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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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 INCORPORATION OR
ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ONE INTERNATIONAL BLVD., SUITE 200, MAHWAH, NJ 07495
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(201) 512-1000
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 29,
1998, as reported on Nasdaq National Market was approximately $44,401,000.
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 29, 1998, there were 17,470,823 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 24, 1998.
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TABLE OF CONTENTS
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PART I
Item 1. Business......................................... 3
Item 2. Properties....................................... 13
Item 3. Legal Proceedings................................ 13
Item 4. Submission of Matters to a Vote of Securities
Holders.......................................... 13
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...... 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............. 24
PART III
Item 10. Directors and Executive Officers of the
Registrant....................................... 25
Item 11. Executive Compensation........................... 25
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................... 25
Item 13. Certain Relationships and Related Transactions... 25
PART IV
Item 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K.............................. 26
SIGNATURES.................................................. 28
POWER OF ATTORNEY........................................... 29
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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," "Cybervalet," and "Radia"
are trademarks of Novadigm, Inc. This filing also includes trademarks of
companies other than of Novadigm, Inc.
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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 and are advised
to review the risks and uncertainties set forth under "Business Risks" in Part
II, Item 7.
ITEM 1. BUSINESS
Novadigm, Inc. ("Novadigm" or the "Company") is a provider of distributed
software management solutions for medium and large-scale enterprises. The
Company markets and sells an integrated suite of products that automatically
deploys, updates, and maintains distributed software across a wide variety of
networks, servers and devices. Novadigm's customers include Fortune 2000
Information Technology ("IT") driven organizations in the financial services,
transportation, telecommunications, healthcare, and utilities industries;
government agencies; large independent software vendors; and IT service
providers.
The Company's products include the Enterprise Desktop Manager(TM)("EDM"), a
client/server-based deployment environment that centrally controls software
configurations on distributed PCs, and Radia(TM) ("RADIA"), an internet-based
software distribution and management environment that enables subscriber
initiated "self-service" updates of desktop or web-based applications. Both
products use the Company's patented "desired-state" automation 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.
These advancements reduce the time-to-market and total-cost-of-ownership of
managing distributed software.
BACKGROUND
Novadigm's distributed software management solutions address a market
commonly characterized as Electronic Software Distribution ("ESD"), a large,
well-defined and rapidly growing segment of the systems management marketplace.
This market, which is estimated by industry analysts to grow to $3.3 billion by
the year 2001, describes a class of software that deploys application
components, including its data, programs, files, content and objects, across
local-area networks ("LANs"), wide-area networks ("WANs"), virtual area networks
("VANs") and the world-wide web ("WWW"). ESD software also includes the
requirement for installing the desktop software and the embedded links that
distributed users require to operate these applications on their personal
computers ("PCs"), mobile laptops/devices, or network computers ("NCs").
Recently popularized with the introduction of "Internet Push", ESD software
has evolved over the last decade as an integral component of the IT management
infrastructure for enterprises, application vendors, and internet service
providers for whom use of software or software-based services is a critical
aspect of their business. ESD solutions address the strategic computing
requirements of these organizations to:
Reduce the Total-Cost-of-Ownership of Managing PCs and Laptops. With
industry analysts estimating that IT is investing as much as $10,000 per
desktop per year in administering distributed PC and remote laptop software
configurations, including operating system migrations, shrink-wrap tools
deployment, and business application support, the demand for ESD automation
that reduces overall support costs has escalated.
Deploy Business-critical Client/Server and E-Commerce Applications.
With the applications that now represent the key competitive and business
advantages of the enterprise moving out of the back office, onto the
desktop, and into the home, the need for ESD solutions that enhance the
overall efficiency, reliability, availability and serviceability of these
applications provide significant improvements on shortening the
time-to-market.
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Ensure Year 2000 Software Compliance and Update. With the majority of
the installed application portfolio requiring maintenance updates that
ensure Year 2000 compliance, ESD solutions that can inventory current
contents and deploy updates become essential to Year 2000 project leaders.
Manage New Intranet/Extranet Services. With new 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 being managed in these environments is sold,
distributed and changed on a "subscription service" basis for potentially
thousands or millions of users, each with their own unique configuration
dependencies. The more business-critical the applications are, the more
frequently they need to be updated. To support this new management paradigm, a
new breed of ESD solutions is now required to reduce the complexity of deploying
and administering rapidly changing distributed software configurations, thereby
increasing the reliability, serviceability and availability of these strategic
software assets.
To respond to this demand, many vendors have introduced ESD products to the
marketplace. Typically provided as operating environment plug-in utilities for
PC operating systems, Web browsers, LAN administration suites, or
network/systems management frameworks, these tools generally combine
point-to-point file transfer technology together with an automated scheduling
program that directs file distribution "events". For transfers targeted at
specific network nodes, they employ a procedural "scripting" language to perform
the customized installation procedures at the identified destination. As a
result, the implementation of these products is heavily 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
"event-based" approach is an improvement over manual software installation.
However, the time, complexity and cost of coding and implementing the lists and
scripts required to account for each configuration dependency increases
dramatically across large-scale networks. To increase transport success rates,
systems administrators are required to manually perform the configuration,
change and policy activities needed to prepare the lists and scripts required
for file transfer control and installation. However, 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.
In view of these fundamental limitations of traditional ESD products and
with the widespread introduction of new complex business-critical client/server
and internet applications, the Company believes that the requirements for
software management technologies that effectively address the "end-to-end"
process of tracking, configuring, deploying, securing and changing software and
content across large-scale networks is now a required enabling technology for
comprehensive ESD automation. This technology must be fast, scalable, reliable
and highly adaptable to the customer's existing base of installed computing
platforms and applications (internally developed, purchased and e-commerce
software) to support the dynamic and rapidly changing requirements of the
business.
THE NOVADIGM SOLUTION
Novadigm offers a faster, more highly scalable, reliable and adaptable
software management solution than traditional ESD tools, providing medium and
large-scale enterprises with a unique suite of products that automates the
"end-to-end" process of deploying, configuring, tracking and changing all types
of distributed software. The Company's products allow IT professionals and IT
service providers to effectively manage complex software configurations across
any large-scale public and private network using whatever service provider
policies are to be enacted for controlling the distribution of software or
content. The following are key attributes of the Novadigm solution that
distinguish it from other software management products:
Desired-State Automation. Novadigm provides a unique, automated engine
that compares the current "actual-state" of each distributed software
configuration with a "desired model" of what an
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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.
Adaptive Configuration Management. Novadigm's products can
automatically distribute customized software packages to unique client
environments and install them as dictated by administrative policies. As
program versions and client environments change, the affected client's
"actual-state" is differenced and reconfigured to correspond to the
desired-state of operation automatically, thus reducing the administrative
change processes to the simple updating of a desired-state model that
continuously verifies the accuracy and updates client configurations
without manual intervention.
Policy-based controls and auditability. Novadigm's products use
policy-based access models to allow customers to efficiently and concisely
define entitlements 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 or
derived from external sources cause components to be automatically
installed or de-installed on all affected clients. Administrative control
over any object can be distributed as appropriate to designated users
across a customer organization, thus ensuring that only authorized persons
can change usage policies or application components.
Scalability and performance. Novadigm'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
calculations, Novadigm's products eliminate the need for 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). The differencing
process calculates the precise changes needed by each desktop, allowing
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 that provide its customers with an effective
means for managing the next generation of client/server and internet
applications on a large-scale. The Company also believes that the technology
embodied in its products provides significant improvements over the list/script
approach used by competitive vendors of ESD products. These improvements include
the complete automation of the deployment and ongoing change 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. These advancements result in higher levels of speed, reliability,
serviceability and auditability.
THE NOVADIGM STRATEGY
The Company's objective is to be the leading provider of distributed
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 ESD Automation. The Company has
developed and patented unique "desired-state" management and "fractional
differencing" technologies 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 the
highly automated, scaleable infrastructure that is required to manage the
initial deployment and ongoing maintenance of software. The Company plans
to continue to invest significant resources in research and development,
both to
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enhance the features and functionality of its existing product base and to
develop new products, particularly products that address the unique
requirements of internet software and content management.
Establishing Market Share Leadership in the Enterprise. 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 its product strengths 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.
Increasing its Customer Implementation Leadership Position for
Managing the "Next Generation" of Business-critical Applications,
particularly in Financial Services. The Company's products use a
sophisticated change and configuration management engine that is a key
enabling technology 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 client/server and
commerce-based business applications, particularly in the financial
services industry, where content distributed to ATMs for example now
represents the competitive sales advantage and/or core customer service
interface. The Company's strategy is to identify, cultivate and promote its
product offerings to address the specific requirements of managers of these
types of applications.
Build Strategic Partnerships with Complementary Product, Channel and
Service Providers. In order to penetrate the global market for software
management, the Company has established a worldwide direct field sales
organization to develop relationships with its customer and prospect base.
To complement these efforts, the Company has also cultivated relationships
with selected indirect sales channels of original equipment manufacturers
("OEMs"), service-oriented value added resellers ("VARs") and systems
integrators, distributors and smaller resellers. The Company's strategy
intends to expand these indirect channels of distribution, with particular
emphasis on partnerships that promote the Company's products as part of
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
Novadigm's distributed software management product line includes the
Enterprise Desktop Manager(TM) ("EDM"), a client/server-based deployment
environment that continually controls distributed software configurations on
distributed PCs and laptops according to IT access policies, and Radia(TM)
("RADIA"), an internet-based software distribution and management environment
that enables subscriber initiated "self-service" updates of desktop software and
web-based applications. Both products leverage the Company's patented
"desired-state" automation platform, a distributed management engine that
automatically determines which software components are required for each
individual user at the time of a configuration update. This engine dynamically
synchronizes three activities:
Desktop Discovery Process. A facility that dynamically audits user
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 Version 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.
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Using this "desired-state" engine, EDM and RADIA rapidly and precisely
compare 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, allowing software, content and
application providers to deploy software-based applications without building in
pre-configured packages to support different policies and supported
environments. Without this restriction, services can be distributed faster, more
reliably and with higher levels of adaptability than traditional ESD products.
EDM
Novadigm's EDM enables centralized software deployment and a management
environment for IT organizations to distribute, configure, update, and maintain
business-critical software in their desired-state across thousands of desktops
and servers. The product reduces the administrative overhead required to manage
distributed software by allowing IT managers to use a centralized model of the
policies and configurations to deploy any individual system (the desired state),
and then to compare, install and/or remove needed components on each node on the
network. These facilities enable fast, reliable deployment of software while
dramatically reducing the network traffic. As a result, EDM enables a variety of
solutions for large and medium sized enterprises, including:
Automatic Deployment of Business-critical Applications. EDM enables
automatic deployment of business-critical applications including internally
developed client/server applications and purchased applications from major
vendors, such as SAP AG, Siebel Systems, Inc., The Baan Company, Oracle
Corporation, and PeopleSoft, Inc. EDM ensures the rapid enterprise-wide
distribution and high availability of these applications through their
frequent change cycles by re-configuring the software components on
desktops and servers to ensure that versions are synchronized and
operational.
Continuous Configuration of Business-critical Devices. EDM facilitates
continuous configuration across a variety of devices, including clerical
desktops, field agent laptops, and consumer commerce storefronts such as
Automated Teller Machines ("ATMs"). EDM ensures that the software that
represent the core sales and customer service interfaces are deployed
reliably and adapt according to the changing needs of the business,
including geographic, marketing, and individual consumer service
personalization support.
Audit and Compliance of Year 2000 Desktop Applications. EDM enables
year 2000 applications including the central inventory and reporting of
desktop software contents and the automatic deployment and re-configuration
of the software once a new "Year 2000 compliant" version is introduced.
EDM's desired-state engine ensures the accuracy and reliability of these
activities across more than 17 different types of desktop operating
environments.
EDM supports the needs of organizations with heterogeneous platforms and
large numbers of desktops and servers. The product is in its fourth release, and
is used at more than 170 organizations in 17 countries supporting the unique
software management requirements of a variety of industries, including banking,
insurance, utilities, brokerage, government, technology, telecommunications,
retail, transportation and manufacturing.
RADIA
Novadigm's RADIA provides corporate intranet, extranet and Internet service
providers with the capabilities to rapidly deploy user-initiated "self-service"
management infrastructures that control the distribution of packaged software
and e-commerce applications across the Web. By constructing a RADIA-powered web
site, IT managers can provide policy-based access to a wide range of desktop
software, allowing end users to install, update, and repair their own desktops
automatically without administrative support. RADIA also allows users to
"subscribe" to an application or service through a system that automatically
personalizes, adapts, and delivers software-based services in the right
configuration each time it is accessed.
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By using the flexibility of the Internet and the power of Novadigm's
"desired-state" engine, RADIA provides an easy-to-use, fast, and convenient
vehicle for distributing software to a wide audience of distributed users that
may include employees, partners, prospects and customers. The solutions enabled
from this foundation include:
Customized Software Malls for Managing Vendor Packages. Radia enables
customized software malls to maintain a range of vendor packages including
standard desktop office suites, browsers, tools and utilities such as those
from Microsoft Corporation ("Microsoft"), Netscape Communication Corp.
("Netscape"), Lotus Development Corporation, Network Associates, Inc.
("Network Associates") and Symantec Corporation. RADIA provides a
customized directory-based listing for each authorized subscriber that
identifies the software packages available for deployment on the desktop as
well as the current status of those already installed. Updates and repairs
automatically invoke Novadigm's patented adaptive configuration and
fractional differencing technologies to deliver the required component
changes.
Just-in-time Configuration of Java and Commerce-based Applications.
Radia deploys just-in-time applications including applets, supply chain
systems, and transactive content for systems that represent online sales
interfaces for Web-based consumers. RADIA ensures that each authorized
service subscriber is configured, verified and updated with component
changes to the software residing on their desktops each time the service is
accessed. Updates are configured in the background prior to application
execution to ensure timely and accurate service levels.
Revisable Content Management for Subscription-based Services. Radia
manages revisable content, including applications with content links,
custom research, and "pushed" updates that require the personalized
delivery of new service versions. RADIA provides a customized catalog for
each authorized subscriber to browse, subscribe and invoke content packages
that dynamically configure themselves based on user-supplied parameters.
Updates are delivered automatically based on the subscriber's current
service requirements.
RADIA supports the needs of any organization that uses the Internet as a
standard vehicle for corporate, partner and customer communication. The product
was released in November 1997 and now includes two application components, the
Radia Software Manager and the Radia Application Manager.
Both EDM and RADIA operate from a common set of management platforms; a
distributed, object-oriented environment that is comprised of two major
components:
"Management Servers". A foundation that includes a central server with
publishers/administrators to configure it and a set of distributed staging
servers to "fan-out" the distribution process. The central server is a
multi-domain object repository and engine that synchronizes distributed
objects; application components, desktop configurations, policy
relationships, across the network. Using an EDM or RADIA Administrator,
this repository is configured to include the packages, policies and
configuration requirements necessary to automatically manage the transfer
of objects to and from Novadigm-managed servers and client desktops.
"Client Subscribers". A lightweight desktop-resident component that
communicates with Novadigm's Management Servers to identify, distribute and
install configuration changes for distributed software or content.
Operating as an extension of standard PC or Internet operating
environments, the Client Subscriber automatically discovers current desktop
contents and synchronizes application versions with new or updated
configurations residing on the Management Server.
The components are distributed across a variety of computing platforms:
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Management Servers Windows NT, AIX, HP-UX, MVS, SUN,
Novell, OS/2
Client Subscribers Windows (3.1+, 95), Windows NT,
OS/2, AIX, HP-UX, SUN, Novell,
Macintosh,
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Communication between components is supported through a variety of
protocols, including TCP/IP, SNA, IPX, and NetBIOS.
Extensions for the platform, called "Adapters," allow customers, systems
integrators and application vendors to encapsulate their own custom development,
systems management and desktop management tools into the Novadigm management
infrastructure. Adapters are now available for:
Network/Systems Management Frameworks. Novadigm's best of breed
software distribution and management capabilities are integrated directly
with the event, security and performance management environments of
International Business Machines Corporation ("IBM")/Tivoli Systems Inc.'s
("Tivoli") TME10, Computer Associates International, Inc.'s ("Computer
Associates") Unicenter, and Hewlett-Packard Company's ("Hewlett-Packard")
OpenView.
Industry Standards. Novadigm's policy management environment is
integrated with lightweight directory access protocol ("LDAP") based
directory servers and desktop discovery processes with desktop management
interface ("DMI") to enable single source points of control for access
policies and inventory management.
Problem/Help Desk Management. Novadigm's dynamic desktop configuration
management facilities are integrated with problem management environments
such as Remedy Corporation's AR system to integrate problem tracking and
inventory discovery data.
LAN/Desktop Management. Novadigm's policy-based deployment is
integrated with local area discovery and distribution facilities of
Microsoft's SMS, Intel's LAN Desk, and IBM's CID.
Application Management. Development environment configuration
management models for Rational Software Corporation's ClearCase and
Intersolv, Inc.'s PVCS are integrated directly to the distribution process,
enabling development changes to be synchronized with deployment.
The flexibility of Novadigm's object-oriented architecture allows these
processes to be easily integrated as objects in Novadigm's Management Server and
automatically integrated into Novadigm's "desired-state" software management
process without requiring special application programming interface ("API's") or
third party vendor coding.
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, 1998, the Company's EDM products had
been licensed directly by the Company or through distributors to 174 customers.
During fiscal 1998, the Company had two customers, each of whom accounted
for over ten percent of the total revenues. Amdahl Corporation ("Amdahl"), an
OEM and distributor of the Company's products (see "Sales and Marketing"),
accounted for approximately 31% of total revenues for fiscal 1998 and Electronic
Data Systems Corp. ("EDS") accounted for approximately 10% of total revenues for
fiscal 1998.
SALES AND MARKETING
The Company markets its software and services through 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 Mahwah, New Jersey and Emeryville,
California; and its European direct sales activities are managed from the
Company's facilities in Paris, France. For fiscal 1998, revenues from direct and
indirect sales accounted for 64% and 36%, respectively, of total revenues, and
revenues from domestic and international sales accounted for 54% and 46%,
respectively, of total revenues. The Company expects direct sales and
international sales to increase as a percentage of total revenues.
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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 direct mail
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 post sales
service consultants that work together to provide an integrated "solution
selling" approach to the customer. 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,
sales, post-sale support 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 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 amended 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
amended 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 no
guaranteed sublicense fees from Amdahl in fiscal 1998.
The Company to date has concentrated on establishing a market for its
products in North America, Europe, Japan, South Africa, South America, Australia
and Korea. 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 OEM's, VARs and systems integrators. 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 comprehensive solution-based web site of technical information
on EDM and Radia. In addition, through the web site, the Company has the ability
to download maintenance, submit problem reports and enhancements, and
participate in a user discussion forum.
The Company offers regional and on-site training programs covering object
technologies and EDM and Radia implementation strategies to its customers,
OEM's, VARs and systems integrators.
The Company's professional services organization and a growing number of
independent EDM and Radia service providers are available to consult with
customers on project planning and systems implementation and integration.
Revenues from services accounted for 33% of fiscal 1998 total revenues.
10
<PAGE> 11
PRODUCT DEVELOPMENT
Since its inception, the Company has emphasized and made substantial
investments in product development. In fiscal 1998, the Company's total research
and development expenses were approximately $6.8 million. To date, the Company
has not capitalized any software development costs.
The Company anticipates that 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, RADIA 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, financial condition and results of
operations will be materially and adversely affected.
COMPETITION
Competition in the ESD market is diverse and rapidly changing. While a
variety of vendors have offered some forms of ESD solutions with their
offerings, the current and prospective closest competitors of the Company today
fall into three categories:
Network/Systems Management Framework Vendors. These competitors
include IBM/Tivoli, Computer Associates, and Hewlett-Packard, who offer
traditional "list/script-based" ESD tools as part of their enterprise
frameworks.
LAN/Desktop Management Suite Vendors. These competitors include
vendors like Microsoft, Intel and Network Associates, who offer
workgroup-based ESD tools as part of a LAN administration package.
Internet Push ESD Vendors. These competitors include start-ups like
Marimba Inc., ("Marimba") and BackWeb Technologies, Inc. ("BackWeb") who
provide push distribution technologies as plug-in components for Netscape
and Micorsoft browsers.
The Company believes that it competes effectively with all of these vendors
in its target market on the basis of its broader product line for software
management, desired-state technological innovation, unique adaptive
configuration functionality, higher product implementation success rates, better
end-user support and price. The Company differentiates its products in the
market based on results that have proven its products are capable of
distributing and managing software faster, with higher reliability and greater
adaptability.
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. Many 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. 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 business, financial condition and
results of operations.
11
<PAGE> 12
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
In December 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 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, 1998, the Company had a total of 159 full-time employees,
including 44 in product development, 91 in sales and marketing, 24 in general
and administration. A total of 130 employees are based in the United States and
29 employees are based in Europe. The Company announced a reorganization after
the close of fiscal 1998 which reduced the total number of full-time employees
to 144. 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 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION OFFICER SINCE
---- --- -------- -------------
<S> <C> <C> <C>
Albion J. Fitzgerald............ 50 Chairman of the Board and Chief 1992
Executive Officer
Michael R. Carabetta............ 49 President and Chief Operating 1998
Officer
Robert B. Anderson.............. 43 Executive Vice President, 1992
Secretary and Director
Joseph J. Fitzgerald............ 36 Vice President, Development 1992
Philip J. Myers................. 39 Vice President, Marketing 1993
Wallace D. Ruiz................. 47 Vice President, Treasurer and 1995
Chief Financial Officer
</TABLE>
12
<PAGE> 13
Albion J. 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 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.
Michael R. Carabetta joined the Company in February 1998 as President and
Chief Operating Officer. From 1994 until joining the Company, Mr. Carabetta was
Vice President and General Manager of the Amdahl Corporation. He was responsible
for Amdahl's Open Enterprise Systems division and later responsible for the A+
software and services business unit. From 1983 to 1994, Mr. Carabetta was with
Digital Equipment Corporation, serving first as Product Line Manager and later
as Vice President, Financial & Cross Industry Applications.
Robert B. Anderson joined the Company in June 1992 and currently serves as
Executive Vice President, 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.
Joseph J. 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.
Philip J. 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 D. Ruiz joined the Company in May 1995 as Vice President, 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. He is
the brother-in-law of Albion Fitzgerald.
ITEM 2. PROPERTIES
The Company conducts its operations in North America principally out of its
facilities in Mahwah, New Jersey and Emeryville, 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, east coast sales, marketing and support,
and general administration; and approximately 3,463 square feet at its
California facilities, which are used principally for west coast sales,
marketing and support. 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 Dallas, Texas; Los
Angeles, California; Odiham, England; Munich, Germany; and Brussels, Belgium.
ITEM 3. LEGAL PROCEEDINGS
On March 3, 1997, the Company sued Marimba, Inc. for infringement of the
Company's U.S. Patent No. 5,581,764 (the "764 Patent") in the U.S. District
Court for the Northern District of California. The Company alleges that
Marimba's Castanet Software product infringes the "764 Patent." On May 2, 1997,
Marimba filed an answer to the Company's complaint and a counterclaim, denying
the Company's allegations and seeking a declaration that the "764 Patent" is
invalid, not infringed, and unenforceable. Discovery in the case is currently
underway.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable.
13
<PAGE> 14
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
sales prices for the Company's common stock as reported by Nasdaq:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
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
FISCAL YEAR ENDED MARCH 31, 1998
First Quarter............................................. $ 5 1/2 $ 3 1/8
Second Quarter............................................ $ 7 7/16 $ 3 5/16
Third Quarter............................................. $ 7 $ 3 11/16
Fourth Quarter............................................ $ 4 5/8 $ 3 5/16
</TABLE>
As of March 31, 1998, 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.
14
<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 the
report.
NOVADIGM, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------
1994 1995 1996 1997 1998
------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues
Licenses.................................... $ 1,044 $ 8,488 $18,775 $ 12,117 $ 15,728
Services.................................... 82 840 6,241 10,261 7,667
------- -------- ------- -------- --------
Total revenues...................... 1,126 9,328 25,016 22,378 23,395
------- -------- ------- -------- --------
Operating Expenses:
Cost of services............................ 34 344 2,630 6,275 6,971
Sales and marketing......................... 2,347 5,706 10,961 17,123 14,680
Research and development.................... 3,222 3,338 4,426 6,212 6,843
General and administrative.................. 474 1,392 3,230 4,979 4,964
Compensation charge related to escrow
shares(1)................................ -- 18,900 -- -- --
Restructuring charge(2)..................... -- -- -- 1,829 --
------- -------- ------- -------- --------
Total operating expenses............ 6,077 29,680 21,247 36,418 33,458
------- -------- ------- -------- --------
Operating income (loss)....................... (4,951) (20,352) 3,769 (14,040) (10,063)
Interest income and other, net................ 52 122 1,428 1,597 978
------- -------- ------- -------- --------
Income (loss) before provision (benefit) for
income taxes................................ (4,899) (20,230) 5,197 (12,443) (9,085)
Provision (benefit) for income taxes.......... -- -- 160 59 (68)
------- -------- ------- -------- --------
Net income (loss)............................. $(4,899) $(20,230) $ 5,037 $(12,502) $ (9,017)
======= ======== ======= ======== ========
Earnings (loss) per share -- basic............ $ (0.38) $ (1.40) $ 0.30 $ (0.72) $ (0.52)
======= ======== ======= ======== ========
Weighted average common shares outstanding --
basic....................................... 13,060 14,424 16,566 17,409 17,392
======= ======== ======= ======== ========
Earnings (loss) per share -- diluted.......... $ (0.38) $ (1.40) $ 0.28 $ (0.72) $ (0.52)
======= ======== ======= ======== ========
Weighted average common and common equivalent
shares outstanding -- diluted............... 13,060 14,424 17,928 17,409 17,392
======= ======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $2,249 $1,012 $13,361 $ 7,984 $ 4,431
Working capital.................................... 2,091 3,879 29,831 24,983 17,326
Total assets....................................... 3,148 6,560 50,132 36,342 28,876
Deferred revenue................................... 248 871 4,509 946 2,518
Stockholders' equity............................... 2,220 4,066 42,522 29,800 20,044
</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 founder's shares in connection with the Company's public offering
on the Vancouver Stock Exchange in September 1992.
(2) See Note 9 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. Such forward looking statements include, but are not limited to the
last sentences of the first and second paragraphs under "Revenue," the sentences
in the third paragraph under "Revenue" regarding international sales, the last
sentences of "Cost of services," "Sales and marketing," "Research and
development" and "General and administrative," the statements under "Year 2000
compliance" and the last paragraph under "Liquidity and capital resources."
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.
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 Enterprise Desktop Manager(TM) ("EDM") was released
for general availability. Since its first release, the Company has continued to
develop EDM by adding new features, applications and platforms. Version 2.0 of
EDM was released in February 1994, Version 3.0 in June 1995, and Version 4.0 was
released in October 1997. In November 1997, the Company released its newest
product, RADIA(TM), an internet-based software and content management solution.
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
approximately $0.4 million in guaranteed sublicense fees under all such
agreements in 1998, approximately $3.9 million in 1997, and approximately $8.3
million in 1996.
Revenues for maintenance are recognized ratably over the term of the
support period. If maintenance is included in a license agreement, such services
are unbundled from the license fee at their 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.
ALL PERIOD REFERENCES IN THE DISCUSSION BELOW ARE TO FISCAL PERIODS OF THE
COMPANY BASED ON ITS FISCAL YEAR ENDING MARCH 31.
16
<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>
YEARS ENDED MARCH 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
REVENUES:
Licenses.................................................. 75.0% 54.1% 67.2%
Services.................................................. 25.0 45.9 32.8
----- ----- -----
Total revenues.................................... 100.0 100.0 100.0
----- ----- -----
OPERATING EXPENSES:
Cost of services.......................................... 10.5 28.0 29.8
Sales and marketing....................................... 43.8 76.5 62.7
Research and development.................................. 17.7 27.8 29.3
General and administrative................................ 12.9 22.2 21.2
Restructuring charge...................................... -- 8.2 --
----- ----- -----
Total operating expenses.......................... 84.9 162.7 143.0
----- ----- -----
Operating income (loss)..................................... 15.1 (62.7) (43.0)
----- ----- -----
Interest income and other, net.............................. 5.7 7.1 4.2
----- ----- -----
Income (loss) before provision (benefit) for income taxes... 20.8 (55.6) (38.8)
Provision (benefit) for income taxes........................ 0.6 0.3 (0.3)
----- ----- -----
Net income (loss)........................................... 20.2% (55.9)% (38.5)%
===== ===== =====
</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 32.8% of total revenues
in 1998, 45.9% in 1997 and 25.0% in 1996, respectively. The Company expects
service revenues as a percentage of total revenues to decline in 1999 as a
result of its emphasis on licensing activities.
The Company's total revenues in 1998 increased by $1.0 million to $23.4
million, an increase of 4.5% over 1997. Total revenues decreased $2.6 million to
$22.4 million, a decrease of 10.5% from 1996. License revenues increased $3.6
million in 1998 as compared to 1997 due primarily to the increase in closing
license contracts in Europe. License revenues declined by $6.6 million in 1997
as compared to 1996 due primarily to a decline in revenue from the reseller
channel, particularly Amdahl, which provided less guaranteed sublicense fees in
1997 compared to 1996; 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 decline in
service revenues of $2.6 million in 1998 as compared to 1997 is due to the
expiration of the Company's agreement with IBM in March 1997, partially offset
by higher maintenance fees associated with a growing installed base and higher
fees from services performed by the Company's professional services staff. The
higher service revenues in 1997 as compared with 1996 is primarily due to the
Company's agreement with IBM which provided $5.1 million and $2.9 million in
services revenues in 1997 and 1996, respectively, representing 23% and 12% 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 revenues to grow moderately throughout the next fiscal year, overall
service revenues are not expected to grow due to the Company's emphasis on
licensing activities with service partners who require minimal services from the
Company.
17
<PAGE> 18
International revenues were $10.7 million, $4.1 million and $5.2 million in
1998, 1997 and 1996, respectively. International revenues increased $6.6 million
in 1998 over 1997 due primarily to license contracts closed in Europe during the
year. In March 1997 the Company initiated a restructuring program which among
other things resulted in reorganizing the management of the European operations;
reacquiring of distribution rights in the United Kingdom (UK); and opening
offices and hiring sales personnel in Germany and Belgium. The Company plans to
continue to develop international sales, through its direct sales force in
Europe and through its indirect sales channels elsewhere. International revenues
decreased in 1997 compared to 1996 primarily due to slowness in the European
market and the incomplete sell-through of the guaranteed sublicense fees from
the foreign distributors. The Company believes that international sales will
continue to grow in terms of dollars though not increase in terms of percentage
of total revenue. The Company has signed agreements with distributors in
Australia, Brazil, Japan, Korea, South Africa and Spain. 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 1998, two customers, Amdahl and EDS, accounted for approximately 31%
and 10% of total revenues, respectively. 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.
The Company typically ships its products following a fully executed license
agreement and acceptance of a purchase order, 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 $7.0 million in 1998, $6.3 million
in 1997 and $2.6 million in 1996, or 90.9%, 61.2% and 42.1% of the related
service revenues for these periods, respectively. The increases in the cost of
services in both 1998 and 1997 over the prior years were due primarily to higher
staffing levels of the professional services and customer support organizations
necessary to serve the growing installed base of customers. In addition, outside
consultants were contracted in 1998 to develop training and course material. The
Company reorganized its technical services department after the close of 1998,
reducing staff and redefining service packages. As a result, the Company expects
cost of services to decrease in 1999 both as a percentage of service revenues
and in absolute dollars.
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
$14.7 million, $17.1 million and $11.0 million in 1998, 1997, and 1996,
respectively. As a percentage of total revenues in 1998, 1997 and 1996, sales
and marketing expenses represented 62.7%, 76.5% and 43.8%, respectively. The
dollar decrease in 1998 from 1997 was primarily the result of the restructuring
program initiated in March 1997, which among other things included the closing
of sales, support and marketing offices, revamping marketing programs and the
reorganization of sales and marketing organizations. The dollar increase in 1997
over 1996 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 allowance for doubtful accounts. The Company
expects sales and marketing expenses to increase in 1999 compared to 1998 due to
the licensing programs put into place.
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 $6.8 million, $6.2 million, and $4.4 million in 1998,
1997 and 1996, respectively. As a percentage of total revenues in 1998, 1997 and
1996, research and development expenses represented 29.3%, 27.8%, and 17.7%,
respectively. The dollar increase in 1998 was due primarily to salary
18
<PAGE> 19
increases and the contracting of consultants to assist with the introduction and
release of EDM version 4.0 and RADIA. The dollar increase in research and
development expenses in 1997 as compared to 1996 was 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 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. Though the Company anticipates that it will continue to
invest resources to further enhance and develop its products, the Company does
not anticipate significant growth in research and development expense in 1999.
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 $5.0 million, $5.0 million, and $3.2 million in
1998, 1997 and 1996, respectively. As a percentage of total revenues in 1998,
1997 and 1996, general and administrative expenses represented 21.2%, 22.2%, and
12.9%, respectively. The increase in the dollar amount of expenses in 1997 as
compared to 1996 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
1999 as 1998.
Restructuring charge. The Company implemented a restructuring program
during the fourth quarter of 1997 to more closely align the Company's operating
expenses with its revenue model, and recorded a charge of $1.8 million related
to restructuring costs during this period. 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. The restructuring program was completed during 1998.
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 $1.0 million, $1.6 million, and $1.4 million in
1998, 1997 and 1996, respectively. The decline of interest income in 1998 as
compared to 1997 is due primarily to lower average balances of cash and
marketable securities during 1998. Interest income increased from 1996 to 1997
due primarily to higher average balances and interest.
Income taxes. The Company recorded an income tax benefit of $0.1 million in
1998 associated with state tax refunds. The Company recorded a provision for
income taxes of approximately $0.1 million and $0.2 million in 1997 and 1996,
respectively, associated with federal and state alternative minimum taxes. As of
March 31, 1998, the Company had net deferred tax assets of approximately $8.5
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, 1998, the Company had federal net operating loss
carryforwards of approximately $17.1 million, which expire in various periods
through 2013. 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.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are unable
to distinguish 21st century dates from 20th century dates. Beginning in the year
2000, these date code fields will need to distinguish 21st century dates from
20th century dates. The Company is aware that some of its internal systems are
not Year 2000 compliant and the Company is in the process of assessing the
impact of replacing or upgrading these systems. The Company does not believe
that the cost to replace or upgrade its systems to be Year 2000
19
<PAGE> 20
compliant will have a material adverse effect on the Company's business,
operating results and financial condition. The Company also believes that the
newest version of its products are Year 2000 compliant. Therefore, the Company
believes that the Year 2000 will not have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk
Factors -- Year 2000 Implications".
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standard ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information," was
issued. SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders which is
currently not required. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
is required to adopt this standard during its 1999 fiscal year.
In June 1997, SFAS No. 130 "Reporting Comprehensive Income," was issued.
SFAS No. 130 establishes standards for reporting and disclosure of comprehensive
income and its components in a full set of general-purpose financial statements.
This statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported. This
standard will be adopted in the first quarter of the Company's 1999 fiscal year.
In October 1997 the American Institute of Certified Public Accounts
("AICPA") issued Statement of Position ("SOP") 97-2, "Software Revenue
Recognition" which supersedes SOP 91-1. SOP 97-2 generally requires revenue
earned on software arrangements involving multiple elements, such as additional
software products, upgrades or enhancements, rights to exchange or return
software, post contract customer support, or services, including elements
deliverable only on a when-and-if-available basis, to be allocated to the
various elements of such sale based on "vendor-specific objective evidence of
fair values" allocable to each such element. The Company adopted SOP 97-2 for
software transactions entered into beginning January 1, 1998. Such adoption did
not have a material effect on the timing of the Company's revenue recognition
and it did not have a material impact on its results of operations for the year
ended March 31, 1998.
INFLATION
The effects of inflation on the Company's financial position has not been
significant to date.
LIQUIDITY AND CAPITAL RESOURCES
In 1998 and 1997, net cash used in operating activities was $7.7 million
and $9.1 million, respectively, and was due primarily to the net loss in each
year. Net cash provided by operating activities in 1996 was $6.6 million
primarily as a result of net income. The accounts receivable balance, net of the
allowance for doubtful accounts increased $1.6 million to $6.4 million as of
March 31, 1998. The increase in accounts receivable was due to the higher
revenues during 1998 and the lower allowance for doubtful accounts at March 31,
1998. As of March 31, 1998, 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 $0.4 million and $1.0 million in 1998 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, 1998, the Company
had repurchased 500,000 shares, expending approximately $3.1 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, 1998 the available line of credit was
20
<PAGE> 21
$1.0 million, expiring in September 1998. Borrowings bear interest at the bank's
reference rate (8.5% as of March 31, 1998). The agreement has a number of
financial covenants which the Company is required to meet. The Company had no
outstanding borrowings under the agreement as of March 31, 1998.
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 1999.
There can be no assurance that the Company will be able to achieve profitability
on a quarterly or annual basis in the future.
Restructuring Programs. The restructuring program implemented by the
Company in the last quarter of 1997 and the reorganization initiated at the
close of 1998 may not be adequate to bring the Company to profitability. The
reorganization of the sales and marketing, technical services 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 support personnel
in connection with the reorganization may negatively affect the Company's
licensing efforts which could result in declining total revenues. If the
restructuring program and reorganization are inadequate, future 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 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.
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 $4 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.
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.
21
<PAGE> 22
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 1998, among other
research and development expenditures, the Company allocated research and
development funding to the development of its most recent release of EDM,
version 4.0, as well as the development of products for the internet
environment, in particular Radia. The Company intends to continue to allocate
funding to these development projects throughout 1999. 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, financial condition and results of
operations 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 business,
financial condition and results of operation.
Competition. Competition in the ESD market is rapidly evolving. Current and
prospective competitors of the Company generally fall into three categories:
Network/Systems Management Framework Vendors. These competitors
include IBM/Tivoli, Computer Associates, and Hewlett-Packard, who offer
traditional "list/script-based" ESD tools as part of their enterprise
frameworks.
LAN/Desktop Management Suite Vendors. These competitors include
vendors like Microsoft, Intel, and Network Associates, who offer
workgroup-based ESD tools as part of a LAN administration package.
22
<PAGE> 23
Internet Push ESD Vendors. These competitors include start-ups like
Marimba, BackWeb and infrastructure suppliers like Netscape and Microsoft
who provide push distribution technologies as plug-in components for their
browsers.
Many of the Company's competitors have longer operating histories than the
Company, and many 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 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
resulted, and could in the future result 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 1998 and 1997, approximately
46% and 18% of the Company's net revenues were derived from its international
operations. International revenues increased significantly in 1998 compared to
1997 and the Company plans to continue to develop international sales, primarily
through its European operations. 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 1998, two customers, Amdahl and EDS,
accounted for approximately 31% and 10% of total revenues, respectively. 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. 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 amended 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. In the event of a change of control of the Company, the
amended agreement allows Amdahl the right to terminate the agreement and recover
unused guaranteed sublicense fees at the time of the termination, to the extent
they were also outstanding at March 31, 1997. There can be no
23
<PAGE> 24
assurance that Amdahl will extend this agreement in subsequent years. The
Company recognized no revenue from guaranteed sublicense fees from Amdahl in
1998. 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.
Year 2000 Implications. Many currently installed computer systems and
software products are unable to distinguish 21st century dates from 20th century
dates. Beginning in the year 2000, these date code fields will need to
distinguish 21st century dates from 20th century dates, and, as a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. The Company is aware that
some of its internal systems are not Year 2000 compliant and the Company is in
the process of assessing the impact of replacing or upgrading these systems. The
Company has on occasion warranted, and generally represents to its customers,
that the newer version of its products, EDM version 4.0 and RADIA, are free from
Year 2000 defects. There can be no assurance that the Company's products are
Year 2000 compliant, or that the Company's products will not be integrated with,
or otherwise interact with, non-compliant software. The foregoing could expose
the Company to claims from its customers and result in the loss of or delay in
market acceptance of the Company's products, increased service and warranty
costs to the Company and payment by the Company of compensatory or other
damages, any of which events could have a material adverse effect on the
Company's business, operating results and financial condition. Although the
Company believes that the cost to replace or upgrade its internal systems to be
Year 2000 compliant will not have a material adverse effect on its business, the
failure of any third-party systems to operate properly with regard to the Year
2000 and thereafter could have a material adverse effect on the Company's
business, results of operations and financial condition. Furthermore, the
purchasing patterns of potential customers may be affected by Year 2000 issues
as companies expend significant resources to correct their current systems for
Year 2000 compliance.
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.
24
<PAGE> 25
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 24, 1998, 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 Relationships and Related Transactions" contained in
the Proxy Statement.
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<PAGE> 26
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>
1. Financial Statements:
Report of Independent Public Accountants............... F-2
Consolidated Balance Sheets -- As of March 31, 1998 and F-3
1997..................................................
Consolidated Statements of Operations -- For the Three F-4
Years Ended March 31, 1998, 1997 and 1996..............
Consolidated Statements of Stockholders' Equity -- For F-5
the Three Years Ended March 31, 1998, 1997 and 1996....
Consolidated Statements of Cash Flows -- For the Three F-6
Years Ended March 31, 1998, 1997 and 1996..............
Notes to Consolidated Financial Statements............. F-7
2. Financial Statement Schedule: For the Years Ended March
31, 1998, 1997 and 1996:
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.
3. Exhibits
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 the 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 August 1, 1997 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.
10.14** Employment Agreement effective as of April 1, 1997 by and
between the Registrant and Wallace D. Ruiz.
10.15 Offer Letter dated February 9, 1998 by and between the
Registrant and Michael Carabetta.
</TABLE>
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<PAGE> 27
<TABLE>
<S> <C>
10.16 Separation Agreement and Mutual Release by and between the Registrant and Stuart Jacobson.
10.17 Agreement dated February 1998 by and between the Registrant and Stuart Jacobson.
21.1* Subsidiary of Registrant.
23.1 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (see page 29).
27.1 Financial Data Schedule.
</TABLE>
(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.
- ---------------
* 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 for the fiscal year ended March 31, 1997.
+ 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.
27
<PAGE> 28
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, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: June 24, 1998
28
<PAGE> 29
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.
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below on June 24, 1998 by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ALBION J. FITZGERALD Chairman of the Board and June 24, 1998
- -------------------------------------------------------- Chief Executive Officer
Albion J. Fitzgerald (Principal Executive Officer)
/s/ WALLACE D. RUIZ Vice President, Treasurer and June 24, 1998
- -------------------------------------------------------- Chief Financial Officer
Wallace D. Ruiz (Principal Financial and
Accounting Officer)
/s/ ROBERT B. ANDERSON Executive Vice President, June 24, 1998
- -------------------------------------------------------- Secretary and Director
Robert B. Anderson
/s/ DEBORAH DOYLE MCWHINNEY Director June 24, 1998
- --------------------------------------------------------
Deborah Doyle McWhinney
/s/ H. KENT PETZOLD Director June 24, 1998
- --------------------------------------------------------
H. Kent Petzold
</TABLE>
29
<PAGE> 30
NOVADIGM, INC.
INDEX TO CONSOLIDATED 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> 31
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, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended March 31, 1998. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1998 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 accompanying schedule listed in the
index to financial statement schedules is the responsibility of the Company's
management and 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
Roseland, New Jersey
April 27, 1998
F-2
<PAGE> 32
NOVADIGM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 4,431 $ 7,984
Short-term marketable securities.......................... 14,534 18,205
Accounts receivable, net of allowance for doubtful
accounts of $770 in 1998 and $1,302 in 1997............ 6,352 4,732
Prepaid expenses and other current assets................. 841 604
-------- --------
Total current assets.............................. 26,158 31,525
Property and equipment, net............................... 1,763 1,586
Long-term marketable securities........................... -- 2,529
Other assets.............................................. 955 702
-------- --------
$ 28,876 $ 36,342
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,094 $ 1,540
Accrued liabilities....................................... 1,578 433
Accrued payroll and other compensation.................... 2,642 2,229
Accrued restructuring costs............................... -- 1,394
Deferred revenue.......................................... 2,518 946
-------- --------
Total current liabilities......................... 8,832 6,542
-------- --------
Commitments and contingencies
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 -- 17,471 shares in 1998 and 17,316 shares
in 1997............................................... 11 11
Additional paid-in capital................................ 66,087 65,859
Accumulated deficit....................................... (43,548) (34,531)
Treasury stock, 410 shares in 1998, 231 shares in 1997.... (2,527) (1,543)
Cumulative translation adjustment......................... 21 4
-------- --------
Total stockholders' equity........................ 20,044 29,800
-------- --------
$ 28,876 $ 36,342
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
F-3
<PAGE> 33
NOVADIGM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-------------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Licenses.................................................. $ 15,728 $ 12,117 $18,775
Services.................................................. 7,667 10,261 6,241
-------- -------- -------
Total revenues.................................... 23,395 22,378 25,016
-------- -------- -------
Operating expenses:
Cost of services.......................................... 6,971 6,275 2,630
Sales and marketing....................................... 14,680 17,123 10,961
Research and development.................................. 6,843 6,212 4,426
General and administrative................................ 4,964 4,979 3,230
Restructuring charge...................................... -- 1,829 --
-------- -------- -------
Total operating expenses.......................... 33,458 36,418 21,247
-------- -------- -------
Operating income (loss)..................................... (10,063) (14,040) 3,769
Interest income and other, net.............................. 978 1,597 1,428
-------- -------- -------
Income (loss) before provision (benefit) for income taxes... (9,085) (12,443) 5,197
Provision (benefit) for income taxes........................ (68) 59 160
-------- -------- -------
Net income (loss)........................................... $ (9,017) $(12,502) $ 5,037
======== ======== =======
Earnings (loss) per share -- basic.......................... $ (.52) $ (.72) $ .30
======== ======== =======
Weighted average common shares outstanding -- basic......... 17,392 17,409 16,566
======== ======== =======
Earnings (loss) per share -- diluted........................ $ (.52) $ (.72) $ .28
======== ======== =======
Weighted average common and common equivalent shares
outstanding -- diluted.................................... 17,392 17,409 17,928
======== ======== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements.
F-4
<PAGE> 34
NOVADIGM, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE CUMULATIVE TOTAL
--------------- PAID-IN FROM ACCUMULATED TREASURY TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT STOCK ADJUSTMENT EQUITY
------ ------ ---------- ------------ ----------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995.... 14,827 $ 8 $31,457 $(325) $(27,066) $ -- $ (8) $ 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 -- -- -- -- 1,222
Foreign currency translation
adjustment................. -- -- -- -- -- -- (4) (4)
Net income................... -- -- -- -- 5,037 -- -- 5,037
------ --- ------- ----- -------- ------- ---- --------
Balance at March 31, 1996.... 17,402 11 64,877 (325) (22,029) -- (12) 42,522
Exercise of stock options.... 145 -- 982 -- -- -- -- 982
Purchases of treasury
stock...................... (231) -- -- -- -- (1,543) -- (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 65,859 -- (34,531) (1,543) 4 29,800
Exercise of stock options.... 334 -- 387 -- -- -- -- 387
Purchases of treasury
stock...................... (269) -- -- -- -- (1,535) -- (1,535)
Sales of treasury stock...... 90 -- (159) -- -- 551 -- 392
Foreign currency translation
adjustment................. -- -- -- -- -- -- 17 17
Net loss..................... -- -- -- -- (9,017) -- -- (9,017)
------ --- ------- ----- -------- ------- ---- --------
Balance at March 31, 1998.... 17,471 $11 $66,087 $ -- $(43,548) $(2,527) $ 21 $ 20,044
====== === ======= ===== ======== ======= ==== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements
F-5
<PAGE> 35
NOVADIGM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-------------------------------
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(9,017) $(12,502) $ 5,037
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities --
Depreciation and amortization.......................... 1,104 946 510
Increase (decrease) in allowance for doubtful
accounts............................................. (532) 1,302 --
Decrease in restricted cash............................ -- -- 300
Decrease (increase) in accounts receivable............. (1,088) 1,849 (3,357)
Decrease (increase) in prepaid expenses and other
current assets....................................... (237) 453 (765)
Increase in other assets............................... (253) (428) (213)
Increase in accounts payable and accrued liabilities... 1,699 301 617
Increase in accrued payroll and other compensation..... 413 800 861
Increase (decrease) in accrued restructuring costs..... (1,394) 1,394 --
Increase (decrease) in deferred revenue................ 1,572 (3,563) 3,638
Decrease in notes receivable from stockholders......... -- 325 --
------- -------- --------
Net cash (used in) provided by operating
activities...................................... (7,733) (9,123) 6,628
------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (1,281) (1,230) (1,443)
Purchases of held-to-maturity securities.................. (17,752) (20,338) (36,101)
Proceeds from redemptions of held-to-maturity
securities............................................. 23,952 25,859 9,846
------- -------- --------
Net cash provided by (used in) investing
activities...................................... 4,919 4,291 (27,698)
------- -------- --------
Cash flows from financing activities:
Net proceeds from the sale of common stock and exercise of
warrants and options................................... 387 982 33,423
Purchases of treasury stock............................... (1,535) (1,543) --
Sales of treasury stock................................... 392 -- --
------- -------- --------
Net cash (used in) provided by financing
activities...................................... (756) (561) 33,423
------- -------- --------
Effect of exchange rate on changes in cash.................. 17 16 (4)
------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (3,553) (5,377) 12,349
Cash and cash equivalents at the beginning of the period.... 7,984 13,361 1,012
------- -------- --------
Cash and cash equivalents at the end of the period.......... $ 4,431 $ 7,984 $ 13,361
======= ======== ========
Supplemental disclosure of cash flow activity:
Cash paid for interest...................................... $ 18 $ 2 $ 2
Cash paid for income taxes.................................. $ -- $ -- $ 115
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements.
F-6
<PAGE> 36
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. THE COMPANY
Novadigm, Inc. (the "Company") was incorporated in Delaware in February
1992. The Company designs, markets and supports an automated solution to
software management in medium and large organizations with complex distributed
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 1992,
the Company completed a public offering of its common stock on the Vancouver
Stock Exchange. During the second quarter of fiscal 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 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 its 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.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Revenues
The Company recognizes revenue in accordance with the provisions of
Statement of Position No. 97-2, "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
maintenance revenue from support and software update rights.
Revenues from perpetual software license agreements are recognized upon
shipment of the software if there are no significant post-delivery obligations,
payment is due within one year and collectibility is probable.
F-7
<PAGE> 37
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
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 percentage 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 $0.4
million, $3.9 million and $8.3 million in guaranteed sublicense fees under all
such agreements in 1998, 1997 and 1996, 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 their fair market value based on the value
established by independent sales 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 and 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,
1998 and 1997, approximately 46% and 40%, respectively, of accounts receivable
are concentrated with 2 customers who are large, well-established companies that
the Company has determined are creditworthy.
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
F-8
<PAGE> 38
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
with SFAS 115, the Company's marketable securities which are composed of
commercial paper, government 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, 1998 (in thousands) are summarized
as follows:
<TABLE>
<CAPTION>
MATURITIES OF
ONE YEAR OR LESS
----------------
<S> <C>
U.S. government and government backed securities....... $ 1,497
Commercial paper....................................... 12,041
Corporate notes........................................ 996
-------
$14,534
=======
</TABLE>
Proceeds from redemption of held-to-maturity securities were approximately
$24.0 million in 1998. At March 31, 1998, approximately $2.0 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>
1998 1997
------- -------
<S> <C> <C>
Computer equipment and software.......................... $ 3,201 $ 2,520
Furniture and fixtures................................... 1,126 697
Leasehold improvements................................... 357 302
------- -------
4,684 3,519
Less: Accumulated depreciation and amortization.......... (2,921) (1,933)
------- -------
$ 1,763 $ 1,586
======= =======
</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>
Long-Lived Assets
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-lived Assets" ("SFAS
121"). SFAS 121 requires, among other things, that an entity review its
long-lived assets and certain related intangibles for impairment whenever
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. As a result of its review, the Company does not believe
that any impairment currently exists related to its long-lived assets.
F-9
<PAGE> 39
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
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
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.
Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128")
which requires the presentation of basic earnings per share ("Basic EPS") and
diluted earnings per share ("Diluted EPS"). Basic EPS is calculated by dividing
income available to common shareholders by the weighted average number of shares
of common stock outstanding during the period. Diluted EPS is calculated by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period adjusted to reflect potentially
dilutive securities. The Company has implemented SFAS 128 as of March 31, 1998
and, in accordance with the pronouncement, has restated prior year amounts.
In accordance with SFAS 128, the following table reconciles income and
share amounts used to calculate basic earnings per share and diluted earnings
per share.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
------------------------------
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Numerator:
Net income (loss) -- basic and diluted....... $(9,017) $(12,502) $ 5,037
------- -------- -------
Denominator:
Weighted average number of common shares
outstanding -- basic....................... 17,392 17,409 16,566
Incremental shares from assumed conversion of
options.................................... -- -- 1,362
Weighted average common and common equivalent
shares outstanding -- diluted.............. 17,392 17,409 17,928
======= ======== =======
Earnings (loss) per share -- basic........... $ (.52) $ (.72) $ .30
======= ======== =======
Earnings (loss) per share -- diluted......... $ (.52) $ (.72) $ .28
======= ======== =======
</TABLE>
3. REVOLVING LINE OF CREDIT AGREEMENT
The Company entered into a $1.0 million unsecured revolving line of credit
agreement with a bank which expires in September 1998. Borrowings bear interest
at the bank's reference rate (8.5% as of March 31, 1998). The agreement includes
a provision that prohibits the Company from paying dividends and requires the
Company to meet certain financial covenants. As of March 31, 1998, the Company
had no outstanding borrowings under the agreement.
F-10
<PAGE> 40
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
4. COMMITMENTS AND CONTINGENCIES
The Company has various leases for its facilities under non-cancelable
operating lease agreements. Rent expense incurred under these agreements in
fiscal 1998, 1997 and 1996 was approximately $928,000, $659,000 and $534,000,
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>
1999........................... $ 871
2000........................... 580
2001........................... 180
2002........................... 110
2003 and thereafter............ --
------
$1,741
======
</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.
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, 1998, the Company
repurchased 500,000 shares, expending approximately $3.1 million. Approximately
90,000 of these shares were resold by the Company in fiscal 1998 for the
exercise of employee stock options.
6. 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.
F-11
<PAGE> 41
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
The following table summarizes the option activity (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE
OUTSTANDING GRANT PRICE
----------- -----------
<S> <C> <C>
Balance at March 31, 1996............................ 2,557 $15.82
Granted............................................ 3,109 $ 5.32
Exercised.......................................... (108) $ 6.06
Canceled........................................... (2,485) $ 6.21
------ ------
Balance at March 31, 1997............................ 3,073 $ 5.23
Granted............................................ 1,325 $ 4.04
Exercised.......................................... (341) $ 1.76
Canceled........................................... (706) $ 5.43
------ ------
Balance at March 31, 1998............................ 3,351 $ 5.05
====== ======
</TABLE>
At March 31, 1998, 1,144,000 options are vested and exercisable and
4,001,000 shares of common stock are reserved for future issuance under the
Plan. The weighted average exercise price of exercisable options at March 31,
1998 is $4.90 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
75,000 shares and 45,000 shares were purchased by employees under the Purchase
Plan in fiscal 1998 and 1997, respectively. At March 31, 1998, the Company has
reserved approximately 863,000 shares for future issuance.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS. 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 adopted SFAS 123 in fiscal 1997 and in accordance with
the provisions of SFAS. 123, the Company applies APB Opinion 25 and related
interpretations in accounting for its stock option and stock purchase plans. Had
compensation cost for
F-12
<PAGE> 42
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
these plans been determined consistent with SFAS 123, the Company's net loss and
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,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net loss (in thousands):
As reported............................................ $ (9,017) $(12,502)
Pro forma.............................................. $(14,681) $(20,526)
Net loss per share -- basic and diluted:
As reported............................................ $ (.52) $ (.72)
Pro forma.............................................. $ (.84) $ (1.18)
</TABLE>
Because the SFAS 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 1998 and
1997 were $3.04 and $5.32, respectively. The options outstanding at March 31,
1998, have exercise prices between $3.31 and $8.25, with a weighted average
exercise price of $5.05 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 1998 and 1997: risk free interest rates
ranged from 6.1% to 6.4%, expected dividend yields of 0%, expected lives of 5.0
years and expected volatility of 94%.
7. INCOME TAXES
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109 ("SFAS 109") "Accounting for Income Taxes". SFAS
109 provides for an asset and 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.
The components of the provision (benefit) for income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current U.S. Federal.................................. $ (0) $(12) $112
State and local....................................... (68) 71 48
---- ---- ----
Total Current............................... $(68) 59 160
---- ---- ----
Deferred U.S. Federal................................. -- -- --
State and local....................................... -- -- --
---- ---- ----
Total Deferred.............................. -- -- --
---- ---- ----
Foreign............................................... -- -- --
Provision (benefit) for income taxes.................. $(68) $ 59 $160
==== ==== ====
</TABLE>
F-13
<PAGE> 43
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
The components of the net deferred tax asset at March 31, 1998 and 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 6,864 $ 3,257
Other operating reserves............................... 525 160
Accrued liabilities and other.......................... 325 943
Tax credit carryforwards............................... 423 323
Restructuring charge................................... -- 340
Depreciation........................................... 322 222
------- -------
Total deferred tax assets...................... 8,459 5,245
Valuation allowance...................................... (8,459) (5,245)
------- -------
Net deferred tax asset......................... $ -- $ --
======= =======
</TABLE>
As of March 31, 1998 the Company has net operating loss carryforwards for
federal income tax reporting purposes of approximately $17.1 million. These
carryforwards expire in various periods through 2013. 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 (benefit) 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>
1998 1997
----- -----
<S> <C> <C>
Provision (benefit) at U.S. statutory rate.................. (35.0)% (35.0)%
State income taxes, net of federal benefit.................. (0.7) 0.4
Change in valuation allowance............................... 35.0 35.1
----- -----
(0.7)% 0.5%
===== =====
</TABLE>
8. MAJOR CUSTOMERS AND INTERNATIONAL SALES
During 1998, two customers, Amdahl and EDS, accounted for approximately 31%
and 10% of total revenues, respectively. 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. 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 amended 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
amended 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
F-14
<PAGE> 44
NOVADIGM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
Amdahl will extend this agreement in subsequent years. The Company recognized no
guaranteed sublicense fees from Amdahl in fiscal 1998, $1.8 million in fiscal
1997 and $7.4 million in fiscal 1996.
Export sales, consisting of sales to customers in foreign countries, were
45.6%, 18.4%, and 20.7% of total revenues in 1998, 1997 and 1996 respectively.
Geographic information for the fiscal years ended March 31, 1998, 1997 and
1996 are as follows.
<TABLE>
<CAPTION>
REVENUES OPERATING INCOME (LOSS) IDENTIFIABLE ASSETS
--------------------------- ----------------------------- ---------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States.......... $22,727 $21,885 $24,397 $ (7,467) $ (9,980) $ 5,886 $26,972 $37,152 $53,048
Europe................. 3,590 1,880 1,691 (2,596) (4,060) (2,117) 2,958 1,630 2,026
Eliminations........... (2,922) (1,387) (1,072) -- -- -- (1,054) (2,440) (4,942)
------- ------- ------- -------- -------- ------- ------- ------- -------
Total
Company..... $23,395 $22,378 $25,016 $(10,063) $(14,040) $ 3,769 $28,876 $36,342 $50,132
======= ======= ======= ======== ======== ======= ======= ======= =======
</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. Most
license agreements are entered into between the parent company and its
customers, and most 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.
9. 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
severance and office closings............................. 814
------
$1,829
======
</TABLE>
The restructuring charge included severance for the termination of 29
employees, the costs to close and consolidate five regional sales offices and
the Chicago-based marketing office, and the costs to realign distribution
channels in Europe. As of March 31, 1997, no material payments had been made
under the restructuring program. During fiscal 1998, the above restructuring
charges were paid in full.
F-15
<PAGE> 45
SCHEDULE II
NOVADIGM, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO RECOVERIES END OF
CLASSIFICATION OF PERIOD OPERATIONS (WRITEOFFS) PERIOD
-------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year Ended:
March 31, 1996.............................. $ -- $ 344 $ (344) $ --
March 31, 1997.............................. -- 1,278 25 1,302
March 31, 1998.............................. 1,302 553 (1,085) 770
</TABLE>
S-1
<PAGE> 46
EXHIBIT INDEX
<TABLE>
<S> <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 the 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 August 1, 1997 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.
10.14** Employment Agreement effective as of April 1, 1997 by and
between the Registrant and Wallace D. Ruiz.
10.15 Offer Letter dated February 9, 1998 by and between the
Registrant and Michael Carabetta.
10.16 Separation Agreement and Mutual Release by and between the
Registrant and Stuart Jacobson.
10.17 Agreement dated February 1998 by and between the Registrant
and Stuart Jacobson.
21.1* Subsidiary of Registrant.
23.1 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (see page 29)
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 for the fiscal year ended March 31, 1997.
+ 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 10.12
[COAST COMMERCIAL BANK LOGO]
BUSINESS LOAN AGREEMENT
<TABLE>
- ------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 09-01-1998 127836001 0020 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, SUITE 3515 FRONT STREET
SAN FRANCISCO, CA 94107 720 FRONT STREET
SANTA CRUZ, CA 95060
- --------------------------------------------------------------------------------
THIS BUSINESS 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 AUGUST 1, 1997, 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 Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
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."
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.
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
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."
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, surety, 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.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
LOAN. 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.
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.
<PAGE> 2
08-01-1997 BUSINESS LOAN AGREEMENT Page 2
Loan No 127836001 (CONTINUED)
================================================================================
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" mean 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" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
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 businesses 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 as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, 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 titled 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 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 other-wise.
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 (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
<PAGE> 3
08-01-1997 BUSINESS LOAN AGREEMENT Page 3
Loan No 127836001 (CONTINUED)
================================================================================
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, SUITE 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 representations 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 net less
than $20,000,000.00.
NET WORTH RATIO. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 0.50 to 1.00.
WORKING CAPITAL. Maintain Working Capital in excess of $15,000,000.00.
CURRENT RATIO. Maintain a ratio of Current Assets to Current
Liabilities in excess of 3.75 to 1.00. Except as provided above, all
computations made to determine compliance with the requirements
contained in this paragraph shall be made in 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. 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 cost 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 assessment, 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, rules 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,
<PAGE> 4
08-01-1997 BUSINESS LOAN AGREEMENT Page 4
Loan No 127836001 (CONTINUED)
================================================================================
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 of 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) 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 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 ally 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,
<PAGE> 5
08-01-1997 BUSINESS LOAN AGREEMENT Page 5
Loan No 127836001 (CONTINUED)
================================================================================
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 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 counterclaims 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 or 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. Lander 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 (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
<PAGE> 6
08-01-1997 BUSINESS LOAN AGREEMENT Page 6
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================================================================================
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 notices 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 Lander informed at all
times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
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 or 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 by
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 Documents, 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 that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or 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 of withheld in the sole discretion of
Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
AUGUST 1, 1997.
BORROWER:
NOVADIGM, INC.
By: /s/ WALLACE RUIZ
------------------------------------
WALLACE RUIZ, VICE PRESIDENT AND CFO
LENDER:
COAST COMMERCIAL BANK
By: [ILLEGIBLE]
------------------------------------
Authorized Officer
<PAGE> 7
[COAST COMMERCIAL BANK LOGO]
CHANGE IN TERMS AGREEMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 09-01-1998 127836001 0020 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, SUITE 3515 FRONT STREET
SAN FRANCISCO, CA 94107 720 FRONT STREET
SANTA CRUZ, CA 95060
================================================================================
PRINCIPAL AMOUNT: $1,000,000.00
DATE OF AGREEMENT: AUGUST 1, 1997
DESCRIPTION OF EXISTING INDEBTEDNESS. NOTE # 127836001, A REVOLVING LINE OF
CREDIT DATED JULY 1, 1996.
DESCRIPTION OF COLLATERAL. UNSECURED.
DESCRIPTION OF CHANGE IN TERMS. THE MATURITY DATE OF THIS LINE OF CREDIT IS
HEREBY EXTENDED TO SEPTEMBER 1, 1998.
PROMISE TO PAY. NOVADIGM, INC. ("BORROWER") PROMISES TO PAY TO COAST COMMERCIAL
BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE
PRINCIPAL AMOUNT OF ONE MILLION & 00/100 DOLLARS ($1,000,000.00) OR SO MUCH AS
MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL
BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED FROM THE DATE OF EACH
ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON
SEPTEMBER 1, 1998. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF
ACCRUED UNPAID INTEREST BEGINNING SEPTEMBER 1, 1997, AND ALL SUBSEQUENT INTEREST
PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. Interest on this
Agreement is computed on a 365/365 simple interest basis; that is, by applying
the ratio of the annual interest rate over the number of days in a year,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The Interest rate on this Agreement is subject to change
from time to time based on changes in an index which is the COAST COMMERCIAL
BANK'S REFERENCE RATE (the "Index"). The Index is not necessarily the lowest
rate charged by Lender on its loans and is set by Lender in its sole discretion.
If the Index becomes unavailable during the term of this loan, Lender may
designate a substitute index after notifying Borrower. Lender will tell Borrower
the current index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. The interest rate change will not
occur more often than each DAY. THE INDEX CURRENTLY IS 8.500% PER ANNUM. THE
INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS AGREEMENT
WILL BE AT A RATE EQUAL TO THE INDEX, RESULTING IN AN INITIAL RATE OF 8.500% PER
ANNUM. NOTICE: Under no circumstances will the interest rate on this Agreement
be more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid interest.
Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $5.00, WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this
Agreement or any agreement related to this Agreement, or in any other agreement
or loan Borrower has with Lender. (c) Borrower defaults 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 ability to repay this Note or
perform Borrower's obligations under this Note of any of the Related Documents.
(d) Any representation or statement made or furnished to Lender by Borrower or
on Borrower's behalf is false or misleading in any material respect either now
or at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Agreement. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired. (i) Lender
in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Agreement
within the preceding twelve (12) months, it may be cured (and no event of
default will have occurred) if Borrower, 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.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Agreement and all accrued unpaid Interest immediately due,
without notice, and then Borrower will pay that amount. Upon Borrower's failure
to pay all amounts declared due pursuant to this section, including failure to
pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Agreement to 5.000
percentage points over the Index. Lender may hire or pay someone else to help
collect this Agreement if Borrower does not pay. Borrower also will pay Lender
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 and legal expenses 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. 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 TO THE PROVISIONS ON ARBITRATION, THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and
08-01-1997 CHANGE IN TERMS AGREEMENT Page 2
Loan No 127836001 (Continued)
- --------------------------------------------------------------------------------
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 this
Agreement against any and all such accounts.
LINE OF CREDIT. This Agreement evidences a revolving line of credit. Advances
under this Agreement may be requested either orally or in writing by Borrower or
by any authorized person. Lender may, but need not, require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. The following party or parties are authorized to request
advances under the line of credit until Lender receives from Borrower at
Lender's address shown above written notice of revocation of their authority:
WALLACE RUIZ, VICE PRESIDENT AND CFO; ALBION FITZGERALD, PRESIDENT/CEO; and ROB
ANDERSON, EVP/COO. Borrower agrees to be liable for all sums either: (a)
advanced in accordance with the instructions of an authorized person or (b)
credited to any of Borrower's accounts with Lender. The unpaid principal balance
owing on this Agreement at any time may be evidenced by endorsements on this
Agreement or by Lender's internal records, including daily computer print-outs.
Lender will have no obligation to advance funds, under this Agreement if: (a)
Borrower or any guarantor is in default under the terms of this Agreement or any
agreement that Borrower or any guarantor has with Lender, including any
agreement made in connection with the signing of this Agreement; (b) Borrower or
any guarantor ceases doing business or is insolvent; (c) any guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Agreement or any other loan with Lender; (d) Borrower has
applied funds provided pursuant to this Agreement for purposes other than those
authorized by Lender; or (e) Lender in good faith deems itself insecure under
this Agreement or any other agreement between Lender and Borrower.
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 Associates, upon request of either party. No act to take or dispose
of any collateral securing this Agreement 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 securing this Agreement, including any claim to rescind, reform,
or otherwise modify any agreement relating to the collateral securing this
Agreement, 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 725, 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, actions, 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.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of
the original obligation or obligations, including all agreements evidenced or
securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a satisfaction
of the obligation(s). It is the intention of Lender to retain as liable parties
all makers and endorsers of the original obligation(s), including accommodation
parties, unless a party is expressly released by Lender in writing. Any maker or
endorser, including accommodation makers, will not be released by virtue of this
Agreement, if any person who signed the original obligation does not sign this
Agreement below, then all persons signing below acknowledge that this Agreement
is given conditionally, based on the representation to Lender that the
non-signing party consents to the changes and provisions of this Agreement or
otherwise will not be released by it. This waiver applies not only to any
initial extension, modification or release, but also to all such subsequent
actions.
MISCELLANEOUS PROVISIONS. This Agreement is payable on demand. The inclusion of
specific default provisions or rights of Lender shall not preclude Lender's
right to declare payment of this Agreement on its demand. Lender may delay or
forgo enforcing any of its rights or remedies under this Agreement without
losing them. Borrower and any other person who signs, guarantees or endorses
this Agreement, to the extent allowed by law, waive any applicable statute of
limitations, presentment, demand for payment, protest and notice of dishonor.
Upon any change in the terms of this Agreement, and unless otherwise expressly
stated in writing, no party who signs this Agreement, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES RECEIPT OF A COMPLETED
COPY OF THE AGREEMENT.
BORROWER:
NOVADIGM, INC.
By: /s/ WALLACE RUIZ
------------------------------------
WALLACE RUIZ, VICE PRESIDENT AND CFO
================================================================================
<PAGE> 1
EXHIBIT 10.15
February 9, 1998
Michael Carabetta
Dear Mike,
I am pleased to confirm our offer to you for a position with Novadigm, Inc. (the
"Company") as President and Chief Operating Officer commencing on February 9,
1998. In this position you will be paid a semi-monthly salary equating to an
annualized amount of $200,000.
As a Company employee, you will also be eligible for an annual bonus of up to
$150,000 based on achieving quarterly targets, which we will mutually develop in
the next 30 to 60 days. In addition, you will also be eligible for benefits
which the Company makes generally available to its employees such as the
Company's 401 (k), and Employee Stock Purchase Plan.
As agreed, for the first two years of employment or until you elect otherwise,
you will provide your own medical and life insurance coverage. In addition, you
will accrue three weeks of vacation as well as all regular Company holidays.
In addition, you will be eligible to participate in the Company's Employee Stock
Option Plan. Under this plan, the Company will offer you incentive stock options
for the purchase of up to 400,000 shares ("Initial Grant"). The exercise price
of the option is determined by the commencement date of your employment. The
Initial Grant is otherwise subject to the terms and conditions of the Employee
Stock Option Plan and the standard form of agreement thereunder, including
vesting.
As President and Chief Operating Officer, you will report directly to me. Your
offices will be located 2200 Powell Street, Suite 590, Emeryville, CA.
If after 12 months, it is mutually agreed that relocation is appropriate, then
the Company will provide you will a relocation package, including reimbursement
for reasonable relocation expenses associated with the movement of your personal
and household goods, including transportation and en-route expenses, any third
party real estate fees associated with the sale of your house, temporary housing
as well as any federal and state taxes assessed for such move.
I have enclosed our standard "Employment, Confidential Information and Invention
Assignment Agreement." If you accept this offer, please sign and return
<PAGE> 2
Michael Carabetta
2/9/98
Page 2
the Agreement and this offer letter, to Vera Hunter in our Mahwah, NJ. You may
keep the enclosed copy of the offer letter for your files.
Employment information as well as various forms concerning taxes, insurance and
other benefits will be sent to you upon acceptance of this offer. These forms
must be completed and sent to Vera Hunter in order for you to begin employment.
If you would like your payroll directly deposited to your bank account, the
enclosed authorization agreement form must be filled out in its entirety and a
voided check must be attached for the account into which you would like the
funds deposited.
You should be aware that your employment with the Company is for no specified
period and constitutes at will employment. As a result, you are free to resign
at any time, for any reason or for no reason. Similarly, the Company is free to
conclude its employment relationship with you at any time, with or without
cause. However as a courtesy, both parties agree to provide each other 60 days
written notice.
In the event the Company terminates your employment without cause, you shall be
entitled to receive an amount equal to 25% of the bonus you would have earned
had you been employed by the Company at the end of such year for each completed
quarter in which your quarterly objectives were achieved. The bonus to which you
are entitled pursuant to this section shall be paid in a lump sum within thirty
(30) days of the date that the Company's releases its results to the public for
the quarter in which you were terminated.
In the event that your employment is terminated by the Company without cause
during the first three years of employment or you die during your employment
with the Company, you, or in the case of death your survivors, will be eligible
to purchase under the Company's Employee Stock Option Plan up to 100,000 shares
of your Initial Grant of 400,000 shares; plus up to 1/48th of the amount of your
Initial Grant for each completed month of employment.
If the Company terminates your employment as a result of Involuntary or
Constructive Termination other than for Cause at any time during the period
beginning thirty (30) days before and ending twelve (12) months after a Change
of Control, then you shall be entitled to receive, in addition to any other
benefits, 100% accelerated vesting of your stock options.
For the purpose of this employment offer, a Change in Control shall mean the
occurrence of any of the following: (i) any person becomes the beneficial owner,
directly or indirectly, of the securities of the Company representing 50% or
more of the voting power represented by the Company's then outstanding voting
securities; or (ii) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent at least 50% of the total voting power of the surviving
entity
<PAGE> 3
Michael Carabetta
2/9/98
Page 3
immediately after such merger or consolidation.
For the purpose of this employment offer, Involuntary or Constructive
Termination shall mean (i) without your express written consent, the assignment
of any duties or the significant reduction of your duties, either of which is
inconsistent with your position with the Company and responsibilities in effect
immediately prior to such assignment, or your removal from such position and
responsibilities; (ii) without your express written consent, a substantial
reduction, without good business reasons, of the facilities and perquisites
available to you immediately prior to such reduction; (iii) a reduction by the
Company in your base compensation as in effect immediately prior to such
reduction; (iv) a material reduction by the Company in the kind or level of
employee benefits to which you are entitled immediately prior to such reduction
with the result that your overall benefits package is significantly reduced; (v)
without your express written consent, any relocation of your job or office more
than 40 miles from your then current job or office; (vi) any purported
termination of you by the Company which is not effected for Disability or for
Cause, or any purported termination for which the grounds relied upon are not
valid; or (vii) the failure of the Company to obtain the assumption of this
Agreement.
This letter and the enclosed agreement constitute the entire agreement between
you and the Company regarding your employment, and may be modified only in
writing. Terms of this offer are considered confidential information to the
Company and trust that you will treat it as such between you and the Company.
In accepting this offer, you are representing to us that (i) you are not a party
to any employment agreement or other contract or arrangement which prohibits
your full-time employment with the Company, (ii) you do not know of any conflict
which would restrict your employment with the Company, and (iii) you have not
and will not bring with you to your employment with the Company any documents,
records or other confidential information belonging to former employers. The
Company acknowledges the existence of a severance agreement that governs your
departure from The Amdahl Corporation.
In the event of any dispute or claim relating to or arising out of our
employment relationship, you and the Company agree that such disputes shall be
fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in Alameda, County, California. However, we agree that
this arbitration provision shall not apply to any disputes or claims relating to
or arising out of the misuse or misappropriation of the Company's trade secrets
or proprietary information.
<PAGE> 4
Michael Carabetta
2/9/98
Page 4
Mike, we are very excited about having you as part of Novadigm and everyone is
eager to get you aboard and move forward with your added participation.
Sincerely,
/s/ ALBION FITZGERALD
Albion Fitzgerald
Chairman, President
and Chief Executive Officer
Terms Agreed:
/s/ MICHAEL CARABETTA
- -----------------------------------
Michael Carabetta
- -----------------------------------
Date:
Enclosures
cc: Compensation Committee of the Board of Directors
<PAGE> 1
EXHIBIT 10.16
SEPARATION AGREEMENT AND MUTUAL RELEASE
This Separation Agreement and Mutual Release ("Agreement") is made by
and between Novadigm, Inc. (the "Company"), and Stuart Jacobson ("Employee").
WHEREAS, Employee was employed by the Company as an Executive Vice
President.
WHEREAS, the Company and Employee have entered into an Employment,
Confidential Information and Invention Assignment Agreement (the
"Confidentiality Agreement");
WHEREAS, the Company and Employee have mutually agreed to terminate the
employment relationship and to release each other from any claims arising from
or related to the employment relationship;
NOW, THEREFORE, in consideration of the mutual promises made herein, the
Company and Employee (collectively referred to as "the Parties") hereby agree as
follows:
1. Termination. Employee's employment shall terminate effective April 6,
1998.
2. Consideration. The Company agrees to continue to pay Employee his
current salary and commissions if applicable, and to provide continued benefits,
including continued stock option vesting, all until the date of termination, as
set forth above. The Company agrees to reimburse Employee for any and all
business-related expenses incurred on or before April 6, 1998. In consideration
of the promises, agreements, releases and covenants below, the Company agrees to
pay Employee an
1
<PAGE> 2
amount equal to his current base salary of Seven Thousand Two Hundred and
Ninety-One Dollars and Sixty-Seven Cents ($7,291.67) bimonthly less applicable
payroll taxes withholding for a period of six (6) months from the date of
termination. The Company further agrees that Employee and his dependents shall
continue to participate in the Company's group health insurance plan at the
Company's expense for a period of six (6) months from the date of termination.
Any undisputed amounts due and owing to the Company for outstanding advances,
draws, loans or property may be deducted from the consideration unless settled
beforehand except that as part of the consideration, the Company agrees to waive
its right for reimbursement of the bonus advance of $150,000 paid to Employee
and evidenced by an agreement signed by Employee on February 13, 1998.
3. Stock Option. Employee will be entitled to continue to purchase stock
through May 6, 1998 pursuant to the terms and conditions of the Company's Stock
Option Plan at the Exercise Price Per Share for the Total Number of Shares
Granted as set forth in the Notice(s) of Grant in the Stock Option Agreement(s)
between Employee and the Company.
4. Benefits. Employee shall have the right to continue to participate in
the Company's group health insurance plan under the terms and conditions of
COBRA after October 6, 1998.
5. Confidential Information. Employee shall continue to maintain the
confidentiality of all trade secrets and proprietary information of the Company.
Employee shall continue to comply with the terms of the Confidentiality
Agreement (attached as Exhibit A). Employee shall return all the Company
property and
2
<PAGE> 3
confidential and proprietary information in his possession to the Company within
five business days from the Effective Date of this Agreement.
6. Payment of Salary. Employee acknowledges and represents that the
Company has paid salary, wages, accrued vacation, commissions and any and all
other benefits due to Employee.
7. Release of Claims. Employee agrees that the foregoing consideration
represents settlement in full of all outstanding obligations owed to Employee by
the Company. Employee and the Company, on behalf of themselves, and their
respective heirs, executors, officers, directors, employees, investors,
shareholders, administrators, predecessor and successor corporations, and
assigns, hereby fully and forever release each other and their respective heirs,
executors, officers, directors, employees, investors, shareholders,
administrators, predecessor and successor corporations, and assigns, of and from
any claim, duty, obligation or cause of action relating to any matters of any
kind, whether presently known or unknown, suspected or unsuspected, that any of
them may possess arising from any omissions, acts or facts that have occurred up
until and including the effective date of this Agreement including, without
limitation:
(a) any and all claims relating to or arising from Employee's
employment relationship with the Company and the termination of that
relationship;
(b) any and all claims relating to, or arising from, Employee's
right to purchase, or actual purchase of shares of the Company;
(c) any and all claims for wrongful discharge of employment;
breach of contract, both express and implied; breach of a covenant of good faith
and fair dealing,
3
<PAGE> 4
both express and implied; negligent or intentional infliction of emotional
distress; negligent or intentional misrepresentation; negligent or intention
interference with contract or prospective economic advantage; and defamation;
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment
Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor
Standards Act, the California Fair Employment and Housing Act, and Labor Code
Section 201, et seq.;
(e) any and all claims arising out of any other laws and
regulations relating to employment or employment discrimination; and
(f) any and all claims for attorney's fees and costs.
The Company and Employee agree that the release set forth in this section shall
be and remain in effect in all respects as a complete general release as to the
matters released. This release does not extend to any obligations incurred under
this Agreement.
8. Non-solicitation of Employees and Non-compete. Employee further
agrees that for twelve (12) months from the date of termination, Employee will
not solicit, induce, recruit or encourage any of the Company's employees to
leave their employment. Employee further covenants and agrees that for a period
of twelve (12) months from the date of termination, Employee will not contract
with, will not be employed by, nor the Employee will represent as an agent, a
representative or in any other capacity, a person, firm, partnership, company or
corporation, or an affiliate of the
4
<PAGE> 5
foregoing that competes with the Company in the field of software development,
sales and distribution.
9. Acknowledgement of Waiver of Claims Under ADEA. Employee acknowledges
that he is waiving and releasing any rights he may have under the Age
Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and
release is knowing and voluntary. Employee acknowledges that the consideration
given for this wavier and release Agreement is in addition to anything of value
to which Employee was already entitled. Employee further acknowledges that he
has been advised by this writing that (a) he should consult with an attorney
prior to executing this Agreement; (b) he has at least twenty-one (21) days
within which to consider this Agreement; (c) he has at least seven (7) days
following the execution of this Agreement by the parties to revoke the
Agreement; and (d) this Agreement shall not be effective until the revocation
period has expired.
10. Confidentiality. The Parties hereby each agree to use their best
efforts to maintain in confidence the existence of this Agreement, the contents
and terms of this Agreement, and the consideration for this Agreement
(hereinafter collectively referred to as "Settlement Information"). Each Party
hereto agrees to take every reasonable precaution to prevent disclosure of any
Settlement Information only to those employees, officers, directors, attorneys,
accountants, governmental entities, and family members who have a reasonable
need to know of such Settlement Information.
11. Disparagement. Each party agrees to refrain from any comments which
are defamatory or slanderous of the other, or tortious interference with the
contracts and relationship of the other.
5
<PAGE> 6
12, Tax Consequences. The Company makes no representations or warranties
with respect to the tax consequences of the payment of any sums to Employee
under the terms of this Agreement. Employee agrees and understands that he is
responsible for payment, if any, of local, state and/or federal taxes on the
sums paid hereunder by the Company and any penalties or assessments thereon.
13. No Admission of Liability. No action taken by the Parties hereto, or
either of them, either previously or in connection with this Agreement shall be
deemed or constructed to be (a) an admission of the truth or falsity of any
claims heretofore made or (b) an acknowledgment or admission by either party of
any fault or liability whatsoever to the other party or to any third party.
14. Costs. The Parties shall each bear their own costs, expert fees,
attorneys' fees and other fees incurred in connection with this Agreement.
15. Authority. The Company represents and warrants that the undersigned
has the authority to act on behalf of the Company and to bind the Company and
all that may claim through it to the terms and conditions of this Agreement.
Employee represents and warrants that he has the capacity to act on his own
behalf and on behalf of all who might claim through him to the terms and
conditions of this Agreement.
16. No Representatives. Each party represents that it has had the
opportunity to consult with an attorney, and has carefully read understands the
scope and effect of the provisions of this Agreement. Neither party has relied
upon any representations or statements made by the other party hereto which are
not specifically set forth in this Agreement.
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<PAGE> 7
17. Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
18. Entire Agreement. This Agreement and the Confidentiality Agreement
represents the entire agreement and understanding between the Company and
Employee concerning Employee's separation from the Company, and supersedes and
replaces any and all prior agreements and understandings concerning Employee's
relationship with the Company and his compensation by the Company.
19. No Oral Modification. This Agreement may only be amended in writing
signed by Employee and the President of the Company.
20. Governing Law. This Agreement shall be governed by the laws of the
State of California.
21. Arbitration. Any and all disputes arising out of this Separation
Agreement and Mutual Release, including but not limited to disputes concerning
interpretation of its terms and its enforcement, shall be resolved through
binding arbitration as follows:
a. The parties agree that binding arbitration shall be the sole
method of resolving any and all disputes between the parties, including but not
limited to the interpretation and enforcement of this Separation Agreement and
Mutual Release. The parties knowingly and voluntarily agree to waive all rights
to resolve such disputes in state and federal court or before administrative
tribunals.
b. Either party may request that a dispute be submitted to an
arbitrator. A party must provide a written request to submit a matter to
arbitration to the other party within thirty (30) days of the facts or
circumstances giving rise to the dispute.
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<PAGE> 8
c. In the event that the Company asserts that Employee has
breached this Separation Agreement and Mutual Release, any unpaid consideration
due pursuant to Paragraph 2 above shall be paid in accordance with this
Agreement into an escrow account established with Wells Fargo Bank or its
successor entities. The monies deposited into such escrow account shall earn
interest at not less than the passbook savings account rate then in effect at
Wells Fargo Bank. The monies shall be distributed by Wells Fargo Bank in
accordance with written instructions signed by both parties or in accordance
with an arbitrator's decision. Any interest accrued on the monies held in an
escrow account shall be payable to the Employee.
d. The parties shall attempt to agree on an arbitrator. If the
parties cannot agree upon an arbitrator, the parties shall request a list of
five (5) arbitrators with prior experience in labor and employment matters from
the American Arbitration Association. Each party shall alternatively strike a
name from the list until only one name remains. Employee shall strike a name
from the list first.
e. The arbitrator's decision shall be in writing and shall set
forth the findings of fact, reasoning and conclusion of the issues submitted.
The arbitrator shall not have the authority or jurisdiction to issue a decision
which violates or contradicts the terms of this Agreement. The decision of the
arbitrator shall be submitted to the parties within thirty (30) days of the
hearing and shall be final and binding upon the parties.
f. The prevailing party shall recover its attorneys' fees and any
expenses associated with the arbitration, including the costs for the services
of the arbitrator.
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<PAGE> 9
21. Effective Date. This Agreement is effective seven days after it has
been signed by both parties.
22. Counterparts. This Agreement may be executed in counterparts, and
each counterparts shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
23. Voluntary Execution of Agreement. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf of
the Parties hereto, with the full intent of releasing all claims. The Parties
acknowledge that:
(a) They have read this Agreement;
(b) They have been represented in the preparation, negotiation,
and execution of this Agreement by legal counsel of their own choice or that
they have voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this Agreement
and of the releases it contains;
(d) They are fully aware of the legal and binding effect of this
Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
respective dates set forth below.
NOVADIGM, INC.
Dated: June 11, 1998 By: /s/ WALLACE D. RUIZ
-----------------------------------
WALLACE D. RUIZ
Vice President & Chief
Financial Officer
9
<PAGE> 10
STUART JACOBSON, an
Individual
Dated: June 9, 1998 By: /s/ STUART JACOBSON
-----------------------------------
STUART JACOBSON
10
<PAGE> 1
EXHIBIT 10.17
Novadigm, Inc., the ("Company") agrees to advance $150,000 to Stuart Jacobson,
Executive Vice President, the ("Executive"). This advance, subject to standard
withholding is paid in anticipation of the Executive earning his annual bonus
for fiscal 1998. To earn this bonus, the Executive agrees to devote his full
time, skill and attention to his duties and responsibilities, and to perform
them faithfully, and diligently, and to use his best efforts as an employee to
further the business of the Company at the direction of management. In addition,
the Executive agrees to be present and continually employed by the Company
through the date upon which the fiscal fourth quarter and annual earnings are
released to the public. If the Executive breaches this agreement in any way, the
Executive agrees to return the advance to the Company. If the Executive is
required to return the advance due to his breaching of this agreement, and is
unable or unwilling to return the advance, the Company shall offset the
outstanding balance of the advance with any benefits or monies due the Executive
including unused vacation. In addition, any outstanding option grant shall
immediately be cancelled whether or not it has vested.
This agreement constitutes the entire agreement between the parties and
supersedes all previous agreements or representations, oral or written, relating
to this agreement. This agreement may not be modified or amended except in
writing and signed by each party. This agreement is confidential. Disclosure of
the existence, or terms of this agreement to any third party by the Executive
shall constitute a breach of this agreement.
/s/ STUART JACOBSON /s/ ALBION FITZGERALD
- --------------------------------- ---------------------------------
Stuart Jacobson Albion Fitzgerald
Executive President & CEO
2/13/98 2/10/98
- --------------------------------- ---------------------------------
Date Date
<PAGE> 1
EXHIBIT 23.1
ARTHUR ANDERSEN LLP
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).
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Roseland, New Jersey
June 24, 1998
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 4,431
<SECURITIES> 14,534
<RECEIVABLES> 7,122
<ALLOWANCES> 770
<INVENTORY> 0
<CURRENT-ASSETS> 26,158
<PP&E> 4,684
<DEPRECIATION> 2,921
<TOTAL-ASSETS> 28,876
<CURRENT-LIABILITIES> 8,832
<BONDS> 0
0
0
<COMMON> 11
<OTHER-SE> 20,033
<TOTAL-LIABILITY-AND-EQUITY> 28,876
<SALES> 0
<TOTAL-REVENUES> 22,395
<CGS> 0
<TOTAL-COSTS> 6,971
<OTHER-EXPENSES> 26,487
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (978)
<INCOME-PRETAX> (9,085)
<INCOME-TAX> (68)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,017)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
