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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _____________ .
Commission File Number : 0-22350
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MERCURY INTERACTIVE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0224776
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
470 POTRERO AVENUE, SUNNYVALE, CALIFORNIA 94086
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 523-9900
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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 a 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 [_]
The number of shares of Registrant's Common Stock outstanding as of October
31, 1997 was 16,584,637.
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MERCURY INTERACTIVE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
PART 1. FINANCIAL INFORMATION
<C> <S> <C>
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets--September 30, 1997
and December 31, 1996...................................... 3
Condensed Consolidated Statements of Operations--Three and
nine months ended September 30, 1997 and 1996.............. 4
Condensed Consolidated Statements of Cash Flows--Nine months
ended September 30, 1997 and 1996.......................... 5
Notes to Condensed Consolidated Financial Statements........ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 16
SIGNATURE............................................................ 17
EXHIBITS INDEX....................................................... 18
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MERCURY INTERACTIVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 50,652 $ 44,337
Short-term investments (Note 2)................... 32,375 26,686
Trade accounts receivable (net of allowances of
$2,131 and $1,136)............................... 20,130 18,503
Government grant and other receivables............ 2,581 3,139
Inventories....................................... 276 560
Prepaid expenses and other assets................. 3,536 3,307
-------- --------
Total current assets............................ 109,550 96,532
Long-term investments (Note 2)...................... 3,143 8,954
Property and equipment, net......................... 18,107 10,413
Deposits and other assets........................... 1,236 1,590
-------- --------
$132,036 $117,489
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 2,373 $ 1,859
Accrued liabilities............................... 16,242 8,782
Deferred revenue.................................. 9,031 7,809
-------- --------
Total current liabilities....................... 27,646 18,450
-------- --------
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, par value $.002 per share, 25,000
shares authorized; 16,567 and 16,056 shares
issued and outstanding........................... 33 32
Capital in excess of par value.................... 104,275 100,235
Cumulative translation adjustment................. (446) (99)
Retained earnings (accumulated deficit)........... 528 (1,129)
-------- --------
Total stockholders' equity...................... 104,390 99,039
-------- --------
$132,036 $117,489
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
MERCURY INTERACTIVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT 30, SEPT 30,
-------------------- ------------------
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
License............................ $ 14,300 $ 11,400 $ 37,883 $ 29,350
Service............................ 5,300 2,800 14,617 7,950
--------- --------- -------- --------
Total revenue.................... 19,600 14,200 52,500 37,300
--------- --------- -------- --------
Cost of revenue:
License............................ 1,073 1,042 2,969 2,247
Service............................ 1,520 824 4,346 2,242
--------- --------- -------- --------
Total cost of revenue............ 2,593 1,866 7,315 4,489
--------- --------- -------- --------
Gross profit......................... 17,007 12,334 45,185 32,811
--------- --------- -------- --------
Operating expenses:
Research and development........... 2,729 2,721 8,401 7,573
Less: grants....................... -- (160) (1,055) (1,408)
--------- --------- -------- --------
Research and development, net.... 2,729 2,561 7,346 6,165
Write-off of in-process research
and development and related
expenses.......................... 5,500 -- 5,500 --
Marketing and selling.............. 9,395 7,742 26,610 21,610
General and administrative......... 1,786 1,093 4,779 2,954
Settlement of litigation........... -- -- -- 2,600
--------- --------- -------- --------
Total operating expenses......... 19,410 11,396 44,235 33,329
--------- --------- -------- --------
Income (loss) from operations........ (2,403) 938 950 (518)
Other income, net.................... 816 856 2,371 2,477
--------- --------- -------- --------
Income (loss) before provision for
income taxes........................ (1,587) 1,794 3,321 1,959
Provision for income taxes........... 683 359 1,664 394
--------- --------- -------- --------
Net income (loss).................... $ (2,270) $ 1,435 $ 1,657 $ 1,565
========= ========= ======== ========
Net income (loss) per share.......... $ (0.14) $ 0.09 $ 0.10 $ 0.09
========= ========= ======== ========
Weighted average common shares and
equivalents......................... 16,433 16,614 17,138 16,583
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
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MERCURY INTERACTIVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPT 30,
-------------------
1997 1996
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 1,657 $ 1,565
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 2,531 2,442
Non-cash non-recurring charges.......................... 250 --
Net changes in assets and liabilities:
Trade accounts receivable............................. (1,627) (2,259)
Government grant and other receivables................ 558 (583)
Inventories........................................... 284 (317)
Prepaid expenses, deposits and other assets........... 125 (758)
Accounts payable...................................... 514 1,317
Accrued liabilities (including in 1996 the payment of
litigation-related accruals of $3,134 and acquisition
and restructuring accruals of $3,889)................ 7,460 (5,982)
Deferred revenue...................................... 1,222 173
--------- --------
Net cash provided by (used in) operating activities. 12,974 (4,402)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment proceeds, net.................................. 122 6,266
Acquisition of property and equipment..................... (10,075) (4,137)
Capitalization of software development costs.............. (400) (1,045)
--------- --------
Net cash provided by (used in) investing activities. (10,353) 1,084
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 4,041 1,498
--------- --------
Net cash provided by financing activities........... 4,041 1,498
--------- --------
Effect of exchange rate changes on cash................... (347) (167)
--------- --------
Net increase (decrease) in cash and cash equivalents...... 6,315 (1,987)
Cash and cash equivalents at beginning of period.......... 44,337 45,850
--------- --------
Cash and cash equivalents at end of period................ $ 50,652 $ 43,863
========= ========
Cash paid during the period for income taxes:............. $ 63 $ --
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
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MERCURY INTERACTIVE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, that in the
opinion of management are necessary to fairly state the Company's
consolidated financial position, the results of its operations, and its
cash flows for the periods presented. This Quarterly Report on Form 10-Q
should be read in conjunction with the Company's audited financial
statements for the year ended December 31, 1996, included in the 1996
Annual Report and Form 10-K. The condensed consolidated statement of
operations for the nine months ended September 30, 1997 is not necessarily
indicative of results to be expected for the entire fiscal year ending
December 31, 1997. Certain items have been reclassified to conform to the
current period presentation.
2. The portfolio of short and long-term investments is carried at cost (which
approximates market) as of the balance sheet date which consist of
investments in high quality financial, government and corporate securities.
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", the
Company has categorized its marketable securities as "available-for-sale"
securities. Realized gains or losses are determined based on the specific
identification method and are reflected in income.
3. During the quarter ended September 30, 1997, the Company acquired certain
technologies which will be integrated into its future versions of load-
testing products. As a result of this purchase, the Company recorded a one-
time charge for write-off of in-process research and development and
related charges of $5.5 million.
4. The effective tax rate for the nine months ended September 30, 1997 differs
from statutory tax rates principally because of special reduced taxation
programs sponsored by the government of Israel. Additionally, for the
quarter ended September 30, 1997, the Company has not fully recognized the
tax benefit associated with the write-off of purchased in-process research
and development and related expenses because realization of the future tax
benefit is uncertain.
5. Net income (loss) per common share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during
the period. Dilutive common equivalent shares consist of common stock
issuable upon exercise of stock options (using the treasury stock method).
Common equivalent shares are excluded from the calculation if their effect
is anti-dilutive.
6. During the quarter ended September 30, 1997, the Company did not receive
any research and development grants from the Office of the Chief Scientist
in the Israeli Ministry of Industry and Trade. The Company received grants
totaling $1.1 million in the six months ended June 30, 1997, and $160,000
and $1.4 million in the quarter and the nine months ended September 30,
1996, respectively. These grants are accounted for using the cost reduction
method, under which research and development expenses are decreased by the
amounts of the grants. The Company is not obligated to repay these grants;
however, it has agreed to pay royalties at rates ranging from 2% to 5% of
product sales resulting from the research, up to the amount of the grants
obtained and, for certain grants, up to 150% of the grants obtained.
Royalty expense under these agreements amounted to approximately $307,000
and $1,241,000 for the quarter and the nine months ended September 30,
1997, respectively, and $27,000 and $784,000 for the quarter and the nine
months ended September 30, 1996, respectively. As of September 30, 1997,
the Company is committed to pay, if and when earned, approximately $3.2
million in royalties.
The Company did not receive any grants for research and development
projects from the Israel-U.S. Binational Industrial Research and
Development Foundation ("BIRD-F") during the quarter and the nine months
ended September 30, 1997. As of September 30, 1997, the Company is
committed to pay, if and when earned, approximately $1.3 million in
royalties.
7. In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (SFAS 128), "Earnings Per Share." The statement simplifies the
standards for computing earnings per share (EPS) previously found in APB
Opinion No. 15, "Earnings Per Share," and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS
with a presentation of basic EPS.
6
<PAGE>
MERCURY INTERACTIVE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
It also requires dual presentation of basic and diluted EPS on the face of
the financial statements for all entities with complex capital structures.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS is computed similarly to fully
diluted EPS under APB Opinion No. 15. SFAS 128 becomes effective for all
periods, including interim periods, ending on or after December 15, 1997.
SFAS 128 would have had an immaterial impact on the Company's EPS
computation for the quarter and the nine months ended September 30, 1997 and
1996.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains descriptions of the Company's expectations regarding
future trends affecting its business. These forward looking statements and
other forward looking statements made elsewhere in this document are made in
reliance upon the safe harbor provisions of the Public Securities Litigation
Reform Act of 1995. Please read the section below titled "Factors that may
affect future results" to review conditions which the Company believes could
cause actual results to differ materially from those contemplated by the
forward looking statements. Forward looking statements include, but are not
limited to, those items identified with a footnote (1) symbol. The Company
undertakes no obligation to update the information contained herein.
RESULTS OF OPERATIONS
Revenue
License revenue increased 25% to $14.3 million during the third quarter of
1997 from $11.4 million in the third quarter of 1996. License revenue
increased 29% to $37.9 million during the nine months ended September 30, 1997
from $29.4 million during the nine months ended September 30, 1996. The growth
in license revenue was primarily attributable to growth in license fees from
the LoadRunner, WinRunner and Test Director products. License revenue in the
third quarter of 1997 also benefited from the Company's continuing expansion
into alternate distribution channels, such as referral partners, system
integrators and value added resellers. Revenue generated through alternate
channels represented 44% and 42% of the license fees during the quarter and
the nine months ended September 30, 1997, respectively. Revenue generated
through alternate channels represented 42% and 41% of the license fees during
the quarter and the nine months ended September 30, 1996, respectively.
Service revenue increased to $5.3 million or 27% of total revenue in the
third quarter of 1997 from $2.8 million or 20% of total revenue in the third
quarter of 1996 and increased to $14.6 million, or 28% of total revenue in the
nine months ended September 30, 1997, from $8.0 million or 21% of total
revenue in the nine months ended September 30, 1996. This increase in service
revenue in 1997 compared to 1996 was primarily due to the growth of the
Company's installed customer base, the renewal of maintenance contracts and an
increase in training and consulting revenue. The Company expects that service
revenue will continue to increase in absolute dollars as long as the Company's
customer base continues to grow.(/1/)
International revenue in the quarter and the nine months ended September 30,
1997 represented 36% and 38%, respectively, of total revenue. International
revenue was approximately 34% and 37% in the quarter and the nine months ended
September 30, 1996, respectively. The increase in international revenue
resulted primarily from increased sales in Europe.
Cost of revenue
License cost of revenue, as a percentage of license revenue, was 8% in both
the third quarter and the nine months ended September 30, 1997, respectively,
compared to 9% and 6% in the quarter and the nine months ended September 30,
1996, respectively. License cost of revenue consisted primarily of employee-
related costs.
Service cost of revenue, as a percentage of service revenue, was 29% and 30%
in the quarter and the nine months ended September 30, 1997, respectively,
compared to 29% and 28% in the quarter and the nine months ended September 30,
1996, respectively. The increased service cost of revenue for the nine months
ended September 30, 1997 reflected increases in technical support headcount to
support the growth in the customer base and increased outsourcing of training
and consulting activities. Service cost of revenue consisted primarily of
costs of customer technical support, education and consulting.
- --------
(1) Forward looking statement
8
<PAGE>
Research and development
Research and development expenditures, before reductions for grants, amounted
to $2.7 million or 14% of total revenue in the quarter ended September 30, 1997
compared to $2.7 million or 19% of total revenue in the quarter ended September
30, 1996. Research and development expenditures increased to $8.4 million or
16% of total revenue for the nine months ended September 30, 1997 from $7.6
million or 20% for the nine months ended September 30, 1996. Expenditures for
the quarter ended September 30, 1997 increased due to higher personnel-related
costs in the Company's research and development facility in Israel, but were
fully offset by a benefit in the foreign currency exchange rate between the
U.S. dollar and the Israeli Shekel.
During the quarter ended September 30, 1997, the Company acquired certain
technologies which will be integrated into its future versions of load-testing
products. As a result of this purchase, the Company recorded a one-time charge
for write-off of in-process research and development and related charges of
$5.5 million. This charge is reflected as a separate component of the Company's
Statements of Operations for the quarter and the nine months ended September
30, 1997.
The Company capitalized $100,000 and $400,000 of software development costs
during the quarter and the nine months ended September 30, 1997, respectively
and $495,000 and $1.0 million in the quarter and the nine months ended
September 30, 1996, respectively, in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed." Amortization of these capitalized
costs amounted to $150,000 and $450,000 for the quarter and the nine months
ended September 30, 1997 and $120,000 and $180,000 for the quarter and the nine
months ended September 30, 1996. An additional $250,000 of capitalized costs
were written off during the quarter ended September 30, 1997 due to the
acquisition of technologies and were included in the $5.5 million write-off of
research and development and related charges. At September 30, 1997 the Company
had a net balance in capitalized software development costs of approximately
$1.2 million.
During the quarter ended September 30, 1997, the Company did not receive any
research and development grants from the Office of the Chief Scientist in the
Israeli Ministry of Industry and Trade. The Company received grants totaling
$1.1 million in the six months ended June 30, 1997, and $160,000 and $1.4
million in the quarter and the nine months ended September 30, 1996,
respectively. These grants are accounted for using the cost reduction method,
under which research and development expenses are decreased by the amounts of
the grants. The Company is not obligated to repay these grants; however, it has
agreed to pay royalties at rates ranging from 2% to 5% of product sales
resulting from the research, up to the amount of the grants obtained and, for
certain grants, up to 150% of the grants obtained. Royalty expense under these
agreements amounted to approximately $307,000 and $1,241,000 for the quarter
and the nine months ended September 30, 1997, respectively, and $27,000 and
$784,000 for the quarter and the nine months ended September 30, 1996,
respectively. As of September 30, 1997, the Company is committed to pay, if and
when earned, approximately $3.2 million in royalties.
The Company did not receive any grants for research and development projects
from the Israel-U.S. Binational Industrial Research and Development Foundation
("BIRD-F") during the quarter and the nine months ended September 30, 1997. As
of September 30, 1997, the Company is committed to pay, if and when earned,
approximately $1.3 million in royalties.
The Company intends to continue making significant expenditures on research
and development to develop new products and expand the platforms and operating
systems on which its products are offered.(/1/) While the Company believes that
these current research and development expenditures will be beneficial in the
long term development of its business, there can be no assurances that the
development of products will be successful. Research and development
expenditures are incurred substantially in advance of related revenue and in
some cases do not result in the generation of revenue.
- --------
(1) Forward looking statement
9
<PAGE>
Marketing and selling
Marketing and selling expenses were $9.4 million, or 48% of total revenue,
and $26.6 million, or 51% of total revenue, in the quarter and the nine months
ended September 30, 1997, respectively, compared to $7.7 million, or 55% of
total revenue, and $21.6 million, or 58% of total revenue, in the quarter and
the nine months ended September 30, 1996, respectively. The increase in
marketing and selling expense reflects additions to the sales force and
related sales infrastructure costs. The Company expects marketing and selling
expenses to increase in absolute dollars as total revenue increases, but such
expenses may vary as a percentage of revenue.(1)
General and administration
General and administrative expenses increased to $1.8 million, or 9% of
total revenue, and $4.8 million, or 9% of total revenue, in the quarter and
the nine months ended September 30, 1997, respectively, from $1.1 million, or
8% of total revenue, and $3.0 million, or 8% of total revenue, in the quarter
and the nine months ended September 30, 1996, respectively. The increase
reflected infrastructure investments to support the growth of the Company,
including increases in personnel-related costs and increased costs related to
worldwide information systems, telecommunications and insurance.
Other income, net
Other income, net consisted primarily of interest income. In the quarters
and the nine months ended September 30, 1997 and September 30, 1996, the
Company earned interest income on its investments in money market accounts and
marketable securities, which consist of investments in high-quality financial,
government and corporate institutions. The decrease in other income, net to
$816,000 and $2.4 million in the quarter and the nine months ended September
30, 1997, respectively, from $856,000 and $2.5 million in the quarter and the
nine months ended September 30, 1996, respectively, resulted primarily from a
lower average investment balance during the third quarter of 1997 due to the
purchase, for cash, of a new headquarters building in Sunnyvale, California.
Provision for income taxes
The Company has accounted for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". The Company recorded tax expense of $683,000 and $1.7 million in the
quarter and the nine months ended September 30, 1997, respectively, compared
to $359,000 and $394,000 in the quarter and the nine months ended September
30, 1996, respectively.
The Company participates in special programs sponsored by the government of
Israel relating to taxation. Future provisions for taxes will depend upon the
mix of worldwide income and the tax rates in effect for various tax
jurisdictions. For the quarter ended September 30, 1997, the Company has not
fully recognized the tax benefit associated with the write-off of purchased
in-process research and development and related expenses because realization
of the future tax benefit is uncertain.
Net income (loss)
The Company reported a net loss of $2.3 million and net income of $1.7
million in the quarter and the nine months ended September 30, 1997,
respectively, compared to net income of $1.4 million and $1.6 million in the
quarter and the nine months ended September 30, 1996, respectively. The
results of operations for the quarter ended September 30, 1997 included the
write-off of in-process research and development and related expenses of $5.5
million associated with the purchase of technologies.
The Company's operating expenses are based, in part, on its expectations of
future revenues, and expenses are generally incurred in advance of revenues.
The Company plans to continue to expand and increase its operating expenses to
support anticipated revenue growth.(1) If revenue does not materialize in a
quarter as
- --------
(1) Forward looking statement
10
<PAGE>
expected, the Company's results from operations for that quarter are likely to
be materially adversely affected. Net income may be disproportionately affected
by a reduction in revenue because only a small portion of the Company's
expenses varies with its revenue.
Inflation
Inflation has not had a significant impact on the Company's operating results
to date, nor does the Company expect it to have a significant impact during the
year.(1)
Factors that may affect future results
The Company has identified certain forward looking statements in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations with a footnote (1) symbol. The Company may also make oral forward
looking statements from time to time. Actual results may differ materially from
those projected in any such forward looking statements due to a number of
factors, including those set forth below and elsewhere in this Form 10-Q.
The Company operates in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. The following section lists some,
but not all, of those risks and uncertainties which may have a
material adverse effect on the Company's business, financial condition or
results of operations. This section should be read in conjunction with the
unaudited Condensed Consolidated Financial Statements and Notes thereto
included in Part I--Item 1 of this Quarterly Report on Form 10-Q and the
audited Consolidated Financial Statements and Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations for
the year ended December 31, 1996, contained in the Company's 1996 Annual Report
to Stockholders on Form 10-K.
The market for software products is generally characterized by rapidly
changing technology, frequent new product introductions and changes in customer
requirements, which can render existing products obsolete or unmarketable. The
Company believes that a major factor in its future success will be its ability
to continue to develop and introduce in a timely and cost-effective manner
enhancements to its existing products and new products that will gain market
acceptance. There can be no assurance that the Company will be able to
identify, develop, manufacture, market or support new products or enhancements
successfully, that any such new products or enhancements will gain market
acceptance, or that the Company will be able to respond effectively to
technological changes. There can be no assurance that the Company will not
encounter technical or other difficulties that could delay introduction of new
products in the future. If the Company is unable to introduce new products or
enhancements and respond to industry changes on a timely basis, its business
could be materially adversely affected.
The market for the automated software testing products is relatively new and
undeveloped. Marketing and sales techniques in the automated software testing
marketplace, as well as the bases for competition, are not well established.
There can be no assurance that a significant market for automated software
testing products will be developed or that the Company's products will be
accepted in any expanded market. Although the Company believes that the current
trend toward increased use of automated software testing will continue, a
majority of software testing is still carried out manually, and there can be no
assurance that the automated software market will enjoy continued growth.
The Company's current products and products under development are limited in
number and concentrated exclusively in the software testing market. The life
cycles of the Company's products are difficult to estimate due, in large
measure, to the recent emergence of the Company's market as well as the unknown
future effect of
- --------
(1) Forward looking statement
11
<PAGE>
product enhancements and competition. Price reductions or declines in demand
for the Company's software testing products, whether as a result of
competition, technological change or otherwise, would have a material adverse
effect on the Company's results of operations or financial position.
The Company may from time to time experience significant fluctuation in
quarterly operating results due to a variety of factors. Such fluctuations in
quarterly operating results may occur in the future due to many factors, some
of which are outside of the Company's control. Products are generally shipped
as orders are received, and, consequently, quarterly sales and operating
results depend primarily on the volume and timing of orders received during
the quarter, which are difficult to forecast. In particular, the Company has
historically received a substantial portion of its orders at the end of a
quarter. If an unanticipated order shortfall occurs at the end of a quarter,
the Company's operating results for the quarter could be materially adversely
affected. In addition, product orders are affected by the buying patterns of
customers and the potential budgetary impact of Year 2000 remediation efforts
on the buying trends of customers. A significant portion of the Company's
operating expenses are relatively fixed, and planned expenditures are based on
sales forecasts. All of the foregoing may result in unanticipated quarterly
earning shortfalls or losses. Accordingly, the Company believes that period-
to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
The market for software products, in general, is highly competitive. The
Company continues to face direct competition from established and emerging
companies, both publicly and privately-held. In the past year, a number of the
Company's competitors have been consolidated through acquisitions and may have
significantly greater resources than the Company. There could be a material
adverse effect on the Company's results of operations or financial position if
any of the major software manufacturers, which have significantly greater
resources than the Company, decided to devote substantial resources to
entering the software testing market or if there is an increase in developing
testing utilities internally by the Company's customers or potential
customers. A variety of external and internal factors could materially
adversely affect the Company's ability to compete. These include the relative
functionality, price, performance and reliability of the products offered by
the Company and its competitors, the timing and success of new product
development or enhancement efforts of the Company and its competitors, and the
effectiveness of the marketing efforts of the Company and its competitors.
There can be no assurance that the Company will be able to compete
successfully in the future or that competitive pressures will not materially
adversely affect the Company's business.
Sales to customers located outside the United States have historically
accounted for a significant percentage of revenue and the Company anticipates
that such sales will continue to be a significant percentage of the Company's
total revenue. Accordingly, such factors as currency fluctuations, political
and economic instability and trade restrictions could have a negative impact
on the Company's financial performance.
Certain of the Company's sales are made in currencies other than the U.S.
Dollar and its financial results are reported in U.S. Dollars. Fluctuations in
the rates of exchange between the U.S. Dollar and other currencies may have a
material adverse effect on the Company's results of operations and financial
position. To date, the Company has not hedged against currency translation
risks.
As part of its growth strategy, the Company may, from time to time, acquire
or invest in complementary businesses, products or technologies. While there
are currently no commitments with respect to any particular acquisition or
investment, except as described below in "Liquidity and capital resources",
the Company's management frequently evaluates the strategic opportunity
available related to complimentary businesses, products or technologies. The
process of integrating an acquired company's business into the Company's
operations may result in unforeseen operating difficulties and expenditures
and may absorb significant management attention that would otherwise be
available for the ongoing development of the Company's business. Moreover,
there can be no assurance that the anticipated benefits of any acquisition or
investment will be realized. Future acquisitions or investments by the Company
could result in potentially dilutive issuances of
12
<PAGE>
equity securities, the incurrence of debt and contingent liabilities,
amortization expenses related to goodwill and other intangible assets, any of
which could materially adversely affect the Company's operating results and
financial condition.
During the quarter ended September 30, 1997, the Company acquired certain
technologies which will be integrated into its next version of load-testing
products. As a result of this purchase, the Company's results of operations
for the quarter ended September 30, 1997 included a write-off of in-process
research and development expense and related charges of $5.5 million. There
can be no assurance that the Company will be successful in its efforts to
integrate the acquired technologies or will not incur additional charges in
subsequent quarters to reflect costs associated with the acquisition. Although
the Company believes the acquisition of technology described above is in the
best interest of the Company and its stockholders, there are significant risks
involved with this transaction, including, but not limited to, difficulties or
delays in achieving product and technology integration benefits and
difficulties in maintaining revenue levels during the transition to new
products.
Since its inception, the Company has obtained royalty-bearing grants from
various Israeli government agencies. While the Company received no such grants
during the quarter ended September 30, 1997, it expects to receive additional
grants in the future.(1) Any such grants will likely decline as a percentage
of gross research and development spending and there can be no assurance that
the Company will receive any such grants. Termination or substantial reduction
of such grants or changes in revenue classification could have a material
adverse effect on the Company. The terms of certain grants prohibit the
manufacture of products developed under these grants outside of Israel and the
transfer of technology developed pursuant to the terms of these grants to any
person, without the prior written consent of the government of Israel. As a
result, if the Company is unable to obtain the consent of the government of
Israel, the Company may not be able to take advantage of strategic
manufacturing and other opportunities outside of Israel.
Since 1991, the Company has experienced significant annual increases in
revenue. This growth has placed and, if it continues, will place a significant
strain on the Company's management, resources and operations. To accommodate
its recent growth, the Company is implementing a variety of new or expanded
business and financial systems, procedures and controls, including the
improvement of its accounting and other internal management systems. There can
be no assurance that the implementation of such systems, procedures and
controls can be completed successfully, or without disruption of the Company's
operations. If the Company's growth continues, the Company will be required to
hire and integrate substantial numbers of new employees. The market has become
increasingly competitive both in the United States and Israel and may require
the Company to pay higher salaries. The Company's failure to manage growth
effectively could have a material adverse effect on the Company's results of
operations or financial position.
The Company's success depends to a significant extent on the performance of
its senior management and certain key employees. Competition for highly
skilled employees, including sales, technical and management personnel, is
intense in the computer industry. The Company's failure to attract additional
qualified employees or to retain the services of key personnel could
materially adversely affect the Company's business.
The Company currently relies on a combination of trademark, copyright and
trade secret laws and contractual provisions to protect its proprietary rights
in its products. The Company presently has no registered copyrights. The
Company holds one patent for an element contained in certain of its products,
and it has filed several other U.S. and foreign patent applications on various
elements of its products. There can be no assurance that any of the Company's
patent applications will result in an issued patent or that, if issued, such
patent would be upheld if challenged. There can be no assurance that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology. There can
also
- --------
(1) Forward looking statement
13
<PAGE>
be no assurance that the measures taken by the Company to protect its
propriety rights will be adequate to prevent misappropriation of the
technology or independent development by others of similar technology. In
addition, the laws of various countries in which the Company's products may be
sold may not protect the Company's products and intellectual property rights
to the same extent as the laws of the United States. There can be no assurance
that third parties will not assert intellectual property infringement claims
against the Company or that any such claims will not require the Company to
enter into royalty or cross-license arrangements or result in costly
litigation.
In selling its products, the Company frequently relies on "shrink wrap"
licenses that are not signed by licensees. The provisions in such licenses
limiting the Company's exposure to potential product liability claims may
therefore be unenforceable under the laws of certain jurisdictions. Although,
the Company has carried errors and omissions insurance against such claims,
there can be no assurance that such insurance will continue to be available on
acceptable terms, if at all, or that such insurance will provide the Company
with adequate protection against any such claims. Although the Company has not
experienced any product liability claims to date, the sale and support of
products by the Company may entail the risk of such claims. A significant
product liability claim against the Company could have a material adverse
effect upon the Company's business, financial condition and results of
operations.
The Company's stock price, like that of other technology companies, is
subject to significant volatility. 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.
If revenues or earnings in any quarter fail to meet expectations of the
investment community, there could be an immediate and significant impact on
the Company's stock price. In addition, the Company's stock price may be
affected by broader market trends that may be unrelated to the Company's
performance.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the recorded amounts of assets and liabilities,
disclosure of those assets and liabilities at the date of the financial
statements and the recorded amounts of expenses during the reporting period. A
change in the facts and circumstances surrounding these estimates could result
in a change to the estimates and impact future operating results.
Liquidity and capital resources
Cash, cash equivalents and investments increased to $86.2 million at
September 30, 1997 from $80.0 million at December 31, 1996. The Company
generated approximately $13.0 million in cash from operations. For the nine
months ended September 30, 1997 the Company paid $10.0 million for the
purchase of property and equipment, including payment of $6.5 million for the
new headquarters building during the quarter ended September 30, 1997. In
addition, during the nine months ended September 30, 1997, the Company
received $4.0 million from the issuance of Common Stock under employee stock
option and purchase plans. The Company's short-term and long-term investments
consist of investments in high-quality financial, government and corporate
securities.
During the quarter ended June 30, 1997, the Company began construction of a
research and development facility on land previously purchased in Israel. As
of September 30, 1997, the Company had expenditure commitments of
approximately $900,000 related to this construction. The Company expects to
make additional capital expenditures of approximately $10.0 million for the
facility over the next eighteen months.(1)
In August 1997, the Company purchased a new headquarters building in
Sunnyvale, California for approximately $6.5 million. The Company expects to
make additional capital expenditures of approximately $2.5 million for
improvement of the facility before relocating in early 1998.(1)
- --------
(1) Forward looking statement
14
<PAGE>
During the quarter ended September 30, 1997, the Company purchased
technologies which will be integrated into its future versions of load-testing
products. As a result of this purchase, the Company recorded a one-time charge
for write-off of in-process research and development and related charges of
$5.5 million. The acquisition cost was accrued in the quarter ended September
30, 1997 and will be paid in the last quarter of 1997.
Assuming there is no significant change in the Company's business, the
Company believes that its current cash and investment balances and cash flows
from operations, will be sufficient to fund the Company's cash needs for at
least the next twelve months.(1)
- --------
(1) Forward looking statement
15
<PAGE>
MERCURY INTERACTIVE CORPORATION
PART II. OTHER INFORMATION
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) 10.1--Purchase Agreement between Mercury Interactive Corporation and
Dixon Software Technology dated September 30, 1997.
10.2--Purchase and Sale Agreement and Joint Escrow Instructions by
and between Mercury Interactive Corporation and M.C.
Securities, LLC dated July 1, 1997.
11.1--Computation of net income (loss) per common share for the
three and nine months ended September 30, 1997 and 1996.
27.1--Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
16
<PAGE>
SIGNATURE
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.
Date: November 12, 1997 MERCURY INTERACTIVE CORPORATION
(Registrant)
/s/ Sharlene Abrams
-------------------------------------
Sharlene Abrams
Vice-President of Finance and
Administration, Chief Financial
Officer and Secretary
(Principal Financial and Accounting
Officer)
17
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.1 Purchase Agreement between Mercury Interactive Corporation and Dixon
Software Technology dated September 30, 1997
10.2 Purchase and Sale Agreement and Joint Escrow Instructions by and
between Mercury Interactive Corporation and M.C. Securities, LLC dated
July 1, 1997
11.1 Computation of net income (loss) per common share for the three and
nine months ended September 30, 1997 and 1996.
27.1 Financial Data Schedule
</TABLE>
18
<PAGE>
EXHIBIT 10.1
TECHNOLOGY PURCHASE AGREEMENT
-----------------------------
This Technology Purchase Agreement (the "Agreement") is entered into by and
among the following:
1. DIXON SOFTWARE TECHNOLOGY,
a company formed according to the laws
of the island of Nevis.
(hereinafter " Dixon").
2. MERCURY INTERACTIVE CORPORATION,
a company formed according to the
laws of the State of Delaware, having its
principal offices at 470 Potrero Avenue,
Sunnyvale, California 94086, U.S.A.
(hereinafter "the Buyer").
WHEREAS Dixon is the legal owner of the know-how and R&D in process, and all
related technical information whether tangible or intangible, including without
limitation any data, designs, calculations, computer source codes (human
readable format) and executables and object codes (machine readable format),
specifications, test and installation, instructions, service and maintenance
notes, technical, operating and service and maintenance manuals, user
documentation, training materials, and other data, information, know-how and all
goodwill associated therewith, in each case which are in the possession of,
owned by or licensed to Dixon and are necessary or desirable to enhance,
develop, manufacture, assemble, service, maintain, install, operate, use or test
the Technology. as described in Appendix 1 attached to this Agreement,
----------
hereinafter the "Technology"; and
WHEREAS the Buyer is interested in acquiring the rights to the "Technology", in
order to further develop the Technology.
NOW THEREFORE, in consideration of the representations, warranties, covenants,
and agreements of the parties hereinafter set forth, the parties hereto,
intending to be legally bound, do hereby agree as follows:
1. SALE AND PURCHASE OF THE TECHNOLOGY
-----------------------------------
1.1. Sale and Purchase of the Technology
-----------------------------------
<PAGE>
-2-
(a) Dixon hereby sells, assigns and transfers all of its right,
title and interest in and to the Technology at the purchase
price of US $ 4.5 million ("the "Purchase Price"), and the
-----------
Buyer agrees to purchase such technology for the purchase
price.
1.2. CLOSING
-------
(a) Subject to satisfaction or waiver of the conditions
precedent to the obligations of the parties hereto and the
execution and delivery of this Agreement and all other
documents required by this Agreement, the purchase of the
Technology shall take place on or before September 30,
1997, or other time and place as the Buyer and Dixon
designate orally or in writing (which time and place are
designated as the "Closing") and the payment shall take
place on or before December 31, 1997.
(b) At the Closing Dixon shall deliver, (i) written technical
documentation of the Technology to be given at Closing to
the Buyer, and (ii) such assignments as shall reasonably be
requested.
(c) Payment shall be made to Dixon by the Buyer in U.S.dollars.
2. REPRESENTATIONS AND WARRANTIES OF DIXON
---------------------------------------
Dixon hereby represents and warrants that the representations and
warranties of Dixon in this Section 2 are correct and complete as of
the date of this Agreement.
2.1. Organization
------------
Dixon is a corporation duly organized, validly existing and in
good standing under the laws of the Isle of Nevis. Dixon has all
requisite power and authority to execute, deliver, and perform its
obligations under this Agreement and to consummate the
transactions contemplated hereby and thereby, and Dixon has all
requisite power and authority to own. Lease or otherwise use the
Technology and to carry on its business as now being conducted.
Dixon is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in wich
the character of its business or asset makes such qualification
necessary, except where the failure to be so qualifies or licensed
would not have a material adverse effect on the Technology or
Dixon's ability to perform its obligations hereunder.
<PAGE>
-3-
2.2. Authorization
-------------
All corporate action on the part of Dixon directors and
shareholders necessary for the authorization, execution and
delivery of this Agreement, the performance of all obligations of
Dixon hereunder, and the sale and the assignment of the Technology
has taken or will have taken place prior to the Closing. This
Agreement constitutes a valid and legally binding obligation of
Dixon enforceable in accordance with its terms.
2.3. Litigation
----------
To the best knowledge of Dixon, as of the date of signature of
this Agreement:
(a) There are no claims, actions, suits, proceedings or
investigations pending or currently threatened against
Dixon and/or its directors and officers, which question the
validity of this Agreement or the right to enter into it, or
to consummate the transaction contemplated hereby, or which
might result either individually or in the aggregate in any
material adverse right of the Buyer to the Technology,
except as described on the Disclosure Schedule, if any.
(b) The foregoing includes, without limitation, actions pending
or threatened involving the present or prior employment of
Dixon's employees and/or consultants, their use in
connection with its business of any information or
techniques allegedly proprietary to any of its former
employers or consultancy arrangements, or their obligations
under any agreements with prior employers or consultancy
arrangements.
(c) The Technology is not subject to the provisions of any
order, writ, injunction, judgement or decree of any court or
government agency or instrumentality and there is no action,
suit, proceeding or investigation against Dixon with respect
to the Technology, by any government agency or
instrumentality currently pending or which any one of them
intends to initiate.
2.4. Technology
----------
(One) Dixon owns all right, title and interest in and to the
Technology, free and clear of any liens, encumbrances or claims
by third parties. Dixon has and will deliver to Buyer, at
<PAGE>
-4-
the Closing, good and marketable title to the Technology. Dixon
has not infringed, and is not now infringing, on any trade secret
or copyright belonging to any other person or entity.
(Two) Dixon has not distributed or divulged Confidential
Information constituting the Technology, and Dixon is not a party
to any license, agreement or arrangement, whether as licensee,
licensor or otherwise, with respect to the Technology. Dixon has
taken all reasonable security measures to protect the secrecy,
confidentiality and value of the Technology and any of its
employees and any other persons who, either alone or in concert
with others, developed, invented, discovered, derived, programmed
or designed these secrets, or who have knowledge of or access to
information relating to them, have entered into agreements that
these secrets are proprietary to Dixon and not to be divulged or
misused.
(Three) No employee or subcontractor of Dixon is, or to the best
knowledge of Dixon. Is now expected to be, in default under any
term of any employment contract. nondisclosure obligation,
agreement or arrangement relating to the Technology or any
noncompetition agreement, contract or restrictive covenant
relating to the Technology or its development or exploitation. The
Technology (i) was developed by employees of Dixon in the course
of such employees employment by Dixon, (ii) constitutes" works
made for hire" of Dixon with in the meaning of the United States
Copyright Act of 1976, as amended, or (iii) has been validly
assigned to Dixon.
2.5. Compliance with Other Instruments and Laws
------------------------------------------
(a) Dixon is not in default of any provisions of its respective
company documents or Protocols, of any instrument,
judgement, order, writ, decree or contract to which it is a
party or by which it is bound or, of any provision of law
applicable to it, that would prevent it from executing and
delivering the Agreement.
(b) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby
will not result in any such violation of applicable
statutes, laws and regulations.
<PAGE>
-5-
2.6. Agreements; Default
-------------------
(a) There are no agreements, understandings or proposed
transactions between Dixon and/or any of its officers,
directors, shareholders, affiliates, or any affiliate
thereof, except as identified in the Disclosure Schedule, if
any, that would effect the ownership by the Buyer of the
Technology. There is no default, or event that with notice
or lapse of time, or both, would constitute a default, by
Dixon, or to the best knowledge and belief of Dixon, of any
other party to any of the contracts, agreements or
understandings listed in the Disclosure Schedule.
(b) The consummation of the transactions contemplated by this
Agreement will not result in or constitute any of the
following: (i) a default, breach or violation or an event
that, with notice or lapse of time or both, would constitute
a default, breach or violation of the Memorandum and
Articles of Association of Dixon, or any contract, license,
agreement or understanding to which Dixon's property is
bound; (ii) an event that would permit any party to
terminate any or to accelerate the maturity of any
indebtedness or other direct or indirect obligation of
Dixon; or (iii) the creation or imposition of any lien,
charge or encumbrance on any of the properties of Dixon.
2.7. NO INSOLVENCY
-------------
Dixon will not be rendered insolvent by the sale, transfer and
assignment of the Technology pursuant to the terms of this
agreement.
2.8. REPRESENTATIONS COMPLETE
--------------------------
None of the representations or warranties made by Dixon, nor any
statement made in any certificate furnished by Dixon pursuant to
this Agreement, contains any untrue statement of a material fact,
or, to the best knowledge of Dixon, omits any material fact
necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made not
misleading. There is no fact, circumstance or condition of any
kind or nature whatsoever known to Dixon which reasonably would be
expected to have a material adverse effect on Dixon or the
Technology that has not been set forth in this Agreement.
<PAGE>
-6-
3. REPRESENTATIONS AND WARRANTIES OF THE BUYER
-------------------------------------------
The Buyer represents and warrants to Dixon that:
3.1. Company Existence; Authorization
--------------------------------
(a) The Buyer is duly organized and properly registered in the
jurisdiction of its organization. All action on the part of
the Buyer, its officers, directors and shareholders
necessary for the authorization, execution and delivery of
this Agreement, and the performance of all obligations
hereunder has been taken or will be taken prior to the
Closing, and this Agreement constitutes a valid and legally
binding obligation of the Buyer enforceable in accordance
with its terms, subject only to laws affecting the rights
and remedies of creditors.
(b) The Buyer is not in default of any provisions of any
instrument, judgment, order, writ, decree or contract to
which it is a party or by which it is bound or, of any
provision of law applicable to it, that would prevent it
from executing and delivering the Agreement.
(c) The Buyer agrees that it has been fully provided with all
the information which the Buyer has requested for deciding
whether or not to purchase the Technology and all
information which they believe is reasonably necessary to
enable the Buyer to make such a decision.
4. CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS AT CLOSING
----------------------------------------------------------
The obligations of the Buyer to enter into the transaction contemplated by
this Agreement are subject to the satisfaction, or waiver in writing by
the Buyer, at or before the Closing of each of the following conditions.
4.1. Representations and Warranties
------------------------------
The representations and warranties of Dixon contained in this
Agreement, shall be true and correct on the date hereof and on and
as of the Closing as though made on such date, except as amended
by Dixon at the Closing and which amendment shall be specifically
approved by the Buyer.
4.2. Performance
-----------
Dixon shall have performed and complied with all covenants,
agreements, obligations and conditions contained in this
<PAGE>
-7-
Agreement that are required to be performed, satisfied or complied
with by it on or before the Closing.
4.3. Proceedings, Documents and Certificates
---------------------------------------
All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and
substance, and they shall have received all such counterpart,
original and certified or other copies of such documents as they
may reasonably request.
4.4. Covenant Not To Compete
-----------------------
In consideration of the sale of the goodwill associated with the
Technology, Dixon agrees that after the Closing for a period of 3
years, Dixon or its associates will not develop, market or
otherwise produce a product or technology that competes, directly
or indirectly, with the Technology.
5. INDEMNIFICATION
---------------
5.1. Dixon hereby agrees to indemnify and hold Buyer and its affiliates
and the officers, directors, employees, agents and representatives of
Buyer and its affiliates, and any person claiming by or through any of
them, harmless from, against and in respect of the following:
(One) Losses arising from or related to the ownership, possession,
operation or use of the Technology, by Dixon at or prior to the
Closing;
(Two) Losses arising from or related to any breach of or inaccuracy
in any representation or warranty made by Dixon in this Agreement,
whether or not such breach or inaccuracy was or should have been
known by Buyer.
(Three) Losses arising from or related to any breach or violation
by Dixon of any of its covenants and agreements contained in this
Agreement.
5.2. INDEMNIFICATION BY BUYER
------------------------
Buyer hereby agrees to indemnify and hold Dixon and its Affiliates and
the officers, directors, employees, agents and representatives of
Dixon, and any person claiming by or through any of them, harmless
from, against and in respect of Losses arising from or related to any
breach of or inaccuracy in any representation or warranty made by or
behalf of buyer in this Agreement, whether or not such breach or
inaccuracy was or should have been known by Dixon or Losses arising
from or related to any breach or violation by buyer of any of its
covenants and agreements contained in this Agreement.
<PAGE>
-8-
5.3. SURVIVAL OF REPRESENTATION AND WARRANTIES
-----------------------------------------
The representations and warranties of Dixon and Buyer contained herein
shell survive the closing for a period of two years from the Closing
Date, provided, however, that representations and warranties with
respect to which a claim is made within the applicable survival period
shell survive until such claim is finally determined and paid.
5.4. NOTIFICATION OF CLAIMS
----------------------
A party seeking indemnification under this Article 5 (an "indemnified
party") shall, promptly after the receipt of notice of the assertion
of any claim or commencement of any action, suit, arbitration,
inquiry, proceeding or investigation by or before any governmental
authority (an "action") (but in no event later then 10 days prior to
the date any response or answer is due in any proceeding) in respect
of which indemnity may be sought from a party against whom an
indemnity obligation is asserted pursuant to this Article 5 (an
"indemnifying party") on account of the indemnity agreement contained
above, notify the indemnifying party in writing of the receipt of such
claim or the commencement of such action. The omission of an
indemnified party so to notify an indemnifying party of any such claim
or action shall not relieve the indemnifying party from any liability
in respect of such claim or action which it may have to the
indemnified party (except, however, that the Indemnifying party shall
be relieved of liability to the extent that the failure so to notify
(a) shall have caused prejudice to the defense of such claim or action
or (b) shall have increased the costs or liability of the indemnifying
party reason of the inability or failure of the indemnifying party
(because of the lack of prompt notice from the indemnified party) to
be involved in any investigations or negotiations regarding any such
claim or action), nor shall it relieve the indemnifying party from any
other liability which it may have to the indemnified party. In case
any such claim shall be asserted or action commenced against an
indemnified party and shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate in the negotiation
or administration thereof and, to the extent it may wish, to assume
the defense thereof with counsel reasonably satisfactory to the
Indemnified party, and, after notice from the Indemnifying party to
the Indemnified party of its election so to assume the defense
thereof, which notice shall be given within 30 days of its receipt of
such notice from such indemnified party, the Indemnified party shall
not be liable to the indemnified party hereunder for any legal or
other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation. If an Indemnifying party does not wish to assume the
defense, conduct or settlement of any claim or Action, the Indemnified
party shall not settle such claim or action without the written
consent of the Indemnifying party, which consent shall not be
unreasonably withheld or delayed.
5.5. LIMITATIONS ON INDEMNIFICATION
------------------------------
Each parties liability to other for indemnification payments under
this Article 5 shall be limited to aggregate indemnification payments
by either party to other equal to the Purchase Price.
<PAGE>
-9-
6. CONFIDENTIALITY
---------------
6.1. Each of the parties agree that with the respect to certain
Confidential Information (as defined below and without respect to
the date on which such Confidential Information was first disclosed)
furnished to it by the other party to this Agreement, it will
maintain such information in confidence in the same manner, and to
the same extent it protects its own confidential and/or proprietary
information of a similar nature. Each party shall be responsible for
any breach of this agreement by any and all employees, agents,
parents, subsidiaries, affiliates, or similar persons or entities.
6.2. For the purposes of this Agreement, Confidential Information shall
include any trade secrets, knowledge, data, or other proprietary or
confidential information relating to products, processes, know-how,
designs, formulae, developmental or experimental work, computer
programs, databases, other original works of authorship, customer
lists, business plans, marketing plans and strategies, financial
information, or other subject matter pertaining to any business of
the parties hereto, or any of its clients, consultant; or licensees
that is defined in writing or orally as Confidential Information.
6.3. The commitment as stated above shall not impose any obligation with
respect to any portion of the information that (i) is now or
hereafter becomes generally know or available or a part of a public
domain without direct or indirect fault of the recipient of
Confidential Information or otherwise by breach of this Agreement or
similar agreement; or (ii) is known to such recipient at the time of
the disclosure of such Confidential Information as evidenced by
prior written documentation in such parties files; or (iii) is
furnished to others by the owner of the Confidential Information
without restriction of further disclosure; or (iv) is lawfully
received by such recipient without confidential or proprietary
restriction from a source other than the owner of the Confidential
Information . Neither party shall use any Confidential Information
for the purposes of unfair or improper competition, such as, by way
of example only and not limitation, soliciting accounts of employees
of the other party.
<PAGE>
-10-
7. TERMINATION PRIOR TO CLOSING
----------------------------
This Agreement may be terminated at any time prior to the Closing as
follows:
7.1. By the mutual consent of the Parties in writing.
7.2. Either party may terminate this agreement If the other party
breaches any warranty or fails to perform any material obligation
hereunder, and such breach is not remedied within twenty one (21)
days after written notice thereof to the party in default or If
prior to the completion of the payment by the Buyer and/or of the
transfer of Technology by Dixon, all in accordance with this
agreement, the other party shall become insolvent or make an
assignment for the benefit of creditors, or if a receiver or similar
officer shall be appointed to take charge of all or part of that
party's assets, and such status and/or assignment and/or appointment
has not been canceled within sixty (60) days.
8. MISCELLANEOUS
-------------
8.1. Survival
--------
The representations and warranties of the parties to this
Agreement, contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of
the subject matter thereof made by or on behalf of the parties.
8.2. Successors and Assigns
----------------------
Except as otherwise provided herein, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon
any party other than the parties hereto or their respective
successors and assigns, any rights, obligations, or liabilities
under or by reason of this Agreement, except as expressly
provided in this Agreement.
8.3. Settlement of Disputes; Arbitration; Governing Law, Equitable
-------------------------------------------------------------
Remedies
--------
(a) In the event of an occurrence of any dispute of
disagreement, the Parties shall first exert their best
efforts in good faith to resolve the matter amicably between
themselves as provided for in this Section. Within 3 days
after written demand by either party, the Parties shall each
designate a representative from among those personnel
acquainted with the work involved who
<PAGE>
-11-
shall discuss and attempt to resolve the dispute or
disagreement at the offices of the Buyer in
Sunnyvale, California, or such other place agreeable to the
Parties. If a resolution has not been reached within 10 days
from the date on which the written demand for such working-
level discussions was originally made, then the Parties may
go to binding arbitration, to the American Arbitration
Association. The award of such arbitration shall be binding
upon the parties.
(Two) It is agreed that the substantive law governing this
Agreement will be the law of the State of California and any
disputes resolved in arbitration will be governed as such.
(Three) Each of the parties hereto acknowledges and agrees
that, because the legal remedies of the other party may be
inadequate in the event of a breach of, or other failure to
perform, any of the covenants and obligations set forth in
section 4.5 or Article 6 hereof, any such other party may, in
addition to obtaining any other remedy or relief available to it
(including, without limitation, consequential and other damages
at law), enforce Section 4.5 or Article 6 hereof by injunction,
specific performance and other equitable remedies.
8.4. Counterparts
------------
This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
8.5. Titles, Subtitles, Preamble and Appendices
------------------------------------------
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in interpreting this
Agreement. The Preamble and Appendices are an integral and
inseparable part of this Agreement.
8.6. Notices
-------
Unless otherwise provided, any notice required or permitted under
this Agreement with respect to parties shall be given in writing
and shall be deemed effectively given upon personal delivery to
the party to be notified or fourteen (14) business days after
deposit with a National Post Office, for dispatch by registered or
certified mail, postage prepaid and addressed to the party to be
notified at the address set forth in this
<PAGE>
-12-
For Dixon: For the Buyer:
---------- --------------
Dixon Software Mercury Interactive Corp.
P.O.Box 556 470 Potrero Avenue
Main Street Sunnyvale, California 94086
Charlestown U.S.A.
Nevis Attention: Chief Financial Officer
Island of Nevis 408-523-9900 408-523-9911
-------------------------------
Telephone / Fax
or at such other address as such party may designate by written
notice to the other parties; if by facsimile transmission within
48 hours of receipt; in the case of an internationally recognized
overnight courier, on the next business day after the date when
sent. Any party may change its address for purposes of this
paragraph by giving notice of the new address to each of the other
parties in the manner set forth above.
8.7. Expenses
--------
Irrespective of whether the Closing is effected, the Buyer to this
Agreement shall bear costs and expenses with respect to the
negotiation, execution, delivery and performance of this
Agreement.
8.8. Assignment
----------
This Agreement may not be assigned to third parties.
8.9. Entire Agreement, Amendments and Waivers
----------------------------------------
This Agreement and the appendices hereto constitute the entire
agreement between the parties pertaining to the agreements,
representations, warranties, covenants and understandings of the
parties. No supplement, modification, or amendment of this
Agreement shall be binding unless executed in writing by all the
parties. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of all the parties
hereto. No waiver of any of the provisions of this Agreement shall
be deemed, or shall constitute a waiver of any other provision,
<PAGE>
-13-
whether or not similar, nor shall any waiver constitute a
continuing waiver.
8.10. Severability
------------
Should any provision of this Agreement be determined to be
invalid, it shall be severed from this Agreement and the remaining
provisions shall remain in full force and effect.
8.11. Parties in Interest
-------------------
Nothing in this Agreement, express or implied, is intended to
confer any rights or remedies under or by reason of this Agreement
on any persons other than the parties to it and their respective
and permitted successors and assigns, nor is anything in this
Agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor
shall any provision give any third persons any right of
subrogation or action over against any party to this Agreement.
8.12. Advice of Legal Counsel
-----------------------
Each party to this Agreement acknowledges and represents that it
has been represented by legal counsel in connection with the
transactions contemplated by this Agreement, with the opportunity
to seek advice as to its legal rights from such counsel. Each
party further represents that it has been independently advised as
to the tax consequences of the transactions contemplated by this
Agreement and is not relying on any representations or statements
made by any other party as to such consequences.
8.13. Force Majeure
-------------
Neither party shall be held liable for failure to fulfill its
obligations under this agreement, if such failure is caused by
flood, extreme weather, fire, or other natural calamity, acts of
government agency, or similar causes beyond the control of such
party.
IN ATTESTING THERETO, THE PARTIES BELOW STATE THAT THEY ARE PROPERLY EMPOWERED
AND AUTHORIZED BY THEIR RESPECTIVE ENTITIES AND/OR AS INDIVIDUALS, TO EXECUTE
THIS AGREEMENT AND HAVE SIGNED THIS AGREEMENT AS OF THE DATE SO INDICATED.
____________________ ____________________
Dixon Date The Buyer Date
By:_________________ By:_________________
Title: _____________ Title:_________________
<PAGE>
EXHIBIT 10.2
PURCHASE AND SALE AGREEMENT
And JOINT ESCROW INSTRUCTIONS
by and between
MC ASSOCIATES, LLC
as
"Seller"
and
MERCURY INTERACTIVE CORPORATION
a Delaware corporation
as
"Buyer"
dated July 1, 1997
<PAGE>
PURCHASE AND SALE AGREEMENT
And JOINT ESCROW INSTRUCTIONS
By and Between
MC ASSOCIATES, LLC
and
MERCURY INTERACTIVE CORPORATION
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C> <C>
ARTICLE I. Definitions............................................. 1
ARTICLE II. Agreement of Purchase and Sale.......................... 2
ARTICLE III. Execution of Agreement; Conditions Prior to Closing Date 3
ARTICLE IV. Representations, Warranties and Covenants of
Seller and Buyer........................................ 7
ARTICLE V. Action on the Closing Date.............................. 10
ARTICLE VI. Termination............................................. 12
ARTICLE VII. Costs and Commissions................................... 12
ARTICLE VIII. Post-Closing Cooperation................................ 13
ARTICLE IX. Default by Buyer........................................ 13
ARTICLE X. Default by Seller....................................... 13
ARTICLE XI. Exchange Provisions..................................... 14
ARTICLE XII. Miscellaneous........................................... 15
</TABLE>
EXHIBITS
- --------
"A" Legal Description
"B" [Reserved]
"C" [Reserved]
"D" Grant Deed
"E" [Reserved]
"F" Assignment of Rights, Warranties and Permits
"G" Assignment and Assumption of Service Contracts
"H" [Reserved]
"I" Bill of Sale
"J" Transferor's Certificate of Non-Foreign Status
i
<PAGE>
PURCHASE AND SALE AGREEMENT
And JOINT ESCROW INSTRUCTIONS
This Agreement ("Agreement") is made as of this 1st day of July, 1997, between
MC ASSOCIATES, LLC, a Delaware limited liability company ("Seller"), and MERCURY
INTERACTIVE CORPORATION, a Delaware corporation ("Buyer").
ARTICLE I.
Definitions
-----------
The terms set forth below shall have the following meanings:
1.1 Closing: Payment of Seller's proceeds, and delivery of the Deed in favor
-------
of Buyer, in accordance with the terms of this Agreement.
1.2 Closing Date: On or before September 2, 1997.
------------
1.3 Initial Earnest Money Deposit (to be credited to Purchase Price):
-----------------------------
$75,000.
1.4 Second Earnest Money Deposit (to be credited to Purchase Price):
$125,000
1.15 Escrow Agent: Commonwealth Land Title Insurance Company
------------
525 Market Street, Suite 1560
San Francisco, California 94105
Attn: Linda Rae Paul, Senior Escrow Officer
Telephone No.: (415) 442-0199
Fax No.: (415) 512-0146
1.6 Improvements: The improvements consist of a vacant, one (1)-story, R&D
------------
style building containing a total of approximately 55,414 rentable square feet
and related improvements.
1.7 [Reserved]
1.8 Permitted Exceptions: (i) Nondelinquent real property taxes and special
--------------------
assessments, if any; (ii) utility easements to service the Property which do not
materially interfere with its existing use; and (iii) such title matters as
Buyer shall have approved in accordance with Section 3.6 below, and such other
matters as may appear as exceptions to title in accordance with Section 3.6
below.
1.9 Personal Property: All equipment, appliances, tools, machinery,
-----------------
supplies and other personal property owned by Seller and located at and used in
connection with the operation of the Property, which have not or will not become
trade fixtures in connection with the operation and maintenance of the Property,
as may be more particularly described in the Bill of Sale attached hereto as
Exhibit "I".
1.10 Property: The Property shall collectively include the Real Property,
--------
the Improvements, the Personal Property, if any, and all of Seller's interest in
the Service Contracts and the rights, warranties and permits described in
Exhibit "F" attached hereto ("Permits").
1.11 Purchase Price: $6,383,000.
--------------
1.12 Real Property: That certain tract or parcel of land described in
-------------
Exhibit "A" attached hereto and by this reference made a part hereof, together
with all easements of access or use, rights of way, privileges, licenses,
appurtenances and other rights and benefits belonging to, benefiting or in any
way related to said land, located at 1325 Borregas Avenue, Sunnyvale, California
and commonly known as "the Menlo Caspian Building".
1
<PAGE>
1.13 Review Contingency Date: August 1, 1997.
-----------------------
1.14 Service Contracts: All service contracts, management agreements,
-----------------
listing agreements, operating contracts and other agreements affecting the
operation or use of the Property (other than Title Matters) if any.
1.15 Title Company: Commonwealth Land Title Insurance Company
-------------
525 Market Street, Suite 1560
San Francisco, California 94105
Attn: Vincent D. Barr, Esq., Assistant Vice president
Telephone No.: (415) 442-0199
Fax No.: (415) 512-0146
1.16 The following terms are defined in the Article or Section set forth
opposite such terms:
Term Article or Section
---- ------------------
Advisors 3.1(c)
Amended Title Report 3.2
Buyer's Brokers 7.2
Buyer's Title Notice 3.6
Deed 5.2(a)
Documents and Materials 3.1(a)
Due Diligence Information 3.1(c)
Earnest Money Deposit 2.1
ERISA 4.1(d)
Exchange XI
Exchange Property XI(a)
Initial Earnest Money Deposit 1.3
Lender's Title Policy 5.2(d)
Opening of Escrow 3.1
Owner's Title Policy 5.2(d)
Permits 1.9
Property Manager 3.1(b)
Second Earnest Money Deposit 1.4
Seller's Title Notice 3.6
Survey 3.2
Title Report 3.2
Title Matters 3.6
ARTICLE II.
Agreement of Purchase and Sale
------------------------------
2.1 Subject to the terms and conditions of this Agreement, Seller agrees to
sell the Property to Buyer, and Buyer agrees to purchase the Property from
Seller and to pay the Purchase Price therefor. Upon Buyer's receipt from Seller
of a fully executed copy (or counterpart thereof executed by Seller) of this
Agreement, but in no event later than two (2) business days followingBuyer's
receipt, Buyer shall deposit with Escrow Agent, in the form of a wire transfer
of funds, the sum of $75,000 (the "Initial Earnest Money Deposit"), together
with a fully executed copy of this Agreement. Any deposit made by Buyer to
Seller or Seller's representative prior to the Opening of Escrow shall be deemed
to constitute part of the Initial Earnest Money Deposit and shall be delivered
to Escrow Agent by Seller or its representative promptly upon the Opening of
Escrow, as defined herein. Upon the Review Contingency Date, in the event Buyer
has not elected to terminate this transaction in accordance with the terms of
Article III of this Agreement, Buyer shall deposit with Escrow Agent, in the
form of a wire transfer of funds, the additional sum of $125,000 (the "Second
Earnest Money Deposit"). The Initial Earnest Money Deposit and Second Earnest
Money Deposit shall collectively be referred to herein the "Earnest Money
Deposit". The
2
<PAGE>
Earnest Money Deposit shall thereupon be non-refundable to Buyer, unless
refunded to Buyer as otherwise expressly provided in this Agreement. Buyer shall
be solely responsible for delivering, at Buyer's option, written instructions to
the Escrow Agent concerning the investment of the Earnest Money Deposit or any
portion thereof which is held by Escrow Agent, in accordance with the customs
and practices of Escrow Agent. At the close of this transaction, the Earnest
Money Deposit and any interest thereon shall be credited against the Purchase
Price and disbursed to Seller along with the balance of the Purchase Price, to
the extent not previously disbursed to Seller.
2.2 On the day of Closing, and in no event later than required to permit the
timely Closing of this Agreement and receipt of the Purchase Price by Seller's
bank (following such prorations and adjustments as are set forth herein) by the
close of business on the Closing Date, Buyer shall cause such balance of the
Purchase Price to be delivered directly to the Escrow Agent for the account of
Seller, by wire transfer in immediately available funds, less any credits due to
Buyer, plus all sums necessary to pay Buyer's prorations in connection with this
transaction. On or before Closing, Seller shall provide Escrow Agent with
written wiring instructions identifying the financial institution and the name
and number of the account to which Seller's proceeds shall be transferred and
credited prior to the close of business of such financial institution on the
Closing Date.
2.3 The Closing shall be held at 9:00 a.m., local time, on the Closing Date
at the office of Escrow Agent, or at such other time or such other place as may
be mutually agreed upon in writing by the parties.
ARTICLE III.
Execution of Agreement; Conditions Prior to Closing Date
--------------------------------------------------------
3.1 (a) Upon full execution of this Agreement by Seller and Buyer, the party
last executing same shall date this Agreement in the space provided on the
facing page and on page 1 herein, and shall deliver three (3) fully executed
originals of this Agreement to the Escrow Agent and a facsimile copy of the
signature page(s) to the other party. Escrow Agent shall thereupon execute all
three originals of this Agreement and immediately deliver one fully executed
original to Seller, and one fully executed original to Buyer. The date of
transmittal by Escrow Agent to Buyer and Seller of this Agreement, as fully
executed by Seller, Buyer and Escrow Agent, shall hereinafter be referred to as
the "Opening of Escrow".
To the extent not already furnished or made available to Buyer prior to the
Opening of Escrow, Seller shall furnish to Buyer, within ten (10) business days
of the Opening of Escrow, copies of the following documents and materials
("Documents and Materials"):
(i) Copies of all Service Contracts;
(ii) Copies of the most recent property tax bills received by Seller or
Property Manager; and
(iii) Seller's customary monthly management, revenue and expense reports,
prepared by Seller and based upon data furnished to Seller by the Property
Manager (including operating statements), for that portion of 1996 following
Seller's acquisition of ownership of the Property, and for year-to-date 1997,
followed by periodic updates of such items customarily prepared by Seller or
Property Manager following the Opening of Escrow.
In addition, Seller shall furnish to Buyer or make available to Buyer, to the
extent not already furnished or made available to Buyer prior to the Opening of
Escrow, within ten (10) business days after the Opening of Escrow, the following
items, all of which shall be deemed to be "Documents and Materials" within the
meaning of this Agreement, to the extent such Documents and Materials are in the
actual possession, custody or control of Seller or Seller's Property Manager:
(iv) A site plan for the Property;
(v) A list of the Personal Property, if any, maintained at the Property and
necessary for the continued operation thereof, to be transferred to Buyer at
Closing pursuant to the Bill of Sale attached hereto as Exhibit "I";
3
<PAGE>
(vi) Copies of the certificate(s) of occupancy for the Property, along with
any certifications from governmental agencies in connection with the operation
of the Improvements;
(vii) Maintenance reports for that portion of 1996 following Seller's
acquisition of title to the Property and year-to-date 1997 and records of any
capital improvements made to the Property during the same period of time; and
(viii) Copies of the most recent existing soils, environmental and
engineering reports relating to the Property or the Improvements including,
without limitation, the most recent Phase I and Phase II (if any) environmental
studies or reports relating to the Property, if any, provided such matters have
been based upon tests and/or studies performed during Seller's period of
ownership; provided, Buyer acknowledges that any such items shall be delivered
or made available without any representation or warranty regarding the accuracy,
completeness or any other aspect of such matters.
(b) Buyer shall have the right to review such records and documents
relating to the ownership and operation of the Property as Buyer may reasonably
deem appropriate in connection with its due diligence efforts. Seller shall
assist and cooperate with Buyer as may be reasonably necessary to facilitate
Buyer's investigation, due diligence and review pursuant to this Section 3.1,
including access to the files and documents containing information pertaining to
the Property which are maintained at the office of Seller's Property Manager(s),
Insignia Commercial Group, Inc. ("Property Manager") and which have been
prepared during Seller's period of ownership; provided, Buyer shall not be
entitled to examine records and documents at Seller's home office.
(c) All Documents and Materials supplied to or made available to
Buyer or Buyer's agents by Seller as provided in this Section 3.1 are
confidential in nature and shall not be released or disclosed by Buyer to any
other parties except as set forth in the further provisions of this Section 3.1.
All Documents and Materials shall be delivered to Buyer without representation
or warranty of any kind from Seller. In the event the Closing of this
transaction does not occur for any reason, then Buyer shall return promptly to
Seller all of such Documents and Materials, along with copies of any reports,
studies, analyses, test results or other environmental documents which are: (i)
prepared by or on behalf of Buyer or its agents in the course of Buyer's due
diligence investigation; or (ii) furnished or made available by Seller to Buyer
pursuant to this Section 3.1 or other applicable section of this Agreement
(collectively, the "Due Diligence Information"). Buyer's obligation to return
Due Diligence Information to Seller shall apply regardless of any covenants to
the contrary in any contracts or agreements with Buyer's consultant(s). Delivery
by Buyer of any Due Diligence Information shall be made without warranty or
representation by Buyer of any kind. In consideration of the Documents and
Materials being made available to Buyer, it is understood and agreed that Buyer
shall treat all Due Diligence Information confidentially, for a period of one
(1) year after Opening of Escrow, in accordance with the provisions of this
paragraph. Seller's Documents and Materials are to be used solely for purposes
of the performance of Buyer's due diligence hereunder and no Due Diligence
Information shall be disclosed or delivered by Buyer to any person or entity
other than Buyer's attorneys, directors, officers, employees, agents,
representatives and consultants, who must be advised of such matters for the
purpose of evaluating Buyer's acquisition of the Property (collectively the
"Advisors"). The Advisors shall be informed by Buyer of the confidential nature
of the Due Diligence Information, and shall be directed by Buyer to treat the
Due Diligence Information confidentially, and to disclose the Due Diligence
Information only to the persons and/or entities to whom Buyer is authorized to
disclose such matters pursuant to the provisions of this Subsection. Buyer shall
not, and shall use its good faith, commercially reasonable efforts to ensure
that the Advisors do not, prior to Closing,disclose the fact that this Agreement
has been executed, or the status of any matter under this Agreement, without
Seller's prior written consent to such disclosure and approval of the form
thereof. It is also understood and agreed by the parties that all press releases
or other public announcements relating to Buyer's purchase of the Property
(other than any disclosures compelled by law, an order of a court of competent
jurisdiction or a valid subpoena) shall be subject to the prior written approval
of the other party hereto, which approval may be granted or withheld in the sole
discretion of such other party. For a period of one (1) year after the Opening
of Escrow, Buyer shall defend, indemnify and hold harmless Seller from and
against all claims, demands, causes of action, liabilities, losses, damages or
expenses asserted against or incurred by Seller by reason of any unauthorized
disclosure of such information in violation of this Section 3.1. Notwithstanding
anything to the contrary contained in this Agreement, Seller acknowledges that
Buyer and Buyer's Advisors, in conducting the due diligence described in this
Agreement, may contact City of Sunnyvale officials and/or employees, and Buyer
shall in no way be responsible for disclosure by such persons that this
Agreement has been executed or regarding the status of any matter under this
Agreement.
4
<PAGE>
3.2 , Not later than five (5) business days after Opening of Escrow, Title
Company and/or Seller shall deliver to Buyer,: (i) a Preliminary Report for the
purpose of issuing for a 1992 Form ALTA Owner's Policy of Title Insurance or
equivalent thereof (hereinafter the "Title Report") issued by the Title Company,
in the form customarily used by the Title Company in California showing title to
the Property vested in Seller and committing to issue a 1992 Form ALTA Owner's
Policy of Title Insurance (or equivalent thereof, subject to variations in
conformance with local custom and practice), showing title thereto vested in
Buyer, with extended (survey) coverage in the amount of the Purchase Price,
specifying all easements, liens, encumbrances, restrictions, conditions or
covenants of record with respect to the Property and including legible copies of
all documents referred to as exceptions to title in the Title Report, along with
copies of all documents noted therein as specifically recorded exception to
title; and (ii) the most recent available survey of the Property, if any (the
"Survey"), for the purpose of causing the Title Company to remove the standard
general survey exception(s) from the Owner's Title Policy described in Section
5.2(c) herein and substituting therefor any specific survey exceptions disclosed
by the Survey. Within twenty (20) days of the Opening of Escrow, Seller shall
deliver or cause to be delivered to Buyer a new or updated Survey (to the extent
the prior Survey, if any, is insufficient for the Title Company to remove the
standard general survey exception((s) as described above) and an updated Title
Report ("Amended Title Report ") setting forth any new or additional exceptions
to title shown or disclosed by the Survey or updated survey (if any) and
deleting the general exceptions for survey matters and other matters disclosed
by an inspection of the Property. Notwithstanding the foregoing, Seller's
failure to cause the Amended Title Report to be delivered to Buyer within the
time period set forth herein, despite Seller's and Buyer's reasonable good faith
efforts, shall not be deemed to be a default by Seller hereunder. The Survey
shall be an as-built survey, prepared by a surveyor registered in the State of
California.
3.3 Buyer shall have until the Review Contingency Date in which to approve
the items listed in Section 3.1. Failure to disapprove any item listed in
Section 3.1, by delivery of written objection to Seller within the time period
specified therein, shall be deemed to constitute approval of any or all such
items by Buyer.
3.4 (a) Buyer shall have until the Review Contingency Date to complete, at
its own expense, an inspection of the physical condition of the Property,
including verification of current zoning of the Property, and such structural or
soils tests or environmental reports as Buyer may contract for. Buyer shall
notify Seller in writing, no later than the close of business (Pacific Time) on
the Review Contingency Date, of its disapproval of or any objection to the
physical condition of the Property, in Buyer's sole discretion, as a result of
such inspections, whereupon this Agreement shall terminate in accordance with
Section 3.8 herein. Failure to provide Seller with such written disapproval or
objection under this Section 3.4 on or before the close of business (Pacific
Time) on the Review Contingency Date shall be deemed to constitute approval by
Buyer of the physical condition of the Property.
(b) Seller shall permit Buyer and its representatives full access during
normal business hours to make such inspections and tests as Buyer deems
necessary to complete its physical review of the Property. Such inspection shall
take place upon not less than 48 hours notice to Seller and shall take place
only with a representative of Seller present at all times. Buyer shall have the
right to contact such persons or entities as Buyer may reasonably deem
appropriate in connection with its due diligence efforts and Seller shall
cooperate with Buyer in arranging interviews and meetings for Buyer with any
such persons.
(c) Buyer shall be responsible for obtaining copies of any additional
documentation or information concerning the Property as Buyer may deem
appropriate in connection with Buyer's due diligence, which shall be coordinated
with and obtained through the Property Manager, with the cooperation of Seller.
(d) Seller shall assist and cooperate with Buyer as may be reasonably
necessary to facilitate Buyer's investigation, due diligence and review pursuant
to this Section 3.4, including Buyer's physical inspection of the Property in
order to conduct engineering studies, soil tests and any other inspection and/or
tests that Buyer may deem necessary or advisable; provided, Buyer shall not be
entitled to perform any tests of any kind which involve drilling, boring,
excavation, groundwater testing or similar intrusive or invasive action on or
under the surface of the Property without Seller's prior written consent
following not less than three (3) business days' written notice setting forth in
reasonable detail the nature, extent and location of such tests and the name and
contact person of the contractor selected to perform such tests, which consent
may be withheld by Seller in its sole and absolute discretion. Failure of Seller
to affirmatively consent to such tests or other matters within the time period
set forth herein shall constitute Seller's refusal to consent to the performance
of such tests or other matters. Buyer shall treat the results of all such tests
consented to by Seller as confidential and shall not disseminate the results of
such tests, in any form, written or verbal, to any third party and shall cause
its consultants to
5
<PAGE>
agree in writing to do the same, except as may be expressly required to be
reported by law. Buyer shall deliver to Seller copies of all reports, analyses
and test results promptly upon Buyer's receipt of same, without warranty or
representation from Buyer of any kind.
(e) For a period of one (1) year after the Closing Date, Buyer shall
indemnify, defend, protect and hold Seller harmless from and against any and all
claims, demands, causes of action, liabilities, damages, losses or expenses
(including, without limitation, Seller's reasonable attorneys' fees) asserted
against or incurred by Seller and resulting from any act or omission of Buyer or
Buyer's agents, employees, representatives or consultants relating to Buyer's
inspection and testing pursuant to this Section 3.4.
3.5 If Buyer: (i) disapproves any item in Section 3.1 or Section 3.3 (with
the exception of Title Matters, which shall be resolved pursuant to Section 3.6)
within the time provided therein; or (ii) disapproves the physical condition of
the Property pursuant to Section 3.4, within the time period provided therein,
this Agreement shall terminate in accordance with Section 3.8 herein. Without
limiting the application of any other provision of this Article III, upon such
disapproval, Buyer shall promptly return to Seller hereunder all copies of the
Due Diligence Information within the time period provided in Article VI herein
including, without limitation, any other materials and/or documents furnished or
made available to Buyer in connection with its review of the Property and a copy
of any environmental reports, studies or analyses (along with all back-up data)
prepared in connection with Buyer's due diligence activities hereunder, all
without warranty or representation by Buyer of any kind.
3.6 (a) Buyer shall have until the earlier of: (i) the Review Contingency
Date; or (ii) the date which is fifteen (15) days following its receipt of both
the Amended Title Report and the updated Survey (if necessary) in which to give
Seller and Escrow Agent written notice ("Buyer's Title Notice") of Buyer's
disapproval or conditional approval of the legal description or any matters
shown in the Survey, the Amended Title Report, all documents referred to in the
Amended Title Report and all matters disclosed therein (collectively the "Title
Matters"). For purposes of this Section 3.6, recertification of the Survey,
written notations of matters shown thereon, updates necessary to date the Survey
within ninety (90) days of the Closing (or such other period as the Title
Company may require) or addition of similar ministerial matters shall not delay
the time period for delivery of Buyer's Title Notice, or the scheduled Closing
Date as long as the Title Company is willing to issue, and issues at Closing,
the Owner's Title Policy. In the event the updated Survey (if any, in accordance
with Section 3.2) and Amended Title Report are not received by Buyer within the
time periods set forth in Section 3.2 herein, such failure shall not be deemed
to be a default by Seller hereunder; provided, notwithstanding any provision of
this Subsection (a) to the contrary, however, in the event Seller is unable to
cause such item(s) to be timely delivered to Buyer for any reason, the date for
delivery of Buyer's Title Notice, as provided in this Section 3.6, shall be
extended on a day-to-day basis until five (5) business days following delivery
of such item(s) to Buyer. The failure of Buyer to timely give Buyer's Title
Notice shall be deemed to constitute Buyer's approval of the legal description
and all Title Matters.
(b) If Buyer timely disapproves or conditionally approves any Title
Matters, Seller may, within five (5) days after receipt of Buyer's Title Notice,
elect to eliminate some or all of the disapproved or conditionally approved
Title Matters. In such event, Seller shall give Buyer written notice ("Seller's
Title Notice") of those disapproved or conditionally approved Title Matters, if
any, which Seller shall attempt to cause the Title Company to eliminate from the
Owner's Title Policy as exceptions to title to the Property prior to the Closing
Date.
(c) If Buyer approves of Seller's Title Notice within three (3) days of
receipt thereof, Seller covenants and agrees to use reasonable efforts to cause
the Title Company to eliminate from the Owner's Title Policy prior to the
Closing Date, as exceptions to title to the Property, those disapproved Title
Matters set forth in Seller's Title Notice. Failure of Buyer to deliver to
Seller written disapproval of Seller's Title Notice within such three (3) day
period following its receipt thereof shall be deemed to constitute Buyer's
approval of Seller's Title Notice.
(d) If: (a) Seller does not elect to eliminate any disapproved or
conditionally approved Title Matters (which election may be based, in whole or
in part, upon the cost to eliminate such Title Matter(s), regardless of the
party obligated herein to pay such cost or the party which may otherwise agree
to pay for such cost); (b) Seller is unable, despite its reasonable efforts, to
cause the Title Company to agree to eliminate as exceptions to title any such
Title Matters which Seller shall have elected, in Seller's Title Notice, to
attempt to cause to be eliminated by the Title Company as exceptions to title in
the Owner's Title Policy and/or Lender's Title Policy, or; (c) Buyer disapproves
of Seller's Title Notice by written notice to Seller within three (3) days of
Buyer's receipt thereof, then this condition shall be deemed to have failed, and
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Buyer may, by written notice to Seller on or before the later of: (i) the time
period for delivery to Seller of Buyer's disapproval of Seller's Title Notice,
pursuant to subsection (c) above; or (ii) the Review Contingency Date, either:
(A) terminate this Agreement in accordance with Section 3.8 herein; or (B)
accept title in its then existing condition, which shall constitute a waiver by
Buyer of any such disapproved and uncured Title Matters, and proceed to Closing
as otherwise provided herein.
(e) Notwithstanding the foregoing, if Buyer objects to any lien
evidencing a monetary encumbrance (other than liens for non-delinquent property
taxes and assessments), Seller shall either satisfy, bond off or otherwise
remove said monetary encumbrance at or before Closing, subject to agreement with
the Title Company, in Seller's sole discretion, regarding the requirements for
removal of such item(s) as exception(s) to title in the Owner's Title Policy.
3.7 (a) Seller shall notify Buyer of any damage or destruction to the
Property as soon as practicable after Seller receives notice of such occurrence.
If, prior to Closing, all or a material part of the Property is destroyed by
fire or other casualty or is threatened to be taken or is taken by eminent
domain, either Buyer or Seller may terminate this Agreement in accordance with
Article VI herein by written notice to the other party within ten (10) business
days of the date of such occurrence. If neither Buyer nor Seller terminates
this Agreement within the time provided, Buyer shall be deemed to have waived
the destruction or taking, and this transaction shall be completed as provided
in this Agreement, without reduction in the Purchase Price (except to the extent
of the deductible under Seller's casualty policy and any non-insured portion of
the loss but only in the event Seller does not elect, in its discretion, to
repair such damage), and Buyer shall be entitled to receive all insurance
proceeds, if any, and eminent domain awards, if any, applicable to the
destruction, damage or taking.
(b) Seller shall, at Closing and thereafter, execute and deliver to
Buyer all required proofs of loss, and assignments of claims and awards. The
term "material part" as used in this Section 3.7 shall be deemed damaged or
destroyed within the meaning of this Section if: (i) the cost of restoring same
to its condition prior to the fire or other casualty causing loss, in Seller's
good faith business judgment, will exceed the sum of $200,000; or (ii) a part of
the Property shall be taken or threatened to be taken by eminent domain (which
threatened taking shall be in the form of a formal written notice from the
appropriate governmental authority), and such taking or threatened taking shall
result in the unavailability for leasing or occupancy, at market rates and on
market terms, more than five percent (5%) of the total rentable area of the
Property for a period of more than three (3) months from the Closing Date.
(c) Seller represents to Buyer that the Improvements are presently
insured by a fire and extended coverage insurance policy in an amount equal to
100% of the replacement cost of the Improvements (not including Seller's
deductible) and that policy shall be maintained in effect through the Closing
Date.
3.8 Without affecting the approval/disapproval procedures set forth in this
Article III, the parties agree that the contingencies set forth in this Article
III may be waived at any time by the party for whose benefit such contingency
exists, in the sole discretion of such party. Should a termination occur under
this Article III: (i) Escrow Agent shall refund to Buyer the Earnest Money
Deposit (or portion thereof), and any accrued interest thereon which was earned
while in the possession of Escrow Agent, then held by Escrow Agent; (ii) Buyer
and Seller shall have no further liability to each other under this Agreement,
except for any liability accruing under Buyer's indemnification and/or
confidentiality obligations to Seller under Sections 3.1, 3.4, 4.2 and/or 7.2,
which liability shall survive the termination of this Agreement; and (iii) Buyer
shall have no right or claim to or against the Property or any portion thereof.
Upon any such termination, the provisions of Article VI shall apply.
ARTICLE IV.
Representations, Warranties and Covenants of Seller and Buyer
-------------------------------------------------------------
4.1 Seller covenants and agrees with Buyer that, between the date hereof and
the Closing Date:
(a) Seller shall: (i) use good faith and commercially reasonable efforts
to cause the Property to be maintained in accordance with all applicable laws;
(ii) maintain and operate the Property in the same manner as is consistent with
the operation and maintenance of the Property during the period of Seller's
ownership of the Property; (iii) keep all insurance policies pertaining to the
Property in full force and effect; and (iv) advise Buyer of any litigation,
arbitration or administrative hearing which concerns the Property and may affect
Seller's ability to consummate the transaction
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contemplated hereby, of which Seller has actual knowledge. Without limiting the
foregoing provisions of this Subsection (a), Seller shall have no obligation to
perform any capital improvements on the Property unless agreed upon in writing
between the parties prior to the Closing Date, in the sole discretion of each
party.
(b) If Seller acquires knowledge of any material defect, error or
omission in any of Seller's Documents and Materials, Seller shall promptly give
Buyer notice with detailed information of such defect, error or omission, and
Buyer shall have the later of: (i) five (5) business days from receipt of such
notice; or (ii) five (5) business days prior to the Review Contingency Date, to
submit written objections thereto. Buyer's failure to deliver written objection
to Seller within said period shall be deemed to constitute Buyer's waiver of the
information contained in said notice and the effect thereof upon the Property
and this transaction.
(c) Seller shall not enter into any binding contract to sell or convey
the Property (or any portion thereof) or any right, title or interest therein
(except for any such contract or agreement which shall terminate prior to the
Closing) or enter into any letter of intent for such sale, whether binding or
non-binding, with a third party; provided, however, nothing herein shall
prohibit Seller from accepting one or more backup offer(s) for the sale of the
Property during the time period set forth herein. Upon termination of this
Agreement in accordance with the terms hereof, the provisions of this Subsection
(c) shall be null and void and of no further force and effect.
(d) There are not, as of the date of this Agreement, and shall not be as
of the Closing, any unfunded, vested liability or employer withdrawal liability
under the Employee Retirement Income Security Act of 1974 or the Multi-Employer
Pension Plan Amendment Act of 1980 ("ERISA") with respect to any union
contracts, pension plans, profit sharing plans and/or employee benefit plans
related to Seller and the Property.
4.2 From and after the date of this Agreement, Seller shall not enter into
any new Leases at the Property or take any action or execute any document which
would create a new interest in the Property. In addition, Seller shall not,
following thedate of this Agreement, enter into any Service Contract having a
material impact on the Property or its operations which shall survive the
Closing or which cannot be canceled upon thirty (30) days notice (except in the
event of an emergency and/or the inability of any service provider to continue
to discharge its duties under an existing Service Contract), without the prior
written approval of Buyer, which shall not be unreasonably withheld. Failure of
Buyer to respond to Seller's request for any approval under this paragraph
within three (3) business days from receipt of such request shall be deemed to
constitute Buyer's approval of same and Seller shall be free to enter into such
new Service Contract during the pendency of this Agreement.
As a condition of Closing, Buyer shall pay for all costs incurred by Buyer in
connection with Buyer's intended occupancy and use of the Property following the
Closing. Buyer shall indemnify, defend, protect and hold Seller harmless from
all claims, demands, causes of action, liabilities, losses and/or damages
asserted against and/or incurred by Seller in connection with Buyer's failure to
perform its obligations pursuant to this Section 4.2. Buyer's indemnification
obligations hereunder shall survive the Closing Date or earlier termination of
this Agreement by Seller pursuant to Article IX in the event of a default by
Buyer for a period of one (1) year after the Closing Date. The foregoing shall
not be construed to obligate Seller to construct any improvements or perform any
repairs (in addition to those required under Section 4.1(a)) in connection with
Buyer's intended occupancy.
4.3 Seller shall terminate its existing management and listing agreements (if
any), and such other Service Contracts affecting the Property which Buyer elects
not to assume, if any, effective as of the Closing Date, and Seller shall pay
all expenses of such termination. Buyer shall notify Seller in writing not
later than the Review Contingency Date as to which Service Contracts Buyer
elects not to assume. Failure of Buyer to so notify Seller within such time
period shall constitute Buyer's election to assume any or all of the Service
Contracts with respect to which Buyer has failed to deliver such notice;
provided, however, in the event any such Service Contract(s) which Buyer elects
not to assume is terminable by Seller by notice requiring more than thirty (30)
days, any payments by Seller in connection with such termination, pursuant to
any such Service Contract, shall be prorated between Seller and Buyer at the
Closing pursuant to Section 5.3 herein. As to any such Service Contract(s)
which is terminated by Seller, Seller agrees to indemnify, defend, protect and
hold harmless Buyer from any and all claims, demands, causes of action,
liabilities, losses and/or damages asserted against or incurred by Buyer arising
out of such termination or any events or occurrences arising thereunder prior to
the Closing Date.
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4.4 Seller represents and warrants on its own behalf, now and as of the
Closing Date, that:
(a) Seller has the full right, power and authority to sell the Property
to Buyer as provided herein and to carry out Seller's obligations hereunder, and
the individuals executing this Agreement on behalf of Seller are fully
authorized to do so, and in doing so binds Seller to the obligations set forth
herein. This Agreement and all documents executed by Seller which are to be
delivered to Buyer at Closing are, or at the Closing will be, legal, valid and
binding obligations of Seller, and do not, and, at the Closing will not, violate
any provisions of any agreement to which Seller is a party or to which it is
subject or of any law, judgment or order applicable to Seller. Seller is the
sole owner of the Property free and clear of any right to or claim of possession
by any other party.
(b) To Seller's knowledge, there are no pending claims, suits, actions,
arbitrations or regulatory, legal, or other proceedings or investigations
affecting the Property or Seller's rights and obligations under this Agreement,
other than as may be disclosed to or discovered by Buyer prior to the Review
Contingency Date, pursuant to Section 3.1 or otherwise. To Seller's knowledge,
there is no pending condemnation of the Property, or any part of it.
(c) There are no tenant Leases currently in force or effect for the
Property and no security deposits or other sums due former tenants which are
actually held by Seller or Property Manager, and Seller shall indemnify, defend,
protect and hold Buyer harmless with respect to Seller's failure to deliver the
Property free of all existing tenancies. Seller's indemnification obligation
under this Section shall survive the Closing Date for a period of one (1) year.
(d) Paragraph 4.5(vii) notwithstanding, to the best of Seller's
knowledge, Seller has not received any written notice under the California
Health and Safety Code or any other applicable local, state or federal law
requiring the removal of any Hazardous Materials on, under or from the surface
of Property; provided, Buyer acknowledges: (i) the groundwater (and other
possible contamination) under the surface of the Property has occurred due to
the movement of such contaminants from adjacent property not owned by Seller;
(ii) that appropriate governmental regulatory agencies are aware of such
contamination; and (iii) that Seller has provided Buyer with all environmental
reports in Seller's possession regarding such contamination.
(e) At the Closing Date there will be no outstanding contracts made by
Seller for any improvements to the Property which have not been fully paid for
(other than repairs to the Property pursuant to Section 3.7(a) which may not
have been completed as of the Closing) and Seller shall cause to be discharged
all mechanic's or materialmen's liens arising from any labor or materials
furnished to the Property prior to the Closing Date.
(f) No proceedings under any bankruptcy or insolvency laws have been
commenced by or against Seller which have not been terminated; no general
assignment for the benefit of creditors has been made by Seller; and no trustee
or receiver of Seller's property has been appointed.
(g) All of Seller's representations and warranties set forth in this
Section 4.4 shall be true and correct in all material respects as of the Closing
Date.
As used in this Section 4.4 herein, Seller's "knowledge" means the actual
knowledge of Lydia Kennedy and John Mulvihill as the real estate asset manager
and officer of Seller, respectively, responsible for the monitoring and limited
supervision of the Property Manager for the Property, without duty to inspect
the Property or make any independent investigation; provided, it is contemplated
that such individuals have reasonably discharged such monitoring and limited
supervision of the Property Manager in accordance with Seller's customary
practices concerning properties acquired for similar purposes, and will continue
to do so until the Closing Date.
Notwithstanding anything to the contrary contained in this Agreement, if Buyer
has actual knowledge that any representation or warranty of Seller is not true
and correct as of the Closing Date and shall elect to acquire the Property
notwithstanding such fact, Buyer shall be deemed to have waived such specific
breach of representation and warranty and to have released Seller from all
liability or responsibility in connection therewith, and neither Buyer nor
Buyer's permitted assignees or successors shall be entitled to commence any
action or to recover damages from Seller based upon such specific breach of a
representation and warranty.
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4.5 Seller hereby specifically disclaims any warranty, guaranty or
representation, oral or written, past, present or future, of, as to, or
concerning the following matters regarding the Property:
(i) the nature and condition of the Property, including, but not limited
to the water, soil and geology, and the suitability thereof and of the Property
for any and all activities and uses which Buyer may elect to conduct thereon;
(ii) the nature and extent of any right-of-way, possession, license,
reservation, condition or otherwise;
(iii) the compliance of the Property or its operation with any laws,
ordinances or regulations of any government or other body;
(iv) the quality, nature, adequacy and physical condition of the
Property, including, but not limited to, the structural elements, foundation,
appurtenances, access, landscaping, parking facilities and the electrical,
mechanical, HVAC, plumbing, sewage and utility systems, facilities and
appliances;
(v) the existence, quality, nature, adequacy and physical condition of
utilities serving the Property;
(vi) the zoning or other legal status of the Property or any other public
or private restrictions on the use of the Property;
(vii) the presence of any hazardous substances on, under or about the
Property or the adjoining or neighboring property;
(viii) the quality of any labor and materials used in any Improvements on
the Real Property; and
(ix) the possible right of any third party(ies) to use any common area of
the Property for community services, performances, public interest information,
school activities and similar matters, if applicable; and
(x) the economics of the operation of the Property.
In consideration of Buyer's receiving access to the Property as set forth in
Article III herein so that Buyer may conduct such studies, costs,
investigations, inspections and analyses with respect to the Property as Buyer
might desire, Buyer acknowledges and confirms that unless Buyer elects to
terminate this Agreement as provided herein, Buyer shall accept Seller's
conveyance of the Property to Buyer in an "AS-IS" and "WHERE-IS" condition, free
of any warranty by Seller, except as otherwise expressly provided in this
Agreement, and free of any obligation by Seller to perform any repairs or other
improvement work with respect to the Property. Buyer expressly acknowledges
that, in consideration of the agreements of Seller herein, except as otherwise
specified here, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,
OR ARISING BY OPERATION OF LAW, CONCERNING THE PROPERTY, INCLUDING, BUT IN NO
WAY LIMITED TO, ANY WARRANTY OF CONDITION, HABITABILITY, MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. NOTWITHSTANDING ANYTHING TO THE CONTRARY
IMPLIED IN THIS AGREEMENT, SELLER AFFIRMS, ACKNOWLEDGES AND AGREES THAT THE
FOREGOING LIMITATIONS AND DISCLAIMERS IN THIS AGREEMENT ARE NOT INTENDED TO
ABROGATE, NULLIFY OR OVERRIDE THE EXPRESS COVENANTS, WARRANTIES AND
REPRESENTATIONS OF SELLER SET FORTH IN SECTIONS 4.1, 4.2, 4.3, AND 4.4 HEREIN
AND, TO THE EXTENT THE FOREGOING DISCLAIMERS ARE DEEMED TO BE IN CONFLICT WITH
THE PROVISIONS OF EITHER OF SAID SECTIONS 4.1, 4.2, 4.3 AND 4.4, THE PROVISIONS
OF SUCH SECTIONS SHALL CONTROL.
4.6 Buyer represents and warrants now and as of the date of Closing that:
(a) If Buyer (or any permitted assignee of Buyer under Section 12.2
herein) is a partnership or corporation (including, without limitation, a
limited liability company), it is duly organized, validly existing and in good
standing under the laws of the state of its formation, and in doing so binds
Buyer to the obligations set forth herein. This Agreement and all documents
executed by Buyer which are to be delivered to Seller at Closing are, or at the
Closing will be, legal, valid and binding obligations of Buyer, and do not, and,
at the Closing will not, violate any provisions of any agreement to which Buyer
is a party or to which it is subject or of any law, judgment or order applicable
to Buyer.
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(b) Buyer has the full right, power and authority to purchase the
Property from Seller as provided herein and to carry out Buyer's obligations
hereunder, and the person or persons executing this Agreement on behalf of Buyer
is/are fully authorized to do so.
(c) Buyer's purchase of the Property at Closing shall constitute its
certification that Buyer: (i) has inspected and is familiar with the Property;
(ii) has had the opportunity to have prepared for Buyer's review such soils,
engineering, environmental or hazardous substance reports or such other reports
or inspections of any nature relating to the Property as Buyer deemed
appropriate; (iii) has purchased the Property on an "AS IS" and "WHERE-IS"
basis, relying solely on Buyer's own examination and inspection of the Property,
and the express representations contained herein.
(d) All of Buyer's representations and warranties under this Section 4.6
shall be true and correct in all material respects as of the Closing Date.
4.7 All representations and warranties of Seller and Buyer under this Article
IV shall survive the Closing; provided, however, that any claim, action, suit or
proceeding with respect to the truth, accuracy or completeness of such
representations and warranties must be commenced, if at all, on or before six
(6) months from the Closing Date.
ARTICLE V.
Action on the Closing Date
--------------------------
5.1 Buyer shall take the following actions on or before the Closing Date,
each of which shall be deemed to be a condition precedent to Seller's Closing
obligations hereunder:
(a) Seller shall have received, on the date of Closing, the Purchase
Price (adjusted for credits or debits for all prorations under Section 5.3) by
wire transfer to the account of Seller at the financial institution designated
by Seller in its instructions to Escrow Agent prior to Closing, in sufficient
time for investment at such institution's customary rate paid to Seller;
(b) Seller shall be provided on the date of Closing with an executed
duplicate original of the documents listed under subsections (d) and (e) of
Section 5.2 below.
5.2 Seller shall provide or cause to be provided to Buyer the following
items, on or before the Closing Date, the provision of which shall be deemed to
be a condition precedent to Buyer's Closing obligations hereunder:
(a) An executed and acknowledged California grant deed ("Deed") in the
form of Exhibit "D";
(b) All keys for the Property in the possession or control of Seller
(properly labeled);
(c) A 1992 ALTA Owner's Policy of Title Insurance, or equivalent thereof,
in the form customarily used in California (subject to variations in conformance
with local custom and practice), issued by the Title Company and dated as of the
Closing Date, with coverage in the amount of the Purchase Price, setting forth
the legal description of the Property and showing title to the real property
vested in Buyer, subject only to the Permitted Exceptions, together with such
endorsements as Buyer may request (and the Title Company may agree to issue)
(the "Owner's Title Policy"); provided, however, in the event Buyer desires a
lender's title policy ("Lender's Title Policy"), Buyer shall so inform the Title
Company. Both the Owner's Title Policy and Lender's Title Policy, if applicable,
shall contain "extended coverage" in accordance with the statutes, regulations,
customs and/or practices of the State of California. In the event Buyer uses
third-party financing in connection with the funding of the Purchase Price, the
Title Company shall issue the Lender's Title Policy in favor of such Lender;
provided, however, nothing herein shall be construed to mean that the obtaining
of any financing or the issuance of a Lender's Title Policy is a condition to
the performance of Buyer's obligations hereunder. The premium for the Owner's
Title Policy and Lender's Title Policy and any endorsements thereto shall then
be paid by the parties in accordance with Section 7.1 herein.
(d) An executed duplicate original of the Assignment and Assumption of
Rights, Warranties and Permits in the form of Exhibit "F";
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(e) An executed duplicate original of the Assignment and Assumption of
Service Contracts in the form of Exhibit "G".
(f) An original executed Bill of Sale for the Personal Property
identified in Exhibit "I" attached hereto, reciting that such transfer is on an
"AS-IS" and "WHERE-IS" basis; provided, Exhibit "1" to the Bill of Sale may, at
Seller's election, list only the Personal Property excluded from the transfer
or, alternatively, Exhibit "1" may be eliminated in the event all Personal
Property (if any) located at the Property is included in the transfer;
(g) A certification duly executed by Seller under penalty of perjury in
the form of, and upon the terms set forth in Exhibit "J", setting forth Seller's
address and federal tax identification number and certifying that Seller is not
a foreign entity in accordance with and/or for the purpose of the provisions of
Section 1445 (as may be amended) of the Internal Revenue Code of 1954, as
amended, and any regulations promulgated thereunder; and
(h) An affidavit satisfactory to Title Company stating that there are no
unpaid claims for labor or materials furnished to the Property.
5.3 The following items will be prorated as of the Closing Date on a per diem
basis: the current year's real estate taxes and assessments (calculated on the
most recent available tax bill and reprorated after Closing based upon the
actual tax bill for the period in which the Closing occurred, and again
reprorated, if necessary, due to any change in the assessed value or tax rate of
the Property following a pending assessment appeal by Seller or a separate
reassessment due to the change in ownership of the Property pursuant to this
transaction), amounts payable or paid under Service Contracts assumed or deemed
to be assumed by Buyer, as set forth in Section 4.3 herein; and utilities,
maintenance, and common area charges. Buyer acknowledges that there are no
tenants at the Property and that there shall be no proration of rents or other
typical tenant charges.
In addition to any other matters set forth herein, the parties hereby agree to
reprorate, on a post-Closing basis: (i) real property taxes; and (ii) personal
property taxes allocable to any Personal Property transferred to Buyer pursuant
to the Bill of Sale. Notwithstanding the foregoing, utilities shall be prorated
only to the extent Seller is unable, despite its best efforts, to cause the
providers of utilities services to the Property to read the meters and, in
cooperation with Buyer, to cause such providers to change the name of the
responsible party for payment of such utilities from Seller to Buyer, effective
as of the Closing Date.
The account of Seller or Buyer shall be debited or credited, as the case may
be, on the closing settlement statement to reflect these prorations, and the
Purchase Price to be paid to Seller shall be similarly adjusted. Buyer and
Seller agree to use reasonable efforts to prepare and deliver to Escrow Agent a
schedule of tentative adjustments three (3) business days prior to the Closing
of this Agreement. Any such adjustments not determinable or not agreed upon as
of the Closing shall be paid by Buyer to Seller, or by Seller to Buyer, as the
case may be, in cash or by wire transfer of funds as soon as practicable
following the Closing of this Agreement. A copy of the schedule of adjustments
as agreed upon by Buyer and Seller shall be delivered to Escrow Agent as soon as
practicable prior to the Closing. For purposes of this Section 5.3, Buyer shall
be deemed to be the owner of the Property as of 12:01 A.M. on the Closing Date,
regardless of the actual hour on which Closing occurs or recordation of the Deed
takes place. This transaction shall in no event close later than the Closing
Date, as defined in Section 1.2 hereof.
5.4 Any property and liability insurance on the Property maintained by Seller
shall terminate on the Closing Date.
5.5 Seller shall deliver possession of the Property to Buyer on the Closing
Date.
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ARTICLE VI.
Termination
-----------
Should this transaction not close on or before 5:00 p.m., local time, on the
Closing Date, for reasons other than a default by Buyer (in which case Article
IX herein shall govern) or a default by Seller (in which case Article X herein
shall govern) either party may, by delivery of written notice to the other and
to the Escrow Agent, terminate this Agreement, whereupon each party shall pay
one-half (1/2) of Escrow Agent's normal cancellation charges. Such exercise of
the right of termination by either party shall constitute a waiver of any
rights, claims, causes of action or demands either party may have against the
other or the Property, or any portion thereof, due to such failure of this
transaction to close on or before the Closing Date, except for any liability
accruing under Buyer's indemnification and/or confidentiality obligations to
Seller pursuant to Sections 3.1, 3.4, 4.2 and/or 7.2 herein, which liability
shall survive the termination of this Agreement, as set forth in those Sections.
Upon such termination, pursuant to this Article VI, Buyer shall return to
Seller, within five (5) days following such termination, all of Seller's
Documents and Materials provided or made available to Buyer by Seller hereunder,
along with copies of Buyer's Due Diligence Information compiled in accordance
with Article III herein, and Buyer shall be entitled to the prompt return of the
Earnest Money Deposit deposited with Escrow Agent, together with any accrued
interest thereon which was earned while in the possession of Escrow Agent,
whether or not previously released to Seller in accordance with the terms of
this Agreement, unless Buyer is in default hereunder, in which event the Earnest
Money Deposit shall be non-refundable and Buyer shall pay the full amount of
Escrow Agent's normal cancellation charges. In the event the Closing does not
occur and this transaction is terminated by reason of a default by Seller,
Seller shall pay the full amount of Escrow Agent's normal cancellation charges.
The provisions of this Article shall not limit or affect the provisions of
Section 3.8 herein.
ARTICLE VII.
Costs and Commissions
---------------------
7.1 Seller shall pay the premium for the Owner's Title Policy allocable to
standard coverage, the cost of the Survey, its own legal fees, and grantor's
documentary transfer tax, including any local transfer taxes, to the extent such
taxes are customarily payable by Seller to the county and/or city in which the
Property is located. Buyer shall pay any additional title premium attributable
to extended (survey) coverage and any endorsements to the Owner's Title Policy
requested by Buyer and agreed to by the Title Company, the entire cost of the
Lender's Title Policy, if any, and any endorsements thereto, its own legal fees,
all fees and expenses relating to its inspection and testing of the Property or
its review of the Due Diligence Information, the cost of recording the Deed and
any local transfer tax customarily payable by the Buyer. Seller and Buyer will
share equally all other closing fees and closing costs (to the extent consistent
with local custom and practice), including, without limitation, Escrow Agent's
fees and expenses, subject to the provisions of Article VI herein.
7.2 In connection with the transaction contemplated by this Agreement, Buyer
has agreed, pursuant to a separate document, to pay to Robert A. Schwartz, Focus
Commercial and/or The Galbreath Company (collectively, "Buyer's Brokers") at
Closing, compensation in an amount set forth in such separate agreement. Seller
has agreed, pursuant to a separate document, to pay compensation to Insignia
Commercial Group, Inc., in its capacity as Seller's Broker, out of the net cash
funds paid to Seller at Closing, compensation in an amount set forth in such
separate agreement.Buyer and Seller each represent to the other that they have
not entered into any other agreement or incurred any other obligation which
might result in the obligation to pay a real estate sales or brokerage
commission or finder's fee with respect to this transaction. Buyer and Seller
each agree to indemnify, defend, protect and hold the other harmless from and
against any and all claims, demands, causes of action, liabilities, costs and/or
expenses (including reasonable attorney's fees and costs) asserted against or
incurred by the other party as a result of any claim or assertion made by any
person to a right to a real estate sales or brokerage commission or finder's fee
in connection with this transaction, to the extent such claim or assertion is
based on the actual or alleged acts or omissions of the indemnifying party, its
broker or representative. The obligations of Buyer and Seller under this
Section 7.2 shall survive the Closing Date or the earlier termination of this
Agreement pursuant to its terms for a period of one (1) year following the
Closing Date.
13
<PAGE>
ARTICLE VIII.
Post-Closing Cooperation
------------------------
Seller shall retain the right to pursue, at Seller's sole cost, any and all
actions or proceedings against any former tenants of the Property, by reason of
their abandonment of the leased premises prior to the end of the term of their
Lease, for delinquent rents and/or other cause(s) of action, and any amounts
collected by Seller pursuant to such actions or proceedings shall be the sole
property of Seller. Buyer hereby assigns any cause(s) of action or claim(s) it
may otherwise have against such persons to Seller, and Buyer shall have no
responsibility in connection with the prosecution of said actions or
proceedings.
ARTICLE IX.
Default by Buyer
----------------
IF THE CLOSING OF THIS TRANSACTION FAILS TO OCCUR ON OR BEFORE THE CLOSING
DATE AS A RESULT OF BUYER'S BREACH OF THIS AGREEMENT, THE PARTIES ACKNOWLEDGE
AND AGREE BY INITIALING THIS AGREEMENT IN THE SPACE PROVIDED BELOW THAT:
(I) THE EARNEST MONEY DEPOSIT BEARS A REASONABLE RELATIONSHIP TO THE DAMAGES
WHICH THE PARTIES ESTIMATE MAY BE SUFFERED BY SELLER AS THE RESULT OF BUYER'S
DEFAULT IN THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT, WHICH
DAMAGES WOULD BE IMPRACTICAL OR EXTREMELY DIFFICULT TO FIX, THAT THE EARNEST
MONEY DEPOSIT CONSTITUTES A REASONABLE ESTIMATE OF SELLER'S DAMAGES IN SUCH
EVENT, AND THAT THE REMEDY PROVIDED FOR HEREIN IS NOT A PENALTY OR FORFEITURE
AND IS A REASONABLE LIMITATION ON BUYER'S POTENTIAL LIABILITY AS A RESULT OF
SUCH DEFAULT; AND
(II) AS A RESULT OF BUYER'S BREACH OF THIS AGREEMENT AND FAILURE OF THE
CLOSING TO OCCUR ON OR BEFORE THE CLOSING DATE, SELLER SHALL HAVE THE RIGHT TO
TERMINATE THIS AGREEMENT AND THE ESCROW BY WRITTEN NOTICE TO ESCROW AGENT,
WHEREUPON SELLER AND ESCROW AGENT SHALL THEREUPON BE RELEASED FROM THEIR
RESPECTIVE OBLIGATIONS THEREUNDER TO SELL AND/OR PURCHASE THE PROPERTY, AND
SELLER SHALL RETAIN THE EARNEST MONEY DEPOSIT (OR ESCROW AGENT SHALL RELEASE THE
EARNEST MONEY DEPOSIT AND ALL ACCRUED INTEREST THEREON TO SELLER, TO THE EXTENT
NOT ALREADY SO RELEASED) AS LIQUIDATED DAMAGES, WHICH DAMAGES SHALL BE SELLER'S
SOLE AND EXCLUSIVE REMEDY HEREUNDER IN THE EVENT OF SUCH BREACH. SELLER WAIVES
ALL OTHER LEGAL OR EQUITABLE REMEDIES AGAINST BUYER AND ANY RELATED OR
AFFILIATED ENTITY, AGENT OR REPRESENTATIVE, INCLUDING ANY RIGHT OF SELLER TO
OBTAIN SPECIFIC PERFORMANCE OF BUYER'S OBLIGATIONS UNDER THIS AGREEMENT. THE
FOREGOING PROVISIONS OF THIS ARTICLE IX SHALL NOT APPLY TO SELLER'S RIGHTS AND
REMEDIES FOR A SEPARATE BREACH, IF ANY, OF THE CONFIDENTIALITY AND/OR
INDEMNIFICATION PROVISIONS OF THIS AGREEMENT.
/s/ JCM/WB /s/ SA
---------- -------
Initials of Seller Initials of Buyer
ARTICLE X.
Default by Seller
-----------------
In the event of a default by Seller under the terms of this Agreement, Buyer
shall have the right either: (i) to purchase the Property notwithstanding such
default, whereupon such default shall be deemed waived; or (ii) to terminate
this Agreement by notice furnished to Seller and to Escrow Agent, whereupon
Buyer will be entitled to a refund of the Earnest Money Deposit and all interest
accrued thereon, if any, held by Escrow Agent, and Buyer shall be entitled to
pursue an action against Seller at law for damages; provided, however, Buyer
shall have no right of action against Seller or subsequent owners of the
Property at equity, for specific performance of this Agreement or otherwise, for
purposes of asserting a claim of title to and/or possession of all or any
portion of the Property.
14
<PAGE>
ARTICLE XI.
Exchange Provisions
-------------------
Seller acknowledges that Buyer may elect to engage in a tax-deferred exchange
("Exchange") pursuant to Section 1031 of the Internal Revenue Code. To effect
this Exchange, Buyer may assign its rights in, and delegate its duties under,
this Agreement to an exchange accommodator which Buyer shall determine. As an
accommodation to Buyer, Seller agrees to cooperate with Buyer in connection with
the Exchange, including the execution of documents therefor, provided the
following terms and conditions are satisfied:
(a) Seller shall have no obligation to take title to any property in
connection with the Exchange, nor shall Seller have any liability to Buyer in
connection with any such property ("Exchange Property");
(b) Buyer shall be solely responsible, and Seller shall have no responsibility
whatsoever, for negotiating any and all agreements, escrow instructions and
other documents (collectively "Exchange Documents") with respect to the Exchange
Property, as well as for any and all investigations, approvals and/or other
actions required to be taken or permitted to be taken by Buyer under the
Exchange Documents;
(c) Seller shall in no way to be obligated to pay any escrow costs, brokerage
commissions, title charges, survey costs, recording costs or other charges
incurred with respect to any Exchange Property and/or the Exchange, and Buyer
shall reimburse Seller for any professional fees including, without limitation,
actual reasonable attorneys' fees which Seller may incur with respect thereto;
(d) In no way shall the Closing of this transaction be contingent upon or
otherwise subject to the consummation of the Exchange, and the escrow shall
timely close in accordance with the terms of this Agreement, notwithstanding any
failure, for any reason, of the parties to the Exchange to effect same;
(e) Buyer shall not be relieved of any obligations which would otherwise
survive the Closing by reason of effecting the Exchange contemplated herein, and
all such obligations of Buyer shall survive the Closing in the same fashion as
if the Exchange had not taken place;
(f) Seller shall not be required to make any representations or warranties, or
to assume any obligations, or to spend any sum or to incur any personal
liability whatsoever in connection with the Exchange;
(g) No representations, warranties, covenants and/or indemnification
obligations set forth in this Agreement shall be affected or limited by Buyer's
use of an exchange accommodator and shall survive the Exchange and shall
continue to inure, as set forth in this Agreement, from Buyer for the benefit of
Seller. No provision of any separate instruction or related instruction from
Buyer, the exchange accommodator and/or any other party shall be deemed to
modify the terms of this Agreement or any rights of Seller hereunder; and
(h) Buyer agrees to indemnify, protect, defend (with counsel reasonably chosen
by Seller) and hold harmless Seller from and against any and all claims,
demands, causes of action, liabilities, costs and expenses (including, without
limitation, actual reasonable attorneys fees) asserted against and/or incurred
by Seller in connection with the Exchange or attempted Exchange.
Seller makes absolutely no representations or warranties of any kind or
nature, express or implied, that tax-deferred exchange treatment is available to
Buyer with respect to the Exchange, or that such a transaction will qualify in
any respect for such treatment, and Seller shall incur no liability if the
Exchange fails to qualify for tax-deferred treatment for any reason. If Seller
defaults under the terms of this Agreement, then Seller shall be liable to Buyer
for only those damages which would have occurred if Buyer had not included the
Property in any Exchange. Specifically excluded from such damages for which
Seller would be liable, but not by way of limitation, are any consequential
damages Buyer may incur because of a loss of tax advantages, tax deferral or
other detrimental tax impacts upon Buyer caused by Seller's default. Buyer
hereby acknowledges and represents to Seller that Buyer is relying solely and
entirely upon the advice of Buyer's own attorneys and consultants with respect
to any and all aspects of any such Exchange. In no event whatsoever shall the
obligations of Buyer
15
<PAGE>
under this Agreement be contingent upon the inclusion of this transaction and/or
the Property as part of any Exchange in which Buyer may become involved.
ARTICLE XII.
Miscellaneous
-------------
12.1 All notices, requests, demands or other communications required or
permitted under this Agreement shall be in writing and delivered personally, by
certified mail, return receipt requested, postage prepaid, by telecopy or other
facsimile transmission, or by overnight courier (such as Federal Express),
addressed as follows:
Seller: Pacific Mutual Life Insurance Company
700 Newport Center Drive,
Newport Beach, California 92660
Attention: John C. Mulvihill, Vice President
Lydia Kennedy, Director, Asset Management
Fax No: (714)760-9680
Copy to: Pacific Mutual Life Insurance Company
700 Newport Center Drive
Newport Beach, California 92660
Attn: Joseph E. McKeever, Esq.
Fax No: (714) 640-3706
Copy to: Insignia Commercial Group, Inc.
160 West Santa Clara Street, Suite 1330
San Jose, California 95113
Attn: Mark Schmidt
Telephone No: (408) 288-2900
Fax No: (408) 288-2909
Buyer: Mercury Interactive Corporation
470 Potrero Avenue
Sunnyvale, California 94086
Attn: Amnon Landan, CEO
Telephone No: (408) 523-9900
Fax No: (408) 523-9911
Copy to: Focus Commercial
614 Camellia Way
Los Altos, California 94024
Attn: Robert Schwartz
Telephone No: (415) 949-3606
Fax No: (415) 949-3606
Copy to: General Counsel Associates LLP
1891 Landings Drive
Mountain View, California 94043
Attn: Deborah C. Aikins, Esq.
Telephone No: (415) 428-3900
Fax No: (415) 428-3901
16
<PAGE>
All Notices in accordance with the terms hereof shall be deemed given upon
actual receipt thereof whether delivered by first-class mail, postage prepaid,
personally, or by courier or messenger service, or facsimile transmission to the
numbers given above, provided electronic confirmation of such facsimile
transmission is received by the noticing party. Either party hereto may change
the address or facsimile number for receiving notices, requests, demands or
other communication by notice sent in accordance with the terms of this Section
12.1.
12.2 Buyer may not assign this Agreement or its rights and obligations
hereunder without the prior written consent of Seller, which Seller may withhold
in its sole and absolute discretion; provided, however, Seller's prior consent
shall not be required for such an assignment to a person or entity affiliated
with Buyer and in which Buyer or the principals of Buyer: (i) maintain
management control; or (ii) retain an ownership interest or membership interest
(consisting of voting stock, a general partnership interest, or voting rights)
of at least 25%. Any assignment hereunder will be subject to the terms and
provisions of this Agreement; provided, however, that upon such assignment such
Assignee shall succeed to all of the rights and obligations of Buyer hereunder,
and agrees to execute all documents and perform all obligations pursuant to this
Agreement. Notwithstanding any assignment of this Agreement, the Assignor shall
not be relieved of its obligations to complete this transaction and pay the
Purchase Price to Seller as provided for herein.
12.3 Each party agrees to execute any additional documents or supplemental
escrow instructions as may be reasonably necessary to comply with the terms of
this Agreement, provided that such instructions are not in conflict with the
terms hereof and that if a conflict exists, the provisions of this Agreement
shall prevail.
12.4 This is the entire agreement between Seller and Buyer pertaining to the
sale of the Property and supersedes any prior written or oral understandings.
Any amendment to this Agreement must be in writing. This Agreement will be
governed by the laws of the state in which the Property is located.
12.5 The prevailing party in any litigation, including any appeal, arising
out of this Agreement will be entitled to its reasonable attorney's fees, costs
and expenses incurred in connection with the prosecution or defense of such
action.
12.6 All Exhibits referred to are attached to this Agreement and are
incorporated herein by reference.
12.7 In the event this Agreement is terminated by the default of Buyer or
Seller, any escrow termination fee or charges of Escrow Agent will be borne by
the defaulting party.
12.8 This Agreement may be executed in separate counterparts, each of which
will be deemed an original, and all of which together will constitute one
instrument.
12.9 Time is of the essence of this Agreement.
12.10 The heading, captions and titles used in this Agreement are for
convenience only and shall not be deemed in any way to limit or amplify the
terms and provisions of this Agreement.
12.11 If any date of significance hereunder falls upon a Saturday, Sunday, or
legal holiday such date will be deemed moved forward to the next day which is
not a Saturday, Sunday, or legal holiday. The terms "working day" or "business
day" shall mean days elapsed exclusive of Saturdays, Sunday, or legal holidays.
12.12 This Agreement is not intended to confer any benefit upon, or create
any contractual right in, any person or entity other than the parties hereto.
12.13 In the event this Agreement is not fully executed by Buyer and Seller
on or beforeJuly 1, 1997, this Agreement shall be null and void and neither
party shall have any liability to the other hereunder.
12.14 This Agreement shall be governed by, interpreted under and construed
and enforced in accordance with the laws of the State of California.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SELLER: BUYER:
MC ASSOCIATES, LLC, MERCURY INTERACTIVE CORPORATION
a Delaware limited liability company a Delaware corporation
By: Pacific Mutual Life Insurance Company
a California Corporation, Managing Member
By: /s/ John Mulvihill, Vice President By: /s/ Sharlene Abrams
----------------------------------- -----------------------
Name: John Mulvihill Name: Sharlene Abrams
-------------- ---------------
Title: Vice President Title: Chief Financial Officer
-------------- -----------------------
By: /s/ Wendy Balden By:_________________________
-----------------
Name: Wendy Balden Name:_______________________
------------
Title: Assistant Secretary Title:______________________
-------------------
Dated: July 1, 1997 Dated: July 1, 1997
Escrow Agent acknowledges receipt of a fully executed copy of this Agreement,
and by its signature hereby accepts and agrees that the provisions of this
Agreement, and any amendment thereto as may be executed by Buyer and Seller,
shall constitute instructions and control the deposit and disposition of funds
by the Escrow Agent hereunder.
ESCROW AGENT:
By:__________________
Title:_______________
Date:________________
18
<PAGE>
EXHIBIT "A"
-----------
Legal Description of Real Property
Parcel One:
- ----------
Parcel 4, as shown on Parcel Map filed May 20, 1997 in Book 397 of Maps,
at Page 12, Santa Clara County Records
Parcel Two:
- ----------
An easement for ingress and egress over the Easterly 13 feet of Parcel 5
as shown on the hereinabove described Parcel Map.
A-1
<PAGE>
EXHIBIT "B"
-----------
[Reserved]
B-1
<PAGE>
EXHIBIT "C"
-----------
[Reserved]
C-1
<PAGE>
EXHIBIT "D"
-----------
GRANT DEED
(Standard form to be furnished by Title Company)
D-1
<PAGE>
EXHIBIT "E"
-----------
[Reserved]
E-1
<PAGE>
EXHIBIT "F"
-----------
ASSIGNMENT OF RIGHTS, WARRANTIES AND PERMITS
--------------------------------------------
THIS ASSIGNMENT OF RIGHTS, WARRANTIES AND PERMITS ("Assignment") is dated for
identification purposes _________________________________, 1997 and made by MC
ASSOCIATES, LLC, a Delaware limited liability company ("Assignor") to MERCURY
INTERACTIVE CORPORATION, a Delaware corporation ("Assignee").
1. Pursuant to Section 5.2(c) of that certain Purchase and Sale Agreement and
Joint Escrow Instructions dated_______________________________________, 1997
between Assignor, as Seller, and Assignee, as Buyer, as may have been amended
from time to time thereafter (the "Purchase Agreement"), Assignor hereby assigns
and delegates to Assignee all of the items, if any, which Assignor may own which
relate to the construction, occupancy, operation, management and/or ownership of
the Property located at 1325 Borregas Avenue, Sunnyvale, California and more
particularly described in attached Exhibit "A" attached to the Purchase
Agreement. All defined terms used herein shall have the same meaning as set
forth in the Purchase Agreement, unless the context clearly indicates otherwise.
2. Assignor further assigns to Assignee all of its rights, and interest, if
any, in all construction, equipment and material warranties and guarantees
affecting the Property. This assignment of warranties and guarantees is
effective to the extent such matters are legally subject to assignment, assigned
by Assignor, whether such limitations or prohibition is imposed or created by
contract, statute, ordinance, regulation or otherwise.
3. Assignor further assigns all of its rights, obligations and interest, if
any, in all trademarks, styles, logos, signs and other advertising symbols
relating to the trade name "Menlo Caspian Building" and to the Property, to the
extent whether such limitation or prohibition is imposed or created by contract,
statute, ordinance, regulation or otherwise.
4. This Assignment is made as an incident of the concurrent sale of the
Property by Assignor to Assignee and will be effective upon the Closing Date, as
defined in Section 1.2 of the Purchase Agreement.
5. Assignor agrees to execute any further documents reasonably necessary to
perfect the transfer to any item described in this Assignment, provided Assignor
shall incur no out-of-pocket costs in connection therewith.
6. This Assignment shall be binding upon and inure to the benefit of the
successors, assigns, personal representatives, heirs and legatees of all of the
respective parties hereto, subject to the assignment provisions of the Purchase
Agreement.
7. This Assignment shall be governed by, interpreted under and construed and
enforced in accordance with the laws of the State of California.
8. This Assignment is made without any warranty or representation whatsoever
as to the existence, validity or enforceability of any right, warranty or permit
herein assigned; provided, however, Assignor does represent and warrant that, as
of the date hereof, it has no actual knowledge of any adverse claim or interest
in or to any of the rights, warranties or permits assigned hereunder.
9. No previous assignment has been made by Assignor of any part of the
matters, assigned hereby and, to Seller's knowledge (as defined in Section 4.4
of the Purchase Agreement), the matters referred to herein are in full force and
effect and there exists no default or any acts or events which, with the passage
of time, or the giving of notice could become defaults thereunder on the part of
any other party to such items. Assignor agress to indemnify Assignee against
and hold Assignee harmless from any and all liabilities, losses, damages and
expenses, including, without limitation, reasonable attorneys' fees, arising out
of acts or omissions of Assignor in connection with such matters occurring or
existing prior to the Closing Date. Assignor's indemnification obligation
hereunder shall survive for a period of one (1) year from the Closing Date.
10. This Assignment is intended to supplement the terms and provisions of the
Purchase Agreement and shall be construed as consistent therewith to the
greatest extent possible. This Assignment shall not be deemed to modify or
amend
F-1
<PAGE>
the Purchase Agreement. In the event of an irreconcilable conflict between the
provisions of the Purchase Agreement and this Assignment, the provisions of the
Purchase Agreement shall prevail.
11. To the extent any claim of any kind is brought by Assignee and Assignor
pursuant to this Assignment, such claim, action, suit or proceeding must be
commenced, if at all, on or before one (1) year from the Closing Date.
IN WITNESS WHEREOF, the parties have executed this Assignment as of the date
first above written.
ASSIGNOR: ASSIGNEE:
MC ASSOCIATES, LLC, MERCURY INTERACTIVE CORPORATION,
a Delaware limited liability company a Delaware corporation
By:
Name:
By: Title:
Name:
Title: By:
Name:
By: Title:
Name:
Title:
F-2
<PAGE>
EXHIBIT "1" TO
--------------
LIST OF ITEMS ASSIGNED
----------------------
F-3
<PAGE>
EXHIBIT "G"
-----------
ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS
----------------------------------------------
THIS ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS ("Assignment") is dated
---------
for identification purposes _____________________________, 1997, and is made by
and between MC ASSOCIATES, LLC, a Delaware limited liability company
("Assignor") to MERCURY INTERACTIVE CORPORATION, a Delaware corporation
("Assignee").
1. This Assignment is made pursuant to Section 5.2(d) that certain Purchase
and Sale Agreement and Joint Escrow Instructions dated ______________________,
1997 between Assignor, as Seller, and Assignee, as Buyer, as may have been
amended from time to time thereafter, (the "Purchase Agreement"), for the
transfer of the Property located at 1325 Borregas Avenue, Sunnyvale, California
and more particularly described in Exhibit "A" attached to the Purchase
Agreement. This Assignment will be effective as of the "Closing Date", as
defined in Section 1.2 of the Purchase Agreement. All defined terms used herein
shall have the same meaning as set forth in the Purchase Agreement, unless the
context clearly indicates otherwise.
2. Assignor assigns to Assignee all of its rights, obligations and interest
in all contracts and agreements relating to the ownership, leasing and/or
operation of the Property as specified in Exhibit "1" attached hereto (the
"Service Contracts"), subject to: (a) the provisions thereof, if any, regarding
assignment of Assignor's rights, obligations and interest thereunder; and (b)
the provisions of the Purchase Agreement relating to the termination of the
Service Contracts on or as of the Closing Date or other date set forth therein.
3. Assignee hereby assumes the performance of all of the terms, covenants and
conditions imposed upon Assignor under the Service Contracts hereunder,
specifically described in attached Exhibit "1" and assigned hereby, which have
arisen or accrued or are applicable to or which accrue or are applicable to the
period on or after the date of this Assignment.
4. Assignor hereby agrees to hold Assignee harmless from and against any and
all claims, damages, losses and expenses asserted against or incurred by
Assignee by reason of any breach by Assignor, prior to the date hereof, of any
of Assignor's obligations under the Service Contracts.
5. Assignee hereby agrees to hold Assignor harmless from and against any and
all claims, damages, losses and expenses asserted against or incurred by
Assignor by reason of any breach by Assignee, on or after the date hereof, of
any of the obligations formerly held by Assignor under the Service Contracts
assumed by Assignee hereunder.
6. Assignor and Assignee agree to execute any additional documents as may be
necessary for Assignor to assign such additional contracts or agreements, if
any, relating to the Property which Assignee desires to assume, provided
Assignor shall incur no out-of-pocket costs in connection therewith.
7. Assignor represents and warrants that, as of the date hereof, it has no
actual knowledge of any claim or other adverse interest on the part of any
person or entity in or to the Service Contracts being assigned hereunder; no
previous assignment has been made by Assignor of the Service Contracts and; to
Seller's knowledge (as defined in Section 4.4 of the Purchase Agreement), the
Service Contracts are in full force and effect and there exists no default or
any acts or events which, with the passage of time, or the giving of notice
could become defaults thereunder on the part of any other party to such Service
Contracts. Assignor agrees to indemnify Assignee against and hold Assignee
harmless from any and all liabilities, losses, damages and expenses, including,
without limitation, reasonable attorneys' fees, arising out of acts or omissions
of Assignor in connection with the Service Contracts occurring or existing prior
to the Closing Date. Assignor's indemnification obligation hereunder shall
survive for a period of one (1) year from the Closing Date.
8. This Assignment shall be binding upon and inure to the benefit of the
successors, assignees, personal representatives, heirs and legatees of all of
the respective parties hereto, subject to the assignment provisions of the
Purchase Agreement.
G-1
<PAGE>
9. This Assignment shall be governed by, interpreted under and construed and
enforced in accordance with the laws of the State of California.
10. This Assignment is intended to supplement the terms and provisions of the
Purchase Agreement and shall be construed as consistent therewith to the
greatest extent possible. This Assignment shall not be deemed to modify or
amend the Purchase Agreement. In the event of an irreconcilable conflict between
the provisions of the Purchase Agreement and this Assignment, the provisions of
the Purchase Agreement shall prevail.
11. To the extent any claim of any kind is brought by Assignee or Assignor
pursuant to this Assignment, such claim, action, suit or proceeding must be
commenced, if at all, on or before one (1) year from the Closing Date.
IN WITNESS WHEREOF, the parties have executed this Assignment as of the date
first above written.
ASSIGNOR: ASSIGNEE:
MC ASSOCIATES, LLC, MERCURY INTERACTIVE CORPORATION,
a Delaware limited liability company a Delaware corporation
By:________________________________ By:______________________________
Name:______________________________ Name:____________________________
Title:_____________________________ Title:___________________________
By:________________________________ By:______________________________
Name:______________________________ Name:____________________________
Title:_____________________________ Title:___________________________
G-2
<PAGE>
EXHIBIT "1" TO
--------------
LIST OF SERVICE CONTRACTS
-------------------------
G-3
<PAGE>
EXHIBIT "H"
-----------
[Reserved]
H-1
<PAGE>
EXHIBIT "I"
-----------
BILL OF SALE
------------
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, MC ASSOCIATES, LLC, a Delaware limited liability company
("Assignor") hereby grants, transfers, and sells to MERCURY INTERACTIVE
CORPORATION, a Delaware corporation ("Assignee"), without representation or
warranty and on an "AS IS" and "WHERE-IS" basis (except as may be otherwise
provided in that certain Purchase and Sale Agreement and Joint Escrow
Instructions dated _________, 1997 between Assignor, as Seller, and
Assignee as Buyer, as amended thereafter from time to time (the "Purchase
Agreement"), all of Assignor's right, title and interest, if any, in and to any
and all furniture, fixtures, equipment, appliances, tools, machinery, supplies,
building materials and other personal property of every kind and character owned
by Assignor, attached to, appurtenant to, and located at and used in connection
with the operation of the improvements situated on the real property described
in Exhibit "A" attached to the Purchase Agreement, as may be more particularly
described in Exhibit "1" attached hereto and incorporated herein by reference
("Personal Property"). Without limiting any further provision of this Bill of
Sale, Seller covenants that it is the lawful owner of the referenced Personal
Property, free from all liens, claims or encumbrances, and agrees to warrant and
defend the title to the Personal Property hereby conveyed against the just and
lawful claims and demands of all persons claiming by or through Seller.
Assignor hereby covenants that it shall, at any time and from time to time
upon written request therefore, provided Assignor incurs no out-of-pocket cost
in connection therewith, execute and deliver to Assignee, its permitted
successors, nominees or assigns, such documents as it or they may reasonably
request in order to fully assign and transfer to and vest in Assignee or its
permitted successors, nominees and assigns, and protect its or their right,
title and interest in and to all of the Personal Property and the rights of
Assignor intended to be transferred and assigned hereby, or to enable Assignee,
its permitted successors, nominees and assigns to realize upon or otherwise
enjoy such rights and property.
This Bill of Sale shall be binding upon and inure to the benefit of the
successors, assigns, personal representatives, heirs and legatees of Assignee
and Assignor, subject to the assignment provisions of the Purchase Agreement.
This Bill of Sale is intended to supplement the terms and provisions of the
Purchase Agreement and shall be construed as consistent therewith to the
greatest extent possible. This Bill of Sale shall not be deemed to modify or
amend the Purchase Agreement. In the event of an irreconcilable conflict
between the provisions of the Purchase Agreement and this Bill of Sale, the
provisions of the Purchase Agreement shall prevail.
THE TRANSFER OF PERSONAL PROPERTY EVIDENCED BY THIS BILL OF SALE IS MADE
WITHOUT WARRANTY, EXPRESS OR IMPLIED, EXCEPT THE WARRANTY OF TITLE EXPRESSLY
PROVIDED HEREIN, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
This Bill of Sale shall be governed by and constructed in accordance with the
laws of the State of California
IN WITNESS WHEREOF, Assignor has executed this Bill of Sale this _____ day of
___________________, 1997.
ASSIGNOR: ASSIGNEE:
MC ASSOCIATES, LLC,, MERCURY INTERACTIVE CORPORATION,
a Delaware limited liability company a Delaware corporation
By:________________________________ By:_______________________________
Name:______________________________ Name:_____________________________
Title:_____________________________ Title:____________________________
By:________________________________ By:_______________________________
Name:______________________________ Name:_____________________________
I-1
<PAGE>
Title:__________________________ Title:______________________________
I-2
<PAGE>
EXHIBIT "1" TO BILL OF SALE
---------------------------
LIST OF PERSONAL PROPERTY
-------------------------
I-3
<PAGE>
EXHIBIT "J"
-----------
FORM OF NON-FOREIGN CERTIFICATION
---------------------------------
TRANSFEROR'S CERTIFICATION OF NON-FOREIGN STATUS
------------------------------------------------
To inform MERCURY INTERACTIVE CORPORATION, a Delaware corporation
("Transferee) that withholding of tax under Section 1445 of the Internal Revenue
Code of 1986, as amended (the "Code"), will not be required upon for the
transfer of certain real property to the Transferee by MC ASSOCIATES, LLC, a
Delaware limited liability company ("Transferor").
1. Transferor is not foreign corporation, foreign partnership, foreign trust
or foreign trust or foreign estate (as those terms are defined in the Code and
Income Tax Regulations promulgated thereunder);
2. Transferor's U.S. employer identification number is 95-1079000; and
3. Transferor's office address is 700 Newport Center Drive, Newport Beach,
California 92660.
Transferor understands that this Certification may be disclosed to the
Internal Revenue Service by Transferee and that any false statement contained
herein could be punished by fine, imprisonment, or both.
Under penalty of perjury, I declare that I have examined this Certification
and that, to the best of my knowledge and belief, it is true, correct and
complete, and I further declare that I have authority to sign this document on
behalf of the Transferor.
Dated: June ________ , 1997.
SELLER:
MC ASSOCIATES, LLC,
a Delaware limited liability company
By:__________________
Name:________________
Title:_______________
By:__________________
Name:________________
Title:_______________
J-1
<PAGE>
EXHIBIT 11.1
MERCURY INTERACTIVE CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE
(PRIMARY AND FULLY DILUTED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, SEPT. 30,
-------------------------------------
1997 1996 1997 1996
--------- ----------------- --------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding............................. 16,433 15,990 16,279 15,862
Weighted average common equivalent shares
from dilutive options(1)................ -- 624 859 721
--------- -------- -------- --------
Weighted average common shares and
equivalents............................. 16,433 16,614 17,138 16,583
========= ======== ======== ========
Net income (loss)........................ $ (2,270) $ 1,435 $ 1,657 $ 1,565
========= ======== ======== ========
Net income (loss) per share.............. $ (0.14) $ 0.09 $ 0.10 $ 0.09
========= ======== ======== ========
</TABLE>
- --------
(1) Common equivalent shares are excluded from the computation if their effect
is anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 50,652
<SECURITIES> 32,375
<RECEIVABLES> 22,261
<ALLOWANCES> 2,131
<INVENTORY> 276
<CURRENT-ASSETS> 109,550
<PP&E> 27,428
<DEPRECIATION> 9,321
<TOTAL-ASSETS> 132,036
<CURRENT-LIABILITIES> 27,646
<BONDS> 0
0
0
<COMMON> 33
<OTHER-SE> 104,357
<TOTAL-LIABILITY-AND-EQUITY> 132,036
<SALES> 19,600
<TOTAL-REVENUES> 19,600
<CGS> 2,593
<TOTAL-COSTS> 2,593
<OTHER-EXPENSES> 19,410
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,587)
<INCOME-TAX> 683
<INCOME-CONTINUING> (2,270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,270)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
