<PAGE>
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended August 31,1998
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _________ to __________
Commission File Number 0-11791
GREENTREE SOFTWARE, INC.
------------------------
(Name of Small Business Issuer as Specified in Its Charter)
NEW YORK 13-2897997
- --------------------------------- ---------------------------
(State or Other Jurisdiction (I.R.S.Employer Identification No.)
of Incorporation or Organization)
7301 OHMS LANE
SUITE 220
EDINA, MN 55439
-------------------------
(Address of Principal Executive Offices)
(612) 941-1500
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 / /
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at October 14, 1998
- ---------------------------------- -------------------------------
COMMON SHARES, PAR VALUE 8,154,761 SHARES
$0.01 PER SHARE
- --------------------------------------------------------------------------------
<PAGE>
GREENTREE SOFTWARE, INC.
INDEX
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
- ------ ------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of August 31, 1998 and May 31, 1998....... 3
Statements of Operations for the three months ended
August 31, 1998 and August 31, 1997 ........................ 4
Statements of Cash Flows for the three months ended
August 31, 1998 and August 31, 1997......................... 5
Notes to the Financial Statements........................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9-12
PART II. OTHER INFORMATION
Item 2. Changes in Securities.......................................... 13
Item 4. Submission of Matters to a Vote of Security Holders............ 13
Item 6. Exhibits and Reports on Form 8-K............................... 14
Signatures ........................................................... 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Company for which report is filed: Greentree Software, Inc. (the
"Company")
GREENTREE SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, May 31,
1998 1998
---- ----
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 2,009,002 $ 2,918,548
Accounts receivable, net 169,356 103,145
Prepaid expenses and other current assets 78,420 5,045
----------- -----------
Total Current Assets 2,256,778 3,026,738
----------- -----------
Property and equipment, net 243,829 46,067
----------- -----------
Other Assets:
Security deposits 39,234 9,124
----------- -----------
Total Other Assets 39,234 9,124
----------- -----------
Total Assets $ 2,539,841 $ 3,081,929
----------- -----------
----------- -----------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 244,587 $ 219,092
Current obligations under capital lease 29,730 --
Accrued expenses 352,998 389,781
Deferred revenues 105,554 93,598
----------- -----------
Total Current Liabilities 732,869 702,471
----------- -----------
Noncurrent obligation under capital lease 29,588 --
----------- -----------
Commitments and Contingencies
Stockholders' Equity:
Common stock, $0.01 par value, 15,000,000
shares authorized, 8,029,761 shares issued
and outstanding 80,298 80,298
Additional paid-in capital 19,463,982 19,321,482
Accumulated deficit (17,677,864) (16,933,290)
----------- -----------
1,866,416 2,468,490
Less treasury stock (4,780 shares) at cost (89,032) (89,032)
----------- -----------
Total Stockholders' Equity 1,777,384 2,379,458
----------- -----------
Total Liabilities and Stockholders'
Equity $ 2,539,841 $ 3,081,929
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
GREENTREE SOFTWARE, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------
August 31, August 31,
1998 1997
------- --------
<S> <C> <C>
Net revenues:
Product $ 66,250 $ 88,775
Services 93,429 36,267
---------- ------------
Total net revenues 159,679 125,042
---------- ------------
Costs and expenses:
Cost of revenues 32,782 138,144
Selling expenses 330,209 143,348
General and administrative 443,987 355,819
Research and development 128,173 27,325
---------- ------------
Total costs and expenses 935,151 664,636
---------- ------------
Operating loss (775,472) (539,594)
Interest income (expense), net 30,898 (4,410)
---------- ------------
Net loss $ (744,574) $ (544,004)
---------- ------------
---------- ------------
Net loss per common share $ (0.09) $ (0.21)
(Basic and diluted) ---------- ------------
---------- ------------
Weighted average shares outstanding 8,029,761 2,564,803
---------- ------------
---------- ------------
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
GREENTREE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------
August 31, August 31,
1998 1997
------ --------
<S> <C> <C>
Cash Flow From Operating Activities:
Net loss $ (744,574) $ (544,004)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 12,047 10,816
Amortization of deferred software costs -- 124,145
Decrease (increase) in accounts receivable (71,237) 23,086
Decrease (increase) in prepaid expenses (68,349) 2,569
Increase in accounts payable 25,495 120,573
Increase (decrease) in accrued expenses (36,783) 71,854
Increase in deferred income 11,956 20,768
---------- ----------
Cash Used in Operating Activities (871,445) (170,193)
---------- ----------
Cash Flow From Investing Activities:
Additions to property and equipment (148,276) --
Additions to security deposits (30,110) --
Additions to capitalized software
development costs -- (44,107)
---------- ----------
Cash Provided (Used) in Investing Activities (178,386) (44,107)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrant 142,500 --
Payment on capital lease (2,215) --
Payment on note payable -- (30,000)
---------- ----------
Cash (Used) Provided by Financing Activities 140,285 (30,000)
---------- ----------
Increase (decrease) in Cash (909,546) (244,300)
Cash balance - beginning 2,918,548 245,649
---------- ----------
Cash balance - ending $ 2,009,002 $ 1,349
---------- ----------
---------- ----------
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 769 $ 4,797
Cash paid for income taxes $ -- $ --
---------- ----------
---------- ----------
Supplemental disclosure of
non-cash transaction:
Capital lease obligation incurred $ 61,533 $ --
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
GREENTREE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998
NOTE 1. GENERAL INFORMATION:
The Financial Statements included herein have been prepared by the Company
without audit except the May 31, 1998 balance sheet, which was audited. The
Statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect all adjustments, consisting of
only normal recurring accruals which are, in the opinion of management,
necessary for a fair statement of the results of operations for the periods
shown. These statements do not include all information required by Generally
Accepted Accounting Principles to be included in a full set of Financial
Statements. These Financial Statements should be read in conjunction with the
Financial Statements and notes thereto included in the Company's latest report
on Form 10-KSB, dated May 31, 1998.
The Company is considered a Small Business (SB) filer pursuant to
Securities and Exchange Commission (SEC) regulations. As such, the accompanying
financial statements, are not intended to, nor do they, include all disclosures
required by the SEC's Regulation S-X.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES:
(a) Accounting Estimates
Management is required to make estimates and assumptions during the
preparation of financial statements in conformity with Generally Accepted
Accounting Principles. These estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements. They also affect the
reported amounts of net income (loss) during the period. Actual results could
differ materially from these estimates and assumptions.
(b) Revenue Recognition and Accounts Receivable
The Company recognizes revenue in accordance with the provisions of
Statement of Position (SOP) No. 97-2, "Software Revenue Recognition." The
Company recognizes software license revenue at the time products are shipped
provided that no significant Company obligations remain outstanding and
collection of the resulting receivable is deemed probable by management.
Insignificant obligations remaining at the time of shipment are accrued.
Revenues related to software licenses for which there are significant remaining
performance obligations are deferred and recognized once such obligations are
fulfilled.
6
<PAGE>
Service revenues are comprised of revenues derived from software
maintenance agreements and professional services. Maintenance fees are recorded
as deferred revenue and recognized ratably over the maintenance period which is
usually 12 months. Professional service revenue is recognized as the services
are performed.
Accounts receivable is presented net of an allowance for uncollectible
accounts of $30,000 at August 31, 1998, and May 31, 1998.
(c) Software Development Costs
The Company is engaged in research and development activities in the area
of computer software. In accordance with Generally Accepted Accounting
Principles, costs incurred prior to determination of technological feasibility
are considered research and development and expensed as incurred. Once
technological feasibility has been established, development costs are
capitalized and amortized over the shorter of an economic life of one to three
years or the proportion of current period product revenues to total expected
product revenues. Amortization charged to cost of revenues amounted to $0 and
$124,145 during the three months ended August 31, 1998 and 1997, respectively.
(d) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is charged to operations over the estimated useful lives of the
related assets, generally five to seven years, using the straight-line method.
Depreciation was $12,047 and $9,483 for the three months ended August 31, 1998
and 1997, respectively.
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of 90 days or less to be cash equivalents for financial statement
purposes.
(f) Income Taxes
The Company accounts for income taxes using the liability method in
accordance with the provisions of the Statement of Financial Accounting Standard
(SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 requires that
deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts.
7
<PAGE>
(g) Loss Per Common Share
The Company follows the guidelines of the Financial Accounting Standards
Board Statement No. 128, "Earnings Per Share. SFAS No. 128 requires dual
presentation of basic and diluted earnings per share for entities with complex
capital structures. Basic earnings per share includes no dilution and is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar too fully diluted earnings per
share. Due to the Company's continued net losses there has been no impact from
unexercised stock options and warrants on diluted net loss per share as the
effect would be anti-dilutive.
(h) Reclassifications
Certain prior year balances have been reclassified to conform with current
year presentation. There was no impact on the prior year's net loss or total
stockholders' equity from the reclassification.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, this Quarterly
Report on Form 10-QSB may contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including but not limited to (i) the Company's belief in
the growth of the purchasing and procurement systems software market and (ii)
expectations for the Company's strategy and future performance. Investors are
cautioned that forward-looking statements are inherently uncertain. Actual
performance and results of operations may differ materially from those projected
or suggested in the forward-looking statements due to certain risks and
uncertainties, including, but not limited to, the following risks and
uncertainties: (i) the Company's history of losses, limited revenues, and the
uncertainty of future profitability; (ii) the uncertainty of market acceptance
of PurchaseSoft software; (iii) new management and ability to recruit sales,
service, and implementation personnel; (iv) the intense competition in the
software field; (v) the dependence on one product and rapid technological change
in the industry; and (vi) fluctuations in quarterly operating results.
Additional information concerning certain risks and uncertainties that would
cause actual results to differ materially from those projected or suggested in
the forward-looking statements is contained in the Company's filings with the
Commission, including those risks and uncertainties discussed under the caption
"Risk Factors" in the Company's Annual Report on Form 10-KSB for the year ended
May 31, 1998. The forward-looking statements contained herein represent the
Company's judgment as of the date of this Quarterly Report on Form 10-QSB, and
the Company cautions readers not to place undue reliance on such statements.
9
<PAGE>
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED AUGUST 31, 1998 AND 1997
REVENUES
Total revenues for the three months ended August 31, 1998 were $159,679
compared to revenue of $125,042 for the three months ended August 31, 1997, an
increase of $34,637 or 27.7%. Product revenues for the three months ended
August 31, 1998, were $66,250 compared to revenues of $88,775 for the three
months ended August 31, 1997, a decrease of $22,525 or 25.4%. Service revenues
were $93,429 for the three months ended August 31, 1998, compared to $36,267 for
the three months ended August 31, 1997, an increase of $57,162 or 157.6%.
Service revenues reflect increases in both maintenance revenue recognized and
professional services performed as the Company continues to emphasize these
activities as value added services.
EXPENSES
The cost of revenues for the three months ended August 31, 1998 was $32,782
compared to $138,144 for the three months ended August 31, 1997, a decrease of
$105,362 or 76.3%. This decrease resulted from the elimination of amortization
of software development costs during the three months ended August 31, 1998 as
all capitalized software costs were fully amortized as of May 31, 1998. This
decrease was offset in part by increased personnel costs in the area of customer
support, installation and training.
Selling expense for the three months ended August 31, 1998 was $330,209
compared to $143,348 for the three months ended August 31, 1997, an increase of
$186,861 or 130.4%. This increase was primarily due to the addition of executive
sales management, increased costs of sales personnel and increased marketing
expenses.
General and administrative expense for the three months ended August 31,
1998 was $443,987 compared to $355,819 for the three months ended August 31,
1997, an increase of $88,168 or 24.8%. This increase was primarily due to
increased legal fees associated with the Company's reincorporation in the state
of Delaware and other legal matters, increased occupancy costs associated with
the Company's relocation of its corporate office from Eden Prairie, MN to its
new corporate office in Edina, MN in August 1998 and increased travel expenses
associated with senior management promoting the Company's software to
prospective customers and other general corporate matters.
10
<PAGE>
Research and development expense for the three months ended August 31, 1998
was $128,173 compared to $27,325 for the three months ended August 31, 1997, an
increase of $100,848 or 369.1%. This increase was primarily due to the addition
of a manager of research and development at the Company's office located in
Westborough, MA, additional R&D personnel and higher compensation costs for R&D
personnel and the expensing of certain development costs in the three month
period ended August 31, 1998 rather than capitalizing these costs as was done in
the three month period ended August 31, 1997.
NET LOSS
For the three months ended August 31, 1998, the Company reported a net loss
of $744,574 (or $.09 per share) as compared to a net loss of $544,004 (or $.21
per share) for the three months ended August 31, 1997. This loss was caused by
the continuation of low sales volumes and increases in selling expenses, general
and administrative expenses, research and development expenses and offset by a
reduction in cost of revenues and an increase in interest income. The decrease
in the loss per share resulted from an increase in the average outstanding
shares for the three months ended August 31, 1998 to 8,029,761 as compared to
average outstanding shares for the three months ended August 31, 1997 of
2,564,803.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $1,523,909 at August 31, 1998 as
compared with $2,324,267 at May 31, 1998, a decrease in working capital of
$800,358. This decrease resulted primarily from the loss for the three month
period of $744,574, the use of working capital to acquire property and equipment
of $148,276 and proceeds received from the exercise of a warrant of $142,500.
Cash decreased from $2,918,548 at May 31, 1998, to $2,009,002 at August 31,
1998, a decrease of $909,546.
During the three month period ended August 31, 1998, the Company raised
$142,500 upon the exercise of a warrant. On September 1, 1998, 125,000 common
shares were issued in exchange for this warrant. The Company also financed
certain equipment and entered into a twenty-four month capital lease in the
amount of $61,533. The Company made $209,809 in capital expenditures during the
three month period ended August 31, 1998 and had no capital expenditures in the
three month period ended August 31, 1997.
11
<PAGE>
The Company believes that its existing capital resources, interest income,
and revenue from software sales and services will be sufficient to fund its
planned operating expenses and capital requirements for the next twelve months.
However, there can be no assurance that such funds will be sufficient to meet
the Company's operating expenses and capital requirements during such period.
The Company's actual cash requirements may vary materially from those now
planned and will depend upon numerous factors, including the results of the
Company's software development efforts, the level of resources the Company
commits to marketing and sales efforts, the ability of the Company to maintain
existing and develop new customers, and activities of competitors and other
factors.
YEAR 2000 ISSUES
The Company has and will continue to evaluate year 2000 issues and their
potential impact on its information systems and computer technologies. All
evaluation costs will be expensed as incurred. Year 2000 issues are not
expected to have a significant impact on the Company's ongoing results of
operations, however, there can be no assurance that the Company will not suffer
adverse effects from the failure of any of its vendors, suppliers or partners to
be year 2000 compliant.
12
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
On September 1, 1998, the Company issued 125,000 of the Company's Common
Shares upon the exercise of a warrant by TIS Group Managers, Inc., at an
exercise price of $1.14 per share, for the aggregate sum of $142,500. The
issuance of the Common Shares was made in reliance on section 4(2) of the
Securities Act of 1933, as amended.
Item 4. Submission of Matters to a Vote of Security Holders
On September 17, 1998, the Company held the 1999 Annual Meeting of
Shareholders. At this meeting, the security holders re-elected Joseph D.
Mooney, Brad I. Markowitz, and Jeffrey B. Pinkerton as directors for the Company
to serve until the next annual meeting of shareholders. In addition, J. Murray
Logan and Donald S. LaGuardia were elected as directors for the Company to serve
until the next annual meeting of shareholders. The security holders also voted
upon and approved the following matters: (i) to consider and vote upon a
proposal to approve a plan of merger to reincorporate the Company in Delaware;
(ii) to consider and vote upon a proposal to increase the maximum number of
shares which may be made available upon exercise of stock options under the
Greentree Software, Inc. 1997 Stock Option Plan from 1,500,000 to 3,500,000; and
(iii) to consider and vote upon a proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized capital shares of the Company
from 15,000,000 to 25,000,000.
At the meeting, a total of 6,567,669 shares were present or by proxy which
represented 81.8% of the shares qualified to vote. The tabulation of the voting
for the matters submitted for a vote was as follows:
<TABLE>
<CAPTION>
Votes Cast For Against Abstain
---------- ----- -------- -------
<S> <C> <C> <C> <C>
1. To elect directors:
LaGuardia 6,567,669 6,563,860 3,809 --
Logan 6,567,669 6,563,860 3,809 --
Markowitz 6,567,669 6,563,818 3,851 --
Mooney 6,567,669 6,563,818 3,851 --
Pinkerton 6,567,669 6,563,818 3,851 --
2. To approve a plan of merger
to reincorporate the Company
in Delaware. 5,658,300 5,649,402 8,854 44
3. To approve an increase in the
Company's 1997 Stock Option Plan
from 1,500,000 to 3,500,000 shares. 5,658,300 5,625,128 32,574 598
4. To approve an amendment to the
Company's Certificate of Incorporation
to increase the authorized shares from
15,000,000 to 25,000,000 shares. 6,567,669 6,541,893 25,519 257
</TABLE>
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Lease between the Company and Racotek, Inc.
27.1 Financial Data Schedule filed herewith
(b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GREENTREE SOFTWARE, INC.
/s/ Joseph D. Mooney
Date: October 15, 1998 ------------------------------------------
Joseph D. Mooney
Chairman, Chief Executive Officer and Director
/s/ Philip D. Wolf
------------------------------------------
Philip D. Wolf
Chief Financial Officer and Secretary
15
<PAGE>
EXHIBIT 10.1
SUBLEASE
THIS SUBLEASE, made and entered into this 14 day of August, 1998, between
RACOTEK, INC., a Delaware corporation, ("Sublessor") and GREENTREE SOFTWARE,
INC., a New York corporation (Sublessee).
RECITALS:
A. A lease ("Prime Lease") dated May 2, 1994 was made and entered into
between Connecticut General Life Insurance Company, on behalf of its Closed
End Real Estate Fund I, as Landlord, and Racotek, Inc., as Tenant, pertaining
to Premises consisting of the entire second and sixth floors at 7301 Ohms
Lane, City of Edina, County of Hennepin, State of Minnesota and is attached
hereto as Exhibit B. ***
B. The parties hereto desire that the Sublessor sublet to the
Sublessee and that the Sublessee take from the Sublessor that portion of the
second floor of the Premises leased under the Prime Lease containing
approximately 8,899 square feet of rentable area (hereinafter referred to as
the "Sublet Area" and designated "Suite 220") as depicted on Exhibit A,
attached hereto.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants hereinafter contained, but subject to the consent thereto by
Landlord, the Sublessor does hereby sublet to the Sublessee and the Sublessee
does hereby rent and take from the Sublessor, the Sublet Area, subject to the
following terms and conditions:
1. Except for those portions of Article 5, 6, 13, 34, 35, 36, and 37
contained in the Addendum to the Prime Lease and Article 4 of the Prime Lease
(hereinafter collectively referred to as the "Excluded Provisions") which
shall not apply to this Sublease, all other applicable terms and conditions
of the Prime Lease are incorporated into and made a part of this Sublease as
if the Sublessor were the Landlord under the Prime Lease, the Sublessee was
the Tenant under the Prime Lease, and the Sublet Area were the Premises under
the Prime Lease. Sublessee hereby assumes and agrees to be bound by all
terms, covenants, and conditions of the Prime Lease except for the Excluded
Provisions and except as otherwise provided for herein.
2. The term of this Sublease shall commence August 1, 1998, and shall
terminate August 31, 2000.
3. The Sublessee shall pay to the Landlord on behalf of the Sublessor
$5,937.50 per month from August 1, 1998 to August 31, 2000, as Minimum Rent
for the Sublet Area, due and payable on the first day of each month during
the entire term of this Sublease. Commencing August 1, 1998, Sublessee shall
also pay the Landlord on behalf of the Sublessor, as Additional Rent, its
share of Real Estate Taxes and Operating Expenses pursuant to Article 6 of
the Prime Lease based on 8,899 (mulitplied by a factor of 1.0675) rentable
square feet for the term of this Sublease. Sublessee shall initially pay
estimated 1998 Real Estate Taxes and Operating Expenses in the amount of
$6,618.33 per month ($8.36 per rentable square foot per year) subject to
adjustment at the end of 1998 as provided for in said Article 6.
All rent shall be paid to the Landlord at the address set forth in
Paragraph 6 hereof or at such other address and/or to such other party as the
Landlord may from time to time elect by giving not less than ten (10) days
advance written notice thereof to the Sublessee.
4. The Sublessee may use the Sublet Area for the purposes stated in
the Prime Lease and for no other purposes whatsoever.
5. The Sublessee will notify the Landlord forthwith in the event of
any default that occurs under the provisions of this Sublease which comes to
the attention of the Sublessee, such notice to be given to the Landlord by
United States Mail, registered or certified, postage prepaid, at the address
provided for Landlord in the Prime Lease or as such other address as Tenant
shall be advised to use by Landlord.
*** WHOCC Real Estate Limited Partnership is the current Landlord, and as
such has succeeded Connecticut Life Insurance Company as the Landlord.
1
<PAGE>
6. Any notice provided for herein shall be deemed to be duly given if
made in writing and delivered in person to an office of such party or mailed
by first class registered or certified mail, postage prepaid, addressed as
follows:
If to Sublessor: If to Landlord:
Racotek, Inc. WHOCC Real Estate Limited Partnership
7301 Ohms Lane, Suite 200 Attn: John F. Markey
Edina, Minnesota 55439 Senior V.P. - East
C/o WCB Properties
3400 Park Lane
Pittsburgh, PA 15275
If to Sublessee: With copy to:
Greentree Software, Inc. Property Manager
7301 Ohms Lane, Suite 220 One Corporate Center IV
Edina, MN 55439 Grubb & Ellis - 5850 Opus Pkwy
Minnetonka, MN
or to such other address with respect to the parties hereto as such party
shall notify the other parties hereto in writing. Any notice so given, if
mailed as aforesaid, shall be deemed received the second (2nd) day after it
is deposited in the United States Mail.
7. Sublessee shall, at its expense, during the term of the Sublease,
maintain public liability insurance and such other insurance coverages in the
amounts required under Article 24 of the Prime Lease in one or more companies
acceptable to Sublessor and Landlord, naming Sublessor, Landlord and
Landlord's manager of the Building as additional insureds. No policy of
insurance obtained by the Sublessee in compliance with the Prime Lease may be
cancelled or terminated except upon not less than ten (10) days written
notice to Sublessor and Landlord. True and correct copies of each policy of
such insurance, and renewals thereof, obtained by the Sublessee in compliance
with the Prime Lease shall be delivered to the Sublessor and to Landlord.
8. Sublessee agrees to pay a leasing commission in the amount of
$46,179.00 payable in full upon full execution of this Sublease. United
Properties has agreed under separate agreement that half of said commission
is payable to The O'Neill Real Estate Group, Sublessee's agent. Sublessee
shall issue two checks of $23,089.50 each, one payable to "United" and the
other payable to "O'Neill". In no event shall Sublessor have any liability
whatsoever with respect to fees or commissions as a result of this Sublease.
Sublessor and Sublessee acknowledge that the sum of $46,179.00 has been paid
to United Properties and O'Neill Real Estate Group by Sublessee based on a
lease agreement executed June 26, 1998, which specified that the sublet
premises contained 10,262 square feet. By signing this Sublease agreement,
Sublessor and Sublessee agree that the June 26, 1998, agreement is rescinded
Sublessor and Sublessee agree that any rebate in real estate leasing
commissions due as a result of this reduction in square footage actually
rented shall be the property of the Sublessee.
9. Immediately, upon the full execution of this Sublease (including
the Consent by the Landlord), Sublessee agrees, at its cost, to complete the
improvements set forth on Exhibit A hereof and upon the completion thereof,
Sublessor shall deliver the Sublet Area to Sublessee for occupancy.
Sublessee agrees that it shall make no alterations or improvements to the
Sublet Area except as are consented to in writing by Sublessor and by
Landlord as to the nature of such alterations or improvements and the manner
of doing the work as provided for under the Prime Lease.
10. On or before Sublessee takes possession of any portion of the
Sublet Area (the "Delivery Date") Sublessee, at its sole cost and expense,
shall deliver to Sublessor a certificate of deposit from a bank (which is
reasonably acceptable to Sublessor) in the principal amount of not less than
$27,125.89 (the "BANK CD"). The Bank CD shall be accompanied by an agreement
(in form satisfactory to Sublessor and its legal counsel) pledging the Bank
CD jointly to Sublessor and Landlord as security for the prompt, full and
faithful performance by Sublessee of the terms and provisions of this
Sublease Agreement (the "PLEDGE AGREEMENT"). At the time of delivery of the
Bank CD and Pledge Agreement, a UCC-1 financing statement (in form acceptable
to Sublessor, Landlord and its legal counsel) shall be executed by Sublessee
and delivered to Sublessor (the "FINANCING STATEMENT").
Notwithstanding any provision to the contrary contained within this
Sublease, upon the occurrence of a default by Sublessee in the payment of
rent or of any other default by Sublessee pursuant to the terms of this
Sublease, Sublessor may foreclose on the Bank CD, including liquidating the
Bank CD, by giving (5) days' written notice to Sublessee. Sublessee
acknowledges and agrees that the compliance with the notice provisions of
this sublease for default plus the giving of said (5) days' notice prior to
foreclosure shall be commercially reasonable notice to Sublessee. Sublessor
may apply all or a part of the proceeds from said Bank CD to the payment of
the amount of any
2
<PAGE>
monetary default. No foreclosure upon the Bank CD or otherwise converting
the Bank CD to cash or the use of the proceeds thereof shall be deemed a
waiver by Sublessor of any default by Sublessee under any provision of the
Sublease, nor shall the use thereof prevent Sublessor from exercising any
other right or remedy provided in the Sublease or under any law, nor shall
the same be construed as liquidated damages. In the event of any such
foreclosure and/or conversion to cash, Sublessor shall not be responsible for
and Sublessee hereby indemnifies Sublessor against any claims resulting from
any penalties, fees or charges imposed by the bank issuing the Bank CD with
respect to early withdrawal or other otherwise imposed in connection with the
cashing of the Bank CD.
Sublessee acknowledges and agrees that if the Bank CD, Pledge Agreement
and Financing Statement are not delivered to Sublessor by the Delivery Date,
then Sublessor may, at its option, terminate this Sublease by giving written
notice to Sublessee.
11. Sublessor promises and agrees that it will not make any change,
alteration or termination of the underlying Prime Lease, as it affects the
space described in this Sublease without obtaining the prior written approval
of the Sublessee.
12. Sublessor and Landlord agree that the Sublessee shall have right to
standard signage for the "Building" including but not limited to inclusion in
the Building's tenant directory and hallway signage sufficient to direct
visitors to Sublessee's Space. Said signage costs shall be the
responsibility of Sublessee.
13. Sublessee agrees not to assign, sublet, license, mortgage or
encumber this Sublease, whether by voluntary act, operation of law or
otherwise without the specific prior written consent of Sublessor and
Landlord which consent shall not be unreasonably withheld or delayed.
Consent by Sublessor and Landlord in one such instance shall not be a waiver
of Sublessor's or Landlord's rights under this paragraph as to requiring
consent for any subsequent instance. In the event Sublessee desires to
sublet a part or all of the Premises, or assign this Sublease Agreement,
Sublessee shall give written notice to Sublessor and Landlord at least thirty
(30) days prior to the proposed subletting or assignment, which notice shall
state the name of the proposed subtenant or assignee, the terms of any
sublease or assignment documents and copies of financial information of the
proposed subtenant or assignee. At Landlord's option, any and all payments
by the proposed assignee or sublessee with respect to the assignment or
sublease shall be paid directly to the Landlord. In any event no subletting
or assignment shall release Sublessee of its obligation to pay the rent and
to perform all other obligations to be performed by the Sublessee hereunder
for the Term of this Sublease. The acceptance of rent by Landlord from any
other person shall not be deemed to be a waiver by Landlord of any provision
hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused their presence
to be duly executed as of the day and year first above written.
SUBLESSOR: SUBLESSEE:
RACOTEK, INC. GREENTREE SOFTWARE, INC.
/s/ Ian L. Nemerov /s/ Joseph D. Mooney
By ______________________ By ________________________
Ian L. Nemerov Joseph D. Mooney
Secretary and Attorney Chief Executive Officer
3
<PAGE>
CONSENT OF LANDLORD
A. The undersigned Landlord does hereby consent to the above Sublease
provided, however, in no event shall: (i) the Tenant under the Prime Lease be
in any way whatsoever relieved of its obligations to keep and perform
promptly each of the terms, covenants and conditions to be kept or performed
by it under the Prime Lease, or (ii) the terms, covenants or conditions of
the Prime Lease be, in any manner whatsoever, amended or otherwise changed or
(iii) the undersigned be deemed to consent to any further subletting or
assignment under the Prime Lease, or (iv) the acceptance of rent by the
Landlord be deemed to create privity of contract by and between Sublessee and
Landlord. This consent shall not be effective unless Sublessee delivers to
Landlord, prior to taking possession of the Sublet Area, evidence that
Sublessee is in full compliance with all insurance requirements of the Prime
Lease including but not limited to the requirement that the Landlord and
Landlord's manager of the Building are named as an additional insured in all
insurance policies required under the Prime Lease.
B. Landlord agrees that so long as Sublessee pays the Minimum Rental and
the Additional Rental as provided for in Paragraph 3 of this Sublease, that
the obligations of Sublessor under the Prime Lease shall be credited in the
amounts provided for in said Paragraph 3.
LANDLORD:
WHOCC REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: WHOCC Gen-Par, Inc., a Delaware corporation,
general partner
/s/ John F. Markey
By: _______________________
John F. Markey
Senior Vice President - East
4
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated August 18, 1998 (the "Security
Agreement"), from Greentree Software, Inc., a New York corporation (the
"Debtor") to Racotek, Inc. ("Racotek"), WHOCC Real Estate Limited Partnership
("WHOCC") and General Electric Capital Corporation ("GECC").
RECITALS:
A. Debtor, as Subtenant and Racotek, as Sublessor, entered into a
Sublease Agreement dated August 14, 1998 (together with all related
documents, the "Sublease") for space at 7301 Ohms Lane, Edina, Minnesota (the
Subleased Premises").
B. Debtor and Sublessor have agreed to enter into this Security
Agreement to secure Debtors obligations under the Sublease (hereafter the
"Obligations") and Racotek's obligations under the Lease Agreement between
Racotek and Connecticut General Life Insurance Company on behalf of its
Closed End Real Estate Fund I. WHOCC has, since the date of said Lease,
succeeded Connecticut General Life Insurance Company as the Landlord of above
property.
C. WHOCC and GECC entered into a loan transaction evidenced by,
among other things, a Loan Agreement dated as of March 2, 1998 (the "Loan")
whereby GECC requires a security interest in all of WHOCC's real and personal
property, including the Collateral (hereinafter defined). While any portion
of the Loan remains outstanding, the term "Secured Party" means either or all
of Racotek, WHOCC and GECC, as context may require. When the loan has been
paid in full and thereafter, the term "Secured Party" shall mean Racotek and
WHOCC only (or their agents), upon notice by GECC to the Bank (as hereinafter
defined).
NOW THEREFORE, in consideration of the foregoing and the terms and
conditions hereafter set forth, Debtor agrees as follows:
1. SECURITY INTEREST As security for the Obligations, Debtor
hereby grants Secured Party as security interest in the following described
property:
All interest of Debtor in and to that certain $27,125.89
Certificate of Deposit, in the name of the Debtor, No.500101311-20 Issued by
F & M Alliance Bank. ("Bank") together with all replacements and
substitutions therefor, all interest paid or payable thereon, and all
precedes thereof (hereinafter referred to in the aggregate as "Collateral").
2. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants
to Secured Party that:
(a) Debtor has duly exercised all requisite power and authority to
enter in to this Agreement, to pledge its respective interest in the
Collateral and to carry out the transactions contemplated in this Security
Agreement; and
(b) The Collateral shall be reissued and shall remain in Debtor's
name; provided, however, that until the Obligations have been paid in full,
Secured Party shall remain in physical possession of the Collateral; and
<PAGE>
(c) The Collateral is owned by the Debtor free of any pledge,
mortgage, hypothecation, lien, charge, encumbrance or security interest,
except for that granted hereunder and shall only be returned to Debtor in
accordance with the terms of the Sublease and this Security Agreement; and
(d) The execution and delivery of this Agreement, and the
performance of its terms, will not result in any violation of any provision
or constitute a default under the terms of any other agreement, indenture, or
other instrument, license , judgment, degree, order, law, statute, ordinance
or other governmental rule or regulation, applicable to Debtor or any of its
property; and
(e) Upon delivery of the Collateral to Secured Party, this
Agreement shall create a valid first lien upon and a perfected security
interest in the Collateral and the proceeds thereof, subject to no prior
security interest, lien, charge or encumbrance or agreement purporting to
grant a security interest in Collateral or any part thereof; and
(f) The Collateral shall be issued only by the Bank. Upon the
maturity date of the Collateral, the Collateral shall be paid to Debtor,
provided that (1) Debtor delivers to both Secured Party and the Bank written
notice of such withdrawal, either by (a) telecopy (confirmed receipt) or (b)
registered or certified, first class mail, return receipt requested, at least
ten (10) days prior to the maturity date of the Collateral; PROVIDED,
HOWEVER, that any notice send pursuant to CLAUSE (1) (b) above, shall be
deemed received three days following deposit in the mail; and (2) Secured
Party has not notified the Bank within ten (10) days prior to the maturity
date of the Collateral that proceeds of the Collateral should not be released
to Debtor. The notification in clause 2 above may only be issued by Secured
Party if Debtor is in default under the Sublease.
3. COVENANTS. Debtor agrees as follows:
(a) If Debtor shall receive any or all of the Collateral (except
as provided by paragraph 2(f) above), it will receive it as the Secured
Party's agent, in trust for the Secured Party, and shall immediately deliver
such Collateral (1) to GECC, for so long as the Loan remains outstanding, or
(2) to Racotek and WHOCC, once the Loan is no longer outstanding, and, in
either event, GECC, Racotek and/or WHOCC shall hold such Collateral, subject
to the terms hereof, as part of the Collateral.
(b) Debtor acknowledges that WHOCC has assigned a security
interest in the Collateral to GECC. Debtor further acknowledges that GECC,
for so long as the Loan remains outstanding, shall have the authority to act
as Secured Party and enforce the rights thereof.
(c) Upon the occurrence of a default by Debtor of the Obligations,
and upon prior notice to the Debtor as described in paragraph 3(h) hereof,
the Secured Party may, without further demand of performance or other demand,
advertisement, or notice of any kind, to our upon Debtor or any other person
(all of which are, to the extent permitted by law, hereby expressly waived),
forthwith realize upon the Collateral by notifying Bank of such default and
by instructing Bank to liquidate the Collateral , and Secured Party shall
apply the needed funds from such liquidation to cure all existing defaults.
Any disposition made in accordance with the
<PAGE>
provisions of this paragraph shall be deemed to have been commercially
reasonable. Should Debtor be determined to have an interest in the
Collateral, Debtor hereby authorizes Secured Party to make any needed
endorsements in Debtor's name, to the extent that such endorsements shall be
deemed necessary to transfer funds to Secured Party but only of the purposes
of this Section 3(c).
(d) If the Secured Party disposes of any of the Collateral, the
proceeds of such disposition shall be applied as set forth in Minnesota
Statutes 336.9-504.1. Debtor specifically grants to the Secured Party the
right to apply such proceeds to reasonable attorney's fees and legal expenses
incurred by Secured Party in connection with negotiation with Debtor and
their representative, successor or assigns, collection of the Obligations, or
protection of Secured Party's position.
(e) Debtor hereby covenants that, until all of the Obligations
have been satisfied in full, it will maintain at the Bank the Collateral in
the Minimum CD Amount, that it will not sell, convey or otherwise dispose of
any of its interest in the Collateral or any interest therein or create,
incur, or permit to exist any pledge, mortgage, lien, charge, encumbrance or
any security interest whatsoever in or with respect to any of the Collateral
or the proceeds thereof, other than that created hereby. All interest owed
and payable on the Collateral may be released and paid to Debtor (1) to the
extent such interest is not needed to maintain the Minimum CD Amount of the
Collateral and (2) in accordance with paragraph 2(f) above.
(f) Debtor warrants and will, at its own expense, defend its
right, title, special property and security interest in and to the Collateral
against the claims of any person, firm, corporation or other entity.
(g) Debtor, by entering into the Security Agreement and
negotiating the terms hereof, hereby waives any rights it may have to demand
any notices other than those provided for herein or required by law and any
right to a hearing as a condition precedent to Secured Party's exercise of
its rights hereunder.
(h) The Secured Party shall give Debtor ten (10) days prior notice
of any intended disposition of any of the Collateral and such notification
shall be deemed reasonably and properly given if sent at least ten (10) days
before such disposition, and sent postage prepaid, certified, or registered
mail and addressed to Debtor at 7301 Ohms Lane, Edina, Minnesota 55439.
(i) No delay or failure by the Secured Party in the exercise of
any right or remedy shall constitute a waiver thereof, and no single or
partial exercise by the Secured Party of any right or remedy shall preclude
other or further exercise thereof or the exercise of any other right or
remedy.
(j) This Security Agreement and the rights and obligations of the
parties hereunder shall be construed and governed by the laws of the State of
Minnesota and shall be binding upon and inure to the benefit of the parties
hereto and their successors and assigns.
4. TERMINATION. Upon payment or performance by Debtor of all of the
Obligations, this Security Agreement shall be automatically terminated
without any action by the parties and shall be of no further force or effect
at which time the Collateral and all proceeds
<PAGE>
thereof, together with any accrued interest shall be deemed released from
this Security Agreement. In accordance herewith, upon payment or performance
by Debtor of all of the Obligations, Secured Party shall issue to the Bank,
if so requested by the Bank, a notice in a form substantially similar to the
Form of Notice to F&M Alliance Bank of Transfer of Interest in CD in Exhibit
A (attached hereto and made a part hereof by this reference), such that
right, title and interest in the Collateral shall be transferred to Debtor.
5. INDEMNITY. The undersigned have requested that Bank sign the
acknowledgement and agreement by Bank set forth below (the
"Acknowledgement"), and Debtor, Racotek and WHOCC do hereby agree jointly and
severally to indemnify the Bank and its directors, officers, employees and
agents (collectively, the "Indemnified Parties") and hold the Indemnified
Parties harmless against all losses, damages, claims, liabilities, costs, and
expenses, including legal fees and expenses, (collectively "Damages")
incurred or paid by any of the Indemnified Parties under or in connection
with the Acknowledgement or this Security Agreement, except Damages arising
our of the intentional misconduct or gross negligence of any of the
Indemnified Parties. Any amount owed to the Bank hereunder may be set off
against the Collateral. Debtor agrees that the Bank shall have no obligation
to inquire into the propriety of any request by Secured Party for a
withdrawal of any of the Collateral, and that the Bank may honor any such
requests without the consent of or notice to Debtor.
6. RELEASE. Upon satisfaction of WHOCC'S Obligations (as that term is
defined in the Loan Agreement dated as of March 2, 1998, in connection with
the loan), GECC (or its successors in interest), upon written request of
WHOCC, will release all of its claim to and interest in the Collateral by
issuing to the Bank a notice in a form substantially similar to the Form of
Notice to F&M Alliance Bank of Transfer of Interest in CD in EXHIBIT A
(attached hereto and made a part hereof by this reference); PROVIDED,
HOWEVER, failure by GECC to release its interest in the Collateral will not
affect Debtor's right to receive proceeds under Section 2(f) above.
<PAGE>
IN WITNESS WHEREOF, Racotek, WHOCC and Debtor have caused this Security
Agreement to be duly executed and delivered as of the date first above
written.
SECURED PARTY: DEBTOR:
RACOTEK, INC. GREENTREE SOFTWARE, INC.
A Delaware corporation a New York corporation
By: /s/ Ian Nemerov By: /s/ Philip D. Wolf
----------------------------------- --------------------------------
Name: Ian Nemerov Name: Philip D. Wolf
--------------------------------- ------------------------------
Its: Secretary and Attorney Its: Chief Financial Officer
---------------------------------- -------------------------------
WHOCC REAL ESTATE LIMITED PARTNERSHIP,
A Delaware limited partnership
By: WHOCC Gen-Par, Inc.
A Delaware corporation
Its General Partner
By: /s/ John F. Markey
------------------------------
Name: John F. Markey
----------------------------
Its: Senior Vice President - East
-----------------------------
<PAGE>
ACKNOWLEDGEMENT AND AGREEMENT BY BANK
Bank hereby acknowledges the existence of the foregoing Amended Security
Agreement and agrees all requests by Secured Party (including, as applicable,
by GECC only) to liquidate the Collateral (including the right to withdraw
funds prior to the maturing and any applicable certificate of deposit subject
to the payment of any early withdrawal penalty) will be honored by Bank and
that Bank will forward all or any portion of the proceeds of the Collateral
to Secured Party at Secured Party's written request. Until Secured Party
acknowledges in writing to Bank the complete satisfaction of the Obligations,
Bank agrees that it will not forward the Collateral including any
substitution or replacements thereof or any proceeds therefrom to any party
without the written consent of Secured Party except that Bank may forward to
Debtor any proceeds therefrom exceeding the then Minimum CD Amount in
accordance with the procedures set forth in paragraph 2 (f) of the Security
Agreement. Bank further acknowledges that, upon receipt of a notice from
GECC (or its successor in interest) in a Form of Notice to F&M Alliance Bank
of Transfer of Interest in CD in EXHIBIT A (attached hereto and made a part
of hereof by this reference), GECC will lose all of its interest in the
Collateral.
F & M ALLIANCE BANK
By:
------------------------------------------
Its:
-----------------------------------------
<PAGE>
EXHIBIT A
FORM OF NOTICE TO F & M ALLIANCE BANK OF TRANSFER OF INTEREST IN CD
[ATTACHED HERETO]
<PAGE>
[FORM OF NOTICE TO F&M ALLIANCE BANK
OF TRANSFER OF INTEREST IN CD]
General Electric Capital Corporation
292 Long Ridge Road
Stamford, CT 06927
F & M Alliance Bank
- -----------------------------
- -----------------------------
Attn:
------------------------
Re: Issuance of Certificate of Deposit No. [500101311-20 (or
replacement thereof)] (the "Certificate of Deposit")
Ladies and Gentleman:
WHOCC currently has possession of the Certificate of Deposit for security
interest purposes in connection with a loan pursuant to a Loan Agreement dated
as of March 2, 1998, by and between GECC and WHOCC. We hereby inform you that
the Obligations of (WHOCC Real Estate Limited Partnership, Racotek, Inc.,
Greentree Software, Inc. or a successor in interest of any of the above) have
been satisfied and we hereby release relinquish all of our interest in the CD
and direct you to comply with (WHOCC, Racotek or Greentree's instructions
regarding the CD.
By singing below, GECC releases any and all interest it has in the CD to
(WHOCC, Racotek, Greentree or successor in interest).
Sincerely,
GENERAL ELECTRIC CAPITAL
CORPORATION
A New York corporation
By:
-----------------------------------------
Name:
---------------------------------------
Its:
----------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-31-1998
<CASH> 2,009,002
<SECURITIES> 0
<RECEIVABLES> 169,356
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,256,778
<PP&E> 243,829
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,539,841
<CURRENT-LIABILITIES> 732,869
<BONDS> 0
0
0
<COMMON> 80,298
<OTHER-SE> 1,697,086
<TOTAL-LIABILITY-AND-EQUITY> 2,539,841
<SALES> 159,679
<TOTAL-REVENUES> 159,679
<CGS> 32,782
<TOTAL-COSTS> 32,782
<OTHER-EXPENSES> 902,369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (30,898)
<INCOME-PRETAX> (744,574)
<INCOME-TAX> 0
<INCOME-CONTINUING> (744,574)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (744,574)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
