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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-26156
NOVADIGM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 22-3160347
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
185 BERRY STREET, SUITE 3515, SAN FRANCISCO, 94107
CA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(415) 541-8420
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing price of the Common Stock on May 31,
1997, as reported on Nasdaq National Market was approximately $55,372,831.
Shares of Common Stock held by each executive officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliates status is not necessarily a conclusive determination for other
purposes.
On May 31, 1997, there were 17,316,391 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has incorporated by reference into Part III of this Form 10-K
portions of its Proxy Statement for the Annual Meeting of Stockholders which is
scheduled to be held September 12, 1997.
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business................................................................ 3
Item 2. Properties.............................................................. 13
Item 3. Legal Proceedings....................................................... 14
Item 4. Submission of Matters to a Vote of Securities Holders................... 14
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters............................................................... 14
Item 6. Selected Financial Data................................................. 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 16
Item 8. Financial Statements and Supplementary Data............................. 23
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 23
PART III
Item 10. Directors and Executive Officers of the Registrant...................... 24
Item 11. Executive Compensation.................................................. 24
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 24
Item 13. Certain Relationships and Related Transactions.......................... 24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 24
SIGNATURES............................................................................. 26
POWER OF ATTORNEY...................................................................... 27
SIGNATURES............................................................................. 27
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"Novadigm" and "Novadigm Enterprise Desktop Manager" are registered
trademarks of Novadigm, Inc., and "Enterprise Desktop Manager," "EDM: Manager,"
"EDM: Administrator," "EDM: Server," "EDM: Client" and "Cybervalet" are
trademarks of Novadigm, Inc. This filing also includes trademarks of companies
other than of Novadigm Inc.
Novadigm, Inc. is not affiliated with Novadyne Computer Systems, Inc. of
Reston, Va.
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PART I
This report includes a number of forward-looking statements which reflect
the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below, that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "anticipates", "believes", "expects", "intends", "future" and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof.
ITEM 1. BUSINESS
Novadigm, Inc. ("Novadigm" or the "Company") is a provider of automated
software management solutions for large-scale client/server and internet
computing environments. The Company's products, collectively known as the
Enterprise Desktop Manager(TM) ("EDM"), provide Information Technology ("IT")
driven organizations with a "desired-state" automation platform that reduces the
time-to-deploy software across client/server, intranet or extranet networks and
lowers the total-cost-of-ownership of managing rapidly changing desktop
configurations for thousands of users. Novadigm's customers include Fortune 2000
IT organizations in the financial services, transportation, telecommunications,
healthcare, and utilities industries; government agencies; large independent
software vendors; and IT service providers. These organizations use the
Company's patented "fractional differencing" technologies to ensure that the
right components of software are always available to the right users at the
right time without requiring administrative or user intervention. To construct
this environment, the Company's professional services organization and network
of certified service partners provides project management, systems
implementation and training services.
BACKGROUND
Novadigm's software management solutions address well-defined emerging
segments of the client/server and internet management marketplaces. This
segment, commonly characterized as the Electronic Software Distribution ("ESD")
market, describes a class of software that automatically transports, configures,
tracks, maintains and updates application resources; including its data,
programs, files, content and objects; across local-area networks ("LANs"),
wide-area networks ("WANs"), and the World-wide Web ("WWW"). ESD software also
address the requirements for installing software or enabling links for
distributed users of these applications that rely on personal computers ("PCs")
or network computing devices ("NCs") as their primary interface to the
application software.
Recently popularized as "Push ESD" tools, this class of software has
evolved over the last decade to become an integral component of strategic IT
management issues:
Total-Cost-of-Ownership of PCs. With industry analysts estimating
that IT is investing as much as $10,000 per desktop per year in
administering PC software configurations, including operating system
migrations, shrink-wrap tools deployment, and business application support,
ESD automation provides a significant impact on reducing overall support
costs.
Client/Server Application Management. With these applications now
representing key competitive advantages for business operations, the
requirement for ESD solutions that improve the overall efficiency,
reliability, availability and serviceability of these applications provide
significant impacts on shortening the time-to-market.
Internet Content Management. For Web-enabled services that rely on
up-to-the-minute updates of content for service subscribers, ESD solutions
provide a central vehicle for managing the dynamic configuration changes
required to keep the service current.
Increasingly the software applications being managed in these environments
are designed to automate mission-critical operations of the business. As a
result, the data that fuels these organization's core Information Systems are
now widely distributed and require frequent update. ESD solutions reduce the
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complexity of deploying and administering these new distributed software
configurations, thereby increasing the reliability, serviceability and
availability of these strategic IT assets.
Many vendors have responded by introducing an assortment of ESD products to
the marketplace. Typically provided as an operating environment plug-in utility
for PC operating systems, Web browsers, LAN administration suites, or
network/systems management frameworks, these products are generally based on
point-to-point file transfer technology together with an automated scheduling
program that directs file transfer "events" targeted to network nodes and a
procedural "scripting" language to perform installation procedures at the
identified destination. The implementation of these products is dependent upon
an administrator who must create or modify lists of specific users and
corresponding files to be sent to such users, and who must script programs to
control and customize the installation of the files once they reach their
identified destination.
In small, relatively simple networks with low rates of change, this
"list/event" approach is an improvement over manual software installation.
However, the time, complexity and cost of implementing the list/event approach
increases dramatically in large-scale client/server and internet computing
environments. Rather than automating the complex processes necessary for
management of the distributed software on client desktops and servers, typical
ESD products simply automate the transportation events for individual
components, requiring an IT administrator to manually perform the configuration,
change and policy activities needed to prepare the list and event input required
for file transfer control and installation. These "semi-automated" activities
become impracticable to perform properly when applied to computing environments
that include thousands of users deployed across widely dispersed geographical
locations with platforms, network protocols, applications, systems software and
databases that may vary significantly within a particular location or user
group.
As a result, the rapid evolution of client/server and internet computing
architectures is now obsoleting these first generation "list/event" approaches,
creating the need for a new class of software management solutions. With the
core computing assets of IT moving out of the back office onto employee desktops
and into homes and virtual offices, the focus of the ESD process has shifted
from a centralized management model, where management software focused only on
securing access to the data and related network equipment, to a distributed
model, where object-based environments are required to manage different copies
of the software residing across multiple servers and individual user desktops.
The "end-to-end" process of automating software deployment, configuration and
change management has now emerged as the new and critical ESD automation need.
"Desired-state" software management addresses these new needs by providing
IT professionals with an automated process that compares the current
"actual-state" of each distributed software configuration with a "desired model"
of what an individual user, workgroup, department, or internet consumer's
software configuration should look like. The resulting differences determine
what updates are required, triggering an automated, granular change process for
installing applications on distributed servers and desktops based on current
user configuration requirements, available versions and access policy
entitlements.
In view of these fundamental limitations of traditional ESD products and
with the widespread adoption of the client/server and internet models in medium
and large organizations for business applications, the Company believes that the
requirements for software management technologies that effectively address the
desired-state automation process across large-scale networks is the key enabling
technology for providing comprehensive ESD services. This technology must be
highly adaptable to the customer's existing base of installed computing
platforms and application portfolio, and easily extensible to facilitate the
orderly and timely adaptation of customer IT infrastructures and applications to
dynamic business needs and IT opportunities.
THE NOVADIGM SOLUTION
Novadigm offers an automated solution for software management to medium and
large organizations with business-critical client/server or internet computing
environments. The Company's products are based on the "desired-state" model for
automation and include two main components -- an ESD Infrastructure that
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distributes software management intelligence across more than 16 platforms; and,
an integrated suite of configuration, change, version, distribution, security
and asset management applications that automatically deploy and synchronize
software components residing on thousands of distributed desktops and servers.
The Company's products, EDM and currently under development internet
products, are highly scalable, interoperable and adaptable, and are designed to
allow IT professionals and IT service providers to effectively manage complex
software configurations across any large-scale public and private network
computing configuration using whatever service provider policies are to be
enacted for controlling the distribution of client/server software or internet
content. The following are key attributes of the EDM solution that distinguish
EDM from other software management products:
Desired-State Automation. EDM addresses the challenges of the
client/server and internet models of computing through the use of
object-oriented technology, a technique by which software "objects" --
collections of data and procedures for processing that data -- are used as
building blocks to model real-world objects and systems. The use of
object-oriented technology throughout the EDM infrastructure and
applications allows all EDM activities to be controlled on a fully
automated basis from a single integrated "desired-state model" of an IT
environment. This model organizes and contains all information concerning
how activities are performed and how distributed objects are to be
implemented. As a result, extremely large and complex configurations of
software components can be automatically deployed and maintained across all
EDM supported "client" platforms simply by comparing the desired-state
model to a dynamic discovery of the "actual-state" of the individual
computing device, application, or service.
Dynamic configuration and change management. Using the desired-state
automation platform, EDM can automatically distribute software program
versions specific to the individual client environment and install them as
dictated by administrative policies. As program versions and client
environments change, the affected clients "actual-state" is differenced and
reconfigured to correspond to the desired-state of operation, thus
automating administrative change processes while continuously verifying the
accuracy of client configurations.
Policy-based controls and auditability. EDM's use of object
technology for policy-based control allows customers to efficiently and
concisely define and maintain policies controlling the deployment of
software to authorized clients. For example, an IT administrator may
implement a policy permitting access to certain financial databases only to
a selected workgroup within an organization's finance department. Changes
to policies implemented within EDM or derived by EDM from external sources
cause components to be automatically installed or de-installed on all
affected clients. Administrative control over any EDM object can be
distributed as appropriate to designated users across a customers
organization, thus ensuring that only authorized persons can change usage
policies or application components.
Scalability and performance. EDM's patented "fractional differencing"
technology automatically calculates the effects of policy, component and
client environment changes upon each client platform, and in connection
with each calculation, automatically transports only the changed software
components for each client. By using an object-level differencing
calculation, EDM eliminates the manual listing and scripting activities
required by traditional ESD approaches, where administrators must either
calculate and program the effect of changes on each desktop, or assume that
all changes must be sent to every desktop, with resulting impact on network
traffic (as well as on reliability and auditability, since that assumption
is usually incorrect). Once the differencing process has calculated the
precise changes needed by each desktop, EDM's distributed object transport
allows transported components to be automatically "cached" at multiple
locations and transported using a combination of network protocols
simultaneously to further optimize network performance.
The Company believes that its technology and products establish a new
standard for software management and provide its customers with an effective
means for managing large-scale client/server and internet computing
environments. The Company also believes that the technology embodied in the
Company's EDM products provides significant improvements over the list/event
approach used by competitive vendors of ESD products. These improvements include
the complete automation of the deployment and ongoing change
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management requirements of distributed software, enhanced scalability to support
the high number of servers and desktops found in large organizations and
significant reductions in cost through elimination of manual installation and
administration procedures, with resulting high levels of system reliability,
availability, serviceability and auditability.
THE NOVADIGM STRATEGY
The Company's objective is to be the leading provider of automated software
management solutions to medium and large organizations that are deploying new
software into their client/server and internet computing environments. Key
components of the Company's strategy are to focus on:
Maintaining Technology Leadership in Client/Server Computing and
Expanding into Internet Computing. The Company has developed and patented
unique "desired-state" modeling and "fractional differencing" technologies
for software management that the Company believes distinguish its products
from those of other vendors. The Company's products are object-oriented
throughout and incorporate patented technologies to enable a highly
automated, scaleable infrastructure that are required for managing the
initial deployment and ongoing maintenance of applications. The Company
plans to continue investing significant resources in research and
development, both to enhance the features and functionality of its existing
EDM product base and to develop new products, particularly products that
address the unique requirements of the internet environment.
Penetrating the High-end of the ESD Marketplace. The Company's
comprehensive management infrastructure and patented technologies are key
requirements for medium and large organizations with complex network
computing environments and thousands or tens of thousands of users and
consumers requiring ESD services. The Company's customer base is
predominantly based in the Fortune 2000. The Company's strategy is to
continue to concentrate on exploiting the product strengths of EDM in the
high-end of the enterprise computing marketplace and to develop new
enhancements and new products that are responsive to the software
management needs of these organizations.
Managing Business-critical Applications, particularly in Financial
Services. The Company's products provide a sophisticated change and
configuration management environment that is a key requirement for
organizations deploying software that must be updated frequently to align
it to dynamic business requirements. These characteristics are inherent to
the new class of business applications, particularly in the financial
services industry, where content represents the competitive sales advantage
and/or customer service interface. The Company's strategy is to identify
and customize its product offerings to address the specific requirements of
managers of these types of applications.
Distributing through Integrated Service Provider Channels, Largely
Indirect. In order to penetrate the global market for software management,
the Company has established service-oriented channels of distribution: a
direct field sales organization that includes sales professionals, account
managers and professional service consultants; and, selected indirect sales
channels of OEMs, VARs, systems integrators, distributors and smaller
resellers. The Company's strategy intends to expand these indirect channels
of distribution, with particular emphasis on resellers that provide broader
product and systems integration service offerings both domestically and
internationally.
To support the Company's market leadership objective, the Company intends
to utilize multiple products, services and distribution channels to create
compelling value propositions for those segments of the ESD market which
represent the best match of market opportunity to Novadigm's unique
capabilities.
PRODUCTS
The Company's EDM solution provides IT professionals with a distributed,
object-oriented management platform and a comprehensive environment of automated
software management applications for deploying,
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configuring, securing, and changing complex client/server and internet software
across thousands of desktops and servers. The product includes four major
technologies:
ESD Infrastructure. A management platform that distributes and
synchronizes intelligent managers across the network, including central
servers, department servers, local-area networks, Web servers, PCs,
browsers and remote computing devices. This platform provides the framework
for automating the management of distributed software.
Desired-State Automation Technology. An engine that fuels the
infrastructure by enabling very rapid, granular and precise comparisons of
the differences between the actual configuration of distributed software
and the required configuration based on a central, policy-based model for
deployment.
Integrated Software Management Suite. An administrative environment
for content providers, service providers, applications managers and systems
administrators to define construct and distribute the "desired-state"
model.
Adapters for Third Party Products. Plug-in components that extend the
EDM environment to interface, integrate, or encapsulate third party
products or processes to support the deployment or configuration cycle.
EDM's ESD Infrastructure is a management platform comprised of four
integrated components: EDM:Manager, EDM:Administrator, EDM:Server and
EDM:Client.
EDM:Manager is the central component of EDM. A multi-domain object
repository and engine, EDM:Manager configures and synchronizes distributed
objects -- application components, desktop configurations, policy
relationships -- across the enterprise. Using EDM:Administrator,
EDM:Manager's central database repository, stored on an enterprise server,
is configured to automatically manage the transfer of objects to and from
EDM:Server environments and EDM:Client desktops.
EDM:Administrator is an object-oriented systems management facility
that IT administrators use to configure EDM:Manager. EDM:Administrator's
graphical user interface ("GUI") makes it easy to work with the objects
stored on EDM:Manager's central repository. IT administrators drag and drop
object icons to change desktop configurations, to distribute new versions
of software applications or to establish or revise access policy
relationships.
EDM:Server is a multi-purpose, intermediate object server for
coordinating the management of EDM:Client desktops. Residing on a
local-area or department network, EDM:Server enables a multi-tiered
distribution environment, accessing and staging distributed software
configurations from the EDM:Manager on distributed platforms and using
high-speed LAN communications to update EDM:Client desktops.
EDM:Client provides an object-oriented environment for configuring and
changing distributed software components at the desktop. Operating as an
extension of the PC operating environment, EDM:Client automatically
discovers current desktop contents and synchronizes application versions
with new or updated configurations residing on EDM:Server or EDM:Manager.
The EDM platform is distributed across 16 computing platforms:
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COMPONENT PLATFORMS
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EDM:Manager AIX, HP-UX, MVS, SUN, NCR, Windows NT, OS/2
EDM:Administrator Windows, Windows95, Windows NT, OS/2, AIX, HP-UX, SUN,
NCR, and Macintosh
EDM:Server Novell, AIX, HP-UX, SUN, NCR, Windows NT, OS/2
EDM:Client Windows, Windows95, Windows NT, OS/2, DOS, AIX, HP-UX,
SUN, NCR, Macintosh, Navigator, Explorer, Java
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Communication between components is supported through a variety of
protocols, including HTTP, TCP/IP, SNA, IPX, and NetBIOS.
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EDM's Desired-State Automation Platform is comprised of a patented process
for integrating three separate disciplines dynamically at the time of a software
configuration update:
Hardware/Software Discovery Process. A facility that dynamically
audits desktop contents on an on-demand basis, creating inventory summaries
of the hardware and software contents of individual users, workgroups, or
departments for use in updating configurations.
Policy Management Authentication. A facility that dynamically
determines access policy entitlements to applications or services by job
function, geographic differences and/or hardware configurations.
Application Content Verification. A facility that dynamically
determines the current available versions of applications or services and
updates to content that have occurred since the system was deployed.
EDM's "desired-state" process compares the current "actual-state" of each
of these three dimensions with the "desired model" of what an individual user,
workgroup, department, or internet consumer's software configuration should look
like. The resulting differences dynamically determine what updates are required.
The EDM Software Management Suite is comprised of the applications that
actually manage the process of defining the model and enabling the automation
process. It includes six integrated applications: Configuration Management,
Change Management, Version Management, Distribution Management, Security
Management and Asset Management:
Configuration Management. Enables systems administrators to assign
software and services to individual users or workgroups by "connecting"
them as related objects. EDM automatically decides "who gets what"
according to defined provider management policies, job functions,
geographic differences and hardware configurations. This process replaces
the need for manual desktop setup procedures.
Change Management. Automates the process of identifying, packaging,
delivering and controlling versions of configuration updates to the
desktop. When an application component, management policy or client desktop
environment changes, EDM uses "object differencing" technology to
synchronize changes automatically at the object level, thereby ensuring
that actual desktop contents conform to authorized configurations.
Version Management. Integrates configuration and change management
together with application development activities that generate new versions
of software programs, providing the automatic deployment of new versions of
programs without manual intervention.
Distribution Management. Integrates the configuration and change
management process by providing facilities to transport, install or
de-install, activate, synchronize, present and execute new or changed
applications on the desktop automatically according to authorized
configurations. Object-oriented (as opposed to file-oriented) transport
methods make the distribution process conceptually easier by permitting the
encapsulation of files or application scripts into objects.
Security Management. Ensures that enterprise security policies are
taken into account when controlling sessions on, or distributing software
applications to, client desktops. Using direct interfaces to existing
enterprise security packages, EDM eliminates the need for manual,
list-based security processes or third-party PC security alternatives.
Asset Management. Provides facilities for auditors, license
administrators or help-desk support personnel to audit desktop contents on
a periodic or on-demand basis. Inventory reports can be generated by user,
workgroup, department or enterprise-wide, eliminating the need for manual
desktop inventory procedures.
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Extensions for EDM, EDM Adapters allow customers, systems integrators and
independent software vendors ("ISVs") to incorporate development, systems
management and desktop tools into the EDM environment. EDM Adapters are now
available for:
Network/Systems Management. To integrate EDM's distribution
management directly into the event console, adapters are available for
IBM/Tivoli's TME10 and CA-Unicenter.
Problem/Help Desk Management. To integrate EDM's configuration
management with problem management environments, adapters are available for
Remedy's AR System.
LAN/Desktop Management. To integrate EDM's policy-based deployment
with local area discovery and distribution, adapters are available for
Microsoft's SMS, Intel's LANDesk, and IBM's CID.
Application Management. To integrate development environment
configuration management directly to the distribution process, adapters are
available for Atria's ClearCase Intersolv PVCS, Powersoft PowerBuilder,
Oracle Developer/2000, and Informix New Era.
The entire EDM Architecture allows these processes to be easily integrated
as objects in the EDM:Manager central repository, automatically integrated into
EDM's "desired-state" management process for deploying software, and managed
enterprise-wide from an EDM:Administrator workstation using simple Windows-like
"drag and drop" or "tree view" connections.
CUSTOMERS AND APPLICATIONS
The Company's principal customers include medium to large business
organizations with widely deployed and complex client/server and internet
computing environments. As of March 31, 1997, the Company's EDM products had
been licensed directly by the Company or through distributors to 123 customers.
During fiscal 1997, the Company had two customers, each of whom accounted
for over ten percent of the total revenues. International Business Machines
Corporation ("IBM") (see "Customer Service and Support"), accounted for
approximately 23% of the Company's revenues for fiscal 1997, and Amdahl
Corporation ("Amdahl"), an OEM and distributor of the Company's products (see
"Sales and Marketing"), accounted for approximately 16% of total revenues for
fiscal 1997.
SALES AND MARKETING
The Company markets its software and services using a distribution model
that includes its direct sales force and indirect channels comprised of OEMs,
VARs, and systems integrators, in North America, Europe, the Pacific Rim, South
America and South Africa. The Company's North American direct sales and
worldwide indirect sales activities are managed from the Company's offices in
San Francisco, California; and its European direct sales activities are managed
from the Company's facilities in Paris, France. For fiscal 1997, revenues from
direct and indirect sales accounted for 58% and 42%, respectively, of total
revenues, and revenues from domestic and international sales accounted for 82%
and 18%, respectively, of total revenues. The Company expects indirect sales and
international sales to increase as a percentage of total revenues.
The Company's direct sales activities have emphasized improvements in the
identification and generation of qualified prospective customer leads at the
beginning phase of the sales cycle through concentration on directed
telemarketing and teleprospecting activities. The leads generated from the
telemarketing process are given to the Company's sales organization, which is
divided into specialized teams of pre-sales specialists, account managers and
professional service consultants that work together to provide an integrated
"solution selling" approach to the customer. These teams utilize local VARs
retained by the Company and trained as "Novadigm Certified Partners" ("NCPs")
where necessary. The Company's indirect channel organization is based on
business arrangements with OEMs, VARs, systems integrators and distributors
which are selected and trained by the Company to provide marketing and post-sale
support, maintenance and service for the Company's products. These business
arrangements are also useful to the Company in identifying product enhancements
and developments that are responsive to customer and market requirements. The
Company
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believes that it has been successful in minimizing marketing conflicts between
its direct and indirect sales channels.
In June 1995, the Company entered into a seven-year, non-exclusive OEM and
distribution agreement with Amdahl. Under the agreement, Amdahl can sublicense
EDM throughout the world as part of its bundled solution and sublicense EDM
stand-alone to a limited worldwide market. Novadigm agreed to provide limited
technical support and training. The agreement required Amdahl to pay the Company
$8 million in non-refundable, guaranteed sublicense fees and bundled support in
quarterly installments during the first year of the agreement, fiscal 1996; and
$4 million in the last quarter of both fiscal 1997 and fiscal 1998. The
agreement was revised in March 1997, instead requiring Amdahl to pay $2 million
in non-refundable, guaranteed sublicense fees and bundled support in the last
quarter of fiscal 1997; minimum additional sublicense fees of $2 million during
fiscal 1998; and minimum additional sublicense fees of $3 million in both fiscal
1999 and fiscal 2000. In the event of a change of control of the Company, the
revised agreement allows Amdahl the right to terminate the agreement and recover
unused guaranteed sublicense fees at the time of termination, to the extent they
were also outstanding on March 31, 1997. There can be no assurance that Amdahl
will extend this agreement in subsequent years. The Company recognized $1.8
million in guaranteed sublicense fees from Amdahl in fiscal 1997.
The Company to date has concentrated on establishing a market for its
products in the North America, Europe, Japan, Brazil, South Africa and
Australia. As part of the Company's strategy to expand its direct and indirect
channels of distribution, the Company initiated expansion plans in the rest of
the Pacific Rim as well as in Latin America in fiscal 1997. The marketing
activities of the Company are designed to generate qualified leads and to supply
the Company's sales channels with positioning, presentation materials, and
product collateral to help generate and develop qualified customer prospects.
Lead generation activities include seminars, trade shows, direct mailings,
advertising and public relations activities.
CUSTOMER SERVICE AND SUPPORT
To facilitate implementation and integration of its products, the Company
offers a range of support programs and services that complement the Company's
automated software management products.
The Company provides all customers with telephone hotline, fax and E-mail
access to its technical support staff, with additional support provided by the
Company's NCPs, VARs, systems integrators and OEMs. The Company's technical
support staff not only provides assistance in diagnosing problems, but works
closely with customers to address systems implementation and integration issues
and assists in increasing the efficiency of their enterprise systems. The
Company also maintains a network bulletin board of custom EDM procedures,
enhancements and maintenance that can be browsed and downloaded.
The Company offers regional and on-site training programs covering object
technologies and EDM implementation strategies to its customers, NCPs, VARs,
OEMs and systems integrators.
The Company's professional services organization and a growing number of
independent certified EDM service providers are available to consult with
customers on project planning and systems implementation and integration.
Revenues from services accounted for 46% of fiscal 1997 total revenues.
During fiscal 1996 the Company entered into an agreement with IBM which
provided for ongoing consulting and support for a research project through March
1997, as well as resolution of outstanding disputes between the Company and IBM.
The Company recognized $5.1 million in related consulting revenues during fiscal
1997. The agreement expired in March, 1997. (See Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operation).
PRODUCT DEVELOPMENT
Since its inception, the Company has emphasized and made substantial
investments in product development. In fiscal 1997, the Company's total research
and development expenses were approximately $6.2 million. To date, the Company
has not capitalized any software development costs.
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<PAGE> 11
The Company anticipates that in the future, it will continue to commit
substantial resources to research and development. The Company believes that its
future success will depend in large part on its ability to maintain and enhance
the functionality of its current line of products and to develop and introduce
new products that keep pace with technological developments, achieve market
acceptance and respond to an ever-expanding range of customer requirements. The
Company intends to enhance its existing product offerings and to introduce new
products for the enterprise systems management market. The Company's new product
development effort is focused on products which address the unique requirements
of the internet environment. In developing these new products and product
enhancements, the Company makes extensive use of its own development tools and
object-oriented technology. Although the Company expects to develop certain of
its new products and product enhancements internally, the Company may acquire
technology and/or products from third parties or consultants when considerations
of time or cost dictate.
If the next release of EDM or any potential new products and enhancements
do not achieve market acceptance, or if for technological or other reasons, the
Company is unable to develop, introduce and sell its products in a timely
manner, the Company's business operating results will be materially and
adversely affected.
COMPETITION
Competition in the ESD market is rapidly evolving. Current and prospective
competitors of the Company generally fall into four categories:
Network/Systems Management Framework Vendors. Including IBM/Tivoli,
Computer Associates, and Hewlett-Packard, who offer tactical ESD tools as
part of the suites.
Application Management Vendors. Including IBM/Tivoli and Platinum
Technologies, who offer ESD tools integrated with performance management
environments.
LAN/Desktop Management Suite Vendors. Including vendors like
Microsoft, Intel, and McAfee, who offer workgroup-based ESD tools as part
of a LAN administration package.
Internet Push ESD Vendors. Including small start-ups like Marimba,
BackWeb and DataChannel along with browser suppliers like Netscape and
Microsoft who provide push distribution technologies as plug-in components
for new internet infrastructures.
Most of the Company's competitors have longer operating histories than does
the Company, and many have significantly greater financial, technical, sales,
marketing and other resources, as well as greater name recognition and larger
customer installed bases.
The Company believes that it competes effectively in the high-end of the
ESD market on the basis of its software management vision, desired-state
technological innovation, product functionality and features, product quality
and reliability, ease of product adoption and use, corporate and product
reputation, end-user support and price. However, there can be no assurance that
the Company will be able to continue to compete effectively in the software
management market or that its profitability or financial performance will not be
adversely affected by increased competition. Moreover, there can be no assurance
that either existing or new competitors will not develop products that are
superior to the Company's products or other technologies offering significant
advantages over the Company's technology, which could have a material adverse
effect on the Company's operating and financial results.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
In December of 1996, the Company was issued a patent from the U.S. Patent
Office for the "desired-state" management process and "fractional differencing"
technologies used in the Company's software management products. There can be no
assurance that the Company will develop additional proprietary technologies that
are patentable, that any issued patent will provide the Company with any
competitive advantages or will not be challenged by third parties, or that the
patents of others will not have an adverse effect on the Company's ability to do
business. Moreover, there can be no assurance that protective measures
11
<PAGE> 12
taken by the Company will prevent misappropriation of its proprietary
technology, and such measures may not preclude competitors from developing
products with features similar to those of the Company's products. Furthermore,
effective copyright and trade secret protection may be limited or unavailable
under the laws of certain foreign jurisdictions. The Company also relies on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures, contractual provisions and technical measures to protect its
proprietary rights in its products.
Although the Company believes that its products and trademarks do not
infringe upon the proprietary rights of third parties, there can be no assurance
that third parties will not assert infringement claims against
the Company with respect to current or future products. Any such claims, whether
with or without merit, could be time-consuming, result in costly litigation,
cause product shipment delays or require the Company to enter into royalty or
license agreements, provided such agreements were available on reasonable terms
or at all.
Defense of any lawsuit or failure to obtain any required license could have
a material, adverse effect on the Company's business, operating results and
financial condition. The Company believes, however, that given the rapid pace of
technological change in the industry, factors such as the technical expertise,
knowledge and innovative skill of the Company's management and technical
personnel, the Company's name recognition, the timeliness and quality of the
support services it provides and its ability to offer frequent product
enhancements and to develop, introduce and market new products are more
significant in maintaining the Company's competitive technology leadership
position.
EMPLOYEES
As of March 31, 1997, the Company had a total of 174 employees, including
53 in product development, 102 in sales and marketing, 19 in general and
administration. A total of 148 employees are based in the United States and 26
employees are based in Europe. None of the Company's employees is represented by
a labor union. The Company has not experienced work stoppages and considers its
relations with its employees to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 31, 1997, were as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION OFFICER SINCE
- -------------------- --- --------------------------------------------- -------------
<S> <C> <C> <C>
Albion J. Fitzgerald 48 Chairman of the Board, Chief Executive 1992
Officer, and President
Robert B. Anderson 41 Executive Vice President, Chief Operating 1992
Officer, Secretary and Director
Michael P. Conti(1) 41 Vice President, North America Sales 1994
Robert Ernens(2) 40 Managing Director, Europe 1994
Joseph J. Fitzgerald 35 Vice President, Development 1992
Thomas V. Harmon 50 Vice President, Operations 1995
Stuart A. Jacobson 39 Executive Vice President, North America 1994
Operations
Philip J. Myers 38 Vice President, Marketing 1993
Wallace D. Ruiz 45 Vice President, Finance, Treasurer and Chief 1995
Financial Officer
</TABLE>
- ---------------
(1) Mr. Conti resigned as of March 31, 1997.
(2) Mr. Ernens resigned as of May 20, 1997.
Albion Fitzgerald co-founded the Company in February 1992, serving as
Chairman since that time, and currently as Chief Executive Officer and
President. Mr. Fitzgerald has previously served as Chief Technology
12
<PAGE> 13
Officer. In May 1990, Mr. Fitzgerald founded Fitzgerald Associates, the
Company's predecessor, and served as the chief architect in the development of
EDM technology.
Robert Anderson joined the Company in June 1992 and currently serves as
Executive Vice President, Chief Operating Officer, Secretary and as a director.
From 1990 to 1992, Mr. Anderson served as Senior Vice President at Stratagem, an
investment banking firm specializing in mergers, acquisitions and divestitures
in the software industry.
Michael Conti joined the Company in July 1994 as Vice President of North
American Sales. For one year prior to joining the Company, he was Vice
President, Sales of Image Business Systems, a start-up imaging company. Prior to
that he spent four years as a regional vice president for Intersolv, Inc., a
publicly held software company. Mr. Conti resigned from the Company effective
March 31, 1997.
Robert Ernens served as Managing Director of Novadigm Europe, SARL, a
wholly-owned subsidiary of Novadigm, Inc. in Europe, since January 1994. Prior
to joining the Company, Mr. Ernens served from August 1992 until December 1993
as an advisor to the board of Acme On Software SA, a French based system
software distribution company that he founded in 1990. From August 1990 until
July 1992, he served as Managing Director of Goal Systems International, the
subsidiary of Goal Systems Inc., a publicly held software company. Mr. Ernens
resigned from the Company effective May 20, 1997.
Joseph Fitzgerald co-founded the Company in February 1992. Since that time
he has served as Director of Development, and as of June 1996, Vice President of
Development. Mr. Fitzgerald is the brother of Albion Fitzgerald.
Thomas Harmon joined the Company as Vice President, Operations, in April
1995, after eighteen months directing Novadigm operations projects as a
management consultant. From October 1988 through May 1993, Mr. Harmon was an
independent management consultant at Montefiore Medical Center where he directed
a project to implement major new clinical and financial systems.
Stuart Jacobson joined the Company in August 1994 and currently serves as
Vice President, Indirect Channels. Prior to joining the Company, Mr. Jacobson
served as Managing Director, International and General Manager Worldwide
Distribution for ViewStar Corporation, a private document management work flow
software vendor. Mr. Jacobson has also held various sales and management
positions at Oracle Corporation since 1986, including Group Manager of Asia
Pacific Operation.
Philip Myers joined the Company in December, 1993 as Vice President,
Marketing after having supported the Company's initial product launch as a
marketing consultant since October 1992. From November 1991 through December
1993 Mr. Myers was President of Marketing Strategic Services, a marketing
consulting firm.
Wallace Ruiz joined the Company in May 1995 as Vice President, Finance,
Treasurer and Chief Financial Officer. From September 1993 until joining the
Company, he was Vice President, Treasurer and Chief Financial Officer of Unisa
Holdings, Inc., a designer, marketer, and retailer of women's fashion footwear.
From June 1989 until August 1993, Mr. Ruiz was employed as Vice President and
Chief Financial Officer of L. Luria & Son, Inc., a publicly held retail chain.
Mr. Ruiz is a Certified Public Accountant. He is the brother-in-law of Albion
Fitzgerald.
ITEM 2. PROPERTIES
The Company conducts its operations in the North America principally out of
its facilities in Mahwah, New Jersey; Lisle, Illinois; San Francisco,
California; and in Western Europe out of its facilities in Paris, France. The
Company occupies approximately 26,911 square feet at its New Jersey facilities,
which are used principally for product development, and sales and support;
approximately 4,153 square feet in Illinois, which is used primarily for
marketing, and sales and support; and approximately 1,800 square feet at its San
Francisco, California facilities, which are used principally for financial and
administrative functions. The Company's facilities in France are comprised of
approximately 8,729 square feet and are used to support the Company's European
operations. The Company also has sales and support offices in Bethesda (MD),
Dallas
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<PAGE> 14
(TX), Larkspur (CA), Los Angeles (CA), Palo Alto (CA), Phoenix (AZ), and
Pleasanton (CA). The Company has decided to close the facilities in Lisle,
Bethesda, Larkspur (partial), Palo Alto, Phoenix, and Pleasanton and anticipates
their closing by June 30, 1997.
ITEM 3. LEGAL PROCEEDINGS
On February 15, 1996, a complaint was filed by Novadyne Computer Systems,
Inc. in the U.S. District Court of Northern California against the Company for
trademark infringement and unfair competition. The complaint, among other
things, sought to restrain and enjoin the Company from using its registered
trademark, "Novadigm" as well as unspecified monetary damages. The parties have
agreed to settle the complaint. The proposed settlement requires the Company to
make a disclaimer of any relationship with the complainant for a period of one
year. The Company's insurance carrier has notified the Company that under its
policy it will indemnify the Company for damages and legal costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's stock has been traded on the Nasdaq National Market since the
Company's initial public offering on July 13, 1995 under the Nasdaq symbol NVDM.
The following table sets forth, for the periods indicated, the high and low
closing sales prices for the Company's common stock as reported by Nasdaq:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1996
Second Quarter................................................. $24 $16 3/8
Third Quarter.................................................. $28 1/2 $15 1/8
Fourth Quarter................................................. $30 1/4 $12
FISCAL YEAR ENDED MARCH 31, 1997
First Quarter.................................................. $21 3/4 $12
Second Quarter................................................. $15 $ 5 1/2
Third Quarter.................................................. $12 1/8 $ 5
Fourth Quarter................................................. $ 9 1/8 $ 3 7/8
</TABLE>
As of March 31, 1997, there were approximately 115 holders of record of the
Company's common stock.
The Company has never paid cash dividends on its common stock. The Company
currently intends to retain earnings, if any, for use in its business and does
not anticipate paying any cash dividends in the foreseeable future. In addition,
the Company is prohibited from paying dividends under its revolving line of
credit agreement.
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<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Consolidated Financial Statements and Notes to Consolidated
Financial Statements and other financial information included elsewhere in this
report.
NOVADIGM, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues
Licenses............................. $ -- $ 1,044 $ 8,488 $18,755 $ 12,117
Services............................. -- 82 840 6,241 10,261
------- ------- -------- ------- --------
Total revenues............... -- 1,126 9,328 25,016 22,378
------- ------- -------- ------- --------
Operating Expenses:
Cost of Services..................... -- 34 344 2,630 6,275
Sales and Marketing.................. 530 2,347 5,706 10,961 17,123
Research and development............. 1,088 3,222 3,338 4,426 6,212
General and administrative........... 270 474 1,392 3,230 4,979
Compensation charge related to escrow
shares(1)......................... -- -- 18,900 -- --
Restructuring charge(2).............. -- -- -- -- 1,829
------- ------- -------- ------- --------
Total operating expenses..... 1,888 6,077 29,680 21,247 36,418
------- ------- -------- ------- --------
Operating income (loss)................ (1,888) (4,951) (20,352) 3,769 (14,040)
Interest income and other, net......... 22 52 122 1,428 1,597
------- ------- -------- ------- --------
Income (loss) before provision for
income taxes......................... (1,866) (4,899) (20,230) 5,197 (12,443)
Provision for income taxes............. -- -- -- 160 59
------- ------- -------- ------- --------
Net income (loss)...................... $(1,866) $(4,899) $(20,230) $ 5,037 $(12,502)
======= ======= ======== ======= ========
Net income (loss) per common share..... $ (0.18) $ (0.38) $ (1.40) $ 0.28 $ (0.72)
======= ======= ======== ======= ========
Weighted average common and common
share equivalents.................... 10,351 13,060 14,424 17,916 17,409
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............ $2,008 $2,249 $1,012 $13,361 $ 7,984
Working capital...................... 1,853 2,091 3,879 29,831 24,983
Total assets......................... 2,245 3,148 6,560 50,132 36,342
Deferred revenue..................... -- 248 871 4,509 946
Stockholders' equity................. 2,015 2,220 4,066 42,522 29,800
</TABLE>
- ---------------
(1) Represents a non-recurring, non-cash compensation charge incurred upon the
achievement of certain cash flow requirements under an escrow arrangement
imposed on founders' shares in connection with the Company's public offering
on the Vancouver Stock Exchange in September 1992. See Note 6 of Notes to
Consolidated Financial Statements.
(2) See Note 10 of Notes to Consolidated Financial Statements.
15
<PAGE> 16
ITEM 7. 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 includes a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed under "Business Risks" below, that
could cause actual results to differ materially from historical or anticipated
results. In addition, reference should be made to other risk factors described
from time to time in the Company's periodic reports filed with the SEC under the
Securities Exchange Act of 1934, as amended.
OVERVIEW
The Company designs, markets and supports an automated solution to software
management in medium and large organizations with complex distributed computing
environments. The Company was incorporated in February 1992. Through September
1993, the Company's primary efforts were devoted to product development. In
October 1993, Version 1.0 of EDM was released for general availability. Since
its first release, the Company has continued to develop EDM by adding new
features, applications and platforms. Versions 2.0 and 2.1 of EDM were released
in February and June 1994, respectively. In June 1995, the Company released
Version 3.0 and in December 1995 and January 1997 released Versions 3.1 and 3.2,
respectively.
The Company generates license revenues from licensing the rights to use its
software products to end users and sublicense fees from resellers (including
certain guaranteed sublicense fees). The Company also generates service revenues
from consulting and training activities performed for license customers and
revenue from support and software update rights (maintenance).
Revenues from perpetual software license agreements are recognized as
revenue upon shipment of the software if there are no significant post-delivery
obligations, payment is due within one year and collectibility is probable. If
an acceptance period is required, revenues are recognized upon the earlier of
customer acceptance or the expiration of the acceptance period. The Company
enters into reseller arrangements that typically provide for sublicense fees
payable to the Company based on a percent of the Company's list price. Reseller
arrangements may include an initial non-refundable payment in the form of
guaranteed sublicense fees. Guaranteed sublicense fees from resellers are
recognized as revenue upon shipment of the master copy of all software to which
the guaranteed sublicense fees relate if there are no significant post-delivery
obligations, the reseller is creditworthy and if the terms of the agreement are
such that the payment obligation is not subject to price adjustment, is
non-cancelable and non-refundable and due within 90 days. These guaranteed
sublicense fees are applied against sublicense fees reported by the reseller in
relicensing the Company's products to end users. The Company recognized $1.9
million in guaranteed sublicense fees under all such agreements in 1995, $8.0
million in 1996, and $6.0 million in 1997.
Revenues for maintenance are recognized ratably over the term of the
support period. If maintenance is included in a license agreement, such amounts
are unbundled from the license fee at its fair market value based on the value
established by independent sale of such maintenance to customers. Consulting
revenues are primarily related to implementation services performed under
separate service arrangements related to the installation of the Company's
software products. Such services generally do not include customization or
modification of the underlying software code. If included in a license
agreement, such services are unbundled at their fair market value based on the
value established by the independent sale of such services to customers.
Revenues from consulting and training services are recognized as services are
performed.
The Company implemented a restructuring program during the fourth quarter
of fiscal 1997 to better align the Company's operating expenses with its revenue
model. The cost of restructuring was $1.8 million and was charged to fiscal
1997.
All period references in the discussion below are to fiscal periods of the
Company based on its fiscal year ending March 31.
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<PAGE> 17
RESULTS OF OPERATIONS
For the periods indicated, the following table sets forth the percentage of
total revenues represented by the respective line items in the Company's
statements of operations.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------
1995 1996 1997
------ ----- -----
<S> <C> <C> <C>
Revenues:
Licenses................................................. 91.0% 75.0% 54.1%
Services................................................. 9.0 25.0 45.9
------ ----- -----
Total revenues........................................ 100.0 100.0 100.0
------ ----- -----
Operating expenses:
Cost of services......................................... 3.7 10.5 28.0
Sales and marketing...................................... 61.2 43.8 76.5
Research and development................................. 35.8 17.7 27.8
General and administrative............................... 14.9 12.9 22.2
Compensation charged related to escrow shares............ 202.6 -- --
Restructuring charge..................................... -- -- 8.2
------ ----- -----
Total operating expenses.............................. 318.2 84.9 162.7
------ ----- -----
Operating income (loss).................................. (218.2) 15.1 (62.7)
------ ----- -----
Interest income and other, net............................. 1.3 5.7 7.1
------ ----- -----
Income (loss) before provision for income taxes............ (216.9) 20.8 (55.6)
Provision for income taxes................................. -- 0.6 0.3
------ ----- -----
Net income (loss).......................................... (216.9)% 20.2% (55.9)%
====== ===== =====
</TABLE>
REVENUES
The Company generates revenues principally from licensing the rights to use
its software products to end users and from sublicense fees reported to the
Company by resellers, including certain guaranteed sublicense fees. The Company
also generates service revenues from consulting and training activities
performed for license customers and maintenance revenues from support and
software update rights. Service revenues accounted for 9.0% of total revenues in
1995, 25.0% in 1996 and 45.9% in 1997. The Company expects service revenues as a
percentage of total revenues to decline in 1998 as a result of the expiration in
March, 1997 of the Company's agreement with IBM.
The Company's total revenues increased by $15.7 million to $25.0 million in
1996, or an increase of 169% over 1995. In 1997, total revenues declined $2.6
million to $22.4 million, or a decline of 10.5% from 1996. License revenues
increased $10.3 million to $18.8 million in 1996, and declined $6.7 million to
$12.1 million in 1997. The higher license revenues in 1996 as compared to 1995
were due primarily to the growing acceptance of EDM, particularly with Release
3.0 having become generally available in June 1995 and the signing of a
non-exclusive OEM and distribution agreement with Amdahl which provided
guaranteed sublicense fees of which $7.4 million was included in license
revenues in 1996. The lower license revenue in 1997 as compared to 1996 is
primarily due to a decline in revenue from the reseller channel, particularly
Amdahl which provided guaranteed sublicense fees of which $1.8 million was
included in license revenues in 1997; higher levels of competition from systems
management framework vendors causing customers to be cautious, resulting in
smaller average contracts as more customers purchased initial pilot licenses
rather than larger enterprise-wide licenses; and slowness in the European
market. The progressively higher service revenues since 1995 are primarily due
to the Company's agreement with IBM which provided $2.9 million and $5.1 million
in service revenues in 1996 and 1997, respectively, representing 12% and 23% of
the Company's total revenues for the respective periods, higher maintenance fees
associated with a growing installed base and higher fees from services performed
by the Company's professional services staff. Although the Company expects
maintenance
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<PAGE> 18
revenues to grow moderately throughout the next fiscal year, overall service
revenues are expected to decline with the expiration of the Company's agreement
with IBM in March, 1997.
International revenues were $2.5 million, $5.2 million and $4.1 million in
1995, 1996 and 1997, respectively. International revenues increased in 1996
compared to 1995 primarily due to 1996 being the first full year of operation of
the European subsidiary and the establishment of distributorships in Japan and
the UK. International revenues decreased in 1997 over 1996, due primarily to
slowness in the European market and the incomplete sell-through of the
guaranteed sublicense fees from the foreign distributors. The Company plans to
continue to develop international sales, primarily through its indirect sales
channels and believes that international sales will increase as a percentage of
total revenues. The Company has signed agreements with distributors in Japan,
Brazil, South Africa and Australia. The Company's European subsidiary offers
marketing and technical support to the Company's indirect channel partners and
sells directly to the European market.
During 1995, two customers, Amdahl and Banca Commerciale Italiana accounted
for approximately 37% and 12% of total revenues, respectively. During 1996, two
customers, Amdahl and IBM accounted for approximately 40% and 12% of total
revenues, respectively. During 1997, two customers, IBM and Amdahl accounted for
approximately 23% and 16% of total revenues, respectively.
The Company typically ships its products following acceptance of a purchase
order and a fully executed license agreement, and, as a result, has little or no
backlog.
OPERATING EXPENSES
Cost of services. Cost of services includes the direct and indirect costs
of providing training, technical support and consulting services to the
Company's customers. Cost of services consists primarily of payroll and benefits
for field engineers and support personnel, other related overhead and third
party consulting fees. Cost of services were $0.3 million in 1995, $2.6 million
in 1996 and $6.3 million in 1997, or 41.0%, 42.1% and 61.2% of the related
service revenues for these periods, respectively. The increases in the cost of
services in both 1996 and 1997 were due primarily to higher staffing levels of
the professional services and customer support organizations necessary to serve
the growing installed base of customers. Although the Company expects cost of
services to remain at approximately the same level in 1998 as 1997, cost of
services as a percentage of service revenues is expected to increase with the
expiration of the Company's agreement with IBM in March, 1997.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries, related benefits, commissions, travel and other costs associated with
the Company's sales and marketing efforts. Sales and marketing expenses were
$5.7 million, $11.0 million and $17.1 million in 1995, 1996, and 1997,
respectively. As a percentage of total revenues in 1995, 1996 and 1997, sales
and marketing expenses represented 61.2%, 43.8% and 76.5%, respectively. The
dollar increase in 1996 was due to an increase in sales commissions associated
with higher levels of revenues; an increase in the number of employees in the
sales organization; and overhead and other costs related to the increase in
employees. The dollar increase in 1997 was due to an increase in the number of
employees in both the domestic and international sales organizations and the
marketing department; overhead and other costs related to the increase in
employees; launching of marketing programs including a nation-wide seminar
series and the development of a website; and an increase in the reserve for
doubtful accounts. The Company expects sales and marketing expenses to decrease
in 1998 compared to 1997 due to the restructuring program implemented in March
1997.
Research and development. Research and development expenses consist
primarily of salaries, related benefits, consultant fees and other costs
associated with the Company's research and development efforts. Research and
development expenses were $3.3 million, $4.4 million and $6.2 million in 1995,
1996 and 1997, respectively. As a percentage of total revenues in 1995, 1996 and
1997, research and development expenses represented 35.8%, 17.7% and 27.8%,
respectively. The dollar increases in research and development expenses in both
1996 and 1997 were due primarily to increases in the number of employees and
related expenses to support the continued enhancement, design and development of
the Company's software products, quality assurance and documentation. The
Company has invested resources into the development of the next release
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<PAGE> 19
of EDM and products for the internet, both of which are expected to be
commercially available in 1998. The Company believes that a significant
investment in research and development activities is essential to provide for
the Company's future growth, particularly research and development relating to
the Company's internet activities. Accordingly, the Company anticipates that it
will continue to invest resources to further enhance and develop its products.
The Company believes that research and development expenses will increase in
future periods.
Under the provisions of Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," software development costs are capitalized upon the establishment of
technological feasibility, which the Company defines as establishment of a
working model. Amounts which could have been capitalized under this statement
were immaterial in all periods presented. Therefore, the Company has expensed
all software development costs as incurred.
General and administrative. General and administrative expenses consist
primarily of salaries, related benefits, travel and fees for professional
services such as consulting, legal, accounting and recruiting fees. General and
administrative expenses were $1.4 million, $3.2 million and $5.0 million in
1995, 1996 and 1997, respectively. As a percentage of total revenues in 1995,
1996 and 1997, general and administrative expenses represented 14.9%, 12.9% and
22.2%, respectively. The increase in the dollar amount of expenses is due to an
increase in the number of employees and expansion of the Company's facilities to
support the Company's growth. The Company expects general and administrative
expenses to remain at approximately the same level in 1998 as 1997.
Restructuring charge. The Company implemented a restructuring program
during the fourth quarter of 1997 to better align the Company's operating
expenses with its revenue model, recording a charge of $1.8 million related to
restructuring costs during this period. The restructuring program emphasizes the
indirect sales channels. The program terminated or relocated 29 employees,
principally in the sales and marketing departments, causing the closing of five
regional sales offices and the Chicago-based marketing office, the restructuring
of European operations, and the integration of North American channels marketing
into the existing North American sales and services organization.
Interest income and other, net. Interest income and other, net is
comprised primarily of interest income earned on the Company's cash equivalents
and investments. Interest income was $0.1 million, $1.4 million and $1.6 million
in 1995, 1996 and 1997, respectively. Interest income increased from 1995 to
1996 due primarily to interest income earned on the investment of the proceeds
from the sale of common stock in the Company's initial public offering in July
1995. Higher average balances and interest rates are responsible for the higher
interest income and other, net in 1997 over 1996.
Income taxes. The Company did not record a provision for income taxes in
1995 due to net losses incurred for both book and tax purposes. The Company
recorded a provision for income taxes of approximately $0.2 million and $0.1
million in 1996 and 1997, respectively, associated with federal and state
alternative minimum taxes. As of March 31, 1997, the Company had net deferred
tax assets of approximately $4.8 million. The Company has provided a full
valuation allowance due to the uncertainty surrounding the timing of the
realization of the net deferred tax assets. As of March 31, 1997, the Company
had federal net operating loss carryforwards of $12.5 million, which expire in
various periods through 2011. The Company's ability to utilize the net operating
loss carryforwards in future years may be limited in some circumstances,
including significant changes in ownership interests, due to certain provisions
of the Internal Revenue Code of 1986.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings per Share", which will be adopted by the Company in
fiscal year 1998. SFAS No. 128 requires companies to compute earnings per share
under two different methods, basic and diluted, and to disclose the methodology
used for the calculation. The Company does not believe that this pronouncement
will have a significant effect on previously stated earnings per share.
19
<PAGE> 20
INFLATION
The effects of inflation on the Company's financial position has not been
significant to date.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was approximately $4.0 million in
1995 due primarily to a net loss before the non-cash "compensation charge
related to escrow shares" in 1995 and an increase in accounts receivable. In
1996, operating activities provided $6.6 million in net cash primarily as a
result of net income. In 1997, net cash used in operating activities was $9.1
million primarily due to a net loss. The accounts receivable balance decreased
from $7.9 million as of March 31, 1996 to $4.9 million as of March 31, 1997. The
decrease in accounts receivable was due to the lower revenues during the year
and lower deferred revenues of $3.6 million. As of March 31, 1997, the Company
did not have any material commitments for capital expenditures.
In July 1995, the Company completed a public offering in the United States
of 2,875,000 shares of common stock (which included 500,000 shares sold by
stockholders) at $15 per share, resulting in net proceeds to the Company of
approximately $32.2 million, after offering costs. The Company received
approximately $1.2 million and $1.0 million in 1996 and 1997, respectively, from
employee optionees who exercised options under the Company's stock option plan.
In May 1996, the Board of Directors approved the repurchase of up to
500,000 shares of the Company's common stock. As of March 31, 1997, the Company
had repurchased 230,500 shares, expending approximately $1.5 million. The
repurchased shares have been accounted for as treasury stock.
In December 1994, the Company entered into an unsecured revolving line of
credit agreement with a bank. The agreement has been renewed annually and at
March 31, 1997 the available line of credit was $2,000,000, expiring in August
1997. Borrowings bear interest at the bank's reference rate (8.25% as of March
31, 1997). The agreement has a number of financial covenants, one of which was
waived. As of March 31, 1997, the Company was in compliance with the financial
covenants contained in the agreement and had no outstanding loans under the
agreement.
Although it is difficult for the Company to predict future liquidity
requirements with certainty, the Company believes that its existing cash and
marketable securities balances, together with cash from operations and amounts
available under the Company's revolving line of credit, will be adequate to
finance its operations for at least the next twelve months.
BUSINESS RISKS
History of Operating Losses. The Company has reported an operating loss
for every quarter since its incorporation in February 1992 except for the four
consecutive quarters of fiscal 1996. The Company believes it will continue to
incur operating losses and net losses at least through the first half of 1998.
There can be no assurance that the Company will be able to achieve profitability
on a quarterly or annual basis in the future.
Restructuring Program. The restructuring program implemented by the
Company in the last quarter of 1997 may not be adequate to bring the Company to
profitability. The strategy of emphasizing indirect sales channels and the
reorganization of the marketing department and the European operations may not
be successful in better aligning the Company's operating expenses with its
revenue model. The termination of sales and marketing personnel in connection
with the reorganization of the marketing department and the European operations
may negatively affect the Company's licensing efforts which could result in
declining total revenues. If the restructuring program is inadequate, future
restructuring charges may be incurred.
Retention of Executives and Key Employees. The Company's future success
depends upon the contributions of its executives and key employees. The
inability to retain executives and certain key employees in research and
development and sales and marketing could have a significant adverse affect on
the Company's ability to implement its restructuring program, develop new
products and versions of its products and market and sell its products in the
marketplace. The loss of the services of one or more of the Company's executives
or
20
<PAGE> 21
key employees could have a material adverse effect on the Company's operating
results. The Company also believes its future success will depend in large part
upon its ability to attract and retain additional highly skilled personnel. In
particular, the Company has announced a search for a president of the Company
and a vice president of international operations. Competition for such
executives is intense, and there can be no assurance that the Company will be
successful in retaining its existing executives and key employees and in
attracting and retaining the personnel it requires in the future.
Fluctuations in Quarterly Results; Seasonality. The Company's quarterly
operating results have fluctuated in the past and are expected to fluctuate
significantly in the future due to a number of factors, including, among others,
the size and timing of customer orders, the timing and market acceptance of new
products by the Company, the level and pricing of international sales, foreign
currency exchange rates, changes in the level of operating expenses,
technological advances and new product introductions by the Company's
competitors and competitive conditions in the industry. Revenues received from
individual customers of the Company vary significantly based on the size of the
product installation. Customer orders for the Company's products have ranged
from $25,000 to over $1 million, and have averaged several hundred thousand
dollars. As a result, the Company's quarterly operating results are likely to be
significantly affected by the number and size of customer orders the Company is
able to obtain in any particular quarter. In addition, the sales cycle for the
Company's products is lengthy and unpredictable, and may range from a few months
to over a year, depending upon the interest of the prospective customer in the
Company's products, the size of the order (which may involve a significant
commitment of capital by the customer), the decision-making and acceptance
procedures within the customer's organization, the complexity of implementation
and other factors. Over the past year, the Company's sales cycles have generally
lengthened and the average dollar amount of customer contracts have decreased as
customers initial purchases tended toward smaller pilot licenses rather than
larger enterprise-wide licenses.
The Company generally ships orders as received and as a result typically
has little or no backlog. Quarterly revenues and operating results therefore
depend upon the volume and timing of orders received during the quarter, which
are difficult to forecast. Historically, the Company has recognized the
substantial majority of its quarterly license revenues in the last weeks or week
of each quarter. In addition, because the Company's expenditure levels for
product development and other operating expenses are based in large part on
anticipated revenues, a substantial portion of which are not typically generated
until the end of each quarter, the timing and amount of revenues associated with
orders have caused, and may continue to cause, significant variations in
operating results from quarter to quarter.
The Company's operating results are also expected to vary significantly due
to seasonal trends. Historically, the Company has realized a greater percentage
of its annual revenues in its fourth quarter, and a lower percentage in the
first and second quarters. The Company believes that this seasonality is in part
a result of efforts of the Company's direct sales personnel to meet annual sales
quotas, and in part a result of lower international revenues in the summer
months when many businesses in Europe experience lower sales. In addition,
capital budgets of the Company's customers, which tend to concentrate spending
activity at calendar year-end, have had, and may continue to have, a seasonal
influence in the Company's quarterly operating results. The Company expects that
its operating results will continue to fluctuate in the future as a result of
these and other factors, and that seasonality may increase if the Company's
efforts to expand its international sales are successful. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Sales and Marketing."
Rapid Technological Change and Introduction of New Products. The market
for ESD products is characterized by rapid technological advances, changes in
customer requirements and frequent new product introductions and enhancements.
The Company's future success will depend in large part on the Company's ability
to enhance its current products and to develop and introduce new products that
keep pace with technological developments, achieve market acceptance and respond
to customer requirements that are constantly evolving. Responding to rapid
technological change and the need to develop and introduce new products to meet
customers' expanding needs will require the Company to make substantial
investments in research and product development. During 1997, among other R&D
expenditures, the Company allocated R&D funding to the development of its next
version of EDM, release 4.0 as well as the development of
21
<PAGE> 22
products for the internet environment. The Company intends to continue to
allocate funding to these development projects throughout 1998. Any failure by
the Company to anticipate or respond adequately to technological developments
and customer requirements, and in particular advances in client/server
enterprise hardware platforms, internet applications and platforms, operating
systems and systems management applications, or any significant delays in
product development or introduction, could result in a loss of competitiveness
or could materially and adversely affect the Company's operating results. There
can be no assurance that any product enhancements or new products developed by
the Company will gain market acceptance.
The failure to develop on a timely basis new products or product
enhancements could cause customers to delay or refrain from purchasing the
Company's existing products and thereby adversely affect the Company's operating
results. If future releases of new products and enhancements do not achieve
market acceptance, the Company's business and operating results will be
materially and adversely affected. See "Business -- Products."
Software products as complex as those offered by the Company may contain
undetected errors or failures that, despite significant testing by the Company,
are discovered only after a product has been installed and used by customers.
Although the Company's business has not been materially and adversely affected
by any such errors to date, there can be no assurance that errors will not be
found in the Company's products in the future. Such errors could cause delays in
product introductions and shipments, require design modifications, result in
loss of or delay in market acceptance of the Company's products, or loss of
existing customers, any of which could adversely affect the Company's
competitive position, operating results and financial condition.
Competition. Competition in the ESD market is rapidly evolving. Current
and prospective competitors of the Company generally fall into four categories:
Network/Systems Management Framework Vendors. Including IBM/Tivoli,
Computer Associates, and Hewlett-Packard, who offer tactical ESD tools as
part of their product suites.
Application Management Vendors. Including IBM/Tivoli and Platinum
Technologies, who offer ESD tools integrated with performance management
environments.
LAN/Desktop Management Suite Vendors. Including vendors like
Microsoft, Intel, and McAfee, who offer workgroup-based ESD tools as part
of a LAN administration package.
Internet Push ESD Vendors. Including small start-ups like Marimba,
BackWeb and DataChannel along with browser suppliers like Netscape and
Microsoft who provide push distribution technologies as plug-in components
for new internet infrastructures.
Most of the Company's competitors have longer operating histories than the
Company, and may have significantly greater financial, technical, sales,
marketing and other resources, as well as greater name recognition and larger
installed customer bases. The Company's current and future competitors could
introduce products with more features, greater functionality and lower prices
than the Company's products. These competitors could also bundle existing or new
products with other, more established products in order to compete with the
Company. The Company's focus on software management products may be a
disadvantage in competing with vendors that offer a broader range of products.
Moreover, as the software management market develops, a number of companies with
significantly greater resources than those of the Company could attempt to
increase their presence in this market by acquiring or forming strategic
alliances with competitors or business partners of the Company. There can be no
assurance that the Company will be able to compete successfully or that
competition will not have a material adverse effect on the Company's business,
operating results or financial condition. See "Business -- Competition."
Volatility. The market for the Company's common stock is highly volatile.
The trading price of the Company's common stock could be subject to wide
fluctuations in response to quarterly variations in operating and financial
results, announcements of technological innovations or new products by the
Company or its competitors, changes in prices of the Company's or its
competitors' products and services, changes in product mix, change in the
Company's revenue and revenue growth rates for the Company as a whole or for
individual
22
<PAGE> 23
geographic areas, products or product categories, as well as other events or
factors. Statements or changes in opinions, ratings, or earnings estimates made
by brokerage firms or industry analysts relating to the market in which the
Company does business or relating to the Company specifically have results, and
could in the future results, in an immediate and adverse effect on the market
price of the Company's common stock. In addition, the stock market has from time
to time experienced extreme price and volume fluctuations which have
particularly affected the market price for the securities of many high
technology companies and which often have been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Company's common stock.
Risks Related to International Revenues. In 1996 and 1997, approximately
21% and 18% of the Company's net revenues were derived from its international
operations. While international revenues decreased in 1997 compared to 1996, the
Company plans to continue to develop international sales, primarily through its
indirect sales channels, and believes that international sales will increase as
a percentage of total revenues. The Company's operations and financial results
could be significantly affected by factors associated with international
operations, such as changes in foreign currency exchange rates, uncertainties
relative to regional economic circumstances, longer payment cycles, greater
difficulty in accounts receivable collection, changes in regulatory requirements
and product localization requirements, as well as by other factors associated
with international activities.
Customer Concentration. During 1997, two customers, IBM and Amdahl,
accounted for approximately 23% and 16% of total revenues, respectively. During
1996 the Company entered into an agreement with IBM which provided for ongoing
consulting and support for a research project through March 1997, as well as
resolution of outstanding disputes between the Company and IBM. The Company
recognized $5.1 million in related consulting revenues under this agreement
during 1997, which represented 23% and 50% of the Company's total revenues and
service revenues, respectively, for the period. This agreement with IBM expired
effective March 1997 and the Company does not anticipate receiving any further
revenue from IBM in 1998. The inability of the Company to replace the revenue
under its agreement with IBM with revenue from other customers could adversely
affect the Company's results of operations.
In June 1995, the Company entered into a seven-year, non-exclusive OEM and
distribution agreement with Amdahl. Under the agreement Amdahl can sublicense
EDM throughout the world as part of their bundled solution and sublicense EDM
stand-alone to a limited worldwide market. Novadigm agreed to provide limited
technical support and training. The agreement required Amdahl to pay the Company
$8 million in non-refundable, guaranteed sublicense fees and bundled support in
quarterly installments during the first year of the agreement, 1996; and $4
million in the last quarter of both 1997 and 1998. The agreement was revised in
March 1997, instead requiring Amdahl to pay $2 million in non-refundable,
guaranteed sublicense fees in the last quarter of 1997; minimum additional
sublicense fees of $2 million during 1998; and minimum additional sublicense
fees of $3 million in both 1999 and 2000. There can be no assurance that Amdahl
will extend this agreement in subsequent years. The Company recognized $1.8
million in guaranteed sublicense fees from Amdahl in 1997. Although the Company
believes that its dependence on its relationship with Amdahl may become less
significant over time as the Company expands the number of companies
participating in its indirect marketing channels, the disruption of the
Company's relationship with Amdahl could materially and adversely affect the
Company's operating results and financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data of the Company required by
this item are set forth at the pages indicated at Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
23
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item concerning the Company's directors is
incorporated by reference from the section captioned "Election of Directors"
contained in the Company's Proxy Statement related to the Annual Meeting of
Stockholders to be held September 12, 1997, to be filed by the Company with the
Securities and Exchange Commission within 120 days of the end of the Company's
fiscal year pursuant to General Instruction G(3) of Form 10-K (the "Proxy
Statement"). The information required by this item concerning executive officers
is set forth in Part I, Item 1 of this Report. The information required by this
item concerning compliance with Section 16(a) of the Exchange Act is
incorporated by reference from the section captioned "Compliance with Section
16(a) of the Exchange Act" contained in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
section captioned "Executive Compensation and Other Matters" contained in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
section captioned "Beneficial Security Ownership of Management and Certain
Beneficial Owners" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
section captioned "Certain Transactions With Management" contained in the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Form:
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
1. Financial Statements:
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets -- As of March 31, 1997 and 1996............... F-3
Consolidated Statements of Operations -- For the Three Years Ended March F-4
31, 1997, 1996 and 1995....................................................
Consolidated Statements of Stockholders' Equity -- For the Three Years F-5
Ended March 31, 1997, 1996 and 1995........................................
Consolidated Statements of Cash Flows -- For the Three Years Ended March F-6
31, 1997, 1996 and 1995....................................................
Notes to Consolidated Financial Statements................................. F-7
2. Financial Statement Schedule:
For the Years Ended March 31, 1997, 1996 and 1995:
II -- Valuation and Qualifying Accounts.................................... S-1
Additional schedules are not required under the related schedule
instructions or are inapplicable, and therefore have been omitted.
</TABLE>
24
<PAGE> 25
3. Exhibits
<TABLE>
<C> <S>
3.1* Certificate of Incorporation of Registrant, as amended.
3.2* Bylaws of Registrant, as amended.
10.1*+ OEM Software Licensing and Distribution Agreement dated June 13, 1995
between the Registrant and Amdahl Corporation (originally filed as Exhibit
10.8).
10.2 + Amendment 1 to OEM Software Licensing and Distribution Agreement dated June
13, 1995 between the Registrant and Amdahl Corporation.
10.3 + Amendment 2 to OEM Software Licensing and Distribution Agreement dated June
13, 1995 between the Registrant and Amdahl Corporation.
10.4 1992 Stock Option Plan, as amended, and form of Stock Option Agreement.
10.5* 1995 Employee Stock Purchase Plan and form of Subscription Agreement.
10.6* Employment Agreement dated as of August 10, 1992 by and between H. Kent
Petzold and the Registrant.
10.7* Deferred Compensation Agreement dated as of August 10, 1992, as amended, by
and between H. Kent Petzold and the Registrant.
10.8* Stock Option Agreement and Notice of Stock Option Grant dated as of August
10, 1992 by and between H. Kent Petzold and the Registrant.
10.9* Amendment to Employment Agreement and Stock Option Agreements dated as of
May 18, 1995 by and among H. Kent Petzold and the Registrant, and Albion J.
Fitzgerald, Shannon Ruiz, Joseph J. Fitzgerald and Brian J. McAlister.
10.10* Form of Indemnification Agreement entered into between Registrant and its
officers and directors.
10.11 Change of Control Agreement entered into between Registrant and Stuart
Jacobson.
10.12 Loan Agreement dated July 1, 1996 between the Registrant and Coast
Commercial Bank.
10.13 Facility lease dated as of March 14, 1997, by and between Crossroad
Developers Associates, LLC and the Registrant.
21.1* Subsidiary of Registrant.
23.1 Consent of Arthur Andersen LLP
24.1 Power of Attorney (see page 27)
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
(c) Exhibits. See Item 14(a)(3) above.
(d) Financial Statement Schedule. See Item 14(a)(2) above.
</TABLE>
- ---------------
* Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-1 (Reg. No. 33-92746) as declared effective by the
Commission on July 13, 1995.
** Incorporated by reference to exhibits filed with Registrant's Annual Report
on Form 10-K (Reg. No. 0-26156) as of March 31, 1996.
+ Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
NOVADIGM, INC.
(Registrant)
By /s/ WALLACE D. RUIZ
------------------------------------
Wallace D. Ruiz
Vice President, Finance, Treasurer,
and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: June 27, 1997
26
<PAGE> 27
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Wallace D. Ruiz, as his
attorney-in-fact with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Report on Form 10-K and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below on June 27, 1997 by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------- --------------
<C> <S> <C>
/s/ ALBION J. FITZGERALD Chairman of the Board, Chief June 27, 1997
- ------------------------------------------ Executive Officer and President
Albion J. Fitzgerald (Principal Executive Officer)
/s/ WALLACE D. RUIZ Vice President Finance, Treasurer, June 27, 1997
- ------------------------------------------ and Chief Financial Officer
Wallace D. Ruiz (Principal Financial and
Accounting Officer)
/s/ ROBERT B. ANDERSON Executive Vice President, Chief June 27, 1997
- ------------------------------------------ Operating Officer, Secretary and
Robert B. Anderson Director
/s/ MICHELE AXELSON Director June 27, 1997
- ------------------------------------------
Michele Axelson
/s/ DENNIS DECOSTE Director June 27, 1997
- ------------------------------------------
Dennis DeCoste
/s/ H. KENT PETZOLD Director June 27, 1997
- ------------------------------------------
H. Kent Petzold
</TABLE>
27
<PAGE> 28
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 29
NOVADIGM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO NOVADIGM, INC.:
We have audited the accompanying consolidated balance sheets of Novadigm,
Inc. (a Delaware corporation) and subsidiary as of March 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows of each of the three years in the period ended March 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Novadigm, Inc. and
subsidiary as of March 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1997 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under item 14(a)2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
April 28, 1997
F-2
<PAGE> 31
NOVADIGM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1996
--------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................... $ 7,984 $ 13,361
Short-term marketable securities.................................... 18,205 14,827
Accounts receivable, net of allowance for doubtful accounts of
$1,302 in 1997 and $0 in 1996.................................... 4,932 7,883
Prepaid expenses and other current assets........................... 404 1,057
-------- --------
Total current assets........................................ 31,525 37,128
Property and equipment, net......................................... 1,586 1,302
Long-term marketable securities..................................... 2,529 11,428
Other assets........................................................ 702 274
-------- --------
$ 36,342 $ 50,132
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 1,540 $ 1,553
Accrued liabilities................................................. 433 119
Accrued payroll and other compensation.............................. 2,229 1,429
Accrued restructuring cost.......................................... 1,394 --
Deferred revenue.................................................... 946 4,196
-------- --------
Total current liabilities................................... 6,542 7,297
-------- --------
Long-term deferred revenue............................................ -- 313
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, $0.001 par value
Authorized -- 5,000 shares
Outstanding -- none.............................................. -- --
Common stock, $0.001 par value
Authorized -- 30,000 shares
Outstanding -- 17,316 shares in 1997 and 17,402 shares in 1996... 11 11
Additional paid-in capital.......................................... 65,000 64,877
Notes receivable from stockholders.................................. -- (325)
Cumulative translation adjustment................................... 4 (12)
Accumulated deficit................................................. (35,215) (22,029)
-------- --------
Total stockholders' equity.................................. 29,800 42,522
-------- --------
$ 36,342 $ 50,132
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 32
NOVADIGM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
---------------------------------
1997 1996 1995
-------- ------- --------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Licenses.................................................. $ 12,117 $18,775 $ 8,488
Services.................................................. 10,261 6,241 840
-------- ------- --------
Total revenues.................................... 22,378 25,016 9,328
-------- ------- --------
OPERATING EXPENSES:
Cost of services.......................................... 6,275 2,630 344
Sales and marketing....................................... 17,123 10,961 5,706
Research and development.................................. 6,212 4,426 3,338
General and administrative................................ 4,979 3,230 1,392
Restructuring charge...................................... 1,829 -- --
Compensation charge related to escrow shares.............. -- -- 18,900
-------- ------- --------
Total operating expenses.......................... 36,418 21,247 29,680
-------- ------- --------
Operating income (loss)................................... (14,040) 3,769 (20,352)
-------- ------- --------
Interest income and other, net.............................. 1,597 1,428 122
-------- ------- --------
Income (loss) before provision for income taxes............. (12,443) 5,197 (20,230)
Provision for income taxes.................................. 59 160 --
-------- ------- --------
Net income (loss)........................................... $(12,502) $ 5,037 $(20,230)
======== ======= ========
Net income (loss) per share................................. $ (0.72) $ 0.28 $ (1.40)
======== ======= ========
Weighted average number of common shares.................... 17,409 17,916 14,424
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 33
NOVADIGM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE CUMULATIVE TOTAL
--------------- PAID-IN FROM TRANSLATION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS ADJUSTMENT DEFICIT EQUITY
------ ------ ---------- ------------ ---------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994......... 13,942 $ 7 $ 9,456 $ (407) $ -- $ (6,836) $ 2,220
Sale of common stock and
exercise of warrants, net of
issuance costs............... 870 1 3,018 -- -- -- 3,019
Exercise of stock options....... 2 -- 9 -- -- -- 9
Payments on notes receivable.... -- -- -- 82 -- -- 82
Purchase of software in exchange
for stock.................... 13 -- 74 -- -- -- 74
Foreign currency translation
adjustment................... -- -- -- -- (8) -- (8)
Additional paid-in capital
related to escrow shares..... -- -- 18,900 -- -- -- 18,900
Net loss........................ -- -- -- -- -- (20,230) (20,230)
------- --- ------- ----- ---- -------- --------
Balance at March 31, 1995......... 14,827 8 31,457 (325) (8) (27,066) 4,066
Initial public offering of
common stock, net of issuance
costs of $3,424.............. 2,375 2 32,199 -- -- -- 32,201
Exercise of stock options....... 200 1 1,221 -- -- -- 1,221
Foreign currency translation
adjustment................... -- -- -- -- (4) -- (4)
Net income...................... -- -- -- -- -- 5,037 5,037
------- --- ------- ----- ---- -------- --------
Balance at March 31, 1996......... 17,402 11 64,877 (325) (12) (22,029) 42,522
Exercise of stock options....... 145 -- 982 -- -- -- 982
Purchases of treasury stock..... (231) -- (859) -- -- (684) (1,543)
Reduction of notes receivable... -- -- -- 325 -- -- 325
Foreign currency translation
adjustment................... -- -- -- -- 16 -- 16
Net loss........................ -- -- -- -- -- (12,502) (12,502)
------- --- ------- ----- ---- -------- --------
Balance at March 31, 1997......... 17,316 $ 11 $ 65,000 $ -- $ 4 $ (35,215) $ 29,800
======= === ======= ===== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 34
NOVADIGM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
----------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................. $(12,502) $ 5,037 $(20,230)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities--
Depreciation and amortization................................... 946 510 177
Increase in reserve for doubtful accounts....................... 1,302 -- --
Compensation charge related to escrow shares.................... -- -- 18,900
Software acquired in exchange for common stock.................. -- -- 74
Decrease (increase) in restricted cash.......................... -- 300 (300)
Decrease (increase) in accounts receivable...................... 1,649 (3,357) (3,876)
Decrease (increase) in prepaid expenses and other current....... 653 (765) (232)
Increase in other assets........................................ (428) (213) (61)
Increase in accounts payable and accrued liabilities............ 301 617 570
Increase in accrued payroll and other compensation.............. 800 861 373
Increase in accrued restructuring costs......................... 1,394 -- --
Increase (decrease) in deferred revenue......................... (3,563) 3,638 623
Decrease in notes receivable from stockholders.................. 325 -- 82
-------- -------- --------
Net cash provided by (used in) operating activities........ (9,123) 6,628 (3,900)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................ (1,230) (1,443) (357)
Purchases of held-to-maturity securities........................... (20,338) (36,101) --
Proceeds from redemptions of held-to-maturity securities........... 25,859 9,846 --
-------- -------- --------
Net cash provided by (used in) investing activities........ 4,291 (27,698) (357)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the sale of common stock and exercise of warrants
and options..................................................... 982 33,423 3,028
Purchase of treasury stock......................................... (1,543) -- --
-------- -------- --------
Net cash provided by (used in) financing activities........ (561) 33,423 3,028
-------- -------- --------
Effect of exchange rate on changes in cash........................... 16 (4) (8)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. (5,377) 12,349 (1,237)
Cash and cash equivalents at the beginning of the period............. 13,361 1,012 2,249
-------- -------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD................... $ 7,984 $ 13,361 $ 1,012
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITY:
Cash paid for interest............................................... $ 2 $ 2 $ --
Cash paid for income taxes........................................... $ -- $ 115 $ 5
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 35
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. THE COMPANY
Novadigm, Inc. (the Company) was incorporated in Delaware in February 1992.
The Company, operating in a single industry segment, providing automated
software management solutions for large-scale client/server and internet
computing environments.
Prior to 1994, the Company's primary efforts related to completing the
development of its software products, designing and implementing a marketing
program and obtaining financing to support its operations. In September of 1992,
the Company completed a public offering of its common stock on the Vancouver
Stock Exchange (see Note 5). During the second quarter of 1994, the Company
commenced commercial sales of its products. In the first quarter of fiscal 1995,
the Company established a wholly owned subsidiary, Novadigm Europe SARL, in
France to act as a sales and service office to the European marketplace. In July
of 1995, the Company completed a public offering of its common stock on the
Nasdaq National Market. The Company is subject to a number of risks, including a
history of operating losses, dependence on key individuals, potential
competition from larger and more established companies, customer concentration
and the ability to penetrate the market with new products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. Intercompany accounts and transactions have
been eliminated.
Translation of Foreign Currencies
The functional currency of the Company's subsidiary is the local currency.
Accordingly, all assets and liabilities are translated into U.S. dollars at
current exchange rates as of the respective balance sheet date. Revenue and
expense items are translated at the average rates prevailing during the period.
Cumulative translation gains and losses are reported as a separate component of
stockholders' equity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenues
The Company recognizes revenue in accordance with the provisions of
Statement of Position No. 91-1, "Software Revenue Recognition." The Company
generates license revenues from licensing the rights to use its software
products to end users and sublicense fees from resellers (including certain
guaranteed sublicense fees). The Company also generates service revenues from
consulting and training activities performed for license customers and revenue
from support and software update rights (maintenance).
Revenues from perpetual software license agreements are recognized as
revenue upon shipment of the software if there are no significant post-delivery
obligations, payment is due within one year and collectibility is probable. If
an acceptance period is required, revenues are recognized upon the earlier of
customer acceptance or the expiration of the acceptance period. The Company
enters into reseller arrangements that
F-7
<PAGE> 36
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
typically provide for sublicense fees payable to the Company based on a percent
of the Company's list price. Reseller arrangements may include an initial
non-refundable payment in the form of guaranteed sublicense fees. Guaranteed
sublicense fees from resellers are recognized as revenue upon shipment of the
master copy of all software to which the guaranteed sublicense fees relate if
there are no significant post-delivery obligations, the reseller is creditworthy
and if the terms of the agreement are such that the payment obligation is not
subject to price adjustment, is non-cancelable and non-refundable and due within
90 days. These guaranteed sublicense fees are applied against sublicense fees
reported by the reseller in relicensing the Company's products to end users. The
Company recognized $6.0 million in guaranteed sublicense fees under all such
agreements in 1997, $8.0 million in 1996, $1.9 million in 1995, respectively.
Revenues for maintenance are recognized ratably over the term of the
support period. If maintenance is included in a license agreement, such amounts
are unbundled from the license fee at its fair market value based on the value
established by independent sale of such maintenance to customers. Consulting
revenues are primarily related to implementation services performed under
separate service arrangements related to the installation of the Company's
software products. Such services generally do not include customization or
modification of the underlying software code. If included in a license
agreement, such services are unbundled at their fair market value based on the
value established by the independent sale of such services to customers.
Revenues from consulting and training services are recognized as services are
performed.
Cost of licenses consist of media and tapes on which product is delivered.
Such costs are not material and are included in research and development
expenses in the accompanying consolidated statements of operations.
Cost of services includes the direct and indirect costs of providing
training, technical support and consulting services to the Company's customers.
Cost of services consists primarily of payroll and benefits for field engineers
and support personnel, other related overhead and third-party consulting fees.
Deferred revenue primarily relates to maintenance, consulting, and other
professional services which have been paid by the customers prior to the
performance of those services.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of temporary cash investments,
marketable securities and accounts receivable. The Company has investment
policies that restrict placement of these investments to financial institutions
evaluated as highly creditworthy. The Company generally does not require
collateral on trade accounts receivable as the Company's customer base consists
of large, well established companies and governmental entities. As of March 31,
1997, approximately 40% of accounts receivable is concentrated with 2 customers
who are large, well-established companies that the Company has determined are
creditworthy. The Company has established an allowance for doubtful accounts in
the amount of $1.3 million as of March 31, 1997. As of March 31, 1995 and March
31, 1996, the Company concluded that an allowance for doubtful accounts was not
required.
Marketable Securities
In April 1994, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). In accordance with SFAS 115, the Company's
marketable securities which are composed of commercial paper, government
F-8
<PAGE> 37
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and government-backed notes and corporate notes are classified as
held-to-maturity. Held-to-maturity securities represent those securities that
the Company has both a positive intent and ability to hold to maturity and are
carried at amortized cost.
Held-to-maturity securities at March 31, 1997 (in thousands) are summarized
as follows:
<TABLE>
<CAPTION>
MATURITIES OF:
-----------------------------------------
OVER ONE YEAR, BUT
ONE YEAR OR LESS LESS THAN FIVE YEARS
---------------- --------------------
<S> <C> <C>
U.S. government and government backed
securities.................................. $ 2,074 $1,497
Commercial paper.............................. 8,845 --
Corporate notes............................... 7,286 1,032
------- ------
$ 18,205 $2,529
======= ======
</TABLE>
Proceeds from redemption of held-to-maturity securities were approximately
$25.9 million in 1997. At March 31, 1997, approximately $3.5 million of
held-to-maturity securities with original maturities of three months or less
were included in cash and cash equivalents.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable and accounts payable approximate their
fair values.
Property and Equipment
Property and equipment is stated at historical cost and consists of the
following at March 31, (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------
1997 1996
------- ------
<S> <C> <C>
Computer equipment and software........................... $ 2,520 $1,746
Furniture and fixtures.................................... 697 334
Leasehold improvements.................................... 302 209
------- ------
3,519 2,289
Less: Accumulated depreciation and amortization........... (1,933) (987)
------- ------
$ 1,586 $1,302
======= ======
</TABLE>
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Computer equipment and software............. 3 years
Furniture and fixtures...................... 5 years
Leasehold improvements...................... 5 years (lesser of lease term or
estimated useful life)
</TABLE>
Software Development Costs
Under the provisions of Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," software development costs are capitalized upon the establishment of
technological feasibility, which the Company defines as establishment of a
working model. Capitalized software development costs require a continuing
assessment of their recoverability. This assessment requires considerable
judgment by management with respect to various factors including, but not
F-9
<PAGE> 38
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
limited to, anticipated future gross product revenues, estimated economic lives
and changes in software and hardware technology. Amounts which could have been
capitalized under this statement, after consideration of the above factors, were
immaterial to the Company's results of operations and financial position.
Therefore, the Company has expensed all software development costs and included
those costs in research and development expenses in the accompanying
consolidated statements of operations.
Net Income (Loss) per Share
Net income (loss) per share has been computed using the weighted average
number of common shares outstanding during all periods presented. Common
equivalent shares for stock options and warrants have been included using the
treasury stock method, except in periods where their effect is anti-dilutive.
In February 1997, The Financial Accounting Standards Board issued Statement
No. 128 ("SFAS No. 128"), "Earnings per Share", which will be adopted by the
Company in fiscal year 1998. SFAS No. 128 requires companies to compute earnings
per share under two different methods, basic and diluted, and to disclose the
methodology used for the calculations. The Company does not believe that this
pronouncement will have a significant effect on previously stated earnings per
share.
3. REVOLVING LINE OF CREDIT AGREEMENT
The Company entered into a $2,000,000, unsecured revolving line of credit
agreement with a bank which expires in August 1997. Borrowings bear interest at
the bank's reference rate (8.25% as of March 31, 1997). The agreement has a
number of financial covenants including a requirement for profitability for the
fiscal year. In addition, the agreement includes a provision that prohibits the
Company from paying dividends. The lender agreed to waive the requirement for
profitability for the fiscal year under the agreement as of March 31, 1997. As
of March 31, 1997, the Company was in compliance with the financial covenants
contained in the agreement and had no outstanding loans under the agreement.
4. COMMITMENTS AND CONTINGENCIES
The Company has various leases for its facilities under noncancelable
operating lease agreements. Rent expense incurred under these agreements in
1997, 1996 and 1995 was approximately $659,000, $534,000, and $329,000
respectively.
During 1997, the Company entered into an amendment of the lease for its
headquarters. Under the amendment, the Company extended the lease term for its
original leased space and entered into a commitment for additional space. Future
minimum commitments under all facility leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
----------------------------------------------------
<S> <C>
1998......................................... $ 690
1999......................................... 649
2000......................................... 614
2001......................................... 617
2002 and thereafter.......................... 452
------
$ 3,022
======
</TABLE>
The company is contingently liable with respect to lawsuits and other
matters which arise in the normal course of business. Management believes that
the outcome of such contingencies will not have a material adverse effect on the
Company's financial position or results of operations.
F-10
<PAGE> 39
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. COMMON STOCK
In July of 1995, the Company completed a public offering in the United
States of 2,875,000 shares of common stock (which included 500,000 shares sold
by stockholders) at $15 per share, resulting in net proceeds to the Company of
approximately $32.2 million after offering costs. The Company's shares trade on
the Nasdaq National Market.
In May of 1996, the Board of Directors approved the repurchase of up to
500,000 shares of the Company's common stock. As of March 31, 1997, the Company
repurchased 230,500 shares, expending approximately $1.5 million.
6. COMPENSATION CHARGE RELATED TO ESCROW SHARES
As a condition of the public offering of shares of the Company's Common
Stock on the Vancouver Stock Exchange in September 1992, 1,500,000 shares of the
Company's outstanding Common Stock were required by the British Columbia
Securities Commission (BCSC) to be placed in escrow. To satisfy this
requirement, the founding stockholders of the Company agreed to place in escrow
a portion of the shares held by them. The escrowed shares included 850,000
shares held by two outside directors and 650,000 shares contributed on a pro
rata basis by three employees. These shares were eligible for release from
escrow upon the earlier of the achievement by the Company of certain levels of
positive cash flow, as defined by BCSC regulations, or the expiration of ten
years. The cash flow requirements for release of the escrowed shares were met at
March 31, 1995.
In accordance with SEC positions on similar escrow share arrangements, the
arrangement required by the BCSC was deemed to be compensatory for all shares
contributed to the escrow. Accordingly, the Company has recorded a
non-recurring, non-cash charge to earnings of $18.9 million in the quarter ended
March 31, 1995, which represented the fair value of the shares at the time the
positive cash flow requirements were met in March 1995.
7. STOCK OPTIONS AND STOCK PURCHASE PLAN
Under the Company's 1992 Stock Option Plan as amended (the Plan), the Board
of Directors may grant incentive and nonqualified stock options to employees,
directors and consultants. Incentive options are granted at no less than fair
market value at the date of grant based upon the price per share of the
Company's stock on the Nasdaq National Market. Nonqualified options are granted
at no less than 85% of fair market value at the date of grant. Option terms may
not exceed five years and vesting is determined by the Board of Directors for
each individual grant (generally 4 years). The Plan will continue in effect
until June 9, 2002 unless terminated sooner. During fiscal 1997, the
shareholders approved an amendment to the Plan increasing the number of shares
of common stock reserved for issuance under the Plan to 4,700,000 shares.
The following table summarizes the option activity (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
WEIGHTED
AVAILABLE OPTIONS AVERAGE
FOR GRANT OUTSTANDING GRANT PRICE
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT MARCH 31, 1994....................... 256 1,069 $ 4.53
Authorized.................................... 805 --
Granted....................................... (627) 627 $ 7.38
Exercised..................................... -- (2) $ 4.65
Canceled...................................... 8 (8) $ 4.90
------ ------ --------
</TABLE>
F-11
<PAGE> 40
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED
AVAILABLE OPTIONS AVERAGE
FOR GRANT OUTSTANDING GRANT PRICE
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT MARCH 31, 1995....................... 442 1,686 $ 6.52
Authorized.................................... 1,000 --
Granted....................................... (1,264) 1,264 $ 15.76
Exercised..................................... -- (183) $ 7.00
Canceled...................................... 210 (210) $ 5.24
----------- ----------- -----------
BALANCE AT MARCH 31, 1996....................... 388 2,557 $ 15.82
Authorized.................................... 1,500 --
Granted....................................... (3,109) 3,109 $ 5.32
Exercised..................................... -- (108) $ 6.06
Canceled...................................... 2,485 (2,485) $ 6.21
----------- ----------- -----------
BALANCE AT MARCH 31, 1997....................... 1,264 3,073 $ 5.23
</TABLE>
At March 31, 1997, 1,254,000 options are vested and exercisable and
4,142,000 shares of common stock are reserved for future issuance under the
Plan. The weighted average exercise price of exercisable options at March 31,
1997 is $4.98 per share.
During fiscal 1997, the Company canceled 1,945,000 options with prices
ranging from $6.88 to $28.38 that had been granted prior to October 1996 and
replaced them with 1,945,000 options at $5.25 each, which was the market price
at the date of repricing. The effect of this transaction is treated as a
cancellation of the old options and the grant of new options in accordance with
the provisions of the Plan. The new options had the vesting period extended by
three months.
On May 17, 1995 the Board of Directors adopted the Company's Employee Stock
Purchase Plan (the "Purchase Plan"), which was approved by the stockholders at
the Company's annual meeting on November 17, 1995. A total of 1,000,000 shares
of Common Stock was reserved for issuance under the Purchase Plan. The Purchase
Plan covers substantially all employees in the United States. The participants'
purchase price is the lower of 85% of the closing price on the first trading day
of the six-month trade period or the last trade day of the period. Approximately
45,000 shares and 17,000 shares were purchased under the Purchase Plan in fiscal
1997 and 1996, respectively. At March 31, 1997, the Company has reserved
approximately 938,000 shares for future issuance.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (SFAS No. 123),"Accounting for Stock-Based Compensation", which
establishes a fair value-based method of accounting for stock-based compensation
plans and requires additional disclosures for those companies who elect not to
adopt the new method of accounting. The Company has adopted SFAS No. 123 in
fiscal 1997 and in accordance with the provisions of SFAS No. 123, the Company
applies APB Opinion 25 and related interpretations in accounting for its stock
option and stock purchase plans. Had compensation cost for these plans been
determined consistent with SFAS No. 123, the Company's net income (loss) and
earnings (loss) per share would have resulted in the following pro forma amounts
indicated in the table below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
-------------------
1997 1996
-------- ------
<S> <C> <C>
Net income (loss) (in thousands):
As reported............................................ $(12,502) $5,037
Pro forma.............................................. $(20,526) $1,039
Net income (loss) per share:
As reported............................................ $ (.72) $ .28
Pro forma.............................................. $ (1.18) $ .06
</TABLE>
F-12
<PAGE> 41
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to April 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The weighted average fair values of options granted during fiscal 1997 and
1996 were $5.32 and $15.76, respectively. The options outstanding at March 31,
1997, have exercise prices between $.97 and $10.63, with a weighted average
exercise price of $5.23 and a weighted average remaining contractual life of 3.0
years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal 1997 and 1996: risk free interest rates
ranged from 6.1% to 6.4%; expected dividend yields of 0%; expected lives of 4.8
years for grants in fiscal 1996 and 5.0 years for grants in fiscal 1997; and
expected volatility of 94%.
8. INCOME TAXES
The Company accounts for income taxes pursuant to SFAS No. 109. This
Statement provides for a liability approach to accounting for income taxes under
which deferred income taxes are provided based upon enacted tax laws and rates
applicable to the periods in which taxes become payable.
Income (loss) before provision for income taxes are (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
United States............................... $ (9,186) $ 7,138 $(19,844)
Foreign..................................... $ (3,257) $(1,941) $ (386)
---- ---- ----
$(12,443) $ 5,197 $(20,230)
---- ---- ----
</TABLE>
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current
U.S. federal................................. $(12) $112 $--
State and local.............................. 71 48 --
---- ---- ----
Total Current........................ 59 160 --
---- ---- ----
Deferred
U.S. federal................................. -- -- --
State and local.............................. -- -- --
---- ---- ----
Total Deferred....................... -- -- --
---- ---- ----
Foreign...................................... -- -- --
Provision for income taxes..................... $ 59 $160 $--
==== ==== ====
</TABLE>
F-13
<PAGE> 42
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax asset at March 31, 1997 and 1996 are
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 3,257 $ 126
Net capitalized start-up costs........................ 160 279
Accrued liabilities................................... 586 378
R&D credit............................................ 323 154
Restructuring accrual................................. 340 --
Depreciation.......................................... 222 71
Other................................................. 357 62
------ ------
Total deferred tax assets..................... 5,245 1,070
Valuation allowance..................................... (5,245) (1,070)
------ ------
Net deferred tax asset........................ $ -- $ --
====== ======
</TABLE>
As of March 31, 1997 the Company has net operating loss carryforwards for
federal income tax reporting purposes of approximately $12.5 million. These
carryforwards expire in various periods from 2007 to 2011. The Company's ability
to utilize the net operating loss carryforwards in future years may be limited
in some circumstances, including significant changes in ownership interests, due
to certain provisions of the Internal Revenue Code of 1986.
The provision for income taxes for the years ended March 31, differs from
the statutory U.S. federal income tax rate due to the following:
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
Provision at U.S. statutory rate.............................. (35.0%) 35.0%
State income taxes, net of federal benefit.................... 0.4 3.2
Change in valuation allowance................................. 35.1 (37.3)
Other......................................................... 0.0 2.2
----- ----
.5% 3.1%
===== ====
</TABLE>
9. MAJOR CUSTOMERS AND INTERNATIONAL SALES
During 1997, two customers, IBM and Amdahl accounted for approximately 23%
and 16% of total revenues, respectively. During 1996, two customers, Amdahl and
IBM accounted for approximately 40% and 12% of total revenues, respectively.
During 1995, two customers, Amdahl and Banca Commerciale Italiana accounted for
approximately 37% and 12% of total revenues, respectively. The Company's
agreement with IBM expired in March 1997.
In June, 1995, the Company entered into a seven-year non-exclusive OEM and
distribution agreement with Amdahl. Under the agreement, Amdahl can sublicense
EDM throughout the world as part of its bundled solution and sublicense EDM
stand-alone to a limited worldwide market. Novadigm agreed to provide limited
technical support and training. The agreement required Amdahl to pay the company
$8 million in non-refundable, guaranteed sublicense fees and bundled support in
quarterly installments during the first year of the agreement, fiscal 1996; and
$4 million in the last quarter of both fiscal 1997 and fiscal 1998. The
agreement was revised in March 1997, instead requiring Amdahl to pay $2 million
in non-refundable, guaranteed sublicense fees and bundled support in the last
quarter of fiscal 1997; minimum additional sublicense fees of $2 million during
fiscal 1998; and minimum additional sublicense fees of $3 million in both fiscal
1999 and fiscal 2000. In the event of a change of control of the Company, the
revised agreement allows
F-14
<PAGE> 43
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amdahl the right to terminate the agreement and recover unused guaranteed
sublicenses fees at the time of termination, to the extent they were also
outstanding on March 31, 1997. There can be no assurance that Amdahl will extend
this agreement in subsequent years. The Company recognized $1.8 million in
guaranteed sublicense fees from Amdahl in fiscal 1997.
Export sales, consisting of sales to customers in foreign countries, were
18.4%, 20.7% and 27.1% of total revenues in 1997, 1996 and 1995, respectively.
Geographic information for the fiscal years ended March 31, 1997, 1996 and
1995 are as follows.
<TABLE>
<CAPTION>
REVENUES OPERATING INCOME (LOSS) IDENTIFICABLE ASSETS
-------------------------- ---------------------------- --------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
------- ------- ------ -------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States............. $21,885 $24,397 $9,328 $ (9,980) $ 5,886 $(1,106) $37,152 $53,048 $6,602
Europe.................... 1,880 1,691 1,144 (4,060) (2,117) (346) 1,630 2,026 297
Eliminations.............. (1,387) (1,072) (1,144) -- -- -- (2,440) (4,942) (339)
------- ------- ------ -------- ------ ------- ------- ------- ------
Total Company............. $22,378 $25,016 $9,328 $(14,040) $ 3,769 $(1,452) $36,342 $50,132 $6,560
======= ======= ====== ======== ====== ======= ======= ======= ======
</TABLE>
In fiscal 1995, the Company established a wholly-owned subsidiary in France
that acts as a sales representative for the Company's operations in Europe. All
license agreements are entered into between the parent company and its
customers, and all license and service fees are paid directly to the parent
company. United States operations include revenues and results of operations in
the United States as well as export revenues from all customers recognized on a
worldwide basis. The subsidiary's revenues consist primarily of commission
payments from the parent company for services performed for the benefit of the
parent company at a rate of 50% of European sales. Such payments are eliminated
in the consolidated financial statements. Identifiable assets are those assets
that can be directly associated with a particular geographic area and
subsidiary.
10. RESTRUCTURING CHARGE
The Company recorded a $1.8 million restructuring charge in fiscal 1997 to
reflect reorganization of the North American and European sales and marketing
organizations.
The significant provisions included in the restructuring charge (in
thousands) were:
<TABLE>
<S> <C>
Reorganization of European sales channel and organization........... $1,015
Reorganization of U.S. sales and marketing, including severances and
office closings................................................... 814
------
$1,829
======
</TABLE>
The restructuring charge includes severances for the termination of 29
employees, the cost to close and consolidate five regional sales offices and the
Chicago-based marketing office, and the cost to realign distribution channels in
Europe. As of March 31, 1997, no material payments had been made under the
restructuring program. If the restructuring program is inadequate, future
restructuring charges may be incurred.
F-15
<PAGE> 44
SCHEDULE II
NOVADIGM, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING OF CHARGED TO RECOVERIES/ AT END
CLASSIFICATION PERIOD OPERATIONS (WRITEOFFS) OF PERIOD
- ---------------------------------------------- ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year Ended:
March 31, 1995.............................. $ -- $ -- $ -- $ --
March 31, 1996.............................. -- 344 (344) --
March 31, 1997.............................. -- 1,278 25 1,302
</TABLE>
S-1
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
-------- ------------------------------------------------------------------- ------------
<S> <C> <C>
3.1* Certificate of Incorporation of Registrant, as amended.
3.2* Bylaws of Registrant, as amended.
10.1*+ OEM Software Licensing and Distribution Agreement dated June 13,
1995 between the Registrant and Amdahl Corporation (originally
filed as Exhibit 10.8).
10.2 + Amendment 1 to OEM Software Licensing and Distribution Agreement
dated June 13, 1995 between the Registrant and Amdahl Corporation.
10.3 + Amendment 2 to OEM Software Licensing and Distribution Agreement
dated June 13, 1995 between the Registrant and Amdahl Corporation.
10.4 1992 Stock Option Plan, as amended, and form of Stock Option
Agreement.
10.5* 1995 Employee Stock Purchase Plan and form of Subscription
Agreement.
10.6* Employment Agreement dated as of August 10, 1992 by and between H.
Kent Petzold and the Registrant.
10.7* Deferred Compensation Agreement dated as of August 10, 1992, as
amended, by and between H. Kent Petzold and the Registrant.
10.8* Stock Option Agreement and Notice of Stock Option Grant dated as of
August 10, 1992 by and between H. Kent Petzold and the Registrant.
10.9* Amendment to Employment Agreement and Stock Option Agreements dated
as of May 18, 1995 by and among H. Kent Petzold and the Registrant,
and Albion J. Fitzgerald, Shannon Ruiz, Joseph J. Fitzgerald and
Brian J. McAlister.
10.10* Form of Indemnification Agreement entered into between Registrant
and its officers and directors.
10.11 Change of Control Agreement entered into between Registrant and
Stuart Jacobson.
10.12 Loan Agreement dated July 1, 1996 between the Registrant and Coast
Commercial Bank.
10.13 Facility lease dated as of March 14, 1997, by and between Crossroad
Developers Associates, LLC and the Registrant.
21.1* Subsidiary of Registrant.
23.1 Consent of Arthur Andersen LLP
24.1 Power of Attorney (see page 27)
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-1 (Reg. No. 33-92746) as declared effective by the
Commission on July 13, 1995.
** Incorporated by reference to exhibits filed with Registrant's Annual Report
on Form 10-K (Reg. No. 0-26156) as of March 31, 1996.
+ Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
<PAGE> 1
EXHIBIT 10.2
AMENDMENT 1
to
OEM Software Licensing and Distribution Agreement No. OES-NOVA95001
between
Amdahl Corporation and Novadigm, Incorporated
This Amendment 1 is hereby made a part of and incorporates the terms of the OEM
Software Licensing and Distribution Agreement No. OES-NOVA95001 between Amdahl
and Novadigm ("Agreement") as of December 20, 1996 ("Effective Date").
1. Unlimited Use Licenses
(a) Novadigm grants Amdahl the right to sell [*]unlimited use
sublicenses (i.e., an unlimited amount of copies of any or all Licensed
Programs) to customers to be mutually agreed to in writing by Amdahl and
Novadigm and selected primarily from Amdahl's sublicensees of Licensed
Program as of the Effective Date of the Amendment.
(b) Amdahl shall pay to Novadigm as a royalty for each sublicense in 1.
(a) above [*] of the sublicense fees it charges to each such customer
(which royalty shall not be less than [*] or more than [*] and which
shall be deducted from the then outstanding balance of Minimum Royalty
Commitments unless and until such balance is zero. At the time such
balance is zero for more than 90 consecutive days, the right to sell an
unlimited use sublicense in 1. (a) above will terminate immediately
unless there is an outstanding unlimited use sublicense proposal to such
customer. If there is an outstanding unlimited use sublicense proposal
to such customer, the right to sell the unlimited use sublicense to such
customer order this Paragraph 1 will terminate 90 days from the date the
Minimum Royalty Commitment reaches zero.
(c) In the event that Amdahl has sold a sublicense (which is less than
an unlimited use sublicense as described in 1. (a) above) to each such
customer after the Effective Date of this Amendment. Amdahl shall be
entitled to offer the customer the option to convert such license into
an unlimited use sublicense for an additional sublicense fee only so
long as 1. (a) is not terminated. With the exception of [*], the total
royalty payment to Novadigm for such customer (original sublicense fee
plus the sublicense fee due upon execution of the unlimited option)
shall not exceed the amounts noted in 1. (b).
2. Targeted Marketing Licenses
(a) Novadigm grants Amdahl the rights to sell sublicenses of Licensed
Programs to customers, the selection of which will be mutually agreed to
in writing by Amdahl and Novadigm. However, such customers shall not be
the same customers selected under 1. (a) above. Amdahl and Novadigm
agree to cooperate with each other in the marketing of these sublicenses
in support of Amdahl sales of such sublicenses.
(b) Amdahl shall pay to Novadigm as a royalty for each sublicense in 2.
(a) above [*] of the sublicense fee it charges to each such customer
(which sublicense fee shall be mutually agreed to by Amdahl and
Novadigm), which royalty shall be remitted to Novadigm and not deducted
from any outstanding balance of Minimum Royalty Commitments. The
provisions of this subparagraph shall continue while any such customer
remains a sublicensee of Licensed Programs and during the term of the
Agreement.
3. FDM Adapters and Novadigm Distributed Managers
Novadigm agrees to provide the Adapters and Distributed Manager, if and
when available, listed on Exhibit A to Amdahl for sublicensing to Amdahl's
sublicensees of Licensed Programs as of December 31, 1996 and to customers
under Paragraph 1 and 2 above, at the then current price.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 2
4. NT Servers
(a) Provided that Amdahl pays to Novadigm royalties of $1,000,000
outside the Minimum Royalty Commitment for the sales of sublicenses of
any Licensed Programs during the quarter ending December 31, 1996 and
that Amdahl makes its EnVista family of NT servers capable of running
the Licensed Programs, Amdahl is granted a license for the EDM:Manager
for NT and the SMS Adapter to be sublicensed as Licensed Programs on the
EnVista family of NT servers by Amdahl, subject to the terms and
conditions of the Agreement, except Amdahl shall have no obligation to
pay a sublicense fee or any royalty for or with respect to such
sublicenses.
(b) Amdahl and Novadigm shall mutually agree to a press release
with respect to the arrangement in 4.(a) above.
5. Internal Use License
(a) Novadigm grants to Amdahl a nonexclusive, nontransferable right
and license to reproduce and use Licensed Programs, Documentation and
Novadigm Derivatives at no charge for internal productive use purposes
by its employees and the employees of its subsidiaries.
(b) Maintenance for such licenses shall be at the previously agreed
to price for Licensed Programs under license to Amdahl and its
subsidiaries from Novadigm.
6. Integrated Solutions
(a) In order to provide Amdahl with an incentive to sell Integrated
Solutions, Novadigm agrees that the royalty to be paid by Amdahl to
Novadigm for such sublicenses shall be [*] of the
Novadigm list price or such mutually agreed to discounted price,
provided that Amdahl submits to a quarterly forecasting process, for
sales of Integrated Solutions and provided that commissions for such
sales are higher than commissions for sales of Stand-alone EDM. Such
royalties shall be deducted form the then outstanding balance of Minimum
Royalty Commitments unless and until such balance is zero and then such
royalty will be remitted to Novadigm.
(b) Integrated solutions shall include any Licensed Programs which
are licensed by Amdahl in conjunction with the appropriate licenses for
either A+AccessMaster, A+OpenMaster, A+AssetMaster or A+Qualipac.
(c) Novadigm agrees to license the Adapters and Distributed Manager,
if and when available, listed on Exhibit A to Amdahl for sublicense in
the Integrated Solutions so long as all of the conditions in 6.(a) and
6.(b) above have been met and during the term of the Agreement.
(d) Section 6.(c) and 3 notwithstanding, Amdahl shall not have the
right to license EDM Adapters and Distributed Manager to customers
listed on Exhibit B except by written approval of Novadigm.
7. Stand-alone EDM
(a) Novadigm agrees that the royalty to be paid by Amdahl to
Novadigm for Stand-alone EDM shall be [*] of the Novadigm list
price or such mutually agreed to discounted price to such customers in the
Customer Territory for a 120 day period commencing on the date such customer
has been approved in writing by Novadigm. For the purpose of this paragraph,
such customer shall be deemed to be approved if the Novadigm business manager
fails to provide the
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 3
Amdahl business manager with written notification within 10 business days
from receipt of such written request by the Amdahl business manager. Such
royalties shall be deducted from the then outstanding balance of Minimum
Royalty Commitments unless and until such balance is zero and then such
royalty will be remitted to Novadigm.
(b) Novadigm agrees to license the Adapters and Distributed Manager, if and
when available, listed on Exhibit A to Amdahl for sublicense to such
approved customers that sublicense the Licensed Program during the 120 day
period referenced in 7.(a) and during the term of the Agreement.
All other terms and conditions of the Agreement remain in effect.
For Amdahl Corporation For Novadigm Incorporated
Accepted and agreed to by: Accepted and agreed to by:
/s/ MICHAEL CARABETTA /s/ ALBION J. FITZGERALD
Name: Michael Carabetta Name: Albion J. Fitzgerald
Title: Vice President and General manager Title: Chairman
A Software Group
Date: 12/20/96 Date: 12/31/96
<PAGE> 4
EXHIBIT A
Adapters
Remedy Action Request System
Atria ClearCase
Intersolv PVCS
Janus Technologies Argis
IBM RACF
CA ACF2
CA TopSecret
SNMP
Microsoft SMS
Distributed Manager
/s/ MICHAEL CARABETTA /s/ ALBION FITZGERALD
- -------------------------------- ------------------------------------
Michael Carabetta Albion Fitzgerald
For Amdahl 12/20/96 For Novadigm 12/31/96
<PAGE> 5
EXHIBIT B
[*]
/s/ MICHAEL CARABETTA /s/ ALBION FITZGERALD
- ----------------------------------- ---------------------------------------
For Amdahl 12/20/96 For Novadigm 12/31/96
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 6
AMDAHL AMENDMENT 1 LISTS
FOR
UNLIMITED USE LICENSE
AND TARGETED MARKETING LICENSES
DECEMBER 20, 1996
[*]
For Amdahl Corporation For Novadigm Incorporated
Accepted and agreed to by: Accepted and agreed to by:
/s/ MICHAEL CARABETTA /s/ ALBION J. FITZGERALD
- --------------------------------- ----------------------------------
Name: Michael Carabetta Name: Albion J. Fitzgerald
Title: Vice President and Title: Chairman
General Manager
A+Software Group
Date: 12/20/96 Date: 12/31/96
*CERTAIN CONFIDENTIAL INFORMATION ON THIS
PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 1
Exhibit 10.3
AMENDMENT 2
TO
OEM SOFTWARE LICENSING AND DISTRIBUTION AGREEMENT NO. OES-NOVA96001
BETWEEN
AMDAHL CORPORATION AND NOVADIGM, INCORPORATED
This Amendment 2 ("Amendment 2") is hereby made a part of and incorporates the
terms of the OEM Software Licensing and Distribution Agreement No. OES-NOVA66001
between Amdahl and Novadigm ("Agreement") as of March 31, 1997 ("Effective
Date").
1. In Section 2.9.2:
Before the final punctuation, insert the following punctuation and
words, "or (4) there is a Change in Control ("Change in Control" shall
be deemed to have occurred if (i) there shall be consummated (a) any
consolidation or merger of Novadigm in which Novadigm is not the
continuing or surviving corporation, or pursuant to which shares of
Novadigm's common stock would be converted into cash, securities or
other property, other than a merger of Novadigm in which the holders of
Novadigm's common stock immediately prior to the Merger have
substantially the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, or (b) any sale,
lease, exchange, or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of
Novadigm, or (ii) the stockholders of Novadigm shall approve any plan
or proposal for the liquidation or dissolution of Novadigm) of Novadigm
and, if after a Change in Control of Novadigm, the entity which then
controls the Licensed Programs falls to provide at least the same level
and quality of support for the Licensed Programs as defined in
paragraphs 2.4, 2.5, 2.6, 2.7 and 2.8 of the Agreement before the Change
in Control of Novadigm."
2. Insert new Section 13.9:
"In the event there is a Change in Control of Novadigm and only if
Amdahl notifies Novadigm no less than thirty (30) days in advance of the
Change in Control of Novadigm of Amdahl's intent to terminate the
Agreement as a result of the Change in Control of Novadigm, then Amdahl
shall, at its sole option, have the right to recover any and all Prepaid
Royalty credits outstanding as of the date of the Change in Control of
Novadigm so long as the Prepaid Royalty credits being recovered were
outstanding as of March 31, 1997."
3. In Attachment IV, Section 1.2 delete the first sentence and insert the
following:
"As of the Effective Date of Amendment 2, Amdahl exercises its option to
renew for Year 3 of the Agreement by agreeing to pay Novadigm two
million dollars ($2,000,000) in Licensed Program royalty revenues in the
form of Prepaid Royalties in accordance with the Royalty Payment Dates
Identified in Attachment IV, Section 1.5."
4. In Attachment IV, Section 1.5 change the Amount in Year 3 to "$2 Million"
and delete everything in Section 1.5 thereafter.
<PAGE> 2
5. In Attachment IV insert a new Section 1.6 as follows:
"Effective April 1, 1997, any balance of Prepaid Royalty credits
outstanding as of April 1, 1997 will be debited by royalties due on
future sublicenses for Licensed Programs by multiplying by [*]
[*] the dollar amount of any royalties due Novadigm which would, under
the Agreement or any existing Amendments to the Agreement, be used to
calculate a debit to Prepaid Royalty credits. The remaining [*]
[*] of such royalties will be paid to Novadigm outside of the
Prepaid Royalty credits and in accordance with the terms of the
Agreement."
6. In Attachment IV insert a new Section 1.7 as follows:
"On March 31, 1998, the Year 4 Accrual Date, if Amdahl has not provided
Novadigm a total of at least two million dollars ($2,000,000) of
royalties (calculated by adding (i) all royalties paid to Novadigm for
sublicenses executed within the twelve (12) month period ending March
31, 1998 except for those royalties for sublicenses executed during the
same twelve month period used to debit the Prepaid Royalty credits and
(ii) new additions to Prepaid Royalty credits) for the twelve month
period ending March 31, 1998, then Novadigm shall have the right to
terminate the Agreement.
On March 31, 1999, the Year 5 Accrual Date, if Amdahl has not provided
Novadigm a total of at least three million dollars ($3,000,000) of
royalties (calculated by adding (i) all royalties paid to Novadigm for
sublicenses executed within the twelve (12) month period ending March
31, 1999 except for those royalties for sublicenses executed during the
same twelve month period used to debit the Prepaid Royalty credits and
(ii) new additions to Prepaid Royalty credits) for the twelve month
period ending March 31, 1999, then Novadigm shall have the right to
terminate the Agreement.
On March 31, 2000, the Year 6 Accrual Date, if Amdahl has not provided
Novadigm a total of at least three million dollars ($3,000,000) of
royalties (calculated by adding (i) all royalties paid to Novadigm for
sublicenses executed within the twelve (12) month period ending March
31, 2000 except for those royalties for sublicenses executed during the
same twelve month period used to debit the Prepaid Royalty credits and
(ii) new additions to Prepaid Royalty credits) for the twelve month
period ending March 31, 2000, then Novadigm shall have the right to
terminate the Agreement."
7. Add to the end of Section 5.2.2:
"For any Prepaid Royalty credits which remain unused at the end of the
included Level 3 support period after April 1, 1997, Amdahl will pay to
Novadigm an annual maintenance fee equal to 3.75% of the remaining
Prepaid Royalty credits, for which such Level 3 Support has expired."
8. Add to Attachment I:
"5) Novadigm hereby grants to Amdahl, while the Agreement is in effect,
a limited, nontransferable right to license, reproduce and sublicense
solely to Sublicensees in the Customer Territory for Stand-alone EDM as
defined in Attachment VII of the Agreement and grant the right to
Amdahl's Distributors to reproduce and sublicense solely to Sublicensees
in the Customer Territory for Stand-alone EDM as defined in
[*] CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 3
Attachment VII of the Agreement, for installation and use by
such Sublicensees, Novadigm's "EDM for the Internet" if and when
it is Generally Available to Novadigm's Direct Sales Channel."
9. In Attachment IV, Section 3, after "Integrated Solutions Royalty Rate
[*]" insert:
" "EDM for the Internet" Royalty Rate [*]"
Amdahl acknowledges that Novadigm's "EDM for the Internet" is not currently
available, and agrees that the availability of such will not affect Amdahl's
payment obligation of $2,000,000 in Paragraphs 3 and 4 of this Amendment 2.
10. In Attachment I, delete 2 (a) and replace in its entirety with
new 2(a):
"Amdahl will have the right to sublicense all EDM Applications
and Adapters for all Licensed Programs for which Amdahl has
sublicensing rights, if and when made Generally Available to
Novadigm's Direct Sales Channels and subject to Section 5.2.1."
11. In Amendment I to the Agreement, delete 7(a) in its entirety.
All other terms and conditions of the Agreement remain in effect.
For Amdahl Corporation For Novadigm Inc.
Accepted and agreed to by: Accepted and agreed to by:
/s/ MICHAEL CARABETTA /s/ ROBERT ANDERSON
- ----------------------------------- -----------------------------------
Name: Michael Carabetta Name: Robert Anderson
Title: Vice President and General Title: Executive Vice
Manager President & COO
A + Software Group
Date: 3/31/97 Date: 3/31/97
[*] CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 1
EXHIBIT 10.4
NOVADIGM, INC.
1992 STOCK OPTION PLAN(1)
1. Purposes of the Plan. The purposes of this Stock Option Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Outside
Directors, Consultants and Employees of the Company and its Subsidiaries and to
promote the success of the Company's business. Options granted under this Plan
may be incentive stock options (as defined under Section 422 of the Code) or
non-statutory stock options, as determined by the Administrator at the time of
grant of an option and subject to the applicable provisions of Section 422 of
the Code, as amended, and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its
Committees appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the Committee appointed by the
Board of Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Company" means Novadigm, Inc., a Delaware
corporation.
(f) "Consultant" shall mean any person who is engaged by
the Company or any Parent or Subsidiary to render consulting services; the term
Consultant shall not include directors.
(g) "Continuous Status as an Employee, Consultant or
Outside Director" means the absence of any interruption or termination of the
employment relationship or status as an Employee, Consultant or Outside
Director, Consultant by the Company or any Subsidiary. Continuous Status as an
Employee, Consultant or Outside Director shall not be considered interrupted
in the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; provided, however, that for
purposes of Incentive Stock Options, such leave is for a period of not more
than ninety (90) days, unless reemployment, in the case of an Employee, upon
the expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or
(ii) in the case of transfers of an Employee between locations of the Company
or between the Company, its Subsidiaries or its successor.
____________________
(1) As amended effective June 1996.
<PAGE> 2
(h) "Employee" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(i) "Exchange Act" means the United States Securities
Exchange Act of 1934, as amended.
(j) "Fair Market Value" means, as of any date, the value
of Stock determined as follows:
(i) If the Stock is listed on any established
United States stock exchange or a national market system including without
limitation the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value
shall be the closing sales price for such stock (or the closing bid, if no
sales were reported, as quoted on such system or exchange or the exchange with
the greatest volume of trading in Stock for the last market trading day prior
to the time of determination) as reported in the Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high and low asked prices for the
Stock;
(iii) If the Stock is listed on the Vancouver Stock
Exchange (but not on any established United States stock exchange or NASDAQ),
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported, as quoted on such system or exchange or
the exchange with the greatest volume of trading in Stock for the last market
trading day prior to the time of determination) as reported in the Wall Street
Journal or such other source as the Administrator deems reliable;
(iv) In the absence of an established market for
the Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(k) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(l) "Insider" means
(i) director or executive or senior officer of
the Company,
(ii) a director or executive or senior officer of
a Subsidiary,
-2-
<PAGE> 3
(iii) a person that has (A) direct or indirect
beneficial ownership of, (B) control or direction over, or (C) a combination of
(A) and (B) over securities of the Company carrying more than 10% of the voting
rights attached to all the issuer's outstanding voting securities, excluding,
for the purpose of the calculation of the percentage held, any securities held
by the person as underwriter in the course of a distribution, or
(iv) the Company itself where it has purchased,
redeemed or otherwise acquired any securities of its own issue, for so long as
it continues to hold those securities.
(m) "Nonstatutory Stock Option" means an Option not
intended to qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the
Plan.
(o) "Optioned Stock" means the Stock subject to an
Option.
(p) "Optionee" means an Outside Director or Employee who
receives an Option.
(q) "Outside Director" means a member of the Board of
Directors of the Company who is not an employee of the Company or a Subsidiary.
(r) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1992 Stock Option Plan.
(t) "Share" means a share of the Stock, as adjusted in
accordance with Section 12 of the Plan.
(u) "Stock" means the Common Stock of the Company.
(v) "Subsidiary" means a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 12 of the Plan, the maximum aggregate number of shares of Stock which
may be optioned and sold under the Plan is 4,700,000. The shares may be
authorized, but unissued, or reacquired Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan.
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<PAGE> 4
4. Administration of the Plan.
(a) Administration With Respect to Directors and
Officers. With respect to grants of Options to Outside Directors and Employees
who are also officers or directors of the Company, the Plan shall be
administered by (A) the Board if the Board may administer the Plan in
compliance with Rule 16b-3 promulgated under the Exchange Act or any successor
thereto ("Rule 16b-3") with respect to a plan intended to qualify thereunder as
a discretionary plan, or (B) a Committee designated by the Board to administer
the Plan, which Committee shall be constituted in such a manner as to permit
the Plan to comply with Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by Rule 16b-3 with respect to a plan intended
to qualify thereunder as a discretionary plan.
(b) Multiple Administrative Bodies. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers.
(c) Administration With Respect to Other Employees. With
respect to grants of Options to Consultants or Employees who are neither
directors nor officers of the Company, the Plan shall be administered by (A)
the Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the applicable legal requirements
relating to the administration of incentive stock option plans, if any, of
Delaware corporate and securities laws, the securities laws of British
Columbia, and of the Code (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of
the Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
(d) Powers of the Administrator. Subject to the
provisions of the Plan and in the case of a Committee, the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value of the Stock, in
accordance with Section 2(i) of the Plan;
(ii) to select the Outside Directors, Consultants and
Employees to whom Options may from time to time be granted hereunder;
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<PAGE> 5
(iii) to determine whether and to what extent
Options are granted hereunder;
(iv) to determine the number of shares of Stock to
be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under
the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, the exercise price, any vesting acceleration or
waiver of forfeiture restrictions, and any restriction or limitation regarding
any Option or other award and/or the shares of Stock relating thereto, based in
each case on such factors as the Administrator shall determine, in its sole
discretion);
(vii) to determine whether and under what
circumstances an Option may be bought-out for cash under subsection 9(e);
(viii) to determine whether, to what extent and
under what circumstances Stock and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or at the election
of the participant (including providing for and determining the amount, if any,
of any deemed earnings on any deferred amount during any deferral period); and
(ix) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Stock
covered by such Option shall have declined since the date the Option was
granted, provided that if and for so long as the Stock is listed on the
Vancouver Stock Exchange, such reductions shall be approved in accordance with
applicable policies of the Vancouver Stock Exchange.
(e) Effect of Committee's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Outside
Directors, Consultants and Employees. Incentive Stock Options may be granted
only to Employees.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options.
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<PAGE> 6
(c) For purposes of Section 5(b), Incentive Stock Options
shall be taken into account in the order in which they were granted, and the
Fair Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right
with respect to continuation of Optionee's status as an Outside Director or
Consultant or of his employment relationship with the Company, as the case may
be, nor shall it interfere in any way with his right or the Company's right to
terminate his status as an Outside Director or Consultant or of his employment
relationship at any time, with or without cause.
(e) The following limitations shall apply to grants of
Options to Employees:
(i) No Employee shall be granted, in any fiscal
year of the Company, Options to purchase more than 500,000 Shares.
(ii) The foregoing limitation shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 12(a).
(iii) If an Option is cancelled (other than in
connection with a transaction described in Section 12), the cancelled Option
will be counted against the limit set forth in Section 5(e)(i). For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its approval by
the shareholders of the Company as described in Section 18 of the Plan. It
shall continue in effect until June 9, 2002 unless sooner terminated under
Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term
stated in the Option Agreement; provided, however, that the term shall be no
more than five (5) years from the date of grant thereof or such shorter term as
may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be such price as is determined
by the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) If granted to an Employee who, at the
time of the grant of such Incentive Stock Option, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of grant.
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<PAGE> 7
(B) If granted to any other Employee, the
per Share exercise price shall be no less than 100% of the Fair Market Value
per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of
the grant of such Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of the grant.
(B) granted to any person, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(b) The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment, shall be
determined by the Administrator (and, in the case of an Incentive Stock Option,
shall be determined at the time of grant) and may consist entirely of (1) cash,
(2) check, (3) promissory notes, (4) other shares of the Company's capital
stock which (x) in the case of shares of the Company's capital stock acquired
upon exercise of an Option either have been owned by the Optionee for more than
six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (5) authorization from the Company to retain from
the total number of Shares as to which the Option is exercised that number of
Shares having a Fair Market Value on the date of exercise equal to the exercise
price for the total number of Shares as to which the Option is exercised, (6)
delivery of a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds required to pay the exercise price, (7) by delivering an
irrevocable subscription agreement for the Shares which irrevocably obligates
the option holder to take and pay for the Shares not more than twelve months
after the date of delivery of the subscription agreement, (8) any combination
of the foregoing methods of payment, or (9) such other consideration and method
of payment for the issuance of Shares to the extent permitted under Applicable
Laws.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Board, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible under
the terms of the Plan. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised, and the
Optionee deemed to be a shareholder of the shares being purchased upon
exercise, when written notice of such exercise has been given to the Company in
accordance with the terms of the Option by the person entitled to exercise the
Option and full payment for the Shares with respect to which the Option is
exercised has
-7-
<PAGE> 8
been received by the Company. Full payment may, as authorized by the Board,
consist of any consideration and method of payment allowable under Section 8(b)
of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Relationship. In the event of
termination of an Optionee's Continuous Status as an Employee, Consultant or
Outside Director with the Company for any reason, such Optionee may, but only
within thirty (30) days (or such other period of time as is determined by the
Board, with such determination in the case of an Incentive Stock Option being
made at the time of grant of the Option and not exceeding thirty (30) days)
after the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
his Option to the extent that Optionee was entitled to exercise it at the date
of such termination. To the extent that Optionee was not entitled to exercise
the Option at the date of such termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(c) Disability of Optionee. In the event of termination
of an Optionee's Continuous Status as an Employee, Consultant or Outside
Director as a result of his or her disability, Optionee may, but only within
six (6) months from the date of such termination (and in no event later than
the expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination; provided, however, that if such disability is
not a "disability" as such term is defined in Section 22(e)(3) of the Code, in
the case of an Incentive Stock Option such Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the day three months
and one day following such termination. To the extent that Optionee is not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(d) Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised, at any time within twelve (12) months
following the date of death (but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent the Optionee was entitled to
exercise the Option at the date of death. To the extent that Optionee was not
entitled to exercise the Option at the date of death, or if Optionee does not
exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to
Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain
such additional conditions or
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<PAGE> 9
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the Exchange Act with respect to Plan transactions.
(f) Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares, an Option previously granted,
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization, Dissolution,
Merger or Asset Sale. Subject to any required action by the shareholders of the
Company, the number of Shares covered by each outstanding Option, and the
number of Shares which have been authorized for issuance under the Plan but as
to which no Options have yet been granted or which have been returned to the
Plan upon cancellation or expiration of an Option, as well as the price per
share of Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Stock, or any other increase
or decrease in the number of issued shares of Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior
to such proposed action. To the extent that an Option has not been previously
exercised, it will terminate immediately prior to the consummation of such
proposed action.
In the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company,
each outstanding Option shall be assumed or an equivalent Option substituted by
the successor corporation or a Parent or Subsidiary of the successor
corporation. In the event that the successor corporation refuses to assume or
substitute for the Option, the Option shall terminate.
12. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date on which the Administrator makes the
determination granting such Option, or such other date as is determined by the
Board. Notice of the determination shall be given to each Outside Director or
Employee to whom an Option is so granted within a reasonable time after the
date of such grant.
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<PAGE> 10
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law
or regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such
amendment or termination of the Plan shall not affect Options already granted
and such Options shall remain in full force and effect as if this Plan had not
been amended or terminated, unless mutually agreed otherwise between the
Optionee and the Board, which agreement must be in writing and signed by the
Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, the Securities Act of British Columbia and the
regulations promulgated thereunder (if applicable), and the requirements of any
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment
and without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.
16. Agreements. Options shall be evidenced by written agreements
in such form as the Board shall approve from time to time.
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<PAGE> 11
17. Shareholder Approval. Continuance of the Plan shall be
subject to approval by the shareholders of the Company within twelve (12)
months before or after the date the Plan is adopted. Such shareholder approval
shall be obtained in the degree and manner required under applicable state and
federal law.
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<PAGE> 12
NOVADIGM, INC. 1992 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Date of Grant
Vesting Commencement Date
Exercise Price per Share
Total Number of Shares Granted
Total Exercise Price
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date:
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, so long as Optionee remains in Continuous
Status as an Employee, Consultant or Outside Director on such vesting dates.
<PAGE> 13
Termination Period:
This Option may be exercised for 30 days after termination of the
Optionee's termination of Continuous Status as an Employee Consultant or Outside
Director. Upon the death or Disability of the Optionee, this Option may be
exercised for such longer period as provided in the Plan. In the event of the
Optionee's change in status from Employee to Consultant or Outside Director, or
from Consultant to Employee or Outside Director, or from Outside Director to
Employee or Consultant, this Option Agreement shall remain in effect. In no
event shall this Option be exercised later than the Term/Expiration Date as
provided above.
II. AGREEMENT
I. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
I. Exercise of Option.
(1) Right to Exercise. This Option is exercisable during its term in accordance
with the Vesting Schedule set out in the Notice of Grant and the applicable
provisions of the Plan and this Option Agreement. In the event of Optionee's
death, Disability or other termination of Optionee's employment or consulting
relationship, the exercisability of the Option is governed by the applicable
provisions of the Plan and this Option Agreement.
(1) Method of Exercise. This Option is exercisable by delivery of an exercise
notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall
state the election to exercise the Option, the number of Shares in respect of
which the Option is being exercised (the "Exercised Shares"), and such other
representations and agreements as may be required by the Company pursuant to the
provisions of the Plan. The Exercise Notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The Exercise Notice shall be accompanied by payment of the aggregate
Exercise Price as to all Exercised Shares. This Option shall be deemed to be
exercised upon receipt by the Company of such fully executed Exercise Notice
accompanied by such aggregate Exercise Price.
<PAGE> 14
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange or quotation service upon which the
Shares are then listed. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date the
Option is exercised with respect to such Exercised Shares.
I. Method of Payment. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the Optionee:
(1) cash; or
(1) check; or
(1) delivery of a properly executed exercise notice together with such
other documentation as the Administrator and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price; or
(1) surrender of other Shares which (i) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six (6)
months on the date of surrender, AND (ii) have a Fair Market Value on the date
of surrender equal to the aggregate Exercise Price of the Exercised Shares.
I. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
I. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
I. Tax Consequences. Some of the federal tax consequences relating to this
Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
<PAGE> 15
(1) Exercising the Option.
(a) Nonstatutory Stock Option. The Optionee may incur regular federal
income tax liability upon exercise of an NSO. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Exercised Shares on the
date of exercise over their aggregate Exercise Price. If the Optionee is an
Employee or a former Employee, the Company will be required to withhold from his
or her compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(a) Incentive Stock Option. If this Option qualifies as an ISO, the
Optionee will have no regular federal income tax liability upon its exercise,
although the excess, if any, of the Fair Market Value of the Exercised Shares on
the date of exercise over their aggregate Exercise Price will be treated as an
adjustment to alternative minimum taxable income for federal tax purposes and
may subject the Optionee to alternative minimum tax in the year of exercise. In
the event that the Optionee undergoes a change of status from Employee to
Consultant, any Incentive Stock Option of the Optionee that remains unexercised
shall cease to qualify as an Incentive Stock Option and will be treated for tax
purposes as a Nonstatutory Stock Option on the ninety-first (91st) day following
such change of status.
(1) Disposition of Shares.
(a) NSO. If the Optionee holds NSO Shares for at least one year, any
gain realized on disposition of the Shares will be treated as long-term capital
gain for federal income tax purposes.
(a) ISO. If the Optionee holds ISO Shares for at least one year after
exercise and two years after the grant date, any gain realized on disposition of
the Shares will be treated as long-term capital gain for federal income tax
purposes. If the Optionee disposes of ISO Shares within one year after exercise
or two years after the grant date, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent
of the excess, if any, of the lesser of (A) the difference between the Fair
Market Value of the Shares acquired on the date of exercise and the aggregate
Exercise Price, or (B) the difference between the sale price of such Shares and
the aggregate Exercise Price.
(1) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the
<PAGE> 16
compensation income recognized from such early disposition of ISO Shares by
payment in cash or out of the current earnings paid to the Optionee.
I. Entire Agreement; Governing Law. The Plan is incorporated herein
by reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by Delaware law except for that body of law
pertaining to conflict of laws.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: NOVADIGM, INC.
____________________________________ By:____________________________
Signature
____________________________________ Title:_________________________
____________________________________
Residence Address
____________________________________
<PAGE> 17
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
____________________________________
Spouse of Optionee
<PAGE> 18
EXHIBIT A
NOVADIGM, INC. 1992 STOCK OPTION PLAN
EXERCISE NOTICE
Novadigm, Inc.
Attention: Secretary
I. Exercise of Option. Effective as of today, ________________, 199__, the
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of Novadigm, Inc. (the "Company") under and
pursuant to the 1992 Stock Option Plan (the "Plan") and the Stock Option
Agreement dated , 19___ (the "Option Agreement"). The purchase price for the
Shares shall be $ , as required by the Option Agreement.
I. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
I. Representations of Purchaser. Purchaser acknowledges that Purchaser has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
I. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 of the
Plan.
I. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE> 19
I. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by Delaware law except for that body of law pertaining to conflict of
laws.
Submitted by: Accepted by:
PURCHASER: NOVADIGM, INC.
__________________________________ By: _________________________________
Signature
__________________________________ Its: ________________________________
Address:
__________________________________
__________________________________
<PAGE> 1
EXHIBIT 10.11
Date: October 1, 1996
To: Stuart Jacobson
From: Albion Fitzgerald
Subject: Promotion and Option Vesting
cc: Rob Anderson, Wally Ruiz
Stuart, this is Novadigm, Inc.'s formal offer of promotion to you to the office
of Executive Vice President of Novadigm, Inc. Upon acceptance of, and as a
condition to this offer, we will also adjust your option vesting schedule as
follows:
Any unvested portion of all grants you currently have outstanding and any
unvested portion of options granted to you over the next ninety days will all
vest immediately upon a change of control of Novadigm, Inc.
Please acknowledge your acceptance of this offer by signing and returning a
copy of this document as soon as possible.
Sincerely,
/s/ ALBION FITZGERALD
- -------------------------------------
Albion Fitzgerald, Chairman and CEO
Terms Agreed:
/s/ STUART JACOBSON
- -------------------------------------
Stuart Jacobson
10/17/96
- -------------------------------------
Date
<PAGE> 1
EXHIBIT 10.12
[LOGO] COAST COMMERCIAL BANK
<TABLE>
LOAN AGREEMENT
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 07-01-1996 08-01-1997 127836001 0010 117393 017
- ------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular
loan or item.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: NOVADIGM, INC. LENDER: COAST COMMERCIAL BANK
185 BERRY STREET, STE 3515 FRONT STREET
SAN FRANCISCO, CA 94107 720 FRONT STREET
SANTA CRUZ, CA 95060
===============================================================================
THIS LOAN AGREEMENT BETWEEN NOVADIGM, INC. ("BORROWER") AND COAST COMMERCIAL
BANK ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND CONDITIONS.
BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO
LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL ACCOMMODATIONS,
INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR SCHEDULE ATTACHED TO
THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL ACCOMMODATIONS, TOGETHER WITH ALL
FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM LENDER TO BORROWER, ARE REFERRED
TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN" AND COLLECTIVELY AS THE
"LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (A) IN GRANTING, RENEWING, OR
EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS,
WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B) THE GRANTING,
RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE SUBJECT TO
LENDER'S SOLE JUDGMENT AND DISCRETION; AND (C) ALL SUCH LOANS SHALL BE AND
SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT.
TERM. This Agreement shall be effective as of July 1, 1996, and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with
all exhibits and schedules attached to this Loan Agreement from time to
time.
ACCOUNT. The word "Account" means a trade account, account receivable,
or other right to payment for goods sold or services rendered owing to
Borrower (or to a third party grantor acceptable to Lender).
ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.
ADVANCE. The word "Advance" means a disbursement of Loan funds under
this Agreement.
BORROWER. The word "Borrower" means NOVADIGM, INC., The word "Borrower"
also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
BORROWING BASE. The words "Borrowing Base" mean, as determined by
Lender from time to time, the lesser of (a) $2,000,000.00; or (b) N/A%
of the aggregate amount of Eligible Accounts.
BUSINESS DAY. The words "Business Day" mean a day on which commercial
banks are open for business in the State of California.
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan,
whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted in
the form of a security interest, mortgage, deed of trust, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien, charge, lien or title retention
contract, lease or consignment intended as a security device, or any
other security or lien interest whatsoever, whether created by law,
contract, or otherwise. The word "Collateral" includes without
limitation all collateral described below in the section titled
"COLLATERAL."
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time, all
of Borrower's Accounts which contain selling terms and conditions
acceptable to Lender. The net amount of any Eligible Account against
which Borrower may borrow shall exclude all returns, discounts, credits,
and offsets of any nature. Unless otherwise agreed to by Lender in
writing, Eligible Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an
officer, an employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a
subsidiary of, or affiliated with or related to Borrower or its
shareholders, officers, or directors.
(c) Accounts with respect to which goods are placed on
consignment, guaranteed sale, or other terms by reason of which
the payment by the Account Debtor may be conditional.
(d) Accounts with respect to which Borrower is or may become
liable to the Account Debtor for goods sold or services rendered
by the Account Debtor to Borrower.
(e) Accounts which are subject to dispute, counterclaim, or
setoff.
(f) Accounts with respect to which the goods have not been
shipped or delivered, or the services have not been rendered, to
the Account Debtor.
(g) Accounts with respect to which Lender, in its sole
discretion, deems the creditworthiness or financial condition of
the Account Debtor to be unsatisfactory.
(h) Accounts of any Account Debtor who has filed or has had
filed against it a petition in bankruptcy or an application for
relief under any provision of any state or federal bankruptcy,
insolvency, or debtor-in-relief acts; or who has had appointed a
trustee, custodian, or receiver for the assets of such Account
Debtor; or who has made an assignment for the benefit of
creditors or has become insolvent or fails generally to pay its
debts (including its payrolls) as such debts become due.
(i) Accounts with respect to which the Account Debtor is the
United States government or any department or agency of the
United States.
<PAGE> 2
07-01-996
Loan No. 127836001 LOAN AGREEMENT PAGE 2
(CONTINUED)
===============================================================================
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
EXPIRATION DATE. The words "Expiration Date" means the date of termination
of Lender's commitment to lend under this Agreement.
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may be
liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surely, or otherwise, whether recovery upon such
Indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such Indebtedness may be or hereafter may become
otherwise unenforceable.
LENDER. The word "Lender" means COAST COMMERCIAL BANK, its successors and
assigns.
LINE OF CREDIT. The words "Line of Credit" means the credit facility
described in the Section titled "LINE OF CREDIT" below.
LIQUID ASSETS. The words "Liquid Assets" means Borrower's cash on hand
plus Borrower's readily marketable securities.
LOANS. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
Indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust,
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean Indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to Indebtedness owed by Borrower to Lender in form and substance acceptable
to Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" means Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible items,
but including leaseholds and leasehold improvements) less total Debt.
WORKING CAPITAL. The words "working Capital" means Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under the Agreement as follows.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject
to the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and delivered
by Borrower to Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and shall
be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall
have been executed by each Guarantor, delivered to Lender, and be in
full force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts, books, records, and
operations, and Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due
and payable.
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and
Borrower shall have delivered to lender the compliance certificate
called for in the paragraph below titled "Compliance Certificate."
<PAGE> 3
07-01-1996 LOAN AGREEMENT Page 3
LOAN NO 127836001 (CONTINUED)
================================================================================
MAKING LOAN ADVANCES. Advances under the Line of Credit may be
requested either orally or in writing by authorized persons. Lender may,
but need not, require that all oral requests be confirmed in writing.
Each Advance shall be conclusively deemed to have been made at the
request of and for the benefit of Borrower (a) when credited to any
deposit account of Borrower maintained with Lender or (b) when advanced
in accordance with the instructions of an authorized person. Lender, at
its option, may set a cutoff time, after which all requests for Advances
will be treated as having been requested on the next succeeding Business
Day.
MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal
amount of the outstanding Advances shall exceed the applicable Borrowing
Base, Borrower, immediately upon written or oral notice from Lender,
shall pay to Lender an amount equal to the difference between the
outstanding principal balance of the Advances and the Borrowing Base. On
the Expiration Date, Borrower shall pay to Lender in full the aggregate
unpaid principal amount of all Advances then outstanding and all accrued
unpaid interest, together with all other applicable fees, costs and
charges, if any, not yet paid.
LOAN ACCOUNT. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits
and credits as shall be appropriate in connection with the credit
facility. Lender shall provide Borrower with periodic statements of
Borrowers account, which statements shall be considered to be correct
and conclusively binding on Borrower unless Borrower notifies Lender to
the contrary within thirty (30) days after Borrower's receipt of any
such statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrower to Lender, Borrower (and
others, if required) shall grant to Lender Security interests in such property
and assets as Lender may require (the "Collateral"), including without
limitation Borrower's present and future Accounts and general intangibles.
Lender's Security interests in the Collateral shall be continuing liens and
shall include the proceeds and products of the Collateral, including without
limitation the proceeds of any insurance. With respect to the Collateral,
Borrower agrees and represents and warrants to Lender:
PERFECTION OF SECURITY INTERESTS. Borrower agrees to exclude such
financing statements and to take whatever other actions are requested by
Lender to perfect and continue Lender's Security Interests in the
Collateral. Upon request of Lender, Borrower will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Borrower will note Lender's Interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Contemporaneous with
the execution of this Agreement, Borrower will execute one or more UCC
financing statements and any similar statements as may be required by
applicable law, and will file such financing statements and all such
similar statements in the appropriate location or locations. Borrower
hereby appoints Lender as its irrevocable attorney-in-fact for the
purpose of executing any documents necessary to perfect or to continue
any Security Interest. Lender may at any time, and without further
authorization from Borrower, file a carbon, photograph, facsimile, or
other reproduction of any financing statement for use as a financing
statement. Borrower will reimburse Lender for all expenses for the
perfection, termination, and the continuation of the perfection of
Lender's security interest in the Collateral. Borrower promptly will
notify Lender of any change in Borrower's name including any change to
the assumed business names of Borrower. Borrower also promptly will
notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify Lender
in writing prior to any change in address or location of Borrower's
principal governance office or should Borrower merge or consolidate with
any other entity.
COLLATERAL RECORDS. Borrower does now, and at all times hereafter
shall, keep correct and accurate records of the Collateral, all of which
records shall be available to Lender or Lender's representative upon
demand for inspection and copying at any reasonable time. With respect
to the Accounts, Borrower agrees to keep and maintain such records as
Lender may require, including without limitation concerning Eligible
Accounts and Account balances and agings.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of
this Agreement, Borrower shall execute and deliver to Lender a schedule
of Accounts and Eligible Accounts, in form and substance satisfactory to
the Lender. Thereafter and at such frequency as Lender shall require,
Borrower shall execute and deliver to Lender such supplemental schedules
of Eligible Accounts and such other matters and information relating to
Borrower's Accounts as Lender may request.
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and (c)
Lender, its assigns, or agents shall have the right at any time and at
Borrower's expense to inspect, examine, and audit Borrower's records and
to confirm with Account Debtors the accuracy of such Accounts.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of
Delaware and is validly existing and in good standing in all states in
which Borrower is doing business. Borrower has the full power and
authority to own its properties and to transact the business in which it
is presently engaged or presently proposes to engage. Borrower also is
duly qualified as a foreign corporation and is in good standing in all
states in which the failure to so qualify would have a material adverse
effect on its businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly authorized
by all necessary action by Borrower; do not require the consent or
approval of any other person, regulatory authority or governmental body;
and do not conflict with, result in a violation of, or constitute a
default under (a) any provision of its articles of incorporation or
organization, or bylaws, or any agreement or other instrument binding
upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as
of the date of the statement, and there has been no material adverse
change in Borrower's financial condition subsequent to the date of the
most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered will
constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms.
PROPERTIES. Except for Permitted Liens, Borrower owns and has good
title to all of Borrower's properties free and clear of all Security
Interests, and has not executed any security documents or financing
statements relating to such properties. All of Borrower's properties are
filed in Borrower's legal name, and Borrower has not used, or filed a
financing statement under, any other name for at least the last five (5)
years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," hazardous
substance," "disposal," "release," and "threatened release," as used in
this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of
the California Health and Safety Code, Section 25100, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant
to any of the foregoing. Except as disclosed to and acknowledged by
Lender in writing, Borrower represents and warrants that: (a) During the
period of Borrower's ownership of the properties, there has been no use,
generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance by any person on,
under, about or from any of the properties, (b) Borrower has no
knowledge of, or
<PAGE> 4
07-01-1996 LOAN AGREEMENT Page 4
Loan No. 127836001 (Continued)
================================================================================
reason to believe that there has been (i) any use, generation, manufacture,
storage, treatment, disposal, release, or threatened release of any
hazardous waste or substance on, under, about or from the properties by any
prior owners or occupants of any of the properties, or (ii) any actual or
threatened litigation or claims of any kind by any person relating to such
matters. (c) Neither Borrower nor any tenant, contractor, agent or other
authorized user of any of the properties shall use, generate, manufacture,
store, treat, dispose of, or release any hazardous waste or substance on,
under, about or from any of the properties; and any such activity shall be
conducted in compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes Lender and
its agents to enter upon the properties to make such Inspections and tests
as Lender may deem appropriate to determine compliance of the properties
with this section of the Agreement. Any inspections or tests made by Lender
shall be at Borrower's expense and for Lender's purposes only and shall not
be construed to create any responsibility or liability on the part of
Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous substances.
Borrower hereby (a) releases and waives any future claims against Lender
for indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify and
hold harmless Lender against any and all claims, losses, liabilities,
damages, penalties, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this section of the Agreement
or as a consequence of any use, generation, manufacture, storage, disposal,
release or threatened release occurring prior to Borrower's ownership or
interest in the properties, whether or not the same was or should have been
known to Borrower. The provisions of this section of the Agreement,
including the obligation to indemnify, shall survive the payment of the
indebtedness and the termination or expiration of this Agreement and shall
not be affected by Lender's acquisition of any interest in any of the
properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable Event
nor Prohibited Transaction (as defined in ERISA) has occurred with respect
to any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 185 BERRY STREET, STE 3515, SAN FRANCISCO, CA
94107. Unless Borrower has designated otherwise in writing this location is
also the office or offices where Borrower keeps its records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be true and accurate in every material respect on the date as of which such
information is dated or certified; and none of such information is or will
be incomplete by omitting to state any material fact necessary to make such
information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representation and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's Indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, audited
by a certified public accountant satisfactory to Lender, and, as soon as
available, but in no event later than forty five (45) days after the end of
each fiscal quarter, Borrower's balance sheet and profit and loss statement
for the period ended, prepared and certified as correct to the best
knowledge and belief by Borrower's chief financial officer or other officer
or person acceptable to Lender. All financial reports required to be
provided under this Agreement shall be prepared in accordance with
generally accepted accounting principles, applied on a consistent basis,
and certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios:
TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less
than $10,000,000.00.
NET WORTH RATIO. Maintain a ratio of total Liabilities to Tangible
Net Worth of less than 1.00 to 1.00.
WORKING CAPITAL. Maintain Working Capital in excess of $6,000,000.00.
CURRENT RATIO. Maintain a ratio of Current Assets to Current
Liabilities in excess of 2.00 to 1.00.
INCOME. Maintain not less than the following income level: COMPANY
MUST REMAIN PROFITABLE ON AN ANNUAL BASIS. Except as provided above,
all computations made to determine compliance with the requirements
contained in this paragraph shall be made in
<PAGE> 5
LOAN AGREEMENT Page 5
Loan No. 127836001 (Continued)
===============================================================================
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages
and with insurance companies reasonably acceptable to Lender. Borrower,
upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be cancelled or
diminished without at least ten (10) days' prior written notice to
Lender. Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' written notice
to Lender. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Borrower or any other person. In
connection with all policies covering assets in which Lender holds or is
offered a security interest for the Loans, Borrower will provide Lender
with such loss payable or other endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the name
of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the
properties insured; (e) the then current property values on the basis of
which insurance has been obtained, and the manner of determining those
values; and (f) the expiration date of the policy. In addition, upon request
of Lender (however not more often than annually), Borrower will have an
independent appraiser satisfactory to Lender determine, as applicable, the
actual cash value or replacement of any Collateral. The cost of such
appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income or profits, prior to the
date on which penalties would attach, and all lawful claims that, if unpaid,
might become a lien or charge upon any of Borrower's properties, income, or
profits. Provided however, Borrower will not be required to pay and
discharge any such assessment, tax, charge, levy, lien or claim so long as
(a) the legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books adequate
reserves with respect to such contested assessments, tax, charge, levy,
lien, or claim in accordance with generally accepted accounting practices.
Borrower, upon demand of Lender, will furnish to Lender evidence of payment
of the assessments, taxes, charges, levies, liens, and claims and will
authorize the appropriate governmental official to deliver to Lender at any
time a written statement of any assessments, taxes, charges, levies, liens
and claims against Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely manner,
and promptly notify Lender if Borrower learns of the occurrence of any event
which constitutes an Event of Default under this Agreement or under any of
the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rule and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and with all
minimum funding standards and other requirements of ERISA and other laws
applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and records.
If Borrower now or at any time hereafter maintains any records (including
without limitation computer generated records and computer software programs
for the generation of such records) in the possession of a third party,
Borrower, upon request of Lender, shall notify such party to permit Lender
free access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds with
a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all
Security interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender:
CAPITAL EXPENDITURES. Make or contract to make capital expenditures,
including leasehold improvements, in any fiscal year in excess of
$2,000,000.00 or incur liability for rentals or property (including both
real and personal property) in an amount which, together with capital
expenditures, shall in any fiscal year exceed such sum.
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes
<PAGE> 6
07-01-1996 LOAN AGREEMENT Page 6
Loan No 127836001 (Continued)
===============================================================================
and make estimated income tax payments to satisfy their liabilities
under federal and state law which arise solely from their status as
Shareholders of a Subchapter S Corporation because of their ownership of
shares of stock of Borrower, or (d) purchase or retire any of Borrower's
outstanding shares or alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance
money or assets, (b) purchase, create or acquire any interest in any
other enterprise or entity, or (c) incur any obligation as surety or
guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when
due on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of the
Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under
this Agreement or the Related Documents is false or misleading in any
material respect at the time made or furnished, or becomes false or
misleading at any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a
receiver for any part of Borrower's property, any assignment for the
benefit of creditors, any type of creditor workout, or the commencement
of any proceeding under any bankruptcy or insolvency laws by or against
Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
Indebtedness, or by any governmental agency. This includes a
garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Borrower or Grantor, as the case may
be, as to the validity or reasonableness of the claim which is the basis
of the creditor or forfeiture proceeding, and if Borrower or Grantor
gives Lender written notice of the creditor or forfeiture proceeding and
furnishes reserves or a surety bond for the creditor or forfeiture
proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor
dies or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness. Lender, at its
option, may, but shall not be required to, permit the Guarantor's estate
to assume unconditionally the obligations arising under the guaranty in
a manner satisfactory to Lender, and, in doing so, cure the Event of
Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent
(25%) or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been
given a notice of a similar default within the preceding twelve (12)
months, it may be cured (and no Event of Default will have occurred) (if
Borrower or Grantor, as the case may be, after receiving written notice
from Lender demanding cure of such default: (a) cures the default within
fifteen (15) days; or (b) if the cure requires more than fifteen (15)
days, immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter continues
and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all Indebtedness immediately will become due and payable, all without notice of
any kind to Borrower, except that in the case of an Event of Default of the
type described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of California. If there is a lawsuit
Borrower agrees upon Lender's request to submit to the jurisdiction of
the courts of SANTA CRUZ County, the State of California Subject
<PAGE> 7
07-01-1996 LOAN AGREEMENT
Loan No. 127836001 (Continued)
================================================================================
to the provisions on arbitration, this Agreement shall be governed by and
construed in accordance with the laws of the State of California.
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation contract
and tort disputes, shall be arbitrated pursuant to the Rules of the American
Arbitration Association, upon request of either party. No act to take or
dispose of any Collateral shall constitute a waiver of this arbitration
agreement or be prohibited by this arbitration agreement. This includes,
without limitation, obtaining injunctive relief or a temporary restraining
order; invoking a power of sale under any deed of trust or mortgage; obtaining
a writ of attachment or imposition of a receiver; or exercising any rights
relating to personal property, including taking or disposing of such property
with or without judicial process pursuant to Article 9 of the Uniform
Commercial Code. Any disputes, claims, or controversies concerning the
lawfulness or reasonableness of any act, or exercise of any right, concerning
any Collateral, including any claim to rescind, reform, or otherwise modify any
agreement relating to the Collateral, shall also be arbitrated, provided
however that no arbitrator shall have the right or the power to enjoin or
restrain any act of any party. Lender and Borrower agree that in the event of
an action for judicial foreclosure pursuant to California Code of Civil
Procedure Section 726, or any similar provision in any other state, the
commencement of such an action will not constitute a waiver of the right to
arbitrate and the court shall refer to arbitration as much of such action,
including counterclaims, as lawfully may be referred to arbitration. Judgment
upon any award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Agreement shall preclude any party from seeking
equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable in
any arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of an action for these purposes. The Federal
Arbitration Act shall apply to the construction, interpretation, and
enforcement of this arbitration provision.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale
or transfer, whether now or later, of one or more participation interests in the
Loans to one or more purchasers, whether related or unrelated to Lender. Lender
may provide, without any limitation whatsoever, to any one or more purchasers,
or potential purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation interests, as
well as all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interests will be
considered as the absolute owners of such interests in the Loans and will have
all the rights granted under the participation agreement or agreements
governing the sale of such participation interests. Borrower further waives all
rights of offset or counterclaim that it may have now or later against Lender
or against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's obligation
under the Loans irrespective of the failure to insolvency of any holder of any
interest in the Loans. Borrower further agrees that the purchaser of any such
participation interests may enforce its interests irrespective of any personal
claims or defenses that Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in connection
with the preparation, execution, enforcement, modification and collection of
this Agreement or in connection with the Loans made pursuant to this Agreement.
Lender may pay someone else to help collect the Loans and to enforce this
Agreement, and Borrower will pay that amount. This includes, subject to any
limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses, whether or not there is a lawsuit, including attorneys' fees for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law.
NOTICES. All notices required to be given under this Agreement shall be given
in writing, may be sent by telefacsimile, and shall be effective where actually
delivered or when deposited with a nationally recognized overnight courier or
deposited in the United States mail, first class, postage prepaid, addressed to
the party to whom the notice is to be given at the address shown above. Any
party may change its address for notice under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of the notice
is to change the party's address. To the extent permitted by applicable law, if
there is more than one Borrower, notice to any Borrower will constitute notice
to all Borrowers. For notice purposes, Borrower will keep Lender informed at
all times of Borrower's current address(es).
SEVERABILITY. If a court competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person of circumstance, such
finding shall not render that provision invalid or unenforceable as to any
other persons or circumstances. If feasible, any such offending provision shall
be deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects shall remain
valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without limitation
any representation, warranty or covenant, the word "Borrower" as used herein
shall include all subsidiaries and affiliates of Borrower. Notwithstanding the
foregoing however, under no circumstances shall this Agreement be construed to
require Lender to make any Loan or other financial accommodation to any
subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on behalf
of Borrower shall bind its successors and assigns and shall inure to the
benefit of Lender, its successors and assigns. Borrower shall not, however,
have the right to assign its rights under this Agreement of any interest
therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered to Borrower
to Lender under this Agreement shall be considered to have been relied upon by
Lender and will survive the making of the Loan and delivery to Lender of the
Related Document, regardless of any investigation made by Lender or on Lender's
behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with the provisions or any other
provision of this Agreement. No prior waiver by Lender, nor any course of
dealing between Lender and Borrower, between Lender and any Grantor, shall
constitute a waiver of any of Lender's rights or of any obligations of Borrower
or of any Grantor as to any future transactions. Whenever the consent of Lender
is required under this Agreement, the granting of such consent by Lender in any
instance, shall not constitute continuing consent in subsequent instances where
such consent is required, and in all cases such consent may be granted withheld
in the sole discretion of Lender.
<PAGE> 8
07-01-1996 LOAN AGREEMENT
LOAN NO 127836001 (CONTINUED)
===============================================================================
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT,
AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JULY 1, 1996.
BORROWER:
NOVADIGM, INC.
By: /s/ WALLACE RUIZ
----------------------------------
WALLACE RUIZ, VICE PRESIDENT/CFO
LENDER:
COAST COMMERCIAL BANK
By: /s/ MICHAEL VASQUEZ
----------------------------------
Authorized Officer
<PAGE> 1
EXHIBIT 10.13
- --------------------------------------------------------------------------------
CROSSROADS DEVELOPERS ASSOCIATES, LLC,
LANDLORD
TO
NOVADIGM, INC.
TENANT
L E A S E
PORTIONS OF THE MEZZANINE (2ND) AND
3RD FLOORS
ONE INTERNATIONAL BOULEVARD
MAHWAH, NEW JERSEY
AS OF 3/14, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
ARTICLE CAPTION PAGE
<S> <C> <C>
1. Demise, premises, Term, Rents................................ 1
2. Use.......................................................... 3
3. Preparation of the Demised Premises.......................... 4
4. Adjustments of Rents......................................... 7
5. Subordination, Notice to Lessors and
Mortgagees................................................... 13
6. Quiet Enjoyment.............................................. 15
7. Assignment and Subletting.................................... 15
8. Compliance with Laws and Requirements
of Public Authorities........................................ 16
9. Insurance.................................................... 23
10. Rules and Regulations........................................ 25
11. Tenant's Changes............................................. 26
12. Tenant's Property............................................ 28
13. Repairs and Maintenance...................................... 29
14. Electricity.................................................. 30
15. Security Deposit............................................. 31
16. Landlord's Other Services.................................... 32
17. Access, Changes in Building Facilities,
Name......................................................... 34
18. Notices of Accidents......................................... 36
19. Non-Liability and Indemnification............................ 36
20. Destruction or Damage........................................ 37
21. Eminent Domain............................................... 39
22. Extension of Term............................................ 40
23. Intentionally Omitted........................................ 43
24. Surrender.................................................... 44
25. Conditions of Limitation..................................... 46
26. Re-Entry by Landlord......................................... 46
27. Damages...................................................... 46
</TABLE>
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<PAGE> 3
LEASE, dated as of March 14, 1997, between CROSSROADS DEVELOPERS
ASSOCIATES, LLC, having an office at 820 Morris Turnpike, Short Hills, New
Jersey 07078, (hereinafter called "Landlord") and NOVADIGM, INC., a Delaware
corporation having an office at One International Boulevard, Mahwah, New Jersey
07078 (hereinafter called "Tenant").
W I T N E S S E T H:
Pursuant to an Agreement of Lease dated November 2, 1993, International
Crossroads Holding Corp., Landlord's predecessor in interest, leased to
Tenant, and Tenant hired, portions of the mezzanine (2nd) and 3rd
floors of the Building (as hereinafter defined), which Lease was
amended by a First Amendment to Lease dated as of April 8, 1995 and a
Second Amendment to Lease dated as of October 31, 1995 (such lease, as
amended, is hereinafter called the "Original Lease"). Landlord and
Tenant desire to terminate the Original Lease and enter into this Lease
for portions of the mezzanine (2nd) and third (3rd) floors upon, and
subject to, the terms covenants and conditions herein contained.
NOW, THEREFORE, in consideration of Ten ($10.00) Dollars in hand paid
for other good and valuable consideration, the mutual receipt and legal
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE I
DEMISE, PREMISES, TERM, RENTS
1.01 Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the premises hereinafter described, in the building known as and
located at One International Boulevard, Mahwah, New Jersey (the "Building"),
comprising a portion of the Office Unit of the Crossroads Condominium (the
"Condominium") more particularly described in Exhibit A annexed hereto and made
a part hereof pursuant to that certain Master Deed dated as of December 28,
1994, as amended (the "Master Deed") for the Crossroads Condominium for the term
hereinafter stated, for the rents hereinafter reserved and upon and subject to
the conditions (including limitations, restrictions and reservations) and
covenants hereinafter provided. For all purposes of this Lease, the term
"Building" shall be deemed to mean the Office Unit under the Master Deed. Each
party hereby expressly covenants and agrees to observe and perform all of the
conditions and covenants herein contained on its part to be observed and
performed.
1.02 The premises hereby leased to Tenant are portions of the mezzanine
(2nd) and third (3rd) floors of the Building, as shown on the floor plan annexed
hereto as Exhibit B and made a part hereof. Said premises together with all
fixtures and equipment which at the commencement, or during the term, of this
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<PAGE> 4
INDEX
<TABLE>
<CAPTION>
ARTICLE CAPTION PAGE
<S> <C> <C>
28. Waivers.............................................................. 48
29. No Other Waivers or Modifications.................................... 49
30. Curing Tenant's Defaults,
Additional Rent...................................................... 50
31. Broker............................................................... 50
32. Notices.............................................................. 50
33. Estoppel Certificate, Memorandum..................................... 51
34. Arbitration.......................................................... 51
35. No Other Representations, Construction,
Governing Laws, Consents............................................. 52
36. Parties Bound........................................................ 53
37. Certain Definitions and Construction................................. 53
38. Refusal Right........................................................ 54
Testimonium and Signatures........................................... 56
</TABLE>
EXHIBITS
Exhibit A - Description of Land
Exhibit B - Floor Plan
Exhibit C - Rules and Regulations
Exhibit D - Definitions
Exhibit E - Cleaning Specifications
Exhibit F - New Premises Work
Exhibit G - Existing Premises Work
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<PAGE> 5
lease are thereto attached (except items not deemed to be included therein and
removable by Tenant as provided in Article 12 and Section 3.05) constitute and
are hereinafter called the "Demised Premises." The parties hereby stipulate that
the Demised Premises shall, upon delivery of all portions of the Demised
Premises as herein provided, be deemed to consist of 26,911 square feet
(subject, however, to Section 3.02 below).
1.03 The term of this lease (herein called the "Initial Term"), for
which the Demised Premises are hereby leased, shall commence on the date hereof
(herein called the "Term Commencement Date" or the "Commencement Date") and
shall end at noon of the last day of the calendar month in which occurs the day
preceding the fourth (4th) anniversary of the Final Delivery Date (as defined
below), or on such earlier date upon which said term may expire or be canceled
or terminated pursuant to any of the conditions or covenants of this lease or
pursuant to law (such ending date is hereinafter called the "Initial Term
Expiration Date"). For purposes of this lease, the "Final Delivery Date" shall
mean the earlier date to occur of (i) the date the last of the Additional Space
(as defined below) is "ready for occupancy" (as such term is defined in Article
3), or (ii) the day Tenant, or anyone claiming under or through Tenant, first
occupies the entire Demised Premises for the conduct of its business, or (iii)
July 1, 1997. Promptly following the Final Delivery Date, upon the request by
Landlord, the parties hereto (hereinafter sometimes referred to as the
"parties") shall enter into a supplementary agreement in recordable form fixing
the Initial Term Expiration Date and if they cannot agree thereon within fifteen
(15) days after Landlord's request therefor, such dates shall be determined by
arbitration in the manner provided in Article 34.
1.04 The "rent" reserved under this lease, for the term thereof, shall
be and consist of:
(a) fixed rent in the initial amount of $318,240 per year ($26,520 per
month), plus an amount equal to the following, in all cases in the aggregate:
(i) from and after the date the Bank Space (as defined below) is ready
for occupancy, an additional $61,974.00 per year ($5,164.50 per month);
(ii) from and after the date the Mezzanine Temporary Space (as defined
below) is ready for occupancy, an additional $18,000.00 per year ($1,500.00 per
month);
(iii) from and after the date the Old Century 21 Space (as defined
below) is ready for occupancy, an additional $28,800.00 00 per year ($2,400,00
per month);
(iv) from and after the date the Panel Space (as defined below) is
ready for occupancy, an additional $32,166.00 per year ($2,680.50 per month);
and
(v) from and after the date the Third Floor Temporary Space (as defined
below) is ready for occupancy, an additional $25,218.00 per year ($2,101.50 per
month),
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<PAGE> 6
such that when the entire Additional Premises (as defined below) has been made
ready for occupancy, the fixed rent payable with respect to the entire Demised
Premises shall be $484,398.00 per year ($40,366.50 per month), and
(b) "additional rent" consisting of all such other sums of money as
shall become due sums of money as shall become due from and payable by Tenant
to Landlord hereunder (for default in payment of which Landlord shall have the
same remedies as for a default in payment of fixed rent), and shall be payable
on demand, unless other payment dates are hereinafter provided.
1.05 Tenant agrees to pay the fixed rent and additional rent in lawful
money of the United States of America. The fixed rent shall be paid in equal
monthly installments in advance on the first day of each calendar month during
the term of this lease, at the office of Landlord set forth above, or such other
place in the United States of America as Landlord may designate, without any
setoff or deduction whatsoever, except such deduction as may be occasioned by
the occurrence of any event permitting or requiring a deduction from or
abatement of rents as specifically set forth in Articles 20 and 21 hereof.
Should the obligation to pay fixed rent commence on any day other than on the
first day of a month, then the rent for such month shall be prorated on a per
diem basis.
1.06 Tenant shall pay the fixed rent and additional rent as above and
as hereinafter provided, respectively, by good and sufficient check (subject to
collection).
1.07 Effective as of the date hereof, the Original Lease shall be
deemed terminated and of no further force or effect, and neither party shall
have any further obligations or liabilities to each other under or by virtue of
the Original Lease, and the parties shall be fully and unconditionally released
and discharged from their respective obligations arising from or connected with
the Original Lease, other than those obligations and liabilities which, pursuant
to the terms of the Original Lease, survive such termination. Notwithstanding
the foregoing, however, Tenant shall remain obligated and liable to pay Landlord
all items of fixed rent and additional rent accruing prior to the termination of
the Original Lease, which obligation shall survive the termination of the
Original Lease. Tenant shall observe and fully perform all the terms, covenants
and conditions of the Original Lease on the Tenant's part to be observed and
performed up to the termination date of the Original Lease, and pay all items of
fixed rent and additional rent accruing thereunder in a timely manner. If Tenant
shall default in its obligations under the Original Lease, which shall continue
after the expiration of the applicable cure period after the giving of notice,
if any, required thereunder, then in addition to all of the rights and remedies
to which Landlord is entitled under the Original Lease as a result of Tenant's
default, such default shall be deemed to be a default by Tenant under this
lease.
1.08 Tenant shall pay Landlord, as additional rent hereunder, the
amount of $3,000.00 within five (5) days following the Final Delivery Date.
3
<PAGE> 7
ARTICLE 2
USE
2.01 Tenant shall use and occupy the Demised Premises for executive and
general offices for the transaction of Tenant's business and for the training of
employees and personnel, and for no other purpose.
2.02 If any governmental license or permit shall be required for the
proper and lawful conduct of Tenant's business in the Demised Premises, or any
part thereof, and if failure to secure such license or permit would in any way
affect Landlord, the Land or the Building or the conduct of business thereon or
therein, then Tenant, at its sole cost and expense, shall duly procure and
thereafter maintain such license or permit and submit the same for inspection by
Landlord. Tenant shall at all times comply with the terms and conditions of each
such license or permit.
2.03 Tenant shall not at any time use or occupy, or suffer or permit
anyone to use or occupy, the Demised Premises, or any portion thereof, or do or
permit anything to be done in the Demised Premises, in violation of the
Certificate of Occupancy for the Demised Premises or for the Building.
2.04 Tenant shall not at any time use or occupy, or suffer or permit
anyone to use or occupy, the Demised Premises, or any portion thereof, as a
commercial bank, trust company, savings bank, or savings and loan institution.
ARTICLE 3
PREPARATION OF THE DEMISED PREMISES
3.01 Landlord, at its sole cost and expense, except as otherwise
provided herein, shall do that portion of the construction and other items of
work in the portion of the Demised Premises (the "Additional Premises")set forth
in the drawings and specifications designated as "Tenant's Layout", which
Tenant's Layout is annexed hereto as Exhibit F and made a part hereof ("New
Premises Work"). Landlord will perform such items of New Premises Work and
furnish materials to carry out the improvements provided for in Tenant's Layout
as herein provided. In the event that, pursuant to Tenant's request, any
change(s) are requested to the drawings and specifications designated as
Tenant's Layout and such change(s) would increase the net cost of and/or time to
complete the New Premises Work specified therein, the cost will be determined by
Landlord or its contractor and presented in writing to Tenant for Tenant's
reasonable approval prior to the commencement of any such change(s). If Tenant
approves the additional cost (which such approval shall be deemed given if no
approval or disapproval is received by Landlord within five (5) days after
delivery to Tenant of Landlord's written determination of the cost of the
applicable change), Landlord will perform the changes and Tenant shall pay the
additional cost, if any, to Landlord upon receipt of an invoice therefor, as
additional rent hereunder. If Tenant disapproves the additional cost, Landlord
shall continue the New Premises
4
<PAGE> 8
Work in accordance with the then existing plans and specifications. Landlord
shall not be required to provide any services or do any act or thing or make any
payment with respect to the Demised Premises or the appurtenances thereto,
except as may be specifically provided herein. Landlord shall cause the New
Premises Work to be performed in accordance with the plans and specifications
therefor, in a good and workmanlike manner, in compliance with all applicable
laws and using new materials of good quality subject, however, to the terms and
conditions of this lease. The Additional Premises shall consist of the
following:
(a) that portion of the Demised Premises located on the mezzanine floor
of the Building consisting of approximately 3,443 square feet (the "Bank
Space");
(b) that portion of the Demised Premises located on the mezzanine floor
of the Building consisting of approximately 1,000 square feet (the "Mezzanine
Temporary Space");
(c) that portion of the Demised Premises located on the mezzanine floor
of the Building consisting of approximately 1,600 square feet (the "Old Century
21 Space");
(d) that portion of the Demised Premises located on the third floor of
the Building consisting of approximately 1,787 square feet (the "Panel Space");
and
(e) that portion of the Demised Premises located on the third floor of
the Building consisting of approximately 1,401 square feet (the "Third Floor
Temporary Space").
The Bank Space, the Mezzanine Temporary Space, the Old Century 21
Space, the Panel Space and the Third Floor Temporary Space are each also
referred to herein from time to time individually as an "Additional Space".
In the event that Landlord is unable to terminate its existing lease
with Century 21, Landlord will endeavor to provide Tenant with substitute space
of approximately 1,600 square feet on the mezzanine or third floor of the
Building.
3.02 Each Additional Space comprising the Additional Premises shall be
deemed "ready for occupancy" on the date upon which the New Premises Work with
respect to each such Additional Space has been substantially completed in
accordance with Exhibit F and they shall be so deemed notwithstanding the fact
that minor or insubstantial details of construction, mechanical adjustment, or
decoration remain to be performed, the noncompletion of which does not
materially interfere with Tenant's use of such Additional Space, and Landlord
shall have obtained a certificate of occupancy or other reasonable evidence that
the New Premises Work has been substantially completed in accordance with law
and such Additional Space can be legally occupied for the uses permitted
hereunder. Landlord shall give Tenant five (5) days prior verbal notice
estimating the date when Landlord reasonably believes each Additional space
shall be ready for occupancy, but Landlord shall have no liability to Tenant in
the event an Additional Space shall not be ready for occupancy on the date so
5
<PAGE> 9
stated by Landlord. As of the date hereof, Landlord reasonably believes that
(i) the Bank Space shall be ready for occupancy on April 1, 1997, (ii) each of
the Mezzanine Temporary Space, the Century 21 Space and the Third Floor
Temporary Space shall be ready for occupancy on April 15, 1997, and (iii) the
Panel Space shall be ready for occupancy on May 1, 1997, but, again,
Landlord shall have no liability to Tenant in the event an Additional Space is
not ready for occupancy on or before such date, provided, however, that:
(a) if any Additional Space shall not be ready for occupancy on or
before the date that is sixty (60) days following the date such space is
anticipated to be ready for occupancy as provided above in this Article 3.02,
then provided Tenant shall not otherwise be in default of any of its obligations
under this lease which has continued beyond the expiration of any applicable
cure period after the giving of notice, if any, required hereunder, the portion
of the fixed rent payable under this lease that is allocated to such Additional
Space in Section 1.04 above shall be abated for a period equal to one day for
each day that occurs after the date such space is anticipated to be ready for
occupancy as provided above in this Article 3.02 until the day that said
Additional Space shall be ready for occupancy, provided however that said sixty
(60) day period referred to in the first sentence of this clause (a) shall be
extended for a period equal to one day for each day that Tenant has interfered
with or delayed the performance or completion of Landlord's Work with respect to
such Additional Space; and
(b) if any portion of the Additional Premises shall not be ready for
occupancy on or before July 1, 1997, then so long as Tenant has not interfered
with or delayed the performance or completion of the New Premises Work with
respect to any Additional Space and provided that Tenant shall not otherwise be
in default of any of its obligations under this lease which has continued beyond
the expiration of any applicable cure period after the giving of notice, if any,
required hereunder, then, notwithstanding anything contained in this Lease,
Tenant shall have the right to reject any of the Additional Space not made ready
for occupancy on or before such date, and the Demised Premises shall be deemed
to exclude any Additional Space not theretofore made ready for occupancy.
Landlord shall use reasonable speed and diligence in preparing the
Additional Premises for Tenant's occupancy and shall keep Tenant reasonably
informed as to the status of the New Premises Work. Landlord shall give Tenant
prompt notice if it learns that an Additional Space will not be ready for
occupancy on the date such space is anticipated to be ready for occupancy as
provided above in this Article 3.02, and (subject to the provisions of the
preceding sentence) will endeavor to give Tenant reasonable advanced notice of
the date that it reasonably believes said Additional Space will be ready for
occupancy. If the making of any Additional Space ready for occupancy shall be
delayed due to any act or omission of Tenant or of any of its employees,
agents, or contractors not contemplated by the terms of this Lease, then said
Additional Space shall be deemed ready for occupancy on the date upon which they
would have been ready but for such delay. If and when Tenant shall take actual
6
<PAGE> 10
possession of any Additional Space, it shall be conclusively presumed that the
same were in satisfactory condition (except for latent defects) as of the date
of such taking of possession subject to Tenant's rights set forth in the
immediately succeeding sentence. If Tenant submits to Landlord, within thirty
(30) days of the date Tenant takes occupancy of any Additional Space, a written
list of items which Landlord is obligated to correct pursuant to the final
drawings and specifications, Landlord shall promptly commence to correct such
items and use reasonable efforts to complete such work within thirty (30) days
of receipt of such notice.
3.03 Tenant acknowledges that it is presently in occupancy of certain
portions of the Demised Premises located on the mezzanine (2nd) and third (3rd)
floors of the Building, and (i) Tenant shall vacate the Mezzanine Temporary
Space and the Third Floor Temporary Space on the date upon which the Bank Space
is ready for occupancy, provided that Tenant shall have had no less than five
(5) days prior notice of such date, at which time Landlord shall commence
performance of such items of the New Premises Work with respect to the Mezzanine
Temporary Space and the Third Floor Temporary Space as are designated on Exhibit
F, (ii) Tenant shall vacate the Panel Space on the date upon which the Century
21 Space is ready for occupancy, provided that Tenant shall have had no less
than five (5) days prior notice of such date, at which time Landlord shall
commence performance of such items of the New Premises Work with respect to the
Panel Space as are designated on Exhibit F, and (iii) Landlord shall, following
the Commencement Date hereunder, perform and cause to be completed at Landlord's
cost and expense, the items of work described on Exhibit G annexed hereto and
made a part hereof (the "Existing Premises Work", which together with the "New
Premises Work" shall hereinafter be referred to as "Landlord's Work"). Tenant
understands and agrees that, except for the applicable portions of the
Landlord's Work, Landlord shall not otherwise be required to perform any work,
supply any materials or incur any expense to prepare such portion of the Demised
Premises for Tenant's occupancy. Notwithstanding anything to the contrary herein
contained, Tenant shall bear the cost of moving its personal property, furniture
and fixtures to the extent necessary to permit Landlord to perform and complete
Landlord's Work. Tenant understands and agrees that it is necessary that Tenant
vacate any portion of the Demised Premises that it is required to vacate as
stated in a timely manner so that Landlord may commence Landlord's Work with
respect to such portion of the Demised Premises, and Tenant's failure to do so
shall be deemed to be a delay caused by Tenant for purposes of Section 3.02.
3.04 All fixtures, equipment, improvements and appurtenances attached
to or built into the Demised Premises shall be and remain a part of the Demised
Premises and shall be deemed the property of Landlord.
3.05 All movable partitions, other business and trade fixtures,
furnishings, furniture, machinery and equipment, located in the Demised Premises
and acquired by Tenant, without expense to Landlord ("Tenant's Property"), which
can be removed without damage to the Building that cannot be repaired shall
remain the property of Tenant and, except as otherwise prohibited
7
<PAGE> 11
by this lease and so long as Tenant is not in default hereunder, may be removed
by it at any time during the term of this lease; provided that, if any of
Tenant's Property is removed, Tenant shall promptly pay the cost of repairing
any damage to the Demised Premises or to the Building resulting from such
removal. In addition, Tenant shall pay, prior to delinquency, any and all taxes
and assessments levied upon or against Tenant's Property and/or all work,
alterations and improvements made by or performed by Tenant, failing which
Landlord may do so on Tenant's behalf and, thereafter be reimbursed by Tenant
upon demand, as additional rent hereunder.
3.06 Tenant shall be given access to each Additional Space prior to
substantial completion of Landlord's Work thereon in order to install voice and
data cabling provided, however, that the performance of such installation shall
not, in Landlord's reasonable judgment, interfere with the performance or
completion of Landlord's Work.
ARTICLE 4
ADJUSTMENTS OF RENT
4.01 Tax Escalation. For the purposes of Sections 4.01 - 4.06:
(a) "Taxes" shall mean the real estate taxes and assessments and
special assessments imposed upon the Building. If at any time during the term of
this lease the methods of taxation prevailing at the commencement of the term
hereof shall be altered so that in lieu of or as an addition to or as a
substitute for the whole or any part of the taxes, assessments, levies,
impositions or charges now levied, assessed or imposed on real estate and the
improvements thereon, there shall be levied, assessed or imposed (i) a tax,
assessment, levy, imposition or charge wholly or partially as capital levy or
otherwise on the rents received therefrom, or (ii) a tax, assessment, levy,
imposition or charge measured by or based in whole or in part upon the Demised
Premises and imposed upon Landlord, or (iii) a license fee measured by the rents
payable by Tenant to Landlord, then all such taxes, assessments, levies,
impositions or charges, or the part thereof so measured or based, shall be
deemed to be included within the term "Taxes" for the purposes hereof provided,
however, Taxes shall not include any tax or assessment imposed upon the net
income of Landlord, or any gift, estate or inheritance tax.
(b) "Tax Base" shall mean the Taxes assessed against the Building
with respect to the Base Year.
(c) "Base Year" shall mean the calendar year 1997.
(d) "Tax Year" shall mean the fiscal year for which Taxes are
levied by the governmental authority.
(e) "Tenant's Proportionate Share" shall mean, for purposes of
this lease and all calculations in connection with-here, 7.353% percent.
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<PAGE> 12
(f) "Tenant's Projected Share of Taxes" shall mean the Tax
Payment, if any, to be made by Tenant for the then current Tax Year divided by
twelve (12) and payable monthly by Tenant to Landlord as additional rent.
Notwithstanding the foregoing, however, if, and for so long as, Landlord shall
pay deposits to any mortgagee or ground lessor on account of Taxes and such
payment by Landlord is, or is to be, in excess of the Tax Payment, if any, made
by Tenant for the prior Tax Year, "Tenant's Projected Share at Taxes" shall be
deemed to mean an amount equal to Tenant's Proportionate Share of each such
deposit and shall be payable on the same periodic basis that Landlord pays such
deposit to the mortgagee or ground lessor at least fifteen (15) days before the
date upon which each such deposit is due from Landlord,
4.02 If the Taxes for any Tax Year occurring, in whole or in part,
after the Base Year shall be more than the Tax Base, Tenant shall pay, as
additional rent for such Tax Year (or portion thereof), an amount equal to
Tenant's Proportionate Share of the amount by which the Taxes for such Tax Year
are greater than the Tax Base (the amount payable by Tenant is hereinafter
called the "Tax Payment"). The Tax Payment shall be prorated, if necessary, to
correspond with that portion of a Tax Year occurring within the term of this
lease. The Tax Payment shall be payable by Tenant within ten (10) days after
receipt of a demand from Landlord therefor, which demand shall be accompanied by
a copy of the tax bill together with Landlord's computation of the Tax Payment.
It the Taxes for any Tax Year are payable to the taxing authority on an
installment basis, Landlord may, but shall not be obligated to, serve such
demands upon, and the Tax Payment with respect to such Tax Year shall be payable
by, Tenant on a corresponding installment basis.
4.03 Notwithstanding the fact that the increase or decrease in
additional rent is measured by an increase or decrease in Taxes, such increase
is additional rent and shall be paid by Tenant as provided herein and such
decrease shall result in a credit to Tenant regardless of the fact that Tenant
may be exempt, in whole or in part, from the payment of any taxes by reason of
Tenant's diplomatic or other tax exempt status or for any other reason
whatsoever provided, however, that no such decrease shall reduce the fixed rent
below the amounts herein set fourth.
4.04 Only Landlord shall be eligible to institute tax reduction or
other proceedings to reduce the assessed valuation of the Land and/or Building.
Should Landlord be successful in any such reduction proceedings and obtain a
rebate for periods during which Tenant has paid its share of increases or
received the benefit of any decreases, Landlord shall, after deducting its
reasonable expenses, including without limitation, attorneys' fees and
disbursements in connection therewith, credit Tenant's Proportionate Share of
such rebate against the next Tax Payment(s) due from Tenant, or refund such
amount to Tenant if no further Tax Payments are due from Tenant.
4.05 Within ninety (90) days after the expiration of any Tax Year
occurring in whole or in part after the Term Commencement
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<PAGE> 13
date, landlord shall furnish tenant with a statement setting forth Tenant's
Proportionate Share of Taxes. The statement furnished under this Section 4.05
is hereinafter called a "Tax Statement."
4.06 Commencing with the first Tax Year that Landlord shall be entitled
to receive a Tax Payment, Tenant shall pay to Landlord, as additional rent for
the then Tax Year, Tenant's Projected Share of Taxes. Upon each date that a Tax
Payment or an installment on account thereof shall be due from Tenant pursuant
to the terms of Section 4.02 hereof, Landlord shall apply the aggregate amount
of the installments of Tenant's Projected Share of Taxes then on account with
Landlord against the Tax Payment or installment thereof then due from Tenant. In
the event that such aggregate amount shall be insufficient to discharge such Tax
Payment or installment, Landlord shall so notify Tenant in a demand served upon
Tenant pursuant to the terms of Section 4.02, and the amount of Tenant's payment
obligation with respect to such Tax Payment or installment pursuant to Section
4.02 shall be equal to the amount of the insufficiency. If, however, such
aggregate amount shall be greater than the Tax Payment or installment, Landlord
shall credit Tenant with the amount of such excess against the next payment(s)
of Tenant's Projected Share of Taxes due hereunder, or refund such amount to
Tenant if no further Tax Payments are due from Tenant.
4.07 Expense Escalation. For the purposes of Sections 4.07 - 4.11:
(a) "Operating Expenses" shall mean any or all expenses incurred
by Landlord in connection with the operation of the Building, including all
expenses incurred as a result of Landlord's compliance with any of its
obligations hereunder, and such expenses shall include: (i) salaries, wages,
medical, surgical and general welfare benefits, (including group life insurance)
pension payments and other fringe benefits of employees of Landlord engaged in
the operation and maintenance of the Building, but not above building manager
(and if such employees shall service other buildings, only to the extent of that
portion of such salaries and other benefits that shall represent work performed
for the Building); (ii) payroll taxes, worker's compensation, uniforms and dry
cleaning for the employees referred to in subdivision (i); (iii) the cost of all
charges for steam, heat, ventilation, air conditioning and water (including
sewer rental and taxes) furnished to the Building and/or used in the operation
of all of the service facilities of the Building and the cost of all charges for
electricity furnished to the public and service areas of the Building and/or
used in the operation of all of the service facilities of the Building including
any taxes on any of such utilities; (iv) the reasonable cost of all charges for
rent, hazard, casualty, war risk insurance (if obtainable from the United States
government) and liability insurance for the Building carried by Landlord; (v)
the cost of all building and cleaning supplies for the common areas of the
Building and charges for telephone for the Building; (vi) the cost of all
charges for the direct management of the Building (if there is no managing agent
for the Building, a sum in lieu thereof which is not in excess of the then
prevailing rates for
10
<PAGE> 14
managing agents of other first class office buildings in the area in which the
building is located); (vii) the cost of all charges for window cleaning and
service contracts with independent contractors for the common areas of the
Building; (viii) the cost of rentals of capital equipment designed to result in
savings or reductions in Operating Expenses; (ix) the cost of capital
improvements made by Landlord with respect to the maintenance and/or operation
of the Land and/or Building, amortized over the shorter of (A) ten (10) years
and (B) the life of such capital improvements; (x) the cost of compliance by
Landlord with any federal, state, municipal or local ordinances affecting the
Land and/or the Building; (xi) the cost relating to the maintenance and
operation of the elevators in the Building; (xii) the cost relating to
protection and security; (xiii) the reasonable cost relating to lobby
decorations and interior and exterior landscape, maintenance; (xiv) repairs,
replacements and improvements which are appropriate for the continued operation
of the Building as a first class office building in the area in which the
Building is located; (xv) painting of non-tenanted areas; (xvi) professional and
consulting fees (excluding, however, any such fees incurred in connection with
the enforcement of leases in the Building); and (xvii) association fees or
dues. If less than ninety-five (95%) percent of the rentable square footage in
the Building shall have been occupied by tenants at the time the Operating
Expenses for the Operating Expense Base are determined or any adjustment period
thereafter, Operating Expenses shall be "grossed up" to the amount of Operating
Expenses that, using reasonable projections, would normally be expected to be
incurred during the Operating Expense Base year or any adjustment period
thereafter assuming ninety five percent (95%) of the total rentable square
footage in the Building were occupied during the Operating Expense Base year or
any adjustment period thereafter, as determined under generally accepted
accounting principles consistently applied. Only those component expenses that
are affected by variations in occupancy levels shall be so adjusted. Operating
Expenses shall not include (A) costs of painting and decorating for any tenant's
space; (B) administrative wages and salaries, including executive compensation;
(C) renting commissions; (D) franchise taxes or income taxes of Landlord; (E)
real estate taxes on the Building to the extent included in Sections 4.01-
4.06; (F) the costs of providing overtime heat and air-conditioning to tenants
of the Building to the extent that the same are payable by the tenants for whom
such services are provided; (G) the cost of any work or service provided to any
tenant of the Building that is not provided to Tenant; (H) the cost of any work
required as a result of a casualty or condemnation; (I) costs to comply with any
law, rule or regulation applicable to the Building or Land to the extent the
Building is in violation of same as of the Term Commencement Date; (J)
depreciation; (K) interest and amortization payments under any mortgage
affecting the Building, and rent payments under any ground lease affecting the
Building; (L) costs resulting from the materially disproportionate use of any
utility or service supplied by Landlord to any other occupant of the Building;
and (M) the cost of capital improvements except to the extent set forth in
clause (ix) of this Section 4.07(a).
(b) "Operational Year" shall mean each calendar year during the
term hereof.
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(c) "Operating Expense Base" shall mean the Operating Expenses for
the Base Year.
(d) "Tenant's Projected Share of Operating Expenses" shall mean
Tenant's Operating Expense Payment, if any, for the then current Operational
Year divided by twelve (12) and payable monthly by Tenant to Landlord as
additional rent.
(e) "Tenant's Proportionate Share" shall have the meaning ascribed
to it in subsection 4.01(e); provided, however, that Tenant's Proportionate
Share shall be increased proportionately, by deleting from the denominator used
in obtaining Tenant's Proportionate Share the square footage of any tenant in
the Building, to the extent such tenant in the Building is not Receiving any
variable cost services (such as, by way of example but not limitation,
janitorial services or trash removal) which are provided to other tenants in the
Building, as and to the extent of the cost of each particular item set forth in
subsection 4.07(a) not so furnished.
4.08 Within ninety (90) days after the expiration of each Operational
Year, Landlord shall furnish Tenant a statement setting forth the aggregate
amount of the Operating Expenses for such Operational Year. The statement
furnished under this Section 4.06 is hereinafter called an "Operating
Statement".
4.09 If the Operating Expenses for any Operational Year occurring, in
whole or in part, after the Base Year shall be more than the Operating Expense
Base, Tenant shall pay, as additional rent for such Operational Year (or portion
thereof), an amount equal to Tenant's Proportionate Share of the amount by
which the Operating Expenses for such Operational Year are greater than the
Operating Expense Base. (The amount so payable by Tenant is hereinafter called
the "Operating Expense Payment".) The Operating Expense shall be prorated, if
necessary, to correspond with that portion of an Operational Year occurring with
the term of this lease. The Operating Expense Payment shall be payable by Tenant
within thirty (30) days after receipt of the Operating Statement.
4.10 Commencing with the first Operational Year after Landlord shall be
entitled to receive an Operating Expense Payment, Tenant shall pay to Landlord,
as additional rent for the then Operational Year, Tenant's Operating Expense
Payment. If the Operating Statement furnished by Landlord to Tenant at the end
of then Operational Year shall indicate that Tenant's Projected Share of
Operating Expenses exceeded the Operating Expense Payment, Landlord shall credit
Tenant the amount of such excess against the subsequent payment(s) of Operating
Expense Payment due hereunder (or refund to Tenant such amount if no further
Operating Expense Payments are due from Tenant); if such Operating Statement
furnished by Landlord to Tenant hereunder shall indicate that the Operating
Expense Payment exceeded Tenant's Projected Share of Operating Expenses for the
then Operational Year, Tenant shall forthwith pay the amount of such excess to
Landlord.
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4.11 Every Operating Statement given by Landlord pursuant to Section
4.08 shall be conclusive and binding upon Tenant unless (i) within thirty (30)
days after the receipt of such Operating Statement Tenant shall notify Landlord
that it disputes the correctness of the Operating Statement, specifying the
particular respects in which the Operating Statement is claimed to be incorrect,
and (ii) if such dispute shall not have been settled by agreement, shall submit
the dispute to arbitration within ninety (90) days after receipt of the
Operating Statement. Pending the determination of such dispute by agreement or
arbitration as aforesaid, Tenant shall within ten (10) days after receipt of
such Operating Statement, pay additional rent, if due, in accordance with the
Operating Statement and such payment shall be without prejudice to Tenant's
position. If the dispute shall be determined in Tenant's favor, Landlord shall
credit Tenant the amount of any excess against the subsequent payment(s) of
Operating Expense Payment due hereunder (or refund to Tenant such amount if no
further Operating Expense Payments are due from Tenant) and Landlord shall pay
for the reasonable out-of-pocket costs incurred by Tenant in connection with
such audit within thirty (30) days after Tenant's demand. If the dispute shall
be determined in Landlord's favor, Tenant shall pay Landlord for the reasonable
out-of-pocket costs incurred by Landlord in connection with such audit within
thirty (30) days after Landlord's demand. Landlord agrees to grant Tenant
reasonable access to Landlord's books and records for the purpose of verifying
Operating Expenses incurred by Landlord and to have and make copies of any and
all bills and vouchers relating thereto and subject to reimbursement by Tenant
as herein provided.
4.12 Landlord's failure during the lease term to prepare and deliver
any of the tax bills, statements or notices set forth in this Article, or
Landlord's failure to make a demand for payment therefor, or Landlord's
preparation and delivery of any incorrect tax bills, statements or notices,
shall not in any way cause Landlord to forfeit or surrender its rights to
collect any of the foregoing items of additional rent which may have or are to
become due during the term of this lease. Tenant's liability for the amounts due
under this Article shall survive the expiration of the term of this lease.
ARTICLE 5
SUBORDINATION, NOTICE TO LESSORS AND MORTGAGEES
5.01 This lease, and all rights of Tenant hereunder, are and shall be
subject and subordinate in all respects to all ground leases, overriding leases
and underlying leases of the Land and/or the Building now or hereafter existing
and to all mortgages which may now or hereafter affect the Land and/or the
Building and/or any of such leases, whether or not such mortgages shall also
cover other lands and/or buildings, to each and every advance made or hereafter
to be made under such mortgages, and to all renewals, modifications,
replacements and extensions of such leases and such mortgages and spreaders and
consolidations of such mortgages. This Article shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute
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and deliver any reasonable instrument that Landlord, the lessor of any such
lease or the holder of any such mortgage or any of their respective successor in
interest may reasonably request to such subordination. The leases to which this
lease is, at the time referred to, subject and subordinate pursuant to which
this Article are hereinafter sometimes called "superior leases" and the
mortgages to which this lease is, at the time referred to, subject and
subordinate are hereinafter sometimes called "superior mortgages" and the
lessor of a superior lease or its successor in interest at the time referred to
is sometimes hereinafter called a "lessor" and the holder of a superior mortgage
or its successor in interest at the time referred to is sometimes hereinafter
called a "holder".
5.02 In the event of any act or omission of Landlord which would give
Tenant the right, immediately or after lapse of a period of time or notice, to
cancel or terminate this lease, or to claim a partial or total eviction, Tenant
shall not exercise such right (i) until it has given written notice of such act
or omission to the holder of each superior mortgage and the lessor of each
superior lease whose name and address Tenant shall have been provided with and
(ii) unless such act or omission shall be one which is not capable of being
remedied by Landlord or such mortgage holder or lessor within a reasonable
period of time, until a reasonable period for remedying such act or omission
shall have elapsed following the giving of such notice and following the time
when such holder or lessor shall have become entitled under such superior
mortgage or superior lease, as the case may be, to remedy the same (which
reasonable period shall in no event be less than the period to which Landlord
would be entitled under this lease or otherwise, after similar notice, to effect
such remedy), provided such holder or lessor shall with due diligence give
Tenant written notice of its intention to, and commence and continue, remedy
such act or omission.
5.03 If the lessor of a superior lease or the holder of a superior
mortgage, or the designee of either, shall succeed to the rights of Landlord
under this lease, whether through possession or foreclosure action or delivery
of a new lease or deed, then at the request of such party so succeeding to
Landlord's rights (herein sometimes called "successor landlord") and upon
successor landlord's written agreement to accept Tenant's attornment, Tenant
shall attorn to and recognize such successor landlord as Tenant's landlord under
this lease, and shall promptly execute and deliver any instrument that such
successor landlord may reasonably request to evidence such attornment. Upon such
attornment this lease shall continue in full force and effect as, or as if it
were, a direct lease between the successor landlord and Tenant upon all of the
terms, conditions and covenants as are set forth in this lease and shall be
applicable after such attornment except that the successor landlord shall not:
(a) be liable for any previous act or omission of Landlord under
this lease;
(b) be subject to any offset, not expressly provided for in this
lease, which shall have therefore accrued to Tenant against Landlord;
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(c) be bound by any previous modification of this lease, not
expressly provided for in this lease, or any previous prepayment of more than
one (1) month's fixed rent, unless such modification or prepayment shall have
been expressly approved in writing by the lessor of the superior lease or the
holder of the superior mortgage through or by reason of which the successor
landlord shall have succeeded to the rights of Landlord under this lease.
5.04 If, in connection with obtaining, continuing or renewing financing
for which the Building, Land or the interest of the lessee under any superior
lease represents collateral, in whole or in part, the holder or proposed holder
(including any which may elect that this lease shall have priority over such
superior mortgage) shall request reasonable modifications of this lease as a
condition of such financing, Tenant shall not unreasonably withhold its consent
thereto, provided that such modifications do not increase Tenant's obligation to
pay fixed rent or additional rent or shorten or lengthen the term of this lease
or do not materially increase any other obligations or materially diminish any
other rights of Tenant under this lease.
5.05 The subordination of this lease to any superior mortgage or lease
now or hereafter affecting the Building shall be subject to the following
conditions: (a) Landlord shall obtain, prior to the date the Additional Premises
are ready for occupancy, a non-disturbance and quiet enjoyment agreement for
Tenant's benefit from the holder of the superior mortgage or lease which affects
the Building as of the date of this lease, which non-disturbance and quiet
enjoyment agreement may be on such mortgagee's standard form previously
exhibited to Tenant, and (b) Landlord shall obtain a non-disturbance and quiet
enjoyment agreement for Tenant's benefit from each holder of a superior mortgage
or lease which may at any time in the future affect the Building, which
non-disturbance agreement may be contain substantially the same terms and
conditions as those contained in the non-disturbance and quiet enjoyment
agreement entered into between Tenant and the holder of the superior mortgage or
lease which affects the Building as of the date of this lease.
ARTICLE 6
QUIET ENJOYMENT
6.01 So long as Tenant pays all of the fixed rent and additional rent
due hereunder and performs all of Tenant's other obligations hereunder, Tenant
shall peaceably and quietly have, hold and enjoy the Demised Premises subject,
nevertheless, to the obligations of this lease and, as provided in Article 5, to
the superior leases and the superior mortgages, if any.
ARTICLE 7
ASSIGNMENT AND SUBLETTING
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7.01 Except as expressly provided herein (including, without
limitation, in Sections 7.14 and 7.15 below) Tenant, for itself, its heirs,
distributes, executors, administrators, legal representatives, successors and
assigns, expressly covenants that it shall not assign, mortgage or encumber this
lease, nor underlet, nor suffer, nor permit the Demised Premises or any part
thereof to be used or occupied by others, without the prior written consent of
Landlord in each instance (which consent may be withheld in the sole and
unreviewable discretion of Landlord except as otherwise provided in Section 7.07
hereof). If this lease be assigned, or if the Demised Premises or any part
thereof be underlet or occupied by anybody other than Tenant, Landlord may, but
shall not be obligated to, after default by Tenant, collect rents from the
assignee, undertenant or occupant, and apply the net amount collected to the
rents herein reserved, but no assignment, underletting, occupancy or collection
shall be deemed a waiver of the provisions hereof, the acceptance of the
assignee, undertenant or occupant as tenant under this lease, or a release of
Tenant from the further performance by Tenant of covenants on the part of Tenant
herein contained. The consent by Landlord to an assignment or underletting shall
not in any wise be construed to relieve Tenant, or its assignee or subtenant,
from obtaining the express consent in writing of Landlord to any further
assignment or underletting. In no event shall any permitted subtenant assign or
encumber its sublease or further sublet all or any portion of its sublet space,
or otherwise suffer or permit the sublet space or any part thereof to be used or
occupied by others, without Landlord's prior written consent in each instance
(which consent may be withheld in the sole and unreviewable discretion of
Landlord except as otherwise provided in Section 7.07 hereof).
7.02 Except as expressly provided herein (including, without
limitation, in Sections 7.14 and 7.15 below) if Tenant shall, at any time or
times during the term of this lease, desire to assign this lease or sublet all
or part of the Demised Premises, Tenant shall give notice thereof to Landlord,
which notice shall be accompanied by (a) an original, fully executed, copy of a
binding agreement between Tenant and the proposed assignee or subtenant
containing all of the material terms of the proposed assignment or sublease, the
effective or term commencement date of which shall be not less than thirty (30)
nor more than one hundred twenty (120) days after the giving of such notice, (b)
a statement setting forth in reasonable detail the identity of the proposed
assignee or subtenant, the nature of its business and its proposed use of the
Demised Premises, and (c) current certified financial information with respect
to the proposed assignee or subtenant including, without limitation, its most
recent financial report. Such notice shall be deemed an offer from Tenant to
Landlord whereby Landlord (or Landlord's designee) may, at its option, (i)
terminate this lease (if the proposed transaction is an assignment or a sublease
of all or substantially all of the Demised Premises), or (ii) terminate this
lease with respect to the portion of the Demised Premises being sublet (if the
proposed transaction is a sublease of less than substantially all of the Demised
Premises). Said options may be exercised by Landlord by notice to Tenant at any
time within twenty (20) days after such notice has been given by Tenant to
Landlord; and during such twenty (20) day period Tenant
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shall not assign this lease nor sublet such space to any person or entity.
7.03 If Landlord exercises its option to terminate this lease in the
case where Tenant desires either to assign this lease or sublet all or
substantially all of the Demised Premises, then this lease shall end and expire
on the date that such assignment or sublet was to be effective or Commence, as
the case may be, and the fixed rent and additional rent due hereunder shall be
paid and apportioned to such date.
7.04 If Landlord exercises its option to terminate this lease in part
in any case where Tenant desires to sublet part of the Demised Premises, then
(a) this lease shall end and expire with respect to such part of the Demised
Premises on the date that the proposed sublease was to commence; (b) from and
after such date the fixed rent and additional rent due hereunder shall be
adjusted, based upon the proportion that the rentable area of the Demised
Premises remaining bears to the total rentable area of the Demised Premises, as
reasonably determined by Landlord; and, (c) Tenant shall pay to Landlord, upon
demand, Landlord's reasonable attorneys fees incurred in connection with its
review of such sublease.
7.05 Intentionally Omitted.
7.O6 Intentionally Omitted.
7.07 In the event Landlord does not exercise an option provided to it
pursuant to Section 7.02 (except to the extent Section 7.02 is inapplicable as
provided in Section 7.15 below) then provided that Tenant is not in default of
any of Tenant's obligations under this lease which has continued beyond
expiration of the applicable cure period, if any, provided for hereunder,
Landlord's consent (which must be in writing and in form and substance
reasonably satisfactory to Landlord) to the proposed assignment or sublease
shall not be unreasonably withheld or delayed, provided and upon condition that:
(a) Except as provided in Section 7.15 below, Tenant shall have
complied with the provisions of Section 7.02 and Landlord shall not have
exercised any of its options under said Section 7.02 within the time permitted
therefor;
(b) The proposed assignee or subtenant is engaged in a business
and the Demised Premises, or the relevant part thereof, will be used in a manner
which (i) is in keeping with the then standards of the Building, (i) is limited
to the use expressly permitted under this lease, and (iii) will not violate any
negative covenant as to use contained in any other lease of space in the
Building;
(c) The proposed assignee or subtenant is a reputable person of
good character and with sufficient financial worth considering the
responsibility involved, and Landlord has been furnished with reasonable proof
thereof;
(d) Neither (i) the proposed assignee or sublessee nor (ii) any
person which, directly or indirectly, controls, is
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controlled by, or is under common Control with, the proposed assignee or
sublessee or any person who controls the proposed assignee or sublessee, is then
an occupant of any part of the Building and there exists space in the Building
that is suitable for the needs of such proposed assignee or sublessee, and such
proposed assignee or sublessee has not first approached Landlord with an offer
to lease such available space;
(e) The proposed assignee or sublessee is not a person with whom
Landlord or its agent is then negotiating to lease space in the Building;
(f) The form of the proposed sublease or assignment shall be in
form reasonably satisfactory to Landlord and shall comply with the applicable
provisions of this Article;
(g) There shall not be more than three (3) subtenants (including
Landlord or its designee) with respect to any floor constituting a portion of
the Demised Premises;
(h) The rental and other terms and conditions of the assignment or
sublease are the same as those contained in the proposed assignment or sublease
furnished to Landlord pursuant to Section 7.02;
(i) Tenant shall reimburse Landlord on demand for any and all
reasonable costs or expenses that may be incurred by Landlord in connection with
said assignment or sublease including, without limitation, the costs of making
investigations as to the acceptability of the proposed assignee or subtenant,
and reasonable legal costs incurred in connection with the granting of any
requested consent;
(j) Tenant shall not have advertised in any way the fixed rent and
additional rent under this Lease;
(k) The assignment or sublease shall not allow the use of the
Demised Premises or any part thereof for (1) the preparation and/or sale of food
for on or off premises consumption or (ii) for use by a foreign or domestic
governmental or quasi governmental agency; and
(l) There shall be no reasonably likely material increase in the
traffic to or from the Demised Premises as a result of such assignment or
sublease.
Except for any subletting by Tenant to Landlord or its designee
pursuant to the provisions of this Article, each subletting pursuant to this
Article shall be subject to all of the covenants, agreements, terms, provisions
and conditions contained in this lease. Notwithstanding any such subletting to
Landlord or its designee or any such subletting to any other subtenant and/or
acceptance of fixed rent or additional rent by Landlord from any subtenant,
Tenant shall and will remain fully liable for the payment of the fixed rent and
additional rent due and to become due hereunder and for the performance of all
the covenants, agreements, terms, provisions and conditions contained in this
lease on the part of Tenant to be performed and all acts and omissions of any
assignee, subtenant or other occupant
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permitted hereunder or anyone claiming under or through any assignee, subtenant
or other occupant permitted hereunder which shall be in violation of any of the
obligations of this lease, shall be deemed to be a violation by Tenant. Tenant
further agrees that notwithstanding any such assignment or subletting, no other
and further assignment or subletting of the Demised Premises by Tenant or any
person claiming through or under Tenant shall or will be made except upon
compliance with and subject to the provisions of this Article,
7.08 In the event that (a) Landlord fails to exercise any of its
options under Section 7.02 and consents to a proposed assignment or sublease,
and (b) Tenant fails to execute and deliver the assignment or sublease to which
Landlord consented within sixty (60) days after the giving of such consent, then
Tenant shall again comply with all of the provisions and conditions of Section
7.02 before assigning this lease or subletting all or part of the Demised
Premises, Landlord shall grant or withhold its approval to the subletting or
assignment proposed by Tenant within twenty (20) days after Tenant has provided
Landlord with its written request therefor and all of the materials and
information called for in this Article 7.
7.09 With respect to each and every sublease or subletting authorized
by Landlord under the provisions of this lease, it is further agreed:
(a) No subletting shall be for a term ending later than one (1)
day prior to the initial Term Expiration Date;
(b) No sublease shall be valid, and no subtenant shall take
possession of the Demised Premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Landlord within the time
period provided in section 7.08(b);
(c) Each sublease shall provide that it is subject and subordinate
to this lease and to the matters to which this lease is or shall be subordinate,
and that in the event of termination, re-entry or dispossess by Landlord under
this lease Landlord may, at its option, take over all of the right, title and
interest of Tenant, as sublessor, under such sublease, and such subtenant shall,
at Landlord's option, attorn to Landlord pursuant to the then executory
provisions of such sublease, except that Landlord shall not (i) be liable for
any previous act or omission of Tenant under such sublease, (ii) be subject to
any offset not expressly provided in this lease, if any, which theretofore
accrued to such subtenant against Tenant, or (iii) be bound by any previous
modification of such sublease not consented to by Landlord or by any prepayment
of more than one (1) months rent not received by Landlord.
7.10 If the Landlord shall give its consent to any assignment of this
lease or to any sublease, Tenant shall, in consideration therefor, pay to
Landlord, as additional rent:
(a) in the case of an assignment, an amount equal to fifty percent
(50%) of all sums and other considerations paid to
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Tenant by the assignee for or by reason of the assignment of the leasehold
interest in the Demised Premises; and
(b) in the case of a sublease, an amount equal to fifty percent
(50%) of any rents, additional charge or other consideration payable under the
sublease to Tenant by the subtenant which is in excess of the fixed rent and
additional rent accruing during the term of the sublease in respect of the
subleased space (at the rate per square foot payable by Tenant hereunder)
pursuant to the terms hereof, and less the reasonable out of pocket expenses
incurred by Tenant in connection with such subletting including, without
limitation, reasonable advertising expenses, reasonable attorneys' fees,
reasonable rent concessions, reasonable brokerage commissions and reasonable
costs incurred to prepare the subleased premises for the subtenant's occupancy.
The sums payable under subsections (a) and (b) above shall be paid to Landlord
as and when paid from the assignee or subtenant, as the case may be, to Tenant.
7.11 If Tenant, or any permitted assignee or subtenant, is a
corporation, and if the shares of Tenant's stock are not publicly traded on a
recognized exchange, the provisions of Section 7.01 shall apply to a transfer,
however accomplished, whether in a single transaction or in a series of related
or unrelated transactions, of a majority of the issued and outstanding capital
stock of Tenant, or any permitted assignee or subtenant, as if such transfer of
a majority of the stock of Tenant, or any permitted assignee or subtenant, were
an assignment of this lease. If Tenant, or any permitted assignee or subtenant,
is a partnership, the provisions of Section 7.01 shall apply to a transfer,
however accomplished, whether in a single transaction or in a series of related
or unrelated transactions, of a majority of the total interest in the
partnership as if such transfer of a majority of the total interest in the
partnership were an assignment of this lease.
7.12 Any assignment or transfer shall be made only if, and shall not be
effective until, the assignee shall execute, acknowledge and deliver to Landlord
an agreement, within the time provided in Section 7.08(b), in form and
substance reasonably satisfactory to Landlord whereby the assignee shall assume
the obligations of this lease on the part of Tenant to be performed or observed
arising after the effective date of the assignment or transfer and whereby the
assignee shall agree that the provisions in Section 7.01 shall, notwithstanding
such assignment or transfer, continue to be binding upon Tenant in respect of
all future assignments and transfers. The original named Tenant covenants that,
notwithstanding any assignment or transfers whether or not in violation of the
provisions of this lease, and notwithstanding the acceptance of fixed rent
and/or additional rent by Landlord from an assignee, transferee, or any other
party, the original named Tenant shall remain fully liable for the payment of
the fixed rent and additional rent and for all of the other obligations of this
lease on the part of Tenant to be performed or observed.
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7.13 The joint and several liability of Tenant and any immediate or
remote successor in interest of Tenant and the due performance of the
obligations of this lease on Tenant's part to be performed or observed shall not
be discharged, released or impaired in any respect by any agreement or
stipulation made by Landlord extending the time of, or modifying any of the
obligations of, this lease, or by any waiver or failure of Landlord to enforce
any of the obligations of this lease.
7.14 The provisions of Section 7.01, 7.02, 7.03, 7.04, 7.07, 7.10 and
7.11 shall not apply to any assignment, sublease or other transfer of this lease
or any subletting of all or a portion of the Demised Premises to any
corporation, partnership or other entity (a) into or with which Tenant is merged
or consolidated, or (b) to which all or substantially all of the Tenant's assets
are transferred, or (c) controlled by, controlling or under common control with
Tenant or the existing shareholders of Tenant or their immediate families, with
"control" meaning ownership of 51% or more of the entity in question, or (d) the
transfer of stock between and among existing shareholders and their immediate
families, or (e) the transfer of stock in connection with "going public",
provided, however, Tenant shall notify Landlord prior to or immediately after
entering into any such transaction and, to the extent Tenant discloses any
proprietary information to Landlord with respect to such transaction, Landlord
shall agree to keep the same reasonably confidential.
7.15 The Provisions of Section 7.01 and the balance of Section 7.02
after the first sentence thereof shall not apply to any subletting of not more
than 10,000 square feet of the Demised Premises, provided, however, that all
other provisions of this Article 7 (including, without limitation, the first
sentence of Section 7.02) shall continue to apply to any subletting of such
floor.
ARTICLE 8
COMPLIANCE WITH LAWS AND REQUIREMENTS
OF PUBLIC AUTHORITIES
8.01 Tenant shall give prompt notice to Landlord of any notice it
receives of the violation of any law or requirement of public authority, and at
Tenant's expense Tenant shall comply with all laws and requirements of public
authorities which shall, with respect to the Demised Premises or the use and/or
occupation thereof, or the abatement of any nuisance, impose any violation,
order or duty on Landlord or Tenant, arising from (i) Tenant's use of the
Demised Premises, (ii) the manner of conduct of Tenant's business or operation
of its installations, equipment or other property therein, (iii) any cause or
condition created by or at the instance of Tenant, including the performance of
any work performed by Landlord for or on behalf of Tenant (other than Landlord's
Work), or (iv) breach of any of Tenant's obligations hereunder. However, Tenant
shall not be so required to make any structural or other substantial change in
the Demised Premises unless the requirement arises from a cause or condition
referred to in clause (ii), (iii) or (iv) above. Landlord, at its
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expense, shall comply with all other such laws and requirements of public
authorities as shall affect the Demised Premises, but may contest the same
subject to conditions reciprocal to Subsections (a), (b) and (d) of Section
8.02. Landlord and Tenant hereby acknowledge and agree that Tenant's obligations
with respect to the Demised Premises under this Section 8.01 shall include,
without limitation, compliance throughout the term of this lease with the
Americans With Disabilities Act of 1990, together with all amendments thereto
which may be adopted from time to time, and all regulations and rules
promulgated thereunder ("ADA"); provided, however, that Landlord agrees, at its
sole expense, to cause the Common Areas (as hereinafter defined) to be in
compliance with ADA, as and to the extent thereby required. In addition,
Landlord represents that as of the date of this Lease, the Common Areas are in
compliance with the ADA and all other applicable laws, rules and regulations
affecting the Building, and if Landlord has breached such representation, Tenant
shall have no obligation to contribute (as part of its Operating Expense
payments) towards the cost of effecting such compliance that is necessary to
make such representation true and correct. Tenant shall pay all the costs,
expenses, fines, penalties and damages imposed upon Landlord or any superior
lessors or superior mortgagees by reason of or arising out of Tenant's failure
to comply with the provisions of this Section. For example, but not by way of
limitation, if any public authority requires or recommends any additional
sprinkler heads or changes to the sprinkler system in or serving the Demised
Premises solely by reason of the manner of conduct of Tenant's business in the
Demised Premises or by reason of Tenant's alterations, or the location of
partitions, trade fixtures, or other contents of the Demised Premises (except
in connection with Landlord's Work), Tenant shall, at its expense, promptly make
and supply such additional sprinkler heads or make such changes.
8.02 Tenant may, at its expense (and if necessary, in the name of but
without expense to Landlord) contest, by appropriate proceedings prosecuted
diligently and in good faith, the validity, or applicability to the Demised
Premises, of any law or requirement of public authority, and Landlord shall
cooperate with Tenant in such proceedings, provided that:
(a) Landlord shall not be subject to criminal penalty or to
prosecution for a crime nor shall the Demised Premises or any part thereof be
subject to being condemned or vacated, by reason of non-compliance or otherwise
by reason of such contest;
(b) Tenant shall defend, indemnify and hold harmless Landlord
against all liability, loss, damage, cost or expense which Landlord shall suffer
by reason of such non-compliance or contest including, but not limited to,
attorney's fees and other expenses incurred by Landlord;
(c) Such non-compliance or contest shall not constitute or result
in any violation of any superior lease or superior mortgage, or if such superior
lease and/or superior mortgage shall permit such non-compliance or contest on
condition of the taking of action or furnishing of security by Landlord,
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such action shall be taken and such security shall be furnished at the expense
of Tenant;
(d) Tenant Shall furnish Landlord with such security as Landlord
shall require in connection with Tenant's non-compliance or contest; and
(e) Tenant shall keep Landlord advised in writing as to the status
of such proceedings. Without limiting the application of Section 8.02(a)
thereto, Landlord shall be deemed subject to prosecution for a crime within the
meaning of said Subsection, if Landlord, or any officer or shareholder of
Landlord individually, is charged with a crime of any kind or degree whatever,
whether by service of a summons or otherwise, unless such charge is withdrawn
before Landlord or such officer (as the case may be) is required to plead or
answer thereto.
8.03 In addition, and notwithstanding anything to the contrary
contained elsewhere in this lease, Tenant shall, at all times, comply with all
local, state and federal laws, rules and regulations governing the use, handling
and disposal of Hazardous Material in the Demised Premises by Tenant, its
subtenants, licensees and invitees including, but not limited to, Section 1004
of the Federal Reserve Conservation and Recovery Act, 42 U.S.C. Section 6901 et.
seq. (42 U.S.C. Section 6903) and any additions, amendments, or modifications
thereto. As used herein, the term "Hazardous Material" shall mean any hazardous
or toxic substance, material or waste which is, or becomes, regulated by any
local or state government authority in which the Demised Premises is located or
the United States Government. Landlord and its agents shall have the right, but
not the duty, to inspect the Demised Premises at any time to determine whether
Tenant is complying with the terms of this Section 8.03. If Tenant is not in
compliance with this Section 8.03, Landlord shall have the right to immediately
enter upon the Demised Premises and take whatever actions as are reasonably
necessary to comply including, but not limited to, the removal from the Demised
Premises of any Hazardous Material and the restoration of the Demised Premises
to a clean, neat, attractive, healthy and sanitary condition. Tenant shall pay
all costs so incurred by Landlord, as additional rent, ten (10) days upon
receipt of a bill therefor plus twenty (20%) percent for Landlord's admini-
stration expenses in connection therewith. To the extent that any Hazardous
Materials exist in the Building as of the Term Commencement Date, Tenant shall
not be responsible for costs incurred by Landlord in connection therewith.
ARTICLE 9
INSURANCE
9.01 Tenant shall not violate, or permit the violation of, any
condition imposed by the standard fire insurance policy then issued for office
buildings in the locality of the Premises, and shall not do, or permit anything
to be done, or keep or permit anything to be kept in the Demised Premises which
would subject Landlord to any liability or responsibility for personal injury
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or death or property damage, or which would increase the fire or other casualty
insurance rate on the Building or the property therein over the rate which would
otherwise then be in effect (unless Tenant pays the resulting premium as
provided in Section 9.03) or which would result in insurance companies of good
standing refusing to insure the Building or any of such property in amounts
satisfactory to Landlord.
9.02 Tenant covenants to provide, on or before the Term Commencement
Date, and to keep in force during the term hereof, the following insurance
coverage:
(a) For the benefit of Landlord and Tenant, a comprehensive policy
of liability insurance protecting Landlord and Tenant against any liability
whatsoever occasioned by accident on or about the Demised Premises or any
appurtenances thereto. Such policy is to be written by good and solvent
insurance companies authorized to do business in the State of New Jersey and
satisfactory to Landlord and the limits of liability thereunder shall not be
less than Three Million ($3,000,000) Dollars combined single limit coverage on a
per occurrence basis and One Million ($1,000,000) Dollars in respect of property
damages. Such insurance may be carried under a blanket policy covering the
Demised Premises and other locations of Tenant, if any.
(b) Fire and Extended coverage in an amount adequate to cover the
cost of replacement of all personal property, trade fixtures, leasehold
improvements, furnishing and equipment in the Demised Premises. Such policy
shall be written by good and solvent insurance companies authorized to do
business in the State of New Jersey and satisfactory to Landlord.
Prior to the time such insurance is first required to be carried by
Tenant and thereafter, at least thirty (30) days prior to the expiration of any
such policies, Tenant agrees to deliver to Landlord either duplicate originals
of the aforesaid policies or certificates evidencing such insurance, provided
said certificate contains an endorsement that such insurance may not be modified
or cancelled except upon thirty (30) days' notice to Landlord, together with
evidence satisfactory to Landlord of payment for the policy. Tenant's failure to
provide and keep in force the aforementioned insurance shall be regarded as a
material default under this lease, entitling Landlord to exercise any or all of
the remedies as provided in this lease in the event of Tenant's default which
continues after the expiration of any applicable cure period provided for
hereunder.
9.03 Landlord and Tenant shall each endeavor to secure an appropriate
clause in, or an endorsement upon, each file or extended coverage policy
obtained by it and covering the Building, the Demised Premises or the personal
property, fixtures and equipment located therein or thereon, pursuant to which
the respective insurance companies waive subrogation or permit the insured,
prior to any loss, to agree with a third party to waive any claim it might have
against said third party. The waiver of subrogation or permission for waiver of
any claim hereinbefore referred to shall extend to the agents of each party and
its employees and, in the case of Tenant, shall also extend to all other persons
and entities occupying or using the Demised Pre-
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mises. If and to the extent that such waiver or permission can be obtained only
upon payment of an additional charge then, except as provided in the following
two paragraphs, the party benefiting from the waiver or permission shall pay
such charge upon demand, or shall be deemed to have agreed that the party
obtaining the insurance coverage in question shall be free of any further
obligations under the provisions hereof relating to such waiver or permission.
In the event that Landlord shall be unable at any time to obtain one of
the provisions referred to above in any of its insurance policies, at Tenant's
option Landlord shall cause Tenant to be named in such policy or policies as one
of the assureds, but if any additional premium shall be imposed for the
inclusion of Tenant as such as assured, Tenant shall pay such additional premium
to Landlord promptly upon demand. In the event that Tenant shall have been named
as one of the insureds in any of Landlord's policies in accordance with the
foregoing, Tenant shall endorse promptly to the order of Landlord, without
recourse, any check, draft or order for the payment of money representing the
proceeds of any such policy or any other payment growing out of or connected
with said policy and Tenant hereby irrevocably waives any and all rights in and
to such proceeds and payments.
In the event that Tenant shall be unable at any time to obtain one of
the provisions referred to above in any of its insurance policies, Tenant shall
cause Landlord to be named in such policy or policies as one of the assureds,
but if any additional premium shall be imposed for the inclusion of Landlord as
such an insured, Landlord shall pay such additional premium upon demand or
Tenant shall be excused from its obligations under this paragraph with respect
to the insurance policy or policies for which such additional premiums would be
imposed. In the event that Landlord shall have been named as one of the
insureds in any of Tenant's policies in accordance with the foregoing, Landlord
shall endorse promptly to the order of Tenant, without recourse, any check,
draft or order for the payment of money representing the proceeds of any such
policy or any other payment growing out of or connected with said policy and
Landlord hereby irrevocably waives any and all rights in and to such proceeds
and payments.
Subject to the waiver of subrogation being obtained or being named as
an additional insured pursuant to the foregoing provisions of this Section 9.03,
and insofar as may be permitted by the terms of the insurance policies carried
by it, notwithstanding anything to the contrary in this Lease, each party hereby
releases the other with respect to any claim (including a claim for negligence)
which it might otherwise have against the other party for loss, damages or
destruction with respect to its property by fire or other casualty (including
rental value or business interruption, as the case may be) occurring during the
term of this lease.
9.04 If, by reason of a failure of Tenant to comply with the provisions
of Section 8.01 or Section 9.01, the rate of fire insurance with extended
coverage on the Building or equipment or other property of Landlord shall be
higher than it otherwise would be, Tenant shall reimburse Landlord, on demand,
for that
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part of the premiums for fire insurance and extended coverage paid by Landlord
because of such failure on the part of Tenant.
9.05 If any dispute shall arise between Landlord and Tenant with
respect to the incurrence or amount of any additional insurance premium referred
to in Section 9.03, the dispute shall be determined by arbitration pursuant to
Article 34.
9.06 A schedule or make up of rates for the Building or the Demised
Premises, as the case may be, issued by the New Jersey Fire Insurance Rating
Organization or other similar body making rates for fire insurance and extended
coverage for the premises concerned, shall be conclusive evidence of the facts
therein stated and of the several items and charges in the fire insurance rate
with extended coverage then applicable to such premises.
9.07 Landlord shall maintain such insurance as may be required pursuant
to the terms of any superior mortgage or lease affecting the Building or as may
be required under the Master Deed.
ARTICLE 10
RULES AND REGULATIONS
10.01 Tenant and its employees and agents shall faithfully observe and
comply with the Rules and Regulations annexed hereto as Exhibit C and made a
part hereof, and such changes therein (whether by modification, elimination or
addition) as Landlord at any time or times hereafter may make and communicate in
writing to Tenant, which do not unreasonably affect the conduct of Tenant's
business in the Demised Premises or parking rights except as required by any
governmental law, rule, regulation, ordinance or similar decree; provided,
however, that in case of any conflict or inconsistency between the provisions of
this lease and any of the Rules and Regulations as originally promulgated or as
changed, the provisions of this lease shall control. Landlord shall use its good
faith efforts to ensure compliance with all Rules and Regulations against the
other tenants in the Building.
10.02 Nothing in this lease contained shall be construed to impose upon
Landlord any duty or obligation to Tenant to enforce the Rules and Regulations
or the terms, covenants or conditions in any other lease, as against any other
Tenant, and Landlord shall not be liable to Tenant in any manner for violation
of the same by any other Tenant or its employees, agents or visitors.
ARTICLE 11
TENANT'S CHANGES
11.01 Tenant shall not make any alterations, additions, installations,
substitutions, improvements or decorations (hereinafter collectively called
"changes" and, as applied to changes provided for in this Article, "Tenant's
Changes") in and to the Demised Premises without the prior written approval of
Landlord (which may be withheld in the sole and unreviewable discretion of
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Landlord) in each instance. Notwithstanding the foregoing, however (a) Tenant
may, upon prior notice to Landlord but without Landlord's consent, make
decorations and non-structural changes that do not affect any of tile Building
systems(including, without limitation, the electrical, mechanical and HVAC
systems) and that cost less than $100,000.00 in the aggregate in any one year
period, and (b) Tenant may, upon prior notice to Landlord and subject to
Landlord's consent, not to be unreasonably withheld or delayed, make decorations
and non-structural changes that cost more than $100,000.00 in the aggregate in
any one-year period.
11.02 Tenant shall submit to Landlord, for Landlord's review and
approval, detailed plans and specifications with respect to any proposed
Tenant's Change. Tenant shall promptly reimburse Landlord for any reasonable
out-of-pocket costs and expenses incurred in connection with such review
including, but not limited to, architectural, engineering and counsel fees,
together with an amount equal to ten (10%) percent of the costs and expenses
incurred by Tenant in connection with any such Tenant's Change, as Landlord's
administrative charge. Tenant, at its expense, shall obtain all necessary
governmental permits and certificates for the commencement and prosecution of
Tenant's Changes and for final approval thereof upon completion, and shall cause
Tenant's Changes to be performed in compliance therewith and with all applicable
laws and requirements of public authorities, and with all applicable
requirements of insurance bodies, and in a good and workmanlike manner, using
new materials and equipment at least equal in quality and class to Landlord's
established standard for the Building. Tenant's Changes shall be performed in
such manner as not to interfere with or delay and (unless Tenant shall indemnify
Landlord therefor to the latter's satisfaction) as not to impose any additional
expense upon Landlord in the maintenance or operation of the Building.
Throughout the performance of Tenant's Changes, Tenant, at its expense, shall
carry, or cause to be carried, worker's or workmen's compensation insurance in
statutory limits and general liability insurance for any occurrence in or about
the Building as set forth in Section 9.02 hereof, in which Landlord and its
agents shall be named as parties insured, in such limits as Landlord may
prescribe, with insurers satisfactory to Landlord. Tenant shall furnish Landlord
with satisfactory evidence that such insurance is in effect at or before the
commencement of Tenant's Changes and, on request, at reasonable intervals
thereafter during the continuance of Tenant's Changes. If any of Tenant's
Changes shall involve the removal of any fixtures, equipment or other property
in the Demised Premises which, pursuant to the terms of Section 12.01, are to
become Landlord's property at the expiration or sooner termination of the term
of this lease, such fixtures, equipment or other property shall be promptly
replaced, at Tenant's expense, with new fixtures, equipment or other property
(as the case may be) of like utility and substantially equal value unless
Landlord shall otherwise expressly consent in writing (which consent shall not
be unreasonably withheld or delayed) and Tenant shall, upon Landlord's request,
store and preserve, at Tenant's sole cost and expense, any such fixtures,
equipment or property so removed and shall return same to Landlord upon the
expiration or sooner termination of this lease. All electrical and plumbing work
in connection with Tenant's Changes shall be performed by
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contractors or subcontractors reasonably satisfactory to Landlord and licensed
therefor by all governmental agencies having or asserting jurisdiction.
11.03 Tenant, at its expense, shall diligently, procure the
cancellation or discharge of all notices of violation arising from or otherwise
connected with Tenant's Changes which shall be issued by the Department of
Buildings of the Township of Mahwah or any other public or quasi-public
authority having or asserting jurisdiction. Tenant shall defend, indemnify and
save harmless Landlord against any and all mechanic's and other liens filed in
connection with Tenant's Changes, including the liens of any security interest
in, conditional sales of, or chattel mortgages upon, any materials, fixtures or
articles so installed in and constituting part of the Demised Premises and
against all costs, expense and liabilities incurred in connection with any such
Lien, security interest, conditional sale or chattel mortgage or any action or
proceeding brought thereon, Tenant, at its expense, shall procure the
satisfaction or discharge of all such liens by bonding or otherwise within
fifteen (15) days after Landlord makes written demand therefor.
11.04 Tenant agrees that the exercise of its rights pursuant to the
provisions of this Article shall not be done in a manner which would create any
work stoppage, picketing, labor disruption or dispute or violate Landlord's
union contracts affecting the Land and/or Building nor interference with the
business of Landlord or any tenant or occupant of the Building. In the event of
the occurrence of any condition described above arising from the exercise by
Tenant of its right pursuant to the provisions of this Article, Tenant shall,
immediately upon notice from Landlord, cease the manner of exercise of such
right giving rise to such condition. In the event Tenant fails to cease such
manner of exercise of its rights as aforesaid, Landlord, in addition to any
rights available to it under this lease and pursuant to law, shall have the
right to injunction. With respect to Tenant's Changes, Tenant shall make all
arrangements for, and pay all expenses, at rates set by Landlord for the
Building, incurred in connection with the use of the freight elevators servicing
the Demised Premises.
ARTICLE 12
TENANT'S PROPERTY
12.01 All fixtures, equipment, improvements and appurtenances attached
to or built into the Demised Premises at the commencement of or during the term
of this lease, whether or not by or at the expense of Tenant, shall be and
remain a part of the Demised Premises, shall become Landlord's property at the
expiration or sooner termination of the term of this lease and shall not be
removed by Tenant, except as hereinafter in this Article expressly provided.
12.02 Notwithstanding the foregoing to the contrary, all paneling,
movable partitions, lighting fixtures, special cabinet work, other business and
trade fixtures, machinery and equipment, communications equipment and office
equipment, whether or not attached to or built into the Demised Premises, which
are
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installed in the Demised Premises by or for the account of Tenant, without
expense to or contribution from Landlord, and can be removed without damage to
the Building or the Demised Premises that cannot be repaired, and all furniture,
furnishings and other articles of movable personal property owned by Tenant and
located in the Demised Premises, (all of which are sometimes called "Tenant's
Property") shall be and shall remain the property of Tenant and may be removed
by it at any time during the term of this lease; provided that if any of
Tenant's Property is removed, Tenant or any party or person entitled to remove
same shall promptly repair or promptly pay the cost of repairing any damage to
the Demised Premises or to the Building resulting from such removal. Any
equipment or other property, or any portion thereof, for which Landlord shall
have granted any allowance or credit to Tenant or which has replaced such items
originally provided by Landlord at Landlord's expense shall not be deemed to
have been installed by or for the account of Tenant, without expense to
Landlord, and shall not be considered Tenant's Property.
12.03 At or before the Initial Term Expiration Date, or the date of any
earlier termination of this lease, or as promptly as practicable after such an
earlier termination date, but in no event more than fifteen (15) days
thereafter, Tenant at its expense, shall remove from the Demised Premises all of
Tenant's Property except such items thereof as Tenant shall have expressly
agreed in writing with Landlord were to remain and to become the property of
Landlord, and shall fully repair any damage to the Demised Premises or the
Building resulting from such removal. Tenant's obligation herein shall survive
the termination of the lease.
12.04 Any other items of Tenant's Property (except money, securities
and other like valuables) which shall remain in the Demised Premises after the
initial Term Expiration Date or after a period of fifteen (15) days following an
earlier termination date, may, at the option of the Landlord, be deemed to have
been abandoned, and in such case either may be retained by Landlord as its
property or may be disposed of, without accountability, at Tenant's expense in
such manner as Landlord may see fit.
ARTICLE 13
REPAIRS AND MAINTENANCE
13.01 Tenant shall take good care of the Demised Premises and shall, at
its sole cost and, subject to section 9.03 hereof, expense, promptly make all
repairs, ordinary extraordinary, interior or exterior, structural or otherwise,
in and about the Demised Premises and the Building, as shall be required by
reason of (i) the construction of Tenant's Changes, (ii) the installation, use
or operation of Tenant's Property in the Demised Premises, (iii) the moving of
Tenant's Property in or out of the Building, or (iv) the misuse or neglect of
Tenant or any of its employees, agents or contractors; provided that (a) any
structural repairs so required shall be performed by Landlord or by contractors
approved in writing by Landlord, at Landlord's option, at Tenant's sole cost and
expense, and (b) reasonable
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wear and tear shall be excepted. Tenant, at its sole cost and expense, shall
replace all scratched, damaged or broken doors or other glass in or about the
Demised Premises and shall be responsible for all repairs, maintenance and
replacement of wall and floor coverings in the Demised Premises and for the
repair and maintenance of all lighting fixtures therein (reasonable wear and
tear excepted), to the extent resulting from the items specified in subsections
(i) through (iv) above.
13.02 Except as expressly otherwise provided in this lease, Landlord
shall have no liability to Tenant by reason of any inconvenience, annoyance,
interruption or injury to business arising from Landlord's making any repairs or
changes which Landlord is required or permitted by this lease, or required by
law, to make in or to any portion of the Building or the Demised Premises, or
in or to the fixtures, equipment or appurtenances of the Building or the Demised
Premises provided that Landlord shall use due diligence with respect thereto,
shall give Tenant prior notice of the necessity for any such work (except in an
emergency), and shall use its reasonable efforts to minimize any disruption to
Tenant's business (provided, however, that Landlord shall not be required to use
overtime labor).
13.03 Landlord shall keep and maintain the Building and its exterior,
the Building lobby and all common areas, and the Building systems and facilities
servicing the Demised Premises in good working order, condition and repair
consistent with Class-A office buildings and, subject to Section 13.01 and
Article 11, make all structural repairs and replacements as and when needed to
the Demised Premises, except for those repairs and replacements for which Tenant
is responsible pursuant to any other provision of this lease.
ARTICLE 14
ELECTRICITY
14.01 Landlord shall provide electricity to the Demised Premises on a
check metering basis and Tenant shall be responsible for and pay to Landlord all
charges therefor at Landlord's cost therefor plus a reasonable administrative
charge not in excess of 5% or, if Landlord retains a third party to administer
the providing and payment of Tenant's electricity (which Landlord presently
retains), an amount equal to the reasonable out of pocket cost for such
service. Landlord shall not in any way be liable or responsible to Tenant for
any loss or damage or expense which Tenant may sustain or incur if, through no
fault of Landlord, either the quantity or character of electric service is
changed or is no longer available or suitable for Tenant's requirements. Any
additional riser or risers to supply Tenant's electrical requirements, upon
written request to Tenant, will be installed by Landlord, at the sole cost and
expense of Tenant, if, in Landlord's sole judgment, the same are necessary and
will not cause permanent damage or injury to the Building or the Demised
Premises or cause or create a dangerous or hazardous condition or entail
excessive or unreasonable alterations, repairs or expense or interfere with or
disturb other tenants or occupants. In addition to the installation of such
riser or risers, Landlord will also at the sole cost and expense of
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Tenant, install all other equipment proper and necessary in connection therewith
subject to the aforesaid terms and conditions. Tenant covenants and agrees that
at all times its use of electric current shall never exceed the capacity of the
feeders to the Building or the risers or wiring installation. It is further
covenanted and agreed by the Tenant that all the aforesaid costs and expenses
are chargeable and collectible as additional rent and shall be paid by the
Tenant to the Landlord within ten (10) days after the rendering of any bill or
statement to the Tenant therefor. Landlord may discontinue any of the aforesaid
electrical services upon thirty (30) days notice to Tenant (provided Landlord
also discontinues electrical service to all similarly situated tenants in the
Building) without being liable to Tenant therefor or without in any way
affecting this lease or the liability of the Tenant hereunder or causing a
diminution of fixed or additional rent and the same shall not be deemed to be a
lessening or diminution of services within the meaning of any law, rule or
regulation now or hereafter enacted, promulgated or issued provided that an
alternate source of electricity is available to Tenant and Tenant obtains same.
Tenant shall make no alterations or additions to the electric equipment and/or
appliances without the prior written consent of Landlord in each instance.
14.02 Tenant agrees not to connect any additional electrical equipment
of any type to the Building electric distribution system, beyond that on
Tenant's approved plans for initial occupancy, other than lamps, typewriters,
personal computers and other small office machines which consume comparable
amounts of electricity, without Landlord's prior written consent (which consent
may not be unreasonably withheld or delayed) in each instance. In no event shall
Tenant use or install any fixtures, equipment or machines the use of which in
conjunction with other fixtures, equipment and machines in the Demised Premises
would result in an overload of the electrical circuits servicing the Demised
Premises or the Building.
ARTICLE 15
SECURITY DEPOSIT
15.01 Tenant has deposited with Landlord the sum of $60,595.82 either
in cash or by Letter of Credit as provided below, as security for the faithful
performance and observance by Tenant of the terms, provisions, covenants and
conditions of this Lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions, covenants and conditions of this Lease,
including, but not limited to, the payment of fixed rent and additional rent,
Landlord may use, apply or retain the whole or any part of the cash security so
deposited, or may notify the Issuing Bank (as defined below), and thereupon
receive all monies represented by said Letter of Credit to the extent required
for the payment of any fixed rent and additional rent or any other sum as to
which Tenant is in default or for any sum which Landlord may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
provisions, covenants and conditions of this Lease, including but not limited
to, any damages or deficiency accrued before or after summary proceedings or
other re-entry by Landlord. In the event that
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Tenant shall fully and faithfully comply with all of the terms, provisions,
covenants and conditions of this lease, the security shall be returned to
Tenant, or Landlord shall return the original Letter of Credit to Tenant, as the
case may be, after the date fixed as the end of the term of this Lease and after
delivery of entire possession of the Demised Premises to Landlord as provided
hereunder. In the event of a sale of the Land and Building or leasing of the
Building, of which the Demised Premises form a part, Landlord shall have the
right to transfer the cash security or the Letter of Credit, as the case may be,
to the vendee or lessee and Landlord shall thereupon be released by Tenant from
all liability for the return of such cash security or Letter of Credit; and
Tenant agrees to look solely to the new Landlord for the return of said
security; and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the cash security or the Letter of Credit to a
new Landlord. Tenant further covenants that it will not assign or encumber or
attempt to assign or encumber the monies deposited herein as security or the
Letter of Credit and that neither Landlord not its successors or assigns shall
be bound by any such assignment, encumbrance, attempted assignment or attempted
encumbrance. In the event Landlord applies or retains any portion or all of the
cash security deposited, or proceeds of such Letter of Credit, as the case may
be, Tenant shall forthwith restore the amount applied or retained so that at all
times the amount deposited shall be $60,595.82.
15.02 In lieu of a cash deposit, Tenant may deliver to Landlord a
clean, irrevocable and unconditional Letter of Credit issued by and drawn upon
any commercial bank (the "Issuing Bank") that shall be a member of the New York
Clearing House Association or have a net worth in the United States of not less
than $100,000,000.00, and an office where such Letter of Credit can be drawn
upon in New York City or Bergen or Essex Counties, New Jersey, which Letter of
Credit shall have a term of not less than one year, be in form and content
satisfactory to Landlord, be for the account of Landlord and be in the amount of
$60,595.82 Letter of Credit shall provide that:
(a) The Issuing Bank shall pay to Landlord or its duly authorized
representative an amount up to the face amount of the Letter of Credit upon
presentation of the Letter of Credit and a sight draft in the amount to be
drawn;
(b) The Letter of Credit shall be deemed to be automatically
renewed without amendment, for consecutive periods of one (1) year during the
term of this lease, unless the Issuing Bank sends written notice (the
"Non-Renewal" Notice") to Landlord by certified or registered mail, return
receipt requested, not less than thirty (30) days next preceding the then
expiration date of the Letter of credit, that it elects not have such Letter of
Credit renewed;
(c) Landlord, within twenty (20) days after its receipt of the
Non-Renewal Notice, shall have the right, exercisable by a sight draft, to
receive the moneys represented by the Letter of Credit (which moneys shall be
held by Owner as a cash deposit pursuant to the terms of this Article 15 pending
the replacements of such Letter of Credit); and
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(d) Upon Landlord's sale of the Building or a leasing of the
Building, the Letter of Credit shall be transferable by Landlord as provided in
Section 15.01.
ARTICLE 16
LANDLORD'S SERVICES
16.01 Landlord agrees to furnish to the Premises and/or Building at no
additional charge (unless otherwise provided for in this lease and/or to the
extent included in operating Expenses) the following utilities and services: (a)
heating and cooling to the Demised Premises in accordance with Landlord's then
standard for the Building during normal Business Days and Business Hours
(provided that such heating and cooling shall be available during other hours
and on other days upon prior notice and request by Tenant and Tenant pays
Landlord as additional rent on demand the reasonable hourly overtime charge
therefor which Landlord shall from time to time establish); (b) hot and cold
water suitable for drinking, lavatory, toilet and ordinary cleaning purposes;
(c) electricity suitable for general office use of the Demised Premises as
provided, subject to the charges therefor specified in Section 14.01 above; (d)
replacement of lighting tubes, lamp ballast's and bulbs which Tenant, at
Landlord's option, shall purchase from Landlord at Landlord's reasonable actual
out of pocket cost plus overhead and profit not to exceed ten (10%) percent of
the cost of the item in question; (e) extermination and pest control when
necessary which Tenant shall be required to pay (at Landlord's reasonable cost
therefor); (f) janitorial services in and about the Demised Premises, pursuant
to specifications set out in Exhibit E attached hereto and made a part hereof;
(g) security services for the Common Areas of the Building; and (h) if
applicable, elevator and/or escalator service provided, however, that use of the
freight elevator must be scheduled in advance with Landlord's representative.
Additionally, Landlord shall manage, operate and administer the Building.
16.02 Landlord shall maintain the name of Tenant on the Building
directory. In the event Tenant shall require additional or substitute listings
on the Building directory, Landlord shall, to the extent space for such
additional or substitute listing is available (as determined by Landlord, in its
sole discretion) maintain such listings and Tenant shall pay to Landlord an
amount equal to Landlord's standard charge for such listings.
16.03 Landlord reserves the right, without any liability to Tenant, to
stop service of any of the heating, ventilating, air conditioning, electric,
sanitary, elevator or other Building systems serving the Demised Premises, or
the rendition of any of the other services required of Landlord under this
lease, whenever and for so long as may be necessary, by reason of accidents,
emergencies, strikes or the making of repairs or changes which Landlord is
required by this lease or by law to make or in good faith deems necessary, by
reason of difficulty in securing proper supplies of fuel, steam, water,
electricity, labor or supplies, or by reason of any other cause beyond
Landlord's reasonable control.
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16.04 For purposes of this Article 16 and as otherwise applicable under
this lease, unless the context otherwise specifies or requires, the following
terms shall have the meanings herein specified;
(a) "Building" shall mean the building and the land and other real
property in the parcel more particularly described on Exhibit "A" hereto, and
all other improvements on or appurtenances to said parcel. The Building,
together with such land, improvements and appurtenances, has been subjected to
the condominium form of ownership, and now constitutes a portion of the Office
Unit in the Condominium (as hereinafter defined). Unless otherwise indicated,
all references herein to the Building shall be deemed to mean the office Unit
for so long as the Condominium is in existence.
(b) "Business Day" shall mean Monday through Saturday, but
excludes all federal and state holidays, or the days on which the holidays are
designated for observance, including, without limitation: New Year's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
(c) "Business Hours" shall mean 8:00 a.m. through 6:00 p.m.,
Monday through Friday, and 8:00 a.m. through 1:00 p.m., Saturday, on all
Business Days.
(d) "Calendar Year" shall mean any period during the initial term
of this lease or any extended term of this lease, commencing on January 1 and
ending on the next following December 31.
(e) "Common Areas" shall mean all interior and exterior common
areas, including, but not limited to, parking areas, driveways, building signs,
landscaping, paving, sidewalks, hallways, stairways, escalators, elevators,
common entrances, lobbies, restrooms and other similar public areas and access
ways, that are designated by Landlord for the non-exclusive use of the tenants
of the Building,
(f) "Condominium" shall mean the Crossroads Condominium created
pursuant to that certain Master Deed dated as of December 28, 1994 and recorded,
as the same may, from time to time, be amended (the "Master Deed"), which
subjected the Building and an area of approximately 101 acres to the condominium
form of ownership consisting of three (3) condominium units, the Office Unit
(the "Office Unit"), the Hotel Unit, which is part of the same structure as the
office Unit, and the Development unit, an area of approximately 77 acres of
vacant land Landlord presently intends to develop for retail or other purposes,
The Office Unit and the Hotel Unit are located upon the approximately 34 acre
Tower Site portion of the Condominium, as more particularly described in the
Condominium Documents (as hereinafter defined).
(g) "Condominium Documents" shall mean the Master Deed, By-Laws
and Certificate of Incorporation for the Condominium, as the same may, from time
to time, be amended.
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16.05 Landlord shall provide Tenant, at no additional cost, for the
non-exclusive use of Tenant, the Building's parking facilities together with the
other occupants of the Building. In addition, Tenant shall have the exclusive
right to use ten (10) specific parking spaces located in the reserved parking
area of the Building as designated by Landlord. Landlord shall maintain at the
Building at least the minimum number of parking spaces required by applicable
law.
ARTICLE 17
ACCESS, CHANGES in BUILDING FACILITIES, NAME
17.01 All portions of the Building except the inside surfaces of all
walls, windows and doors bounding the Demised Premises (including exterior
Building walls, core corridor walls and doors and any core corridor entrance)
and any space in or adjacent to the Demised Premises used for shafts, stacks,
pipes, conduits, fan rooms, ducts, electric or other utilities, sinks or other
Building facilities, and the use thereof, as well as access thereto through the
Demised Premises for the purpose of operation, maintenance, decoration and
repair, are reserved to Landlord.
17.02 Tenant shall permit Landlord to install, use, replace and
maintain pipes, ducts and conduits within the demising walls, bearing columns
and ceilings of the Demised Premises.
17.03 Landlord or Landlord's agent shall have the right, upon
reasonable advance notice (except in emergency under clause (ii) hereof) to
enter and/or pass through the Demised Premises or any part thereof, at
reasonable times during regular hours, (i) to examine the Demised Premises and
to show them to the fee owners, lessors of superior leases, holders of superior
mortgages, or prospective purchasers, mortgagees or lessees of the Building as
an entirety, and (ii) for the purpose of making such repairs or changes in or to
the Demised Premises or in or its facilities, as may be provided for by this
lease or as may be mutually agreed upon by the parties or as Landlord may be
required to make by law or in order to repair and maintain said structure or its
fixtures or facilities. Tenant shall have the right to have a representative of
Tenant accompany Landlord in its entry into the Demised Premises (except in
emergency situations if a representative of Tenant is not available), and
Landlord shall abide by any of Tenant's reasonable security precautions.
Landlord shall be allowed to take all materials into and upon the Demised
premises that may be required for such repairs, changes, repairing or
maintenance, without liability to Tenant, Landlord shall also have the right to
enter on and/or pass through the Demised Premises, or any part thereof, at such
times as such entry shall be required by circumstances of emergency affecting
the Demised Premises or said structure. Landlord shall exercise its reasonable
efforts to minimize any interference with Tenant's business in the Demised
Premises during any entry therein, but nothing herein contained should be
construed to impose upon Landlord any obligation to employ overtime labor.
17.04 During the period of nine (9) months prior to the Initial Term
Expiration Date Landlord may exhibit the Demised
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Premises to prospective tenants upon prior reasonable notice to Tenant. Tenant
shall have the right to have a representative of Tenant accompany Landlord in
its entry into the Demised Premises.
17.05 Landlord reserves the right, without incurring any liability to
Tenant therefor, to make such changes in or to the Building and the fixtures and
equipment thereof, as well as in or to the street entrances, halls, passages,
elevators, escalators and stairways thereof, as it may deem necessary or
desirable, provided that the same shall not materially adversely affect access
to or use of the Building or the Demised Premises or the elevator service
provided thereto.
17.06 Landlord may adopt any name for the Building and Landlord
reserves the right to change the name or address of the Building at any time
upon prior reasonable notice to Tenant.
17.07 For the purposes of this Article, the term "Landlord". shall
include lessors of leases and the holders of mortgages to which this lease is
subject and subordinate as provided in Article 5.
ARTICLE 18
NOTICE OF ACCIDENTS
18.01 Tenant shall give notice to Landlord, promptly after Tenant
learns thereof, of (i) any accident in or about the Demised Premises for which
Landlord might be liable, (ii) all fires in the Demised Premises, (iii) all
damages to or defects in the Demised Premises, including the fixtures, equipment
and appurtenances thereof, for the repair of which Landlord might be
responsible, and (iv) all damage to or defects in any parts or appurtenances of
the Building's sanitary, electrical, heating, ventilating, air-conditioning,
elevator and other systems located in or passing through the Demised Premises or
any part thereof.
ARTICLE 19
Non-Liability AND INDEMNIFICATION
19.01 Neither Landlord nor any agent or employee of Landlord shall be
liable to Tenant for any injury or damage to Tenant or to any other person or
for any damage to, or loss (by theft or otherwise) of, any property of Tenant or
of any other person, irrespective of the cause of such injury, damage or loss,
unless caused by or due to the negligence of Landlord, its agents, contractors
or employees occurring within the scope of their respective employments, it
being understood that no property, other than such as might normally be brought
upon or kept in the Demised Premises as incident to the reasonable use of the
Demised Premises for the purpose herein permitted, will be brought upon or be
kept in the Demised Premises.
19.02 Tenant shall indemnify and save harmless Landlord and its agents
against and from (a) any and all claims, costs or expenses (including, but not
limited to reasonable counsel fees) (i) arising from (x) the conduct or
operations conducted in the
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Demised Premises or of any business therein, or (y) any work or thing whatsoever
done, or any condition created by Tenant in or about the Demised Premises during
the term of this lease or during the period of time, if any, prior to the Term
Commencement Date that Tenant may have been given access to any portion of the
Demised Premises, or (ii) arising from any negligent or otherwise wrongful act
or omission of Tenant or any of its subtenants or licensees or its or their
employees, agents or contractors, and (b) all costs, expenses and liabilities
incurred in or in connection with each such claim or action or proceeding
brought thereon. In case any action or proceeding be brought against Landlord by
reason of any such claim, Tenant, upon notice from Landlord shall from time to
time, pay all of Landlord's reasonable costs and expenses incurred to resist and
defend such action or proceeding. In no event shall Tenant be obligated to
indemnify and hold Landlord harmless from any damage, liability, cost or
expense, which is determined to have been caused by the negligence, wrongful act
or omission of Landlord or its employees, agents or contractors.
19.03 Except as otherwise expressly provided in this lease, this lease
and the obligations of Tenant hereunder shall be in no wise affected, impaired
or excused because Landlord is unable to fulfill, or is delayed in fulfilling,
any of its obligations under this lease by reason of strike, other labor
trouble, governmental pre-emption or priorities or other controls in connection
with a national other public emergency or shortages of fuel, supplies or labor
resulting therefrom, acts of God or other like cause beyond Landlord's
reasonable control, and Tenant shall have no right of offset against any fixed
rent or additional rent due hereunder for any reason whatsoever.
19.04 Landlord shall indemnify and save harmless Tenant and its agents
against and from (a) any and all claims, costs or expenses (including, but not
limited to reasonable counsel fees) (i) arising from (x) the conduct or
operations conducted in the Common Areas, or (y) any work or thing whatsoever
done, or any condition created in or about the Common Areas, or (ii) arising
from any negligent or otherwise wrongful act or omission of Landlord or any of
its subtenants or licensees or its or their employees, agents or contractors,
and (b) all costs, expenses and liabilities incurred in or in connection with
each such claim or action or proceeding brought thereon. In case any action or
proceeding be brought against Tenant by reason of any such claim, Landlord, upon
notice from Tenant shall from time to time, pay all of Tenant's reasonable costs
and expenses incurred to resist and defend such action or proceeding. In no
event shall Landlord be obligated to indemnify and hold Tenant harmless from any
damage, liability, cost or expense, which is determined to have been caused by
the negligent, wrongful act or omission of Tenant or its employees, agents or
contractors.
ARTICLE 20
DESTRUCTION OR DAMAGE
20.01 If the Building or the Demised Premises shall be partially or
totally damaged or destroyed by fire or other cause, then, whether or not the
damage or destruction shall have re-
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sulted from the fault or neglect of Tenant, or its employees, agents or visitors
(and if this lease shall not have been terminated as in this Article hereinafter
provided), Landlord shall repair the damage and restore and rebuild the
Building and/or the Demised Premises to substantially the same condition as
existed prior to the damage, at its expense, with reasonable dispatch after
notice to it of the damage or destruction; provided, however, that Landlord
shall not be required to repair or replace any of Tenant's Property nor to
restore any of Tenant's initial installations in and to the Demised Premises.
20.02 If the Building or the Demised Premises shall be partially
damaged or partially destroyed by fire or other cause, the rents payable
hereunder shall be abated to the extent that the Demised Premises shall have
been rendered untenantable and for the period from the date of such damage or
destruction to the date the damage shall be repaired or restored. If the Demised
Premises or a major part thereof shall be totally (which shall be deemed to
include substantially totally) damaged or destroyed or rendered completely
(which shall be deemed to include substantially completely) untenantable on
account of fire or other cause, the rents shall abate as of the date of the
damage or destruction and until Landlord shall repair, restore and rebuild the
Building and the Demised Premises, provided, however, that should Tenant
reoccupy a portion of the Demised Premises during the period the restoration
work is taking place and prior to the date that the same are made completely
tenantable, rents allocable to such portion shall be payable by Tenant from the
date of such occupancy.
20.03 If the Building or the Demised Premises shall be totally damaged
or destroyed by fire or other cause, or if the Building shall be damaged or
destroyed by fire or other cause (whether or not the Demised Premises are
damaged or destroyed) as to require a reasonably estimated expenditure of more
than fifty (50%) percent of the full insurable value of the Building immediately
prior to the casualty, then in either such case Landlord may terminate this
lease by giving Tenant notice to such effect within sixty (60) days after the
date of the casualty. In case of any damage or destruction mentioned in this
Section 20.03 Tenant may terminate this lease, by notice to Landlord, if
Landlord has not completed the making of the required repairs and restored and
rebuilt the Building and the Demised Premises within twelve (12) months from the
date of such damage or destruction, or within such period after such date (not
exceeding six (6) months) as shall equal the aggregate period Landlord may have
been delayed in doing so by adjustment of insurance, labor trouble, governmental
controls, act of God, or any other cause beyond Landlord's reasonable control.
Additionally, Landlord shall, as soon as reasonably practicable, obtain an
estimate of the time required to complete the repair or restoration and promptly
notify Tenant of such estimated time. Tenant may terminate this lease, by notice
to Landlord, if the estimated time to complete such repair or restoration
exceeds nine (9) months.
20.04 No damages, compensation or claim shall be payable by Landlord
for inconvenience, loss of business or annoyance arising
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from any repair or restoration of any portion of the Demised Premises or of the
Building pursuant to this Article.
20.05 Notwithstanding any of the foregoing provisions of this Article,
if Landlord or the lessor of any superior lease or the holder of any superior
mortgage shall be unable to collect all of the insurance proceeds (including
rent insurance proceeds) applicable to damage or destruction of the Demised
Premises or the Building by fire or other cause, by reason of Tenant's refusal
or failure to cooperate with Landlord and/or its agents or employees in
connection with the settlement of Landlord's insurance claim (other than any
failure or refusal so to cooperate arising directly out of Tenant's acts or
omissions to act in its capacity, if any, as counsel to Landlord's insurance
carrier) then, without prejudice to any other remedies which may be available
against Tenant, there shall be no abatement of Tenant's rents, but the total
amount of such rents not abated (which would otherwise have been abated) shall
not exceed the amount of the uncollected insurance proceeds.
20.06 Landlord will not carry insurance of any kind on Tenant's
Property and shall not be obligated to repair any damage thereto or replace the
same.
20.07 The provisions of this Article shall be considered an express
agreement governing any case of damage or destruction of the Demised Premises by
fire or other casualty, and any code or statute providing for a contingency in
the absence of an express agreement, and any other law of like import, now or
hereafter in force, shall have no application in such case.
ARTICLE 21
EMINENT DOMAIN
21.01 If the whole of the Building shall be lawfully taken by
condemnation or in any other manner for any public or quasi-public use or
purpose, this lease and the term and estate hereby granted shall forthwith
terminate as of the date of vesting of title in such taking (which date is
hereinafter also referred to as the "date of the taking"), and the fixed rent
and additional rent due hereunder shall be prorated and adjusted as of such
date.
21.02 If only a part of the Building shall be so taken, this lease
shall be unaffected by such taking, except that Tenant may elect to terminate
this lease in the event of a partial taking, only if the remaining area of the
Demised Premises shall not be reasonably sufficient for Tenant to continue
feasible operation of its business. Tenant shall give notice of such election to
Landlord not later than thirty (30) days after (i) notice of such taking is
given by Landlord to Tenant, or (ii) the date of such taking, whichever occurs
sooner. Upon the giving of such notice by Tenant this lease shall terminate on
the date of such taking and the fixed rent and additional rent due hereunder
shall be prorated as of such termination date. Upon such partial taking and this
lease continuing in force as to any part of the Demised Premises, the rents
apportioned to the part taken shall be prorated and adjusted as of the date of
taking and from
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such date the fixed rent for the Demised Premises and additional rent shall be
payable pursuant to Article 4 according to the rentable area remaining.
21.03 Landlord shall be entitled to receive the entire award in any
proceeding with respect to any taking provided for in this Article without
deduction therefrom for any estate vested in Tenant by this lease and Tenant
shall receive no part of such award, except as hereinafter expressly provided in
this Article. Tenant hereby expressly assigns to Landlord all of its right,
title and interest in or to every such award. Notwithstanding anything herein to
the contrary, Tenant may, at its sole cost and expense, make a claim with the
condemning authority for Tenant's moving expenses, the value of Tenant's
fixtures or Tenant's Changes which would not become part of the Building or
property of the Landlord upon the expiration or sooner termination of the term
of this lease, provided however that Landlord's award is not thereby reduced or
otherwise adversely affected.
21.04 If the temporary use or occupancy of all or any part of the
Demised Premises shall be lawfully taken by condemnation or in any other manner
for any public or quasi-public use or purpose during the term of this lease,
Tenant shall be entitled, except as hereinafter set forth, to receive that
portion of the award for such taking which represents compensation for the use
and occupancy of the Demised Premises and, if so awarded, for the taking of
Tenant's Property and for moving expenses, and Landlord shall be entitled to
receive that portion which represents reimbursement for the cost of restoration
of the Demised Premises. This lease shall be and remain unaffected by such
taking and Tenant shall continue responsible for all its obligations hereunder
insofar as such obligations are not affected by such taking and shall continue
to pay in full the fixed rent and additional rent when due provided, however,
that the Tenant shall have the right to terminate this lease if such a temporary
taking continues for more than six (6) months. It the period of temporary use of
occupancy shall extend beyond the Initial Term Expiration Date, that part of the
award which represents compensation for the use or occupancy of the Demised
Premises (of a part thereof) shall be divided between Landlord and Tenant so
that Landlord shall receive so much thereof as represents the period subsequent
to the Initial Term Expiration Date. All moneys received by Landlord as, or as
part of, an award for temporary use and occupancy for the period beyond the date
to which the rents hereunder have been paid by Tenant, but prior to the Initial
Term Expiration Date, shall be received, held and applied by Landlord as a trust
fund for payment of the fixed rent and additional rent due hereunder.
21.05 In the event of any taking of less than the whole of the Building
which does not result in a termination of this lease, or in the event of a
taking for a temporary use of occupancy of all or any part of the Demised
Premises which does not extend beyond the Initial Term Expiration Date,
Landlord, at its expense, and to the extent any award or awards shall be
sufficient for the purpose, shall proceed with reasonable diligence to repair,
alter and restore the remaining parts of the Building and the Demised Premises
to substantially a building standard condition to the extent that the same may
be feasible
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and so as to constitute a complete and tenantable Building and Demised Premises.
21.06 Any dispute which may arise between the parties with respect to
the meaning or application of any of the provisions of this Article shall be
determined by arbitration in the manner provided in Article 34.
ARTICLE 22
EXTENSION OF TERM
22.01 Provided Tenant shall not be in default of any terms or
conditions of this lease (which continues after the expiration of any
applicable grace period after the giving of notice, if any, required hereunder)
on the date the Extension Notice (as hereinafter defined) is given, Tenant shall
have the option (hereinafter called the "Extension Option") to extend this lease
for a term (hereinafter called the "Extended Term") of four (4) years commencing
on the date (hereinafter called the "Extended Term Commencement Date") that is
the day following the Initial Term Expiration Date and, unless sooner terminated
as herein provided, ending on the date (hereinafter called the "Extended Term
Expiration Date") that is the day immediately preceding the fourth (4th)
anniversary of the Extended Term Commencement Date by giving Landlord written
notice (hereinafter called the "Extension Notice") of its intention to do so at
least eight (8) months prior to the Initial Term Expiration Date. If Tenant
shall give the Extension Notice to Landlord within the time and in the manner
hereinabove provided, the Extension Option shall be deemed to be irrevocably
exercised (except as set forth herein) and this lease shall be deemed extended
for the Extended Term upon all of the terms, covenants and conditions provided
for the Initial Term except that:
(a) any terms or conditions of this Lease that are expressly or by
their nature inapplicable to the Extended Term shall not apply during the same;
(b) the fixed rent payable during each year of the Extended Term
shall be an amount equal to ninety-five percent (95%) of the Fair Market Rental
Value (as hereinafter defined), payable in equal monthly installments; and
(c) all reference to the Initial Term Expiration Date shall be
deemed changed to, and shall be deemed to mean, the Extended Term Expiration
Date.
Conversely, if Tenant shall fail to give the Extension Notice to
Landlord within the time and in the manner hereinabove provided, or if any of
the conditions to Tenant's exercise of the Extension Option have not been
satisfied, the Extension Option shall be deemed waived by Tenant and of no force
or effect. Within thirty (30) days after the written request of either Landlord
or Tenant, the parties shall enter into a supplementary agreement in any
reasonable form confirming whether the Extension Option has been exercised in
accordance with this Article.
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22.02 In the event Tenant shall have extended the term of the lease for
the Extended Term within the time and in the manner provided in Section 22.01
above, the "Fair Market Rental Value" of the Demised Premises, shall be
determined as hereinafter provided and calculated as of the day that is four (4)
months prior to the Extended Term Commencement Date on the basis of a new
letting of the Demised Premises on an "as is" basis. The Fair Market Rental
Value shall be determined jointly by Landlord and Tenant not later than the day
(hereinafter called the "Determination Date") that shall be thirty (30) days
following the date the Extension Notice is given. If Landlord and Tenant agree
upon such Fair Market Rental Value, such agreement shall be confirmed in a
writing (hereinafter called a "Rental Agreement") to be executed by Landlord and
Tenant in any reasonable form not later than the Determination Date. In the
event that Landlord and Tenant shall have failed to join in executing a Rental
Agreement on or before the Determination Date, then the Fair Market Rental Value
for each year of the Extended Term shall be determined by arbitration as
follows:
(a) Landlord and Tenant shall each appoint an arbitrator by
written notice given to the other party hereto not later than thirty (30) days
after the Determination Date. If either Landlord or Tenant shall have failed to
appoint an arbitrator within such period of time and, thereafter, shall have
failed to do so by written notice given within a period of five (5) days after
notice by the other party requesting the appointment of such arbitrator, then
such arbitrator shall be appointed by the American Arbitration Association or
its successor (the branch office of which is located in or closest to the
Demised Premises) upon request of either Landlord or Tenant, as the case may be;
(b) the two (2) arbitrators appointed as above provided shall
attempt to reach an agreement as to such Fair Market Rental Value, and, in the
event that they are unable to do so within thirty (30) days after their joint
appointment, they shall appoint a third (3rd) arbitrator by written notice given
to both Landlord and Tenant, and, if they fail to do so by written notice given
within thirty (30) days after their appointment, such third (3rd) arbitrator
shall be appointed as above provided for the appointment of an arbitrator in the
event either party fails to do so;
(c) all of such arbitrators shall be real estate appraisers having
not less than ten (10) years experience in appraising the value of leasehold
interests in real estate similar to the Building located in Bergen County, New
Jersey and whose appraisals are acceptable to savings banks or life insurance
companies doing business in the State of New Jersey; and
(d) the three (3) arbitrators, selected as aforesaid, forthwith
shall convene and render their decision in accordance with the then applicable
rules of the American Arbitration Association or its successor, which decision
shall be strictly limited to a determination of the Fair Market Rental Value,
within thirty (30) days after the appointment of the third (3rd) arbitrator. The
decision of such arbitrators shall be in
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writing, and the vote of the majority of them shall be the decision of all and,
insofar as the same is in compliance with the provisions and conditions of this
Section, shall be binding upon Landlord and Tenant. Duplicate original
counterparts of such decision shall be sent forthwith by the arbitrators by
certified mail, return receipt requested, to both Landlord and Tenant. The
arbitrators, in arriving at their decision, shall be entitled to consider all
testimony and documentary evidence that may be presented at any hearing, as well
as facts and data that the arbitrators may discover by investigation and inquiry
outside of such hearings. If, for any reason whatsoever, a written decision of
the arbitrators shall not be rendered within thirty (30) days after the
appointment of the third (3rd) arbitrator, then, at any time thereafter before
such decision shall have been rendered, either party may apply to a court of law
sitting in Bergen County and having jurisdiction by action, proceeding, or
otherwise (but not by a new arbitration proceeding), as may be proper to
determine the question in dispute consistently with the provisions of this
Lease. The cost and expense of such arbitration, action, proceeding, or
otherwise shall be borne equally by Landlord and Tenant, but Landlord and Tenant
shall each pay their own attorneys' fees and disbursements.
Notwithstanding anything to the contrary contained in this Article, the fixed
rent payable during any year of the Extended Term shall in no event be less than
the fixed rent payable during the last year of the Initial Term; provided
however that in the event that the Fair Market Rental Value is determined to be
less than the fixed rent payable during the last year of the Initial Term,
Tenant shall have the right, within ten (10) days after such determination is
made, time being of the essence, to revoke its election to extend the term of
the Lease.
ARTICLE 23
INTENTIONALLY OMITTED.
ARTICLE 24
SURRENDER
24.01 On the last day of the term of this lease, or upon any earlier
termination of this lease as provided hereunder or upon any re-entry by Landlord
upon the Demised Premises, Tenant shall quit and surrender the Demised Premises
to Landlord in good order, condition and repair, except for ordinary wear and
tear and damage from casualty, and Tenant shall remove all of Tenant's Property
therefrom except as otherwise expressly provided in this lease and shall restore
the Demised Premises wherever such removal results in damage thereto.
24.02 In the event Tenant remains in possession of the Demised
Premises, after the Initial Term Expiration Date or the date of sooner
termination of this lease, Tenant, at the option of Landlord, shall be deemed to
be occupying the Demised Premises as a holdover tenant from month-to-month, at a
monthly rent equal to (i) 150% of the monthly installment of fixed rent payable
during the last month of the term of this lease, plus (ii) one-twelfth (1/12th)
of the additional rent payable during the
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last year of the term of this lease, subject to all of the other terms and
obligations of this lease insofar as the same are applicable to a month-to-month
tenancy.
ARTICLE 25
CONDITIONS OF LIMITATION
25.01 To the extent permitted by applicable law, this lease, and the
term and estate hereby granted, are subject to the limitation that, whenever
Tenant shall be unable to pay its debts generally as they become due, or shall
make an assignment of the property of Tenant for the benefit of creditors, or
shall consent to, or acquiesce in, the appointment of a liquidator receiver,
trustee, or other custodian of itself or the whole or any part of its properties
or assets, or shall commence a voluntary case for relief under the United States
Bankruptcy Code or file a petition or take advantage of any bankruptcy or
insolvency act or applicable law of like import, or whenever an involuntary case
under the United States Bankruptcy Code shall be commenced against Tenant, or if
a petition shall be filed against it seeking similar relief under any bankruptcy
or insolvency or other applicable law of like import, or whenever a receiver,
liquidator, trustee, or other custodian of Tenant, or of, or for, substantially
all of the property of, Tenant shall be appointed without Tenant's consent or
acquiescence, then, Landlord (a) at any time after receipt of notice of the
occurrence of any such event, or (b) if such event occurs without the
acquiescence of Tenant, at any time after the event continues for one hundred
twenty (120) days, may give Tenant a notice of intention to end the term of this
lease at the expiration of five (5) days from the date of service of such notice
of intention, and, upon the expiration of said five (5) day period, this lease
and the term and estate hereby granted, whether or not the term shall
theretofore have commenced, shall terminate with the same effect as if that day
were the initial Term Expiration Date, but Tenant shall remain liable for
damages as provided in Article 27. As used in this Section 25.01, the term
"Tenant" shall mean the then owner and holder of the interest and estate of the
tenant under this lease.
25.02 This lease and the term and estate granted are subject to the
further limitation that:
(a) whenever Tenant shall default in the payment of any
installment of fixed rent, or in the payment of any additional rent or any other
charge payable by Tenant to Landlord, on any day upon which the same ought to be
paid, and such default shall continue for five (5) days after written notice
from Landlord, or
(b) whenever Tenant shall do or permit anything to be done,
whether by action or inaction, contrary to any of Tenant's obligations
hereunder, and if such situation shall continue and shall not be remedied by
Tenant within fifteen (15) days after Landlord shall have given to Tenant a
notice specifying the same, or in the case of a happening or default which
cannot with due diligence be cured within a period of fifteen (15) days and the
continuance of which for the period required for cure will not subject Landlord
to the risk of criminal liability (as more
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particularly described in Section 8.02) or termination of any superior lease or
foreclosure of any superior mortgage, if Tenant shall not, (i) within said
fifteen (15) day period advise Landlord of Tenant's intention to duly institute
all steps necessary to remedy such situation, (ii) duly institute within said
fifteen (15) day period, and thereafter diligently prosecute to completion all
steps necessary to remedy the same and (iii) complete such remedy within such
time after the date of the giving of said notice of Landlord as shall reasonably
be necessary, or
(c) whenever any event shall occur or any contingency shall arise
whereby this lease or the estate hereby granted or the unexpired balance of the
term hereof would, by operation of law or otherwise, devolve upon or pass to any
person, firm or corporation other than Tenant, except as expressly permitted by
Article 7, or
then in any of said cases set forth in the foregoing Subsections (a), (b), and
(c) Landlord may give to Tenant a notice of intention to end the term of this
lease at the expiration of five (5) days from the date of the service of such
notice of intention, and upon the expiration of said five (5) days this lease
and the term and estate hereby granted, whether or not the term shall
theretofore have commenced, shall terminate with the same effect as if that day
were the Initial Term Expiration Date, but Tenant shall remain liable for
damages as provided in Article 27.
ARTICLE 26
RE-ENTRY BY LANDLORD
26.01 If Tenant shall default in the payment of any installment of
fixed rent, or of any additional rent, on any date upon which the same is to be
paid, and if such default shall continue for five (5) days after Landlord shall
have given to Tenant a notice specifying such default, or if this lease shall
expire as in Article 25 provided, Landlord or Landlord's agents and employees
may immediately or at any time thereafter in accordance with all applicable laws
re-enter the Demised Premises, or any part thereof, either by summary dispossess
proceedings or by any suitable action or proceeding at law, or by force or
otherwise, without being liable to indictment, prosecution or damages therefor,
any may repossess the same, any may remove any persons therefrom, to the end
that Landlord may have, hold and enjoy the Demised Premises again as and of its
first estate and interest therein. The word re-enter, as herein used, is not
restricted to its technical legal meaning. In the event of any termination of
this lease under the provisions at Article 25 or if Landlord shall re-enter the
Demised Premises under the provisions of this Article or in the event of the
termination of this lease, or of re-entry, by or under any summary dispossess or
other proceeding or action or any provision of law by reason of default
hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord the
fixed rent and additional rent payable by Tenant to Landlord up to the time of
such termination of this lease, or of such recovery of possession of the Demised
Premises by Landlord, as
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the case may be, and shall also pay to Landlord damages as provided in Article
27.
26.02 In the event of a breach or threatened breach by Tenant of any of
its obligations under this lease, Landlord shall also have the right of
injunction. The special remedies to which Landlord way resort hereunder are
cumulative and are not intended to be exclusive of any other remedies or means
of redress to which Landlord may lawfully be entitled at any time and Landlord
may invoke any remedy allowed at law or in equity as if specific remedies were
not provided for herein.
26.03 If this lease shall terminate under the provisions of Article 25,
or if Landlord shall re-enter the Demised Premises under the provisions of this
Article, or in the event of the termination of this lease, or of re-entry, by or
under any summary dispossess or other proceeding of action or any provision of
law by reason of default hereunder on the part of Tenant, Landlord shall be
entitled to retain all moneys, if any, paid by Tenant to Landlord, whether as
advance fixed rent or additional rent, security or otherwise, but such moneys
shall be credited by Landlord against any fixed rent or additional rent due from
Tenant at the time of such termination or re-entry or, at Landlord's option,
against any damages payable by Tenant under Article 27 or pursuant to law.
ARTICLE 27
DAMAGES
27.01 If this lease is terminated under the provisions of Article 25,
or if Landlord shall re-enter the Demised Premises under the provisions of
Article 26, or in the event of the termination of this lease, or of re-entry, by
or under any summary dispossess or other proceeding or action or any provision
of law by reason of default hereunder on the part of Tenant, Tenant shall pay to
Landlord as damages, at the election of Landlord, either:
(a) a sum which at the time of such termination of this lease or
at the time of any such re-entry of Landlord, as the case may be, represents the
present value (discounted to the then prime rate) of the excess, if any, of
(1) the aggregate of the fixed rent and the additional rent
payable hereunder which would have been payable by Tenant (conclusively
presuming the additional rent to be the same as was payable for the year
immediately preceding such termination) for the period commencing with such
earlier termination of this lease or the date of any such re-entry, as the case
may be, and ending with the Initial Term Expiration Date, had this lease not so
terminated or had Landlord not so re-entered the Demised Premises, over
(2) the aggregate rental value of the Demised Premises for the
same period, or
(b) sums equal to the fixed rent and the additional rent (as above
presumed) payable hereunder which would have been
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payable by Tenant had this lease not so terminated or had Landlord not so
re-entered the Demised Premises, payable upon the due dates therefor specified
herein following such termination or such re-entry and until the Initial Term
Expiration Date, provided, however, that if Landlord shall relet the Demised
Premises during said period, Landlord shall credit Tenant with the net rents
received by Landlord from such reletting such net rents to be determined by
first deducting from the gross rents as and when received by Landlord from such
reletting any and all expenses incurred or paid by Landlord in terminating this
lease or in re-entering the Demised Premises and in securing possession thereof,
as well as the expenses of reletting allocable to the balance of the Initial
Term, including altering and preparing the Demised Premises for new tenants,
brokers' commissions, counsel fees and all other expenses properly chargeable
against the Demised Premises and the rental therefrom; it being understood that
any such reletting may be for a period shorter or longer than the remaining term
of this lease; but in no event shall Tenant be entitled to receive any excess of
such net rents over the sums payable by Tenant to Landlord hereunder, nor shall
Tenant be entitled in any suit for the collection of damages pursuant to this
Subsection to a credit in respect of any net rents from a reletting, except to
the extent that such net rents are actually received by Landlord. If the Demised
Premises or any part thereof should be relet in combination with other space,
then proper apportionment on a square foot basis (for equivalent space) shall be
made of the rent received from such reletting and of the expenses of reletting.
If the Demised Premises or any part thereof be relet by Landlord for the
unexpired portion of the term of this lease, or any part thereof, before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent reserved upon such releting shall, prima facie, be the fair and
reasonable rental value for the Demised Premises, or part thereof, so relet
during the term of the reletting.
27.02 Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the term of this lease would have expired if
it had not been so terminated under the provisions of Article 25, or under any
provision of law, or had Landlord not re-entered the Demised Premises. Nothing
herein contained shall be construed to limit or preclude recovery by Landlord
against Tenant of any sums or damages to which, in addition to the damages
particularly provided above, Landlord may lawfully be entitled by reason of any
default hereunder on the part of Tenant. Nothing herein contained shall be
construed to limit or prejudice the right of Landlord to prove for and obtain as
liquidated damages by reason of the termination of this lease or re-entry on the
Demised Premises for the default of Tenant under this lease, an amount equal to
the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved whether or
not such amount be greater, equal to, or less than any of the sums referred to
in Section 27.01 and/or Section 27.02.
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ARTICLE 28
WAIVERS
28.01 Tenant, for Tenant, and on behalf of any and all persons
claiming through or under Tenant, including creditors of all kinds, does hereby
waive and surrender all right and privilege which they or any of them might
have under or by reason of any present or future law, to redeem the Demised
Premises or to have a continuance of this lease for the term hereby demised
after being dispossessed or ejected therefrom by process of law or under the
terms of this lease or after the termination of this lease as herein provided.
28.02 In the event that Tenant is in arrears in payment of fixed rent
or additional rent hereunder, Tenant waives Tenant's right, if any, to
designate the items against which any payments made by Tenant are to be
credited, and Tenant agrees that Landlord may apply any payments made by Tenant
to any items it sees fit, irrespective of any notwithstanding any designation
or request by Tenant as to the items against which any such payments shall be
credited.
28.03 Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought either against the other on any matter
whatsoever arising out of or in any way connected with this lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Demised
Premises, including any claim of injury or damage, or any emergency or other
statutory remedy with respect thereto.
28.04 The provisions of Article 13 and 16 shall be considered express
agreements governing the services to be furnished by Landlord, and Tenant agrees
that any laws and/or requirements of public authorities, now or hereafter in
force, shall have no application in connection with any enlargement of
Landlord's obligations with respect to such services unless Tenant agrees, in
writing, to pay to Landlord, as additional rent, Landlord's reasonable charges
for any additional services provided.
ARTICLE 29
NO OTHER WAIVER OR MODIFICATIONS
29.01 The failure of either party to insist in any one or more
instances upon the strict performance of any one or more of the obligations of
this lease, or to exercise any election herein contained, shall not be construed
as a waiver or relinquishment for the future of the performance of such one or
more obligations of this lease or of the right to exercise such election, but
the same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission. No executory agreement hereafter made
between Landlord and Tenant shall be effective to change, modify, waive,
release, discharge, terminate or effect an abandonment of this lease, in whole
or in part, unless such executory agreement is in writing, refers expressly to
this lease and is signed by the party against whom enforcement
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of the change, modification, termination or effectuation of the abandonment is
sought.
29.02 The following specific provisions of this Section 29.02 shall not
be deemed to limit the generality of any of the foregoing provisions of this
Article:
(a) No agreement to accept surrender of all or any part of the
Demised Premises shall be valid unless in writing and signed by Landlord. The
delivery of keys to an employee of Landlord or of its agent shall not operate as
a termination of this lease or a surrender of the Demised Premises. If Tenant
shall at any time request Landlord to sublet the Demised Premises for Tenant's
account, Landlord or its agents is authorized to receive said keys for such
purposes without releasing Tenant from any of its obligations under this lease,
and Tenant hereby releases Landlord from any liability for loss or damage to any
of Tenant's property in connection with such subletting.
(b) The receipt by Landlord of rent with knowledge of breach of
any obligation of this lease shall not be deemed a waiver of such breach.
(c) No payment by Tenant or receipt by Landlord of a lesser amount
than the correct fixed rent or additional rent due hereunder shall be deemed to
be other than a payment on account, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment without prejudice to
Landlord's right to recover the balance or pursue any other remedy in this lease
or at law provided.
ARTICLE 30
CURING TENANT'S DEFAULTS, ADDITIONAL RENT
30.01 (a) If Tenant shall default in the performance of any of Tenant's
obligations under this lease, Landlord, without thereby waiving such default,
may (but shall not be obligated to) perform the same for the account and at the
expense of Tenant, without notice, in a case of emergency, and in any other
case, only if such default continues after the expiration of (i) three (3)
business days from the date Landlord gives Tenant notice of intention so to
do, or (ii) the applicable grace period provided in Section 25.02 or elsewhere
in this lease for cure of such default, whichever occurs later.
(b) If Tenant is late in making any payment due to Landlord under
this lease for five (5) or more days, their interest shall become due and owing
to Landlord on such payment from the date when it was due computed at the
maximum lawful rate of interest.
30.02 Bills for any expenses incurred by Landlord in connection with
any such performance by it for the account of Tenant, and bills for all costs,
expenses and disbursements of every kind and nature whatsoever, including
reasonable counsel fees, involved in collecting or endeavoring to collect the
fixed rent or additional rent or any part thereof or enforcing or en-
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deavoring to enforce any rights against Tenant, under or in connection with this
lease, or pursuant to law, including any such cost, expense and disbursement
involved in instituting and prosecuting summary proceedings, as well as bills
for any property, material, labor or services provided, furnished, or rendered
by Landlord or at its instance to Tenant, may be sent by Landlord to Tenant
monthly, or immediately, at Landlord's option, and shall be due and payable in
accordance with the terms of such bills.
ARTICLE 31
BROKER
31.01 Tenant and Landlord covenant, warrant and represent to each other
that they have had no negotiations or other dealings with any broker or finder
concerning the renting of the Demised Premises except for The Garibaldi Group
(the "Broker"). Landlord and Tenant agree to indemnify and hold the other
harmless against any claims for a brokerage commission arising out of any breach
of the foregoing covenant, warranty and representation. Landlord shall pay the
brokerage commission due the Broker pursuant to the terms of a separate
agreement.
ARTICLE 32
NOTICES
32.01 Any notice, statement, demand or other communication required or
permitted to be given, rendered or made by either party to the other, pursuant
to this lease or pursuant to any applicable law or requirement of public
authority, shall be in writing (whether or not so stated elsewhere in this
lease) and shall be deemed to have been properly given, rendered or made, if
personally delivered or sent by registered or certified mail, return receipt
requested, or by reputable overnight courier (such as Federal Express),
addressed to the other party at the address hereinabove set forth, with a copy
of any notice to Landlord to be given simultaneously by like means to Pryor,
Cashman, Sherman & Flynn, 410 Park Avenue, New York, New York 10022, Attention:
Wayne B. Heicklen, Esq., and a copy of any notice to Tenant to be given
simultaneously by like means to Wilson, Sonsini, Goodrich & Rosati, 650 Page
Mill Road, Palo Alto, California 94304-1050, Attention: Real Estate Department,
Lauren Boro, Esq.; and shall be deemed to have been given, rendered or made on
the day same is received or, if rejected, the day the same is rejected. Either
party may, by notice as aforesaid, designate a different address or addresses
for notices, statements, demand or other communications intended for it.
ARTICLE 33
ESTOPPEL CERTIFICATE, MEMORANDUM
33.01 Each party agrees, at any time and from time to time, as
requested by the other party, upon not less than ten (10) days' prior notice, to
execute and deliver to the other a statement certifying (a) that this lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
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modifications) and whether any options granted to Tenant pursuant to the
provisions of this lease have been exercised, (b) certifying the dates to which
the fixed rent and additional rent certifying the dates to which the fixed rent
an have been paid and the amounts thereof, and stating whether or not, to the
best knowledge of the signer, the other party is in default in performance of
any of its obligations under this lease, and, if so, specifying each such
default of which the signer may have knowledge, it being intended that any such
statement delivered pursuant hereto may be relied upon by others with whom the
party requesting such certificate may be dealing.
ARTICLE 34
ARBITRATION
34.01 Either party may request arbitration of any matter in dispute
only wherein arbitration is expressly provided in this lease as the appropriate
remedy. The party requesting arbitration shall do so by giving notice to that
effect to the other party, and both parties shall promptly thereafter jointly
apply to the American Arbitration Association (or any organization successor
thereto) in the City and County in which the Building is located for the
appointment of a single arbitrator.
34.02 The arbitration shall be conducted in accordance with the then
prevailing rules of the American Arbitration Association (or any organization
successor thereto) in the City and County in which the Building is located. In
rendering such decision and award, the arbitrator shall not add to, subtract
from or otherwise modify the provisions of this lease.
34.03 If for any reason whatsoever a written decision and award of the
arbitrator shall not be rendered within sixty (60) days after the appointment of
such arbitrator, then at any time thereafter before such decision and award
shall have been rendered either party may apply to the Superior Court of the
State of New Jersey or to any other court having jurisdiction and exercising the
functions similar to those now exercised by such court, by action, proceeding or
otherwise (but not by a new arbitration proceeding) as may be proper to
determine the question in dispute consistently with the provisions of this
lease.
34.04 All the expenses of the arbitration shall be borne by the parties
equally.
ARTICLE 35
NO OTHER REPRESENTATIONS,
CONSTRUCTION, GOVERNING LAW, CONSENTS
35.01 Tenant expressly acknowledges and agrees that Landlord has not
made and is not making, and Tenant, in executing and delivering this lease, is
not relying upon, any warranties, representations, promises or statements except
to the extent that the same are expressly set forth in this lease or in any
other written agreement which may be made between the parties concurrently with
the execution and delivery of this lease and
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shall expressly refer to this lease. This lease and said other written
agreement(s) made concurrently herewith are hereinafter referred to as the
"lease documents". It is understood and agreed that all understandings and
agreements heretofore had between the parties are merged in the lease documents,
which alone fully and completely express their agreements and that the same are
entered into after full investigation, neither party relying upon any statement
or representation not embodied in the lease documents, made by the other.
35.02 If any of the provisions of this lease, or the application
thereof to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this lease, or the application of such provision
or provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby, and every
provision of this lease shall be valid and enforceable to the fullest extent
permitted by law.
35.03 This lease shall be governed by and construed in accordance with
the laws of the State of New Jersey.
35.04 Wherever in this lease Landlord's consent or approval is
required, if Landlord shall refuse such consent or approval, Tenant in no event
shall be entitled to make, nor shall Tenant make, any claim, and Tenant hereby
waives any claim, for money damages (nor shall Tenant claim any money damages by
way of set-off, counterclaim or defense) based upon any claim or assertion by
Tenant that Landlord unreasonably withheld or unreasonably delayed its consent
or approval provided, however, the foregoing limitation shall not apply with
respect to any claim that Landlord has unreasonably withheld or delayed its
consent to an assignment or subletting proposed by Tenant. Except as provided
above, Tenant's sole remedy shall be an action or proceeding to enforce any such
provision, for specific performance, injunction or declaratory judgment.
ARTICLE 36
PARTIES BOUND
36.01 The obligations of this lease shall bind and benefit the
successors and assigns of the parties with the same effect as if mentioned in
each instance where a party is named or referred to, except that no violation of
the provisions of Article 7 shall operate to vest any rights in any successor or
assignee of Tenant and that the provisions of this Article shall not be
construed as modifying the conditions of imitation contained in Article 25.
However, the obligations of Landlord under this lease shall not be binding upon
Landlord herein named with respect to any period subsequent to the transfer of
its interest in the Building as owner or lessee thereof and in event of such
transfer said obligations shall thereafter be binding upon each transferee of
the interest of Landlord herein named as such owner or lessee of the Building,
but only with respect to the period ending with a subsequent transfer within the
meaning of this Article.
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36.02 If Landlord shall be an individual, joint venture, tenancy in
common, co-partnership, unincorporated association, or other unincorporated
aggregate of individuals and/or entities or a corporation, Tenant shall look
only to such Landlord's estate and property in the Building (or the proceeds
thereof) and, where expressly so provided in this lease, for the satisfaction of
Tenant's remedies for the collection of a judgment (or other judicial process)
requiring the payment of money by Landlord in the event of any default by
Landlord hereunder, and no other property or assets of such Landlord or any
partner, member, officer or director thereof, disclosed or undisclosed shall be
subject to levy, execution or other enforcement procedure for the satisfaction
of Tenant's remedies under or with respect to this lease, the relationship of
Landlord and Tenant hereunder or Tenant's use or occupancy of the Demised
Premises.
ARTICLE 37
CERTAIN DEFINITIONS AND CONSTRUCTION
37.01 For the purposes of this lease and all agreements supplemental to
this lease, unless the context otherwise requires the definitions set forth in
Exhibit D annexed hereto and made a part hereof shall be utilized.
37.02 The various terms which are italicized and defined in other
Articles of this lease or are defined in Exhibits annexed hereto, shall have the
meanings specified in such other Articles and such Exhibits for ALL purposes of
this lease and all agreements supplemental thereto, unless the context shall
otherwise require.
ARTICLE 38
REFUSAL RIGHT
38.01 Provided Tenant shall not be in default of any terms or
conditions of this lease (which continues after the expiration of any applicable
grace period after the giving of notice, it any, required hereunder) on the date
the Acceptance Notice (as such term is hereinafter defined) is given, Tenant
shall have the right of first refusal (hereinafter called the "Refusal Right")
with respect to the leasing of any remaining and unlet space on the third (3rd)
floor of the Building or in the space occupied by Barbara Ostrom an the
mezzanine (2nd) floor of the Building (hereinafter called the "Additional
Location") subject, however, to any similar rights granted to any other tenants
of the Building prior to the date hereof. The Refusal Right shall be exercisable
in accordance with, and shall be subject to and governed by, the terms,
covenants and conditions contained in this Article 38. In the event that
Landlord shall receive a bona fide third party offer (which need not be a lease,
but which must be binding upon the parties thereto) (hereinafter called a "Third
Party Offer") to lease the Additional Location or any portion thereof, which
Third Party offer Landlord desires to accept, Landlord shall send written notice
(hereinafter called the "Offer Notice") to Tenant to such effect. The Offer
Notice shall specify the material terms and conditions of the Third Party offer
including, without limitation, the rent payable
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thereunder, a description of the Additional Location, the term of the proposed
letting (the "Additional Location Term") , and the commencement date of the
Additional Location Term (the "Additional Location Term Commencement Date")
Following its receipt of the Offer Notice, Tenant may exercise its Refusal Right
with respect to the portion of the Additional Location described in the Offer
Notice, if at all, upon, and subject to, the following terms and conditions:
(a) Tenant shall send Landlord written notice (hereinafter called
the "Acceptance Notice") within ten (10) days after the Offer Notice has been
given that Tenant desires to exercise the Refusal Right with respect to the
Additional Location described in the Offer Notice in accordance with the terms
and conditions set forth therein; and
(b) Tenant shall not be in breach or default of any terms,
covenants or conditions of this lease on the Tenant's part to be observed or
performed (beyond any period granted Tenant to cure any such breach or default)
on the date the Acceptance Notice is given.
If Tenant shall give the Acceptance Notice to Landlord within the time and in
the manner hereinabove provided, the Refusal Right shall be deemed to be
irrevocably exercised by Tenant and the terms and conditions of Section 38.02
below shall apply. Conversely, if Tenant shall fail to give the Acceptance
Notice to Landlord within the time and in the manner hereinabove provided for,
or if any of the conditions to Tenant's exercise of the Refusal Right have not
been satisfied, the Refusal Right shall be deemed waived by Tenant and of no
force or effect with respect to the Additional Location, and Landlord shall
thereafter be free to lease the Additional Location, and/or any portion thereof,
to any third party without any liability to Tenant and without the necessity of
complying with the terms and conditions of this Article 38. Notwithstanding the
foregoing, Landlord shall be obligated to re-offer the Additional Location to
Tenant in the event that either (a) Landlord has not consummated a lease with
the party making the Third Party offer within one-hundred and twenty (120) days
of the Offer Notice; or (b) Landlord intends to lease the Additional Location on
materially more favorable terms than the terms set forth in the Offer Notice. In
either such event, Landlord shall notify Tenant in writing of any new material
terms and conditions and Tenant may exercise its Refusal Right upon and subject
to the conditions set forth in subparagraphs (a) and (b) above.
38.02 If Tenant shall give the Acceptance Notice to Landlord in
accordance with the terms and conditions set forth above, then the parties
shall, within twenty (20) days after the Acceptance Notice is given, enter into
a new lease (the "New Lease") to be prepared by Landlord, containing all of the
material terms and condition of the Offer Notice (including, without limitation,
the fixed rent payable) and, to the extent the same are not superseded or
modified by the terms and conditions contained in the Offer Notice,
substantially the same terms and conditions that are set forth in this lease.
The Additional Location Term shall commence on the Additional Location
Commencement Date and expire on the expiration date set
54
<PAGE> 58
forth in the Offer Notice. Within ten (10) days after the written request of
either the Landlord or Tenant, the parties shall enter into a supplementary
agreement in any, reasonable form confirming whether the Refusal Right has been
exercised in accordance with this Article and the terms and conditions thereof.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this lease
as of the day and year first above written.
CROSSROADS DEVELOPERS ASSOCIATES,
LLC, Landlord
By: Pinnacle Crossroads Associates,
Managing Member
By:
-------------------------------------
Its
NOVADIGM, INC., Tenant
By: /s/ Thomas V. Harmon
-------------------------------------
Its; VP-Operations
55
<PAGE> 59
EXHIBIT A
DESCRIPTION
All the real property located in the Township of Mahwah, County of Bergen, State
of New Jersey and more particularly described as follows:
Being known and designated as the Office Unit situate in "Crossroads
Condominium", together with a 50.00 percentage interest in the general Common
Elements of said Condominium appurtenant thereto, and a 50.00 percentage
interest in the Tower Site Common Elements of said Condominium appurtenant
thereto, in accordance with and subject to the terms, limitations, conditions,
covenants, restrictions, easements, agreements and other provisions set forth in
that certain Master Deed for "Crossroads Condominium" dated December 28, 1994,
recorded January 23, 1995, recorded in Book 7763, Page 001.
NOTE FOR INFORMATION ONLY: Being known and designated as part of Lot 2, Block 26
on the Tax Map of the Township of Mahwah.
<PAGE> 60
EXHIBIT C
RULES AND REGULATIONS
1. Tenant shall not obstruct or permit its employees, agents, servants,
invitees or licensees to obstruct, in any way, stairways, the sidewalks, entry
passages, corridors, halls, stairways, escalators or elevators of the Building,
or use the same in any way other than as a means of passage to and from the
Demised Premises Building; bring in, store, test or use any materials in the
Building which could cause a fire or any explosion or produce any fumes or
vapor; make or permit any improper noises in the Building; smoke in any
elevator; throw substances of any kind out of windows or doors, or down the
passages of the Building, or in the halls or passageways; sit on or place
anything upon the window sills; or clean the windows.
2. Waterclosets and urinals shall not be used for any purpose other
than those for which they were constructed, and no sweepings, rubbish, ashes,
newspaper or any other substances of any kind shall be thrown into them. Waste
and excessive or unusual use of electricity or water is prohibited.
3. The windows, doors, partitions and lights that reflect or admit
light into the halls, or other places of the Building shall not be obstructed.
NO SIGNS, ADVERTISEMENTS OR NOTICES SHALL BE INSCRIBED, PAINTED, AFFIXED OR
DISPLAYED IN, ON, UPON OR BEHIND ANY WINDOWS, except as may be required by law
or consented to in writing by Landlord; and no sign, advertisement or notice
shall be inscribed in writing by Landlord; and no sign, advertisement or notice
shall be inscribed, printed or affixed on any doors, partitions or other part of
the inside of the Building, without the prior written consent of the Landlord,
not to be unreasonably withheld or delayed.
4. No contract of any kind with any supplier of towels, water, ice,
toilet articles, waxing, rug shampooing, venetian blind washing, furniture
polishing, lamp servicing, cleaning of electrical fixtures, removal of waste
paper, rubbish or garbage, or other like service shall be entered into by
Tenant, nor shall any vending machine of any kind be installed in the Building,
without the prior written consent of Landlord.
5. When electric wiring of any kind is introduced, it must be connected
as directed by Landlord, and no stringing or cutting of wires will be allowed,
except with the prior written consent of Landlord, not to be unreasonably
withheld or delayed, and shall be done only by contractors reasonably approved
by Landlord.
6. Landlord shall have the right to reasonably prescribe the weight,
size and position of all safes and other bulky or heavy equipment and all
freight brought into the Building by any tenant and the time of moving the same
in and out of the Building. All such moving shall be done under the supervision
of Landlord. Landlord will not be responsible for loss of or damage to any such
equipment or freight from any cause; but all damage done to the Building by
moving or maintaining any such equipment
<PAGE> 61
or freight shall be repaired at the expense of Tenant. All safes shall stand on
a base of such size as shall be reasonably designated by Landlord. Landlord
reserves the right to inspect all freight to be brought into the Building and to
exclude from the Building all freight which violates any of these Rules and
Regulations or the Lease of which these Rules and Regulations are a part.
7. No machinery of any kind or articles of unusual weight or size will
be allowed in the Building, without the prior written consent of Landlord, not
to be unreasonably withheld or delayed. Business machines and mechanical
equipment shall be placed and maintained by Tenant, at Tenant's expense, in
settings sufficient, in Landlord's reasonable judgment, to absorb and prevent
vibration, noise and annoyance to other tenants.
8. No additional or different lock or locks shall be placed by Tenant
on any door to the Demised Premises, without the prior written consent of
Landlord which shall not be unreasonably withheld. One (1) set of keys will
initially be furnished to Tenant by Landlord for each lockset in the Demised
Premises; any additional keys requested by Tenant shall be paid for by Tenant.
Tenant, its agents and employees, shall not have any duplicate key made. All
keys to doors and washrooms shall be returned to Landlord on or before the
Initial Term Expiration Date, and, in the event of a loss of any keys furnished,
Tenant shall pay Landlord the cost thereof.
9. Tenant shall not employ any person or persons for the purpose of
cleaning the Demised Premises, without the prior written consent of Landlord,
not to be unreasonably withheld or delayed. Landlord shall not be responsible to
Tenant for any loss of property from the Demised Premises however occurring, or
for any damage done to the effects of Tenant by such janitors or any of its
employees or by any other person or any other cause.
10. No bicycles, vehicles or animals of any kind shall be brought into
or kept in or about the Demised Premises.
11. The requirements of Tenant will be attended to only upon
application at the office of Landlord. Employees of Landlord shall not perform
any work for Tenant or do anything outside of their regular duties, unless under
special instructions from Landlord.
12. The Demised Premises shall not be used for lodging or sleeping
purposes, and cooking therein is prohibited. Notwithstanding the foregoing,
Tenant shall be permitted to install a microwave oven and a refrigerator in the
Demised Premises.
13. Tenant shall not: Conduct, or permit any other person to conduct,
any auction upon the Demised Premises; manufacture or store goods or merchandise
upon the Demised Premises, without the prior written approval of Landlord,
except the storage of usual supplies and inventory to be used by Tenant in the
conduct of its business; permit the Demised Premises to be used for gambling;
make any unusual noises in the Building; permit to be played any musical
instrument in the Demised Premises; permit to be played any radio, television,
recorded or wired music in such a loud
<PAGE> 62
manner as to disturb or annoy other tenant; or permit any unusual odors to be
produced in the Demised Premises.
14. Between 6:00 p.m. and 8:00 a.m. on weekdays and 1:00 p.m. and 12:00
midnight Saturday, all day Sunday and Building Holidays, the Building shall be
closed, provided, however, that Tenant's employees shall be permitted access to
the Demised Premises with proper identification and keys.
15. No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades or screens shall be attached
to or hung in, or used in connection with any window or door of the Demised
Premises, without the prior written consent of Landlord. Such curtains, blinds
and shades must be of a quality, type, design, and color, and attached in a
manner approved by Landlord.
16. Canvassing, soliciting and peddling in the Building are prohibited,
and Tenant shall cooperate to prevent the same.
17. There shall not be used in the Demised Premises or in the Building
either by Tenant or by others in the delivery or receipt of merchandise,
supplies or equipment, any hand trucks except those equipped with rubber tires
and side guards. No hand trucks will be allowed in passenger elevators.
18. Tenant before closing and leaving the Demised Premises, shall
ensure that all entrance doors are locked.
19. Landlord shall have the right to prohibit any advertising by Tenant
which in Landlord's reasonable opinion tends to impair the reputation of the
Building or its desirability as a building for office, and upon written notice
from Landlord, Tenant shall refrain from or discontinue such advertising.
20. Landlord hereby reserves to itself any and all rights not granted
to Tenant hereunder, including, but not limited to, the following rights which
are reserved to Landlord for its purposes in operating the Building: (a) The
exclusive right to the use of the name of the Building for all purposes, except
that Tenant may use the name of the Building in its business address and for no
other purpose; (b) The right to change the name or address of the Building,
without incurring any liability to Tenant for so doing; (c) The right to install
and maintain a sign or signs on the exterior of the Building; (d) The exclusive
right to use or dispose of the use of the roof of the Building; (e) The
exclusive right to limit the space on the directory of the Building to be
allotted to Tenant; (f) The right to grant to anyone the right to conduct any
particular business or undertaking in the Building.
21. Tenant shall have the non-exclusive right to use in common with
Landlord and other tenants of the Building and their employees and invitees the
parking area provided by Landlord for the parking of passenger automobiles,
other than parking spaces specifically allocated to Tenant or to others by
Landlord. Landlord may issue parking permits, install a gain system, and impose
any other system as Landlord deems necessary for the use of the parking area.
Tenant agrees that it and its employees and in-
<PAGE> 63
vitees shall not park their automobiles in parking spaces allocated to others by
Landlord and shall comply with such reasonable rules and regulations for use of
the parking area as Landlord may from time to time prescribe. Landlord shall not
be responsible for any damage to or theft of any vehicle in the parking area and
shall not be required to keep parking spaces clear of unauthorized vehicles or
to otherwise supervise the use of the parking area. Landlord reserves the right
to change any existing or future parking area, roads or driveways and may make
any repairs or alterations it deems necessary to the parking area, roads and
driveways and to temporarily revoke or modify the parking rights granted to
Tenant hereunder, provided that Tenant's use of the parking areas is not
materially unreasonably interfered with for an unreasonable amount of time.
22. Tenant shall not use the Demised Premises or permit the Demised
Premises to be used for the sale of food or beverages.
<PAGE> 64
EXHIBIT D
DEFINITIONS
(a) The term mortgage shall include an indenture of mortgage and deed
of trust to a trustee to secure an issue of bonds, and the terms mortgagee shall
include such a trustee.
(b) The terms include, including and such as shall each be
construed as if followed by the phrase "without being limited to".
(c) The term obligations of this lease, and words of like import, shall
mean the covenants to pay rent and additional rent under this lease and all of
the other covenants and conditions contained in this lease. Any provision in
this lease that one party or the other or both shall do or not do or shall cause
or permit or not cause or permit a particular act, condition, or circumstance
shall be deemed to mean that such party so covenants or both parties so
covenant, as the case may be.
(d) The term Tenant's obligations hereunder, and words of like import,
and the term Landlord's obligations hereunder, and words of like import, shall
mean the obligations of this lease which are to be performed or observed by
Tenant, or by Landlord, as the case may be. Reference to performance of either
party's obligations under this lease shall be construed as "performance and
observance".
(e) Reference to Tenant being or not being in default hereunder, or
words of like import, shall mean that Tenant is in default in the performance of
one or more of Tenant's obligations hereunder which continues after the
expiration of any applicable cure period after the giving of notice, if any,
required hereunder, or that Tenant is not in default in the performance of any
of Tenant's obligations hereunder, or that a condition of the character
described in Section 25.01 has occurred and continues or has not occurred or
does not continue, as the case may be.
(f) Reference to Landlord as having no liability to Tenant or being
without liability to Tenant, shall mean that Tenant is not entitled to terminate
this lease, or to claim actual or constructive eviction, partial or total, or to
receive any abatement or diminution of rent, or to be relieved in any manner of
any of its other obligations hereunder, or to be compensated for loss or injury
suffered or to enforce any other kind of liability whatsoever against Landlord
under or with respect to this Lease or with respect to Tenant's use or occupancy
of the Demised Premises.
(g) The term laws and/or requirements of public authorities and words
of like import shall mean laws and ordinances of any or all of the Federal,
state, city, county and borough governments and rules, regulations, orders
and/or directives of any or all departments, subdivisions, bureaus, agencies or
offices thereof, or of any other governmental, public or quasi-public
authorities, having jurisdiction in the Demised Premises, and/or the direction
of any public officer pursuant to law.
<PAGE> 65
(h) The term requirements of insurance bodies and words of like import
shall mean rules, regulations, orders and other requirements of the New Jersey
Board of Fire Underwriters and/or the New Jersey Fire Insurance Rating
Organization and/or any other similar body performing the same or similar
functions and having jurisdiction or cognizance of the Building and/or the
Demised Premises.
(i) The term repair shall be deemed to include restoration and
replacement as may be necessary to achieve and/or maintain good working order
and condition.
(j) Reference to termination of this lease includes expiration or
earlier termination of the term of this lease or cancellation of this lease
pursuant to any of the provisions of this lease or to law. Upon a termination of
this lease, the term and estate granted by this lease shall end at noon of the
date of termination as if such date were the date of expiration of the term of
this lease and neither party shall have any further obligation or liability to
the other after such termination (i) except as shall be expressly provided for
in this lease, or (ii) except for such obligation as by its nature or under the
circumstances can only be, or by the provisions of this lease, may be, performed
after such termination, and, in any event, unless expressly otherwise provided
in this lease, any liability for a payment which shall have accrued to or with
respect to any period ending at the time of termination shall survive the
termination of this lease.
(k) The term in full force and effect when herein used in reference to
this lease as a condition to the existence or exercise of a right on the part of
Tenant shall be construed in each instance as including the further condition
that at the time in question no default on the part of Tenant exists, and no
event has occurred which has continued to exist for such period of time (after
the notice, if any, required by this lease), as would entitle Landlord to
terminate this lease or to dispossess Tenant.
(l) The term Tenant shall mean Tenant herein named or any assignee or
other successor in interest (immediate or remote) of Tenant herein named, while
such Tenant or such assignee or other successor in interest, as the case may be,
is in possession of the Demised Premises as owner of the Tenant's estate and
interest granted by this lease and also, if Tenant is not an individual or a
corporation, all of the persons, firms and corporation then comprising Tenant.
(m) Words and phrases used in the singular shall be deemed to include
the plural and vice versa, and nouns and pronouns used in any particular gender
shall be deemed to include any other gender.
(n) The rule of ejusdem generis shall not be applicable to limit a
general statement following or referable to an enumeration of specific matters
to matters similar to the matters specifically mentioned.
<PAGE> 66
(o) All references in this lease to numbered Articles, numbered
Sections and lettered Exhibits are references to Articles and Sections of this
lease, and Exhibits annexed to (and thereby made part of) this lease, as the
case may be, unless expressly otherwise designated in the context.
<PAGE> 67
EXHIBIT B
CLEANING SPECIFICATIONS
I. DAILY
A. ENTRANCE LOBBIES & ATRIUM AREAS
Carpeted floors vacuumed, non-carpeted floors dust mopped, damp mopped
and buffed; doors damp wiped; door hardware spot cleaned; granite
stairways and landings dust mopped, damp mopped and buffed; other
stairways and landings polished; fountain area damp wiped; planters and
furniture polished and damp wiped; drinking fountains cleaned and
polished; cigarette urns cleaned and disinfected; directory glass and
trim cleaned; vestibule glass/trim and window glass/trim spot cleaned;
trash receptacles emptied and cleaned.
B. ELEVATORS, LOBBIES & CORRIDORS
Carpeted floors vacuumed; non-carpeted floors dust mopped, damp mopped
and buffed; doors damp wiped; door hardware spot cleaned; stairways and
landings polished; planters and furniture polished and damp wiped;
elevators-carpet vacuumed, walls dusted, button panels cleaned, door
tracks vacuumed, door metal and trim damp wiped; drinking fountains
cleaned and polished; cigarette urns cleaned and disinfected; vestibule
glass/trim and window glass/trim spot cleaned; trash receptacles
emptied and cleaned; public telephone areas cleaned.
C. PUBLIC LAVATORIES
Mirrors and glass cleaned; wash basins and counters cleaned and
disinfected; bright work and metal fixtures cleaned; plumbing fixtures
disinfected; stall walls/doors and other walls/doors damp wiped;
urinals, toilet seats/bowls cleaned and disinfected; floors wet mopped
and disinfected; towel, tissue, sanitary napkin and soap dispensers
cleaned and replenished.
D. OFFICE AREAS
All furniture, office equipment and appliances, window sills, etc.,
will be dusted with a treated cloth or static duster. This shall
include all horizontal surfaces up to 7 feet high and enough vertical
surfaces daily to complete all vertical surfaces within each week.
Desks and tables not cleared of paper and work materials will only be
dusted where desk is exposed. Telephone will be damp-wiped. All rugs
and carpets in office areas are to be vacuumed daily in all traffic
areas. Hard to reach places, under desks and chairs, shall be vacuumed
weekly. All non-carpeted floor areas
<PAGE> 68
will be dust mopped. Trash receptacles emptied and wiped, liners
replaced as necessary. Note: Drinking water coolers cleaned and
polished. Cigarette urns and ashtrays cleaned.
<PAGE> 69
II. WEEKLY
A. ENTRANCE LOBBIES & ATRIUM AREAS
Walls dusted; door trim damp wiped, stairways and landings
dust mopped and damp mopped; railings and hardware spot
cleaned; window trim damp wiped.
B. ELEVATOR, LOBBIES & CORRIDORS
Walls dusted; door trim damp wiped stairways and landings dust
mopped and damp mopped; railings and hardware spot cleaned;
elevator walls damp wiped; window trim damp wiped.
C. PUBLIC LAVATORIES
HVAC grills vacuumed and cleaned.
D. OFFICE AREAS
Carpeted areas under desks and hard to reach to be vacuumed;
vertical surfaces dusted; HVAC grills vacuumed and cleaned;
damp wipe switchplates, metal trim and door hardware.
III. MONTHLY AND QUARTERLY
A. ENTRANCE LOBBIES & ATRIUM AREAS
Walls damp wiped, clean vestibule glass/trim and dust
emergency signage monthly, Dust ceilings, clean light
fixtures, clean and vacuum HVAC grills and clean window glass
quarterly.
B. ELEVATORS, LOBBIES & CORRIDORS
Walls damp wiped, clean vestibule glass/trim and dust
emergency signage monthly. Dust ceilings, clean light
fixtures, clean and vacuum HVAC grills and clean window glass
quarterly.
C. PUBLIC LAVATORIES
Power scrub and disinfect floors.
D. OFFICE AREAS
Dust horizontal surfaces (pipes, ducts, ledges, molding,
picture frames, etc.) over 7 feet, ceilings and light fixtures
quarterly. Damp wipe doors and woodwork monthly. Clean
interior and exterior glass quarterly.
IV. AS NECESSARY
A. ENTRANCE LOBBIES AND ATRIUM AREAS
<PAGE> 70
Spot clean all floors, stairways, light fixtures, fountain and
planter/furniture areas. Polish door hardware, etc.
<PAGE> 71
B. ELEVATORS, LOBBIES AND CORRIDORS
Spot clean all floors, stairways, light fixtures, walls,
planter/furniture areas, elevator carpets, walls and ceilings;
polish button panels and metal. Replace HVAC filters.
C. PUBLIC LAVATORIES
Clean light fixtures.
D. OFFICE AREAS
Spot clean switchplates, metal trim and door hardware. Clean
trash receptacles and replace liners.
V. For purposes of clarification regarding cleaning and janitorial
services, it shall be understood and agreed between Landlord and Tenant
that:
1. "Daily" shall mean each weekday, Monday through Friday
(excluding Saturday, Sunday and Building Holidays).
2. Landlord shall provide the above listed cleaning and
janitorial service in and about the Building and Demised
Premises. To the extent that Tenant shall require special or
more frequent cleaning and janitorial service (hereinafter
referred to as "Special Cleaning Service") Landlord may upon
reasonable advance notice by Tenant, elect to furnish such
Special Cleaning Service and Tenant agrees to pay Landlord,
within ten (10) days of being billed therefor, Landlord's
charge for providing such additional service.
Special Cleaning Service shall include but shall not be limited to the
following:
(i) The cleaning of permitted eating facilities (if any) including
the removal of refuse and garbage therefrom.
(ii) The cleaning in areas of special security such as storage
units.
(iii) Consumable supplies for private toilet rooms.
(iv) The cleaning of Tenant's electric signs, if any.
(v) The cleaning of Tenant's Lighting fixtures.
(vi) The cleaning or shampooing of Tenant's carpeting and the
cleaning, waxing, refinishing and buffing of non-carpeted
areas.
(vii) stain removal from walls, floors or other portions of the
Demised Premises.
(viii) The painting of any portion of the Demised Premises.
<PAGE> 72
(ix) The removal from the Demised Premises of such refuse and
rubbish of Tenant as shall exceed, in Landlord's sole
judgment, that ordinarily accumulated daily in the routine of
business office occupancy.
3. Landlord shall have no obligation to discharge its obligation regarding
cleaning services as to the Demised Premises during such periods as
Tenant shall be in default under any of the covenants of this lease.
4. It is understood that Landlord does not warrant that any of the
services referred to above or any other services which Landlord may
supply will be free from interruption. Tenant acknowledges that any one
or more of such services may be suspended or reduced by reason of
repairs, alterations or improvements necessary to be made, by strikes
or accidents, by any cause beyond the reasonable control of Landlord or
by order or regulations of any federal, state, county or municipal
authority. Any such interruption or suspension of services shall not be
deemed an eviction or disturbance of Tenant's use and possession of the
demised Premises or any part thereof, nor render Landlord liable to
Tenant for damages by abatement or rent or otherwise, nor relieve
Tenant of performance of Tenant's obligations under this lease.
5. Landlord, at its sole discretion, shall schedule the work utilizing
such personnel and material as deemed necessary to discharge its
obligation regarding cleaning and janitorial services.
6. Landlord's cleaning and/or janitorial personnel or contractors shall
have access to the Demised Premises from and after 5:30 p.m. on
weekdays and at any time on Saturdays, Sundays and Holidays, and Tenant
shall not hinder them in the performance of their work. In the event
Tenant does hinder such work in all or a portion of the Demised
Premises, Landlord shall have no liability to Tenant on account thereof
and such work as shall be incomplete shall be done at the next
scheduled service date.
7. Tenant shall supply adequate waste receptacles, cabinets, bookcases,
map cases and the like to prevent unreasonable hardship to Landlord in
discharging its obligations regarding cleaning service. Further, if at
any time Governmental Authority shall require trash to be separated
into its different components before carting (i.e., office paper,
computer paper, newspaper, cans and bottles, food, etc.), Tenant shall
comply with such requirements and shall supply adequate receptacles for
each such component at its sole expense.
8. The cleaning and janitorial services described in this Exhibit shall be
deemed all-inclusive. However, Landlord, at its sole discretion,
reserves the right to
<PAGE> 73
provide, from time to time, any additional or more frequent services
intended to benefit the Building or as may be deemed necessary to
discharge its obligation hereunder.
<PAGE> 74
EXHIBIT F
TENANT IMPROVEMENTS
GENERAL NOTES;
Ceiling: 2"x4" grid with new standard tile
Lighting; 2"x4" parabolic Light per 80 sq. ft.
Painting: Benjamin Moore
Carpet: Philadelphia: Ayers Hall 28 oz.: Common Area
Impact III 30 oz.: Offices
Cove base: Mercer
Doors. 3"x 8" Oak Doors
OTHER NOTES:
- -All work to be performed as exhibited on plans
- -Dedicated outlets where indicated by tenant
- -Half walls/electric for future office furniture built per plan
- -Tenant responsible for all data and telecommunication wiring
<PAGE> 75
EXHIBIT G
EXISTING PREMISES WORK
None
<PAGE> 76
[MAP]
MEZZANINE
(2ND FLOOR)
<PAGE> 77
[MAP]
THIRD FLOOR
FLOORS 3-12
<PAGE> 78
[MAP]
THIRD FLOOR
1,401 SF
<PAGE> 79
[MAP]
PANEL SPACE
1,786 SF
(MEZZ 2ND FLR)
1000 SF
MEZZ
1600 SF
MEZZ OLD CENTURY 21
<PAGE> 80
EXHIBIT B
FLOOR PLAN
[To Be Attached]
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement on Form S-8 (File No. 333-23951).
ARTHUR ANDERSEN LLP
San Jose, California
June 27, 1997
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<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 7,984
<SECURITIES> 18,205
<RECEIVABLES> 6,234
<ALLOWANCES> 1,302
<INVENTORY> 0
<CURRENT-ASSETS> 31,525
<PP&E> 3,519
<DEPRECIATION> 1,933
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<CURRENT-LIABILITIES> 6,542
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0
0
<COMMON> 11
<OTHER-SE> 29,789
<TOTAL-LIABILITY-AND-EQUITY> 36,342
<SALES> 0
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<CGS> 0
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<INCOME-PRETAX> (12,443)
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<INCOME-CONTINUING> (12,502)
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