<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______ to_____
Commission File No. 0-17948
ELECTRONIC ARTS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-2838567
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1450 Fashion Island Boulevard
San Mateo, California 94404
(Address of principal executive offices) (Zip Code)
(415) 571-7171
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class of Common Stock July 21, 1995
--------------------- --------------
<S> <C>
$0.01 par value per share 51,328,502
</TABLE>
<PAGE>
ELECTRONIC ARTS INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ -----
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at
June 30, 1995 and March 31, 1995 3
Consolidated Statements of Income for
the Three Months Ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows for
the Three Months Ended June 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of
Security Holders 25
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
- ----------
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
1995 1995
------------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and short-term investments $110,247 $174,121
Marketable securities 9,899 10,725
Receivables, less allowances of
$32,496 and $33,567, respectively 60,307 56,389
Inventories 11,984 12,358
Prepaid royalties 11,477 8,318
Deferred income taxes 3,747 3,142
Other current assets 9,001 6,707
-------- --------
Total current assets 216,662 271,760
Property and equipment, net 57,684 30,528
Prepaid royalties 8,397 6,633
Long-term investments 14,200 14,200
Investments in affiliates 20,625 13,397
Deferred income taxes 1 77
Other assets 6,988 4,644
------- -------
$324,557 $341,239
-------- --------
-------- --------
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $35,927 $34,247
Accrued liabilities 45,230 68,771
------- -------
Total current liabilities 81,157 103,018
Minority interest in consolidated
joint venture 1,163 1,148
Stockholders' equity:
Preferred stock, $0.01 par value.
Authorized 1,000,000 shares -- --
Common stock, $0.01 par value.
Authorized 70,000,000 shares; issued
and outstanding 51,155,848 and
50,863,455, respectively 512 509
Paid-in capital 81,925 77,144
Retained earnings 162,355 161,512
Unrealized depreciation of investments (2,032) (1,206)
Translation adjustment (523) (886)
------- -------
Total stockholders' equity 242,237 237,073
------- -------
$324,557 $341,239
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1995 1994
-------------------
<S> <C> <C>
Net revenues $80,035 $77,951
Cost of goods sold 42,827 40,126
------- -------
Gross profit 37,208 37,825
------- -------
Operating expenses:
Marketing and sales 11,690 9,507
General and administrative 6,181 5,798
Research and development 19,315 14,772
------- ------
Total operating expenses 37,186 30,077
------- ------
Operating income 22 7,748
Interest and other income, net 1,152 9,346
------ ------
Income before provision for income
taxes and minority interest 1,174 17,094
Provision for income taxes 376 5,215
------ ------
Income before minority interest 798 11,879
Minority interest in consolidated
joint venture 45 54
------ ------
Net income $ 843 $11,933
------ ------
------ ------
Net income per share: $ .02 $ .23
------ ------
------ ------
Number of shares used in computation 53,220 51,997
------ ------
------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended June 30,
--------------
1995 1994
----------------
<S> <C> <C>
Operating activities:
Net income $ 843 $ 11,933
Adjustments to reconcile net cash
provided by operating activities:
Minority interest in consolidated
joint venture (45) (54)
Depreciation and amortization 3,244 2,297
Loss on sale of fixed assets 64 12
Deferred rent (30) (19)
Change in assets and liabilities:
Receivables (3,918) 4,203
Inventories 374 (616)
Prepaid royalties, net (4,923) (4,186)
Other assets (4,728) (690)
Accounts payable 1,680 (13,004)
Accrued liabilities (23,511) (9,437)
Deferred income taxes (529) (10)
--------- --------
Net cash provided/(used) by
operating activities (31,479) (9,571)
--------- --------
Investing activities:
Proceeds from sales of furniture
and equipment 83 70
Capital expenditures (30,457) (2,582)
Investment in affiliates (7,228) (3,022)
Change in short-term investments 7,800 13,025
Adjustment for effects of poolings
in prior period -- (1,661)
--------- --------
Net cash provided (used) in
investing activities (29,802) 5,830
--------- --------
Financing activities:
Proceeds from issuance of common stock 3,508 304
Tax benefit from exercise of stock options 1,276 537
-------- ------
Net cash provided by financing
activities 4,784 841
--------- --------
Translation adjustment 363 1,169
Minority interest on translation adjustment 60 71
--------- --------
Decrease in cash and cash equivalents (56,074) (1,660)
Beginning cash and cash equivalents 143,421 93,918
--------- --------
Ending cash and cash equivalents 87,347 92,258
Short-term investments 22,900 23,375
--------- --------
Ending cash and short-term investments $110,247 $115,633
--------- --------
--------- --------
Supplemental cash flow information:
- -----------------------------------
Cash paid during the year for income
taxes $ 8,130 $ 125
--------- --------
--------- --------
Non-cash investing activities:
- ------------------------------
Unrealized depreciation of investments $ (826) $(2,375)
--------- --------
--------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements are unaudited and reflect
all adjustments (consisting only of normal recurring accruals)
that, in the opinion of management, are necessary for a fair
presentation of the results for the interim periods. The results
of operations for current interim periods are not necessarily
indicative of results to be expected for the current year or any
other period.
These consolidated financial statements should be read in
conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995 as filed with the Securities and
Exchange Commission on June 29, 1995.
Certain amounts in fiscal 1995 have been reclassified to conform
to fiscal 1996 presentation.
NOTE 2. CASH AND INVESTMENTS
Cash equivalents consist of highly liquid investments with
maturities of three months or less at the date of purchase.
The Company adopted the provisions of SFAS 115 (Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities") for investments
held as of or acquired after April 1, 1994. The Company has
accounted for investments in debt securities as
"available-for-sale" under the provisions of SFAS 115 and has
stated applicable investments at fair value, with unrealized
gains and losses reported as a separate component of
stockholders' equity. The cost of securities sold is based upon
the specific identification method.
Cash and short-term investments at June 30, 1995 and March 31,
1995 consisted of (in thousands):
<TABLE>
<CAPTION>
June 30, 1995 March 31, 1995
------------- --------------
<S> <C> <C>
Cash and cash equivalents $ 87,347 $143,421
Short-term investments 22,900 30,700
-------- --------
$110,247 $174,121
-------- --------
-------- --------
</TABLE>
NOTE 3. MARKETABLE SECURITIES
Marketable securities consist of equity securities. The Company
has accounted for investments in equity securities as
"available-for-sale" and has stated applicable investments at
fair value with unrealized losses reported as a separate
component of stockholders' equity.
6
<PAGE>
ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 4. SOFTWARE DEVELOPMENT COSTS
To date, the Company has not capitalized any software development
costs in accordance with Statement of Financial Accounting
Standard (SFAS) No. 86 since the impact to the financial
statements for all periods presented has been immaterial.
NOTE 5. INVENTORIES
Inventories are stated at the lower of weighted average cost or
market. Inventories at June 30, 1995 and March 31, 1995
consisted of (in thousands):
<TABLE>
<CAPTION>
June 30, 1995 March 31, 1995
------------- -------------
<S> <C> <C>
Raw materials and work in process $ 3,860 $ 2,799
Finished goods 8,124 9,559
-------- --------
$ 11,984 $ 12,358
-------- --------
-------- --------
</TABLE>
NOTE 6. PROPERTY AND EQUIPMENT
In May 1995, the Company acquired two properties including one
building, in Austin, Texas to support the expansion of its
Texas-based development group. The building is being depreciated
using the straight line method over a period of 20 years.
NOTE 7. ACCRUED LIABILITIES
Accrued liabilities at June 30, 1995 and March 31, 1995 consisted
of (in thousands):
<TABLE>
<CAPTION>
June 30, 1995 March 31, 1995
------------- --------------
<S> <C> <C>
Accrued expenses $24,790 $26,138
Accrued royalties 7,911 16,040
Accrued compensation and benefits 6,805 10,524
Accrued income taxes 5,724 16,069
------- -------
$45,230 $68,771
------- -------
------- -------
</TABLE>
NOTE 8. NET INCOME PER SHARE
Net income per share is computed on the basis of the weighted
average number of common shares and common equivalent shares
outstanding and is adjusted for shares issuable upon exercise of
stock options. The computation assumes the proceeds from the
exercise of stock options were used to repurchase common shares
at the average market price of the Company's common stock during
each period. Such average shares outstanding for the three
months ended June 30, 1995 and 1994 were 53,220,000 and
51,997,000, respectively. There is no significant difference
between primary and fully diluted earnings per share.
7
<PAGE>
ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 9. INVESTMENT AND JOINT VENTURES
Investments in affiliates include the following investments:
The 3DO Company
- ---------------
The Company has an approximately 18% ownership interest in The
3DO Company ("3DO"). Other investors include Time Warner
Enterprises, a unit of Time Warner, Inc., Matsushita Electric
Industrial Co., Ltd., MCA, AT&T and two venture capital firms.
The investment is accounted for under the equity method.
Electronic Arts Victor, Inc.
- ----------------------------
The Company has a majority interest in a joint venture
corporation, Electronic Arts Victor, Inc. ("EAV"), for the
development and distribution of entertainment software products
in Japan as well as certain Asian countries. EAV is sixty-five
percent owned by the Company and thirty-five percent owned by
Victor Entertainment Industries, Inc. ("VEI") (formerly Victor
Musical Industries, Inc.), a wholly owned subsidiary of Victor
Company of Japan, Limited. The Company has consolidated 100% of
the assets, liabilities and results of operations for EAV. VEI's
35% interest in EAV and the loss therefrom has been reflected as
"Minority interest in consolidated joint venture" on the
Company's Consolidated Financial Statements.
Creative Wonders, Inc.
- ----------------------
In December 1994, the Company and Capital Cities/ABC, Inc.
announced the formation of a joint venture company to develop and
publish software for personal computers and new generation
entertainment machines. The new venture, Creative Wonders, Inc.,
(formerly ABC/EA Home Software, Inc.) publishes children's
edutainment and interactive entertainment multimedia titles as
well as reference products under the name Creative Wonders.
Under the terms of the agreement, each company will maintain a
50% ownership interest in the joint venture company. The
investment is accounted for under the equity method. Electronic
Arts is the exclusive distributor of any interactive titles sold
by the joint venture in the retail channel. As part of the
agreement, the Company contributed assets consisting primarily of
inventories, prepaid royalties and certain intangible assets.
8
<PAGE>
ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 10: OPERATIONS BY GEOGRAPHIC AREAS
The Company operates in one industry segment. Information about
the Company's operations in North America, Europe, Australia and
Japan for the three months ended June 30, 1995 and 1994 is
presented below (in thousands). All intersegment sales among
North American entities (EA San Mateo, EA Canada Inc., EA Puerto
Rico Inc., EA Productions Inc. and Origin Systems, Inc.) have
been eliminated. Therefore, intersegment activity disclosed on
this schedule reflects only the transactions that have taken
place between the geographic segments disclosed below.
<TABLE>
<CAPTION>
NORTH
THREE MONTHS ENDED JUNE 30, 1995 AMERICA EUROPE AUSTRALIA JAPAN ELIMINATIONS TOTAL
- -------------------------------- ------- ------ --------- ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Net revenues from unaffiliated
customers $ 46,715 $22,312 $ 3,287 $ 7,721 $ -- $80,035
Intersegment net revenues 6,921 1,398 -- -- (8,319) --
-------- -------- -------- ------- -------- --------
Total net revenues $ 53,636 $23,710 $ 3,287 $ 7,721 $ (8,319) $80,035
-------- -------- -------- ------- -------- --------
-------- -------- -------- ------- -------- --------
Operating income/(loss) $ (5,253) $ 4,929 $ 610 $ (264) $ -- $ 22
Identifiable assets $262,701 $45,037 $ 5,872 $10,944 $ -- $324,557
THREE MONTHS ENDED JUNE 30, 1994
- --------------------------------
Net revenues from unaffiliated
customers $ 51,904 $15,232 $ 1,687 $ 9,128 $ -- $ 77,951
Intersegment net revenues 4,527 561 7 -- (5,095) --
-------- -------- -------- ------- -------- --------
Total net revenues $ 56,431 $15,793 $ 1,694 $ 9,128 $ (5,095) $ 77,951
-------- -------- -------- ------- -------- --------
-------- -------- -------- ------- -------- --------
Operating income/(loss) $ 5,110 $ 2,491 $ 249 $ (102) $ -- $ 7,748
Identifiable assets $193,717 $44,629 $ 3,152 $19,617 $ -- $261,115
</TABLE>
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with the
consolidated financial data and the notes thereto included in
Item 1 of this Quarterly Report and Management's Discussion and
Analysis of Financial Condition and Results of Operations
contained in the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995 as filed with the Securities and
Exchange Commission on June 29, 1995.
<TABLE>
<CAPTION>
NET REVENUES June 30, June 30,
1995 1994 % change
-------- -------- --------
<S> <C> <C> <C>
CONSOLIDATED NET REVENUES
Three Months Ended $80,035,000 $77,951,000 2.7
NORTH AMERICA NET REVENUES
Three Months Ended 46,715,000 51,904,000 (10.0)
as a percentage of net revenues 58.4% 66.6%
INTERNATIONAL NET REVENUES
Three Months Ended 33,320,000 $26,047,000 27.9
as a percentage of net revenues 41.6% 33.4%
</TABLE>
The Company derives revenues from shipments of EA Studio cartridge
products, EA Studio CD and floppy-disk personal computer products,
EA Studio CD products on dedicated entertainment and educational
systems, licenses of EA Studio products and shipments of Affiliated
Label and other branded publisher floppy-disk and CD products.
Overall, North American net revenues decreased 10.0% for the three
months ended June 30, 1995 compared to the same period last year
due to the decrease in volume of sales in the mature 16-bit
cartridge market. This decrease was partially offset by the
significant increase in shipments of CD based products for both
personal computers and dedicated entertainment systems.
International net revenues increased 27.9% for the three months
ended June 30, 1995 compared to the same period last year,
primarily due to an increase of 46.5% in revenues in Europe
consisting of higher sales of CD-ROM titles and strong sales of
Sega 16-bit cartridge products. Also included in international
revenues was an increase in sales of CD-ROM products in Japan and
South Asia Pacific, mitigated by a decrease in revenues from the
sale of Gameboy products in Japan.
10
<PAGE>
EA STUDIO NET REVENUES:
<TABLE>
<CAPTION>
16-BIT VIDEOGAME PRODUCT NET REVENUES June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended 26,566,000 $41,261,000 (35.6)
as a percent of net revenues 33.2% 52.9%
</TABLE>
The Company released three new 16-bit videogame titles during the
first quarter of fiscal 1996 consisting of THEME PARK and TRIPLE
PLAY `96 for the Sega Genesis and JUNGLE STRIKE for the SNES. Sega
cartridge sales were $20,074,000 the three months ended June 30,
1995 compared to $30,069,000 for the same period in the prior year.
SNES sales were $6,492,000 for the three months ended June 30,
1995 compared to $11,192,000 for the same period last year.
Since the 16-bit videogame market has matured, growth rates have
slowed and sales of the related software have declined and are
expected to continue to do so. The Company's net revenues derived
from 16-bit videogames declined 35.6% during the first quarter of
fiscal 1996 compared to the same period in the prior year.
Additionally, as the 16-bit cartridge market has become more
"hits-driven", the Company will continue to ship fewer cartridge
products in fiscal 1996 than in fiscal 1995 and expects to release
a higher percentage of these products in the December quarter.
Under the terms of a licensing agreement entered into with Sega
Enterprises, Ltd., ("Sega") in July 1992 ("the Sega Agreement"),
the Company is authorized to develop and distribute ROM-cartridge
software products compatible with the Sega Genesis system through
December 1995. Additionally, the Company may continue to
distribute remaining products in its inventory or in process of
manufacture at December 1995 for an additional six months. Genesis
cartridges are manufactured by the Company in Puerto Rico and by a
third party manufacturer under terms of the Sega Agreement. A
shortage of components, or other factors outside the control of the
Company could impair the Company's ability to obtain an adequate
supply of cartridges.
Under the terms of its licensing agreement with Nintendo, the
Company engages Nintendo to manufacture its SNES cartridges for
distribution. The Company has little ability to control its supply
of cartridges or the timing of their delivery. A shortage of
microchips, or other factors outside the control of the Company
could impair the Company's ability to obtain an adequate supply of
cartridges. Nintendo maintains a policy of not accepting returns.
Considering these and other factors, the carrying of an inventory
of cartridges entails additional investments and risks. Videogame
cartridges, particularly SNES, are more expensive to produce than
floppy disks and CD-ROM's and are produced in higher volumes.
Accordingly, if Electronic Arts' sales mix of SNES videogame
products increases, it will be exposed to greater inventory costs
and increased risks of unexpected returns of unsold products.
11
<PAGE>
32-BIT VIDEOGAME PRODUCT NET REVENUES
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $5,874,000 $3,855,000 52.4
as a percentage of net revenues 7.3% 4.9%
</TABLE>
The Company released two new CD-ROM based 32-bit videogame products
during the first quarter of fiscal 1996, WING COMMANDER III and
SYNDICATE, both of which were for the 3DO Interactive Multiplayer.
All 32-bit CD-ROM based revenues for the first quarter related to
sales of 3DO products. There were no new 3DO titles released in Q1
of fiscal 1995.
As a result of the videogame market's current transition to 32-bit
hardware platforms, the Company's sales of the related software for
these CD based dedicated entertainment systems is expected to
increase as the Company continues to focus its development efforts
on supporting these new platforms.
COMPUTER-BASED CD PRODUCT NET REVENUES
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $21,082,000 $4,903,000 330.0
as a percentage of net revenues 26.3% 6.3%
</TABLE>
The Company released four new CD based titles in the first quarter
of the current fiscal year, three for the IBM personal computer and
one for the Macintosh, compared to none for the same period last
year. As mentioned above and elsewhere in this report, the
significant increase in both absolute dollars and as a percentage
of total net revenues reflects the market transition from 16-bit
cartridge systems to CD platforms and the Company's strategy to
focus its development efforts on CD based platforms. The Company
expects revenues from CD products to grow but as revenues for CD
products increase, the Company does not expect these percentage
growth rates to continue.
FLOPPY-DISK PRODUCT NET REVENUES
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $1,330,000 $8,949,000 (85.1)
as a percentage of net revenues 1.7% 11.5%
</TABLE>
The Company released no new floppy-disk based personal computer
titles in the first quarter of the current fiscal year, compared to
six for the same period in the prior year. The decrease in net
revenues derived from shipments of EA Studio floppy-disk based
personal computer products reflects the market trend toward CD
based personal computer products.
12
<PAGE>
LICENSE/OEM NET REVENUES
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $5,604,000 $2,638,000 112.4%
as a percentage of net revenues 7.0% 3.4%
</TABLE>
The increase in license/OEM net revenues for the three months ended
June 30, 1995 compared to the same period last year was primarily a
result of an increase in licensing of personal computer products
in the United States.
AFFILIATED LABEL NET REVENUES
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $17,930,000 $8,555,000 109.6%
as a percentage of net revenues 22.4% 11.0%
</TABLE>
The increase in Affiliated Label net revenues for the three months
ended June 30, 1995 compared to the prior year period reflects the
significant expansion of the distribution business, mainly in North
America. Affiliated Label CD based net revenues represented
approximately 80% of total Affiliated Label net revenues for the
period, compared to 44% in the comparable period in the prior year.
In addition to the traditional Affiliated Labels distributed by the
Company, the Company also derived revenues from the distribution of
PC products to key accounts on behalf of other third party
publishers. There were no such sales in the same period of the
prior year.
OTHER REVENUES
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $1,649,000 $7,790,000 (78.8%)
as a percentage of net revenues 2.1% 10.0%
</TABLE>
Other revenues for the three months ended June 30, 1995 consisted of
sales of products for Gameboy and the Sega 32X platform. The Company
released one title for the Sega 32X during the period. The net revenues
generated in the comparable period of the prior year related mainly to
products for Gameboy and the Sega CD platform. The Company does not
plan to release any new titles for hand-held equipment or the Sega CD in
fiscal 1996 and accordingly, revenues for these platforms are expected
to continue to decline.
13
<PAGE>
COST OF GOODS SOLD
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $42,827,000 $40,126,000 6.7%
as a percentage of net revenues 53.5% 51.5%
</TABLE>
The increase in cost of goods sold, as a percentage of net
revenues, for the three months ended June 30, 1995 compared to the
same period last year was primarily due to the impact of the
significant increase of lower margin Affiliated Label and third
party publisher net revenues, as a percentage of total net
revenues, partially offset by the increase of higher margin EA
Studio CD net revenues and license/OEM net revenues. Additionally,
margins on 16-bit software were eroded as a result of the
maturation of that segment of the business which promoted an
overall reduction in sales price of classic videogame titles and
higher costs of goods sold resulting from the larger cartridge
configurations.
MARKETING AND SALES
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $11,690,000 $9,507,000 23.0%
as a percentage of net revenues 14.6% 12.2%
</TABLE>
The increase in marketing and sales expenses was primarily
attributable to higher trade show expenses resulting from the
Company's participation in the May Electronic Entertainment
Exposition, and increased headcount resulting from the expansion of
the worldwide distribution business.
GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $6,181,000 $5,798,000 6.6
as a percentage of net revenues 7.7% 7.4%
</TABLE>
The slight increase in general and administrative expenses resulted
primarily from an increase in payroll and occupancy costs due to
the opening of additional international offices. This increase was
partially offset by the decrease in bad debt reserves compared to
the prior year's quarter which reflected the increased provision
for bad debts on certain uncollectible accounts in Japan.
14
<PAGE>
RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $19,315,000 $14,772,000 30.8%
as a percentage of net revenues 24.1% 19.0%
</TABLE>
The increase in research and development expenses was primarily due
to additional headcount, continued investment in development for
new CD platforms the higher average development costs for these
platforms, and more in-house development. Additional investments
were made in new interactive movie production facilities which
utilize digitized audio and video information and product
development for new hardware platforms.
OPERATING INCOME
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $22,000 $7,748,000 (99.7%)
as a percentage of net revenues -- 9.9%
</TABLE>
Operating income decreased for the three months ended June 30, 1995
compared to the same period last year due to increased research and
development, increased marketing and sales expenses and a slight
decrease in gross profit margins, as noted above.
INTEREST AND OTHER INCOME, NET
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $1,152,000 $9,346,000 (87.7)
as a percentage of net revenues 1.4% 12.0%
</TABLE>
Interest and other income, net decreased for the three months ended June
30, 1995 compared to the same period last year primarily due to a one
time payment of $8,600,000 associated with the termination of a merger
agreement in the comparable period of the prior year.
INCOME TAXES
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $376,000 $5,215,000 (92.8)
effective tax rate 32.0% 30.5%
</TABLE>
The Company's effective tax rate increased for the three months
ended June 30, 1995 compared to the same period last year primarily
due to the impact of the reduced level of manufacturing in Puerto
Rico.
15
<PAGE>
MINORITY INTEREST IN CONSOLIDATED JOINT VENTURE
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $45,000 $54,000 (16.7)
as a percentage of net revenue 0.1% 0.1%
</TABLE>
The Company has a majority interest in a joint venture corporation,
Electronic Arts Victor, Inc. ("EAV"), in Japan for the development
and distribution of entertainment software products in Japan as
well as certain Asian countries. EAV is sixty-five percent owned
by the Company and thirty-five percent owned by Victor
Entertainment Industries, Inc. ("VEI"), (formerly Victor Musical
Industries, Inc.) a wholly owned subsidiary of Victor Company of
Japan, Limited. The minority interest represents VEI's 35%
interest in EAV. The decrease in impact from the minority
interest for the three months ended June 30, 1995 is due to lower
reported losses for EAV compared to the same period in the prior
year.
NET INCOME
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994 % change
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended $843,000 $11,933,000 (92.9)
as a percentage of net revenue 1.1% 15.3%
</TABLE>
The decrease in net income as compared to the prior year period was
primarily related to slightly higher revenues offset by lower gross
profit margins, higher operating expenses and a higher effective
tax rate in the current year period, combined with the impact of
the after-tax net gain of approximately $6,000,000 from a one time
payment of a merger termination fee, in the same period of the
prior year.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1995, the Company's working capital was $135,505,000
compared to $168,742,000 at March 31, 1995. Cash and short term
investments decreased by approximately $63,874,000 during the
quarter as the Company used $31,479,000 of cash in operations
primarily due to payment of accrued liabilities.
During the quarter ended June 30, 1995, the Company invested
approximately $21,200,000 in the purchase of land and buildings in
Austin, Texas in which it plans to house its expanding Texas-based
development group. Additionally, the Company made a strategic
investment in Novalogic, a Southern California based developer of
entertainment software.
Reserves for bad debts and sales returns decreased from $33,567,000
at March 31, 1995 to $32,496,000 at June 30, 1995. Reserves have
been charged for returns of product and price protection credits
issued for products sold in prior periods. Management believes
these reserves are adequate based on historical experience and its
current estimate of potential returns and allowances.
Inventory levels at June 30, 1995 decreased slightly compared to
March 31, 1995 as the levels of videogame cartridge inventory fell
in North America. This was partially offset by a build-up in
videogame cartridge components in Puerto Rico in anticipation of
the upcoming holiday season.
In connection with the Company's purchases of cartridges to be
distributed in Japan, Nintendo of Japan requires cash deposits in
lieu of letters of credit. At June 30, 1995, EAV had no remaining
cash deposits for purchases of Nintendo cartridges. In lieu of
letters of credit, EAV utilizes a line of credit to fund these
deposits and purchases of Nintendo cartridges. At June 30, 1995,
EAV had an outstanding balance on this line of approximately
$4,151,000.
The Company's principal source of liquidity is $110,247,000 in cash
and short-term investments. Management believes the existing cash,
cash equivalents, short-term investments, marketable securities and
cash generated from operations will be sufficient to meet cash and
investment requirements for the foreseeable future.
17
<PAGE>
RISK FACTORS
The Company's business is subject to a number of risks. Some of
those risks are described below. Other risks are presented
elsewhere in this report.
RAPID TECHNOLOGICAL CHANGE
Currently, the interactive software industry is undergoing
another significant change due in part to the introduction or
planned introduction of new hardware platforms, as well as remote
and electronic delivery systems. The new generation of systems are
based on 32-bit and 64-bit microprocessors that incorporate
dedicated graphics chipsets. Many of these systems utilize CD-ROM
drives. The Company began development of 32-bit software products
over three years ago by creating the original software development
system for the first of these advanced products, the 3DO
Interactive Multiplayer, which began selling in calendar 1993.
Sega and Sony each began distribution of their next generation
hardware systems (named the "Saturn" and "PlayStation",
respectively) in Japan during the quarter ended December 1994.
Sega began limited shipment of the Saturn in North America in May
1995 and Sony has announced plans to begin shipping the PlayStation
in North America in September 1995. The team of Nintendo and
Silicon Graphics announced plans to manufacture and distribute the
Ultra 64 advanced system for initial shipment in the spring of
1996. The 3DO Company has announced its next generation system,
the M2, with the first shipment scheduled in the first half of
calendar year 1996.
New entrants in the interactive entertainment and multimedia
industries, such as cable television, telephone and diversified
media and entertainment companies, and a proliferation of new
technologies, such as on-line networks and the Internet, are making
market forecasting and prediction of financial results increasingly
difficult for the Company. However, in the near term, the Company
expects that the transition from 16-bit cartridge-based game
machines to the advanced systems described above will continue to
adversely affect the near term financial results of the Company.
An increasing portion of the Company's new product releases in its
1996 fiscal year will be for advanced platforms, including the IBM
PC-CD and compatibles, the Sega Saturn and Sony PlayStation, which
will, in the near term, have substantially smaller installed bases
than the current 16-bit videogame systems. In the near term, the
increase in unit sales of advanced platforms may be less than the
decline in unit sales of 16-bit systems. As a result, while the
Company expects to release more titles during fiscal 1996 than
during fiscal 1995, the majority of these new products will be
directed to the 32-bit systems and the Company's potential market
during this transition period may be smaller. This set of
circumstances will continue to adversely affect the financial
results of the Company in fiscal 1996, particularly through the
second quarter of fiscal 1996, before Sega's full roll-out of the
Saturn and Sony's expected launch of the PlayStation in North
America.
18
<PAGE>
As the 16-bit cartridge market matures, hardware sales have
declined and will continue to decline. Accordingly, software sales
for the 16-bit cartridge systems are declining rapidly as a
percentage of the Company's business and are expected to continue
to decline in fiscal 1996. In addition, sales in the 16-bit
software market have become more "hits" driven. Fewer products in
that market are successful and publishers of these games, including
the Company, must incur additional marketing and sales expenses to
promote retailers' sales of their 16-bit cartridge products. In
fiscal 1996, the Company plans to release even fewer products for
these platforms and to concentrate releases during the holiday
season, while focusing marketing efforts on promoting hit products.
The interactive software market has historically been a volatile
and highly dynamic industry affected by seasonality, changing
technology, limited hardware platform life cycles, hit products,
competition, component supplies, consumer spending and other
economic trends. Each of these factors affect the operating
results of the Company, often in combinations that make predicting
those operating results difficult. In particular, the Company
believes that consumer spending trends are adversely affecting the
interactive software market at this time, and that retailers, in
reaction to the rapidly declining 16-bit cartridge market, are
attempting to reduce their inventories by buying more cautiously.
These factors can be expected to continue to depress sales of the
Company's software products for the 16-bit market as it is
succeeded by the 32-bit market.
The Company believes that early investment in products for the
32-bit market is strategically important and the Company is
therefore continuing its aggressive development activities for
32-bit platforms. This investment in advanced technology
development, together with declining revenues in 16-bit products
during this period may result in slow or insignificant growth in
revenue and earnings for the 1996 fiscal year and reduced revenues
and earnings in the second quarter of fiscal 1996.
The eventual increase in the 32-bit market will in large part
depend on the successful launch of the new hardware platforms.
Delays by the hardware companies in the launch of these hardware
platforms in key territories, or slower than anticipated acceptance
by consumers, will slow the growth and prolong the transition from
the 16-bit to 32-bit platforms.
19
<PAGE>
COMPETITION
The interactive consumer software market is highly
competitive. Important factors in marketing both entertainment and
educational software include content quality and entertainment
value, product features, manufacturing quality and reliability,
brand recognition, hardware compatibility, ease of understanding
and operation, dealer merchandising, access to existing
distribution channels and retail shelf space, advertising, pricing,
and availability and quality of support services. A variety of
companies offer products that compete directly with one or more of
Electronic Arts' products. These direct competitors vary in size
from very small companies with limited resources to companies with
financial, managerial and technical resources comparable to or
greater than those of Electronic Arts. Manufacturers of hardware
platform systems, videogame cartridges and CD-ROM's such as
Nintendo, Sega and Sony (together with their licensees) diversified
media and entertainment companies such as Disney, Viacom and
Time-Warner Inc. and publishers of personal computer software such
as Microsoft Corporation also compete directly with the Company in
providing interactive software products to consumers. In addition,
companies in industries such as cable television and
telecommunications, many of which have significant financial
resources, have begun to diversify or have announced plans to enter
the interactive software market. These new entrants have the
potential to become significant competitors.
PRODUCTS AND PRODUCT DEVELOPMENT
Interactive entertainment software products typically have
life spans of only 3 to 12 months. Accordingly, the Company must
constantly develop and bring to market new products that achieve
market acceptance quickly. The Company's future success will
depend in large part on its ability to develop and introduce new
products on a timely basis. New products must keep pace with
competitive offerings, adapt to new hardware platforms and emerging
industry standards and provide additional functionality. If the
Company were unable, due to resource constraints or technological
or other reasons, to develop and introduce such products in a
timely manner, this inability would have a material adverse effect
on its operating results and financial condition.
The Company currently develops or publishes products for 14
different hardware platforms and has from time to time developed
and marketed products on 32 different and incompatible platforms in
the past. The Company makes substantial investments in research
and development of products for operation on new hardware platforms
which the Company anticipates will become more popular. Such
investment occurs one to two years in advance of shipment of
products on such platforms. If the Company invests in a platform
that does not achieve significant market penetration, the Company's
planned revenues from those products will not be achieved and the
Company may not recover its development investment. Conversely, if
the Company does not choose to develop for a platform that achieves
significant market success, its revenue growth may also be
adversely affected. There can be no assurance that the Company
will correctly make such platform choices.
20
<PAGE>
The Company's current and planned product introductions are
predominantly for 32-bit platforms such as the IBM PC and
compatibles, the Apple Macintosh, the 3DO Interactive Multiplayer,
the Sega Saturn and the Sony PlayStation and 16-bit platforms such
as the SNES and the Genesis videogame systems.
The Company anticipates that compact discs will emerge as the
preferred medium for interactive entertainment, education, and
information software for the next several years. The Company has
continued its investment in the development of CD-ROM tools and
technologies and has 85 titles in development for CD-ROM platforms,
including the IBM PC and compatibles, the Apple Macintosh, the 3DO
Interactive Multiplayer, the Sega Saturn and the Sony PlayStation.
Most of these products will be convertible for use on multiple
advanced hardware systems.
Product development schedules, particularly for new hardware
platforms, are difficult to predict because they involve creative
processes, use of new development tools for new platforms and the
learning process associated with development for new technologies,
as well as other factors. Floppy-disk and CD-ROM products
frequently include more content and are more complex,
time-consuming and costly to develop than cartridge products and,
accordingly, cause additional development and scheduling risk. In
addition, these development risks for floppy-disk and CD-ROM
products can cause particular difficulties in predicting quarterly
results because brief manufacturing lead times allow finalization
of products and projected release dates late in a quarter. Failure
to meet product development schedules may cause a shortfall in
shipments in any quarter and may cause the operating results for
such quarter to fall significantly below anticipated levels.
As noted above, one of the advanced 32-bit platforms currently
supported by the Company is the 3DO Interactive Multiplayer. The
Company currently owns approximately 18% of the Common Stock of
3DO. The Company has achieved a leading position in 3DO software
sales and has generated profits from sales of 3DO products in
fiscal 1995 and 1996. However, the Company's 3DO products have not
achieved the sales levels of the Company's Genesis products
primarily because the 3DO Interactive Multiplayer has not achieved
market acceptance comparable to the Genesis and SNES platforms.
The Company believes that its development methods for the 3DO
platform are not materially different from those the Company uses
to develop products for other CD-ROM based platforms and therefore
a substantial portion of its development activities for the 3DO
platform is portable to other platforms. Furthermore, the Company
believes that through its 3DO development efforts it has gained
valuable early experience in developing products for advanced
32-bit platforms. However, there can be no assurance that the 3DO
platform or 3DO as a company will be successful. Because of the
Company's equity stake in and historical association with 3DO, a
material adverse effect on the business or prospects of 3DO or a
substantial adverse change in the stock price of 3DO could have a
material adverse effect on the Company's stock price.
21
<PAGE>
Additionally, the Company produces film and videotape to include
in certain products pursuant to agreements between certain of the
company's subsidiaries with SAG, AFTRA and Equity. However, the
costs of video production are significantly higher than for
software production, and for products which include a substantial
amount of video (such as products in the interactive movie
category), the costs of producing the video component is
significantly higher than the cost of developing the software
component, resulting in higher overall development costs for such
products. Accordingly, significantly more units of such products
must be sold to recoup the development and production costs.
Extensive use of video in some of the Company's products,
particularly its products in the interactive movie category, are
experimental product development efforts for the Company and there
can be no assurance that the significantly higher sales levels
required to make these products successful will be achieved.
MARKETING AND DISTRIBUTION
As discussed above, the 16-bit videogame business has become
increasingly "hits" driven, requiring significantly greater
expenditures for advertising, particularly for television
advertising. There can be no assurance that the Company will
continue to produce hit products or that advertising expenditures
will increase sales sufficiently to recoup the advertising
expenditures.
The Company has stock-balancing programs for its personal
computer products (whether provided on floppy-disk or CD-ROM) that,
under certain circumstances and up to a specified amount, allow for
the exchange of personal computer products by resellers. The
Company also typically provides for price protection for its
personal computer and videogame system products that, under certain
conditions, allows the reseller a price reduction from the Company
for unsold products. The Company maintains a policy of exchanging
products or giving credits, but does not give cash refunds. The
risk of price protection requirements is increasing as a result of
the maturing and the increasingly hit-based nature of the 16-bit
video cartridge market. Moreover, the risk of product returns may
increase as new hardware platforms become more popular or market
factors force the Company to make changes in its distribution
system. The Company monitors and manages the volume of its sales
to retailers and distributors and their inventories as substantial
overstocking in the distribution channel can result in high returns
or the requirement for substantial price protection in subsequent
periods. The Company believes that it provides adequate reserves
for returns and price protection which are based on estimated
future returns of products, taking into account promotional
activities, the timing of new product introductions, distributor
and retailer inventories of the Company's products and other
factors, and that its current reserves will be sufficient to meet
return and price protection requirements for the foreseeable
future. However, there can be no assurance that actual returns or
price protection will not exceed the Company's reserves.
22
<PAGE>
The distribution channels through which consumer software
products are sold have been characterized by change, including
consolidations and financial difficulties of certain distributors
and retailers and the emergence of new retailers such as general
mass merchandisers. The bankruptcy or other business difficulties
of a distributor or retailer could render Electronic Arts' accounts
receivable from such entity uncollectible, which could have an
adverse effect on the operating results and financial condition of
the Company. In addition, an increasing number of companies are
competing for access to these channels. Electronic Arts'
arrangements with its distributors and retailers may be terminated
by either party at any time without cause. Distributors and
retailers often carry products that compete with those of the
Company. Retailers of Electronic Arts' products typically have a
limited amount of shelf space and promotional resources for which
there is intense competition. There can be no assurance that
distributors and retailers will continue to purchase Electronic
Arts' products or provide Electronic Arts' products with adequate
levels of shelf space and promotional support.
SEASONALITY
The Company's business is highly seasonal. The Company
typically experiences its highest revenues and profits in the
calendar year-end holiday season and a seasonal low in revenues and
profits in the quarter ending in June. The Company expects these
seasonal trends to be magnified through the second quarter of
fiscal 1996 by general economic and industry factors, including the
current transition from 16-bit cartridge-based game machines to the
new 32-bit systems, and the concentration of the Company's product
releases in the second half of the fiscal year.
EMPLOYEES
The Company believes that its ability to attract and retain
qualified employees is an important factor in its growth and
development and that its future success will depend, in large
measure, on its ability to continue to attract and retain qualified
employees. To date, the Company has been successful in recruiting
and retaining sufficient numbers of qualified personnel to conduct
its business successfully. However, competition for employees in
the interactive software business is intense and increasing as
competition in the industry increases and there can be no assurance
that the Company will continue to be able to attract and retain
enough qualified employees in the future. None of the Company's
employees is subject to a collective bargaining agreement, and the
Company believes that its employee relations are excellent.
23
<PAGE>
OTHER RISK FACTORS
In addition to those discussed above, the Company's business is
subject to a number of other risks. Some of those risks are
described below. Other risks are presented elsewhere in this
report.
A substantial majority of the total revenue of the Company in
any quarter typically results from orders received in that quarter
and products introduced in that quarter. The Company's expenses
are based, in part, on expected future revenues. Certain overhead
and product development expenses do not vary directly in relation
to revenues. As a result, the Company's quarterly results of
operations are difficult to predict, and small delays in product
deliveries may cause quarterly revenues, operating results and net
income to fall significantly below anticipated levels. The
Company's revenues and net income could also be materially and
adversely affected by cancellation of orders, changes in customer
base or product mix, and increased competition.
The Company typically receives orders shortly before shipments,
making backlog, particularly early in any quarter, an unreliable
indicator of quarterly results. Therefore, quarterly results may
be difficult to predict until the end of the quarter. A shortfall
in shipments at the end of any particular quarter may cause the
results of that quarter to fall significantly short of anticipated
levels. Due to analysts' expectations of continued growth and
other factors, any such shortfall in earnings could have an
immediate and significant adverse effect on the trading price of
the Company's common stock in any given period. As a result of the
foregoing factors and other factors that may arise in the future,
the market price of the Company's common stock may be subject to
significant fluctuations over a short period of time. These
fluctuations may be due to factors specific to the Company, to
changes in analysts' earnings estimates, or to factors affecting
the computer, software, entertainment, media or electronics
industries or the securities markets in general.
Because of the foregoing factors, as well as other factors
affecting the Company's operating results and financial condition,
past financial performance should not be considered a reliable
indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods.
24
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to pending claims. Management, after review
and consultation with counsel, considers that any liability from
the disposition of such lawsuits in the aggregate would not have a
material adverse effect upon the consolidated financial position or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders, held on August 3,
1995, the stockholders elected the following individuals for
one-year terms to the Board of Directors: M. Richard Asher,
William J. Byron, Daniel H. Case III, Gary M. Kusin, Timothy Mott
and Lawrence F. Probst III. These individuals have received a
plurality of the votes eligible to vote, voting either in person or
by proxy.
In addition, the following matters were voted upon by the
Stockholders:
To approve an amendment to the Company's 1991 Stock Option Plan
(the "1991 Plan") to increase the number of shares of the Company's
common stock reserved for issuance under the 1991 Plan by 1,850,000
shares from a total of 8,050,000 shares to a total of 9,900,000
shares.
Votes
--------------------------------------------------------------------
For Against Abstain
--- ------- -------
30,888,089 14,669,574 167,443
To approve an amendment to the Company's Employee Stock Purchase
Plan (the "Purchase Plan") to increase the number of shares of the
Company's common stock reserved for issuance under the Purchase Plan
by 150,000 shares from a total of 900,000 shares to a total of
1,050,000 shares.
Votes
-------------------------------------------------------------------
For Against Abstain
--- ------- -------
43,660,699 1,906,787 157,996
To ratify the appointment of KPMG Peat Marwick LLP as independent
accountants for the Company for the current fiscal year.
Votes
--------------------------------------------------------------------
For Against Abstain
--- ------- -------
45,690,779 71,514 104,715
25
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The following exhibits are filed as part of this report:
Number Exhibit Title
- ------ -------------
10.01 Commerical Earnest Money Contract between Novell, Inc. and Origin
Systems, Inc. dated April 13, 1995.
10.02 First Amendment to Commercial Earnest Money Contract between
Novell, Inc. and Origin Systems, Inc. dated June 1, 1995.
(b) No reports on Form 8-K were filed by the Registrant during the three
months ended June 30, 1994.
26
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
ELECTRONIC ARTS INC.
(Registrant)
/s/E. STANTON MCKEE
-------------------
DATED: E. STANTON MCKEE
August 7, 1995 Senior Vice President and
Chief Financial and Administrative Officer
(Duly authorized officer)
27
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE PAGE
- ------ ------------- ----
<S> <C> <C>
10.01 Commercial Earnest Money Contract between Novell, Inc.
and Origin Systems Inc. dated April 13, 1995. 29
10.02 First Amendment to Commercial Earnest Money Contract
between Novell, Inc. and Origin Systems, Inc. dated
June 1, 1995 53
27.01 Financial Data Schedule 57
</TABLE>
28
<PAGE>
Exhibit 10.01
COMMERCIAL EARNEST MONEY CONTRACT
THIS CONTRACT OF SALE is made by and between Novell, Inc., a
Delaware corporation, hereafter referred to as "SELLER" and
Origin Systems, Inc., a Texas corporation, hereafter referred
to as "BUYER" upon the terms, provisions and conditions set
forth herein.
1. PURCHASE AND SALE. Subject to all of the terms and
conditions of this contract, Seller agrees to sell and convey
to Buyer and Buyer agrees to buy from Seller the following
property situated in Travis County, Texas, known as
Bridgepoint Plaza, 5918 and 5914 West Courtyard Drive, Austin,
Texas 78730 (address).
2. PROPERTY. Described on attached
EXHIBIT A, together with all and singular the rights and
appurtenances pertaining to the property, including any right,
title, and interest of Seller in and to adjacent streets,
alleys or rights of way. All of such real property, rights,
and appurtenances being hereinafter referred to as the
"PROPERTY", together with any improvements, fixtures, and
personal property situated on, attached to, or used in
connection with, the Property, and owned by Seller, excluding
the personal property to be disclosed in writing to Buyer by
April 21, 1995.
3. CONTRACT SALES PRICE.
A. Cash down payment payable at closing
(including earnest money)............ $18,950,000.00
B. Sum of all notes described in this
contract ..............................$ -0-
C. Other................................. $ -0-
D. Sales Price (Sum of A, B, and C)...... $18,950,000.00
4. EARNEST MONEY.
A. Within two (2) business days after the effective date
of this contract, Buyer shall deposit $250,000.00 as Earnest
Money with Heritage Title Company of Austin, Inc., as Escrow
Agent. Additional Earnest Money, if any, shall be deposited with
the Escrow Agent on or before the earlier of (i) one day after
the date this contract is approved by the Board of Directors of
Electronic Arts Inc. or (ii) May 16, 1995, (the "ADDITIONAL
EARNEST MONEY DEPOSIT DATE") in the amount of $500,000.00.
Earnest Money and Additional Earnest Money is deposited with the
Escrow Agent with the understanding that Escrow Agent (i) does
not assume or have any liability for performance or
nonperformance of any party (ii) has the right to require the
receipt, release and authorization in writing of all parties
before paying the deposit to any party and (iii) is not liable
for interest or other charge on the funds held. If
<PAGE>
any party unreasonably fails to agree in writing to an
appropriate release of Earnest Money or Additional Earnest Money,
then such party shall be liable to the other parties to the
extent provided in Section 15. At closing, Earnest Money and
Additional Earnest Money shall be applied to any cash down
payment required, next to Buyer's closing costs and any excess
refunded to Buyer.
B. [X] Yes [ ] No. The parties herein agree that the
Earnest Money and Additional Earnest Money shall be deposited in
an account at NationsBank, N.A. - Austin, Texas, bearing interest
at the highest obtainable rate and the interest shall be credited
to Buyer.
5. PROPERTY CONDITION/INVESTIGATION.
[ ] A. Buyer accepts the Property in "AS IS" condition.
[X] B. Buyer accepts the Property subject to the Special
Provisions contained in Section 25 and in the
Investigation/Feasibility Study Addendum attached hereto.
6. SURVEY AND TITLE BINDER.
A. Survey
[ ] 1. No survey is required.
[ ] 2. Seller shall furnish to Buyer within ten (10)
days from the effective date of this contract,
Seller's existing survey of the
Property dated ________________, 19____.
[X] 3. Within ten (10) days after the date of this
contract, Seller shall, [X] at Seller's expense [ ] at
Buyer's expense, deliver or cause to be delivered to
Buyer and Title Company a copy of a current-on-the-
ground survey ("SURVEY") of the Property made by a duly
licensed surveyor reasonably acceptable to Buyer and in
a form acceptable to Buyer and the Title Company issuing
the title commitment and Owner's Policy of Title
Insurance required herein. If the
survey exception (except as to shortages in area) is to
be deleted herein, the additional expense for such
deletion shall be paid by Buyer. The Survey shall show
acreage or square feet, access to the property, the
location of all improvements, rights of way, easements,
encroachments, streets, roads, water courses, or fences
on or adjacent to the Property, if any.
2
<PAGE>
[ ] i.) If the price of the Property, pursuant to Section
3, is based upon price per acre, then the Survey shall
reflect the total acreage.
[ ] ii.) If the price of the Property, pursuant to Section
3, is based upon price per square foot, then the
Survey shall reflect the total square footage.
B. Within ten (10) days after the date of this contract,
Seller shall, at Seller's expense, deliver or cause to be
delivered to Buyer:
(1) A title commitment ("TITLE BINDER") covering the
Property on the standard form of commitment prescribed
by the Texas State Board of Insurance in the full
amount of the purchase price;
(2) True, correct, and legible copies of any and all
instruments referred to in the Title Binder as
constituting exceptions or restrictions upon the title
of Seller; and
(3) A U.C.C. lien search on the Seller.
7. APPROVAL PERIOD AND TITLE.
A. Buyer shall have ten (10) days after the receipt of
both the Survey and Title Binder to review same and to deliver in
writing to Seller such objections as Buyer may have to anything
contained therein. Any such item to which Buyer shall not object
shall be deemed to be accepted by Buyer. If there are objections
by Buyer, Seller shall in good faith attempt to satisfy same
within the cure period set out below, but Seller shall not be
required to incur any cost to do so. If title objections are
disclosed, Seller shall have ten (10) days to cure same. If
Seller delivers written notice to Buyer within the cure period
set out above that Seller is unable to satisfy such objections,
or if, for any reason, Seller is unable to convey title in
accordance with Section 7.B. below, Buyer shall within two (2)
days after receipt of such notice either waive such objections
and accept such title as Seller is able to convey or terminate
this contract by written notice to Seller and Earnest Money and
Additional Earnest Money shall be refunded with no Broker's fee
due. Zoning ordinances and a lien for current taxes shall not be
valid objections to title.
B. Seller represents and warrants to Buyer that at the
closing Seller will have and will convey to Buyer good and
indefeasible title by General Warranty Deed subject only to
liens securing debt created, assumed or taken subject to as
part of the consideration, taxes for the current year, and any
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other reservations, easements, discrepancies in boundaries,
encroachments, restrictions or exceptions previously approved
by Buyer in accordance with Section 7.A.
8. NOTICE TO BUYER. At the time of the execution of
this contract, Broker has advised and hereby advises Buyer, by
this writing, that Buyer should be furnished with or obtain a
policy of title insurance or if an abstract covering the
Property is provided in lieu thereof, Buyer should have said
abstract examined by an attorney of Buyer's own selection.
9. CLOSING.
A. The closing of the sale (the "CLOSING DATE")
shall be on or before May 31, 1995, subject to extension as
provided in Section 10 below.
B. At the closing, Seller shall deliver to Buyer:
(i) a General Warranty Deed (with Vendor's Lien retained if
not a cash purchase), in form and with substance reasonably
satisfactory to Buyer and Seller, conveying the Property,
subject only to liens securing debt created, assumed or taken
subject to as part of the consideration, taxes for the current
year, and any other reservations or exceptions previously
approved by Buyer in accordance with Section 7.A.; (ii) an
Owner's Policy of Title Insurance (the "TITLE POLICY") issued
by Heritage Title Company of Austin, Inc. in the full amount
of the Sales Price, dated as of closing, insuring Buyer's fee
simple title to the Property to be good and indefeasible
subject only to those title exceptions permitted herein, or as
may be approved by Buyer in writing, and the standard printed
exceptions contained in the usual form of the Title Policy,
provided, however: (a) the exception as to area and
boundaries shall be in accordance with Section 6.A.3.; (b) the
exception as to restrictive covenants shall be endorsed "NONE
OF RECORD", or, if of record, restrictive covenants shall be
referenced by appropriate recording information; (c) the
exception as to taxes shall be limited to taxes for the
current year and subsequent years, and subsequent assessments
for prior years due to changes in land usage or ownership and
affirmatively endorsed "NOT YET DUE AND PAYABLE"; and (iii)
possession of the property.
C. At the closing, Buyer shall deliver to Seller
(i) the cash portion of the sales price (the Earnest Money
and Additional Earnest Money being applied thereto) (ii) the
assignment and assumption of leases described in Section 25.L.(ii)
of this contract, (iii) the assumption of service, maintenance
and management contracts and agreements, if any, described in
Section 25.L.(v) of this contract, and (iv) the letters to
tenants described in Section 25.L.(vii) of this contract.
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D. Unless otherwise provided
herein, (i) costs for the Survey, the Title Policy, preparing
Deed, tax certificates, brokerage commissions, Seller's
attorney's fees, 1/2 of escrow fee, and all other costs and
expenses incurred by Seller, shall be Seller's expense, and
(ii) expenses incident to new loans(s), Buyer's attorney's
fees, l/2 of escrow fee, and all other costs and expenses
incurred by Buyer shall be Buyer's expense. All other costs
and expenses incurred in connection with this contract shall
be paid by such party as is customary in connection with sales
of real property in Travis County, Texas.
E. Rents and lease
commissions, interest, utility charges, personal property
taxes and ad valorem taxes for the then current year shall be
prorated at the closing effective as of the date of closing.
If for any reason utility charges cannot be accurately
determined at date of closing for proration purposes, Buyer
may postpone proration of utility charges until after closing
and at such time as a statement for utility charge is
received. Charges appearing on such statement shall then be
prorated as of the date of closing, and Seller shall tender in
cash the cost of all utility charges to the date of closing to
Buyer upon demand. Any security or other deposits or prepaid
rents for any period after closing held by Seller shall be
delivered to Buyer. If the closing shall occur before the tax
rate is fixed for the then current year, the apportionment of
the taxes shall be upon the basis of the tax rate for the
preceding year applied to the latest assessed valuation but
any difference in ad valorem taxes for the year of sale
actually paid by Buyer shall be adjusted between the parties
upon receipt of written evidence of the payment thereof. If
Seller has claimed the benefit of laws permitting a special
use valuation for the purposes of payment of ad valorem taxes
on the Property, then Seller represents that it was legally
entitled to claim such benefits. If this sale or Buyer's use
of the property after closing results in the assessment of
additional taxes for prior years, such additional taxes shall
be the obligation of the Seller and such obligation shall
survive closing.
F. If Buyer is to assume an existing loan,
Buyer shall pay any transfer fee as provided in this Section
9. Buyer shall execute, at the option and expense of Seller,
a Deed of Trust to Secure Assumption with a Trustee named by
Seller.
G. If the Property is situated within a utility
district subject to the provisions of Section 50.301, Texas
Water Code, then at or prior to the closing, Seller agrees to
give Buyer the written notice required by said Section and
Buyer agrees to sign and acknowledge the notice to evidence
receipt thereof.
10. ESTOPPEL CERTIFICATES BY TENANTS AND LEASES AND SERVICE
AND WARRANTY CONTRACTS. Seller shall deliver to Buyer an
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"ESTOPPEL CERTIFICATE" signed by each tenant leasing space in
the property according to the Special Provisions contained
herein stating (1) that no default exists under the terms of
the lease agreement by either landlord or tenant (2) the
amount of any rental payments made in advance, if any; (3) the
amount of any security or other deposits made, if any; (4) the
amount of any offsets against rent, if any; and (5) that
tenant has no defenses against the payment of rent accruing
under the terms of its lease agreement and no counterclaims
against landlord under the terms of its lease agreement.
Seller shall, at closing, tender to Buyer the amount of any
security deposits and advance rental payments received. If
any tenant presents a claim for an offset against rent or a
defense against the payment of rent or represents a state of
facts materially different from that set forth in its lease
agreement which is unacceptable to Buyer, Buyer shall so
notify Seller in writing within two (2) days after receipt of
such estoppel certificates. Seller shall promptly undertake
to eliminate or modify such unacceptable provision(s) but
shall not be required to incur any cost to do so. In the
event Seller is unable to do so within two (2) days after
receipt of written notice, (i) then within one (1) day after
the end of such two day cure period, Buyer may waive such
objections in writing, or (ii) if Buyer has not so waived such
objections, then either Seller or Buyer may extend the time up
to ten (10) days. If the time is not so extended, or if the
time is so extended and if Seller does not eliminate or modify
such unacceptable provision(s) within such extended time
period, this contract shall automatically terminate and
Earnest Money and Additional Earnest Money shall be refunded
with no Broker's fee due.
Seller shall deliver to Buyer copies of all existing leases
and service and/or warranty contracts applicable to the
premises within five (5) days after the date of this contract.
Buyer shall have through May 1, 1995, to disapprove of same
in writing to Seller, and Buyer may terminate this agreement
and Earnest Money and Additional Earnest Money shall be
refunded with no Broker's fee due. At closing the cost of any
service and/or warranty contracts assumed by Buyer shall be
prorated.
11. BROKER'S FEES:
[ ] A. Listing
-----------------------------------------
Broker ( %) and
----------- ------------------------
Co-Broker ( %) As Real Estate Broker
------------
(the Broker) has negotiated this sale
and Seller agrees to pay Broker in
----------------
County, Texas, on consummation of this sale a total
cash fee of $ or % of
--------------- -------------
the total Sales Price or as per separate written
agreement, which Escrow Agent shall pay from the
sale proceeds.
[X] B. Seller agrees to pay Listing Broker the fee
specified by separate agreement between Listing
Broker and Seller. Escrow Agent is
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authorized and directed to pay Listing Broker
said fee from the sale proceeds.
12. CASUALTY LOSS. If, prior to Closing, any part of the
Property is substantially damaged or destroyed by fire or
other casualty loss, Seller may at Seller's option, restore
the same to its previous condition as soon as reasonably
possible, but in any event by Closing Date; and if Seller
fails to do so, this contract shall terminate and Earnest
Money and Additional Earnest Money shall be refunded with no
Broker's fee due.
13. DEFAULT. If Buyer fails to comply
herewith, Seller may terminate this contract and (i) through
the day preceding the Additional Earnest Money Deposit Date,
receive $25,000.00 of the Earnest Money as liquidated damages
to compensate Seller for certain expenses incurred by Seller
in connection herewith and for the loss of rental income from
the date hereof to May 16, 1995, and (ii) beginning on the
Additional Earnest Money Deposit Date, and continuing
thereafter, receive the Earnest Money and Additional Earnest
Money as liquidated damages. If Seller is unable without fault
to deliver Title Policy, Buyer may either terminate this
contract and receive the Earnest Money and Additional Earnest
Money as the sole remedy, and no Broker's fee shall be earned,
or extend the time up to 10 days. If Buyer extends the time,
and if Seller is unable without fault to deliver Title Policy
within such extended time period, this contract shall
automatically terminate, Buyer shall receive the Earnest Money
and Additional Earnest Money as the sole remedy, and no
Broker's fee shall be earned. If Seller fails to comply
herewith for any other reason, Buyer may (i) terminate this
contract and receive the Earnest Money and Additional Earnest
Money, thereby releasing the parties from this contract, or
(ii) enforce specific performance hereof. Nothing contained
herein shall limit Buyer's rights or remedies for any breach
by Seller under any of the documents delivered by Seller at
closing as provided in Section 9.B. and Section 25.L.
14. CONDEMNATION. If any part of the Property is condemned
prior to Closing Date, Seller shall promptly give Buyer
written notice of such condemnation and Buyer shall have the
option of either applying the proceeds on a pro rata basis of
any condemnation award to reduce the Sales Price provided
herein or declare this contract terminated by delivering
written notice of termination to Seller and Earnest Money and
Additional Earnest Money shall be refunded to Buyer with no
Broker's fee due.
15. ATTORNEY'S FEES. Any signatory to this
contract who is the prevailing party in any legal proceeding
against any other signatory brought under or with relation to
this contract or transaction shall be additionally entitled to
recover court costs and reasonable attorney fees, and all
other litigation expenses, including deposition costs, travel,
and expert witness fees, from the non-prevailing party.
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16. REPRESENTATIONS. In addition to other representations
made herein, Seller represents that there will be no Title I
liens, unrecorded liens or Uniform Commercial Code liens
except those specified in Section 25 against any of the
Property on Closing Date, that loan(s) will be without
default, and reserve deposits will not be deficient. If any
representation above is untrue this contract may be terminated
by Buyer and the Earnest Money and Additional Earnest Money
shall be refunded without delay. These Section 16.
representations shall survive closing.
17. NOTICES. Any notice or communication
required or permitted hereunder shall be deemed to be
delivered, whether actually received or not, when deposited in
the United States mail, postage fully prepaid, registered or
certified mail, and addressed to the intended recipient at the
address on the signature page of this contract. Any address
for notice may be changed by written notice delivered as
provided herein.
18. INTEGRATION. This contract contains the
complete agreement between the parties and cannot be varied
except by the written agreement of the parties. The parties
agree that there are no oral agreements, understandings,
representations or warranties which are not expressly set
forth herein.
19. BINDING EFFECT. This contract shall be
binding upon and inure to the benefit of the parties hereto
and their respective heirs, executors, representatives,
successors and assigns where permitted by this contract. The
effective date of this contract shall be the date upon which
the last party signs.
20. TERMINATION OF OFFER. Unless
accepted by Seller, as evidenced by Seller's signature hereto
and delivered to Buyer by 5:00 p.m., the 13th day of April,
1995, this offer to purchase shall be null and void and all
parties hereto shall stand relieved and released of any and
all liability or obligations hereunder and all Earnest Money
and Additional Earnest Money shall be returned to Buyer.
21. ASSIGNMENT.
[ ] A. Buyer may not assign this contract.
[X] B. Buyer may assign this contract and all rights hereunder
to its parent company, Electronic Arts Inc., or to a
wholly owned subsidiary of Buyer or of Electronic Arts
Inc., or to the founders of Buyer, and shall be relieved
of any future liability under this contract provided the
assignee shall assume in writing all the obligations of
Buyer hereunder; otherwise Buyer may not assign this
contract.
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22. TEXAS LAW TO APPLY. This agreement shall be construed
under and in accordance with the laws of the State of Texas,
and all obligations of the parties created hereunder are
performable in Travis County, Texas.
23. LEGAL CONSTRUCTION. In case any one or more of the
provisions contained in this contract shall for any reason be
held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or unenforceability shall not
affect any other provision hereof and this contract shall be
construed as if such invalid, illegal, or unenforceable
provision had never been contained herein.
24. TIME. Time is of the essence.
25. SPECIAL PROVISIONS. (This section to include
additional factual data relevant to the sale which may include
addendums.)
A. Notwithstanding anything to the contrary herein, if any
deadline specified in this contract falls on a Saturday,
Sunday or public holiday on which commercial banks in Austin,
Texas are permitted or required by law to be closed, such
deadline shall be extended to the next day which is not a
Saturday, Sunday or public holiday.
B. The "EFFECTIVE DATE OF THIS CONTRACT" and the "DATE OF
THIS CONTRACT" shall both mean and refer to the earliest date
on which this contract has been executed by both Seller and
Buyer.
C. Seller shall deliver the estoppel certificates described
in Section 10. above to Buyer no later than seven (7) days
prior to the Closing Date.
D. There are two buildings located on the real property
(collectively the "BUILDINGS" and respectively "BUILDING I"
and "BUILDING II". No later than the Closing Date there shall
be no less than 58,000 square feet (under (i) of the next
sentence) or 60,000 square feet (under (ii) of the next
sentence) of vacant tenant space in the Buildings (the
"CLOSING VACANT SPACE"). The Closing Vacant Space may be in
(i) any configuration in and on, any one, or any combination
of more than one, of the first, third and fourth floors of
Building I or (ii) any configuration of not less than 7,000
contiguous square feet per floor in and on, any one, or any
combination of more than one, of the following floors and
Buildings: the first, third and fourth floors of Building I
and the first and third floors of Building II. No later than
the Closing Date there shall be one or more written agreements
(the "POST-CLOSING AGREEMENTS") in effect between the Seller
and one or more tenants of one or more of the Buildings
providing that by December 31, 1995, there shall be no
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<PAGE>
less than 16,000 additional square feet of vacant tenant space
in the Buildings (the "POST-CLOSING VACANT SPACE"). The
Post-closing Vacant Space must be all on one floor of either
Building I or Building II.
To secure the Post-closing Agreements and the Closing
Vacant Space Seller shall pay a maximum of $150,000.00
(inclusive of any pre-closing rent abatement or other offsets
under the Leases), and Buyer shall pay a maximum of
$250,000.00 (inclusive of any post-closing rent abatement and
other offsets under the Leases). The form and substance of
each Post-closing Agreement and the terms of any agreements to
obtain the Closing Vacant Space (the "PRE-CLOSING AGREEMENTS")
shall be reasonably acceptable to Seller and Buyer, and the
amount of any pre-closing rent abatement and other offsets
under the Leases to secure the Pre-closing Agreements and the
Post-closing Agreements shall be reasonably acceptable to
Seller and Buyer. Other than the payment by Buyer of the
amount set out in the preceding sentence, and Buyer's
reasonable acceptance of the form and substance of each
Post-closing Agreement and the terms of each Pre-closing
Agreement and the amount of any pre-closing rent abatement and
other offsets under the Leases to secure the Pre-closing
Agreements and the Post-closing Agreements, the Pre-closing
Agreements and the Post-closing Agreements shall be secured
through Seller's efforts and Buyer shall not participate in
such. Buyer may withhold its consent to any Pre-closing
Agreement or Post-closing Agreement if Seller proposes to
include as part of its $150,000 obligation described above any
claims against a tenant that are of questionable
enforceability in the reasonable opinion of Buyer.
At closing (i) Seller shall pay to Buyer the lesser of (a)
$150,000.00 LESS the amount of all pre-closing rent abatement
and other offsets under the Leases given to tenants to secure
the Pre-closing Agreements and the Post-closing Agreements, or
(b) 1/2 of all amounts specified to be paid to tenants under
the Pre-closing Agreements and the Post-closing Agreements,
PLUS 1/2 of all rent abatement and other offsets under the
Leases given, or to be given, to tenants to secure the
Pre-closing Agreements and the Post-closing Agreements (ii)
Buyer shall assume in writing all of Seller's obligations
under all Pre-closing Agreements and Post-closing Agreements
and shall agree to indemnify Seller for and hold Seller
harmless from and against any and all loss, costs, expenses or
liabilities suffered by Seller and arising from or directly
relating to Buyer's default under any Pre-closing Agreement or
Post-closing Agreement, and (iii) all payments due to tenants
as of the Closing Date under the Pre-closing Agreements and
the Post-closing Agreements shall be paid by Buyer to the
appropriate tenants.
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If Seller is unable to secure the Closing Vacant Space and
the Post-closing Agreements by the Closing Date for the
maximum $400,000.00 to be paid by Seller and Buyer under the
terms of this Section 25.D., then this contract shall
automatically terminate, the Earnest Money and the Additional
Earnest Money shall be returned to Buyer, and no Broker's fee
shall be earned. Seller shall use reasonable efforts to
obtain the Closing Vacant Space and the Post-closing
Agreements as inexpensively as possible.
If Seller enters into any Pre-closing Agreements or
Post-closing Agreements which are binding upon Seller prior to
the Closing Date, Buyer shall have no liability therefor or
thereunder until and unless Buyer assumes in writing all of
Seller's obligations thereunder at closing as set out above in
this Section 25.D.
Seller shall notify Buyer on or before May 1, 1995 as to
whether in Seller's reasonable opinion Seller expects to be
able to obtain the Closing Vacant Space and the Post-closing
Agreements.
E. Unless Buyer terminates this contract by May 1, 1995 as
provided in the Investigation/Feasibility Study Addendum
attached hereto, Buyer shall use Buyer's best efforts to
secure the approval of this contract by the Board of Directors
of Electronic Arts Inc. on or before May 15, 1995. If Buyer
is unable to secure such approval on or before May 15, 1995,
this contract shall automatically terminate, Seller shall
receive $25,000.00 of the Earnest Money as the sole remedy to
compensate Seller for certain expenses incurred by Seller in
connection herewith and for the loss of rental income from the
date hereof to May 16, 1995, the remaining $225,000.00 of the
Earnest Money shall be returned to Buyer, and no Broker's fee
shall be earned. Buyer's failure to secure such approval on
or before May 15, 1995 shall not be deemed to be a default of
Buyer hereunder; provided however such $25,000.00 of the
Earnest Money shall be payable to Seller as provided in the
preceding sentence to compensate Seller for certain expenses
incurred by Seller in connection herewith and for the loss of
rental income from the date hereof to May 16, 1995,
F. Notwithstanding anything in this contract to the
contrary, One Hundred Dollars ($100.00) of the Earnest Money
shall be deemed earned by Seller and shall be non-refundable
to Buyer in all events, which amount the parties acknowledge
and agree has been bargained for and agreed to as
consideration for Seller's execution and delivery of this
contract.
G. The terms of this contract shall be kept confidential by
the parties hereto and shall not be disclosed to any third
parties without the prior written
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consent of both Seller and Buyer, other than to those persons who
have a legitimate reason to know such information in order to
facilitate this sale and purchase and as otherwise required by
law and to those persons entitled to brokerage commissions in
connection with this sale and purchase; provided however, that
after the closing, if any, the names of Buyer and Seller may be
disclosed without the prior written consent of any party.
H. Copies of any notices under this contract sent to Seller
shall also be sent by hand delivery or telecopy to:
Kay L. Taylor
Clark, Thomas and Winters
700 Lavaca, 12th Floor
Texas Commerce Bank Building
Austin, Texas 78701
TELEFAX: 474-1129
and copies of any notices under this contract sent to Buyer
shall also be sent by hand delivery or telecopy to:
Rick Reed
Haynes and Boone, L.L.P.
1600 One American Center
600 Congress Avenue
Austin, Texas 78701
TELEFAX: 867-8470
I. Seller represents and warrants to Buyer that, on the date
hereof and on the date of closing, to the best of Seller's
actual knowledge, except as previously disclosed in writing to
Buyer or as disclosed in writing to Buyer prior to April 24,
1995:
(a) Notwithstanding any limitation as to knowledge herein,
Seller has good and indefeasible title to the Property,
subject only to the exceptions allowed hereunder.
(b) Seller
has not received any notice of any condemnation proceedings
having been instituted against the Property or any portion
thereof.
(c) Seller has received no notice of, nor has Seller
any actual knowledge of, any violations of any federal, state,
county or municipal laws, ordinances, orders, regulations or
requirements ("LEGAL
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REQUIREMENTS") affecting the Property or
any portion thereof that do or would affect the title to the
Property or the alienability thereof, or that do or would
constitute or result in an encumbrance to the Property or that
would constitute or result in a liability to the Property or
the owner thereof from and after the closing.
(d) There is no action, suit or proceeding pending or
threatened against or affecting the Property or any portion
thereof or relating to or arising out of the ownership or
use of the Property or any portion thereof in any court or
before or by any federal, state, county or municipal
department, commission, board, bureau, agency or other
governmental instrumentality.
(e) There are no adverse or other parties in possession
of the Property, except for tenants under the leases described
in Section 10 ("LEASES") and any lessees or parties under
contract providing services to the Property, whose leases
(other than the Leases) and contracts will be terminated by
Seller prior to closing or assumed by Buyer at the closing.
(f) At closing, there will be no unpaid bills or claims in
connection with any work on the Property, except as to trade
creditors supplying goods or services to the Property who will
be paid by Seller not later than thirty (30) days after
receipt of invoice for payment for services or goods supplied
prior to and through the date of closing.
(g) Neither the entering into of this contract nor the
consummation of the transaction contemplated hereby will
constitute a violation or breach by Seller of any contract or
other instrument to which Seller is a party, or to which it is
subject or by which any of its assets or properties may be
affected, or of any judgment, order, writ, injunction or
decree issued against or imposed upon it, or will result in a
violation of any applicable law, order, rule or regulation of
any governmental authority affecting Seller.
(h) Seller shall take no action
or fail to take any action between the date of execution
hereof and the closing which would or could result in any
lien, encumbrance or other exception to Seller's title arising
or attaching to the Property, other than the exceptions
allowed hereunder, and except as to any lien, encumbrance or
other exception to be satisfied or discharged by Seller at or
prior to Closing.
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(i) Notwithstanding any limitation as to knowledge
herein, Seller is not a foreign person within the meaning of
Sections 1445 and 7701 of the Internal Revenue Code of 1986
(and any regulation promulgated thereunder).
(j) Notwithstanding any limitation as to knowledge herein,
Seller has the full right, power and authority to sell and
convey the Property as provided in this contract and to carry
out Seller's obligations hereunder, and all requisite action
necessary to authorize Seller to enter into this contract and
to carry out Seller's obligations hereunder has been, or by
the closing will have been, taken.
(k) All items delivered by Seller or its agents to Buyer
pursuant to this contract shall be true, correct, accurate and
complete in all material respects and fairly present the
information set forth in a manner that is not misleading.
(l) In accordance with the terms of this contract, Seller
shall deliver to Buyer true, correct, accurate and complete
copies of all Leases, leasing agreements and leasing
commission agreements and all amendments thereto and all
guarantees of any such Leases and a true, correct, accurate
and complete rent roll for the Property. In addition, Seller
shall deliver to Buyer by May 10, 1995, an updated rent roll
for the Property as of a date which is no earlier than May 1,
1995.
(m) Except as reflected in the Leases and in the rent roll,
excluding agreements in connection with Closing Vacant Space
or Post-closing Vacant Space, with respect to each Lease: (i)
there are no other promises, amendments, agreements or
commitments between the tenant and Seller or any predecessor
landlord; (ii) each Lease is in full force and effect; (iii)
there are no uncured breaches or defaults under any Lease, and
no offset, defense, abatement or claim is presently available
to, or has been asserted by, any tenant under any Lease; (iv)
tenant has not prepaid any rent other than rent due for the
current month except as shown in the Leases and rent roll; (v)
except as expressly provided in the Leases or the rent roll,
no tenant is entitled to any rent concession, rent-free
occupancy or reduction or abatement of rent in connection with
such tenant's occupancy pursuant to its Lease, (vi) the tenant
under each Lease has accepted possession of all space leased
to it thereunder except as expressly set forth in its Lease
with respect to expansion space; (vii) all tenant finish work
that Seller is obligated to perform on or before the Closing
Date for a tenant will be performed prior to the Closing Date
at Seller's cost; (viii) all commissions due or to come due
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with respect to Leases or any leasing commission agreements,
or for any renewal, substitution, extension or expansion
thereunder shall be paid, or otherwise satisfied by Seller, at
or prior to the Closing Date.
(n) There are no service, maintenance, management or other
similar agreements that are not cancelable on thirty (30)
days' or less notice without payment of any cancellation
consideration. Copies of such agreements delivered to Buyer
hereunder shall be true, correct, accurate and complete when
delivered and there is no material, uncured breach or default
by Seller nor breach or default by the other party under such
agreements.
(o) None of the properties to be conveyed hereunder are leased
from or owned by third parties.
(p) Seller has not engaged in any Environmental Activity and
no Environmental Activity has otherwise occurred in connection
with or otherwise relating to the Property either prior to or
after the date Seller obtained title to or any interest in the
Property; Seller has no actual knowledge of any existing
liability, absolute or contingent, in connection with any
Environmental Requirements relating to the Property; no
written notice, order, directive, complaint or other
communication has been made or issued by any Governmental
Agency or other person alleging the occurrence of any
Environmental Activity or any violation of any Environmental
Requirements with respect to the Property; and no
investigations, inquiries, orders, hearings, actions or other
proceedings by or before any federal, state, county or local
government, or any agency, department, bureau or
instrumentality of any of them (each referred to herein as a
"GOVERNMENTAL AGENCY") are presently pending or threatened in
connection with the Property. (For purposes hereof, the term
"Environmental Activity" means any actual, proposed or
threatened release, emission, discharge, generation, storage,
holding, processing, existence, abatement, removal,
disposition, handling or transportation of any asbestos,
explosives, radioactive materials, hazardous or toxic
materials, hazardous or toxic substances, hazardous or toxic
waste, pollutants or other such hazardous and/or toxic
materials and substances (collectively, "HAZARDOUS MATERIALS")
designated or otherwise identified as such in, or regulated
under, any Environmental Requirements; and the term
"ENVIRONMENTAL REQUIREMENTS" means all federal, state, county,
municipal and local laws, ordinances, rules, regulations,
policies, judicial orders, decrees, restrictions and
requirements relating to the environment or to any Hazardous
Materials or Environmental Activity).
15
<PAGE>
(q) The Property and the improvements located on the
Property, including, but not limited to, the foundation, roof,
walls, superstructure, plumbing, air-conditioning and heating
equipment, electrical wiring, boilers, hot water heaters,
parking structures and surfaces are structurally sound, in
good working order, and in a state of good repair.
The representations and warranties contained in this Section
25.I shall survive the Closing and continue in full force and
effect for two years from the date of closing, except that the
representation and warranty contained in Section 25.I(a) shall
only be limited in duration by any applicable law, and shall
not be merged in the deed to be delivered at Closing.
J. Seller covenants and agrees with Buyer that from the date
of this contract until the Closing Date or earlier termination
of this contract, Seller shall:
(a) use reasonable efforts to comply with all Legal
Requirements affecting the Property, but shall not be required
to incur any cost to do so with respect to compliance with the
Americans with Disabilities Act ("ADA") (except as provided by
Section 25.R hereof) or any Legal Requirements enacted after
the date of this contract, and shall not be required to incur
any cost in excess of $5,000 to do so in any other
circumstance unless otherwise expressly provided in this
contract.
(b) not enter into any written or oral service contract or
other agreement with respect to the Property that will not be
fully performed by Seller on or before the Closing Date or
that will be binding on Buyer after the Closing Date.
(c) advise Buyer promptly in writing of any (i) litigation,
arbitration or administrative hearing before any Governmental
Authority concerning or affecting the Property which is
instituted or threatened after the date of this contract and
(ii) adverse change in the physical condition of the Property
or any portion thereof, or in any of the Leases, contracts or
agreements pertaining to the Property of which Seller has
actual knowledge.
(d) not take, or omit to take, any action that would result
in a violation of any of the representations, warranties,
covenants and agreements of Seller contained in this contract.
16
<PAGE>
(e) not sell, assign, lease or convey any right, title or
interest whatsoever in or to the Property, or any portion
thereof, or any space in any of the improvements located
thereon, or create or permit to exist any lien, encumbrance or
charge thereon, that will not be satisfied or terminated
without liability to Buyer or the Property at Closing.
(f) not remove, demolish or otherwise adversely impair the
improvements on the Property in any manner.
(g) advise Buyer promptly in writing if any of the
improvements on the Property are damaged or destroyed by fire
or other casualty or if any condemnation or eminent domain
proceedings are threatened or initiated affecting the Property.
(h) not commence, authorize, approve, consent to,
voluntarily permit or otherwise voluntarily take part in any
actual or proposed rezoning, platting or replatting,
condemnation, or dedication or grant any easements with regard
to the Property or any portion thereof on or after the
effective date of this contract.
(i) maintain and operate the Property in its present
condition and not defer any regularly scheduled or necessary
maintenance. Seller, at its sole cost and expense, shall
replace the cooling tower with comparable or better equipment.
Seller shall use Seller's best efforts to so replace the
cooling tower on or before the Closing Date, but in any case
shall do so as soon after the Closing Date as reasonably
possible.
In the event that Seller breaches any one or more of the
covenants contained in this Section 25.J. or any one or more
of the representations or warranties contained in Section
25.I. above, then Buyer shall be entitled at its option to
either (a) terminate this contract, whereupon all Earnest
Money and Additional Earnest Money shall be returned to Buyer;
or (b) waive such breach, or disregard such occurrence, and
proceed to closing.
K. The survey described in Section 6 shall otherwise comply
with the requirements of a Category 1-A, Urban, Condition II
survey in accordance with the most current edition of the
Manual of Practice for Land Surveying in Texas as adopted by
the Texas Society of Professional Surveyors. The surveyor's
certificate shall be in form and with substance acceptable to
Buyer and the title company and shall, among other things, at
closing be amended to be addressed to Buyer and the title
company, and certify that the survey complies with the
requirements of a Category 1-A, Urban, Condition II survey as
provided above.
17
<PAGE>
L. At the Closing, Seller shall also deliver to Buyer:
(i) A Blanket Conveyance, Bill of Sale and Assignment with
general warranties of title (except such conveyance shall be
with special warranties of title as to any personal property
acquired by Seller in connection with Seller's acquisition of
the Property for which it did not receive a general warranty
of title from Seller's grantor) in form and with substance
reasonably satisfactory to Buyer and Seller and transferring
all personal property, including, without limitation, all
equipment, furniture, furnishings, any contracts and
agreements that Buyer desires to assume, if any, and all
guarantees, warranties, licenses, permits, and trade names
pertaining to the Property. If Buyer assumes any contracts or
agreements, Buyer shall execute, and deliver to Seller at
closing, a written assumption of such, reasonably satisfactory
in form and content to Seller and Buyer.
(ii) An Assignment and Assumption of Leases with general
warranties of title in form and with substance reasonably
satisfactory to Buyer and Seller, assigning all of Seller's
landlord's interest in the Leases, such being assumed in
writing therein by Buyer.
(iii) An Affidavit or Certificate in form and with
substance reasonably satisfactory to Buyer and Seller in
compliance with Section 1445 of the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder,
stating under penalty of perjury Seller's United States
identification number and that Seller is not a "FOREIGN
PERSON" as that term is defined in Section 1445.
(iv) Keys to all locks, card keys to all card access
control devices and combinations to all combination locks
located on the Property, which keys, card keys, and
combinations shall be properly identified.
(v) Originals, or copies if the originals are not in
Seller's possession, of all Leases, guaranties, warranties,
service, maintenance and management contracts and agreements
(to the extent assumed by Buyer), licenses, permits and plans.
(vi) All deposits and prepaid rents.
(vii) Letters (in form and with content reasonably approved
by Buyer and Seller), executed by both Seller and Buyer, to
tenants informing them of the sale, that rents are to be paid
to Buyer, and that
18
<PAGE>
tenant security deposits, if any, have been transferred
to Buyer and that Buyer has assumed all liability for such
tenant security deposits.
(viii) Such other items as are reasonably required by Buyer
or the title company to effect the transfers and transactions
contemplated in this contract.
M. The estoppel certificates to be signed by each tenant as
provided in Section 10 of this contract shall also provide (i)
that the Lease is in full force and effect; (ii) the monthly
rental agreed to be paid by the tenant; (iii) the number of
months remaining on the term of the Lease; (iv) that attached
as an Exhibit is a copy of the executed Lease including all
amendments thereto; (v) that Seller has no obligations to
tenant or agreements with tenant except as set forth in
writing in the attached Lease or in connection with Closing
Vacant Space or Post-closing Vacant Space; and (vi) that the
premises described in the Lease have been completed and have
been accepted by tenant as being in conformity with the Lease.
N. The Property to be conveyed shall also include the right
to use the name "BRIDGEPOINT PLAZA" and any tradename rights
or copyrights in connection therewith.
O. In addition to the acts and deed recited in this contract
and contemplated to be performed, executed and/or delivered by
Seller or Buyer, Seller and Buyer agree to perform, execute
and/or deliver or to cause to be performed, executed and/or
delivered at the closing or after the closing any and all
further acts, deeds and assurances as are reasonably necessary
to consummate the transactions contemplated hereby.
P. This contract may be executed in any number of
counterparts, all of which taken together shall constitute one
and the same agreement, and all of the parties to this
contract may execute this contract by signing any other
counterparts.
Q. Seller shall pay any leasing commission to the leasing
agent on the lease for the first floor of Building I currently
being negotiated between Seller and Buyer if the lease
transaction is not consummated because of the closing of this
sale and purchase and if the lease transaction is consummated
but this sale and purchase is not consummated.
R. At closing, Seller shall escrow $20,000 with Escrow Agent
for up to six months from the date of closing to provide funds to
cause one floor in Building I that is secured as Closing Vacant
Space to be brought into
19
<PAGE>
compliance with the ADA in accordance with Seller's and Buyer's
respective consultants' recommendations as agreed by Seller and
Buyer by May 1, 1995. The terms of the escrow shall be governed
by an escrow agreement, the form and content of which shall be
reasonably acceptable to Seller and Buyer and shall be approved
by the parties by May 1, 1995.
At closing, Seller shall escrow $1,000 with the Escrow
Agent for up to six months from the date of closing to provide
funds for any repair required due to rain penetration into the
fifth floor of Building I. The terms of the escrow shall be
governed by an escrow agreement, the form and content of which
shall be reasonably acceptable to Seller and Buyer and shall be
approved by the parties by May 1, 1995.
26. CONSULT YOUR ATTORNEY. This is intended to be a legally
binding contract. This contract constitutes the entire
agreement between the parties and their real estate agents,
their being no oral agreements, representations, conditions,
or warranties, express or implied, in addition to this
contract.
27. PRINCIPAL DISCLOSURE.
[ ] The Buyer of this property is a licensed real estate
agent and is acting as a principal in this transaction.
[ ] The Seller of this property is a licensed real estate
agent and is acting as a principal in this transaction.
EXECUTED by Seller on this the 13th day of April, 1995.
BROKERS: SELLER:
SEE SEPARATE AGREEMENT BETWEEN NOVELL, INC.
LISTING BROKER AND SELLER
By: /s/ DAVID R. BRADFORD
-----------------------
Name: DAVID R. BRADFORD
---------------------
Title: SENIOR VICE PRESIDENT
----------------------
Address: 122 East 1700 South
Provo, Utah 85018
Attn: Ronald K. Tolboe
20
<PAGE>
TELEPHONE: (801) 228-8613
TELEFAX: (801) 228-8676
EXECUTED by Buyer on this the 12th day of April, 1995.
BUYER:
ORIGIN SYSTEMS, INC.
By: /s/ MICHAEL S. GRAJEDA
---------------------------
Name: MICHAEL S. GRAJEDA
-------------------------
Title: VICE PRESIDENT,
CHIEF OPERATING OFFICER
------------------------
ADDRESS: 12940 Research Blvd.
Austin, Texas 78750
Attn: Mike Grajeda
TELEPHONE: (512) 335-5200 ext 517
TELEFAX: (512) 335-9622
21
<PAGE>
RECEIPT
RECEIPT OF $_________ EARNEST MONEY IS ACKNOWLEDGED IN THE
FORM OF _____________________________________________________
____________________________________________________________ .
ESCROW AGENT:
HERITAGE TITLE COMPANY OF AUSTIN, INC.
By: ____________________________
Name: __________________________
Title: _________________________
22
<PAGE>
INVESTIGATION/FEASIBILITY STUDY ADDENDUM
INVESTIGATION/FEASIBILITY STUDY. Buyer is granted the right
to conduct, at Buyer's sole expense, an investigation and/or
feasibility study of the Property as follows:
[ ] market or economic feasibility study
[X] engineering study
[X] inspection of zoning, subdividing, or other use
restrictions affecting the Property
[ ] availability of utilities, including electricity, gas,
water and wastewater treatment
[ ] inspection of soil and subsoil condition
[X] other: structural, MEP, civil, architectural, elevator,
roof/waterproofing, ADA, cabling systems, "AS BUILT" document
review, sq. ft. calculation of improvement size, service
contracts, operating statements (including utilities and
taxes), Certificate of Occupancy, personal property inventory,
environmental, appraisal.
Buyer shall have through May 1, 1995, to perform such
investigation and/or study. Buyer or Buyer's agents shall have
the right of access to the Property during such period for the
purpose of conducting such investigation and/or study, and shall
have the right to conduct tests and obtain core samples. Seller
agrees to cooperate with Buyer in connection with the
investigation and/or study, agrees to furnish Buyer with copies
of any and all documents within Seller's possession relating to
the Property that might be necessary to complete such
investigation and/or study within five (5) days after receipt of
written request for such by Buyer, and agrees to execute any and
all documents that might be required in order to obtain any
necessary governmental information with respect to the
above-described matters. If Buyer determines, in Buyer's sole
judgment and discretion, that the Property is not suitable for
Buyer's intended use, Buyer shall give Seller written notice of
such fact on or before the end of the period stated above with a
copy to Escrow Agent. Upon receipt of such written notice, the
Escrow Agent shall refund the Earnest Money and Additional
Earnest Money to Buyer, and both parties shall be released from
all further obligations under this contract. If Buyer does not
send such written notice to Seller, then it shall be presumed
that the Property is suitable for Buyer's intended use, and the
contract may not be terminated by Buyer for the reasons set forth
in this Section. In the event this contract does not close,
through no fault of Seller, Buyer
<PAGE>
shall restore the Property to its original
condition, if changed due to the investigation and/or study
performed by Buyer.
BUYER: SELLER:
ORIGIN SYSTEMS, INC. NOVELL, INC.
By: /s/ MICHAEL S. GRAJEDA By: /s/ MICHAEL S. GRAJEDA
---------------------- ----------------------
Name: MICHAEL S. GRAJEDA Name: DAVID R. BRADFORD
------------------ -----------------
Title: VICE PRESIDENT, Title: SENIOR VICE PRESIDENT
CHIEF OPERATING OFFICER ---------------------
-----------------------
Date: 4/12/95 Date: 4/13/95
------- -------
<PAGE>
EXHIBIT A
Lot 1, Hidden Valley Phase A, a subdivision in Travis County,
Texas, according to the map or plat thereof recorded at Volume
84, Pages 117D-118A, Plat Records of Travis County, Texas.
<PAGE>
Exhibit 10.02
FIRST AMENDMENT TO COMMERCIAL EARNEST MONEY CONTRACT
This First Amendment to Commercial Earnest Money Contract
(the "Amendment") is an amendment to the Commercial Earnest Money
Contract (the "Contract") between Novell, Inc., a Delaware
corporation (the "Seller") and Origin Systems, Inc., a Texas
corporation (the "Buyer"), effective April 13, 1995, executed by
Buyer and Seller, providing for the purchase and sale of the
following described property:
Lot 1, Hidden Valley Phase A, a subdivision in Travis
County, Texas, according to the map or plat thereof
recorded at Volume 84, Pages 117D-118A, Plat Records of
Travis County, Texas (the "Property"),
as more particularly described in the Contract. All capitalized
terms used in this Amendment shall have the same meaning and
definition as those used in the Contract.
Seller and Buyer desire to amend the Contract.
THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Seller and Buyer
agree as follows:
1. The Investigation/Feasibility Study Addendum is amended
to provide that Buyer shall have through May 3, 1995, to perform
such investigation and/or study.
2. Subsection 25.D. of the Contract is amended to provide that
(a) Seller shall pay a maximum of $416,154.16 (inclusive of any
pre-closing rent abatement or other offsets under the Leases),
and Buyer shall pay a maximum of $250,000.00 (inclusive of any
post-closing rent abatement and other offsets under the Leases),
to secure the Post-closing Agreements and the Closing Vacant
Space, (b) Buyer may withhold its consent to any Pre-closing
Agreement or Post-Closing Agreement if Seller proposes to include
as part of its said $416,154.16 obligation, any claims against a
tenant that are of questionable enforceability in the reasonable
opinion of Buyer, (c) at closing Seller shall pay to Buyer the
lesser of (1) $200,664.99 or (2) the remainder of (i) all amounts
specified to be paid to tenants under the Pre-closing Agreements
and the Post-closing Agreements, (ii) PLUS all post-closing rent
abatement to be given to tenants under the Leases to secure the
Pre-closing Agreements and the Post-closing Agreements, (iii)
LESS $250,000.00, (iv) LESS all amounts paid to tenants prior to
closing or at closing under the Pre-closing Agreements and the
Post-closing Agreements, (d) notwithstanding clause (iii) of the
third grammatical paragraph of Subsection 25.D to the contrary,
Seller shall pay on the Closing Date to Fellers & Company the
amount of $125,000.00 pursuant to the terms of the Post-closing
Agreement between Fellers & Company and Seller, and (e) if Seller
is unable to secure the Closing Vacant Space and the Post-closing
Agreements
1
<PAGE>
by the Closing Date for the maximum $666,154.16 to be paid by
Seller and Buyer under the terms of Section 25.D., then the
Contract shall automatically terminate, the Earnest Money and the
Additional Earnest Money shall be returned to Buyer, and no
Broker's fee shall be earned.
3. Subsection 25.E. of the Contract is amended to provide
that (a) the reference in such Subsection to May 1, 1995 is
amended to May 3, 1995, and (b) each reference in such Subsection
to May 15, 1995 is amended to May 22, 1995.
4. Subsections 25.E. and 4.A. of the Contract and Section
13 of the Contract, are each amended to provide that each
reference in such Subsections and such Section to May 16, 1995 is
amended to May 23, 1995.
5. Subsection 25.I.(m)(viii) of the Contract is amended to
provide that commissions due and payable on or before the Closing
Date with respect to Leases or any leasing commission agreements,
or any renewal, substitution, extension or expansion under either
thereof, shall be paid, or otherwise satisfied, by Seller, at or
prior to the Closing Date.
6. Subsection 25.R. of the Contract is amended to read as
follows:
25.R. At closing, Seller shall escrow $20,000.00 with
Escrow Agent for up to six months from the date of closing
to provide funds to cause certain floors of Building I to
be brought into compliance with the ADA in accordance with the
recommendations of Eckland Consultants, Inc., contained in a
Property Condition Report dated April 28, 1995. The terms
of the escrow shall be governed by an escrow agreement, the
form and content of which shall be reasonably acceptable to Seller
and Buyer and shall be approved by the parties by the Closing Date.
At closing, Seller shall escrow $1,000.00 with the Escrow
Agent for up to six months from the date of closing to provide
funds for any repair required due to rain penetration into the
fifth floor of Building I. The terms of the escrow shall be
governed by an escrow agreement, the form and consent of which
shall be reasonably acceptable to Seller and Buyer and shall
be approved by the parties by the Closing Date.
At closing, Seller shall escrow $25,000.00 with the
Escrow Agent to provide funds for any legal fees reasonably
incurred by Buyer concerning, and for any costs and expenses
reasonably incurred by Buyer related to any legal
2
<PAGE>
action or proceeding concerning, the failure or refusal
of either Lotus Development Corporation or Fellers & Company
to vacate the premises that they are required to vacate under
the terms of their respective Pre-closing Agreements or Post-
closing Agreements. The terms of the escrow shall be
governed by an escrow agreement, the form and content of
which shall be reasonably acceptable to Seller and Buyer and
shall be approved by the parties by the Closing Date.
7. An additional subsection, subsection 25.S., is added to
the Contract as follows:
25.S. With respect to the Lease between Seller and
Motorola, Inc., a Delaware corporation, dated July 15, 1994
(the "Motorola Lease"), if the closing occurs:
(a) Seller shall be liable for and shall pay, in accordance
with the terms of the Motorola Lease, a maximum of the lesser
of (i) 14% of the sum of the Improvement Allowance plus the
Plan Allowance (as "Improvement Allowance" and "Plan
Allowance" are defined in the Motorola Lease), or (ii)
$6,912.64,
(b) Buyer shall be liable for and shall pay, in accordance
with the terms of the Motorola Lease, a maximum of the lesser
of (i) 86% of the sum of such Improvement Allowance plus such
Plan Allowance, or (ii) $42,463.36,
(c) If the cost of the Tenant Work (as "Tenant Work" is
defined in the Motorola Lease) exceeds the sum of such
Improvement Allowance plus such Plan Allowance, and if
Motorola, Inc. elects to amortize such excess cost on a
straight-line basis over the primary term of the Motorola
Lease with an interest factor of nine percent (9%) per annum,
Seller shall finance such excess cost and shall receive the
principal and interest payments on such financed excess cost
from Motorola, Inc.
8. Subsection 9.A of the Contract is amended to provide
that the Closing Date shall be on or before June 1, 1995,
subject to extension as provided in Section 10 of the Contract.
9. The last grammatical paragraph of Subsection 25.I of
the Contract is amended to provide that the survival of the
representations and warranties contained in Section 25.I(i) and
(j) shall also only be limited in duration by any applicable law,
and shall not be merged in the deed to be delivered at Closing.
3
<PAGE>
10. Except as expressly revised and amended by this
Amendment, the terms and conditions of the Contract are hereby
ratified and confirmed by Buyer and Seller.
11. This Amendment is executed to be effective April 13,
1995.
SELLER:
NOVELL, INC., a Delaware corporation
By: /s/ Ronald K. Tolboe
----------------------------------
Name: Ronald K. Tolboe
--------------------------------
Title: Director, Corp. Real Estate
-------------------------------
Date: June 1, 1995
--------------------------------
BUYER:
ORIGIN SYSTEMS, INC., a Texas corporation
By: /s/ Michael S. Grajeda
----------------------------------
Name: Michael S. Grajeda
--------------------------------
Title: Vice President, COO
-------------------------------
Date: June 1, 1995
--------------------------------
4
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<PAGE>
<ARTICLE> 5
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 110,247
<SECURITIES> 9,899
<RECEIVABLES> 92,803
<ALLOWANCES> 32,496
<INVENTORY> 11,984
<CURRENT-ASSETS> 216,662
<PP&E> 85,115
<DEPRECIATION> 27,431
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<COMMON> 512
0
0
<OTHER-SE> 241,725
<TOTAL-LIABILITY-AND-EQUITY> 324,557
<SALES> 80,035
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<LOSS-PROVISION> (220)
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<F1>Includes minority interest in consolidated joint venture of 45.
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