 1997 reflect the write off of certain capitalized software costs.
Net interest income decreased from $648,000 in fiscal 1996 to $282,000 in
fiscal 1997. The decrease was due in part to reduced funds being available for
investment during the year and higher interest and other charges.
Impact of Inflation
The Company has not experienced any significant impact from inflation.
Liquidity and Capital Resources
The Company had cash and cash equivalents of approximately $11.1 million
and $13.9 million at March 29, 1998 and March 30, 1997, respectively. The
Company will need to pay certain transaction expenses related to the Carleton
acquisition and the sale of the Internet Solutions Division in early fiscal
1999. These expenses have been accrued for and are included in the accrued
expenses. The Company does not anticipate any significant capital asset
investment in the short term. The Company currently does not have any outside
credit arrangement other than the $1 million note that is secured by
investments. The Company expects to invest between $3-$4 million in the business
in fiscal 1999. The Company believes that the current cash on hand will be
sufficient to cover the projected operating and capital cash needs in fiscal
1999. The Company will need to achieve profitability and generate positive cash
flow in fiscal 2000 and beyond to meet its expected future operating and capital
cash needs.
Year 2000
The Year 2000 effect is not expected to have a material impact on the
Company. Future developments could have a material adverse effect on the
Company.
3
<PAGE>
APERTUS TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share)
<TABLE>
<CAPTION>
For the Fiscal Years Ended
--------------------------
March 29,1998 March 30,1997 March 31, 1996
--------------------------------------------------
<S> <C> <C> <C>
REVENUES
Sales $2,210 $2,589 $6,105
Maintenance and other 838 205 227
--------------------------------------------------
Total 3,048 2,794 6,332
COSTS AND EXPENSES
Cost of revenues 2,202 1,220 921
Research, development and engineering 2,519 766 1,224
Selling, general and administrative 5,100 4,545 4,153
Other charges 10,379 382 -
--------------------------------------------------
Total 20,200 6,913 6,298
--------------------------------------------------
Income (Loss) (17,152) (4,119) 34
OTHER INCOME (EXPENSE)
Interest expense (78) (83) (27)
Investment income 566 365 675
--------------------------------------------------
Total 488 282 648
--------------------------------------------------
Income (Loss) from Continuing Operations
Before Income Taxes (16,664) (3,837) 682
Income Tax Expense (10) (20) (20)
--------------------------------------------------
Net Income (Loss) from Continuing Operations (16,674) (3,857) 662
Discontinued Operations
Income (loss) from operations of discontinued Internet
Solutions Division (net of taxes of $55, $180 and $183) 606 (10,621) (8,152)
Gain on disposal of Internet Solutions Division 4,264 - -
--------------------------------------------------
4,870 (10,621) (8,152)
--------------------------------------------------
Net (Loss) ($11,804) ($14,478) ($7,490)
==================================================
Income (Loss) Per Common Share-Basic
Continuing Operations ($1.10) ($0.28) $0.05
Discontinued Operations 0.32 (0.75) (0.59)
--------------------------------------------------
Total ($0.78) ($1.03) ($0.54)
==================================================
Income (Loss) Per Common Share-Assuming Dilution
Continuing Operations ($1.10) ($0.28) $0.05
Discontinued Operations 0.32 (0.75) (0.56)
--------------------------------------------------
Total ($0.78) ($1.03) ($0.51)
==================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
Apertus Technologies Incorporated
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 29, 1998 March 30, 1997
------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 11,111 $ 13,865
Cash in escrow 730 802
Accounts receivable, less allowance for doubtful
accounts of $185 in 1998 and $3,356 in 1997 1,517 9,437
Inventories -- 923
Installment receivables - current portion, less
allowance for doubtful accounts of $250 in 1997 -- 420
Other 76 413
------------------------------
Total current assets 13,434 25,860
Property and Equipment
Property and equipment 4,649 15,632
Less accumulated depreciation (3,256) (11,917)
-------------------------
Net property and equipment 1,393 3,715
Other Assets
Capitalized software - net of accumulated
amortization of $637 in 1997 -- 1,373
Installment receivables - net of current portion -- 539
Goodwill - net of accumulated amortization of
$453 in 1997 -- 390
-------------------------
Total other assets -- 2,302
-------------------------
TOTAL $ 14,827 $ 31,877
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 319 $ 7,603
Accrued expenses 3,067 4,281
Deferred revenue 809 3,733
Note payable 1,000 1,000
-------------------------
Total current liabilities 5,195 16,617
Long-term Notes Payable 602 --
Shareholders' Equity
Common stock - authorized 30,000,000 shares
at $.05 par value; issued and outstanding at
March 29, 1998 - 16,526,815 shares
March 30, 1997 - 14,158,623 shares 826 708
Additional paid-in capital 62,723 57,373
Retained deficit (54,519) (42,715)
Unearned compensation -- (106)
-------------------------
Total shareholders' equity 9,030 15,260
-------------------------
TOTAL $ 14,827 $ 31,877
=========================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements 5
<PAGE>
<TABLE>
<CAPTION>
APERTUS TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the Fiscal Years Ended
--------------------------
March 29, 1998 March 30, 1997 March 31, 1996
------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ($11,804) ($14,478) ($7,490)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities net
of acquisition of company:
Depreciation 935 1,619 1,369
Amortization 621 2,521 2,520
Compensation earned on restricted stock 52 67 57
Write-off of assets due to impairment 858 6,292 -
Loss on sale of property and equipment - 301 -
Gain on sale of product line - (5,783) -
Gain on disposal of Internet Solutions Division (4,264) - -
Non-current portion of other charges 9,521 - 5,820
Accounts receivable 1,704 4,229 815
Installment receivables 170 1,369 848
Inventory (52) 2,890 (755)
Other assets 163 851 176
Accounts payable, accrued expenses and
deferred revenue (8,704) (255) (1,147)
------------------------------------------------------------
Net cash provided by (used in) operating activities (10,800) (377) 2,213
INVESTING ACTIVITIES
Cash received from sale of product line 10,712 7,400 -
Acquisition of business (net of cash acquired) 68 - ( 4,547)
Purchases of marketable securities - - ( 8,383)
Sales and maturities of marketable securities - 4,318 10,375
Payments received on note receivable - 8,700 -
Purchases of property and equipment (154) (1,029) (2,523)
Capitalized software - (2,704) (3,412)
Change in cash held in escrow (15) 736 (676)
------------------------------------------------------------
Net cash provided by (used in) investing activities 10,611 17,421 (9,166)
FINANCING ACTIVITIES
Repayment of debt (2,750) (8,976) (150)
Stock repurchased by Company - - (1,194)
Other stock transactions including option exercises 185 342 612
------------------------------------------------------------
Net cash used in financing activities (2,565) (8,634) (732)
------------------------------------------------------------
Net increase (decrease) in cash and equivalents (2,754) 8,410 (7,685)
Beginning cash and equivalents 13,865 5,455 13,140
------------------------------------------------------------
Ending cash and equivalents $11,111 $13,865 $5,455
============================================================
Supplemental disclosures of cash flow information:
Cash paid for interest $74 $74 $833
Cash paid for income taxes 141 94 283
</TABLE>
6 See Accompanying Notes to Consolidated Financial Statements
<PAGE>
APERTUS TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
---------------------
Number Additional Accumulated Unearned
of Shares Amount Paid-in Capital Deficit Compensation
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance April 2, 1995 13,526,800 $676 $53,231 ($20,747) ($193)
Options exercised/Employee
Stock Purchase 191,403 10 603 -- --
Acquisition of BlueLine Software, Inc. 504,252 25 4,351 -- --
Net change in restricted stock 5,500 -- 61 -- (61)
Compensation earned -- -- -- -- 57
Shares repurchased (199,500) (10) (1,184) -- --
Net loss -- -- -- (7,490) --
------------------------------------------------------------------------
Balance March 31, 1996 14,028,455 701 57,062 (28,237) (197)
Options exercised/Employee
Stock Purchase 135,968 7 335 -- --
Net change in restricted stock (5,800) -- (24) -- 24
Compensation earned -- -- -- -- 67
Net loss -- -- -- (14,478) --
------------------------------------------------------------------------
Balance March 30, 1997 14,158,623 708 57,373 (42,715) (106)
Options exercised/Employee
Stock Purchase 215,051 10 175 -- --
Acquisition of Carleton Corp. 2,161,191 108 5,229 -- --
Net change in restricted stock (8,050) -- (54) -- 54
Compensation earned -- -- -- -- 52
Net loss -- -- -- (11,804) --
------------------------------------------------------------------------
Balance March 29, 1998 16,526,815 $826 $62,723 ($54,519) $ --
========================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1998
(Dollars in thousands, except per share amounts)
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Apertus
Technologies Incorporated and its wholly owned subsidiaries, Systems Strategies,
Inc. and BlueLine Software, Inc. (together "the Company"). All inter-company
accounts and transactions have been eliminated in consolidation. The net assets
and the operations of the two subsidiaries were acquired by Computer Network
Technology Corporation in its acquisition of the Company's Internet Solutions
Division in October 1997 (see Note 2) while the Company continues to own the
legal entities.
Description of Business
The Company develops and markets software products that provide data
integration solutions for business critical applications such as data
warehousing and application conversions. The Company distributes its technology
and professional services through direct sales and channel partners primarily in
North America. Given the level of total sales revenue and the sales amount
resulting from each direct licensing agreement, there are several customers with
whom the Company did business resulting in more than 10% of the Company's
revenues. In fiscal 1996, one customer accounted for approximately 80% of the
revenues.
Fiscal Year
The Company's fiscal year ends on the Sunday nearest March 31. Fiscal 1998,
fiscal 1997 and fiscal 1996 were all 52-week years.
Revenue Recognition
License revenues are recorded when the product is shipped and the customer
has accepted the product. Professional services are recorded as revenues when
the services are provided. Maintenance revenues are recognized over the time
period covered by the related contract.
The Company is required to adopt the provisions of Statement of Position
97-2, "Software Revenue Recognition", in its fiscal year beginning March 30,
1998. The Company does not expect any significant change in its operations as a
result of such adoption.
Cash Equivalents
Securities that are readily convertible to cash with original maturities of
three months or less when purchased are considered cash equivalents. The cost of
the cash equivalents approximates market value. Cash and cash equivalents
consist of:
<TABLE>
<CAPTION>
March 29, 1998 March 30, 1997
-------------- --------------
<S> <C> <C>
Cash $ 306 $ 1,752
Money market funds 9,705 10,999
United States Treasury bills 1,100 1,114
-------------- --------------
$11,111 $13,865
============== ==============
</TABLE>
Inventories
All inventories were purchased by Computer Network Technology Corporation
in its acquisition of the Company's Internet Solutions Division in October 1997
(see Note 2). Inventories of $923 at March 30, 1997 included raw materials of
$390, work-in-process of $455 and finished goods of $78. The inventories were
valued at the lower of cost or market with cost determined on a first-in, first-
out basis.
8
<PAGE>
Property and Equipment
Property and equipment are recorded at cost and depreciated on a straight-
line basis over the assets' estimated useful lives. Leasehold improvements are
depreciated over the lesser of the lease life or the estimated life of the
related improvement. Property and equipment consist of:
<TABLE>
<CAPTION>
Depreciable
March 29, 1998 March 30, 1997 Lives in Years
----------------------------------------------
<S> <C> <C> <C>
Machinery and equipment $3,255 $12,898 3 - 6
Furniture and fixtures 1,112 1,921 4 - 10
Leasehold improvements 282 813 4 - 5
------------------------------
$4,649 $15,632
==============================
</TABLE>
Capitalized Software
The Company, in accordance with Statement of Financial Accounting Standard
No. 86, capitalizes software development costs by project. These capitalized
costs are amortized on a straight-line basis over a period of three years or the
expected life of the product, whichever is less. Research and development costs
are charged to expense as incurred.
Impairment of Long-Lived Assets
The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases.
Income (Loss) per Share
The numerators used in the computation of the basic and diluted income
(loss) per share shown on the consolidated statements of operations are the
applicable amounts shown as income (loss) from continuing operations and
discontinued operations. The denominators used in the calculation of the basic
income (loss) per share are 15,178 for fiscal 1998, 14,112 for fiscal 1997 and
13,897 for fiscal 1996 which represent the weighted average shares outstanding
for each of the years. These same amounts are used as the denominator in the
calculation of the diluted income (loss) per share except for fiscal 1996 which
also includes dilutive stock options of 784.
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 amounts reported on the financial statements and in
the accompanying notes. Actual results could differ from such estimates.
2) DISCONTINUED OPERATIONS
The Company closed on an Asset Purchase Agreement (the Agreement) with
Computer Network Technology Corporation (CNT) on October 31, 1997 for the sale
of the Company's Internet Solutions Division. The terms of the Agreement
provided for CNT to pay the Company $11,412 in cash and to assume certain
liabilities. A portion of the cash proceeds was placed in escrow pending final
resolution of the book value of the net assets acquired by CNT.
The sale of the Internet Solutions Division has been accounted for as a
discontinued operation and reflected as such in the consolidated financial
statements for the year ended March 29, 1998. The consolidated financial
statements for the years ended March 30, 1997 and March 31, 1996 have been
restated to give effect to the discontinued operations. The Internet Solutions
Division included the business operations of Systems Strategies, Inc. (acquired
by the Company in December 1993) and BlueLine Software, Inc. (acquired by the
Company in June 1995). The MQView product line sold to Candle Corporation in
January 1997 had also been a part of the Internet Solutions Division. Revenues
for the discontinued operations were $13,809, $34,336 and $42,987 for fiscal
1998, 1997 and 1996, respectively.
9
<PAGE>
3) ACQUISITION OF CARLETON CORPORATION
The Company closed on an Agreement and Plan of Merger (the Agreement) with
Carleton Corporation (Carleton) on October 31, 1997. Under the terms of the
Agreement, the Company acquired all the stock of Carleton through (i) the cash
purchase of Carleton shares held by shareholders owning less than 20,000 shares
and (ii) the exchange of 2,161,191 shares of the Company's common stock (valued
at $2.00 per share) and the issuance of notes with an initial face value of
$2,000 for the Carleton shares held by shareholders owning more than 20,000
shares. The notes have a maturity date of October 31, 2001, carry an interest
rate of 5.81%, are subject to certain offsets and are subject to further
adjustments based upon the market price performance of the Company's stock. The
notes have been reduced for certain of the offsets and adjustments and have a
recorded value of $602 at March 29, 1998. One of the note holders is a Director
of the Company whose share in the recorded value is $28. In addition, the
Company rolled over any outstanding options and warrants for Carleton stock and
converted them into options and warrants for the Company's common stock. The
excess of the market value of the Company's common stock over the exercise
prices of the options and warrants being rolled over was recorded as additional
cost of the acquisition.
The transaction was accounted for under the purchase method of accounting.
The portion of the purchase price that was allocated to purchased research and
development ($9,521) was expensed and is included in other charges in the 1998
Consolidated Statement of Operations. The allocation to purchased research and
development was based upon an income valuation approach using discounted cash
flows from forecasts. The results of the Company subsequent to the acquisition
date include the results of the former Carleton Corporation.
Pro forma consolidated results of continuing operations (excluding other
charges) as if the Carleton acquisition had occurred at the beginning of the
periods presented are:
<TABLE>
<CAPTION>
(Unaudited)
Fiscal 1998 Fiscal 1997
-------------------------
<S> <C> <C>
Revenues $ 4,852 $ 7,075
Net loss (8,115) (4,169)
Net loss per share -
basic and diluted (.49) (.26)
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire periods
presented.
4) SALE OF FORMER HEADQUARTERS
The Company had sold its former headquarters property consisting of land
and a building to Best Buy Co., Inc. in October 1993 as evidenced by a note
receivable. In June 1996, in accordance with the terms of the sale, the Company
received payment under the note receivable in the amount of $8,700, and the
mortgage on the property was paid in full.
5) INSTALLMENT RECEIVABLES
All installment receivables were purchased by Computer Network Technology
Corporation in its acquisition of the Company's Internet Solutions Division (see
Note 2). The long-term installment receivables balance of $539 at March 30, 1997
was net of unearned income of $86 and the current portion of $670.
10
<PAGE>
6) CAPITALIZED SOFTWARE
A summary of the Company's transactions involving capitalized software is
shown below. In fiscal 1998 and 1997, capitalized software costs related to
certain products were deemed to be impaired and the unamortized balances were
written off and included in other charges in the Consolidated Statements of
Operations. The write off in fiscal 1997 included $4,750 that was related to the
Internet Solutions Division.
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
-------------------------
<S> <C> <C>
Balance beginning of year $1,373 $ 6,286
Software costs capitalized -- 2,704
Sold with MQView product line -- (236)
Written off (858) (5,132)
Amortization (515) (2,249)
-------------------------
Balance end of year $ -- $ 1,373
=========================
</TABLE>
7) NOTES PAYABLE
In addition to the $602 of notes payable to the former Carleton
shareholders (see Note 3), the Company has a $1,000 note payable to a bank under
the terms of a Credit Agreement. The Credit Agreement's maturity date is October
24, 1998 and the borrowings are secured by a first priority, perfected security
interest in the Company's cash and cash equivalents. The balance carries an
interest rate equal to the LIBOR plus 1.75% (7.56% at March 29, 1998).
8) INCOME TAXES
The Company has operating loss carryforwards at March 29, 1998 of
approximately $65,614 that are available to offset taxable income through 2012.
The carryforwards begin to expire in 2001. A valuation allowance has been
recorded to offset net deferred tax assets, resulting primarily from the
operating loss carryforwards, that may not be realized. The Company has incurred
some foreign and state tax expense in fiscal years 1998, 1997 and 1996. The
state tax provisions of $30, $50 and $45 for fiscal years 1998, 1997 and 1996,
respectively, have been allocated between continuing and discontinued
operations. The foreign tax provisions of $35, $150 and $158 for fiscal years
1998, 1997 and 1996, respectively, have been entirely recorded against
discontinued operations. The components of deferred tax assets and liabilities
are as noted:
<TABLE>
<CAPTION>
March 29,1998 March 30, 1997
-----------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $26,246 $22,317
Research and development credit 1,081 1,081
Allowance for doubtful accounts 74 1,442
Inventory reserve -- 1,140
AMT carryforward 127 127
Other 362 1,701
-----------------------------
27,890 27,808
Deferred tax liabilities
Capitalized software -- (549)
Depreciation and amortization (60) (160)
-----------------------------
(60) (709)
-----------------------------
Net deferred tax assets 27,830 27,099
Valuation allowance (27,830) (27,099)
-----------------------------
Total net deferred tax assets $ -- $ --
=============================
</TABLE>
11
<PAGE>
9) STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK
The Company has authorized the grant of up to 3,200,000 options under the
Company's stock option plans. These options may be granted to certain officers,
directors and employees to purchase the Company's common stock at prices equal
to the fair market value of the stock at the date of grant. A majority of the
options granted have ten year terms and vest over a four year period. The
Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related interpretations in accounting
for its employee stock options. Under APB 25, when the exercise price of
employee stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.
During fiscal 1998, the Company repriced all outstanding employee options
as of April 3, 1997 to an exercise price of $1.25 per share. However, none of
these options are exerciseable prior to June 30, 1998. Any employee whose
employment is terminated prior to June 30, 1998 may exercise any vested options
but only at the original exercise price. Extended exercise periods were granted
to certain employees who were terminated as a result of the Company's sale of
its Internet Solutions Division. The only exerciseable options at March 29, 1998
other than those rolled over in conjunction with the Carleton acquisition are
those options held by the Board and those held by terminated employees. These
options total 565,225 and have exercise prices ranging from $1.25 to $12.00.
The acquisition of Carleton Corporation resulted in the Company rolling
over certain options and warrants to buy Carleton stock into options and
warrants to buy the Company's stock. These Carleton options and warrants
converted into 500,631 options and 135,145 warrants on the Company's stock. The
warrants include warrants on 92,141 shares at $.02 per share and 43,004 shares
at $6.98 per share and are exerciseable through May 2002. The holders of the
options and warrants are fully vested.
A summary of stock options is:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Average Rollover
Shares Exercise Rollover Exercise
Available Options Price Per Options Price Per
For Grant Outstanding Share Outstanding Share
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance April 2, 1995 1,252,766 1,447,150 $2.65
Granted (257,500) 257,500 9.58
Exercised (167,400) 2.73
Canceled 233,900 (233,900) 4.50
---------------------------------
Balance March 31, 1996 1,229,166 1,303,350 3.64
Granted (523,700) 523,700 3.11
Exercised (52,500) 2.60
Canceled 352,100 (352,100) 4.09
---------------------------------
Balance March 30, 1997 1,057,566 1,422,450 3.06
Granted (1,196,800) 1,196,800 1.24
Rollover 500,631 $ .18
Exercised (75,000) 1.35 (81,661) .20
Canceled 722,375 (722,375) 1.70 (32,557) .47
--------------------------------- =======
Balance March 29, 1998 583,141 1,821,875 $1.75 386,413 $ .23
================================= =======
</TABLE>
The rollover options from the Carleton acquisition are fully vested and are
currently exerciseable. The rollover options outstanding at March 29, 1998
include 174,006 options at an exercise price of $.02 per share, 56,415 options
at an exercise price of $.19 per share and 155,992 options at an exercise price
of $.47 per share.
The 1,821,875 options outstanding at March 29, 1998 include 1,188,650
options with exercise prices between $1.19 and $1.50; 437,350 options with
exercise prices between $1.62 and $2.47; and 195,875 options with exercise
prices between $3.13 and $12.00. At March 29, 1998 the outstanding options had a
weighted average contractual life of 7.17 years.
12
<PAGE>
Pro forma information regarding net loss and related per share data is
required by Statement of Financial Accounting Standards No. 123, and has been
determined as if the Company had accounted for its employee stock options, other
than those rolled over with the Carleton acquisition, under the fair value
method of the statement. The fair value for these options was estimated at the
date of the grant using a Black-Scholes option pricing model with the following
weighted average assumptions for fiscal 1998, fiscal 1997 and fiscal 1996: risk-
free interest rate ranging from 3.63% to 6.72%; dividend yield of 0%; volatility
factors of the expected market price of the Company's stock of .747, .722 and
.662 respectively; and a weighted average expected life of the options of 6
years. The weighted average fair value of options granted during fiscal 1998,
1997 and 1996 was $1.10, $2.11 and $5.18, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
---------------------------------------
<S> <C> <C> <C>
Net loss $(11,939) $(14,698) $(7,753)
Net loss per share -
basic and diluted (.79) (1.04) (.56)
</TABLE>
Note: The pro forma effect on net loss for the fiscal years is not
representative of the pro forma effect in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to fiscal 1996.
The Company has authorized the issuance of up to 300,000 shares of
restricted stock and entered into restricted stock agreements with various
employees. The agreements call for issuance of the Company's common stock to
these employees and provide vesting generally over a five-year period.
A summary of stock issued under these agreements is:
<TABLE>
<CAPTION>
Weighted
Average
Grant
Shares Date Fair
Available Shares Shares Value Per
For Grant Outstanding Vested Share
--------------------------------------------
<S> <C> <C> <C> <C>
Balance April 2, 1995 109,333 190,667 138,667 $ 2.27
Granted (5,500) 5,500 -- 12.00
Vested -- -- 16,900
---------------------------------
Balance March 31, 1996 103,833 196,167 155,567 2.54
Vested -- -- 16,000
Canceled 5,800 (5,800) -- 3.99
---------------------------------
Balance March 30, 1997 109,633 190,367 171,567 2.49
Vested -- -- 10,750
Canceled 8,050 (8,050) -- 6.74
---------------------------------
Balance March 29, 1998 117,683 182,317 182,317 $ 2.30
=================================
</TABLE>
The value of the stock at the time of grant is deferred and amortized over
the term of the agreements. Compensation expense of $52, $67 and $57 was
recognized in fiscal 1998, 1997 and 1996, respectively, related to these
agreements.
13
<PAGE>
10) OTHER CHARGES
Other charges for fiscal 1998 include the expense recognition of the
purchased research and development resulting from the Carleton acquisition (see
Note 3) and the write off of capitalized software (see Note 6). Other charges
for fiscal 1997 include the write off of capitalized software (see Note 6).
Additional items previously included in other charges for fiscal 1997 totaling
$10,274 have been included in discontinued operations. These charges were for
rent on un-subleased facilities, costs in moving and closing facilities, write
off of property and equipment relating to the facilities, write off of goodwill
and capitalized software and other.
11) COMMITMENTS AND CONTINGENCIES
The Company has an operating lease on its sales and research and
development office facility in Massachusetts through September 2001. Under that
lease, the Company is responsible for base rent plus any operating cost
escalation. The Company is also a party to several operating leases for which
the Company has either assigned its interest to another party or has
arrangements with subtenants. These leases provide for a base rent and a sharing
in the operating costs. This includes the Company's current headquarters in
Minnesota. The Company has assigned its interest in the leased building in which
its headquarters is located to Best Buy Co., Inc. The Company is currently
looking at alternative locations to move its headquarters and Minnesota
operations. The Company has accrued for any identifiable exposures on its leases
and estimated costs relating to its upcoming move.
Future minimum lease payments, net of any subleases or assignments, as of
March 29, 1998 are:
<TABLE>
<CAPTION>
Future Minimum
Fiscal Year Lease Payments
----------- --------------
<S> <C>
1999 $230
2000 185
2001 194
2002 102
</TABLE>
Net rent expense charged to continuing operations for property and
equipment under operating leases for fiscal 1998, 1997 and 1996 was
approximately $305, $212 and $202, respectively.
The Company is involved in various claims and proceedings that, in the
opinion of management and counsel, do not involve amounts material to the
financial position of the Company.
12) EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) Savings and Investment Plan for its eligible
employees. Employees scheduled to work 1,000 hours in the first year may become
participants in the before tax contributions feature of the Plan as of the
enrollment date after their date of hire. Employees may become participants in
the matching contribution feature of the Plan as of the first enrollment date
following six months of service.
Employees' contributions can range from 1% to 15% of their compensation.
The Company currently matches 25% of the first 4% of employees' contributions.
Company contributions were $67, $118 and $135 toward 401(k) employer
contributions in fiscal years 1998, 1997 and 1996, respectively.
14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of Apertus Technologies
Incorporated
We have audited the accompanying consolidated balance sheets of Apertus
Technologies Incorporated as of March 29, 1998 and March 30, 1997 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years ended March 29, 1998, March 30, 1997 and March 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Apertus
Technologies Incorporated at March 29, 1998 and March 30, 1997, and the
consolidated results of its operations and its cash flows for the years ended
March 29, 1998, March 30, 1997 and March 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
May 1, 1998
COMPANY REPORT ON FINANCIAL STATEMENTS
To the Shareholders of Apertus Technologies Incorporated
The management of Apertus Technologies Incorporated has prepared, and is
responsible for, all information and representations contained in the financial
statements and other sections of this Annual Report. The Company's financial
statements have been prepared in conformity with generally accepted accounting
principles.
Apertus maintains a system of internal accounting controls designed to
provide reasonable assurance that transactions are executed in accordance with
the proper authorization, that all such transactions are properly recorded and
summarized to produce reliable financial records and reports, that assets are
safeguarded, and that the accountability for assets is maintained. The Company
maintains high standards when selecting, training, and developing personnel, to
insure that management's objectives of maintaining strong, effective internal
controls and unbiased, uniform reporting standards are attained.
Ernst & Young LLP, independent auditors, have audited the Company's
financial statements in accordance with generally accepted auditing standards
and their report is included herein.
The Audit Committee of the Board of Directors, which is composed solely of
directors who are not officers or employees, meets regularly and on special
occasions, as needed, with corporate financial management and the independent
auditors to review their activities. The independent auditors have access to the
Audit Committee without management being present to discuss the results of their
work, adequacy of internal financial controls and the quality of financial
reporting.
Minneapolis, Minnesota
May 1, 1998
15
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
For the Year Ended March 29, 1998
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Fiscal Years Ended
--------------------------
1998 1997 1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues $ 3,048 $ 2,794 $ 6,332 $ 8,298 *
Net income (loss) from
continuing operations (16,674) (3,857) 662 2,780 *
Net income (loss) per share from
continuing operations - basic (1.10) (.28) .05 .21 *
Net income (loss) per share from
continuing operations - assuming
dilution (1.10) (.28) .05 .20 *
Net income (loss) (11,804) (14,478) (7,490) 9,839 (9,016)
Net income (loss) per share - basic (.78) (1.03) (.54) .74 (.70)
Net income (loss) per share -
assuming dilution ( .78) (1.03) (.51) .69 (.70)
BALANCE SHEET DATA
Total assets 14,827 31,877 54,689 55,326 43,563
Long-term debt/notes payable 602 - - 8,976 12,882
Shareholders' equity 9,030 15,260 29,329 32,967 21,941
</TABLE>
*Company operations were in one segment. Revenues from continuing operations
were not significant until GTE and Telecom Australia revenue in fiscal 1995.
SELECTED QUARTERLY FINANCIAL DATA
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Fiscal 1998
Revenues $ 279 $ 536 $ 770 $ 1,463 $ 3,048
Net loss from continuing operations (1,452) (1,282) (12,255) (1,685) (16,674)
Net loss (527) (979) (8,715) (1,583) (11,804)
Net loss per share*:
Continuing operations (.10) (.09) (.77) (.10) (1.10)
Net loss (.04) (.07) (.55) (.10) (.78)
Fiscal 1997
Revenues 411 431 1,335 617 2,794
Net loss from continuing operations (914) (1,061) (374) (1,508) (3,857)
Net loss (1,129) (685) (2,747) (9,917) (14,478)
Net loss per share*:
Continuing operations (.07) (.08) (.03) (.11) (.28)
Net loss (.08) (.05) (.19) (.70) (1.03)
</TABLE>
*Net loss per share calculations are the same for basic and diluted in fiscal
1998 and 1997.
16
<PAGE>
DIVIDEND POLICY AND PRICE RANGE OF COMMON STOCK
The Company has not declared any cash dividends on its common stock, and
the Board of Directors intends to retain all earnings for use in its business
for the forseeable future. At March 29, 1998 the Company had 1,342 shareholders
of record. The Company's common stock is traded on the Nasdaq National Market
under the symbol APTS. The following table sets forth the high and low, end-of-
the-day prices for the common stock as reported by the Nasdaq National Market
for the period indicated.
<TABLE>
<CAPTION>
High Low
-------------------
<S> <C> <C>
Fiscal 1998
First Quarter 1 7/8 1 3/16
Second Quarter 2 3/4 1 3/8
Third Quarter 2 1/2 1 7/32
Fourth Quarter 1 3/4 1 1/8
Fiscal 1997
First Quarter 5 3
Second Quarter 3 11/16 2 5/8
Third Quarter 3 13/16 2 3/8
Fourth Quarter 2 7/8 1 7/16
</TABLE>
A copy of the Company's annual report on Form 10-K (excluding exhibits)
filed with the Securities and Exchange Commission may be obtained without charge
to shareholders upon written request to:
Steven Thimjon
Vice President and Chief Financial Officer
Apertus Technologies Incorporated
7275 Flying Cloud Drive
Eden Prairie, MN 55344
<PAGE>
APERTUS TECHNOLOGIES INCORPORATED
7275 Flying Cloud Drive
Eden Prairie, Minnesota 55344
www.apertus.com
www.carleton.com
1.612.828.0300
(C)1998 Apertus Technologies Incorporated. All rights reserved. All other brand
and product names are trademarks or registered trademarks of their respective
companies.
<PAGE>
Exhibit 21
Percentage of Voting
Securities
State or County of Directly or
Incorporation or Indirectly Owned
SUBSIDIARIES: Organization by the Company
- ------------ ------------ --------------
BlueLine Software, Inc. Minnesota 100%
Apertus Technologies Canada Inc. Canada 100%
BlueLine Software Europe B.V. * Holland 100%
Systems Strategies, Inc. New York 100%
Systems Strategies Limited United Kingdom 100%
Apertus Inc. GMBH * Germany 100%
* The Company is in the process of liquidating its foreign subsidiaries
in Germany and Holland.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Apertus Technologies Incorporated of our report dated May 1, 1998, included
in the 1998 Annual Report to Shareholders of Apertus Technologies Incorporated.
Our audits also included the financial statement schedule of Apertus
Technologies Incorporated listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8, No. 2-91060) pertaining to the Lee Data Corporation Savings and
Investment Plan, in the Registration Statement (Form S-8, No. 33-38924)
pertaining to the Apertus Technologies Incorporated Long Term Investment Plan,
in the Registration Statement (Form S-8, No. 33-50648) pertaining to the Apertus
Technologies Incorporated Stock Acquisition Loan Assistance Program, in the
Registration Statement (Form S-8, No. 33-88884) pertaining the amendments to the
Apertus Technologies Incorporated 1990 Long-Term Incentive Plan, in the
Registration Statement (Form S-8, No. 333-39169) pertaining to options under the
Carleton Corporation 1994 Stock Option Plan of our report dated May 1, 1998,
with respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Annual Report (Form 10-K) of
Apertus Technologies Incorporated.
Ernst & Young LLP
Minneapolis, Minnesota
June 22, 1998
<PAGE>
Exhibit 24
POWERS OF ATTORNEY
KNOW ALL PERSONS BY THESE RESENTS, that each person whose signature
appears below hereby constitutes and appoints Robert D. Gordon and Steven L.
Thimjon and each of them, their true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution for them and in their name,
place and stead, in any and all capacities, to sign the Annual Report on Form
10-K of Apertus Technologies Incorporated for the fiscal year ended March 29,
1998 and all amendments to such Annual Report on Form 10-K, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as they might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of the, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
Signature Date
/s/ Robert D. Gordon June 25, 1998
- --------------------------------------
Robert D. Gordon, Chairman of the Board,
Chief Executive Officer, President and Director
(Principal executive officer)
/s/ Steven Thimjon June 25, 1998
- --------------------------------------
Steven Thimjon, Chief Financial Officer
(Principal financial officer and
Principal accounting officer)
/s/ Nicholas J. Covatta June 25, 1998
- --------------------------------------
Nicholas J. Covatta Jr., Director
/s/ Michael Dexter-Smith June 25, 1998
- --------------------------------------
Michael Dexter-Smith, Director
/s/ Robert W. Fischer June 25, 1998
- --------------------------------------
Robert W. Fischer, Director
/s/ George E. Hubman June 25, 1998
- --------------------------------------
George E. Hubman, Director
/s/ Arch. J. McGill June 25, 1998
- --------------------------------------
Arch J. McGill, Director
/s/ Clarence W. Spangle June 25, 1998
- --------------------------------------
Clarence W. Spangle, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-29-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> MAR-29-1998
<CASH> 11,841
<SECURITIES> 0
<RECEIVABLES> 1,702
<ALLOWANCES> 185
<INVENTORY> 0
<CURRENT-ASSETS> 13,434
<PP&E> 4,649
<DEPRECIATION> 3,256
<TOTAL-ASSETS> 14,827
<CURRENT-LIABILITIES> 5,195
<BONDS> 602
0
0
<COMMON> 826
<OTHER-SE> 8,204
<TOTAL-LIABILITY-AND-EQUITY> 14,827
<SALES> 2,210
<TOTAL-REVENUES> 3,048
<CGS> 2,202
<TOTAL-COSTS> 2,202
<OTHER-EXPENSES> 17,998
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78
<INCOME-PRETAX> (16,664)
<INCOME-TAX> 10
<INCOME-CONTINUING> (16,674)
<DISCONTINUED> 4,870
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,804)
<EPS-PRIMARY> (.78)
<EPS-DILUTED> (.78)
</TABLE>
<PAGE>
Exhibit 99.1
CAUTIONARY STATEMENT
Apertus Technologies Incorporated ("Apertus" or the "Company"), or persons
acting on behalf of the Company, or outside reviewers retained by the Company
making statements on behalf of the Company, or underwriters, from time to time,
may make, in writing or orally, "forward-looking statements" as defined under
the Private Securities Litigation Reform Act of 1995 (the "Act"). This
Cautionary Statement is for the purpose of qualifying for the "safe harbor"
provisions of the Act and is intended to be a readily available written document
that contains factors which could cause results to differ materially from those
projected in such forward-looking statements. These factors are in addition to
any other cautionary statements, written or oral, which may be made or referred
to in connection with any such forward-looking statement.
The following matters, among others, may have a material adverse effect on the
business, financial condition, liquidity, results of operations or prospects,
financial or otherwise, of the Company. Reference to this Cautionary Statement
in the context of a forward-looking statement shall be deemed to be a statement
that any one or more of the following factors may cause actual results to differ
materially from those which might be projected, forecast, estimated or budgeted
by the Company in such forward-looking statement or statements:
CONTINUED INTEGRATION OF OPERATIONS
Apertus must continue to build upon the integration of the former Carleton
Corporation ("Carleton"), which was acquired in October 1997. The process of
rationalizing management services, administrative organizations, facilities,
management information systems and other aspects of operations, while managing a
larger and geographically expanded entity, will continue to present challenges
to management. Although no significant problems have arisen to date, there can
be no assurances that the integration process will continue to be successful and
that the anticipated benefits of the Carelton acquisition will be fully
realized. The dedication of management resources to such integration may detract
attention from the day-to-day business of Apertus. There can be no assurances
that there will not be substantial costs associated with the continued
integration or that there will not be other material adverse effects from these
integration efforts.
DEPENDENCE ON PRINCIPAL PRODUCTS
Substantially all of the Company's revenues are derived from the sale of data
integration tools, primarily the Passport and Enterprise/Integrator products,
and related support services. Accordingly, any event that adversely affects fees
derived from the sale of such tools, such as competition from other products,
significant flaws in the Company's software products or incompatibility with
third party hardware or software products, negative publicity or evaluation, or
obsolescence of the hardware platforms or software environments in which the
systems run, could have a material adverse effect on the Company's business and
operations. The Company's future financial performance will depend on the
continued development and introduction of new and enhanced version of its
products, and on customer acceptance of such new and enhanced products.
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's software products is characterized by rapid
technological advances, evolving industry standards, changes in end-user
requirements and frequent new product introductions and enhancements. The
introduction of products embodying new technologies and the emergence of new
industry standards could render the Company's existing products and products
under development obsolete and unmarketable. Accordingly, the Company's future
success will depend upon its ability to enhance its current products and develop
and introduce new products that keep pace with technological developments,
satisfy varying end-user requirements and achieve market acceptance. Any failure
by the Company to anticipate or respond adequately to technological developments
or end-
<PAGE>
user requirements, or any significant delays in product development or
introduction, could damage the Company's competitive position and have an
adverse effect on revenues. There can be no assurance that the Company will be
successful in developing and marketing new products or product enhancements on a
timely basis or that the Company will not experience significant delays in the
future, which could have a material adverse effect on the Company's business and
operations. In addition, there can be no assurance that new products or product
enhancements developed by the Company will achieve market acceptance.
Furthermore, software programs as complex as those offered by the Company may
contain undetected errors or "bugs" when first introduced or as new versions are
released that, despite testing by the Company, are discovered only after a
product has been installed and used by customers. There can be no assurance that
errors will not be found in future releases of the Company's software, or that
any such errors will not impair the market acceptance of these products and
adversely affect operating results. Problems encountered by customers installing
and implementing new releases or with the performance of the Company's products
could have a material adverse effect on the Company's business and operations.
DEPENDENCE ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Apertus relies on a combination of copyright, trademark and trade secret laws,
employee and third-party nondisclosure agreements and other industry standard
methods for protecting ownership of its proprietary software. There can be no
assurance, however, that, in spite of these precautions, an unauthorized third
party will not copy or reverse-engineer certain portions of the Company's
products or obtain and use information that the Company regards as proprietary.
Although the Company's licenses contain confidentiality and nondisclosure
provisions, there can be no assurance that such customers will take adequate
precautions to protect the Company's source codes or other confidential
information. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. There can be no assurance that the mechanisms used by the Company to
protect its software will be adequate or that the Company's competitors will not
independently develop software products that are substantially equivalent or
superior to the Company's software products.
Furthermore, the Company may receive notices from third parties claiming that
the Company's products infringe third party proprietary rights. Apertus expects
that, as the number of software products in the industry increases and the
functionality of these products further overlaps, software products will
increasingly be subject to such claims. Any such claim, with or without merit,
could result in costly litigation and require the Company to enter into royalty
or licensing arrangements. Such royalty or license arrangements, if required,
may not be available on terms acceptable to Apertus or at all.
PRODUCT LIABILITY
Apertus incurs risks of professional and other liability given the nature of the
products it develops and markets. No assurance can be given that the limitations
of liability set forth in the Company's license agreements and other contracts
would be enforceable or would otherwise protect the Company from liability for
damages to a customer resulting from a defect in one of the Company's products
or arising as a result of professional services rendered by the Company. Such a
claim, if successful and of sufficient magnitude, could have a material adverse
effect on the Company's business and operations.
<PAGE>
COMPETITION
The computer software industry is intensely competitive, rapidly changing and
significantly affected by new product offerings and other market activities. A
number of companies offer products similar to the Company's products. Many of
the Company's existing competitors, as well as a number of potential
competitors, have more established and larger marketing and sales organizations,
significantly greater financial and technical resources and a larger installed
base of customers than the Company. The Company has no proprietary barriers to
entry which would limit competitors from developing similar products or selling
competing products in the Company's markets. Accordingly, there can be no
assurance that such competitors will not offer or develop products that are
superior to the Company's products or that achieve greater market acceptance.
Competition is likely to increase, which may result in price reductions and loss
of market share. Apertus will also continue to face competition from potential
customers who will decide to try meet their needs through the use of internal
resources. There can be no assurance that Apertus will be able to compete
successfully against its competitors or that the competitive pressures faced by
Apertus will not adversely affect its financial performance.
The Company's principal markets are highly fragmented and consist of a few large
multinational suppliers and a much larger number of small, regional competitors.
The Company believes that its industry will experience consolidation as
management information systems become more complex and as more manufacturers
adopt sophisticated management information systems, forcing smaller companies in
the industry to specialize or merge with their competitors. In order to compete
effectively in the broad markets which the Company presently targets, the
Company will need to continue to grow and attain sufficient size to ensure that
it can develop new products on a timely basis in response to evolving technology
and new customer demands and can sell such products on a timely basis to a
variety of manufacturing industries worldwide. No assurance can be given that
the Company will be able to grow sufficiently to enable it to compete
effectively.
In order to be successful in the future, Apertus must respond effectively to
customer needs and properly select and incorporate those technologies and
application functionalities that will meet the challenges posed by competitors'
innovations. To accomplish this critical objective, Apertus must continue to
invest in enhancing its current products and, when necessary, introduce new
products to remain competitive.
DEPENDENCE ON KEY EMPLOYEES
Apertus is dependent upon the continued services and management experience of
Robert Gordon and other executive officers. If Mr. Gordon or any of such other
executive officers were to leave the Company, the Company's operating results
could be adversely affected. In addition, the Company's continued growth depends
on its ability to attract and retain skilled employees and on the ability of its
officers and key employees to manage growth successfully. The loss of certain
key employees or the Company's inability to attract and retain other qualified
employees could have a material adverse effect on the Company's business and
operations.
ABILITY TO RECRUIT SALES, SERVICE AND IMPLEMENTATION PERSONNEL
The ability to achieve anticipated revenues is substantially dependent on the
ability of Apertus to attract on a timely basis and retain skilled personnel,
especially sales, service and implementation personnel. In addition, Apertus
believes that its future success will depend in large part on its ability to
attract and retain highly skilled technical, managerial, marketing and
professional services personnel to ensure the quality of products and services
provided to its customers. Competition for such personnel, in particular for
product development, sales and implementation personnel, is intense, and Apertus
competes in the market for such personnel against numerous companies, including
larger, more established companies with significantly greater financial
resources than Apertus. There can be no assurance that Apertus will be
successful in attracting and retaining skilled personnel. The Company's
inability to attract and retain qualified employees could have a material
adverse effect on its business and operations.
<PAGE>
DEPENDENCE ON THIRD PARTY SUPPLIERS
The Company's products incorporate and use software products developed by other
entities. There can be no assurance that all of these entities will remain in
business, that such entities will continue to support these product lines, that
their product lines will remain viable or that these products will otherwise
continue to be available to the Company. If any of these entities ceases to do
business or abandons or fails to enhance a particular line, the Company may need
to seek other suppliers or make material changes to its own products, which
could have a material adverse effect on the Company's business and operations.
RECENT OPERATING LOSSES
Apertus has sustained operating losses from continuing operations in each of its
past two fiscal years. The losses were due to many factors. The most significant
factors were the low sales volume generated from the continuing business as it
was developing and the fixed component of the operational infrastructure. The
Company's ability to return to profitability is dependent upon the continued
development and successful marketing of its products. There can be no assurance,
however, that the Company will be able to return to profitability.
ADDITIONAL BUSINESS RISKS
The future success of the Company's business and operations are subject to
several additional business risks, including (i) risk of lengthening sales
cycles; (ii) higher service, administrative or general expenses occasioned by
the need for additional advertising, marketing, administrative or management
information systems expenditures; (iii) inability to carry out marketing and
sales plans; and (iv) changes in interest rates causing a reduction of
investment income.
The foregoing review of factors pursuant to the Act should not be construed as
exhaustive or as any admission regarding the adequacy of disclosures made by the
Company prior to the effective date of the Act.
