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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED JUNE 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-28346
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OPENVISION TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-3161663
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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7133 KOLL CENTER PARKWAY, PLEASANTON, CALIFORNIA 94566
(510) 426-6400
(ADDRESS, INCLUDING ZIP CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES
AND TELEPHONE NUMBER, INCLUDING AREA CODE)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. /X/
As of August 31, 1996, the aggregate market value of the voting stock of
the registrant, consisting solely of Common Stock held by nonaffiliates of the
Registrant was $60,412,838.
As of August 31, 1996, there were 18,565,765 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement for its 1996 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
Substantially all of the Exhibits identified in Part IV hereof are incorporated
by reference to Registrant's Registration Statement on Form S-1 (Registration
number 333-1724) filed on February 27, 1996, and all amendments thereto.
The Exhibit Index is located on page 47. This is page 1 of 47 pages, including
Exhibits.
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OPENVISION TECHNOLOGIES, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
NUMBER
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PART I
Item 1. Business................................................................. 3
Item 2. Properties............................................................... 15
Item 3. Legal Proceedings........................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders...................... 16
Item 4a. Executive Officers of the Registrant..................................... 16
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters..... 17
Item 6. Selected Consolidated Financial Data..................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 19
Item 8. Financial Statements and Supplementary Data.............................. 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures............................................................ 28
PART III
Item 10. Directors and Executive Officers of the Registrant....................... 44
Item 11. Executive Compensation................................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and Management........... 44
Item 13. Certain Relationships and Related Transactions........................... 44
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......... 44
Signatures.......................................................................... 46
Index to Exhibits................................................................... 47
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PART I
ITEM 1. BUSINESS
This Business section and other parts of this Annual Report on Form 10-K
contain forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in this Business section
including "Factors That May Affect Future Results" and in "Management's
Discussion and Analysis of Financial Condition and Results from Operations."
OVERVIEW
OpenVision Technologies, Inc. ("OpenVision" or the "Company") provides
systems management applications and services for client/server computing
environments. OpenVision's AXXiON (pronounced "action") products address three
essential areas of systems management -- storage, operations and security. The
Company's highly scalable products can be used independently and certain
products can be combined to provide interoperable client/server systems
management solutions. AXXiON products offer centralized administration with a
high degree of automation, enabling customers to manage complex, distributed
environments cost-effectively by increasing system administrator productivity
and system availability. The Company's largest customer installation to date
consists of more than 7,000 nodes in a heterogeneous hardware and software
environment. The Company also provides a comprehensive range of services to
assist customers in planning and implementing systems management solutions.
OpenVision has licensed its AXXiON applications to more than 800 customers.
BACKGROUND
Historically, large organizations depended on centralized mainframe and
mini-computers as the primary computing resource for mission-critical
applications and as the central repository for essential data. The market for
mainframe systems management software evolved as a result of the need to monitor
and control the availability, performance and integrity of this host-based
computing environment and, according to Gartner Group, totaled approximately
$3.0 billion in 1995. In recent years, however, many large organizations have
moved their information systems from mainframe and mini-computer based
architectures to distributed client/server computing environments. This shift
has created a need for client/server systems management software.
The Company believes that the market for client/server products in large
organizations has been characterized by four principal stages of evolution. The
first stage was the introduction of low cost, high performance, compact hardware
systems with advanced technology, accompanied by communications and networking
systems. The second stage was the adoption of relational database systems and
application development tools to enable the creation of business applications.
The third stage evolved with the availability of enterprise and end-user
applications, including data access and packaged office automation and business
applications. Although the first three stages have resulted in widespread
adoption of client/server computing, they have, in many cases, resulted in a
complex environment that has proven difficult to implement and scale as well as
labor intensive to operate and maintain.
Enterprise-wide client/server computing environments are inherently more
complex than mainframe environments as they frequently encompass a variety of
servers, such as file, application and database servers, as well as potentially
thousands of clients that must access the information and applications on those
servers. These environments frequently include a variety of operating systems,
networking protocols, database management systems and software applications that
are geographically dispersed. Further, the Company believes that organizations
are expanding their computing architectures to enable communication with their
"extended enterprise," such as customers and vendors. Organizations are now
faced with managing new technologies, such as World Wide Web servers, internet
and intranet servers and web browsers. As a result, many organizations have
experienced high costs of managing these complex client/server environments,
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offsetting the expected cost savings of moving from mainframe to client/server
architectures. To address the need for availability, performance and integrity
of client/server enterprise computing environments, the Company believes the
market for client/server products is now entering the fourth stage, in which
customers are adopting and implementing client/server systems management
technologies.
According to Gartner Group, the market for client/server systems management
software is expected to expand from $950 million in 1995 to more than $2.6
billion in 1999. In addition, a 1994 Deloitte & Touche LLP survey of nearly 400
chief information officers estimated that in 1995 approximately 58% of business
applications would run on client/server distributed computing environments
compared to 5% in 1992. Based upon its experience in the client/server systems
management market, the Company believes the average development time for complex
business applications is approximately two to four years and, therefore,
believes that the results of this survey support industry analyst forecasts of a
significant market opportunity for client/server systems management software to
manage the environments in which these applications are to operate.
Client/server systems management products must address an organization's
availability, performance and integrity requirements across a large number of
heterogeneous client/server systems. For example, backing up valuable company
data must now occur for thousands of desktops, hundreds of workstations and
multiple database servers, as opposed to a small number of mainframe and
minicomputers. Early detection and response to system problems in order to avoid
costly downtime must be done on a distributed basis without generating
unnecessary network traffic. All systems, regardless of location or type of
network connection, must be secured from unauthorized access.
To meet the requirements of enterprise-wide client/server computing,
systems management software solutions should:
- scale to provide management capabilities for thousands of systems;
- support heterogeneous operating systems, databases and networking
protocols;
- be interoperable with existing network management frameworks;
- automate routine management tasks;
- provide centralized management of all systems;
- be highly configurable and customizable to address the specific business
policies of an organization; and
- be adaptive to support a broad range of operating platforms, network
protocols, database management systems, network management frameworks and
hardware devices.
The client/server systems management software industry has been divided
among four types of vendors: (i) hardware and software vendors that offer a
management platform or framework that supports vendor-created and third-party
systems management applications; (ii) vendors that provide systems management
software for the mainframe environment and are migrating their products to the
client/server environment; (iii) vendors that provide "point" products that
address specific problems and offer specific functionality, such as job
scheduling or security audit tools; and (iv) vendors that provide integrated and
interoperable solutions.
The Company believes solutions should be based on interoperable products
that are independently packaged in order to provide customers maximum
flexibility in purchasing and deployment. The Company further believes solutions
offered by management platform and framework vendors, traditional mainframe
vendors and "point" product vendors do not provide the integrated and
interoperable solutions necessary to address the needs of the client/server
systems management market. Although management platform and framework vendors
provide an environment in which multiple systems management applications from
different vendors can be integrated by the end-user, this integration is often a
complex task, because it may require modification of applications and
coordination among different vendors. Further, applications may need
modification to operate optimally within a given management platform or
framework and the ability to integrate and scale distinct systems management
applications may be compromised. Vendors of systems
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management solutions for traditional mainframe environments face significant
challenges in migrating their products to serve the complex client/server
environment. Traditional technology used to manage mainframe systems is, in many
cases, ineffective in addressing the greater complexity of the client/server
environment. Managing hundreds or thousands of systems requires a different
product architecture than that of managing a single mainframe. Vendors of
"point" products are able to solve only a specific subset of the problems
encountered in assuring availability, performance and integrity of distributed
computing environments. Without integrated solutions, information technology
organizations must administer multiple systems management applications, creating
another level of complexity.
THE OPENVISION SOLUTION
OpenVision delivers interoperable, highly scalable client/server systems
management products that create a reliable, secure production environment. The
OpenVision AXXiON products address the storage, operations and security needs of
large, complex computing environments. The products enable customers to manage
these environments cost-effectively by increasing system administrator
productivity and system availability. By combining comprehensive service with
its products, the Company strives to build strategic relationships with its
customers.
The Company's client/server systems management solutions offer the
following key elements:
- Scalability. OpenVision's client/server architecture and automated,
event-driven technology enable its products to scale from a few nodes to
several thousand nodes, addressing the systems management needs of large,
dispersed enterprises. The Company's largest customer installation is
currently over 7,000 nodes.
- Automated, event-driven operations. AXXiON products provide automatic,
localized problem detection and correction, minimizing network traffic by
notifying the system administrator only if attention is required.
Compared to systems that poll clients, AXXiON products reduce the
resources required to manage large client/server environments.
- Centralized management. OpenVision applications allow a system
administrator to manage large client/server environments, comprised of
heterogeneous systems and databases, from a single workstation. Policies
set by the system administrator are automatically distributed to
specified nodes without having to remotely login to each client.
Centralized management significantly reduces the amount of time spent on
routine tasks. One of the Company's customers uses the Company's products
to enable six systems administrators to analyze, monitor and manage
activity for 900 dispersed locations from a centralized operations
center.
- Interoperability. Most of the AXXiON products are interoperable and can
be combined to provide integrated solutions that greatly enhance systems
management functionality. For example, by combining event and storage
management, a system can detect that all quarterly sales transactions
were transmitted to the company database and can automatically perform a
hot database backup without operator intervention.
- Adaptive. Most of the AXXiON products are highly configurable and
support a broad range of operating platforms, network protocols, database
management systems, network management frameworks and hardware devices.
This range of support and configuration flexibility means that the AXXiON
products are easily adapted to a large array of computing environments.
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PRODUCTS AND SERVICES
Products
The Company provides a broad range of client/server systems management
software that performs storage, operations and security management functions
across multiple hardware platforms, operating systems, relational databases and
networks. The Company's three systems management software product lines include
ten principal products:
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STORAGE OPERATIONS SECURITY
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AXXiON-NetBackup AXXiON-Event Manager AXXiON-SecureMax
AXXiON-HSM AXXiON-HA AXXiON-Authenticate
AXXiON-Scheduler AXXiON-Authorize
AXXiON-Performance Manager
AXXiON-Xfer
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OpenVision licenses its products on a perpetual, fully-paid and
non-assignable basis. The North American prices of the Company's products range
from $3,200 to $20,000 per server and from $50 to $5,000 per client. Pricing is
based on a combination of the complexity and functionality of the product and
the number of nodes in a system. The Company's services, including maintenance
and technical support, consulting and training, are priced separately.
Most of the Company's products are available on a variety of operating
system platforms, including Sun Microsystems' Solaris, Hewlett-Packard's UX,
IBM's AIX, Digital Equipment's OSF/1 and OpenVMS and Intel-based platforms
running Microsoft's WindowsNT (all Win32 derivatives). In addition, intelligent
agents are provided for Sequent's PTX, Silicon Graphics Inc.'s IRIX, Santa Cruz
Operations' UNIX, Microsoft's Windows, UNIX vendors, Apple's MAC OS, DOS and
Novell's NetWare.
Certain OpenVision applications are designed to manage the following
relational databases: Oracle7, Sybase System10 and Informix database releases 6
and 7. Because most mission-critical applications today require one of these
relational databases for its storage of business data, the management of these
databases has become a leading requirement in the marketplace.
Certain OpenVision applications are integrated with the following network
management platforms: HP's OpenView, IBM's SystemView, Cabletron's Spectrum and
Sun Solstice. Network manager integration allows for the administration of
network and system management from a single centralized interface affording the
administrator with a complete view of their distributed environment.
Storage Management
OpenVision provides solutions for five major functional areas of storage
management: file system backup, restore and archive; database backup;
hierarchical storage management ("HSM"); and media management. OpenVision's
storage management products are designed to provide scalable storage management
capabilities to users in diverse, client/server computing environments that can
be managed from a single location. The scalable architecture permits customers
to manage from a few to several thousand client nodes and expand the system as
storage management needs increase. The Company's largest installation is
currently managing over 7,000 nodes in a heterogeneous hardware and software
environment. The Company's products provide disaster recovery backup and handle
long-term storage needs with common interfaces and policy management. These
products manage data migration throughout an enterprise to help maximize the
efficiency and cost utilization of storage hardware.
OpenVision's storage management products include the following:
AXXiON-NetBackup -- Reduces the workload for systems administrators of
heterogeneous platforms by providing easily configured centralized backup
scheduling, user-directed backups and restores, automated distribution and
installation of client software over the network, and easy configuration of
clients. AXXiON-NetBackup has a database extension that provides comprehensive
on-line and hot database backup for Oracle, Sybase and Informix databases that
can be acquired and deployed by customers on an as-needed basis.
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AXXiON-HSM -- Automatically moves data between file systems and storage
devices supporting most disk, tape, optical and robotics devices. AXXiON-HSM is
a server-based, policy driven migration tool that works in conjunction with
AXXiON-NetBackup. AXXiON-HSM has an enterprise extension that provides a simple,
cost-effective means to transparently migrate, purge and cache files between
file systems on various platforms.
Operations Management
OpenVision's operations management products are designed to maintain the
smooth operation of large numbers of distributed systems in heterogeneous
environments, with minimal human intervention. These products address the
principal functional areas of operations management, including problem event
management, software distribution, job scheduling, performance monitoring and
analysis, and failover and restart services. These products provide automated,
"lights out", event-driven solutions for distributed environments. They offer
centralized management using single-screen real-time views of essential
performance parameters on large numbers of systems across heterogeneous
platforms.
The Company's operations management products include the following:
AXXiON-Event Manager -- Allows event-driven automation and monitoring of
critical system, database and application activities and automatic error
correction through its intelligent agent technology. Users can set thresholds
and alarms to monitor processor, swapping, memory, network and I/O activity.
When a threshold has been reached, AXXiON-Event Manager can take automatic
corrective action or alert an administrator by e-mail or page. This product has
a highly scalable architecture and centralized administration. The Company's
largest installation is currently monitoring over 900 heterogeneous server nodes
at multiple locations.
AXXiON-HA -- Provides high availability ("HA") protection for systems,
databases and applications and reduces the danger of service interruptions to
mission-critical applications. The product allows users to automatically switch
services to another server, monitor services on their primary server, and start,
restart or stop services as their needs require.
AXXiON-Scheduler -- Allows users to automate routine scheduling tasks in a
distributed environment. Unlike standard UNIX, AXXiON-Scheduler offers a
user-friendly screen-based navigation system.
AXXiON-Performance Manager -- Allows users to have a single-screen view of
many different real-time and historical performance parameters for a large
number of heterogeneous systems and databases. The product's event-driven
architecture lets users set relevant thresholds and uses a graphical
representation of the distributed configuration to notify users when a
performance problem is imminent. The user can customize the data collection
agents to display the historical performance data needed to track, isolate and
resolve performance problems in a distributed environment.
AXXiON-Xfer -- Automates deployment of software from a central point to
computers across the network and monitors the installation process. The product
also provides reliable error recovery, record keeping and application security.
The Company distributes and packages this product under a non-exclusive
licensing agreement with a third party.
Security Management
OpenVision's security management products provide three key elements for
security in distributed computing environments -- authentication, authorization
and auditing. Authentication ensures that users signing on to the network are
who they say they are. Authorization ensures that users obtain access only to
the data and resources to which they are entitled. Auditing provides activity
reporting and can be used to identify and correct potential security weakness.
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The Company's security management products include the following:
AXXiON-SecureMax -- Centrally audits security of UNIX, WindowsNT and
OpenVMS systems by determining the security status of each system and reporting
its vulnerabilities. AXXiON-SecureMax has a broad range of reports and analysis
tools that help identify exposures, allowing them to be resolved quickly.
AXXiON-Authenticate -- Provides authentication, message integrity and
message confidentiality services that can be administered through a graphical
user interface. This product is based on the MIT Kerberos model, the industry
standard for authentication. Based on discussions with the U.S. State
Department, the Company believes that it is one of the first companies to obtain
an export license from the U.S. State Department that provides for distribution
of a product based on the MIT Kerberos model without requiring separate export
approval for each order.
AXXiON-Authorize -- Allows a security administrator to centrally control
system access for a network, including login access, super-user access and
password controls. Only minimal technical knowledge is required to customize
policies for individuals or groups.
Services:
The Company's customer service and support organization provides customers
with maintenance, technical support, consulting and training services. The
Company believes that providing a high level of customer service and technical
support is critical to customer satisfaction and the Company's success. Most of
the Company's customers currently have support agreements with the Company. The
OpenVision service group provides the following services:
Maintenance and Technical Support. The Company offers 7 day-a-week,
24-hour telephone support as well as electronic mail and fax customer support.
Additional customer support is provided by some of the Company's VARs, system
integrators and OEMs. Initial product license fees do not cover maintenance.
Customers are entitled to receive new software releases, maintenance releases
and support for an annual fee.
Consulting. OpenVision believes that most customers need assistance before
product selection and not just for the implementation of purchased products.
Therefore, the Company offers strategy and analysis consulting services for
planning the management and control of client/server computing in their specific
environment. In addition, the Company offers services to assist customers with
product implementation. As part of its broad range of services, the Company
believes it offers particular expertise in analyzing network security threats
and security policy integrity.
Training. The Company offers on-site training to its customers to help
them optimize their use of the Company's products in their specific environment
and to assist customers in developing a general expertise in systems management.
Warranty. OpenVision provides, for an additional fee, a 180-day warranty
for licensed software pursuant to which OpenVision is obligated to repair or
replace software found to be defective during the warranty period.
MARKETING, SALES AND DISTRIBUTION
The Company markets the AXXiON products and associated services through a
combination of direct sales and indirect channels (resellers, VARs, hardware
distributors, application software vendors and systems integrators).
OpenVision's North American sales, marketing and consulting force consists of 68
employees, including 17 pre-sales engineers that provide technical sales
assistance. To date, the majority of the Company's revenue has been derived from
direct sales. Internationally, OpenVision markets its products through a direct
sales force of 11 persons located in Europe and the Americas and approximately
20 resellers located in Europe, Asia Pacific, South America, Mexico and the
Middle East. The Company currently has sales and service offices in the United
States, Canada, England, Germany and France. OpenVision uses direct mail
campaigns, product seminars, trade shows, public relations and joint partner
marketing events to support marketing activities.
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International revenue (from sales outside the United States and Canada)
accounted for 31%, 29% and 9% in fiscal 1996, 1995 and 1994, respectively. The
Company believes that its success depends upon continued expansion of its
international operations. The Company intends to continue to expand its global
sales and marketing infrastructure and expects to generate an increasing
percentage of revenue through indirect sales. See Note 10 of Notes to
Consolidated Financial Statements for a summary of operating information and
certain year-end balance sheet information by geographical region.
RESEARCH AND DEVELOPMENT
Since its inception, the Company has made substantial investments in
product development. In fiscal 1996, 1995 and 1994, the Company's total research
and development expenses were approximately $6.4 million, $7.5 million and $14.8
million, respectively. 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 continue to enhance existing
products, respond to changing customer requirements and develop and introduce in
a timely manner new products that keep pace with technological developments and
emerging industry standards.
Customer requirements include, but are not limited to, operability across
distributed and changing heterogeneous hardware platforms, operating systems,
relational databases and networks. For example, as certain of the Company's
customers start to utilize WindowsNT or other emerging operating platforms, it
will be necessary for the Company to enhance its AXXiON products to operate on
such platforms in order to meet these customers' requirements. There can be no
assurance that the Company's products will achieve market acceptance or will
adequately address the changing needs of the marketplace or that the Company
will be successful in developing and marketing enhancements to its existing
products or new products incorporating new technology on a timely basis. If the
Company is unable to develop and introduce new products, or enhancements to
existing products, in a timely manner in response to changing market conditions
or customer requirements, the Company's business, operating results and
financial condition will be materially and adversely affected.
The Company has a number of ongoing development projects. There can be no
assurance that the features incorporated in recent product releases are the
features required to achieve market acceptance. In addition, the Company is
conducting ongoing research and development of new and improved software
products. The Company believes that it will need to devote significant time and
resources to these efforts, and no assurance can be given that such efforts will
be successful. From time to time the Company or its competitors may announce new
products, capabilities or technologies that have the potential to replace or
shorten the life cycles of the Company's existing products. There can be no
assurance that announcements of currently planned or other new products will not
cause customers to defer purchasing existing Company products. The Company has
from time to time in the past experienced delays of up to several months due to
the complex nature of software developed by the Company. While the Company
cannot quantify the effect of such delays, it believes that such delays may have
resulted in lost or delayed revenues and lost customers. There can be no
assurance that the Company will not experience delays in connection with its
current product development or future development activities. Delays similar or
greater or difficulties associated with new product introductions or product
enhancements could have a material adverse effect on the Company's business,
operating results and financial condition.
COMPETITION
The market for client/server systems management software is intensely
competitive, highly fragmented and characterized by rapid technological
developments, evolving standards and rapid changes in customer requirements. To
maintain and improve its position in this market, the Company must continue to
enhance current products, enhance the operability of its products with one
another and develop new products in a timely fashion. The Company competes
primarily with: (i) hardware and software vendors that offer a
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management platform or framework to support vendor-created and third-party
systems management applications; (ii) vendors that provide systems management
software for the mainframe environment and are migrating their products to the
client/server environment; (iii) vendors that provide "point" products that
address specific problems and offer specific functionality, such as job
scheduling or security audit tools; and (iv) vendors that provide integrated and
interoperable solutions. The Company believes that its principal competitors
that offer products in all of its product areas -- storage, operations and
security -- are Computer Associates International, Inc., Hewlett-Packard
Company, IBM Corporation, Platinum technology, Inc. and several smaller private
companies. The Company believes that additional principal competitors with
respect to each of the Company's three product areas include Legato Systems,
Inc. and Spectra Logic for storage; Novadigm, Inc., Tivoli Systems Inc. (which
has been acquired by IBM Corporation), BMC Software, Inc., Compuware Corporation
and Sun Microsystems, Inc. for operations; and Axent Technologies and Cybersafe
Corporation for security. In competing with hardware vendors, the Company may be
at a competitive disadvantage because hardware vendors are able to package
combination, of hardware and software, thereby offering the customer a
single-vendor solution at a lower total cost.
The principal competitive factors affecting the market for the Company's
products are ease of use, functionality and features, product quality, product
architecture, breadth of distribution, price, ability to export its products,
customer support and name recognition. In the future, the Company will be
required to respond promptly and effectively to the challenges of technological
change and its competitors' innovations. There can be no assurance that the
Company will be able to provide products that compare favorably with the
products of the Company's competitors or that competitive pressures will not
require the Company to reduce its prices.
PROPRIETARY RIGHTS
The Company relies on a combination of copyright, trademark and trade
secret laws, confidentiality procedures and licensing arrangements to establish
and protect its proprietary rights. Presently, the Company has no patents, three
patent applications on file, and intends to continue filing patent applications
in the future. As part of its confidentiality procedures, the Company generally
enters into non-disclosure agreements with its employees, distributors and
corporate partners, and license agreements with respect to its software,
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology without authorization, or to develop similar
technology independently. Policing unauthorized use of the Company's products is
difficult and although the Company is unable to determine the extent to which
piracy of its software products exists, software piracy can be expected to be a
persistent problem. In selling its products, the Company relies on both signed
license agreements and "shrink wrap" licenses that are not signed by licensees
and, therefore, may be unenforceable under the laws of certain jurisdictions. In
addition, effective protection of intellectual property rights is unavailable or
limited in certain foreign countries. There can be no assurance that the
Company's protection of its proprietary rights, including any patent that may be
issued, will be adequate or that the Company's competitors will not
independently develop similar technology, duplicate the Company's products or
design around any patents issued to the Company or other intellectual property
rights.
The Company is not aware that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim such infringement by the Company with respect to current or
future products. The Company expects that software product developers will
increasingly be subject to such claims as the number of products and competitors
in the Company's industry segment grows and the functionality of products in the
industry segment overlaps.
EMPLOYEES
As of June 30, 1996, the Company had 220 full time employees, including 72
in research and development, 99 in sales, marketing and consulting, 18 in
technical support and 31 in general and administrative functions. The Company's
future performance depends to a significant degree upon the continued service of
its key members of management, as well as marketing, sales, consulting and
product development personnel, none of whom are bound by an employment contract,
and its ability to attract and retain highly skilled personnel in these areas.
Competition for such personnel is intense, and there can be no
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assurance that the Company can retain its key employees or that it will be
successful in attracting, assimilating and retaining such personnel in the
future. None of the Company's employees are represented by a labor union. The
Company has not experienced any work stoppages and considers its relations with
its employees to be good.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The matters set forth below should be carefully considered when evaluating
the Company's business and prospects.
Rapid Technological Change and Requirement for Frequent Product
Transitions. The market for the Company's products is intensely competitive,
highly fragmented and characterized by rapid technological developments,
evolving industry standards and rapid changes in customer requirements. The
introduction of products embodying new technologies, the emergence of new
industry standards or changes in customer requirements could render the
Company's existing products obsolete and unmarketable. As a result, the
Company's success depends upon its ability to continue to enhance existing
products, respond to changing customer requirements and develop and introduce in
a timely manner new products that keep pace with technological developments and
emerging industry standards. Customer requirements include, but are not limited
to, operability across distributed and changing heterogeneous hardware
platforms, operating systems, relational databases and networks. For example, as
certain of the Company's customers start to utilize WindowsNT or other emerging
operating platforms, it will be necessary for the Company to enhance its AXXiON
products to operate on such platforms in order to meet these customers'
requirements. There can be no assurance that the Company's products will achieve
market acceptance or will adequately address the changing needs of the
marketplace or that the Company will be successful in developing and marketing
enhancements to its existing products or new products incorporating new
technology on a timely basis. If the Company is unable to develop and introduce
new products, or enhancements to existing products, in a timely manner in
response to changing market conditions or customer requirements, the Company's
business, operating results and financial condition will be materially and
adversely affected.
The Company has a number of ongoing development projects. The Company
believes that it will need to devote significant time and resources to these
efforts, and no assurance can be given that such efforts will be successful.
From time to time the Company or its competitors may announce new products,
capabilities or technologies that have the potential to replace or shorten the
life cycles of the Company's existing products. There can be no assurance that
announcements of currently planned or other new products will not cause
customers to defer purchasing existing Company products. The Company has in the
past experienced delays in product development, and there can be no assurance
that the Company will not experience further delays in connection with its
current product development or future development activities. Delays or
difficulties associated with new product introductions or product enhancements
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Item 1. Business -- Research and
Development."
Risk of Software Defects. Software products as complex as those offered by
the Company frequently contain errors or defects, especially when first
introduced or when new versions or enhancements are released. Despite product
testing, the Company has in the past released products with defects, discovered
software errors in certain of its new products after introduction and
experienced delayed or lost revenue during the period required to correct these
errors. In late 1993, the Company introduced three products (none of which
continue to be offered by the Company) in which defects were subsequently
discovered. These defects included architectural problems that resulted in
increased maintenance costs and code management problems. As a result of these
defects, the Company experienced adverse customer reactions and negative
publicity, which harmed the Company's reputation in the marketplace, and
adversely affected the Company's business and operating results. Although the
Company believes it has repaired its reputation in the marketplace and that
acceptance of its current products is not adversely affected by the past
defects, this past harm to the Company's reputation could adversely affect
future market acceptance of the Company's products. The Company regularly
introduces enhancements to its existing products and periodically introduces new
products. The Company periodically releases new versions of products that
incorporate a three-tiered client/server
11
<PAGE> 12
architecture. There can be no assurance that despite testing by the Company and
by current and potential customers, defects and errors will not be found in
existing products or in new products, versions or enhancements after
commencement of commercial shipments. Any such defects and errors could result
in adverse customer reactions, negative publicity regarding the Company and its
products, harm to the Company's reputation, loss of or delay in market
acceptance or require expensive product changes, any of which could have a
material adverse effect upon the Company's business, operating results and
financial condition. See "Item 1. Business -- Products."
Intense Competition. The market for client/server systems management
software is intensely competitive, highly fragmented and characterized by rapid
technological developments, evolving standards and rapid changes in customer
requirements. To maintain and improve its position in this market, the Company
must continue to enhance current products, enhance the operability of its
products with one another and develop new products in a timely fashion.
Many of the Company's competitors have longer operating histories and have
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger customer base, than
the Company. The Company's current and future competitors could introduce
products with more features, higher scalability, 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 client/server systems management software
may be a disadvantage in competing with vendors that offer a broader range of
products. Moreover, as the client/server systems management software 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. For example, IBM Corporation recently purchased Tivoli Systems
Inc., a competitor of the Company. In addition, because there are relatively low
barriers to entry for the software market, the Company expects additional
competition from other established and emerging companies. Increased competition
is likely to result in price reductions, reduced gross margins and loss of
market share, any of which could materially and adversely affect the Company's
business, operating results and financial condition. Any material reduction in
the price of the Company's products would negatively affect gross margins and
would require the Company to increase software unit sales in order to maintain
gross profits. There can be no assurance that the Company will be able to
compete successfully against current and future competitors, and the failure to
do so would have a material adverse effect upon the Company's business,
operating results and financial condition. See "Item 1. Business --
Competition."
Dependence on Growth of Market for Client/Server Systems Management
Software and Services. All of the Company's business is in the market for
client/server systems management software and services, which is still an
emerging market that is intensely competitive, highly fragmented and
characterized by rapid technological developments, evolving industry standards
and rapid changes in customer requirements. The Company's future financial
performance will depend in large part on continued growth in the number of
companies adopting client/server technology and systems management solutions for
their client/server computing environments. There can be no assurance that the
market for client/server systems management software and services will continue
to grow. If the client/server systems management software and services market
fails to grow or grows more slowly than the Company currently anticipates, the
Company's business, operating results and financial condition would be
materially and adversely affected. During recent years, segments of the computer
industry have experienced significant economic downturns characterized by
decreased product demand, production overcapacity, price erosion, work slowdowns
and layoffs. The Company's financial performance may in the future experience
substantial fluctuations as a consequence of such industry patterns, general
economic conditions affecting the timing of orders, and other factors affecting
capital spending. There can be no assurance that such factors will not have a
material adverse effect on the Company's business, operating results and
financial condition. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 1.
Business -- Background."
Dependence on and Need to Hire Additional Key Personnel; Management of
Growth. The Company's future performance depends to a significant degree upon
the continued service of its key members of
12
<PAGE> 13
management, as well as marketing, sales, consulting and product development
personnel, none of whom are bound by an employment contract. The Company does
not have and does not intend to obtain key man life insurance on its personnel.
The loss of one or more of the Company's key personnel could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company believes its future success will also depend in large
part upon its ability to attract and retain highly skilled management,
marketing, sales, consulting and product development personnel. Competition for
such personnel is intense, and there can be no assurance that the Company can
retain its key employees or that it will be successful in attracting,
assimilating and retaining such personnel in the future. In recent periods,
after a significant reduction in personnel as part of a restructuring in late
fiscal 1994 and the first half of fiscal 1995, the Company increased the number
of employees, primarily in its consulting, product development and sales and
marketing organizations. These reductions and increases in personnel have
resulted in substantial demands on the Company's management resources.
Difficulties in assimilating new personnel and departures of existing personnel,
particularly in key positions, in the past has resulted in increased employee
turnover, increased employee training and replacement costs, decreased sales
productivity and delays in product development schedules, and may in the future
result in these and other adverse effects, any of which may be material to the
Company's business, operating results and financial condition. Failure to
attract, assimilate and retain key personnel could have a material adverse
effect on the Company's business, operating results and financial condition. See
"Item 1. Business -- Employees" and "Item 4a. Management -- Executive Officers."
The Company's ability to manage its staff and growth effectively will
require it to continue to improve its operational, financial and management
controls, reporting systems and procedures, to train, motivate and manage its
employees and, as required, install new management information and control
systems. There can be no assurance that the Company will implement improvements
to such management information and control systems in an efficient and timely
manner. The Company generally recognizes revenue from license agreements upon
shipment of the software, if no significant future obligations remain and
collection of the resulting receivable is probable. For those agreements with
significant future obligations, revenue is recognized when the obligations are
satisfied. In fiscal 1994 the Company recognized revenues in several
transactions and subsequently learned that certain additional commitments that
were not recorded in the written contracts had been made with customers that
entailed significant future obligations. As a result, in fiscal 1995 the Company
restated its fiscal 1994 results of operations to reverse approximately $3.2
million of revenue which it previously recognized from these customers. The
Company subsequently implemented procedures and business policies to improve its
internal controls for revenue recognition. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Dependence on Proprietary Technology; Risks of Infringement. The Company's
success depends upon its proprietary technology. The Company relies on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and licensing arrangements to establish and protect its proprietary
rights. Presently, the Company has no patents, three patent applications on
file, and intends to continue filing patent applications in the future. As part
of its confidentiality procedures, the Company generally enters into non-
disclosure agreements with its employees, distributors and corporate partners,
and license agreements with respect to its software, documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's products or
technology without authorization, or to develop similar technology
independently. Policing unauthorized use of the Company's products is difficult
and although the Company is unable to determine the extent to which piracy of
its software products exists, software piracy can be expected to be a persistent
problem. In selling its products, the Company relies on signed license
agreements and "shrink wrap" licenses that are not signed by licensees and,
therefore, may be unenforceable under the laws of certain jurisdictions. In
addition, effective protection of intellectual property rights is unavailable or
limited in certain foreign countries. There can be no assurance that the
Company's protection of its proprietary rights, including any patent that may be
issued, will be adequate or that the Company's competitors will not
independently develop similar technology, duplicate the Company's products or
design around any patents issued to the Company or other intellectual property
rights.
The Company is not aware that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim such infringement by the Company with respect to current or
future products. The Company expects that software product developers will
increasingly be
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<PAGE> 14
subject to such claims as the number of products and competitors in the
Company's industry segment grows and the functionality of products in the
industry segment overlaps. Any such claims, with or without merit, could result
in costly litigation that could absorb significant management time, which could
have a material adverse effect on the Company's business, operating results and
financial condition. Such claims might require the Company to enter into royalty
or license agreements. Such royalty or license agreements, if required, may not
be available on terms acceptable to the Company or at all, which could have a
material adverse effect upon the Company's business, operating results and
financial condition. See "Item 1. Business -- Proprietary Rights."
Past and Future Acquisitions. Between October 1992 and July 1993, the
Company concluded an aggregate of ten acquisitions of companies, divisions of
companies or products. The Company may make additional acquisitions in the
future. Acquisitions of companies, divisions of companies or products entail
numerous risks, including difficulty in successfully assimilating acquired
operations, diversion of management's attention and loss of key employees of
acquired companies. Several of the products acquired required significant
additional development, such as restructuring software codes to support larger
scale environments, porting products to additional operating system platforms,
regression testing and improving network and device support, before they could
be marketed and some failed to generate any revenue for the Company. In
addition, the numerous acquisitions resulted in the Company managing a research
and development effort that was spread over as many as ten development centers.
The distributed research and development effort resulted in redundant capital
equipment needs, overlapping products, disparately developed products that the
Company was unable to integrate or had difficulty integrating, substantial
additional travel, conflicting employee cultures and difficulty implementing and
managing engineering processes and standards setting, all of which had a
material adverse effect on the Company's business, operating results and
financial condition in fiscal 1994 and the first half of fiscal 1995. No
assurance can be given that the Company will not incur these same problems in
future acquisitions. Any such problems could have a material adverse effect on
the Company's business, operating results and financial condition. In addition,
future acquisitions by the Company may result in dilutive issuances of equity
securities, the incurrence of additional debt, large one-time write-offs and the
creation of goodwill or other intangible assets that could result in
amortization expense. These factors could have a material adverse effect on the
Company's business, operating results and financial condition. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 3. Legal Proceedings."
Product Liability. The Company's license agreements with customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. To the extent the Company may rely on
"shrink wrap" licenses that are not signed by licensees and, therefore, may be
unenforceable under the laws of certain jurisdictions, the limitation of
liability provisions contained in such license agreements may not be effective.
The Company's products are generally used to manage data critical to
organizations, and, as a result, the sale and support of products by the Company
may entail the risk of product liability claims. Although the Company maintains
errors and omissions product liability insurance, a successful liability claim
brought against the Company could have a material adverse effect upon the
Company's business, operating results and financial condition. See "Item 3.
Legal Proceedings."
Control By Management and Current Stockholders. At June 30, 1996, the
Company's officers and directors, and their affiliates, in the aggregate,
control 57.5% of the Company's Common Stock with full voting rights and
beneficially own 65.3% of the Company's Common Stock. In particular, Warburg,
Pincus Investors, L.P. ("Warburg") control 47.2% of the Company's Common Stock
with full voting rights and beneficially own 56.5% of the Company's Common
Stock. As a result, these stockholders will be able to exercise significant
influence over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. In
addition, the Board of Directors has the authority to issue up to 5,000,000
shares of undesignated Preferred Stock and, subject to certain limitations, to
determine the rights, preferences, privileges and restrictions, including voting
rights, of such shares without any further vote or action by the stockholders.
The voting power of Warburg and the Company's officers or the issuance of
Preferred Stock under certain circumstances could have the effect of delaying or
preventing a change in control of the Company. The Company has entered into
agreements with its officers and directors
14
<PAGE> 15
indemnifying them against losses they may incur in legal proceedings arising
from their service to the Company.
ITEM 2. PROPERTIES
The Company headquarters are located in 16,406 square feet of leased office
space in Pleasanton, California. The lease expires in March 1997 and includes
one three-year renewal option held by the Company. The Company leases 14 other
offices with a total of approximately 59,450 square feet in the United States,
Canada, France, Germany and the United Kingdom, with various expiration dates
through October 1998. This does not include a lease on one facilitiy that is no
longer being used by the Company and on which the associated remaining costs
were accrued in November 1994. The Company believes that its existing facilities
are adequate and that sufficient additional space will be available as needed in
the cities where it is located.
ITEM 3. LEGAL PROCEEDINGS
In connection with the acquisition by OpenVision of ten companies,
divisions of companies or products between October 1992 and July 1993, the
Company entered into agreements with certain sellers providing for the payment
of software royalties. From time to time disputes have arisen with the certain
of these sellers regarding the calculation of the royalties and the obligations
of the Company under these agreements. There is currently one dispute that is
unresolved, although no formal claims have been filed. The Company believes that
the allegations of this seller have no merit and plans to vigorously defend any
formal claims filed by this person. While the outcome of any formal claims
cannot be determined with certainty, the Company does not believe that the
resolution of these claims will have a material adverse effect on the Company's
business, operating results or financial condition. The Company is not a party
to any other litigation that would have a material adverse effect on the
Company's business, operating results or financial condition.
The Company's license agreements with customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. The Company relies in part on "shrink wrap" licenses that are
not signed by licensees and, therefore, may be unenforceable under the laws of
certain jurisdictions, the limitation of liability provisions contained in such
license agreements may not be effective. The Company's products are generally
used to manage data critical to organizations, and, as a result, the sale and
support of products by the Company may entail the risk of product liability
claims. Although the Company maintains errors and omissions product liability
insurance, a successful liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and certain information about them as
of August 31, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- --------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Michael S. Fields...................... 50 Chairman of the Board
Geoffrey W. Squire..................... 49 President, Chief Executive Officer and Director
Kenneth E. Lonchar..................... 38 Chief Financial Officer and Senior Vice President
Paul A. Sallaberry..................... 40 Senior Vice President, North American Operations
Jay A. Jones........................... 42 Vice President, General Counsel and Secretary
W. Richard Barker...................... 50 Senior Vice President, Product Division
</TABLE>
Michael S. Fields, Chairman of the Board, founded the Company in 1992. Mr.
Fields has served as Chairman of the Board since July 1992 and served as Chief
Executive Officer from January 1993 to June 1995. From 1990 to 1992, Mr. Fields
was President of Oracle Corporation USA ("Oracle USA"), a relational database
company, overseeing all aspects of U.S. sales and 1,500 employees. From 1989 to
1990, he was the Vice President of Western Operations for Oracle USA.
15
<PAGE> 16
Geoffrey W. Squire has been a director of the Company since January 1994
and was appointed Chief Executive Officer of the Company in July 1995. From
January 1994 to November 1994, Mr. Squire was Executive Vice President and Chief
Executive Officer of International Operations. From November 1994 to June 1995,
Mr. Squire was President and Chief Operating Officer of the Company. From 1984
to 1987, Mr. Squire was Managing Director and Senior Vice President of Oracle
Corporation and, from 1987 to 1990, Chief Executive Officer of Oracle Europe. In
1990, he was promoted to Executive Vice President of Oracle Corporation and
President of Worldwide Operations. In July 1992, he was appointed to Oracle's
five-person Executive Committee with responsibility as Chief Executive,
International Operations. Mr. Squire has sat on the Council of the U.K.
Computing Services and Software Association since 1990. In 1995, Mr. Squire was
elected as the founding President of the European Information Services
Association.
Kenneth E. Lonchar joined the Company as Chief Financial Officer and Senior
Vice President in December 1995. From November 1988 until joining the Company,
Mr. Lonchar was Vice President, Finance and Administration and Chief Financial
Officer of Microtec Research, Inc., a publicly traded software company. Mr.
Lonchar is a certified public accountant.
Paul A. Sallaberry was the Company's Senior Vice President of Sales from
October 1992 until June 1994. Mr. Sallaberry rejoined the Company in February
1995 as Senior Vice President of North American Operations. Before joining the
Company, Mr. Sallaberry served as the Director of Public Sector Sales from 1989
to 1990 at Oracle Corporation, before being promoted to Vice President, Vertical
Division, where he was employed in that capacity until 1992. Prior to 1989, Mr.
Sallaberry held various sales positions at Applied Data Research and Software
Design Incorporated.
Jay A. Jones joined the Company as General Counsel in March 1993 and was
appointed Vice President, General Counsel and Secretary in July 1994. From
October 1991 to March 1993, Mr. Jones was Senior Corporate Counsel to Oracle
Corporation. From 1987 through 1990, Mr. Jones was Vice President, Corporate
Services, General Counsel and Secretary for Word Star International
Incorporated. Mr. Jones is a member of the California Bar Association.
W. Richard Barker joined the Company as Senior Vice President of the
Consulting and Technical Services division of OpenVision International Limited
in March 1994. In April 1995, Mr. Barker was appointed Senior Vice President,
Product Division. From 1984 through 1994, Mr. Barker was Senior Vice President
for Oracle Europe responsible for worldwide development and marketing of
Oracle's Methodology and CASE product set.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
OpenVision's common stock has been traded in the over-the-counter market
and the Nasdaq National Market System under the symbol OPVN since the Company's
initial public offering on May 7, 1996.
The closing price of the Company's common stock as reported by the Nasdaq
National Market System on August 30, 1996 was $9.375 per share. The price per
share in the following table sets forth the low and high closing prices in the
Nasdaq National Market for the quarter indicated:
<TABLE>
<CAPTION>
LOW HIGH
------- -------
<S> <C> <C>
Fiscal 1996:
Fourth quarter ended June 30, 1996............................. $11.625 $ 20.25
Fiscal 1997:
First quarter (through August 31, 1996)........................ $ 8.50 $12.875
</TABLE>
The Company has not paid any dividends and does not plan to pay dividends
on its common stock in the foreseeable future. The Company presently intends to
reinvest earnings to fund future growth.
16
<PAGE> 17
At June 30, 1996, there were approximately 290 stockholders of record of
the Company. The Company is unable to estimate the total number of stockholders
represented by these record holders as many of such shares are held by brokers
and other institutions on behalf of stockholders.
The market price for the Common Stock is affected by a number of factors,
including the announcement of new products or product enhancements by the
Company or its competitors, quarterly variations in the Company's results of
operations or results of operations of its competitors or companies in related
industries, changes in earnings estimates or recommendations by securities
analysts, developments in the Company's industry, general market conditions and
other factors, including factors unrelated to the operating performance of the
Company or its competitors. In addition, stock prices for many companies in the
technology and emerging growth sectors have experienced wide fluctuations that
have often been unrelated to the operating performance of such companies. Such
factors and fluctuations, as well as general economic, political and market
conditions, such as recessions, may materially adversely affect the market price
of the Company's Common Stock.
Sales of a substantial number of shares of Common Stock in the public
market could adversely affect the market price for the Company's Common Stock.
The number of shares of Common Stock available for sale in the public market is
limited by restrictions under the Securities Act of 1933, as amended (the
"Securities Act"), and lock-up agreements under which the holders of such shares
have agreed not to sell or otherwise dispose of any of their shares until
November 3, 1996, without the prior written consent of Alex. Brown & Sons
Incorporated. However, Alex. Brown & Sons Incorporated may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. As a result of these restrictions,
11,663,244 shares will be eligible for sale on November 3, 1996 and 3,746,251
shares will be eligible for sale pursuant to Rule 144 upon the expiration of
their respective two-year holding periods. In addition, the Company has
registered on a registration statement on Form S-8/S-3, 3,459,870 shares of
Common Stock subject to outstanding options or reserved for issuance under the
Company's 1992 Stock Plan, the 1996 Director Option Plan and 1996 Employee Stock
Purchase Plan and 784,977 shares previously issued pursuant to the 1992 Stock
Plan, which shares will be eligible for sale upon expiration of the lock-up
agreements referred to above, subject to vesting and exercisability
restrictions. Furthermore, upon expiration of the lock-up agreements referred to
above, holders of approximately 14,504,452 shares of Common Stock will be
entitled to certain registration rights with respect to such shares. If such
holders, by exercising their registration rights, cause a large number of shares
to be registered and sold in the public market, the sale of such sales could
have a material adverse effect on the market price for the Company's Common
Stock and could materially adversely affect the Company's ability to raise
additional capital when or if required.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below should be read in
conjunction with the more detailed financial statements presented in ITEM 8 of
this Form 10-K. The consolidated financial data for periods prior to the
financial statements presented in ITEM 8 of this Form 10-K are derived from
audited consolidated financial statements.
17
<PAGE> 18
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------
1996 1995 1994 1993
------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $29,895 $ 18,524 $ 15,624 $ 1,774
Loss from Operations................................. (77) (17,663) (42,047) (16,521)
Net loss............................................. (510) (18,112) (42,727) (16,424)
Pro forma net loss per share(1)...................... (0.03) (1.15)
Shares used in per share calculations................ 16,154 15,751
BALANCE SHEET DATA:
Cash and short-term investments...................... 30,555 4,083 8,775 2,290
Working capital (deficit)............................ 28,237 (2,726) (344) (2,799)
Total assets......................................... 43,948 13,645 21,889 22,135
Total debt........................................... 612 7,437 10,941 7,825
Stockholders' equity (deficit)....................... 31,145 (4,797) (1,580) 8,903
</TABLE>
- ---------------
(1) Pro forma net loss per share is shown beginning in fiscal 1995, the year
prior to the Company's initial public stock offering.
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 section and other parts of this Annual Report on Form 10-K
contain forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in this Management's Discussion
and Analysis of Financial Condition and Results of Operations section and in
"Business" including "Factors That May Affect Future Results".
OVERVIEW
OpenVision Technologies, Inc. ("OpenVision" or the "Company") develops,
markets and supports systems management software for client/server computing
environments. OpenVision's AXXiON products address three essential areas of
systems management -- storage, operations and security. The Company sells its
products and services through a combination of direct sales and indirect
channels (resellers, VARs, hardware distributors, application software vendors
and systems integrators).
The Company's operating results in the past six fiscal quarters have
benefited from increased market acceptance of the Company's products and a
significant reduction in operating expenses resulting from expense and headcount
reductions implemented in the Company's restructuring in late fiscal 1994 and
the first half of fiscal 1995. During fiscal 1996, the Company improved its
collections and, as a result of this improvement and the write-off of specific
accounts receivable, was able to reduce its allowance for doubtful accounts from
$685,000 to $484,000, which had a favorable impact on operating results. The
Company was incorporated in June 1992 and has acquired a significant part of its
technology through ten acquisitions of companies, divisions of companies or
products, all of which were completed prior to July 31, 1993. These transactions
were accounted for under the purchase method of accounting. See Note 12 of Notes
to Consolidated Financial Statements. The numerous acquisitions resulted in the
Company managing a distributed development effort with as many as ten
development centers and a significant increase in number of staff. Several of
the products acquired required significant additional development before they
could be marketed and some failed to generate any revenue for the Company. In
addition, the Company quickly made large investments in capital equipment to
support this organization.
During fiscal 1994, the Company's infrastructure increased primarily as a
result of the acquisitions and in anticipation of higher revenue, which did not
materialize to the Company's expectations. The Company believes that the
client/server systems management market did not evolve as quickly as it
expected, and the
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sales cycle was longer than originally anticipated. Because of the impact of the
acquisitions and the slower than expected revenue growth, during late fiscal
1994 and the first half of fiscal 1995, the Company implemented a restructuring
plan involving a reduction of overlapping positions within the acquired
companies, consolidation of development centers, and reorganization of the sales
force. The restructuring plan resulted in a reduction in more than 100 employees
and the vacating of noncancelable operating leases. During fiscal 1995, the
Company disposed of a product that did not fit its target market through an
asset sale and eliminated duplicate product lines. Operating results have
improved since the restructuring.
The Company's international sales are generated primarily through its
international sales subsidiaries. International revenue outside the United
States and Canada, most of which are collectible in foreign currencies,
accounted for 31%, 29% and 9% of total net revenue in fiscal 1996, 1995 and
1994, respectively.
The Company acquired its sales subsidiaries' in Germany and the United
Kingdom in June 1993. In fiscal 1994, international revenue was generated
primarily by the sale of the products that accompanied the acquisition of the
sales subsidiaries in Germany and the United Kingdom. In late fiscal 1994, the
Company expanded its international operations by forming a sales subsidiary in
France. The Company also added products to the product offerings of its
subsidiaries from other acquired software businesses and products, started
offering consulting services and focused more management attention on
international operations.
The combination of the above factors resulted in international revenue
growing from 9% of total net revenues in fiscal 1994 to 31% in fiscal 1996.
The Company's international sales subsidiaries' operating expenses are
primarily related to the sales process, and, consequently, the operating income
break-even point for the international sales subsidiaries is lower than for the
Company's United States and Canadian operations, whose operating expenses
include research and development. Operating expenses of the international
subsidiaries were also favorably affected by the restructuring plan implemented
during fiscal 1995. The combination of the increased international revenue and
lower operating expenses as a percentage of total net revenues resulted in the
achievement of operating income in the United Kingdom in fiscal 1995 and 1996
and in the other European subsidiary companies in fiscal 1996.
Since much of the Company's international operating expenses are also
incurred in local currencies, the relative impact of exchange rates on net
income or loss is less than on revenues. The Company's operating and pricing
strategies take into account changes in exchange rates over time. However, the
Company's results of operations may be significantly affected in the short term
by fluctuations in foreign currency exchange rates.
19
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's Consolidated
Statements of Operations as a percentage of total net revenue and gross margins
for license and service revenue for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net revenue:
License...................................................... 72 % 58 % 74%
Service...................................................... 28 42 26
--- --- ---
Total net revenue.................................... 100 100 100
--- --- ---
Cost of revenue:
License...................................................... 5 10 68
Service...................................................... 7 25 31
--- --- ---
Total cost of revenue................................ 12 35 99
--- --- ---
Gross margin................................................... 88 65 1
Operating expenses:
Selling and marketing........................................ 53 84 91
Research and development..................................... 21 41 95
General and administrative................................... 14 36 54
Acquired technologies........................................ -- -- 21
Restructuring................................................ -- -- 9
--- --- ---
Total operating expenses............................. 88 161 270
--- --- ---
Profit (loss) from operations.................................. 0 (96 ) (269)
Other expense, net............................................. (1 ) (2 ) (4)
--- --- ---
Loss before income taxes....................................... (1) (98 ) (273)
Income tax..................................................... -- -- --
--- --- ---
Net loss....................................................... (1 )% (98 )% (273)%
=== === ===
Gross margin (loss):
License...................................................... 93 % 84 % 8%
Service...................................................... 74 % 41 % (20)%
</TABLE>
Net Revenue
The Company's revenue is comprised of license revenue and service revenue.
Growth in license revenue has been driven primarily by increasing market
acceptance of the Company's products and introduction of new products. Service
revenue is derived primarily from contracts for software maintenance and
technical support and, to a lesser extent, consulting and training services. The
growth in service revenue has resulted from increased sales of service and
support contracts on new license sales and, to a lesser extent, by increasing
renewals of these contracts as the Company's installed base of licenses has
increased.
License Revenue. License revenue increased 98% to $21.5 million in fiscal
1996 from $10.8 million in fiscal 1995, when it decreased 6% from $11.5 million
in fiscal 1994. The increase in fiscal 1996 was primarily the result of the
continued growth in market acceptance of the Company's software products and
introduction of new products. License revenue growth in fiscal 1996 also
includes an increase in indirect sales (resellers, VAR's and OEM's). The
decrease in fiscal 1995 was primarily attributable to the Company's disposal of
a product line through an asset sale and, to a lesser extent, turnover in the
sales force.
Service Revenue. During fiscal 1996 service revenue increased 9% to $8.4
million from $7.7 million in fiscal 1995, when it increased 88% from $4.1
million in fiscal 1994. The increase in fiscal 1996 was primarily due to
increased sales of service and support contracts on new licenses and, to a
lesser extent, renewal of
20
<PAGE> 21
service and support contracts on existing licenses, partially offset by a
decrease in consulting revenue. The increase in fiscal 1995 was primarily due to
increased sales of service and support contracts and, to a lesser extent, an
increase in consulting and training services.
Cost of Revenue
Cost of license revenue consists primarily of media, manuals, distribution
costs, amortization of purchased software and royalties. Cost of service revenue
consists primarily of personnel-related costs in providing maintenance,
technical support, consulting and training to customers. Gross margin on license
revenue is substantially higher than gross margin on service revenue, reflecting
lower materials, packaging and other costs of software products compared with
the relatively high personnel costs associated with providing maintenance,
technical support, consulting and training services. Cost of service revenue
also varies based upon the mix of maintenance, technical support, consulting and
training services.
Cost of License Revenue. Cost of license revenue decreased 20% to $1.4
million in fiscal 1996 from $1.8 million in fiscal 1995, when it decreased 83%
from $10.6 million in fiscal 1994. Gross margin on license revenue was 93%, 84%
and 8% in fiscal 1996, 1995 and 1994, respectively. The reduction in cost of
license revenue in fiscal 1996 was primarily due to an absence of charges for
purchased software amortization and, to a lesser extent, a greater percentage of
revenue from products with lower royalty rates. Cost of license revenue included
amortization of purchased software of $0.5 million and $8.8 million in fiscal
1995 and fiscal 1994, respectively. The Company does not expect further
significant improvements in gross margin on license revenue.
Cost of Service Revenue. Cost of service revenue decreased 52% to $2.2
million in fiscal 1996 from $4.6 million in fiscal 1995, where it decreased 7%
from $4.9 million in fiscal 1994. Gross margin on service revenue was 74% in
fiscal 1996, 41% in fiscal 1995, and negative 20% in fiscal 1994. The
significant improvements in fiscal 1996 and fiscal 1995 were the result of a
greater portion of service revenue attributable to higher margin service and
support contracts and improved utilization of consulting and education
resources. Non-billable consulting and educational services that were provided
to certain customers in earlier periods was substantially decreased in fiscal
1996. The negative gross margin in fiscal 1994 was due to the large costs
associated with providing such non-billable consulting and education services in
anticipation of license sales, higher headcount and lower utilization of
consulting and education resources. These non-billable services were not
continued after the license revenue was recognized and were provided to
facilitate market acceptance of the Company's products. The Company does not
expect the provision of non-billable consulting and educational services to
adversely affect its service gross margin in future periods, nor does the
Company expect further significant improvements in gross margin from service
revenue.
Operating Expenses
Selling and Marketing. Selling and marketing expenses consist primarily of
salaries, related benefits, commissions, consultant fees and other costs
associated with the Company's sales and marketing efforts. Selling and marketing
expenses of $15.8 million in fiscal 1996 were 2% higher than the $15.5 million
incurred in fiscal 1995, which were up 9% from $14.2 million in fiscal 1994.
Selling and marketing expenses decreased as a percentage of total net revenue to
53% in fiscal 1996 from 84% in fiscal 1995 and 91% in fiscal 1994. The increases
in absolute dollars from fiscal 1995 to the current fiscal year, and from fiscal
1994 to fiscal 1995 were primarily related to the moderate expansion of the
worldwide sales organization partially offset by a decrease in marketing
expenses. The Company intends to continue to expand its global sales and
marketing infrastructure and expects to generate an increasing percentage of its
sales through indirect sales. Accordingly, the Company expects its selling and
marketing expenses to increase in the future, although such expenses may decline
as a percentage of total net revenue as a result of revenue increases.
Research and Development. Research and development expenses consist
primarily of salaries, related benefits, third-party consultant fees and other
costs. Research and development expenses decreased 15% to $6.4 million in fiscal
1996 from $7.5 million in fiscal 1995, when it decreased 49% from $14.8 million
in fiscal 1994. Research and development expenses have decreased as a percentage
of total revenue, 21% in fiscal 1996,
21
<PAGE> 22
41% in fiscal 1995 and 95% in fiscal 1994. Research and development expenses
decreased in absolute dollars in fiscal 1996 and fiscal 1995 primarily
reflecting the reduction of engineering personnel and consolidation of the
number of development sites that the Company operates. Research and development
expenses in fiscal 1994 reflect the significant number of acquisitions that took
place in fiscal 1993 and fiscal 1994. The Company believes that a significant
level of research and development investment is required to remain competitive
and expects such expenses will increase in future periods, although such
expenses may decline as a percentage of total net revenue as a result of revenue
increases.
General and Administrative. General and administrative expenses consist
primarily of salaries and related benefits, amortization of certain intangible
assets, and fees for professional services, such as legal and accounting.
General and administrative expenses decreased 38% to $4.2 million in fiscal 1996
from $6.8 million in fiscal 1995, a 19% reduction from $8.4 million in fiscal
1994. General and administrative expenses as a percentage of revenue were 14%,
36% and 54% in fiscal 1996, 1995 and 1994, respectively. The decrease in
absolute dollars and as a percentage of revenue in fiscal 1996 was primarily due
to decreased staffing and restructuring in finance and administration. The
decrease in absolute dollars and as a percentage of revenue in fiscal 1995 was
primarily the result of a reduction in personnel related in part to the
Company's restructuring and, to a lesser extent, a reduction in the amortization
of intangible assets. General and administrative expenses are expected to
increase in future periods to the extent the Company expands its operations and
as a result of now absorbing costs associated with being a public company, but
may continue to decline as a percentage of total net revenue.
Acquired Technologies. Acquired technologies consists of nonrecurring
charges for in-process research and development taken upon the acquisition of
companies, divisions of companies or products and the write-off of purchased
software costs related to certain acquired products that failed to generate
adequate revenues. Acquired technologies charges totaled $3.3 million in fiscal
1994.
Restructuring Charge. During fiscal 1994 and fiscal 1995, the Company
implemented a restructuring plan involving a reduction of overlapping positions
within the Company, consolidation of development centers, reorganization of the
sales force and consolidation and centralization of certain operational
activities as a result of integrating the Company's operations. The plan
resulted in a reduction in the number of employees and vacating noncancelable
operating leases. The amount charged to operations for restructuring activities
was $1.4 million in fiscal 1994, which represented the accrual of estimated
costs of severance compensation, benefits, noncancelable minimum lease payments,
and other obligations.
Income (Loss) from Operations. Losses from operations were $0.1 million,
$17.7 million and $42.0 million in fiscal 1996, 1995 and 1994, respectively. The
loss in fiscal 1994 included an acquired technologies charge of $3.3 million and
the $1.4 million restructuring charge. Operating costs were progressively lower
in fiscal 1995 and fiscal 1996 due in large part to the Company's restructuring.
Other Income (Expense), Net. Other income (expense), net improved to a net
expense of $0.4 million in both fiscal 1996 and fiscal 1995 from a net expense
of $0.7 million in fiscal 1994. The fiscal 1996 net expense represents interest
expense incurred on debt balances during the first three quarters of the year
being partially offset by interest income being earned on cash balances in the
last quarter of the year. The other expense, net decreased in fiscal 1995 from
fiscal 1994 due to a $1.1 million gain on disposal of product partially offset
by larger amounts of interest expense incurred on larger average debt balances
and by lower amounts of interest income being earned on reduced cash balances.
The fiscal 1994 other expense, net was due to interest expense incurred on debt
balances partially offset by interest income. Fluctuations in foreign currency
have not had a significant effect on the Company's results of operations.
Income Taxes. The Company accounts for its income taxes under Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." As a result of operating losses, no provisions for income taxes have
been recorded. Under SFAS 109, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amount of assets and liabilities for financial reporting
and the amounts used for income taxes. At June 30, 1996, the Company had
approximately $28.4 million of gross deferred tax assets comprised primarily of
net operating loss carryforwards. The Company believes that, based on a number
of factors, the available objective evidence
22
<PAGE> 23
creates sufficient uncertainty regarding the realizability of the deferred tax
assets such that a full valuation allowance has been recorded. These factors
include the Company's history of net losses since its inception, the Company's
limited profitability in recent periods, the fact that the market in which the
Company competes is intensely competitive and characterized by rapidly changing
technology, and the uncertainty regarding market acceptance of new versions of
the Company's AXXiON products. The Company believes that, based on the currently
available evidence, it is more likely than not that the Company will not
generate taxable income and accordingly will not realize the Company's deferred
tax assets. The Company will continue to assess the realizability of the
deferred tax assets based on actual and forecasted operating results.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth selected unaudited consolidated results of
operations data for each of the eight quarters in the period ended June 30,
1996. This information has been derived from unaudited consolidated financial
statements of the Company that, in the opinion of management, reflect all
recurring adjustments necessary to fairly present this information when read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto appearing in Item 8 of this Form 10-K. The results of operations for any
quarter are not necessarily indicative of the results to be expected for any
future period.
<TABLE>
<CAPTION>
FISCAL 1996
QUARTER ENDED
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
------------- ------------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total net revenue........................... $ 5,140 $ 7,351 $ 7,834 $ 9,570
Income (loss) from operations............... (1,703) 214 438 974
Net income (loss)........................... (1,811) 30 235 1,036
Pro forma net income (loss) per share....... $ (0.11) $ 0.00 $ 0.01 .06
Shares used in per share calculations(1).... 15,773 15,773 16,114 18,247
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995
QUARTER ENDED
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994 1994 1995 1995
------------- ------------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total net revenue........................... $ 3,395 $ 3,881 $ 5,035 $ 6,213
Loss from operations........................ (6,707) (6,209) (2,819) (1,928)
Net loss.................................... (6,960) (5,430) (3,069) (2,653)
Pro forma net loss per share................ $ (0.44) $ (0.34) $ (0.19) $ (0.17)
Shares used in per share calculations(1).... 15,648 15,745 15,773 15,773
</TABLE>
- ---------------
(1) Pro forma net income (loss) per share is computed using the same method as
described in Note 1 of Notes to Consolidated Financial Statements.
The Company has experienced, and expects to continue to experience,
significant fluctuations in quarterly operating results that may be caused by
many factors, including, among others: the size and timing of orders;
introduction or enhancement of products by the Company or its competitors;
changes in pricing policy of the Company or its competitors; increased
competition; technological changes in computer systems and environments; the
ability of the Company to timely develop, introduce and market new products;
quality control of products sold; market readiness to deploy systems management
products for distributed computing environments; market acceptance of new
products and product enhancements; seasonality of revenue; customer order
deferrals in anticipation of new products and product enhancements; the
Company's success in expanding its sales and marketing programs; personnel
changes; foreign currency exchange rates; mix of products sold; acquisition
costs; and general economic conditions. The Company's operating results are
highly sensitive to the timing of larger orders. Orders typically range from a
few thousand dollars to several hundred thousand dollars. In the quarter ended
December 31, 1995, the Company recognized license revenue of $1.4 million
23
<PAGE> 24
related to one order. Revenue is difficult to forecast because the client/server
systems management software market is an emerging market that is highly
fragmented and subject to rapid change. The Company's revenue in its first
fiscal quarter is typically lower than its revenue in the immediately preceding
quarter ended June 30 due to seasonality in customer buying patterns and the
structure of the Company's sales commission programs which can increase sales
incentives, in the Company's fourth fiscal quarter. The Company expects this
seasonality to continue. The Company's sales cycle varies substantially from
customer to customer. As a result of all of these factors, the Company believes
that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. The Company has had net income only in the last three quarters of
fiscal 1996, and there can be no assurance that the Company will have net income
in future quarters or on an annual basis.
The Company's future revenue is difficult to predict, and the Company has
in the past not achieved its revenue expectations. Because the Company generally
ships software products within a short period after receipt of an order, it
typically does not have a material backlog of unfilled orders, and revenue in
any quarter is substantially dependent on orders booked and shipped in that
quarter. In addition, the Company typically recognizes a significant portion of
license revenue in the last two weeks of a quarter. The Company's expense levels
are based, in part, on its expectations as to future revenue and to a large
extent are fixed in the short term. The Company expects to increase expense
levels in each of the next several quarters primarily to support increased sales
and marketing efforts and research and development efforts. The Company is
unable to adjust expenses in the short term to compensate for any unexpected
revenue shortfall. Accordingly, any significant shortfall of revenue in relation
to the Company's expectations or any material delay of customer orders would
have an immediate adverse effect on its business, operating results and
financial condition and on the Company's ability to achieve or maintain
profitability. Due to all the foregoing factors, it is possible that in future
quarters the Company's operating results may be below the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Stock would be materially and adversely affected.
OTHER FINANCIAL CONSIDERATIONS
Limited Operating History; No Assurance of Profitability; Early Stage of
Development and Deployment. The Company was incorporated in 1992 and did not
begin shipping products until March 1993. Accordingly, the Company has a very
limited operating history, which makes the prediction of future results
difficult or impossible. The Company has incurred significant net losses since
its inception, including losses of approximately $42.7 million, $18.1 million
and $0.5 million for fiscal 1994, 1995 and 1996, respectively. At June 30, 1996,
the Company had an accumulated deficit of approximately $77.8 million. Although
the Company generated net income of approximately $1.3 million in the last three
quarters of fiscal 1996, there can be no assurance that the Company will
continue to be profitable in any future period and recent operating results
should not be considered indicative of future financial performance. The Company
is subject to the risks inherent in the operation of a new business enterprise,
and there can be no assurance that the Company will be able to successfully
address these risks.
Although the Company's strategy is to derive a significant portion of its
revenue from the licensing of software, the Company's revenue to date has been
limited. The Company's software products are designed for client/server
computing environments, which have been utilized only for the past several
years. The Company's product strategy is initially to integrate selected product
pairs to enhance systems management functionality and to integrate certain
products throughout its entire product line through the availability of a common
set of services by late 1997. Currently, the Company is in the initial phase of
this product integration. The success of the Company's strategy is dependent in
significant part on its ability to integrate its products as planned and on the
Company's software products achieving market acceptance by end users and
hardware and software vendors. No assurance can be given that the Company will
successfully integrate its products as planned or that the Company's software
products will achieve market acceptance. The success of the Company's strategy
is also dependent on the Company's ability to expand its direct sales, service
and marketing organizations and to establish indirect distribution channels,
including resellers, VARs, hardware distributors, application software vendors
and systems integrators. If the Company is unable to expand its
24
<PAGE> 25
direct sales, service and marketing organizations and develop appropriate
distribution channels on a timely basis, the Company's business, operating
results and financial condition would be materially adversely affected. See
"Item 1. Business -- Products and -- Sales and Marketing."
Product Sales Concentration. The Company's storage products accounted for
56%, 38% and 31% of the Company's license revenue in fiscal 1996, fiscal 1995
and fiscal 1994, respectively. The Company believes its storage products will
continue to account for a significant portion of its license revenue in the
foreseeable future. The Company's AXXiON-HA product accounted 18%, 13% and 21%
of the Company's license revenue in fiscal 1996, fiscal 1995 and fiscal 1994,
respectively. A decline in unit price or demand for the Company's storage
products or its AXXiON-HA product as a result of competition, technological
change or other factors could have a material adverse effect on the business,
operating results and financial condition of the Company. See "Item 1.
Business -- Products."
Risks Associated With International Operations. The Company believes that
its success depends upon continued expansion of its international operations.
The Company currently has sales and service offices in Canada, England, Germany
and France. OpenVision markets its products through a direct sales force of
eleven persons located in Europe and the Americas and approximately 20 resellers
located in Europe, Asia Pacific, South America, Mexico and the Middle East.
International expansion may require that the Company establish additional
foreign offices, hire additional personnel and recruit additional international
resellers. This may require significant management attention and financial
resources and could adversely affect the Company's operating margins. To the
extent the Company is unable to effect these additions efficiently and in a
timely manner, its growth, if any, in international sales will be limited, and
the Company's business, operating results and financial condition could be
materially and adversely affected. There can be no assurance that the Company
will be able to maintain or increase international market demand for its
products.
The Company's international sales are generated primarily through its
international sales subsidiaries and are currently denominated in local
currency, creating a risk of foreign currency translation gains and losses. To
the extent profit is generated or losses are incurred in foreign countries, the
Company's effective income tax rate may be materially and adversely affected. In
some markets, localization of the Company's products is essential to achieve
market penetration. The Company may incur substantial costs and experience
delays in localizing its products, and there can be no assurance that any
localized product will ever generate significant revenue. There can be no
assurance that any of the factors described herein will not have a material
adverse effect on the Company's future international sales and, consequently,
its business, operating results and financial condition. "Item 1.
Business -- Sales and Marketing."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
sales of capital stock, and to a lesser extent, the issuance of long-term debt.
At June 30, 1996, the Company had working capital of $28.2 million and cash and
cash equivalents and short-term investments of $30.6 million, as compared to
$4.1 million in cash and cash equivalents and short-term investments and a $2.7
million working capital deficit at the end of fiscal 1995. The Company currently
has a line-of-credit agreement with a bank providing for borrowings up to $5.0
million, based on the Company's accounts receivable, at LIBOR plus 5.125% (10.7%
at June 30, 1996). The line-of-credit agreement provides for borrowings to be
collateralized by accounts receivable, equipment and other assets, and expires
October 12, 1996. At June 30, 1996, the Company had no outstanding borrowings
under this agreement.
Net cash used in operating activities was $2.0 million, $15.5 million,
$22.5 million, in fiscal 1996, 1995, and 1994, respectively. In fiscal 1996 cash
used in operating activities improved from fiscal 1995 as a result of lower net
losses and an increase in accounts payable partially offset by an increase in
accounts receivable, reflecting the growth in the Company's revenue. In fiscal
1995 cash flows from operations improved from fiscal 1994 resulting from lower
net losses partially offset by reductions in accounts payable and in other
liabilities balances.
OpenVision's investing activities used cash of $14.8 million in fiscal 1996
primarily for the purchase of short-term investments of $13.7 million, and
capital expenditures of $1.1 million. The Company's investing
25
<PAGE> 26
activities generated cash of $3.5 million in fiscal 1995 and used cash of $9.9
million in fiscal 1994. Investing activities during those periods consisted
primarily of capital expenditures of $0.7 million and $4.8 million, for fiscal
1995 and 1994, respectively and cash expenditures in connection with the
acquisition of businesses and software products of $0.8 million in fiscal 1994.
In fiscal 1994 the Company purchased short-term investments of $4.1 million that
were sold in fiscal 1995.
Financing activities provided cash of $29.8 million in fiscal 1996, $11.6
million in fiscal 1995, and $34.8 million in fiscal 1994. The fiscal 1996 amount
reflects the net proceeds of $36.5 million from the Company's May 1996 initial
public stock offering, partially offset by payments made against notes payable
from a portion of the proceeds of the offering. In both fiscal 1995 and fiscal
1994 financing activities provided cash primarily from the aggregate net
proceeds from private sales of equity securities and, to a lesser extent, the
net proceeds from the issuance of debt. The Company used cash from financing
activities to make payments under certain notes payable of $3.5 million in
fiscal 1995 and $4.7 million in fiscal 1994.
The Company's operating results are highly sensitive to the timing of
larger orders. In addition, the Company typically recognizes a significant
portion of license revenue in the last two weeks of a quarter. As a result, the
Company's accounts receivable balance during a quarter may fluctuate
significantly. Accordingly, the Company may from time to time experience large
fluctuations in operating cash flow.
The Company may make additional acquisitions of companies, divisions of
companies or products in the future. Acquisitions entail numerous risks,
including difficulties or an inability to successfully assimilate acquired
operations and products, diversion of management's attention and loss of key
employees of acquired companies, all of which the Company has encountered with
previous acquisitions. Future acquisitions by the Company may result in dilutive
issuances of equity securities, the incurrence of debt, large one-time
write-offs and the creation of goodwill or other intangible assets that could
result in amortization expense. These factors could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company believes that its cash flow and existing cash and short-term
investment balances will be sufficient to meet its cash requirements for at
least the next twelve months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Financial Statements:
Report of Independent Auditors...................................................... 27
Consolidated Balance Sheets at June 30, 1996 and 1995............................... 28
Consolidated Statements of Operations for the years ended June 30, 1996, 1995 and
1994............................................................................. 29
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1996,
1995 and 1994.................................................................... 30
Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1995 and
1994............................................................................. 31
Notes to Consolidated Financial Statements.......................................... 32
Financial Statement Schedule:
Schedule II. Valuation and Qualifying Accounts...................................... 44
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
26
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
OpenVision Technologies, Inc.
We have audited the accompanying consolidated balance sheets of OpenVision
Technologies, Inc. as of June 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended June 30, 1996. 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 as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
OpenVision Technologies, Inc. at June 30, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Jose, California
July 22, 1996
27
<PAGE> 28
OPENVISION TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 16,888 $ 4,083
Short-term investments............................................... 13,667 --
Accounts receivable, less allowance for doubtful accounts of $484 at
June 30, 1996, and $685 at June 30, 1995.......................... 9,446 4,936
Other current assets................................................. 576 465
-------- --------
Total current assets................................................... 40,577 9,484
Property and equipment, net............................................ 2,590 3,424
Note receivable from officer........................................... 418 350
Other assets........................................................... 363 387
-------- --------
Total assets........................................................... $ 43,948 $ 13,645
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..................................................... $ 1,612 $ 1,219
Accrued compensation and related expenses............................ 1,592 1,042
Accrued interest..................................................... 119 780
Other accrued liabilities............................................ 2,606 2,389
Deferred revenue..................................................... 6,262 5,575
Current portion of notes payable..................................... 149 1,205
-------- --------
Total current liabilities.............................................. 12,340 12,210
Notes payable, less current portion.................................... 463 6,232
Commitments and contingencies
Stockholders' equity (deficit)
Convertible preferred stock, $.01 par value: Authorized
shares -- 5,000 issued and outstanding shares -- none at June 30,
1996, and 12,054 at June 30, 1995................................. -- 120
Common stock, $.001 par value: Authorized shares -- 50,000 issued and
outstanding shares -- 18,559 at June 30, 1996, and 3,056 at June
30, 1995.......................................................... 19 3
Additional paid-in capital........................................... 109,584 72,755
Accumulated deficit.................................................. (77,773) (77,263)
Notes receivable from stockholders................................... (302) (284)
Deferred compensation................................................ (113) --
Foreign currency translation adjustment.............................. (270) (128)
-------- --------
Total stockholders' equity (deficit)................................... 31,145 (4,797)
-------- --------
Total liabilities and stockholders' equity (deficit)................... $ 43,948 $ 13,645
======== ========
</TABLE>
See accompanying notes.
28
<PAGE> 29
OPENVISION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Net revenue:
License................................................... $21,474 $ 10,828 $ 11,520
Service................................................... 8,421 7,696 4,104
------- -------- --------
Total net revenue................................. 29,895 18,524 15,624
------- -------- --------
Cost of revenue:
License................................................... 1,425 1,787 10,598
Service................................................... 2,189 4,563 4,931
------- -------- --------
Total cost of revenue............................. 3,614 6,350 15,529
------- -------- --------
Gross profit................................................ 26,281 12,174 95
Operating expenses:
Selling and marketing..................................... 15,784 15,538 14,245
Research and development.................................. 6,415 7,541 14,794
General and administrative................................ 4,159 6,758 8,361
Acquired technologies..................................... -- -- 3,295
Restructuring............................................. -- -- 1,447
------- -------- --------
Total operating expenses.......................... 26,358 29,837 42,142
------- -------- --------
Loss from operations........................................ (77) (17,663) (42,047)
Interest expense............................................ (729) (1,352) (963)
Gain on disposal of product................................. -- 1,100 --
Other income (expense), net................................. 296 (197) 283
------- -------- --------
Net loss.................................................... $ (510) $(18,112) $(42,727)
======= ======== ========
Pro forma net loss per share................................ $ (0.03) $ (1.15)
======= ========
Pro forma shares used in per share calculations............. 16,154 15,751
======= ========
</TABLE>
See accompanying notes.
29
<PAGE> 30
OPENVISION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- --------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------- ------ ------ ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993.................................. 4,834 $ 48 6,450 $ 6 $ 25,029 $ (16,424)
Issuance of preferred stock............................... 3,036 31 -- -- 27,355 --
Issuance of common stock.................................. -- -- 1,534 2 151 --
Repurchase of common stock................................ -- -- (5,750) (6) 6 --
Conversion of notes payable to preferred stock............ 435 4 -- -- 4,996 --
Exercise of stock options................................. -- -- 16 -- 2 --
Foreign currency translation adjustment................... -- -- -- -- -- --
Net loss.................................................. -- -- -- -- -- (42,727)
-------- ----- ------ --- ------ -------
Balance at June 30, 1994.................................. 8,305 83 2,250 2 57,539 (59,151)
Issuance of preferred stock............................... 1,625 16 -- -- 6,466 --
Issuance of common stock.................................. -- -- 420 -- 210 --
Repurchase of common stock................................ -- -- (27 ) -- (3) --
Conversion of notes payable to preferred stock............ 2,124 21 -- -- 8,479 --
Exercise of stock options................................. -- -- 413 1 64 --
Payments received from stockholders on notes receivable... -- -- -- -- -- --
Foreign currency translation adjustment................... -- -- -- -- -- --
Net loss.................................................. -- -- -- -- -- (18,112)
-------- ----- ------ --- ------ -------
Balance at June 30, 1995.................................. 12,054 120 3,056 3 72,755 (77,263)
Conversion of preferred stock to common stock............. (12,054) (120 ) 12,054 12 108 --
Issuance of common stock, net of issuance costs of
$4,306.................................................. -- -- 3,047 3 36,504 --
Exercise of stock options................................. -- -- 402 1 88 --
Payments received from stockholders on notes receivable... -- -- -- -- -- --
Deferred compensation resulting from stock option
grants.................................................. -- -- -- -- 129 --
Amortization of deferred compensation..................... -- -- -- -- -- --
Foreign currency translation adjustment................... -- -- -- -- -- --
Net loss.................................................. -- -- -- -- -- (510)
-------- ----- ------ --- ------ -------
Balance at June 30, 1996.................................. -- $ -- 18,559 $ 19 $109,584 $ (77,773)
======== ===== ====== === ====== =======
<CAPTION>
NOTES FOREIGN TOTAL
RECEIVABLE CURRENCY STOCKHOLDERS'
FROM DEFERRED TRANSLATION EQUITY
STOCKHOLDERS COMPENSATION ADJUSTMENTS (DEFICIT)
------------ ------------ ----------- -----------------
<S> <C> <C> <C> <C>
Balance at June 30, 1993.................................. $ (81) $ -- $ -- $ 8,578
Issuance of preferred stock............................... -- -- -- 27,386
Issuance of common stock.................................. (38) -- -- 115
Repurchase of common stock................................ -- -- -- --
Conversion of notes payable to preferred stock............ -- -- -- 5,000
Exercise of stock options................................. -- -- -- 2
Foreign currency translation adjustment................... -- -- 66 66
Net loss.................................................. -- -- -- (42,727)
----- ---- ----- --------
Balance at June 30, 1994.................................. (119) -- 66 (1,580)
Issuance of preferred stock............................... -- -- -- 6,482
Issuance of common stock.................................. (210) -- -- --
Repurchase of common stock................................ 3 -- -- --
Conversion of notes payable to preferred stock............ -- -- -- 8,500
Exercise of stock options................................. -- -- -- 65
Payments received from stockholders on notes receivable... 42 -- -- 42
Foreign currency translation adjustment................... -- -- (194) (194)
Net loss.................................................. -- -- -- (18,112)
----- ---- ----- --------
Balance at June 30, 1995.................................. (284) -- (128) (4,797)
Conversion of preferred stock to common stock............. -- -- -- --
Issuance of common stock, net of issuance costs of
$4,306.................................................. (37) -- -- 36,470
Exercise of stock options................................. -- -- -- 89
Payments received from stockholders on notes receivable... 19 -- -- 19
Deferred compensation resulting from stock option
grants.................................................. -- (129) -- --
Amortization of deferred compensation..................... -- 16 -- 16
Foreign currency translation adjustment................... -- -- (142) (142)
Net loss.................................................. -- -- -- (510)
----- ---- ----- --------
Balance at June 30, 1996.................................. $ (302) $ (113) $(270) $ 31,145
===== ==== ===== ========
</TABLE>
See accompanying notes.
30
<PAGE> 31
OPENVISION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................... $ (510) $(18,112) $(42,727)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 1,924 2,416 13,279
Write-off of acquired technologies....................... -- -- 3,295
Loss on disposal of equipment and improvements........... -- 377 122
Changes in operating assets and liabilities:
Accounts receivable...................................... (4,567) 385 (3,240)
Other assets............................................. (90) 941 (347)
Deferred revenue......................................... 698 (60) 4,453
Accounts payable......................................... 397 (903) 115
Accrued compensation and related expenses................ 558 (302) 118
Other accrued liabilities.................................. (433) (256) 2,360
-------- -------- --------
Net cash used in operating activities...................... (2,023) (15,514) (22,502)
INVESTING ACTIVITIES
Additions to equipment and improvements.................... (1,074) (699) (4,791)
Note receivable from officer............................... (68) 130 (305)
Purchase of businesses and software products............... -- -- (791)
Sale (purchase) of short-term investments.................. (13,667) 4,051 (4,051)
-------- -------- --------
Net cash provided by (used in) investing activities........ (14,809) 3,482 (9,938)
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock.................. -- 6,482 27,386
Proceeds from issuance of common stock..................... 36,559 65 117
Payments of notes payable.................................. (6,825) (3,504) (4,695)
Proceeds from notes payable................................ -- 8,500 12,000
Payments on notes receivable from stockholders............. 19 42 --
-------- -------- --------
Net cash provided by financing activities.................. 29,753 11,585 34,808
Effect of exchange rate changes............................ (116) (194) 66
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 12,805 (641) 2,434
Cash and cash equivalents at beginning of period........... 4,083 4,724 2,290
-------- -------- --------
Cash and cash equivalents at end of period................. $ 16,888 $ 4,083 $ 4,724
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest..................................... $ 1,390 $ 1,111 $ 262
Conversion of notes payable to preferred stock............. $ -- $ 8,500 $ 5,000
Acquisitions of businesses and products through the
issuance of notes payable................................ $ -- $ -- $ 1,284
Conversion of preferred stock to common stock.............. $ 71,806 $ -- $ --
</TABLE>
See accompanying notes.
31
<PAGE> 32
OPENVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OpenVision Technologies, Inc. ("OpenVision" or the "Company") develops,
markets and supports systems management software for client/server computing
environments. OpenVision's AXXiON products address three essential areas of
systems management -- storage, operations and security. The Company sells its
products and services through a combination of direct sales and indirect
channels (resellers, VARs, hardware distributors, application software vendors
and systems integrators).
The Company's storage products accounted for 56%, 38% and 31% of the
Company's license revenue in fiscal 1996, 1995 and 1994, respectively. The
Company's AXXiON-HA product account for 18%, 13% and 21% of the Company's
license revenue in fiscal 1996, 1995 and 1994, respectively.
The Company markets its products internationally and has sales offices in
the United States, Canada, Germany, France, and the United Kingdom.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
The Company translates the accounts of its foreign subsidiaries using the
local currency as the functional currency. Consequently, assets and liabilities
of operations outside the United States are translated into U.S. dollars using
period-end exchange rates, and revenues and expenses are translated at the
weighted average monthly exchange rates. Gains or losses from this translation
process are credited or charged to the "foreign currency translation adjustment"
account included in stockholders' equity (deficit). Foreign currency transaction
gains and losses have not been significant.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash, Cash Equivalents and Short-Term Investments
The Company considers highly liquid investments with maturities of less
than ninety days when purchased to be cash equivalents.
Effective July 1, 1994, the Company implemented Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities". The Company has determined its short-term
investments are held to maturity under the provisions of SFAS 115 and
accordingly such amounts are recorded at cost. At June 30, 1996, cost
approximated fair value for all cash equivalents and short-term investments. To
date, there have been no significant gains or loses realized on the Company's
cash equivalents or short-term investments. The cost of securities sold is based
on the specific identification method.
32
<PAGE> 33
OPENVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash equivalents and short-term investments consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents:
Cash and money market accounts......................... $ 1,961 $4,083
Commercial paper....................................... 14,927 --
------- ------
$ 16,888 $4,083
======= ======
Short-term investments:
Commercial paper....................................... $ 13,667 $ --
======= ======
</TABLE>
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the shorter of the estimated useful life of the
asset or the lease term. Useful lives of three to five years are used for
computers and related equipment, and furniture and fixtures. Leasehold
improvements are amortized over the shorter of their useful lives or the term of
the related lease.
Software Development Costs
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards No. 86 "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," under which certain
software development costs incurred subsequent to the establishment of
technological feasibility are capitalized and amortized over the estimated lives
of the related products. Technological feasibility is established upon
completion of a working model, which is typically demonstrated by initial beta
shipment. The period between the achievement of technological feasibility and
the general release of the Company's products has been of short duration. As of
June 30, 1996 such capitalizable software development costs were insignificant
and all software development costs have been charged to research and development
expense in the accompanying consolidated statements of operations.
Revenue Recognition
License revenue is generally recognized upon shipment of the software, if
no significant future obligations remain and collection of the resulting
receivable is probable. For those agreements with significant future
obligations, revenue is recognized when the obligations are satisfied. The cost
of insignificant future obligations, if any, is accrued at the time revenue is
recognized. Allowances for estimated future returns and warranty costs are
provided for at the time of shipment. Maintenance and technical support revenue,
which are included in service revenue, are deferred and recognized ratably over
the term of the agreement, typically twelve months. Revenue from consulting
services and training is recognized as the services are provided. The Company's
revenue recognition policy is in conformity with the provisions of the American
Institute of Certified Public Accountants' Statement of Position 91-1 "Software
Revenue Recognition."
Accounts Receivable
The Company sells its products to various companies across several
industries and geographic locations. The Company maintains an allowance for
doubtful accounts to provide for management's estimates of potential credit
losses. Actual credit losses may differ from management's estimates. Such losses
to date have been within management's expectations. The Company generally does
not require collateral.
33
<PAGE> 34
OPENVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of investments in debt
securities and trade receivables. The Company primarily invests its excess cash
in government securities, time deposits, certificate of deposit with approved
financial institutions, commercial paper rated A-1/P-1, and other specific money
market instruments of similar liquidity and credit quality. The Company is
exposed to credit risks in the event of default by the financial institutions or
issuers of investments to the extent recorded on the balance sheet.
Stock-Based Compensation
The Company accounts for its stock option and employee stock purchase plans
in accordance with the provisions of Accounting Principles Board's Opinion No.
25 ("APB 25"), "Accounting for Stock Issued to Employees." In 1995, the
Financial Accounting Standards Board released the Statement of Financial
Accounting Standard, No. 123 ("SFAS 123"), "Accounting for Stock Based
Compensation". The Company expects to continue to account for its employee stock
plans in accordance with the provisions of APB 25 and to adopt the "disclosure
only" alternative described in SFAS 123. Accordingly, SFAS 123 is not expected
to have a material impact on the Company's financial position or results of
operations.
Income Taxes
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes". Under this method, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities.
Net Loss Per Shares and pro Forma Net Loss Per Share
Except as noted below, net loss per share is computed using the weighted
average number of shares of common stock outstanding. Common equivalent shares
from convertible preferred stock (using the as-if converted method) and from
stock options and warrants (using the treasury stock method) have been excluded
from computations because their inclusion would be antidilutive, except that
pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares issued by the Company at prices below the
initial public offering price during the twelve-month period prior to the
initial public offering have been included in the calculation as if they were
outstanding for all periods presented through March, 31, 1996 (using the
treasury stock method). Per share information calculated on this basis is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Net loss per share..................................... $(0.06) $(2.43) $(4.56)
Shares used in computing net loss per share (in
thousands)........................................... 8,585 7,446 9,366
</TABLE>
The pro forma calculation of net loss per share presented in the
consolidated statements of operations is computed as described above and also
gives retroactive effect to the assumed conversion of all outstanding shares of
convertible preferred stock into common stock upon the closing of the Company's
initial public offering using the as-if converted method.
2. NOTES RECEIVABLE FROM OFFICER AND STOCKHOLDERS
The Company has an outstanding loan to an officer, who is also a
stockholder of the Company, in the amount of $418,000 at June 30, 1996. The note
bears interest at 6.28%, matures in 1999 and is collateralized
34
<PAGE> 35
OPENVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by shares of the Company's common stock owned by the officer. Notes receivable
for the purchase of common stock are included in stockholders' equity (deficit).
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1995
------- --------
<S> <C> <C>
Computer equipment and software................................ $ 6,178 $ 5,149
Furniture and equipment........................................ 1,149 1,137
Leasehold improvements......................................... 226 226
------- --------
7,553 6,512
Less accumulated depreciation and amortization................. (4,963) (3,088)
------- --------
Net property and equipment..................................... $ 2,590 $ 3,424
======= =======
</TABLE>
4. LINE OF CREDIT
The Company currently has a line of credit agreement with a bank providing
for borrowings up to $5,000,000, based on a percentage of eligible accounts
receivable, at LIBOR plus 5.125% (10.7% at June 30, 1996). The line of credit
agreement prohibits the payment of cash dividends without the bank's consent.
Borrowings are collateralized by accounts receivable, equipment and other
assets. The line of credit agreement expires October 12, 1996. At June 30, 1996,
the Company had no outstanding borrowings under this line of credit.
5. NOTES PAYABLE
Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------
1996 1995
---- ------
<S> <C> <C>
Note payable to majority stockholder, subordinate to borrowings
under the bank line of credit, interest at prime rate plus 1%..... $ -- $5,000
Acquisition agreement, interest at prime rate plus 2%............... -- 1,200
Acquisition agreements, noninterest bearing, net of 8% imputed
interest.......................................................... 612 1,231
Equipment purchases and other....................................... -- 6
---- ------
612 7,437
Less current portion................................................ 149 1,205
---- ------
Notes payable, less current portion................................. $463 $6,232
==== ======
</TABLE>
Maturities of notes payable are as follows at June 30, 1996 (in thousands):
<TABLE>
<S> <C>
Fiscal Year Ending June 30:
1997........................................................................ $149
1998........................................................................ 463
----
$612
====
</TABLE>
35
<PAGE> 36
OPENVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCKHOLDERS' EQUITY
Initial Public Offering
In May 1996, the Company sold 2,910,250 shares of common stock at $14.00
per share in an initial public offering resulting in net proceeds of
approximately $36.4 million. In connection with the offering, all previously
outstanding convertible preferred stock (consisting of 12,054,361 shares) was
converted into 8,807,219 shares of common stock and 3,247,142 shares of Class B
common stock.
Common Stock
The holders of common stock are entitled to receive dividends, when and if
declared by the Board of Directors. The holders of common stock are entitled to
one vote for each share held on all matters submitted to a vote of stockholders.
The common stock has no preemptive or other subscription rights, and there are
no conversion rights or redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable.
A total of 14,800,000 shares of common stock (of which 3,247,142 are
outstanding at June 30, 1996) are designated as Class B common stock. The Class
B common stock has the same rights, preferences, privileges and restrictions as
the common stock except that the Class B common stock has limited voting rights
and does not vote for the election of directors. The shares of Class B common
stock will, upon any transfer of such shares by the current holder, be
automatically converted into a like number of shares of common stock, subject to
adjustment upon certain events with respect to the common stock. The shares of
Class B common stock are also convertible at the option of the holder into a
like number of shares, subject to adjustment, of common stock so long as the
conversion results in the current holder having less than or equal to 49% of the
Company's voting securities.
Preferred Stock
The Board of Directors has the authority to issue up to 5,000,000 shares of
undesignated Preferred Stock and, subject to certain limitations, to determine
the rights, preferences, privileges and restrictions, including voting rights,
of such shares without any further vote or action by the stockholders.
Reverse Stock Split
In March 1996, the stockholders approved a one-for-two reverse stock split
of issued and outstanding common stock and preferred stock. All shares and per
share data in the accompanying consolidated financial statements have been
adjusted to reflect the reverse stock split.
Warrants
In fiscal 1994, the Company issued a warrant to purchase 21,739 shares of
common stock at an initial exercise price of $11.50 per share. The warrant
expires August 14, 1996. Also in fiscal 1994, the Company issued a warrant to
purchase 12,500 shares of its common stock at an exercise price of $.50 per
share. The warrant will become exercisable only in the event that a certain
defined change in control occurs prior to June 30, 1997.
Stock Plan
The 1992 Stock Plan (the "Plan"), as amended, provides for the issuance of
incentive stock options, nonstatutory stock options and restricted stock
purchase rights to employees, vendors, consultants and former stockholders of
acquired entities. Incentive stock options must be granted at 100% of the fair
value on the date
36
<PAGE> 37
OPENVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of grant. Options granted under the Plan generally become exercisable for common
stock over a four-year period with 25% vesting one year from the date of grant
and 1/48 each month thereafter.
Shares purchased by employees under restricted stock purchase agreements
are subject to repurchase by the Company upon employee termination at the price
originally paid by the employee. Repurchase rights typically lapse at the rate
of 25% one year from the original date of issuance and 1/48 each month
thereafter. At June 30, 1996, there were 457,657 outstanding common shares
subject to such repurchase provisions at prices ranging from $.10 to $.50 per
share.
A summary of stock option activity under the Plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING PRICE
OPTIONS PER SHARE
----------- -------------
<S> <C> <C>
Balance at June 30, 1993............................... 1,122,500 $.10
Options granted...................................... 749,541 $.10 -- $ .50
Options canceled..................................... (125,774) $.10 -- $ .50
Options exercised.................................... (15,963) $.10 -- $ .50
--------- --------------
Balance at June 30, 1994............................... 1,730,304 $.10 -- $ .50
Options granted...................................... 956,875 $.50
Options canceled..................................... (982,644) $.10 -- $ .50
Options exercised.................................... (412,208) $.10 -- $ .50
--------- --------------
Balance at June 30, 1995............................... 1,292,327 $.10 -- $ .50
Options granted...................................... 444,550 $.50 -- $11.88
Options canceled..................................... (291,974) $.10 -- $ 8.00
Options exercised.................................... (402,055) $.10 -- $ .50
--------- --------------
Balance at June 30, 1996............................... 1,042,848 $.10 -- $11.88
========= ==============
Options exercisable at June 30, 1996................... 260,278
---------
</TABLE>
At June 30, 1996, 1,862,240 shares of common stock were available for
future grants under the Plan.
The Company has recorded deferred compensation of $129,000 for the
difference between the exercise price and deemed fair value of certain stock
options granted in 1996. This amount is being amortized by charges to operations
over the four-year vesting periods of the individual options.
1996 Director Option Plan
In March 1996, the stockholders approved the 1996 Director Option Plan. The
Company has reserved 250,000 shares of common stock for issuance under the Plan.
There were no options issued under the plan through June 30, 1996.
7. RESTRUCTURING EXPENSES
In June 1994, the Company adopted a restructuring plan that involved a
reduction of overlapping positions within acquired businesses, consolidation of
development centers, and reorganization of the sales force. The plan resulted in
terminating employees and vacating noncancelable operating leases. The Company
recorded restructuring costs of $1,447,000 in the fourth quarter of fiscal 1994,
which included $772,000 for employee severance costs and $675,000 for rent
obligations on vacated buildings and other obligations. These amounts were paid
during fiscal 1995.
8. INCOME TAXES
As a result of operating losses, no provisions for income taxes have been
recorded.
37
<PAGE> 38
OPENVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net operating loss carryforwards................... $ 20,700 $ 20,500 $ 13,200
Temporary Differences:
Intangible Assets................................ 5,400 5,400 6,600
Other............................................ 2,300 2,500 2,200
-------- -------- --------
Total deferred tax assets.......................... 28,400 28,400 22,000
Valuation allowance for deferred tax assets........ (28,400) (28,400) (22,000)
-------- -------- --------
Net deferred tax assets............................ $ -- $ -- $ --
======== ======== ========
</TABLE>
The Company believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
the deferred tax assets such that a full valuation allowance has been recorded.
These factors include the Company's history of net losses since its inception,
the Company's limited profitability in recent periods, the fact that the market
in which the Company competes is intensely competitive and characterized by
rapidly changing technology, and the uncertainty regarding market acceptance of
the Company's AXXiON products. The Company believes that, based on the currently
available evidence, it is more likely than not that the Company will not
generate taxable income and accordingly will not realize the Company's deferred
tax assets. The Company will continue to assess the realizability of the
deferred tax assets based on actual and forecasted operating results.
As of June 30, 1996, the Company had federal, state, and foreign net
operating loss carryforwards of approximately $58,400,000, $6,600,000 and
$1,400,000, respectively. The carryforwards will expire from 1998 through 2011.
Utilization of the net operating losses may be subject to annual limitations due
to several factors, including the amount of taxable income generated in future
years and ownership change limitations. The annual limitations may result in the
expiration of net operating losses and credits before utilization.
9. EMPLOYEE BENEFIT PLANS
Employee Stock Purchase Plan
In March 1996, the stockholders approved an Employee Stock Purchase Plan
(the "ESPP") under which eligible employees may purchase common stock at a price
per share that is the lesser of 85% of the fair market value as of the beginning
of the offering period or the end of the purchase period. Participation in the
ESPP is limited to 10% (20% for the first six-month purchase period) of an
employee's compensation (not to exceed amounts allowed under Section 423 of the
Internal Revenue Code). The Company has reserved an aggregate of 300,000 shares
of common stock for issuance under the ESPP. The ESPP has four six-month
purchase periods in each 24-month offering period. The first purchase period and
offering period began on the effective date of the initial public offering and
will end on October 31, 1996 and April 30, 1998, respectively. The ESPP will
terminate in 2006. There were no shares issued under the ESPP during fiscal
1996.
Salary Deferral Plan
The Company maintains a Salary Deferral Plan (the Plan) that is qualified
under Section 401(k) of the Internal Revenue Code. All eligible employees may
defer a percentage of their pretax earnings through contributions to the Plan.
The Plan provides for employer contributions at the discretion of the Board of
Directors. The Company has not made any such contributions to the Plan to date.
38
<PAGE> 39
OPENVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. GEOGRAPHICAL INFORMATION
The following table presents a summary of operating information and certain
year-end balance sheet information by geographical regions (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1996 1994 1995
------- -------- --------
<S> <C> <C> <C>
Net revenue to unaffiliated customers:
United States and Canada.......................... $20,747 $ 13,228 $ 14,150
United Kingdom.................................... 4,517 3,452 1,203
Other European Countries.......................... 4,116 1,844 271
Pacific/Americas.................................. 515 -- --
------- -------- --------
Total..................................... $29,895 $ 18,524 $ 15,624
======= ======== ========
Transfers between geographic areas (eliminated in
consolidation):................................... $ 298 $ 220 $ 325
------- -------- --------
Operating income (loss):
United States and Canada.......................... $ (420) $(15,054) $(40,336)
United Kingdom.................................... 1,439 160 (286)
Other European Countries.......................... 1,366 (1,467) (312)
Pacific/Americas.................................. 202 -- --
Corporate......................................... (2,664) (1,302) (1,113)
------- -------- --------
Total..................................... $ (77) $(17,663) $(42,047)
======= ======== ========
Identifiable assets:
United States and Canada.......................... $39,859 $ 10,557 $ 21,134
United Kingdom.................................... 2,397 2,103 469
Other European Countries.......................... 1,692 985 286
Pacific/Americas.................................. -- -- --
------- -------- --------
Total..................................... $43,948 $ 13,645 $ 21,889
======= ======== ========
</TABLE>
U.S. revenue from export sales, principally to customers in Canada,
Pacific/Americas, and other European countries, were approximately $2,606,000,
$559,000 and $327,000 during fiscal 1996, 1995 and 1994, respectively.
11. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under noncancelable
operating leases that expire through March 2005. Other assets at June 30, 1996
include $207,000 in interest bearing security deposits for certain facility and
equipment leases.
39
<PAGE> 40
OPENVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments under noncancelable operating leases with initial
terms of one year or more consists of the following at June 30, 1996 (in
thousands):
<TABLE>
<S> <C>
Fiscal year ending June 30:
1997...................................................................... $1,596
1998...................................................................... 973
1999...................................................................... 698
2000...................................................................... 378
2001...................................................................... 63
thereafter through 2005................................................... 59
------
Total minimum lease payments.............................................. $3,955
======
</TABLE>
Rental expenses were $1,762,000, $1,947,000 and $1,881,000 for fiscal 1996,
1995 and 1994, respectively.
In connection with the acquisition by OpenVision of ten companies,
divisions of companies or products between October 1992 and July 1993, the
Company entered into agreements with certain sellers providing for the payment
of software royalties. From time to time disputes have arisen with certain of
these sellers regarding the calculation of the royalties and the obligations of
the Company under these agreements. One of these disputes was resolved in the
Company's favor in arbitration and one such dispute is currently unresolved,
although no formal claims have been filed. The Company believes that the
allegations of this seller have no merit and plans to vigorously defend any
formal claims filed by this person. While the outcome of any formal claims
cannot be determined with certainty, the Company does not believe that the
resolution of these claims will have a material adverse effect on the Company's
business, operating results or financial condition.
The Company's license agreements with customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. The Company relies in part on "shrink wrap" licenses that are
not signed by licensees and, therefore, may be unenforceable under the laws of
certain jurisdictions, the limitation of liability provisions contained in such
license agreements may not be effective. The Company's products are generally
used to manage data critical to organizations, and, as a result, the sale and
support of products by the Company may entail the risk of product liability
claims. Although the Company maintains errors and omissions product liability
insurance, a successful liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
12. BUSINESS COMBINATIONS
During fiscal 1993 and 1994, the Company acquired several software
businesses and products in transactions that were accounted for as purchases. As
consideration for these acquisitions the Company paid cash amounting to $791,000
and executed notes payable agreements totaling $1,284,000 during fiscal 1994.
The Company recorded intangible assets, including purchased software, of
$2,421,000 in fiscal 1994, which were amortized over periods of one to two
years. In-process technology acquired in these business acquisitions, which
amounted to $501,000 in fiscal 1994, was charged to acquired technologies in the
accompanying statements of operations. Technological feasibility had not been
achieved for such in-process technologies, which did not have alternative future
uses, as of the respective dates of acquisition. In fiscal 1994, the Company
wrote off $2,794,000 of purchased software costs related to certain products
acquired in certain 1993 transactions that failed to generate adequate revenue.
These amounts were also charged to acquired technologies. Amortization of other
purchased software costs is included in cost of license revenue. The results of
operations of these entities prior to acquisition were not significant in
relation to those of the Company. Results of operations of these entities have
been included in the consolidated results of operations for the periods
subsequent to the respective acquisition dates.
40
<PAGE> 41
OPENVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with these acquisitions, the Company is required to pay
royalties based on product revenue in excess of specified minimum levels. The
royalty rates are generally 2% to 8% of product revenue for periods of four or
five years from the dates of acquisition. Certain agreements require a higher
royalty rate for products sold through resellers, and certain of the agreements
provide for a renegotiation of royalties payable in the event that products are
bundled or utilized in derivative products. Royalty expense totaled $901,000,
$588,000 and $1,223,000 for fiscal 1996, 1995 and 1994, respectively. Such
amounts have been included in cost of license revenue.
41
<PAGE> 42
OPENVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to the
Company's proxy statement related to the annual stockholders' meeting to be held
on November 19, 1996, to be filed by the Company with the Securities and
Exchange Commission ("Proxy Statement") and "Item 4a. Management -- Executive
Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements and Financial Statement Schedules -- See Index to
Consolidated Financial Statements at Item 8 of this Form 10-K. All other
schedules are omitted because they were not required or the required information
is included in the Consolidated Financial Statements or Notes thereto.
2. Exhibits
The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the Commission:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
+3.1 Amended and Restated Certificate of Incorporation of the Registrant, as currently in
effect
+3.2 Form of Amended and Restated Certificate of Incorporation of the Registrant to be
filed after the closing of the offering made pursuant to the Registration Statement
+3.3 Bylaws of the Registrant
+4.1 Form of specimen certificate for the Registrant's Common Stock
+10.1 Form of Indemnification Agreement entered into by the Registrant with each of its
directors and executive officers
+10.2 1992 Stock Plan and related agreements
+10.3 1996 Employee Stock Purchase Plan and related agreements
+10.4 1996 Director Option Plan and related agreements
+10.5 Amended and Restated Stockholders' Rights Agreement dated June 23, 1995
+10.6 Loan and Security Agreement dated October 12, 1995 between the Registrant and
Greyrock Business Credit, a division of Greyrock Capital Group Inc.
</TABLE>
42
<PAGE> 43
OPENVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
+10.7 Lease dated March 1, 1993 by and between the Registrant, Patrician Associates, Inc.,
a California corporation, and Koll Bernal Avenue Associates, a California general
partnership, tenants-in- common operating as a joint venture under the name Bernal
Avenue Associates regarding premises at Suite 200, 7133 Koll Center Parkway,
Pleasanton, California
+10.8 Form of Promissory Note issued to Warburg, Pincus Investors, L.P.
+10.9 Form of Promissory Note executed by Michael S. Fields
+10.10 Form of Promissory Note executed by Geoffrey W. Squire
+10.11 Consulting Agreement entered into with Thomas J. Connors
+10.12 Letter Agreement entered into with Paul A. Sallaberry
10.13 Lease and amendments thereto dated August 14, 1996, by and between the Registrant and
River Front Office Park Associates II Limited Partnership, a Massachusetts limited
partnership regarding premises at One Main Street, Cambridge, Massachusetts
11.1 Statement Re: Computation of Net Loss Per Share
+21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule (EDGAR only)
</TABLE>
- ---------------
+ Incorporated by reference to the Company's Registration Statement (No.
333-1724), effective May 7, 1996.
(b) Reports on Form 8-K
None.
43
<PAGE> 44
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT (REDUCTIONS) BALANCE
BEGINNING OF CHARGED (CREDITED) AT END OF
CLASSIFICATION PERIOD TO EXPENSE WRITE-OFFS PERIOD
- ----------------------------------------- ------------ ------------------ ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended:
June 30, 1996.......................... $685 $ (150) $ 50 $ 484
June 30, 1995.......................... $565 $ 918 $798 $ 685
June 30, 1994.......................... $198 $ 562 $195 $ 565
</TABLE>
44
<PAGE> 45
The Board of Directors and Stockholders
OpenVision Technologies, Inc.
We have audited the consolidated financial statements of OpenVision
Technologies, Inc. as of June 30, 1996 and 1995, and for each of the three years
in the period ended June 30, 1996, and have issued and report thereon dated July
22, 1996. Our audits also included the financial statement schedule listed in
Item 14(a). This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
San Jose, California
July 22, 1996
45
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on September 17, 1996
OPENVISION TECHNOLOGIES, INC.
/s/ KENNETH E. LONCHAR
--------------------------------------
Kenneth E. Lonchar
Senior Vice President, Finance and
Chief Financial Officer (Principal
Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated and on September 17, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ Chairman of the Board
MICHAEL S. FIELDS
- ---------------------------------------------
Michael S. Fields
/s/ Chief Executive Officer and Director
GEOFFREY W. SQUIRE (Principal Executive Officer)
- ---------------------------------------------
Geoffrey W. Squire
/s/ Chief Financial Officer (Principal Financial
KENNETH E. LONCHAR Officer and Principal Accounting Officer)
- ---------------------------------------------
Kenneth E. Lonchar
/s/ Director
THOMAS J. CONNORS
- ---------------------------------------------
Thomas J. Connors
/s/ Director
STEWART K.P. GROSS
- ---------------------------------------------
Stewart K.P. Gross
/s/ Director
WILLIAM H. JANEWAY
- ---------------------------------------------
William H. Janeway
/s/ Director
JEANNE WOHLERS
- ---------------------------------------------
Jeanne Wohlers
</TABLE>
46
<PAGE> 47
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------ ----------------------------------------------------------------------- ------------
<S> <C> <C>
10.13 Lease and amendments thereto dated August 14, 1996, by and between the
Registrant and River Front Office Park Associates II Limited
Partnership, a Massachusetts limited partnership regarding premises at
One Main Street, Cambridge, Massachusetts.............................. XX
11.1 Statement regarding computation of net loss per share.................. 48
23.1 Consent of Ernst & Young LLP, Independent Auditors..................... XX
27.1 Financial Data Schedule (EDGAR only)................................... XX
</TABLE>
47
<PAGE> 1
AMENDMENT NO. 4 TO AGREEMENT OF LEASE
THIS AMENDMENT OF LEASE, made as of the 14th day of August, 1996,
between RIVER FRONT OFFICE PARK ASSOCIATES II LIMITED PARTNERSHIP, a
Massachusetts limited partnership (hereinafter referred to as "Landlord") and
OPENVISION TECHNOLOGIES, INC. (formerly, The Vision Thing, Inc.), a Delaware
corporation (hereinafter referred to as "Tenant").
WITNESSETH THAT:
WHEREAS, Landlord and Tenant are parties to an Agreement of Lease
dated as of January 29, 1993, as amended by Amendment No. 1 to Agreement of
Lease dated as of January 31, 1994, Amendment No. 2 to Agreement of Lease dated
as of January 31, 1995 and Amendment No. 3 to Agreement of Lease dated as of
April 22, 1996 (the Agreement of Lease as so amended by said Amendment No. 1 to
Agreement of Lease, said Amendment No. 2 to Agreement of Lease and said
Amendment No. 3 to Agreement of Lease, hereinafter referred to as the
"Lease"); and
WHEREAS, the parties hereto wish to further amend the Lease as set
forth herein.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged by each of the parties hereto, the
Lease is hereby amended as follows:
1. Effective August 1, 1996 (such date being referred to herein
as the "August-1996 Eighth Floor Expansion Space Commencement Date"), the 9,508
square feet of rentable space on the eighth (8th) floor of the Building shown
on the plan attached hereto as Exhibit A-1 and made a part hereof (hereinafter
referred to as the "August-1996 Eighth Floor Expansion Space") shall be added
to the Demised Premises for a term commencing on the August-1996 Eighth Floor
Expansion Space Commencement Date and ending on the Termination Date (subject
to Tenant's right to extend the Term of the Lease pursuant to Section 3.3 of
the Lease) and shall become subject to all of the terms and conditions of the
Lease. After giving effect to the addition of the August-1996 Eighth Floor
Expansion Space to the Demised Premises, the total square footage of the
Demised Premises is 18,956 square feet.
2. The August-1996 Eighth Floor Expansion Space is leased in its
present "AS IS" condition, except that Landlord shall deliver the space in
"broom clean" condition, and provided, however, that Landlord shall provide to
Tenant a tenant renovation allowance of up to $94,780 for out-of-pocket costs
incurred by Tenant in renovation of the August-1996 Eighth Floor Expansion
Space. Renovation work shall include recarpeting, repainting, recabling and
rewiring of the August-1996 Eighth Floor Expansion Space. Tenant's reimbursable
out-of-pocket costs shall include renovation cost over the renovation allowance
without limitation, soft costs, but shall exclude legal fees and architectural
and engineering fees. Tenant shall use its best efforts to complete all
renovation work for which Landlord is providing the allowance by no
<PAGE> 2
later than November 30, 1996. No renovation work shall be undertaken by Tenant
until Landlord has approved in writing the plans with respect thereto. All
contractors performing any renovation work shall be subject to Landlord's prior
written approval. Within sixty (60) days following completion of Tenant's
renovation work but in no event later than March 1, 1997, Tenant shall submit
to Landlord copies of third party contractor invoice(s) for the renovation work
so completed. Following Landlord's verification of the completion of such
work, Landlord shall reimburse Tenant for Tenant's said out-of-pocket costs
(said reimbursement not to exceed $94,780 in the aggregate) within thirty (30)
days of receipt by Landlord of said invoices.
3. Effective on the August-1996 Eighth Floor Expansion Space
Commencement Date, Article 1(19) of the Lease is hereby amended to read in its
entirety as follows:
"(19) Yearly Fixed Rent: $426,510.00 calculated at
the rate of $22.50 per
rentable square foot per
annum; provided, however,
that no Yearly Fixed Rent
shall accrue or be payable
for the calendar month (and
only the calendar month)
August, 1996."
4. The Term of the Lease is hereby extended from July 31, 1996
until July 31, 2001.
5. The following new Sections 3.3 and 3.4 are hereby added to the
Lease to read in their entirety as follows:
"3.3 Option to Extend. On the conditions (which
conditions Landlord may waive, at its election, by written
notice to Tenant at any time) (i) that Tenant is not then in
default after the expiration of applicable notice and grace
periods of its covenants and obligations under this Lease, and
(ii) that Tenant or a Successor (as defined in Section 14.3
herein) is then itself occupying the entirety of the Demised
Premises both at the time of Tenant's notice to Landlord and
at the time of the commencement of the additional period of
tenancy, Tenant may extend the Term of this Lease for one
additional period of five (5) years by giving notice to
Landlord of Tenant's election to extend at least nine (9)
months prior to the end of the Term of this Lease. The Yearly
Fixed Rent payable by Tenant with respect to such extension
period shall be equal to ninety-five percent (95%) of the
then fair market rental value of the Demised Premises (taking
into account comparable first-class office space in the East
Cambridge area) (1) as the same may be mutually agreed by
Landlord and Tenant; provided, however that (2) if they have
not so agreed in writing within two (2) months following the
exercise of the option then said fair market value shall be
determined by appraisers, one to be chosen by Landlord, one to
be chosen by Tenant, and a third to be selected by the two
first chosen. The unanimous written decision of the two first
chosen, without selection and participation of a third
appraiser, or otherwise the written decision of a majority of
three appraisers chosen and selected as aforesaid, shall be
conclusive and binding upon Landlord and Tenant. Landlord and
Tenant shall
2
<PAGE> 3
each notify the other of its chosen appraiser within thirty
(30) days following expiration of the aforesaid two (2) month
period and, unless such two appraisers shall have reached a
unanimous decision within thirty (30) days from said
expiration, they shall within a further fifteen (15) days
elect a third appraiser and notify Landlord and Tenant
thereof. Landlord and Tenant shall instruct the appraiser to
make their decisions in thirty (30) days. Landlord and Tenant
shall each bear the expense of the appraiser chosen by it and
shall equally bear the expense of the third appraiser (if
any).
3.4 Tenant's Right of First Offer. On the
conditions (which conditions Landlord may waive, at its
election, by written notice to Tenant at any time) (i) that
Tenant is not then in default after the expiration of
applicable notice and grace periods of its covenants and
obligations under the Lease and (ii) that the Tenant is itself
then occupancy the entirety of the Demised Premises, in the
event that, at any time during the Term of this Lease, any
rentable office space on the eighth (8th) floor of in the
Building becomes available for rental and Landlord wishes to
lease such space to any person other than the then current
occupant thereof (if any), and in the further event that any
existing tenant(s) of the Building who have heretofore been
granted any right(s) of first offer with respect to such space
shall fail to exercise such right(s), Landlord shall first
offer to Tenant the option to add such space to the Demised
Premises setting forth the material terms and conditions
(including, without limitation, rent) on which Landlord is
willing to lease such space, and Tenant shall have the right
to add such space to the Demised Premises by giving notice to
Landlord of Tenant's acceptance of such offer within thirty
(30) days after receipt by Tenant of Landlord's offer. If
such notice of acceptance by Tenant is not so given, then
Landlord shall be free to enter into a lease for such space
with any third party or parties within one year after
Landlord's said notice to Tenant. In the event Tenant shall
so elect to add such additional space to the Demised Premises,
Landlord and Tenant shall promptly execute an amendment to
this Lease to reflect the changes occasioned thereby."
6. Effective on the August-1996 Eighth Floor Expansion Space
Commencement Date, the portion of the first sentence of Section 6.2 of the
Lease which presently reads "the fiscal tax year ending June 30, 1993" shall
be deleted and the following substituted in place thereof: "the fiscal tax year
ending June 30, 1997".
7. Effective on the August-1996 Eighth Floor Expansion Space
Commencement Date, the portion of the first sentence of Section 6.3 of the
Lease which presently reads "the calendar year ending December 31, 1993,"
shall be deleted and the following substituted in place thereof: "the calendar
year ending December 31, 1996".
8. Effective on the August-1996 Eighth Floor Expansion Space
Commencement Date, Section 6.4 of the Lease is hereby amended to read in its
entirety as follows:
3
<PAGE> 4
"6.4 Tenant's Proportionate Share. Tenant's
proportionate share of taxes pursuant to Section 6.2 and
operating expenses pursuant to Section 6.3, respectively,
shall be 5.81% (18,956 square feet divided by 326,470 square
feet) and 5.89% (18,956 square feet divided by 321,917 square
feet), respectively."
9. Effective on the August-1996 Eighth Floor Expansion Space
Commencement Date, Article 1(10) of the Lease is hereby amended to read in its
entirety as follows:
"(10) Parking Spaces: Nineteen (19)."
10. As used herein all capitalized terms shall have the same
meaning as used in the Lease, except as otherwise expressly set forth in this
Amendment. Except as herein modified, the Lease is hereby ratified and
confirmed in all respects.
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to
be executed under seal, all as of the day and year first above written.
RIVERFRONT OFFICE PARK ASSOCIATES II
LIMITED PARTNERSHIP
By: DARVEL REALTY TRUST
Managing General Partner
By:_____________________________
Michael P. Sullivan, Vice President
OPENVISION TECHNOLOGIES, INC.
By:_____________________________
4
<PAGE> 5
[Exhibit A-1]
Exhibit A-1 Open Vision 9,508 RSF.
<TABLE>
<CAPTION>
<S> <C> <C>
BRYER ARCHITECTS COM/ENERGY SERVICES COMPANY BUILDING 8th FLOOR KEY PLAN
1208 MASSACHUSETTS AVE ONE MAIN STREET NOTE: THIS DRAWING IS FOR
P.O. BOX 1545 CAMBRIDGE, MA 02142 DESCRIPTIVE PURPOSES
CAMBRIDGE, MA 02238 ONLY. IT HAS BEEN REDUCED
FROM ITS ORIGINAL SCALE.
617-864-8019
TENANT: Open Vision DATE:08/07/96
</TABLE>
<PAGE> 6
AMENDMENT NO. 3 TO AGREEMENT OF LEASE
THIS AMENDMENT OF LEASE, made as of the 22nd day of April, 1996,
between RIVERFRONT OFFICE PARK ASSOCIATES II LIMITED PARTNERSHIP, a
Massachusetts limited partnership (hereinafter referred to as "Landlord") and
OPENVISION TECHNOLOGIES, INC. (formerly, The Vision Thing, Inc.), a Delaware
corporation (hereinafter referred to as "Tenant").
WITNESSETH THAT:
WHEREAS, Landlord and Tenant are parties to an Agreement of Lease dated
as of January 29, 1993, as amended by Amendment No. 1 to Agreement of Lease
dated as of January 31, 1994 and Amendment No. 2 to Agreement of Lease dated as
of January 31, 1995 (the Agreement of Lease as so amended by said Amendment No.
1 to Agreement of Lease and said Amendment No. 2 to Agreement of Lease,
hereinafter referred to as the "Lease"); and
WHEREAS, the parties hereto wish to further amend the Lease as set
forth herein.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged by each of the parties hereto, the
Lease is hereby amended as follows:
1. Effective as of March 1, 1996, Article 1(19) of the Lease is
hereby amended to read in its entirety as follows:
"(19) Yearly Fixed Rent: $197,463.20 calculated at the
rate of $20.90 per rentable
square foot per annum."
2. Effective as of March 1, 1996, the Term of the Lease is hereby
extended from February 29, 1996 until July 31, 1996.
3. Sections 3.3 and 3.4 of the Lease are hereby deleted in their
entirety.
4. As used herein all capitalized terms shall have the same
meaning as used in the Lease, except as otherwise expressly set forth
in this Amendment. Except as herein modified, the Lease is hereby
ratified and confirmed in all respects.
<PAGE> 7
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to
be executed under seal, all as of the day and year first above written.
RIVERFRONT OFFICE PARK ASSOCIATES II
LIMITED PARTNERSHIP
By: DARVEL REALTY TRUST
Managing General Partner
By: MICHAEL P. SULLIVAN
------------------------------
Michael P. Sullivan, Vice President
OPENVISION TECHNOLOGIES, INC.
By: JAY A. JONES
------------------------------
Jay A. Jones
Vice President &
General Counsel
2
<PAGE> 8
AMENDMENT NO. 2 TO AGREEMENT OF LEASE
THIS AMENDMENT OF LEASE, made as of the 31st day of January, 1995,
between RIVERFRONT OFFICE PARK ASSOCIATES II LIMITED PARTNERSHIP, a
Massachusetts limited partnership (hereinafter referred to as "Landlord") and
OPENVISION TECHNOLOGIES, INC. (formerly, The Vision Thing, Inc.), a Delaware
corporation (hereinafter referred to as "Tenant").
WITNESSETH THAT:
WHEREAS, Landlord and Tenant are parties to an Agreement of Lease dated
as of January 29, 1993 as amended by Amendment No. 1 to Agreement of Lease dated
as of January 31, 1994 (the Agreement of Lease as so amended by said Amendment
No. 1 to Agreement of Lease, hereinafter referred to as the "Lease"); and
WHEREAS, the parties hereto wish to further amend the Lease as set
forth herein.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged by each of the parties hereto, the
Lease is hereby amended as follows:
1. Effective as of March 1, 1995, Article 1(19) of the Lease is
hereby amended to read in its entirety as follows:
"(19) Yearly Fixed Rent: $179,512.00 calculated at the rate
of $19.00 per rentable square foot
per annum."
2. It is hereby acknowledged and agreed that pursuant to Tenant's
exercise of its option under Section 3.3 of the Lease to extend the
Term of the Lease, the Term of the Lease is hereby extended from
February 28, 1995 until February 29, 1996.
3. As used herein all capitalized terms shall have the same
meaning as used in the Lease, except as otherwise expressly set forth
in this Amendment. Except as herein modified, the Lease is hereby
ratified and confirmed in all respects.
<PAGE> 9
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to
be executed under seal, all as of the day and year first above written.
RIVERFRONT OFFICE PARK ASSOCIATES II
LIMITED PARTNERSHIP
By: DARVEL REALTY TRUST
Managing General Partner
By: MICHAEL P. SULLIVAN
------------------------------------
Michael P. Sullivan, vice President
OPENVISION TECHNOLOGIES, INC.
By: JAY A. JONES
------------------------------------
JAY A. JONES
VICE PRESIDENT AND
GENERAL COUNSEL
2
<PAGE> 10
AMENDMENT NO. 1 TO AGREEMENT OF LEASE
THIS AMENDMENT OF LEASE, made as of the 31st day of January, 1994,
between RIVERFRONT OFFICE PARK ASSOCIATES II LIMITED PARTNERSHIP, a
Massachusetts limited partnership (hereinafter referred to as "Landlord") and
OPENVISION TECHNOLOGIES, INC. (formerly, The Vision Thing, Inc.), a Delaware
corporation (hereinafter referred to as "Tenant").
WITNESSETH THAT:
WHEREAS, Landlord and Tenant are parties to an Agreement of Lease
dated as of January 29, 1993 (hereinafter referred to as the "Lease"); and
WHEREAS, the parties hereto wish to amend the Lease as set forth
herein.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged by each of the parties hereto, the
Lease is hereby amended as follows:
1. Effective on the later of (a) March 1, 1994 or (b) the date on
which the Eighth Floor Expansion Space (as hereinafter defined) is
ready for Tenant's occupancy in accordance with the provisions of
Section 4.2 of the Lease (such later date being hereinafter referred
to as the "Eighth Floor Expansion Space Commencement Date") the 4,558
square feet of rentable space on the eighth (8th) floor of the
Building, as shown on the plan attached hereto as Exhibit A and made a
part hereof (the "Eighth Floor Expansion Space"), shall be added to
the Demised Premises for a term commencing on such date and ending on
February 28, 1995 (the "Term of the Eighth Floor Expansion Space").
Notwithstanding the foregoing, Tenant shall be permitted to occupy
such space prior to the Eighth Floor Expansion Space Commencement Date
following the later to occur of (a) the vacating of such space by the
present tenant occupying such space and (b) completion by Landlord of
the alterations described in paragraph 2 hereinafter.
2. The Eighth Floor Expansion Space is leased in its present "AS
IS" condition; provided, however, that Landlord prior to the Eighth
Floor Expansion Space Commencement Date shall pay the costs of
relocating the electrical closet and electrical service, as well as
incorporating 128 square feet of common corridor space into the Eighth
Floor Expansion Space (collectively, the "Relocation Costs"). In
addition, Landlord shall pay the total costs of construction of and
shall cause to be constructed prior to the Eighth Floor Expansion
Space Term Commencement Date the tenant improvements to the Eighth
Floor Expansion Space (the "Eighth Floor Expansion Space Tenant
Improvements") set forth in Exhibit A annexed hereto. In addition,
Landlord shall be responsible for the costs and expenses of Bryer
Architects' architectural services and construction administration in
connection with the construction of said tenant improvements.
<PAGE> 11
3. Effective on the Eighth Floor Expansion Space Commencement
Date, the Yearly Fixed Rent as set forth in the Lease shall be
increased by the sum of $72,925, based upon a rental for the Eighth
Floor Expansion Space of $16.00 per square foot per annum (resulting
in an aggregate Yearly Fixed Rent $153,610).
4. Effective on the Eighth Floor Expansion Space Commencement
Date, Section 6.4 of the Lease is hereby amended to read in its
entirety as follows:
"6.4 Tenant's Proportionate Share. Tenant's proportionate
share of taxes pursuant to Section 6.2 and operating expenses
pursuant to Section 6.3, respectively, shall be 2.89% (9,448
square feet divided by 326,470 square feet) and 2.93% (9,448
square feet divided by 321,917 square feet), respectively."
Notwithstanding the foregoing, Tenant shall not be responsible
for any increases in controllable operating expenses (i.e.
other than utilities and insurance) in excess of eight percent
(8%) per annum.
5. Within thirty (30) days of the execution of this Amendment,
Tenant, Darvel Realty Trust, as ground lessor, and Teachers Insurance
and Annuity Association of America, as mortgagee, an Agreement of
Subordination, Non-Disturbance in the form or substantially in the
form annexed hereto as Attachment A.
6. As used herein all capitalized terms shall have the same
meaning as used in the Lease, except as otherwise expressly set forth
in this Amendment. Except as herein modified, the Lease is hereby
ratified and confirmed in all respects.
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to
be executed under seal, all as of the day and year first above written.
RIVERFRONT OFFICE PARK ASSOCIATES II
LIMITED PARTNERSHIP
By: DARVEL REALTY TRUST
Managing General Partner
By: MICHAEL P. SULLIVAN
------------------------------
Michael P. Sullivan, Vice President
OPENVISION TECHNOLOGIES, INC.
By: JAY A. JONES
------------------------------
Jay A. Jones, General Counsel
2
<PAGE> 12
[REFLECTED CEILING PLAN]
[EXHIBIT A-1]
<PAGE> 13
[REFLECTED CEILING PLAN]
[EXHIBIT A-2]
<PAGE> 14
[PARTIAL 8TH FLOOR PLAN]
[EXHIBIT A-3]
<PAGE> 15
PLUMBING SPECIFICATIONS
A . GENERAL
1. THE BASE BUILDING "CONTRACT DRAWINGS" AND
"SPECIFICATIONS"INCLUDING ALL RESPECTIVE ADDENDUMS AND
BULLETINS SHALL FORM A PART OF THIS WORK AND ALL WORK SHALL
BE SUBJECT TO RESPECTIVE PROVISIONS THEREOF.
2. REFER TO THE BASE BUILDING CONTRACT DRAWINGS FOR ALL WORK IN
CORE AND MECHANICAL ROOMS.
3. REFER TO ARCHITECTURAL DRAWINGS FOR HUNG CEILING HEIGHTS AND
CONSTRUCTION. WHERE WORK BETWEEN THIS DRAWING AND
ARCHITECTURAL PLANS ARE IN CONFLICT, ADVISE PRIOR TO
INSTALLATION OF PIPING.
4. COORDINATE WORK WITH ALL OTHER TRADES.
5. THESE DRAWINGS ARE DIAGRAMMATIC AND SHOW THE GENERAL INTENT OF
THE SYSTEMS. EXACT ROUTING OF PIPING SHALL BE DETERMINED IN
THE FIELD.
B. PLUMBING, FIXTURES, EQUIPMENT, SUPPORTS, AND FASTENERS
1. ALL FIXTURES AND EQUIPMENT SHALL BE SUPPORTED AND FASTENED IN
A SATISFACTORY MANNER. BOLT HEADS AND NUTS SHALL BE HEXAGON
AND EXPOSED BOLTS, NUTS, WASHERS, AND SCREWS SHALL BE CHROMIUM
PLATED BRASS.
SINK: ELKAY LUSTERTONE LR-2522 SINGLE COMPARTMENT 18 GAUGE
WITH 3 HOLE DRILLING. FAUCET ELKAY LK232-S-BH-5 CONCEALED
MOUNT W/5" BLADE HANDLES "SANITARY - DASH" NO.
R869 CAST BODY "P" TRAP WITH CLEAN OUT. PROVIDE BRASSCRAFT
1/2" X 3/8" VALVES AND ESCUTCHEONS WITH RISERS AS REQUIRED.
[SINK DETAIL]
[EXHIBIT A-4]
<PAGE> 16
Attachment A
AGREEMENT OF SUBORDINATION
NON-DISTURBANCE AND ATTORNMENT
THIS AGREEMENT made as of this 31st day of January, 1994, by and
among DARVEL REALTY TRUST, a Massachusetts business trust having a principal
place of business at One Main Street Cambridge, Massachusetts (hereinafter
called "Ground Lessor"), OPENVISION TECHNOLOGIES, INC., a Delaware corporation
(hereinafter called "Tenant"), and TEACHERS INSURANCE AND ANNUITY ASSOCIATION
OF AMERICA, a New York corporation, having its principal office and post office
address at 730 Third Avenue, New York, New York 10017 (hereinafter called
"Teachers");
WITNESSETH
WHEREAS, Ground Lessor is the owner in fee simple of those certain
premises situate, lying and being in the City of Cambridge, County of
Middlesex, Commonwealth of Massachusetts as more particularly described in
Exhibit A attached hereto (the "Demised Premises"); and
WHEREAS, under the terms of a certain lease dated February 21, 1985,
as amended by Amendment No. #1 dated February 28, 1985 and Amendment No. #2
dated April 1, 1985, notice of which is recorded with the Middlesex South
Registry District of the Land Court as Document No. 677545 noted on
Certificate of Title No. 136,418 and restated notice of which is dated June 2,
1985, recorded with the Middlesex Southern District Registry of Deeds on June
14, 1985 as Instrument No. 273 and registered with said Registry of the Land
Court as Document No. 683332 noted on Certificate of Title No. 136,418, and as
further amended by a Ground Lease Subordination Agreement dated as of June 14,
1985, recorded as Instrument No. 604 on June 21, 1985 and filed as Document No.
683949 (hereinafter, said lease as so amended called the "Ground Lease"),
Ground Lessor did lease, let and demise the Demised Premises to Riverfront
Office Park Associates 11 Limited Partnership, a Massachusetts limited
partnership (hereinafter called "Landlord") for a term of sixty-five years
commencing February 21, 1985 and continuing to February 20, 2050 upon the terms
and conditions therein more particularly set forth;
WHEREAS, Teachers is the owner and holder of a certain promissory note
secured by a Security Agreement and Mortgage Deed (the "Mortgage"),
constituting a first lien upon the leasehold estate created by the Ground
Lease;
WHEREAS, under the terms of a certain Agreement of Lease dated as of
January 29, 1993 as amended by Amendment No. 1 to Agreement of Lease dated as
of January 31st, 1994 (said Lease as so amended hereinafter called the
"Sublease"), Landlord did lease, let and demise to Tenant, subject to the
Ground Lease, a portion of the Demised Premises as therein more particularly
described;
<PAGE> 17
WHEREAS, the parties hereto desire to establish additional rights of
quiet and peaceful possession for the benefit of Tenant under the Sublease and
further to define the terms, covenants and conditions precedent for such
additional rights.
NOW, THEREFORE, in consideration of the premises and of the sum of One
($1.00) Dollar and other good and valuable consideration, each to the other in
hand paid, it is hereby mutually covenanted and agreed as follows:
1. Ground Lessor consents to and approves the Sublease.
2. In the event of the cancellation or termination of the Ground
Lease or of the surrender thereof, whether voluntary,
involuntary or by operation of law, prior to the expiration
date of the Sublease, including any extensions and renewals of
the Sublease now provided thereunder, and subject to the
observance and performance by Tenant, within such grace
periods as may be applicable under the Sublease, of all of the
terms, covenants and conditions of the Sublease on the part of
Tenant to be observed and performed, Ground Lessor does hereby
covenant and warrant as follows;
(a) The quiet and peaceful possession of Tenant under the
Sublease;
(b) That the Sublease shall continue in full force and
effect and Ground Lessor shall recognize the Sublease
and the Tenant's rights thereunder and will thereby
establish direct privity of estate and contract as
between Ground Lessor and Tenant, with the same force
and effect and with the same relative priority in
time and right as though the Sublease were originally
made directly from Ground Lessor in favor of Tenant,
but not in respect of any amendment to the Sublease
not previously approved in writing by Ground Lessor.
3. That in the event of the cancellation or termination of the
Ground Lease or of the surrender thereof, whether voluntary,
involuntary or by operation of law, prior to the expiration
date of the Sublease, including any extensions and renewals of
the Sublease now provided thereunder, Tenant hereby covenants
and agrees to make full and complete attornment to Ground
Lessor, for the balance of the term of the Sublease, including
any extensions and renewals thereof, now provided thereunder,
upon the same terms, covenants and conditions as therein
provided, subject, however, in all events to the terms,
conditions and provisions of this Agreement, so as to
establish direct privity of estate and contract as between
Ground Lessor and Tenant and with the same force and effect
and relative priority in time and right as though the Sublease
were originally made directly from Ground Lessor to Tenant,
and Tenant will thereafter make all rent payments thereafter
directly to Ground Lessor.
4. That Teachers and Tenant do hereby covenant and agree that the
Mortgage shall be and the same is hereby made SUBORDINATE to
the Sublease and to the recognition and attornment agreements
provided for in Paragraphs 2 and 3 hereof with the same force
and effect as if the Sublease had been executed, delivered and
2
<PAGE> 18
recorded and the said recognition and attornment agreements
aforesaid had been effected in each case prior to the
execution, delivery and recording of the Mortgage,
EXCEPT, HOWEVER, that this Subordination shall not affect nor be
applicable to and does hereby expressly exclude
(a) The prior right and claim under and the prior lien of
the Mortgage in, to and upon any award or other
compensation heretofore or hereafter to be made for
any taking by eminent domain of any party of the
Demised Premises, and as to the right of disposition
thereof in accordance with the provisions of the
Mortgage,
(b) The prior right and claim under and the prior lien of
the Mortgage, in, to and upon any proceeds payable
under all policies of fire and rent insurance upon
the Demised Premises and as to the right of
disposition thereof in accordance with the terms of
the Mortgage, and
(c) Any lien, right, power or interest, if any, which may
have arisen or intervened in the period between the
recording of the Mortgage and the execution of the
Sublease or the effective date of the recognition and
attornment agreements aforesaid, whichever is later,
or any lien or judgment which may arise at any time
under the terms of this Agreement.
5. That the terms, covenants and conditions hereof shall inure to
the benefit of and be binding upon the respective parties
hereto, their respective heirs, executors, administrators,
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this writing to be
signed, sealed and delivered in their respective names and behalf, and, if a
corporation, its officers duly authorized, the day and year first above
written.
TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA
By: Judith L. King
------------------------------
DIRECTOR
DARVEL REALTY TRUST,
By: MICHAEL P. SULLIVAN
------------------------------
Michael P. Sullivan
Vice President and a Trustee
OPENVISION TECHNOLOGIES, INC.
By: JAY A. JONES
------------------------------
Jay A. Jones, General Counsel
3
<PAGE> 19
STATE OF NEW YORK
New York, ss _______________, 1994
Then personally appeared the above named JUDITH L. KING and
acknowledged the foregoing instrument to be his free act and deed and the free
act and deed of Teachers Insurance and Annuity Association of America, before
me.
/s/ THEODORA A. SLOLY
---------------------------------
Notary Public
THEODORA A. SLOLY
Notary Public, State of N.Y.
No. 24-5002587
Qualified in Kings Co.
My commission expires: _______________
Comm. Expires October 5, 1994
COMMONWEALTH OF MASSACHUSETTS
Middlesex, ss January 31, 1994
Then personally appeared the above named Michael P. Sullivan, Vice
President and a Trustee, and acknowledged the foregoing instrument to be his
free act and deed and the free act and deed of Darvel Realty Trust, before me.
State of California
County of Alameda CAPACITY CLAIMED BY SIGNER(S)
On 25 January 94 before me, [ ] INDIVIDUAL(S)
Michelle E. Fields, Notary Public [X] CORPORATE JAY A. JONES
- --------------------------------- [ ] OFFICER(S) Asst. Secretary
(NAME, TITLE OF OFFICER - I.E.
"JANE DOE, NOTARY PUBLIC") [ ] PARTNERS
[ ] ATTORNEY IN FACT
personally appeared JAY A. JONES [ ] TRUSTEE(S)
----------------------- [ ] GUARDIAN/CONSERVATOR
(NAME(S) OF SIGNER(S)) [ ] OTHER:
[X] Personally known to me - OR [ ] proved to me on the basis of satisfactory
evidence to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the
same in his authorized capacity and that
by his signature on the instrument the
person, or the entity upon behalf of
which the person acted, executed the
MICHELLE E. FIELDS instrument.
COMM, # 1010482
Notary Public - California Witness my hand and official seal.
ALAMEDA COUNTY
My Comm. Expires DEC 1, 1997 /s/ MICHELLE E. FIELDS
------------------------------------
(SEAL) (SIGNATURE OF NOTARY)
SIGNER IS REPRESENTING:
(NAME OF PERSON(S) OR ENTITY(IES))
OpenVision Technologies, Inc.
---------------------------------
- --------------------------------------------------------------------------------
ATTENTION NOTARY: The information requested below is OPTIONAL. It could,
however, prevent fraudulent attachment of this certificate to any
unauthorized document.
THIS CERTIFICATE Title or Type of Document AMENDMENT NO. 1
MUST BE ATTACHED TO AGS OF LEASE & AGREEMENT OF SUBORDINATION
TO THE DOCUMENT Number of Pages 11 Date of Document N/A
DESCRIBED AT RIGHT: Signer(s) Other Than Named Above
<PAGE> 20
EXHIBIT A
DESCRIPTION OF LAND
A certain parcel of land in the City of Cambridge, Middlesex County,
Massachusetts, bounded and described as follows:
SOUTHWESTERLY at the intersection of Main Street and First
Street, by four lines measuring 44.72 feet,
129.49 feet, 24.15 feet, and 41.16 feet,
respectively;
SOUTHERLY by Main Street by a line measuring 404.86
feet;
WESTERLY by Lot 1, by a line measuring 154.28 feet;
and
NORTHERLY by the Broad Canal, 594.60 feet.
Said parcel is shown as Lot 2 on a "Subdivision Plan of Land in
Cambridge, Mass. (Middlesex County)", dated April 24, 1981, and revised
September 4, 1981, drawn by Boston Survey Consultants, and prepared for Darvel
Realty Trust, recorded with Middlesex Southern District Registry of Deeds in
Book 14412, Page 199.
5
<PAGE> 21
LEASE
BETWEEN
RIVERFRONT OFFICE PARK ASSOCIATES II LIMITED PARTNERSHIP
Landlord
AND
THE VISION THING, INC. d/b/a GEER ZOLOT ASSOCIATES
Tenant
ONE MAIN STREET,
CAMBRIDGE, MASSACHUSETTS
<PAGE> 22
INDEX
<TABLE>
<S> <C> <C>
ARTICLE 1. REFERENCE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. DESCRIPTION OF DEMISED PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Demised Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Appurtenant Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Reservations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3. TERM OF LEASE; OPTION TO EXTEND TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Habendum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Term Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 Option to Extend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4 Tenant's Right of First Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 4. WORK BY LANDLORD; TENANT'S ACCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Completion Date - Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 When Premises Deemed Ready . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Plans and Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 Work Above Building Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.5 Change Orders, Tenant Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.6 Conclusiveness of Tenant's Performance . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.7 Entry by Tenant; Interference with
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 5. USE OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.1 Permitted Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Prohibited Uses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 6. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Yearly Fixed Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.3 Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.4 Tenant's Proportionate Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.5 Payment to Mortgagee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 7. UTILITIES AND LANDLORD'S SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1 Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.2 Water Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.3 Heat and Air Conditioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.4 Additional Heat, Cleaning and
Air Conditioning Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.5 Repairs and Other Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.6 Interruption or Curtailment of Services . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE B. CHANGES OR ALTERATIONS BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 9. FIXTURES, EQUIPMENT AND IMPROVEMENTS -
REMOVAL BY TENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 10. ALTERATIONS AND IMPROVEMENTS BY TENANT . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
<PAGE> 23
<TABLE>
<S> <C>
ARTICLE 11. TENANT'S CONTRACTORS - MECHANICS' AND OTHER LIENS - STANDARD
OF TENANT'S PERFORMANCE - COMPLIANCE WITH LAWS . . . . . . . . . . . . 17
ARTICLE 12. REPAIRS AND SECURITY BY TENANT . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 13. INSURANCE, INDEMNIFICATION, EXONERATION
AND EXCULPATION . . . . . . . . . . . . . . . . . . . . 19
13.1 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
13.2 Certificates of Insurance . . . . . . . . . . . . . . . . . . . . . . . 19
13.3 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13.4 Property of Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
13.5 Bursting of Pipes, etc . . . . . . . . . . . . . . . . . . . . . . . . . 21
13.6 Repairs and Alterations - No Diminution
of Rental Value 21
ARTICLE 14. ASSIGNMENT, MORTGAGING, SUBLETTING, ETC 22
ARTICLE 15. MISCELLANEOUS COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 26
15.1 Rules and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 26
15.2 Access to Premises - Shoring . . . . . . . . . . . . . . . . . . . . . . 27
15.3 Accidents to Sanitary and Other Systems . . . . . . . . . . . . . . . . 28
15.4 Signs, Blinds and Drapes . . . . . . . . . . . . . . . . . . . . . . . . 28
15.5 Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 28
15.6 Prohibited Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.7 Requirements of Law; Fines and Penalties . . . . . . . . . . . . . . . . 29
15.8 Tenant's Acts - Effect on Insurance . . . . . . . . . . . . . . . . . . 29
15.9 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 16. DAMAGE BY FIRE, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 17. WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 18. CONDEMNATION - EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 19. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
19.1 Conditions of Limitation - Re-entry - Termination . . . . . . . . . . . 34
19.2 Damages - Assignment for-Benefit
of Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
19.3 Damages - Termination . . . . . . . . . . . . . . . . . . . . . . . . . 35
19.4 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
19.5 Landlord's Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . 37
19.6 Grace Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 20. END OF TERM - ABANDONED PROPERTY . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 21. RIGHTS OF MORTGAGEES . . . . . . . . . . . . . . . . . . . . . . . . . . 38
21.1 Superiority of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . 38
21.2 Entry and Possession . . . . . . . . . . . . . . . . . . . . . . . . . . 39
21.3 Right to Cure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
21.4 Duty to Construct . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
21.5 Prepaid Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
21.6 Continuing Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
<PAGE> 24
<TABLE>
<S> <C> <C> <C>
21.7 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
21.8 Limitations on Liability . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 22. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 23. ENTIRE AGREEMENT - WAIVER - SURRENDER . . . . . . . . . . . . . . . . . . 41
23.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
23.2 Waiver by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
23.3 Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 24. INABILITY TO PERFORM - EXCULPATORY CLAUSE . . . . . . . . . . . . . . . . 42
ARTICLE 25. BILLS AND NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 26. PARTIES BOUND - SEIZING OF TITLE . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 27. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
27.1 Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
27.2 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
27.3 Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
27.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
27.5 Assignment of Rents . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
27.6 Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
27.7 Notice of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
27.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
27.9 Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
EXHIBIT A Description of Demised Premises
EXHIBIT B Description of Land
EXHIBIT C There is no Exhibit C
EXHIBIT D Drawings
EXHIBIT E Procedure for Allocation of Costs of
Electric Power Usage by Tenants
EXHIBIT F Cleaning Standards
EXHIBIT G Rules and Regulations
</TABLE>
<PAGE> 25
(8) Mortgage: A mortgage, deed of trust, trust indenture,
or other security instrument of record
creating an interest in or affecting title
to the Land or Building or any part
thereof, including the leasehold mortgage,
and any and all renewals, modifications,
consolidations or extensions of any such
instrument. For such time as Teachers
Insurance and Annuity Association
("TIAA") is the holder of a first
mortgage on the Property, the term
"Mortgage" shall mean only said first
mortgage, and such other mortgages, if
any, which TIAA shall approve.
(9) Mortgagee: The holder of any Mortgage.
(10) Parking Spaces: Two (2), provided, however, that Tenant at
its option may from time to time and on a
month to month basis increase such number
upon prior written notice thereof to
Landlord up to a maximum of fifteen (15)
spaces.
(11) Property: The Land and Building.
(12) Rent: Yearly Fixed Rent and Additional Rent.
(13) Rentable Area of 4,890 rentable square feet.
the Demised Premises:
(14) Tenant's Address: Until the Term Commencement Date,
200 Portland Street
Boston, Massachusetts 02117
and thereafter
One Main Street
Cambridge, Massachusetts 02142.
(15) Term Commencement As defined in Section 3.2.
Date:
(16) Term of This Lease: As defined in Section 3.1.
(17) Termination Date: As defined in Section 3.1.
(18) Use of Demised
Premises: General office purposes.
(19) Yearly Fixed Rent $80,685, calculated at the rate of
$16.50 per rentable square foot.
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2. DESCRIPTION OF DEMISED PREMISES
2.1 Demised Premises. The Demised Premises are that portion of
the Building as described above (as the same may from time to time be
constituted after changes therein, additions thereto and eliminations therefrom
pursuant hereto).
2.2 Appurtenant Rights. Tenant shall have, as appurtenant to the
Demised Premises, rights to use in common, subject to reasonable rules from
time to time made by Landlord of which Tenant is given notice, those common
roadways, walkways, elevators, hallways and stairways necessary for access to
that portion of the Building occupied by the Demised Premises and the common
loading dock, bathrooms, and lobbies.
2.3 Reservations. All the perimeter walls of the Demised Premises
except the inner surfaces thereof, any balconies, terraces or roofs adjacent to
the Demised Premises, and any space in or adjacent to the Demised Premises used
for shafts, stacks, pipes, conduits, wires and appurtenant fixtures, fan rooms,
ducts, electric or other utilities, sinks or other building facilities, and the
use thereof, as well as the right of access through the Demised Premises for
the purpose of operation, maintenance, decoration and repair as hereinafter
provided, are expressly reserved to Landlord; provided however that Landlord
shall endeavor to not unreasonably interfere with Tenant's use of the Premises
and that, whenever possible, Landlord shall provide prior notice to Tenant of
its need for access.
3. TERM OF LEASE; OPTION TO EXTEND TERM
3.1 Habendum. TO HAVE AND TO HOLD the Demised Premises for a term
of two (2) years commencing on the Term Commencement Date and ending on the day
immediately prior to the second (2d) anniversary thereof (the "Term of This
Lease"), or on such earlier date upon which said Term may expire or be
terminated pursuant to any of the conditions of limitation or other provisions
of this Lease or pursuant to law (which date for the termination of the term
hereof shall hereafter be called the "Termination Date").
3.2 Term Commencement Date. The Term Commencement Date shall be
the earlier of (a) the date on which, pursuant to permission therefor duly
given by Landlord, Tenant undertakes Use of the Demised Premises for the
purpose set forth in Article 1, or (b) the date on which the Demised Premises
are ready for Tenant's occupancy in accordance with the provisions of Section
4.2; provided however that in such event, Landlord shall provide Tenant with a
minimum prior written notice of five (5) days. Landlord and Tenant agree to
execute a certificate confirming the Term Commencement Date as soon as
practicable subsequent thereto.
Notwithstanding the foregoing, Tenant shall be permitted occupancy of
the Demised Premises immediately upon the execution
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of this Lease or upon the completion of all work to be performed by Landlord
hereunder, whichever is later; provided such occupancy in no way interferes
with or hinders Landlord's obligations hereunder.
3.3 Options to Extend. On the conditions (which conditions
Landlord may waive, at its election by written notice to Tenant at any time)
(i) that Tenant is not in default after the expiration of applicable notice and
grace periods of its covenants and obligations under the Lease and (ii) that
the Tenant or a Successor (as defined in 14.3 herein) is itself occupying the
entirety of the Demised Premises both at the time of Tenant's notice to
Landlord and at the time of the commencement of any additional period of
tenancy, Tenant may extend the Term of this Lease for up to three successive
additional one year periods by giving notice to Landlord of its election to
extend for the first of such one year period at least four (4) months prior to
the end of the original Term and by giving notice to Landlord of its election
to extend for the second and/or third such successive additional one year
period(s) at least four (4) months prior to the end of the Term, as it may have
been extended hereunder by additional one year period(s). The Yearly Fixed
Rent payable by Tenant with respect to any such extension period(s) shall be
equal to ninety-five (95%) percent of the then fair market rental value of the
Demised Premises (taking into account comparable first-class office space in
the Kendall Square, East Cambridge area, and building class, building site,
building quality, and other market conditions, including terms and conditions
in comparable leases) (1) as the same may be mutually agreed by Landlord and
Tenant; provided, however that (2) if they have not so agreed in writing within
one (1) month following the exercise of the option then said fair market value
shall be determined by appraisers, each of whom shall have at least three prior
years' experience as an appraiser in the East Cambridge market, one to be
chosen by Landlord, one to be chosen by Tenant, and a third to be selected by
the two first chosen. The unanimous written decision of the two first chosen,
without selection and participation of a third appraiser, or otherwise the
written decision of a majority of three appraisers chosen and selected as
aforesaid, shall be conclusive and binding upon Landlord and Tenant. Landlord
and Tenant shall each notify the other of its chosen appraiser within ten (10)
days following expiration of the aforesaid one (1) month period and, unless
such two appraisers shall have reached a unanimous decision within twenty-one
(21) days from said expiration, they shall within a further five (5) days elect
a third appraiser and notify Landlord and Tenant thereof. Landlord and Tenant
shall each bear the expense of the appraiser chosen by it and shall equally
bear the expense of the third appraiser (if any).
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<PAGE> 28
3.4 Tenant's Right of First Offer. On the conditions (which
conditions Landlord may waive, at its election, by written notice to Tenant at
any time) (i) that Tenant is not in default after the expiration of applicable
notice and grace periods of its covenants and obligations under the Lease and
(ii) that the Tenant is itself occupying the entirety of the Demised Premises
both at the time Landlord is required to give Landlord's Notice and as of the
Term Commencement Date in respect of the RFO Premises in question, Tenant shall
have the following rights to add RFO Premises, as hereinafter defined, to the
Demised Premises leased hereby when such RFO Premises become available for
lease to Tenant, as hereinafter described. In no event shall Tenant have any
rights under this Section on or after the date on which there shall be less
than four (4) full months remaining in the Term of this Lease, unless Tenant
shall have validly exercised any remaining applicable extension option as
aforesaid.
(a) Definition of RFO Premises. "RFO Premises" shall be defined
as any rentable area which is situated on the eighth floor within the Building
which becomes available for lease to Tenant, as hereinafter defined, during the
Term of this Lease, as the same may be extended. For the purposes of this
paragraph (a), an area shall be deemed to be "available for lease to Tenant"
if, during the Term of this Lease, Landlord, in its sole judgment, determines
that such area will become available for leasing to Tenant (i.e., when Landlord
determines that the then current tenant of such RFO Premises will vacate such
RFO Premises, or any portion thereof, and when Landlord intends to offer such
premises for lease). Landlord warrants that Tenant has the first Right of
First Offer for the eighth floor.
(b) Exercise of Right to Lease RFO Premises. Landlord shall give
Tenant written notice ("Landlord's Notice") at the time that Landlord
determines that there is a bona fide proposal, either verbally or in writing,
for space which would constitute RFO Premises hereunder. Landlord's Notice
shall set forth the estimated date on which Landlord would expect to deliver
such RFO Premises to Tenant, and the exact location of such RFO Premises. The
Yearly Fixed Rent and Additional Rent to be paid by Tenant for the RFO Premises
shall be equivalent on a per square foot basis to such charges for the existing
Demised Premises and shall be prorated to reflect the Tenant's actual occupancy
of the RFO Premises. Tenant shall, have the right, exercisable upon written
notice ("Tenant's Exercise Notice") given to Landlord within thirty (30) days
after the receipt of Landlord's Notice, to add such RFO Premises to this Lease
as hereinafter provided. If Tenant fails timely to give Tenant's Exercise
Notice, Tenant shall have no further right of lease such RFO Premises pursuant,
to this Section 3.4. In the event Tenant fails to give Tenant's Exercise Notice
and the above-referenced bona fide proposal by a third party for RFO Premises
is not consummated, Landlord must provide to Tenant all requisite notice
hereunder and Tenant shall again have all rights hereunder in the event of
subsequent bona fide proposals by such third party or other third parties in
the
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<PAGE> 29
future with respect to such space. Upon the timely giving of Tenant's Exercise
Notice, such RFO Premises shall be added to the Demised Premises and shall be
subject to the provisions of this Lease, except as follows:
(1) Term Commencement Date. The Term Commencement Date in respect
of any RFO Premises shall be the earlier of (a) the date that Landlord actually
delivers such RFO Premises to Tenant, or (b) the date on which Tenant shall
occupy all or any portion of such RFO Premises for the conduct of its business
therein. In no event shall the Term Commencement Date be later than thirty
(30) days after the Tenant's Exercise Notice.
(2) Rent Commencement Date. The date of commencement of Rent in
respect of any RFO Premises shall be the Term Commencement Date in respect of
such RFO Premises.
(3) Condition of RFO Premises; Tenant's RFO Work. Tenant shall
take any RFO Premises "as-is" in its then (i.e., as of the date of premises
delivery) state of construction, finish, and decoration, without any obligation
on the part, of Landlord to construct or prepare any RFO Premises for Tenant's
occupancy, excepting that Landlord shall connect the Demised Premises and RFO
Premises by opening the existing dividing wall (if applicable) and constructing
a new demising wall (if applicable) and shall perform such touch-up patching,
painting, repairs and cleaning as shall be required, all such work at
Landlord's cost and expense. However, upon Tenant's exercise of its option to
lease RFO Premises and delivery of such RFO Premises by Landlord, to Tenant,
Tenant shall have the right, subject to Landlord's approval of the plans
therefor which approval shall not be unreasonably withheld or delayed in each
instance and to the other applicable provisions of Section 4 below, to make
such alterations and improvements to the RFO Premises as Tenant deems
reasonably necessary for its use and occupancy thereof ("Tenant's RFO Work").
(c) Execution of Lease Amendments. Notwithstanding the fact that
Tenant's exercise of the above-described option to lease RFO Premises shall be
self-executing, as aforesaid, the parties hereby agree promptly to execute a
lease amendment and amended notice of lease reflecting the addition of any RFO
Premises and the changes to this Lease occasioned thereby.
4. WORK BY LANDLORD; TENANT'S ACCESS
4.1 Completion Date - Delays. Subject to delay by causes beyond
the reasonable control of Landlord or caused by the action or inaction of
Tenant, Landlord shall use reasonable diligence in order to have the Demised
Premises ready for occupancy by Tenant by February 1, 1993, in accordance with
the Plans Schedule set forth as Exhibit C and including alternates 2, 3, and 4,
attached hereto and made a part hereof and Landlord shall pay all costs of
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<PAGE> 30
such construction. The failure to have the Demised Premises so ready by such
date shall in no way affect the validity of this Lease or the obligations of
Tenant hereunder. However, Tenant may terminate this Lease by notice to
Landlord and without further recourse to either party if the Demised Premises
are not ready for occupancy by Tenant on or before March 15, 1993 (which date
shall be extended by the period of any delays referred to in Article 24).
4.2 When Premises Deemed Ready. The Demised Premises shall be
conclusively deemed ready for Tenant's occupancy after the occurrence of all of
the following: (i) Landlord gives notice to Tenant that the installations to be
done by Landlord in the Demised Premises pursuant to the Final Approved Plans
defined in Section 4.3 have been substantially completed by Landlord insofar as
is practicable in view of delays or defaults, if any, of Tenant, (ii) a
certificate of occupancy has issued for Tenant to occupy the Demised Premises
for their Permitted Use, (iii) Landlord's Architect shall have issued a
Certificate of Substantial Completion certifying that the Premises have been
substantially completed in accordance with the Final Approved Plans, and (iv)
all mechanical, HVAC, life safety and electrical systems are operational and
the HVAC system has been balanced. Such work shall not be deemed incomplete if
only minor or insubstantial details of construction or mechanical adjustments
remain to be done, which would not interfere in any material manner with
Tenant's use and occupancy of the Demised Premises and none of which render
the Demised Premises untentatable for the Permitted Use, or if a delay is
caused in whole or in part by Tenant through the delay of Tenant in submitting
any plans, and/or specifications, supplying information, approving plans,
specifications or estimates, giving authorization or otherwise. Landlord's
Architect's certificate of substantial completion as hereinabove stated, given
in good faith, or of any other facts pertinent to this Section 4.2 shall be
deemed conclusive of the statements therein contained.
4.3 Plans and Specifications. Landlord shall be solely
responsible for the timely preparation and submission to Tenant of the final
architectural, electrical and mechanical construction drawings, plans and
specifications (the "Approved Final Plans") necessary to build the Demised
Premises for Tenant's occupancy in accordance with the Drawings set forth in
Exhibit D (including alternatives 2, 3, and 4 therein) attached hereto and made
a part hereof, which Plans shall be subject to the approval by Tenant.
4.4 Work Above Building Standards. Any above-standard work which
is not specified in Section 4.3 hereof shall be considered "Above Building
Standards Work", to be supplied and installed by Landlord pursuant to Section
4.3, provided that such Above Building Standards Work (i) will not require the
use of contractors of a type other than those normally engaged by Landlord in
the construction of the Building, (ii) will not tend
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<PAGE> 31
to delay completion of the Demised Premises, (iii) is practicable and
consistent with existing physical conditions in the Building and with any plans
for the Building which have been filed with the appropriate governmental
authorities, (iv) will not impair Landlord's ability to perform any of
Landlord's obligations under the provisions of the Lease, and (v) will not
affect any portion of the Building other than the Demised Premises. The
provisions of Section 7.1 of this Lease shall apply to any Above Building
Standards Work which will require any additional electrical feeders or risers
over and above those which would be required to service the electrical
facilities to be installed by Landlord pursuant to Section 4.3. Notwithstanding
Landlord's approval of any Above Building Standards Work, if it subsequently
appears to Landlord that any items of Above Building Standards Work designated
by Tenant will tend to delay completion of the work required to be performed by
Landlord pursuant to Section 4.3, Tenant, after notice from Landlord to that
effect, will designate, subject to the foregoing limitations (i) through (v),
other available items of Above Building Standards Work which will not so tend
to delay completion. If Tenant fails to make such designations within ten (10)
days after said notice from Landlord, Landlord shall have no obligations to
supply or install the items of Above Building Standards Work set forth by
Landlord in such notice, or, at Landlord's election, Landlord shall have the
right to perform such items of Above Building Standards Work, except that,
solely for the purpose of determining whether or not the work required to be
performed by Landlord pursuant to this Article has been substantially completed
and for the purpose of fixing the Term Commencement Date, such items of Above
Building Standards Work and all other related work and installations shall be
deemed unfinished, punch-list details which may be performed after the Term
Commencement Date in accordance with the provisions of Section 4.2. Tenant
shall pay to Landlord a sum equal to the actual cost and expense to Landlord of
Landlord's contractor supplying and installing all Above Building Standards
Work. Any sum payable hereunder by Tenant to Landlord shall be payable as
Landlord's work progresses, whether or not the Term of this Lease shall have
commenced, within thirty (30) days after invoice therefor from Landlord.
4.5 Change Orders, Tenant's Delays. In the event of (a) any
change orders to the Approved Final Plans requested by Tenant and consented to
by Landlord, which consent shall not be unreasonably withheld or delayed in
each instance, or (b) any actual delay ("Tenant's Delay") that shall occur in
the Term Commencement Date as a result of
(i) any request by Tenant that Landlord delay completion
of any fit-up work with respect to the Demised Premises for any reason; or
(ii) any necessary rescheduling of the sequence of any
fit-up work with respect to the Demised Premises due to any of the causes
listed above;
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<PAGE> 32
which results in any additional cost to Landlord (the excess of what would have
been Landlord's total cost of completing the fit-up work for the Demised
Premises had there not occurred such change order or delay), Tenant agrees to
promptly pay to Landlord, whether or not the Term of this Lease has commenced,
the full amount of such additional cost. The Landlord shall provide the Tenant
with written notice within forty-eight (48) hours of the receipt by Landlord
of any change order requested by Tenant or Tenant request for delay or
necessary rescheduling of sequence of fit-up work due to any of the above for
which Tenant will be required to bear any additional cost hereunder. Such
notice shall include the expected duration of such delay and associated costs.
Tenant shall be deemed to have consented to any such increased cost, time
delay, or rescheduling unless it otherwise notifies Landlord within forty-eight
(48) hours of receipt of Landlord's Notice.
4.6 Conclusiveness of Landlord's Performance. Tenant shall be
conclusively deemed to have agreed that Landlord has performed all of its
obligations under this Article 4 unless not later than sixty (60) days after
the Term Commencement Date Tenant shall give Landlord written notice specifying
the respects in which Landlord has not performed such obligations. Landlord
shall endeavor to obtain a one-year warranty for latent defects from any
contractors) who perform work on the Demised Premises.
4.7 Entry by Tenant; Interference with Construction. Tenant and
Tenant's contractors and agents shall be permitted by Landlord to enter the
Demised Premises prior to the Term Commencement Date upon reasonable prior
written notice thereof to Landlord for the purpose of installation of telephone
and data wiring to prepare the Demised Premises for Tenant's occupancy. Such
entry shall be deemed to be pursuant to a license from Landlord to Tenant and
shall be at the risk of Tenant. In no event shall Tenant interfere with any
construction work being performed by or on behalf of Landlord in or around the
Building; without limiting the generality of the foregoing, Tenant shall comply
with all reasonable instructions issued by Landlord's contractors relative to
the moving of Tenant's equipment and other property into the Demised Premises
and shall pay any fees or costs imposed in connection therewith which are a
direct result of the actions or inactions of Tenant or Tenant's employees,
agents, licensees or invitees.
5. USE OF PREMISES
5.1 Permitted Use. Except as otherwise agreed by Landlord,
Tenant, during the Term of this Lease, shall occupy and use the Demised
Premises for the permitted use set forth in Article I ("Permitted Use") and for
no other purpose. Service and utility areas (whether or not a part of the
Premises) shall be used only for the particular purpose for which they are
designated. Landlord hereby represents and warrants that the permitted use
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<PAGE> 33
hereunder is allowed as of right under the zoning by-laws of the City of
Cambridge.
5.2 Prohibited Uses. Tenant shall not use, or suffer or permit
the use of, or suffer or permit anything to be done in or anything to be
brought into or kept in, the Demised Premises or any part thereof (i) which
would violate any of the covenants, agreements, terms, provisions and
conditions of this Lease, (ii) for any unlawful purposes or in any unlawful
manner, or (iii) which, in the reasonable judgment of Landlord shall in any way
(a) impair or tend to impair the appearance or reputation of the Building, (b)
impair or interfere with or tend to impair or interfere with any of the
Building services or the proper and economic heating, cleaning, air
conditioning or other servicing of the Building or Demised Premises, or with
the use of any of the other areas of the Building, or.(c) occasion discomfort,
inconvenience or annoyance to any of the other tenants or occupants of the
Building, whether through the transmission of noise or odors or otherwise.
Without limiting the generality of the foregoing, no food shall be prepared or
served for consumption on or about the Demised Premises, excepting only for
consumption on the Demised Premises by Tenant, its employees, and their guests;
no intoxicating liquors or alcoholic beverages shall be sold on or about the
Demised Premises; no lottery tickets (even where the sale of such tickets is
not illegal) shall be sold and no gambling, betting or wagering shall otherwise
be permitted on or about the Demised Premises; no loitering shall be permitted
in or about the Demised Premises; and no loading or unloading of supplies or
other material to or from the Demised Premises shall be permitted on the Land
except at times and in locations to be designated by Landlord. The Demised
Premises shall be maintained in a sanitary condition, and all kept free of
rodents and vermin. All trash and rubbish shall be suitably stored in the
Demised Premises or other locations designated by Landlord from time to time.
5.3 Licenses and Permits. If any governmental license or permit
shall be required for the proper and lawful conduct of Tenant's business, and
if the failure to secure such license or permit would in any way affect
Landlord, Tenant, at Tenant's expense, shall duly procure and thereafter
maintain such license or permit and submit the same to inspection by Landlord.
Tenant, at Tenant's expense, shall at all times comply with the terms and
conditions of each such license or permit.
6. RENT
6.1 Yearly Fixed Rent. Tenant shall pay to Landlord, without any
set-off or deduction, at Landlord's office, or to such other person or at such
other place as Landlord may designate by written notice to Tenant, the Yearly
Fixed Rent set forth in Article 1. Beginning March 1, 1993, all Yearly Fixed
Rent shall be paid in equal monthly installments in advance on or before the
first business day of each calendar month during the
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<PAGE> 34
Term of this Lease and shall be apportioned for any fraction of a month in
which the Term Commencement Date or the last day of the Term of this Lease may
fall. Tenant shall not be liable for Yearly Fixed Rent prior to March 1, 1993.
6.2 Taxes. Tenant shall pay to Landlord as Additional Rent a
proportionate share (as defined in Section 6.4) of all real estate taxes
(including without limitation all betterment assessments and charges in lieu of
such taxes and any tax on any fixture (other than a Tenant fixture) installed
in the Building, even if taxed as personal property) imposed against the
Building and the Land, in excess of the amount of said real estate taxes
imposed against the Building and the Land for the fiscal tax year ending June
30, 1993, prorated with respect to any portion of a fiscal year in which the
term of this Lease begins or ends. Such payments shall be due and payable
within thirty (30) days after Tenant shall have received a copy of the relevant
tax bills. If Landlord shall receive any refund of real estate taxes of which
Tenant has paid a portion pursuant to this Section, then, out of any balance
remaining after deducting Landlord's expenses incurred in obtaining such
refund, Landlord shall pay to Tenant the same proportionate share of said
balance, prorated as set forth above. Tenant shall, if, as and when demanded
by Landlord and with each monthly installment of Fixed Rent, make tax fund
payments to Landlord. "Tax Fund Payments" refer to such payments as Landlord
shall determine to be sufficient to provide in the aggregate a fund adequate to
pay, when they become due and payable, all payments required from Tenant under
this Section. In the event that said tax fund payments are not adequate to pay
Tenant's share of such taxes, Tenant shall pay to Landlord the amount by which
such aggregate is less than the amount of said share, such payment to be due
and payable at the time set forth above. Any surplus tax fund payments shall
be accounted for to Tenant after payment by Landlord of the taxes on account of
which they were made, and shall be promptly refunded to Tenant.
6.3 Operating Expenses. Tenant shall pay to Landlord as
Additional Rent a proportionate share (as defined in Section 6.4) of all costs
and expenses incurred by Landlord in the operation and maintenance of the
Building and the Land in accordance with generally accepted operational and
maintenance procedures, in excess of the amount of said costs and expenses
incurred by the Landlord in the operation and maintenance of the Building and
the Land during the calendar year ending December 31, 1993, including, without
limiting the generality of the foregoing, all such costs and expenses in
connection with (1) insurance, license fees, janitorial service, landscaping,
and snow removal, (2) wages, salaries, management fees, employee benefits,
payroll taxes, on-site office expenses, administrative and auditing expenses,
and equipment and materials for the operation, management, and maintenance of
said Property, (3) any capital expenditure (amortized, with interest, on such
reasonable basis as Landlord shall determine in accordance with generally
accepted accounting principles) made by Landlord for the purpose of
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reducing other operating expenses or complying with any governmental
requirement, (4) the furnishing of heat, air conditioning and utilities, (5)
the operation and servicing of any computer system installed to regulate
Building equipment, and (6) the furnishing of the repairs and services referred
to in Section 7.3 (the foregoing being hereinafter referred to as operating
expenses"). Notwithstanding the foregoing, the following shall not be included
in operating expenses: (i) the cost of leasehold improvements provided for the
fit-up of any space for any individual tenant, (ii) rent payable with respect
to the ground lease, (iii) marketing costs, (iv) real estate brokerage fees,
(v) administrative costs not related to the Building, (vi) principal and
interest payable on any Mortgage, (vii) offsite executive staff costs and
(viii) legal costs associated with the leasing of any space in the Building or
the performance of any individual Tenant of the Building. As soon as Tenant's
share of operating expenses with respect to any calendar year can be
determined, the same will be certified by Landlord to Tenant and will become
payable to Landlord within thirty (30) days following such certification,
subject to proration with respect to any portion of a calendar year in which
the Term of this Lease begins or ends. Tenant shall, if, as and when demanded
by Landlord and with each monthly installment of Yearly Fixed Rent, make
operating fund payments to Landlord based on Landlord's reasonable estimated
budget of such expenses. "Operating Fund Payments" refer to such payments as
Landlord shall reasonably determine to be sufficient to provide in the
aggregate a fund adequate to pay, when they become due and payable, all
payments required from Tenant under this Section. In the event that operating
fund payments are so demanded, and if the aggregate of said operating fund
payments is not adequate to pay Tenant's share of operating expenses, Tenant
shall pay to Landlord the amount by which such aggregate is less than the
amount of said share, such payment to be due and payable at the time set forth
above. Any surplus operating fund payments shall be accounted for to Tenant
after such surplus has been determined, and shall be refunded to Tenant
promptly. Tenant shall have the right at Tenant's cost and expense during
normal business hours and upon reasonable prior written notice to Landlord to
engage an independent certified public accountant to audit Landlord's records
with respect to such operating expenses, provided, that in the event such audit
shall disclose that Landlord overstated such expenses in the aggregate for any
calendar year by an amount equal to not less than three percent (3%) Landlord
shall reimburse to Tenant the reasonable cost of such audit.
6.4 Tenant's Proportionate Share. Tenant's proportionate share of
taxes pursuant to Section 6.2 and operating expenses pursuant to Section 6.3,
respectively, shall be 1.50% (4,890/326,470 square feet) and 1.52%
(4,890/321,917 square feet), respectively.
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6.5 Payment to Mortgagee. Landlord reserves the right to provide
in any Mortgage given by it of the Property that some or all rents, issues, and
profits and all other amounts of every kind payable to the Landlord under this
Lease shall be paid directly to the Mortgagee for Landlord's account and Tenant
covenants and agrees that it will, after receipt by it of written notice from
Landlord or Mortgagee designating such Mortgagee to whom payments are to be
made by Tenant, pay such amounts thereafter becoming due directly to such
Mortgagee until excused therefrom by written notice from such Mortgagee.
7. UTILITIES AND LANDLORD'S SERVICES
7.1 Electricity. Tenant shall pay to Landlord monthly an amount
reasonably estimated by Landlord to equal Tenant's Allocable Electricity Costs
for the electrical energy that Tenant requires for operation of the lighting
fixtures, appliances and equipment of Tenant in the Demised Premises.
"Tenant's Allocable Electricity Costs" as used herein shall be as determined in
accordance with Exhibit E annexed hereto and made a part hereof. Landlord
shall furnish to Tenant quarterly a statement setting forth in reasonable
detail the particulars relating to Tenant's Allocable Electricity Costs for the
three months to which such a statement relates. In the event the estimated
payments made by Tenant for said three (3) month period shall be less than
Tenant's Allocable Electricity Costs for said period as set forth in said
statement, Tenant shall promptly remit to Landlord the difference. In the
event the estimated payments made by Tenant for said three (3) month period
exceed Tenant's Allocable Electricity Costs for said period as set forth in
said statement, such excess shall be promptly refunded by Landlord. Landlord
shall not be liable in any way to Tenant for any failure or defect in the
supply or character of electrical energy furnished to the Demised Premises by
reason of any requirement, act or omission of the public utility serving the
Building with electricity unless due to the act or omission of Landlord.
Tenant's use of electrical energy in the Demised Premises shall not at any time
exceed the capacity of any of the electrical conductors and equipment in or
otherwise serving the Demised Premises. In order to insure that such capacity
is not exceeded and to avert possible adverse affect upon the Building
electrical services, Tenant shall give notice to Landlord and obtain Landlord's
prior written consent (which consent shall not be unreasonably withheld or
delayed) whenever Tenant shall connect to the Building electrical distribution
system any fixtures, appliances or equipment. Landlord, at its sole cost and
expense, shall purchase, install and repair all light fixtures, bulbs, tubes,
lamps, lenses, globes, ballasts, and switches used in the Demised Premises.
Any additional feeders or risers to supply Tenant's electrical requirements in
addition to those originally installed and all other equipment proper and
necessary in connection with such feeders or risers, shall be installed by
Landlord upon Tenant's request, at the sole cost and expense of Tenant,
provided that such additional feeders and risers are
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permissible under applicable laws and insurance regulations and the
installation of such feeders or risers will not cause permanent damage or
injury to the Building or cause or create a dangerous condition or unreasonably
interfere with other tenants of the Building. Tenant agrees that it will not
make any alteration or material addition to the electrical equipment and/or
appliances in the Premises without the prior written consent of Landlord in
each instance first obtained, which consent will not be unreasonably withheld,
and will promptly advise Landlord of any alteration or addition to such
electrical equipment and/or appliances. Notwithstanding the foregoing,
Landlord, at its election, may install at Landlord's cost and expense a
separate meter for Tenant's electric usage in which event Tenant shall
thereafter obtain and pay for its electricity directly from the electric
utility servicing the Building.
7.2 Water Charges. Landlord shall furnish hot and cold water for
ordinary cleaning, toilet, lavatory and drinking purposes to the extent
required to service facilities shown on the Plans approved by Landlord pursuant
to Section 4.3. if Tenant requires, uses or consumes water for any purpose
other than for such purposes, Landlord may (i) assess a reasonable charge for
the additional water so used or consumed by Tenant or (ii) install a water
meter and thereby measure Tenant's water consumption for all purposes. In the
latter event, Landlord shall pay the cost of the meter and the cost of
installing any equipment required in connection therewith, and Tenant shall
keep said meter and installation equipment in good working order and repair,
and shall pay for water consumed, as shown on said meter, together with the
sewer charge based on said meter charges, as and when bills are rendered. On
Tenant's default in making such payment Landlord may pay such charges and
collect the same from Tenant.
7.3. Heat and Air Conditioning. Landlord shall, through the
equipment of the Building furnish to and distribute in the Demised Premises
heat and air conditioning as normal seasonal changes may require on Business
Days from 8:00 a.m. to 6:00 p.m. and on Saturdays (other than legal or
recognized holidays as defined in Article 1) from 8:00 a.m. to 12:00 noon when
reasonably required for the comfortable occupancy of the Demised Premises by
Tenant. Tenant agrees to lower and close the blinds or drapes when necessary
because of the sun's position, whenever the air conditioning system is in
operation, and to cooperate fully with Landlord with regard to, and to abide
by all the regulations and requirements which Landlord may prescribe for the
proper functioning and protection of the heating and air conditioning system.
7.4 Additional Heat, Cleaning and Air Conditioning Services.
(a) The heating and air conditioning equipment serving the Demised
Premises shall be designed so as to permit Tenant to obtain heat and air
conditioning on days and at times other than
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as set forth in Section 7.3. Tenant's use of such additional heat and air
conditioning shall be gauged on the meter referred to in Section 7.1 or
otherwise reasonably estimated by Landlord, and all charges in connection
therewith shall be payable directly by Tenant at a rate of $1.00 per heat pump
per hour.
(b) Tenant will pay to Landlord a reasonable charge for
any extra cleaning of the Premises required because of the carelessness or
indifference of Tenant or because of the nature of Tenant's business, or
furnished by Landlord at Tenant's request. Landlord will endeavor to furnish
such requested extra cleaning service upon reasonable advance written notice
from Tenant of its requirements in that regard.
7.5 Repairs and Other Services. Except as otherwise provided in
Articles 16 and 18, and subject to Tenant's obligations in Article 12 and
elsewhere in this Lease, Landlord shall (a) keep and maintain the roof,
exterior walls, structural floor slabs and columns, windows (exclusive of glass
components), and common areas of the Building in as good condition and repair
as they are in on the Term Commencement Date, reasonable use and wear excepted,
(b) keep and maintain in workable condition the Building's sanitary,
electrical, heating, air conditioning and other systems, (c) provide cleaning
services to the Demised Premises and the common areas of the Building on
Business Days according to the cleaning standards generally prevailing in first
class office buildings in the City of Cambridge, all as outlined in Exhibit F,
(d) provide maintenance and snow removal for all roadways, walkways and parking
areas on the Property, (e) provide grounds maintenance to all landscaped areas,
and (f) employ a uniformed guard to be stationed at the main entrance of the
Building on an around-the-clock basis. All expenses incurred by Landlord in
connection with the foregoing repairs and other services shall be included as
part of operating expenses pursuant to Section 6.3.
7.6 Interruption or Curtailment of Services. Landlord reserves
the right to interrupt, curtail, stop or suspend the furnishing of services and
the operation of any Building system, when necessary by reason of accident or
emergency, or of repairs, alterations, replacements or improvements in the
reasonable judgment of Landlord desirable or necessary to be made, or of
difficulty or inability in securing supplies or labor, or of strikes, or of any
other cause beyond the reasonable control of Landlord, whether such other cause
be similar or dissimilar to those hereinabove specifically mentioned, until
said cause has been removed. Landlord shall have no responsibility or
liability for any such interruption, curtailment, stoppage, or suspension of
services or systems, except that Landlord shall exercise reasonable diligence
to minimize inconvenience to Tenant and to eliminate the cause of same and
except that Landlord shall give reasonable notice of such interruption,
curtailment, stoppage or suspension except when due to accident or emergency.
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Notwithstanding anything to the contrary herein, if the Demised
Premises shall lack any service which Landlord is required to provide hereunder
or if Tenant's use and occupancy of the Demised Premises is adversely affected
by any of the Landlord's actions arising under this section, rendering the
Demised Premises or any substantial portion thereof untenantable for a period
of ten (10) consecutive days, then, provided such condition or Landlord's
inability to cure such condition is not caused by the fault, neglect, or other
action or omission of Tenant or Tenant's agents, employees, contractors,
licensees, or invitees and provided that such condition or inability is a
matter within the Landlord's control, then the Yearly Fixed Rent shall
thereafter be abated in proportion to such untenantability until such condition
is corrected.
8. CHANGES OR ALTERATIONS BY LANDLORD
Landlord reserves the right, exercisable by itself or its nominee, at
any time and from time to time, upon reasonable prior written notice to Tenant
(if directly affecting the use and occupancy of the Demised Premises) without
the same constituting an actual or constructive eviction and without incurring
any liability to Tenant therefor or otherwise affecting Tenant's obligations
under this Lease, to make such reasonable changes, alterations, additions,
improvements, repairs or replacements in or to the Building (including the
Demised Premises) and the fixtures and equipment thereof, as well as in or to
the street entrances, halls, passages, elevators, and stairways thereof, as it
may deem necessary or desirable, and to change the arrangement and/or location
of entrances or passageways, doors and doorways, and corridors, elevators,
stairs, toilets, or other public parts of the Building, provided, however, that
there be no unreasonable obstruction of the right of access to, or unreasonable
interference with the use and enjoyment of, the Demised Premises by Tenant,
except that Landlord shall not be obligated to employ labor at so-called
"overtime" or other premium pay rates. Nothing contained in this Article shall
be deemed to relieve Tenant of any duty, obligation or liability of Tenant with
respect to making or causing to be made any repair, replacement or improvement
or complying with any law, order or requirement of any governmental or other
authority. Landlord reserves the right to from time to time change the address
of the Building. Neither this Lease nor any use by Tenant shall give Tenant
any right or easement or the use of any door or any passage or any concourse
connecting with any, other building or to any public convenience, and the use
of such doors, passages and concourses and of such conveniences may be
regulated or discontinued at any time and from time to time by Landlord and
without affecting the obligation of Tenant hereunder or incurring any liability
to Tenant therefor.
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9. FIXTURES, EQUIPMENT AND IMPROVEMENTS - REMOVAL BY TENANT
All fixtures, equipment, improvements and appurtenances attached to or
built into the Demised Premises prior to or during the term, whether by
Landlord at its expense or at the expense of Tenant (either or both) or by
Tenant shall be and remain part of the Demised Premises and shall not be
removed by Tenant at the end of the Term unless otherwise expressly provided in
this Lease. Where not built into the Demised Premise and if furnished and
installed by and at the sole expense of Tenant, all removable electric
fixtures, signs, furniture, or trade fixtures or business equipment shall not
be deemed to be included in such fixtures, equipment, improvements and
appurtenances and may be, and upon the request of Landlord will be, removed by
Tenant upon the condition that such removal shall not materially damage the
Demised Premises or the Building and that the cost of repairing any damage to
the Demised Premises or the Building arising from such removal shall be paid by
Tenant.
10. ALTERATIONS AND IMPROVEMENTS BY TENANT
Tenant shall make no alterations, installations, removals, additions
or improvements in or to the Demised Premises without Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed (provided,
however, that no such consent shall be required for non-structural repairs
having a fair market cost of less than $5,000) and then only by contractors or
mechanics approved by Landlord which consent shall not be unreasonably withheld
or delayed. No installations or other such work shall be undertaken or begun
by Tenant until Landlord has approved written plans and specifications
therefor; and no amendments or additions to such plans and specifications shall
be made without prior written consent of Landlord which consent shall not be
unreasonably withheld or delayed. Any such work, alterations, decorations,
installations, removals, additions and improvements shall be done at the sole
expense of Tenant and at such times and in such manner as Landlord may
reasonably from time to time designate. If Tenant shall make any alterations,
decorations, installations, additions or improvements, then Landlord may elect,
only at the time of its consent to such alterations or other work, to require
Tenant at the expiration of this Lease to restore the Demised Premises to
substantially the same condition as existed at the Term Commencement Date.
11. TENANT'S CONTRACTORS - MECHANICS' AND OTHER LIENS - STANDARD OF
TENANT'S PERFORMANCE - COMPLIANCE WITH LAWS
Whenever Tenant shall make any alterations, decoration, installations,
removals, additions or improvements or do any other work in or to the Demised
Premises, Tenant will strictly observe the following covenants and agreements:
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(a) In no event shall any material or equipment be
incorporated in or added to the Demised Premises in connection with any such
alteration, decoration, installation, addition or improvement which is subject
to any lien, charge, mortgage or other encumbrance of any kind whatsoever or is
subject to any security interest or any form of title retention agreement. Any
mechanic's lien filed against the Demised Premises or the Building for work
claimed to have been done for, or materials claimed to have been furnished to
Tenant shall be discharged by Tenant within thirty (30) days thereafter, at the
expense of Tenant, by filing the bond required by law or otherwise. if Tenant
fails so to discharge any lien, Landlord may do so at Tenant's expense and
Tenant shall reimburse Landlord for any expense or cost incurred by Landlord in
so doing within fifteen (15) days after rendition of a bill therefor.
(b) All installations or work done by Tenant under this
or any other Article of this Lease shall be at its own expense (unless
expressly otherwise provided) and shall at all times comply with (i) laws,
rules, orders and regulations of governmental authorities having jurisdiction
thereof; (ii) orders, rules and regulations of any Board of Fire Underwriters,
or any other body hereafter constituted exercising similar functions, and
governing insurance rating bureaus; (iii) plans and specifications prepared by
and at the expense of Tenant theretofore submitted to Landlord for its prior
written approval, which approval shall not be unreasonably withheld or delayed.
(c) Tenant shall procure all necessary permits before
undertaking any work in the Demised Premises; do all such work in a good and
workmanlike manner, employing materials of good quality and complying with all
governmental requirements and defend, save harmless, exonerate and indemnify
Landlord from all injury, loss or damage to any person or property occasioned
by or growing out of such work, unless such injury, loss or damage was caused
solely by the gross negligence or willful misconduct of the Landlord or its
agents, contractors, or invitees.
12. REPAIRS AND SECURITY BY TENANT
Tenant shall keep or cause to be kept all and singular the Demised
Premises neat and clean and in such repair, order and condition as the same are
in on the Term Commencement Date or may be put in during the term hereof,
reasonable use and wear thereof, damage by fire or by other insured casualty or
caused by Landlord's negligence and repairs required to be made hereunder by
Landlord excepted. Without limiting the generality of the foregoing, Tenant
shall keep all windows and other glass whole, and shall replace the same
whenever broken with glass of the same quality, unless such damage was caused
solely by the gross negligence or willful misconduct of the Landlord or its
agents, contractors or invitees or by structural defects, external forces or
acts of God, in which cases Landlord shall be solely liable for such repairs.
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Tenant shall make, as and when needed as a result of misuse by, or
neglect or improper conduct (including without limitation the placement of any
weight exceeding the floor load) of Tenant or Tenant's servants, employees,
agents, invitees or licensees or otherwise, all repairs in and about the
Demised Premises necessary to preserve them in such repair, order and
condition, which repairs shall be in quality and class equal to the original
work. Upon seven (7) days' prior written notice to Tenant, Landlord may elect,
at the expense of Tenant, either pursuant to Section 15.3 or otherwise, to make
any such repairs or to repair any damage or injury to the Building or the
Demised Premises caused by moving property of Tenant in or out of the Building,
or by installation or removal of furniture or other property, or by misuse by,
or neglect or improper conduct of, Tenant or Tenant's servants, employees,
agents or licensees.
13. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION
13.1 Insurance. Tenant shall procure, keep in force and pay for
(a) Comprehensive Public Liability Insurance indemnifying Landlord, any
managing agent designated in writing by Landlord, Tenant and (whenever Landlord
shall so request in writing) any Mortgagee against all claims and demands for
injury to or death of persons or damage to property which has been caused by
the Tenant, its agents, employees, licensees, invitees or contractors and has
occurred upon the Demised Premises in the amounts which shall at the time
Tenant and/or contractors enter the Premises in accordance with Article 4 of
this Lease be not less than Two Hundred Thousand Dollars ($200,000) for
property damage, One Million Dollars ($1,000,000) for injury or death of one
person, and Two Million Dollars ($2,000,000) for injury or death of more than
one person in a single accident, and from time to time thereafter shall be not
less than such higher amounts of which Tenant is notified in writing, if
procurable, as may be reasonably required by Landlord and are customarily
carried by responsible office tenants in the Greater Boston area, (b) insurance
covering any damage to the plate glass windows in or immediately about the
Demised Premises, in reasonable amounts to be established from time to time by
Landlord, and (c) so-called contents and improvements insurance adequately
insuring all property belonging to or removable by Tenant and situated in the
Demised Premises.
13.2 Certificates of Insurance. Such insurance shall be effected
with insurers authorized to do business in Massachusetts under valid and
enforceable policies, and such policies shall name Landlord, each Mortgagee of
which Tenant is notified in writing, Tenant and any additional parties
designated-by Landlord pursuant to Section 13.1 as the insureds, as their
respective interests appear. Such insurance shall provide that it shall not be
cancelled without at least ten (10) days' prior written notice to each insured
named therein. On or before the Term Commencement Date and thereafter not less
than fifteen (15) days prior to the expiration date of each expiring policy,
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certificates of the policies provided for in Section 13.1 issued by the
respective insurers, setting forth in full the provisions thereof and issued by
such insurers together with evidence satisfactory to Landlord of the payment of
all premiums for such policies, shall be delivered by Tenant to Landlord and
certificates as aforesaid of such policies shall, upon request of Landlord, be
delivered by Tenant to the holder of any mortgage affecting the Demised
Premises.
13.3 General. Tenant will save Landlord harmless, and will
exonerate and indemnify Landlord, from and against any and all claims,
liabilities or penalties asserted by or on behalf of any person, firm,
corporation or public authority:
(a) On account of or based upon any injury to person, or
loss of or damage to property sustained or occurring on the Demised Premises
and resulting directly from any act, omission, fault, negligence or misconduct
of Tenant, its agents, employees, invitees, licensees or contractors;
(b) On account of or based upon any injury to person or
loss of or damage to property, sustained or occurring elsewhere (other than on
the Demised Premises) in or about the Building (and, in particular, without
limiting the generality of the foregoing on or about the elevators, stairways,
public corridors, sidewalks, concourses, arcades, malls, galleries, vehicular
tunnels, approaches, areaways, roof, or other appurtenances and facilities used
in connection with the Building or Demised Premises) resulting directly from
the use or occupancy of the Building or Demised Premises by the Tenant, or any
person claiming by, through or under Tenant; except, however, if such injury,
loss or damage is caused by the negligence or willful misconduct of Landlord,
its agents, employees, licensees, invitees or contractors.
(c) On account of or based upon (including monies due on
account of) any work or thing whatsoever done (other than by Landlord or its
contractors, invitees, licensees, agents or employees) in the Demised Premises
during the Term of this Lease and during the period of time, if any, prior to
the Term Commencement Date that Tenant may have been given access to the
Demised Premises; and
(d) On Account of or resulting from the failure of Tenant
to perform and discharge any of its covenants and obligations under this Lease;
and, in respect of any of the foregoing items (a) - (d), from and against all
costs, expenses (including reasonable attorneys' fees), and liabilities
incurred in or in connection with any such claim, or any action or proceeding
brought thereon; and in case any action or proceeding be brought against
Landlord by reason of any such claim, Tenant upon notice from Landlord shall at
Tenant's expense resist or defend such action or proceeding and
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employ counsel therefor reasonably satisfactory to Landlord, it being agreed
that such counsel as may act for insurance underwriters of Tenant engaged in
such defense shall be deemed satisfactory.
13.4 Property of Tenant. In addition to and not in limitation of
the foregoing, Tenant covenants and agrees that all merchandise, furniture,
fixtures and property of every kind, nature and description which may be in or
upon the Demised Premises or Building, in the public corridors, or on the
sidewalks, areaways and approaches adjacent thereto, during the term hereof,
shall be at the sole risk and hazard of Tenant, and that if the whole or any
part thereof shall be damaged, destroyed, stolen or removed from or by any
cause or reason whatsoever no part of said damage or loss shall be charged to,
or borne by Landlord except to the extent such damage, destruction, theft or
removal is caused by the negligence or willful misconduct of Landlord, its
agents, employees, licensees, invitees, or contractors.
13.5 Bursting of Pipes, etc. Landlord shall not be liable for any
injury or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, electrical disturbance, water, rain or snow
or leaks from any part of the Building or from the pipes, appliances or
plumbing works or from the roof, street or sub-surface or from any other place
or caused by dampness or by any other cause of whatever nature, unless caused
by or due to the negligence of Landlord, its agents, servants, employees,
licensees or invitees and then only after (i) notice, to the extent that Tenant
has knowledge of such condition and except in the case of emergency, to
Landlord of the damage caused and (ii) the expiration of a reasonable time (but
no greater than fifteen business days) after such notice has been received by
Landlord without such condition having been cured or corrected; and in no event
shall Landlord be liable for any loss, the risk of which is compensated by
Tenant's insurance; nor shall Landlord or its agents be liable for any such
damage caused by other tenants or persons in the Building or caused by
operations in construction of any private, public or quasi-public work.
13.6 Repairs and Alterations - No Diminution of Rental Value.
Except as otherwise provided in Articles 4.1, 7.6, 16 or 18, there shall be no
allowance to Tenant for diminution of rental value and no liability on the part
of Landlord by reason of inconvenience, annoyance or injury to Tenant arising
from any repairs, alterations, additions, replacements or improvements made by
Landlord, Tenant or others in or to any portion of the Building or Demised
Premises, or in or to,fixtures, appurtenances, or equipment thereof, or for
failure of Landlord or others to make any repairs, alterations, additions or
improvements in or to any portion of the Building or of the Demised Premises,
or in or to the fixtures, appurtenances or equipment thereof provided, however,
that any such work performed
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by or on behalf of Landlord shall be subject to the provisions of Section 15.2
14. ASSIGNMENT, MORTGAGING, SUBLETTING, ETC.
14.1 Restrictions. Tenant covenants and agrees that neither this
Lease nor the term and estate hereby granted nor any interest herein or
therein, will be assigned, sublet, mortgaged, pledged, encumbered or otherwise
transferred (whether voluntarily or by operation of law) and that neither the
Demised Premises, nor any part thereof, will be encumbered in any manner by
reason of any act or omission on the part of Tenant, or used or occupied, or
permitted to be used or occupied, or utilized for any reason whatsoever, by
anyone other than Tenant, or for any use or purpose other than as stated in
Article I without the prior written consent of Landlord in every case, which
consent shall not be unreasonably withheld or delayed.
14.2 Requests to Assign or Sublet. In connection with any request
by Tenant for such consent to assign or sublet, Tenant shall submit to
Landlord, in writing, a statement containing the name of the proposed assignee
or subtenant, such information as to its financial responsibility and standing
as Landlord may reasonably require, and all of the terms and provisions upon
which the proposed assignment or subletting is to be made, and, unless the
proposed area to be assigned or sublet shall constitute an entire floor or
floors, such statement shall be accompanied by a floor plan delineating the
proposed area to be assigned or sublet. As long as Tenant is not in default
(beyond any applicable grace and cure periods herein) under any of the terms,
covenants and conditions of this Lease on Tenant's part to be observed and
performed, Landlord shall not unreasonably withhold or delay Landlord's prior
consent to the assignment or subletting(s) by Tenant of all or parts of the
Demised Premises. Each such subletting be for undivided occupancy by the
subtenant of that part of the Demised Premises affected thereby for the use
permitted under this Lease and at no time shall there be more than three (3)
occupants, including Tenant, within the Demised Premises. Landlord may,
however, withhold such consent if, in Landlord's reasonable judgment, the
proposed assignee or subtenant is not engaged in a business consistent with the
character and dignity of the Building, or will impose any additional material
burden upon Landlord in the operation of the Building (to an extent greater
than the burden to which Landlord would have been put if Tenant continued to
use, or used, such part of the Demised Premises for its own purposes), or if
Landlord has any other reasonable objections to the proposed assignment or
subletting.
14.3 Exceptions. Notwithstanding the foregoing, Tenant may,
without the requirement of obtaining Landlord's consent, assign this Lease or
sublease any portion of the Demised Premises to any entity which is the parent,
a majority-owned subsidiary of Tenant, an entity under common control with
Tenant or to any
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entity with which Tenant may merge or consolidate or to which Tenant may sell
all or substantially all of its assets as a going concern (such entity with
which Tenant may merge, consolidate or to which Tenant may sell all or
substantially all of its assets as aforesaid being hereinafter referred to as a
"Successor"), provided that, simultaneously with any such assignment, Tenant
shall deliver to Landlord an agreement in form and substance reasonably
satisfactory to Landlord which contains an appropriate covenant of assumption
by such assignee; and provided further that in the case of any such assignment
or sublease to a Successor, Tenant shall have submitted to Landlord prior
thereto financial statements or other materials reasonably satisfactory to
Landlord evidencing that such Successor has financial resources comparable to
that of Tenant as of the time of such assignment or sublease.
14.4 Excess Rent. If the rent received by Tenant on account of a
sublease of all or any portion of the Demised Premises exceeds the Yearly Fixed
Rent and Additional Rent, allocated to the space subject to the sublease in the
proportion of the area of such space to the area of the entire Demised
Premises, Tenant shall pay to Landlord forty percent (40%) of such excess,
monthly as received by Tenant. In the event Tenant shall sublet furniture and
tenant fixtures as a part of such sublease, the fair market rental value of
such furniture and tenant fixtures shall be deducted from the rent received in
determining such excess.
14.5 Recapture. Notwithstanding the foregoing provisions of this
Article: (1) in the event Tenant proposes to assign or sublet all of the
Demised Premises, Landlord, at Landlord's option, may give to Tenant, within
ten (10) business days after the submission by Tenant to Landlord of the
statement required to be submitted in connection with such assignment or
subletting, or, if Tenant so requests, within ten (10) business days after
Tenant notifies Landlord that Tenant wishes to undertake such assignment or
subletting, but has not yet procured a proposed assignee or subtenant, a notice
terminating this Lease on the date (referred to as the "Earlier Termination
Date") immediately prior to the proposed commencement date of the term of the
proposed assignment or subletting, as set forth in such statement, and, in the
event such notice is given, this Lease and the Term shall come to an end and
expire on the Earlier Termination Date with the same effect as if it were the
date originally fixed in this Lease for the end of the Term of this Lease, and
the Rent shall be apportioned as of said Earlier Termination Date and any
prepaid portion of Rent for any period after such date shall be refunded by
Landlord to Tenant within thirty (30) days, provided, however, that in the
event Landlord shall so elect to terminate this Lease, Tenant, upon written
notice to Landlord given within ten (10) days of receipt by Tenant of
Landlord's notice of termination, may elect to negate such termination by
declaring its intent not to proceed with such assignment-or subletting; or (2)
in the event Tenant proposes to
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assign or sublet in the aggregate in excess of fifty percent (50%) of the
original square footage of the Demised Premises, Landlord, at Landlord's
option, may give to Tenant, within thirty (30) days after the submission by
Tenant to Landlord of the statement required to be submitted in connection with
such proposed assignment or subletting, a notice electing to eliminate such
portion of the Demised Premises (said portion is referred to as the "Eliminated
Space") from the Demised Premises during the period (referred to as the
"Elimination Period") commencing on the date (referred to as the "Elimination
Date") immediately prior to the proposed commencement date of the term of the
proposed assignment or subletting, as set forth in such statement, and ending
on the proposed expiration date of the term of the proposed assignment or
subletting, as set forth in such statement, and in the event such notice is
given (i) the Eliminated Space shall be eliminated from the Demised Premises
during the Elimination Period; (ii) Tenant shall surrender the Eliminated Space
to Landlord on or prior to the Elimination Date in the same manner as if said
Date were the date originally fixed in this Lease for the end of the Term of
this Lease; (iii) if the Eliminated Space shall constitute less than an entire
floor, Landlord, at Landlord's expense, shall have the right to make any
alterations and installations in the Demised Premises required, in Landlord's
judgment, reasonably exercised, to make the Eliminated Space a self-contained
rental unit with access through corridors to the elevators and core toilets
serving the Eliminated Space, and if the Demised Premises shall contain any
core toilets or any corridors (including any corridors proposed to be
constructed by Landlord pursuant to this subdivision (iii) providing access
from the Eliminated Space to the core area), Landlord and any tenant or other
occupant of the Eliminated Space shall have the right to use such toilets and
corridors in common with Tenant and any other permitted occupants of the
Demised Premises, and the right to install signs and directional indicators in
or about such corridors indicating the name and location of such tenant or
other occupant; (iv) during the Elimination Period, the Yearly Fixed Rent and
Tenant's Proportionate Share under Section 6.4 shall be reduced in the
proportion which the area of the Eliminated Space bears to the total area of
the Demised Premises immediately prior to the Elimination Date (including an
equitable portion of the area of any corridors referred to in subdivision (iii)
of this sentence as part of the area of the Eliminated Space for the purpose of
computing such reduction), and any prepaid Rent for any period after the
Elimination Date allocable to the Eliminated Space shall be refunded by
Landlord to Tenant; (v) there shall be an equitable apportionment within thirty
(30) days of any Additional Rent Payable pursuant to Article 6 for the relevant
fiscal and calendar years in which said Elimination Date shall occur; and (vi)
if the Elimination Period shall end prior to the date originally fixed in this
Lease for the end of the Term of this Lease, the Eliminated Space, in its then
existing condition, shall be deemed restored to and once again a part of the
Demised Premises subject to the provisions of this Lease as if said
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elimination had not occurred during the period (referred to as the "Restoration
Period") commencing on the date next following the expiration of the
Elimination Period and ending on the date originally fixed in this Lease for
the end of the Term of this Lease, except in the event that Landlord is unable
to give Tenant possession of the Eliminated Space at the expiration of the
Elimination Period by reason of the holding over or retention of possession of
any tenant or other occupant, in which event (x) the Restoration Period shall
not commence, and the Eliminated Space shall not be deemed restored to or a
part of the Demised Premises, until the date upon which Landlord shall give
Tenant possession of such Space free of occupancies, provided Landlord shall
use reasonable efforts to return the Eliminated Space to Tenant at the
expiration of the Elimination Period, (y) neither the date fixed in this Lease
for the end of the Term of the Lease, nor the validity of this Lease shall be
affected and (z) Tenant waives any right to recover any damages which may
result from the failure of Landlord to deliver possession of the Eliminated
Space at the end of the Elimination Period excepting only those resulting from
Landlord's gross negligence or willful misconduct.
14.6 Further Documentation. At the request of Landlord, Tenant
shall execute and deliver an instrument or instruments, in form satisfactory to
Landlord and reasonably satisfactory to Tenant, setting forth any modifications
to this Lease contemplated in or resulting from the operation of the foregoing
provisions of this paragraph; however, neither Landlord's failure to request
any such instrument nor Tenant's failure to execute or deliver any such
instrument shall vitiate the effect of the foregoing provisions of this
Article.
14.7 General.
(a) The failure by Landlord to exercise its option under
this paragraph with respect to any subletting shall not be deemed a waiver of
such option with respect to any extension or any subsequent subletting of the
premises affected thereby. Tenant shall reimburse Landlord promptly, as
Additional Rent, for reasonable legal and other expense incurred by Landlord in
connection with any request by Tenant for any consent required under the
provisions of this Article.
(b) It is specifically understood and agreed that neither
Tenant nor any other person having an interest in the possession, use,
occupancy or utilization of the, Demised Premises shall enter into any
sublease, license, concession or other agreement (or renewals of any of the
foregoing) for use, occupancy or utilization of space in the Demised Premises
which provides for rental or other payment for such use, occupancy or
utilization based, in whole or in part, on the net income or profits derived by
any person or entity from the space leased, used, occupied or utilized (other
than an amount based on a fixed percentage or percentages of receipts or
sales). Any such
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purported sublease or other agreement shall be absolutely void and ineffective
as a conveyance of any right or interest in the possession, use, occupancy, or
utilization of any part of the Demised Premises,
(c) The listing of any name other than that of Tenant,
whether on the doors of the Demised Premises or on the Building directory, or
otherwise, shall not operate to vest any right or interest in this Lease or in
the Demised Premises or be deemed to be the written consent of Landlord
mentioned in this Article, it being expressly understood that any such listing
is a privilege extended by Landlord revocable at will by written notice to
Tenant.
(d) If this Lease be assigned, or if the Demised Premises
or any part thereof shall be sublet or occupied by anybody other than Tenant,
Landlord may at any time and from time to time, collect rent and other charges
from the assignee, subtenant or occupant and apply the aggregate amount
collected to the Rent and other charges herein reserved, but no such assignment
or collection shall be deemed a waiver of this covenant, or the acceptance of
the assignee, subtenant or occupant as a tenant, or a release of Tenant from
the further performance by Tenant of covenants on the part of Tenant herein
contained. Landlord shall notify Tenant of any amounts so collected by
Landlord directly from such subtenant or assignee. The consent by Landlord to
an assignment or subletting or occupancy shall not in any way be construed to
relieve Tenant from obtaining the express consent in writing of Landlord to any
further assignment or subletting or occupancy. Landlord agrees to promptly
notify Tenant of any default of any assignee or subtenant hereunder.
15. MISCELLANEOUS COVENANTS
15.1 Rules and Regulations. Tenant and Tenant's servants,
employees, and agents will faithfully observe such Rule B and Regulations as
are attached hereto as Exhibit G and made a part hereof or as Landlord
hereafter at any time or from time to time may make and communicate in writing
to Tenant and which in the reasonable judgment of Landlord shall be necessary
for the reputation, safety, care or appearance of the Property, or the
preservation of good order therein, or the operation or maintenance of the
Property, or the equipment thereof, or the comfort of tenants or others in the
Building, provided, however, that in the case of any conflict between the
provisions of this Lease and any such Rules and Regulations, the provisions of
this Lease shall control; provided further that nothing contained in this Lease
shall be construed to impose upon Landlord any duty or obligation to enforce
such Rules and Regulations or the terms, covenants or conditions in any other
lease as against any other tenant, except that Landlord must enforce such Rules
and Regulations equally and in a non-discriminatory manner, and Landlord shall
not be liable to Tenant for violation of the same
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by any other tenant, its servants, employees, agents, visitors, invitees or
licensees.
15.2 Access to Premises - Shoring. Tenant shall: (i) permit
Landlord to erect, use and maintain pipes, ducts and conduits in and through
the Demised Premises, provided the same do not materially reduce the floor area
or materially adversely affect the appearance thereof; (ii) permit the Landlord
and any Mortgagee of the Building or the Building and Land or of the interest
of Landlord therein, and any lessor under any ground or underlying lease, and
their representatives, to have reasonably free and unrestricted access to and
to enter upon the Demised Premises at all reasonable hours for the purposes of
inspection or of making repairs, replacements or improvements in or to the
Demised Premises or the Building or equipment (including, without limitation,
sanitary, electrical, heating, air conditioning or other systems) or of
complying with all laws, orders and requirements of governmental or other
authority or of exercising any right reserved to Landlord by this Lease
(including the right during the progress of any such repairs, replacements or
improvements or while performing work and furnishing materials in connection
with compliance with any such laws, orders or requirements to take upon or
through, or to keep and store within, the Demised Premises all necessary
materials, tools and equipment); and (iii) permit Landlord, at reasonable
times, to show the Demised Premises during ordinary business hours to any
Mortgagee, ground lessor, prospective purchaser, prospective Mortgagee, or
prospective assignee of any mortgage, of the Building or of the Building and
the Land or of the interest of Landlord therein, and during the period of four
months next preceding the Termination Date to any person contemplating the
leasing of the Demised Premises or any part thereof. If during the last month
of the Term, Tenant shall have removed all of Tenant's property therefrom,
Landlord may immediately enter and alter, renovate and redecorate the Demised
Premises, without elimination or abatement of rent, or incurring liability to
Tenant for any compensation, and such acts shall have no effect upon this
Lease. If Tenant shall not be personally present to open and permit any entry
into the Demised Premises at any time when for any reason an entry therein
shall be necessary or permissible, Landlord or Landlord's agents must
nevertheless be able to gain such entry by contacting a responsible
representative of Tenant, whose name, address and telephone number shall be
furnished by Tenant. Provided that Landlord shall incur no additional expense
thereby, Landlord shall exercise its rights 'of access to the Demised Premises
permitted under any of the terms and provisions of this Lease in such manner as
to minimize to the extent practicable interference with Tenant's use and
occupation of the Demised Premises, and upon reasonable prior notice,, except
in the case of an emergency or where such notice is not reasonably practical.
If an excavation shall be made upon land adjacent to the Demised Premises or
shall be authorized to be made, Tenant shall afford, to the causing or
authorized to cause such excavation, license to enter upon the
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Demised Premises for the purpose of doing such work as said person shall deem
necessary to preserve the Building from injury or damage and to support the
same by proper foundations without any claim for damage or indemnity against
Landlord, or diminution or abatement of Rent.
15.3 Accidents to Sanitary and Other Systems. Tenant shall give to
Landlord prompt notice of any fire or accident in the Demised Premises or in
the Building and of any damage to, or defective condition in, any part or
appurtenance of the Building's sanitary, electrical, heating and air
conditioning or other systems located in, or passing through, the Demised
Premises, and the damage or defective condition shall be remedied by Landlord
with reasonable diligence, but if such damage or defective condition was caused
by Tenant or by the employees, licensees, or invitees of Tenant, the cost to
remedy the same shall be paid by Tenant. Tenant shall not be entitled to claim
any eviction from the Demised Premises or any damages arising from any such
damage or defect unless the same (i) shall have been occasioned by the
negligence of Landlord, its agents, servants or employees and (ii) shall not,
after notice to Landlord of the condition claimed to constitute negligence,
have been cured or corrected within a reasonable time after such notice has
been received by Landlord; and in case of a claim of eviction unless such
damage or defective condition shall have rendered the Demised Premises
untenantable and they shall not have been made tenantable by Landlord within a
reasonable time. Landlord agrees to diligently work to correct such damage or
defect, except as otherwise provided herein.
15.4 Signs, Blinds and Drapes. Tenant shall not place any signs on
the exterior of the Building or on or in any window, public corridor or door
visible from the exterior of the Demised Premises. No blinds may be put on or
in any window nor may any Building drapes or blinds be removed by Tenant.
Tenant may hang its own drapes, provided that they shall not, without the prior
written approval of Landlord, in any way interfere with any Building drapery or
blinds or be visible from the exterior of the Building. Landlord shall provide
listing of Tenant in the lobby directory, 8th floor directory and the main door
to the Demised Premises. The Landlord shall provide Building standard blinds
on all exterior windows of the Demised Premises.
15.5 Estoppel Certificate. Either party shall at any time and from
time to time upon not less than twenty (20) days' prior notice by Landlord to
Tenant or by a Mortgagee to Tenant, or by Tenant to Landlord, as the case may
be, execute, acknowledge and deliver to the party making such request a
statement in writing certifying that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the same is in full force
and effect as modified and stating the modifications) and the dates to which
Rent has been paid in advance, if any, an stating whether or not to the best
knowledge of the signer of such certificate Landlord is in default in
performance of any
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covenant, agreement, term, provisions or condition contained in this Lease and,
if so, specifying each such default of which the signer may have knowledge, it
being intended that any such statement delivered pursuant hereto may be relied
upon by any prospective purchaser of the Building or of the Building and the
Land or of the interest of Landlord therein, any Mortgagee or prospective
Mortgagee thereof, any lessor or prospective lessor thereof, any lessee or
prospective lessee thereof, or any prospective assignee of any Mortgage. The
form of any such estoppel certificate requested by a Mortgagee shall be
satisfactory to such Mortgagee. Notwithstanding anything contained in this
Lease to the contrary, the provisions of this Section 15.5 shall be
inapplicable to Teachers Insurance and Annuity Association in the event said
entity shall succeed to the rights of Landlord hereunder.
15.6 Prohibited Items. Tenant shall not bring or permit to be
brought or kept in or on the Demised Premises or elsewhere in the Building any
hazardous, inflammable, combustible or explosive fluid, material, chemical or
substance (except such as are related to Tenant's use of the Demised Premises,
provided that the same are stored and handled in a proper fashion consistent
with all applicable legal standards).
15.7 Requirements of Law; Fines and Penalties. Tenant at its sole
expense shall comply with all laws, rules, orders and regulations of Federal,
State, County and Municipal Authorities and with any direction of any public
officer or officers, pursuant to law, which shall impose any duty upon Landlord
or Tenant with respect to and arising out of Tenant's use or occupancy of the
Demised Premises. Tenant shall reimburse and compensate Landlord for all
expenditures made by, or damages or fines sustained or incurred by, Landlord
due to nonperformance or noncompliance with or breach or failure to observe any
term, covenant or condition of this Lease upon Tenant's part to be kept,
observed, performed or complied with. If Tenant receives notice of any
violation of law, ordinance, order or regulation applicable to the Demised
Premises, it shall give prompt notice thereof to Landlord.
15.8 Tenant's Acts - Effect on Insurance. Except for permitted
uses, Tenant shall not do or permit to be done any act or thing upon the
Demised Premises or elsewhere in the Building which will invalidate or be in
conflict with any insurance policies covering the Building and the fixtures and
property therein and shall not do, or permit to be done, any act or thing upon
the Demised Premises which shall subject Landlord to any liability or
responsibility for injury to any person or persons or to property by reason of
any business or operation being conducted on said Demised Premises or for any
other reason. Tenant at its own expense shall comply with all rules, orders,
regulations or requirements of the Board of Fire Underwriters or any other
similar body having jurisdiction, and shall not (i) do, or permit anything to
be done, in or upon the Demised Premises,
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or bring or keep anything therein, except as now or hereafter permitted by the
Fire Department, Board of Underwriters, Fire Insurance Rating Organization, or
other authority having jurisdiction, and then only in such quantity and manner
of storage as will not increase the rate for any insurance applicable to the
Building, or (ii) use the Demised Premises in manner which shall increase such
insurance rates on the Building or on property located therein, over that
applicable when Tenant first took occupancy of the Demised Premises hereunder.
If by reason of failure of Tenant to comply with the provisions hereof the
insurance rate applicable to any policy of insurance shall at any time
thereafter be higher than it otherwise would be, then Tenant shall reimburse
Landlord for that part of any insurance premiums thereafter paid by Landlord,
which shall have been charged because of such failure by Tenant.
15.9 Miscellaneous. Tenant shall not suffer or permit the Demised
Premises or any fixtures, equipment or utilities therein or serving the same,
to be overloaded, damaged or defaced, nor permit any hole to be drilled or made
in any part thereof.
16. DAMAGE BY FIRE, ETC.
In the event of loss of, or damage to, the Demised Premises or the
Building by fire or other casualty, the rights and obligations of the parties
hereto shall be as follows:
(a) If the Demised Premises, or any part thereof, shall
be damaged by fire or other casualty, Tenant shall give prompt notice thereof
to Landlord, and Landlord, upon receiving such notice, shall proceed promptly
and with due diligence, subject to unavoidable delays, to repair, or cause to
be repaired, such damage. If the Demised Premises or any part thereof shall be
rendered untenantable by reason of such damage, whether to the Demised Premises
or to the Building, the Yearly Fixed Rent and Additional Rent shall
proportionately abate for the period from the date of such damage to the date
when such damage shall have been repaired.
(b) If, as a result of fire or other casualty, the whole
or a substantial portion of the Building is rendered untenantable, Landlord,
within ninety (90) days from the date of such fire or other casualty, may
terminate this Lease by notice to Tenant, specifying a date not less than
twenty (20) nor more than forty (40) days after the giving of such notice on
which the Term of this Lease shall terminate. If Landlord does not so elect to
terminate this Lease, then Landlord shall proceed with diligence to repair the
damage to the Demised Premises and all facilities serving the same, if any,
which shall have occurred, and the Yearly Fixed Rent and Additional Rent shall
meanwhile proportionately abate, all as provided in Paragraph (a) of this
Section. However, if, in the event of any damage by fire or other casualty,
such damage is not repaired and the Demised Premises and all facilities serving
the same restored to
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substantially the same condition as they were prior to such damage within six
(6) months from the date Of such damage, Tenant within thirty (30) days from
the expiration of such six (6) month period, may terminate this Lease by notice
to Landlord, specifying a date not more than sixty (60) days after the giving
of such notice on which the term of this Lease shall terminate.
(c) If the Demised Premises shall be rendered
untenantable by fire or other casualty during the last one (1) year of the Term
of this Lease, Landlord may terminate this Lease effective as of the date of
such fire or other casualty upon notice to Tenant given within thirty (30) days
after such fire or other casualty.
(d) Landlord shall not (except as such are expressly part
of Landlord's initial fit-up work as described in Exhibit D) be required to
repair or replace any of Tenant's business machinery, equipment, cabinet work,
furniture, personal property or other installations (which shall, however, be
substantially restored by Tenant within ninety (90) days after Landlord shall
have completed any repair or restoration required under the terms of this
Article),-and no damages, compensation or claim shall be payable by Landlord
for inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the Demised Premises or of the Building.
(e) The provisions of this Article shall be considered an
express agreement governing any instance of damage or destruction of the
Building or the Demised Premises by fire or other casualty, and any law now or
hereafter in force providing for such a contingency in the absence of express
agreement shall have no application.
(f) In the event of any termination of this Lease
pursuant to this Article, the Term of this Lease shall expire as of the
effective termination date as fully and completely as if such date were the
date herein originally scheduled as the Termination Date. Tenant shall have
access to the Demised Premises for a period of thirty (30) days after -the date
of termination in order to remove Tenant's personal property.
(g) Landlord's Architect's certificate, given in good
faith, shall be deemed conclusive of the statements therein contained and
binding upon Tenant with respect to the performance and completion of any
repair or restoration work undertaken by Landlord pursuant to this Article or
Article 18. Any minor or insubstantial details of construction or mechanical
adjustments which remain to be done after the delivery of said certificate
shall be handled on a punch list basis and thereafter promptly completed by
Landlord. Landlord shall also be responsible to obtain the issuance of a new
certificate of occupancy, if required.
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17. WAIVER OF SUBROGATION
In any case in which Tenant shall be obligated under any provision of
this Lease to pay to Landlord any loss, cost, damage, liability, or expense
suffered or incurred by Landlord, Landlord shall allow to Tenant as an offset
against the amount thereof the net proceeds of any insurance collected by
Landlord for or on account of such loss, cost, damage, liability or expense,
provided that the allowance of such offset does not invalidate or prejudice the
policy or policies under which such proceeds were payable.
In any case in which Landlord shall be obligated under any provision
of this Lease to pay to Tenant any loss, cost, damage, liability or expense
suffered or incurred by Tenant, Tenant shall allow to Landlord as an offset
against the amount thereof (i) the net proceeds of any insurance collected by
Tenant for or on account of such loss, cost, damage, liability, or expense,
provided that the allowance Of such offset does not invalidate the policy or
policies under which such proceeds were payable and (ii) if such loss, cost,
damage, liability or expense shall have been caused by a peril against which
Tenant has agreed to procure insurance coverage under the terms of this Lease,
the amount of such insurance coverage, whether or not actually procured by
Tenant.
The parties hereto shall each endeavor to procure an appropriate
clause in, or endorsement on, any fire or extended coverage insurance policy
covering the Demised Premises and the Building and personal property, fixtures
and equipment located thereon or therein, pursuant to which the insurance
companies waive subrogation or consent to a waiver of right of recovery, and
having obtained such clauses and/or endorsements of waiver of subrogation or
consent to a waiver of right of recovery each party hereby agrees that it will
not make any claim against or seek to recover from the other for any loss or
damage to its property or the property of others resulting from fire or other
perils covered by such fire and extended coverage insurance; provided, however,
that the release, discharge, exoneration and covenant not to sue herein
contained shall be limited by the terms and provisions of the waiver of
subrogation clauses and/or endorsements or clauses and/or endorsements
consenting to a waiver of right of recovery and shall be co-extensive
therewith. If either party may obtain such clause or endorsement only upon
payment of an additional premium, such party shall promptly so advise the other
party and shall be under no obligation to obtain such clause or endorsement
unless such other party pays the premium.
18. CONDEMNATION - EMINENT DOMAIN
In the event that the whole or any material part of the Building shall
be taken or appropriated by eminent domain or shall be condemned for any public
or quasi-public use, or (by
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virtue of any such taking, appropriation or condemnation) shall suffer any
damage (direct, indirect or consequential) for which Landlord or Tenant shall
be entitled to compensation then (and in any such event) this Lease and the
Term hereof may be terminated at the election of Landlord by a notice in
writing of its election so to terminate which shall be given by the Landlord to
Tenant within sixty (60) days following the date on which Landlord shall have
received notice of such taking, appropriation or condemnation. In the event
that more than twenty-five percent (25%) of the floor area of the Demised
Premises shall be so taken, appropriated or condemned, then (and in any such
event) this Lease and the Term hereof may be terminated at the election of
Tenant by a notice in writing of its election so to terminate which shall be
given by Tenant to Landlord within sixty (60) days following the date on which
Tenant shall have received notice of such taking, appropriation or
condemnation.
Upon the giving of any such notice of termination (either by Landlord
or Tenant) this Lease and the Term hereof shall terminate on or retroactively
as of the date on which Tenant shall be required to vacate any part of the
Demised Premises or shall be deprived of a substantial part of the means of
access thereto, provided, however, that Landlord may in Landlord's notice elect
to terminate this Lease and the Term hereof retroactively as of the date on
which such taking, appropriation or condemnation became legally effective. In
the event of any such termination, this Lease and the Term hereof shall expire
as of the effective termination date as fully and completely as if such date
were the date herein originally scheduled as the Termination Date. If neither
party (having the right so to do) elects to terminate Landlord will, with
reasonable diligence and at Landlord's expense, restore the remainder of the
Demised Premises, or the remainder of the means of access, as nearly as
practicably may be to the same condition as obtained prior to such taking,
appropriation or condemnation in which event (i) a just proportion of the
Yearly Fixed Rent and Additional Rent, according to the nature and extent of
the taking, appropriation or condemnation and the resulting permanent injury to
the Demised Premises and the means of access thereto, shall be permanently
abated, and (ii) a just proportion of the remainder of the Yearly Fixed Rent
and Additional Rent, according to the nature and extent of the taking,
appropriation or condemnation and the resultant injury sustained by the
Premises and the means of access thereto, shall be abated until what remains of
the Premises and the means of access thereto shall have been restored as fully
as may be for permanent use and occupation by Tenant hereunder. Except for any
award specifically reimbursing Tenant for moving or relocation expenses and
Tenant's removable fixtures and equipment, there are expressly reserved to
Landlord all rights to compensation and damages created, accrued or accruing by
reason of any such taking, appropriation or condemnation, in implementation and
in confirmation of which Tenant does hereby acknowledge that Landlord shall be
entitled to receive and retain all such compensation and damages, grants to
Landlord all and
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whatever rights (if any) Tenant may have to such compensation and damages, and
agrees to execute and deliver all and whatever further instruments of
assignment as Landlord may from time to time request. In the event of any
taking of the Demised Premises or any part thereof for temporary use, (i) this
Lease shall be and remain unaffected thereby, and (ii) Tenant shall be entitled
to receive for itself any award made for such use, provided, that if any taking
is for a period extending beyond the Term of this Lease, such award shall be
apportioned between Landlord and Tenant as of the Termination Date.
19. DEFAULT
19.1 Conditions of Limitation - Re-entry - Termination. This Lease
and the herein term and estate are upon the condition that if (a) Tenant shall
neglect or fail to perform or observe any of the Tenant's covenants herein,
including (without limitation) the covenants with regard to the payment of Rent
within ten (10) days of its due date; or (b) Tenant shall be involved in
financial difficulties as evidenced by an admission in writing by Tenant of
Tenant's inability to pay its debts generally as they become due, or by the
making or offering to make a composition of its debts with its creditors; or
(c) Tenant shall make an assignment or trust mortgage, or other conveyance or
transfer of like nature, of all or a substantial part of its property for the
benefit of its creditors, or (d) the leasehold hereby created shall be taken on
execution or by other process Of law and shall not be revested in Tenant within
sixty (60) days thereafter; or (e) a receiver, sequester, trustee or similar
officer shall be appointed by a court of competent jurisdiction to take charge
of all or a substantial part of Tenant's property and such appointment shall
not be vacated within sixty (60) days or (f) any proceeding shall be instituted
by or against Tenant pursuant to any of the provisions of any Act of Congress
or State law relating to bankruptcy, reorganization, arrangements, compositions
or other relief from creditors, and, in the case of any such proceeding
instituted against it, if Tenant shall fail to have such proceeding dismissed
within thirty (30) days or if Tenant is adjudged bankrupt or insolvent as a
result of any such proceeding; or (g) any event shall occur or any contingency
shall arise whereby this Lease, or the term and estate thereby created would
(by operation of law or otherwise) devolve upon or pass to any person, firm or
corporation other than Tenant, except as expressly permitted under Article 14
hereof; or (h) Tenant shall vacate all or substantially all of the Demised
Premises then, and in any such event (except as hereinafter in Article 19.2
otherwise provided) Landlord may, in a manner consistent with applicable law,
immediately or at any time thereafter declare this Lease terminated by notice
to Tenant or, without further demand or notice, enter into and upon the Demised
Premises (or any part thereof in the name of the whole), and in either such
case (and without prejudice to any remedies which might otherwise be available
for arrears of rent or other charges due hereunder or preceding breach of
covenant and without prejudice to Tenant's
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liability for damages as hereinafter stated), this Lease shall terminate. The
words "re-entry" and "re-enter" as used in this Lease are not restricted to
their technical legal meaning.
19.2 Damages - Assignment for Benefit of Creditors. For the more
effectual securing by Landlord of the rent and other charge and payments
reserved hereunder, it is agreed as a further condition of this Lease that if
at any time Tenant shall make an assignment of its property for the benefit of
its creditors under the terms of which the debts provable by its creditors
shall be debts provable against the estate of insolvent debtors either under
the laws of the Commonwealth of Massachusetts or under some law or laws other
than the Bankruptcy Code as now or hereafter enacted, then and in any such case
the same shall constitute a breach of this Lease, and the term and estate
hereby created shall terminate ipso facto, without entry or other action by
Landlord; and notwithstanding any other provisions of this Lease Landlord shall
forthwith upon such termination, without prejudice to any remedies which might
otherwise be available for arrears of rent or other charges due hereunder or
preceding breach of this Lease, be ipso facto entitled to recover as liquidated
damages the sum of (a) the amount by which, at the time of such termination of
this Lease, (i) the aggregate of the Rent projected over the period commencing
with such termination and ending with the Termination Date stated in Article 1
exceeds (ii) the aggregate projected rental value of the Demised Premises for
such period and (b) (in view of the uncertainty of prompt re-letting and the
expense entailed in re-letting the Demised Premises) an amount equal to the
Rent payable for and in respect of the calendar year next preceding the date of
termination, as aforesaid. Upon such termination Landlord, may immediately or
at any time thereafter, without demand or notice, enter into or upon the
Demised Premises (or any part thereof in the name of the whole), and (without
being taken or deemed to be guilty of any manner of trespass or conversion, and
without being liable to indictment, prosecution or damages thereof) may,
forcibly if necessary, expel Tenant and those claiming under Tenant from the
Demised Premises and remove therefrom the effects of Tenant and those claiming
under Tenant.
19.3 Damages - Termination. Upon the termination of this Lease
under the provisions of this Article, then except as hereinabove in Section
19.2 otherwise provided, Tenant shall pay to Landlord the Rent payable by
Tenant to Landlord up to the time of such termination, shall continue to be
liable for any preceding breach of covenant, and in addition, shall pay to
Landlord as damages, at the election of Landlord,
either:
(x) the amount by which, at the time of the termination of
this Lease (or at any time thereafter if Landlord shall have initially elected
damages under Subparagraph (y), below), (i) the aggregate of the Rent projected
over the period commencing with
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such time and ending on the originally scheduled Termination Date as stated in
Article 1 exceeds (ii) the aggregate projected rental value of the Demised
Premises for such period,
or,
(y) amounts equal to the Rent which would have been
payable by Tenant had this Lease not been so terminated, payable upon the due
dates therefor specified herein following such termination and until the
originally scheduled Termination Date as specified in Article 1, provided,
however, if Landlord shall re-let the Demised Premises during such period, that
Landlord shall credit Tenant with the net rents received by Landlord from such
re-letting, such net rents to be determined by first deducting from the gross
rents as and when received by Landlord from such re-letting the expenses
incurred or paid by Landlord terminating this Lease, as well as the expenses of
re-letting, including altering and preparing the Demised Premises for new
tenants, brokers' commissions, and all other similar and dissimilar expenses
properly chargeable against the Demised Premises and the rental therefrom, it
being understood that any such re-letting may be for a period equal to or
shorter or longer than the remaining term of this Lease; and provided, further,
that (i) in no event shall Tenant be entitled to receive any excess of such net
rents over the sums payable by Tenant to Landlord hereunder and (ii) in no
event shall Tenant be entitled in any suit for the collection of damages
pursuant to this Subparagraph (y) to a credit in respect of any net rents from
a re-letting except to the extent that such net rents are actually received by
Landlord prior to such determination. If the Demised Premises or any part
thereof should be re-let in combination with other space, then proper
apportionment on a square foot area basis shall be made of the rent received
from such re-letting and of the expenses of re-letting.
Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not
been terminated hereunder.
Nothing herein contained shall be construed as limiting or precluding
the recovery by Landlord against Tenant of any sums or damages to which, in
addition to the damages particularly provided above, Landlord may lawfully be
entitled by reason of any default hereunder on the part of Tenant.
19.4 Fees and Expenses. If Tenant shall default in the performance
of any covenant on Tenant's part to be performed as in this Lease contained,
Landlord may immediately, or at any time thereafter, without notice, perform
the same for the account of Tenant. If Landlord at any time is compelled to
pay or elects to pay any sum of money, or do any act which will require the
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payment of any sum of money, by reason of the failure of Tenant to comply with
any provision hereof, or if Landlord is compelled to or does incur any expense,
including reasonable attorneys' fees, in instituting, prosecuting and/or
defending any action or proceeding instituted by reason of any default of
Tenant hereunder, Tenant shall within ten (10) days of notice by Landlord pay
to Landlord by way of reimbursement the sum or sums so paid by Landlord with
all interest, costs and damages. Without limiting the generality of the
foregoing, in the event that any Rent is in arrears by more than ten (10) days
after written notice thereof by Landlord to Tenant, Tenant shall pay, as
Additional Rent, a delinquency charge equal to one and one-half percent
(1-1/2%) of the arrearage for each calendar month (or fraction thereof) during
which it remains unpaid.
19.5 Landlord's Remedies Not Exclusive. The specified remedies to
which Landlord may resort hereunder are cumulative and are not intended tended
to be exclusive of any remedies or means of redress to which Landlord may at
any time be lawfully entitled, and Landlord may invoke any remedy (including
the remedy of specific performance) allowed at law or in equity as if specific
remedies were not herein provided for.
19.6 Grace Period. Notwithstanding anything to the contrary in
this Article contained, Landlord agrees not to take any action to terminate
this Lease (a) for default by Tenant in the payment when due of Rent, if Tenant
shall cure such default within ten (10) days after written notice thereof given
by Landlord to Tenant, or (b) for default by Tenant in the performance of any
other covenant, if Tenant shall cure such default within a period of thirty
(30) days after written notice thereof given by Landlord to Tenant (except
where the nature of the default is such that remedial action should
appropriately take place sooner as indicated in such written notice), or with
respect to covenants other than to pay a sum of money within such additional
period as may reasonably be required to cure such default if (because of
governmental restrictions or any other cause beyond the reasonable control of
Tenant) the default is of such a nature that it cannot be cured within such
thirty (30)-day period, provided, however, (1) that there shall be no extension
of time beyond such thirty (30)-day period for curing of any such default
unless, not more than ten (10) days after the receipt of the notice of default,
Tenant in writing (i) shall specify the cause on account of which the default
cannot be cured during such period and shall advise Landlord of its intention
duly to institute all steps necessary to cure the default and (ii) shall as
soon as may be reasonable, duly institute and thereafter diligently prosecute
to completion all steps necessary to cure such default and, (2) that no notice
of the opportunity to cure default need be given, and no grace period
whatsoever shall be allowed to Tenant, if the default is incurable or if the
covenant or condition, the breach of which gave rise to the default, had, by
reason of a breach on a prior occasion been the subject of a notice hereunder
to cure such default.
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20. END OF TERM - ABANDONED PROPERTY
Upon the expiration or other termination of the Term of this Lease,
Tenant shall peaceably quit and surrender to Landlord the Demised Premises and
all alterations and additions thereto which Tenant is not entitled or required
to remove under the provisions of this Lease, broom clean in good order, repair
and condition excepting only reasonable use and wear and damage by fire or
other casualty for which, under other provisions of this Lease, Tenant has no
responsibility of repair or restoration. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of the
term of this Lease.
Any personal property in which Tenant has an interest which shall
remain in the Building or on the Demised Premises after the expiration or
termination of the Term of this Lease shall be conclusively deemed to have been
abandoned, and may be disposed of in such manner as Landlord may see fit;
provided, however, notwithstanding the foregoing, that Tenant will, upon
request of Landlord made not later than thirty (30) days after the expiration
or termination of the term hereof, promptly remove from the Building any such
personal property or, if any part thereof shall be sold, that Landlord may
receive and retain the proceeds of such sale and apply the same, at its option,
against the expenses of the sale, the cost of moving and storage, any arrears
of Rent payable hereunder by Tenant to Landlord and any damages to which
Landlord may be entitled under Article 19 hereof or pursuant to law, with the
balance if any, to be paid to Tenant.
21. RIGHTS OF MORTGAGEES
21.1 Superiority of Lease. Except as provided in Section 21.7
hereof and to the extent that it may be provided otherwise by written agreement
between Tenant and a Mortgagee, this Lease shall be superior, and shall not be
subordinated, to a Mortgage or to any other voluntary lien or encumbrance
affecting the Land or Building or any part thereof, provided, however, that
such Mortgage shall be superior, and shall not be subordinated, to this Lease
with respect to the following:
(a) the prior right and claim under and the prior lien of
said Mortgage in, to and upon any award or other compensation heretofore or
hereafter to be made for any taking by eminent domain of any part of the
Demised Premises, and as to the right of disposition thereof in accordance with
the provisions of the said Mortgage; or
(b) the prior right and claim under the prior lien of the
said Mortgage, in, to and upon any proceeds payable under all policies of fire
and rent insurance upon the Demised Premises and as to the right of disposition
thereof in accordance with the terms of said Mortgage; and
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(c) any lien, right, power or interest, if any, which may
have arisen or intervened in the period between the recording of the said
Mortgage and the execution of this Lease.
21.2 Entry and Possession. Upon entry and taking possession of the
Property by a Mortgagee, for the purpose of foreclosure or otherwise, such
Mortgagee shall have all the rights of Landlord, and shall be liable to perform
all the obligations of Landlord arising and accruing during the period of such
possession by such Mortgagee.
21.3 Right to Cure. No act or failure to act on the part of
Landlord which would entitle Tenant under the terms of this Lease, or by law,
to be relieved of Tenant's obligations hereunder or to terminate this Lease,
shall result in a release or termination of such obligations or a termination
of this Lease unless (i) Tenant shall have first given written notice of
Landlord's act or failure to act to first Mortgagees of record of whom Tenant
has been notified by Landlord in writing, if any, and to any other Mortgagees
of record on the Term Commencement Date of the Lease of whom Tenant has been
notified in writing or of whom Tenant has otherwise been given written notice,
specifying the act or failure to act on the part of Landlord which could or
would give basis to Tenant's rights; and (ii) such Mortgagees, after receipt of
such notice, have failed or refused to correct or cure the condition complained
of within a reasonable time thereafter, but nothing contained in this paragraph
shall be deemed to impose any obligation on any such Mortgagees to correct or
cure any such condition. "Reasonable time" as used above means and includes a
reasonable time to obtain possession of the Land and Building if any such
Mortgagee elects to do so and a reasonable time to correct or cure the
condition if such condition is determined to exist.
21.4 Duty to Construct. Notwithstanding any other provision to the
contrary contained in this Lease, if prior to substantial completion of
Landlord's obligations under Article 4 any holder of a Mortgage enters and
takes possession of the Property for the purpose of foreclosing such Mortgage,
such holder may elect, by written notice given to Tenant and Landlord at any
time within 90 days after such entry and taking possession, not to perform
Landlord's obligations under Article 4, and in such event such holder and all
persons claiming under it shall be relieved of all obligations to perform, and
all liability for failure to perform said Landlord's obligations under Article
4 and Tenant may, without waiver of any rights which Tenant may have against
Landlord, terminate this Lease and all its obligations hereunder by written
notice to Landlord and such holder given within 30 days after the day on which
such holder shall have given its notice as aforesaid.
21.5 Prepaid Rent. No Rent shall be paid mote than thirty (30)
days prior to the due dates thereof and, as to a first Mortgagee of record and
any other Mortgagees of whom Tenant has
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been given written notice, payments made in violation of this provision shall
(except to the extent that such rents are actually received by such Mortgagee)
be a nullity as against such mortgagee and Tenant shall be liable for the
amount of such payments to such Mortgagee.
21.6 Continuing Offer. The covenants and agreements contained in
this Lease with respect to the rights, powers and benefits of a Mortgagee
(particularly, without limitation thereby, the covenants and agreements
contained in this Article) constitute a continuing offer to any person,
corporation or other entity, which by accepting or requiring an assignment of
this Lease or by entry or foreclosure assumes the obligations herein set forth
with respect to such Mortgagee; every such Mortgagee is hereby constituted a
party to this Lease as an obligee hereunder to the same extent as though its
name was written hereon as such and such Mortgagee shall be entitled to enforce
such provisions in its own name.
21.7 Subordination. Notwithstanding the foregoing provisions of
this Article, Tenant agrees, at the request of Landlord or any Mortgagee, to
execute and deliver promptly any certificate or other instrument which Landlord
or such Mortgagee may request subordinating the Lease and all rights of Tenant
under the Lease to any Mortgage, and to all advances made under such mortgage,
provided that (i) the holder of any such Mortgage shall execute and deliver to
Tenant a nondisturbance agreement to the effect that, in the event of any
foreclosure of such Mortgage, such holder will not name Tenant as a party
defendant to such foreclosure nor disturb its possession under the Lease, or
(ii) any such Mortgage shall contain provisions substantially to the same
effect as those contained in such a nondisturbance agreement.
21.8 Limitations on Liability. Nothing contained in the foregoing
Section 21.7 or in any such nondisturbance agreement or nondisturbance
provision shall, however, affect the prior rights of the holder of any Mortgage
with respect to the proceeds of any award in condemnation or of any fire
insurance policies affecting the Building, or impose upon any such holder any
liability (i) for the erection or completion of the Building, or (ii) in the
event of damage or destruction to the Building or the Demised Premises by fire
or other casualty, for any repairs, replacements, rebuilding or restoration
except such repairs, replacements, rebuilding or restoration as can reasonably
be accomplished from the net proceeds of insurance actually receive by, or made
available to, such holder, or (iii) for any default by Landlord under the Lease
occurring prior to any date upon which such holder shall become Tenant's
Landlord, or (iv) for any credits, offsets or claims against the rent under
the Lease as a result of any acts or omissions of Landlord committed or omitted
prior to such date, or (v) for return of any security deposit or other funds
unless the same shall have been received by such holder, and any such agreement
or provision may so state.
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22. QUIET ENJOYMENT
Landlord covenants that if, and so long as, Tenant keeps and performs
each and every covenant, agreement, term, provision and condition herein
contained on the part and on behalf of Tenant to be kept and performed, Tenant
shall quietly enjoy the Demised Premises from and against the claims of all
persons claiming by, through or under Landlord subject, nevertheless, to the
covenants, agreements, terms, provisions and conditions of this Lease and to
the mortgages, ground leases and/or underlying leases to which this Lease is
subject and subordinate.
23. ENTIRE AGREEMENT - WAIVER - SURRENDER
23.1 Entire Agreement. This Lease and the Exhibits made a part
hereof contain the entire and only agreement between the parties and any and
all statements and representations, written and oral, including previous
correspondence and agreements between the parties hereto, are merged herein.
Tenant acknowledges that all representations and statements upon which it
relied in executing this Lease are contained herein and that Tenant in no way
relied upon any other statements or representations, written or oral. Any
executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of this Lease in whole or in part unless
such executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
Nothing herein shall prevent the parties from agreeing to amend this Lease and
the Exhibits made part hereof as long as such amendment shall be in writing and
shall be duly signed by both parties.
23.2 Waiver by Landlord. The failure of Landlord to seek redress
for violation, or to insist upon the strict performance, of any covenant or
condition of this Lease, or any of the Rules and Regulations promulgated
hereunder, shall not prevent a subsequent act, which would have originally
constituted a violation, from having all the force and effect of an original
violation. The receipt by Landlord of rent with knowledge of the breach of any
covenant of this Lease shall not be deemed a waiver of such breach. The
failure of Landlord to enforce any of such Rules and Regulations against Tenant
and/or any other tenant or subtenant in the Building shall not be deemed a
waiver of any such Rules and Regulations. No provisions of this Lease shall be
deemed to have been waived by Landlord unless such waiver be in writing signed
by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount
than the monthly rent herein stipulated shall be deemed to be other than on
account of the stipulated rent, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice of Landlord's right to recover the balance of such rent or pursue any
other remedy in this Lease provided.
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23.3 Surrender. No act or thing done by Landlord during the term
hereby demised shall be deemed an acceptance of a surrender of the Demised
Premises, and no agreement to accept such surrender shall be valid, unless in
writing signed by Landlord. No employee of Landlord or of Landlord's agents
shall have any power to accept the keys of the Demised Premises prior to the
termination of this Lease. The delivery of keys to any employee of Landlord or
of Landlord's agents shall not operate as a termination of the Lease or a
surrender of the Demised Premises. In the event that Tenant at any time
desires to have Landlord underlet the Demised Premises for Tenant's account,
Landlord or Landlord's agents are authorized to receive the keys for such
purposes without releasing Tenant from any of the obligations under this Lease,
and Tenant hereby relieves Landlord of any liability for loss of or damage to
any of Tenant's effects in connection with such underletting.
24. INABILITY TO PERFORM - EXCULPATORY CLAUSE
Except as otherwise expressly provided in this Lease, this Lease and
the obligations of Tenant to pay rent hereunder and perform all other
covenants, agreements, terms, provisions and conditions hereunder on the part
of Tenant to be performed shall in no way be affected, impaired or excused
because Landlord is unable to fulfill any of its obligations under this Lease
or is unable to supply or is delayed in supplying any service expressly or
impliedly to be supplied or is unable to make or is delayed in making any
repairs, replacements, additions, alterations, improvements or decorations or
is unable to supply or is delayed in supplying any equipment or fixtures if
Landlord is prevented or delayed from doing so by reason of strikes or labor
troubles or any other similar or dissimilar cause whatsoever beyond Landlord's
reasonable control, including but not limited to, governmental preemption in
connection with a national emergency or by reason of any rule, order or
regulation of any department or subdivision thereof of any governmental agency
or by reason of the conditions of supply and demand which have been or are
affected by war, hostilities or other similar or dissimilar emergency. In each
such instance of inability of Landlord to perform, Landlord shall exercise
reasonable diligence to eliminate the cause of such inability to perform.
Tenant shall neither assert nor seek to enforce any claim for breach
of this Lease against any of Landlord's assets other than Landlord's interest
in the Building of which the Premises are a part and in the rents, issues and
profits thereof, and Tenant agrees to look solely to such interest for the
satisfaction of any liability of Landlord under this Lease, it being
specifically agreed that in no event shall Landlord (which term shall include
without limitation any of the officers, trustees, directors, partners,
beneficiaries, joint venturers, members, stockholders or other principals or
representatives, disclosed or undisclosed of Landlord or any managing agent)
ever be personally liable for any such liability. This paragraph
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shall not limit any right that Tenant might otherwise have to obtain injunctive
relief against Landlord or to take any other action which shall not involve the
personal liability of Landlord to respond in monetary damages from Landlord's
assets other than the Landlord's interest in said real estate, as aforesaid.
In no event shall Landlord ever be liable for consequential damages.
25. BILLS AND NOTICES
Any notice, consent, request, bill, demand or statement hereunder by
either party to the other party shall be in writing and, if received at
Landlord's or Tenant's address, shall be deemed to have been duly given when
either delivered or served personally or mailed in a postpaid envelope,
deposited in the United States mails addressed to the respective party at its
address as stated in Article 1, or if any address for notices shall have been
duly changed as hereinafter provided, if mailed as aforesaid to the party at
such changed address. Either party may at any time change the address for such
notices, consents, requests, bills, demands or statements by delivering or
mailing, as aforesaid, to the other party a notice stating the change and
setting forth the changed address, provided such changed address is within the
United States.
All bills and statements for reimbursement or other payments or
charges due from Tenant to Landlord hereunder shall set forth in reasonable
detail the particulars relating thereto and shall be due and payable in full
thirty (30) days, unless herein otherwise provided, after submission thereof by
Landlord to Tenant. Landlord shall, at Tenant's reasonable request, promptly
furnish Tenant with such additional reasonable details relating thereto as
Tenant shall reasonably request. Tenant's failure to make timely payment of
any amounts indicated by such bills and statements, whether for work done by
Landlord at Tenant's request, reimbursement provided for by this Lease or for
any other sums properly owing by Tenant to Landlord, shall be treated as a
default in the payment of Rent, in which event Landlord shall have all rights
and remedies provided in this Lease for the nonpayment of Rent.
26. PARTIES BOUND - SEIZING OF TITLE
The covenants, agreements, terms, provisions and conditions of this
Lease shall bind and benefit the successors and assigns of the parties hereto
with the same effect as if mentioned in each instance where a party hereto is
named or referred to, except that no violation of the provisions of Article 14
hereof shall operate to vest any rights in any successor or assignee of Tenant
and that the provisions of this Article shall not be construed as modifying the
conditions of limitation contained in Article 19 hereof.
If in connection with or as a consequence of the sale, transfer or
other disposition of the real estate (Land and/or Building either or both, as
the case may be) of which the Demised
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Premises are a part Landlord ceases to be the owner of the reversionary
interest in the Premises, Landlord shall so notify Tenant and Landlord shall be
entirely freed and relieved from the performance and observance thereafter of
all covenants and obligations hereunder accruing thereafter on the part of
Landlord to be performed and observed, it being understood and agreed in such
event (and it shall be deemed and construed as a covenant running with the
land) that the person succeeding to Landlord's ownership of said reversionary
interest shall thereupon and thereafter assume, and perform and observe, any
and all of such covenants and obligations of Landlord.
27. MISCELLANEOUS
27.1 Separability. If any provision of this Lease or portion of
such provision or the application thereof to any person or circumstance is for
any reason held invalid or unenforceable, the remainder of the Lease (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.
27.2 Captions. The captions are inserted only as a matter of
convenience and for reference, and in no way define, limit or describe the
scope of this Lease nor the intent of any provision thereof.
27.3 Broker. Each party represents and warrants that it has not
directly or indirectly dealt, with respect to the leasing of office space in
the Building, with any broker or had its attention called to the Premises or
other space to let in the Building, by any broker other than the Broker(s) (if
any) listed in Article 1 whose commission shall be the responsibility of
Landlord. Each party agrees to exonerate and save harmless and indemnify the
other against any claims for a commission by any other broker, person or firm
with whom such party has dealt in connection with the execution and delivery of
this Lease or out of negotiations between Landlord and Tenant with respect to
the leasing of other space in the Building.
27.4 Governing Law. This lease is made pursuant to, and shall be
governed by, and construed in accordance with, the laws of the Commonwealth of
Massachusetts.
27.5 Assignment of Rents. With reference to any assignment by
Landlord of its interest in this Lease, or the Rent payable hereunder,
conditional in nature or otherwise, which assignment is made to or held by a
bank, trust company, insurance company or other institutional lender holding a
Mortgage on the Building, Landlord and Tenant agree:
(a) that the execution thereof by Landlord and acceptance
thereof by such Mortgagee shall never be deemed an assumption by such Mortgagee
of any of the obligations of the
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Landlord thereunder, unless such Mortgagee shall, by written notice sent to the
Tenant, specifically otherwise elect; and
(b) that, except as aforesaid, such Mortgagee shall be
treated as having assumed the Landlord's obligations thereunder only upon
foreclosure of such Mortgagee's Mortgage and the taking of possession of the
Demised Premises after having given notice of its exercise of the option
stated in Article 21 hereof to succeed to the interest of the Landlord under
this Lease.
27.6 Parking. Landlord shall allocate to Tenant the number of
non-exclusive Parking Spaces indicated in Article 1. Landlord may, pursuant to
Section 15.1, establish reasonable written Rules and Regulations relative to
all parking areas serving Building tenants and may further engage the services
of an independent contractor to administer and control access to said parking
areas. Landlord or said independent contractor shall impose separate charges
for use of said parking areas, and such charges shall be payable by Tenant as
Additional Rent with respect to Tenant's Parking Spaces. As of the Term
Commencement Date the monthly charge for each Parking Space situated in the
garage facility serving the Building shall be One Hundred Twenty-five Dollars
($125). Thereafter, the monthly charge shall be as from time to time
established by Landlord or said independent contractor as the then prevailing
monthly parking charge for the Building. Tenant acknowledges that Landlord has
informed Tenant that Landlord intends to allocate in its tenant leases up to
one hundred twenty-five percent (125%) of the actual parking spaces servicing
the Building. It is further acknowledged and agreed that as a consequence of
such over-allocation of parking spaces there may occasionally occur instances
in which the number of parking spaces actually available to Tenant shall be
less than the Parking Spaces to which Tenant is entitled under this Lease.
Landlord shall incur no liability to Tenant as a consequence of such
over-allocation of parking spaces.
27.7 Notice of Lease. Neither party shall record this Lease in any
Registry of Deeds or Registry District.
27.8 Financial Statements. In the event that Tenant shall have
failed to make two or more monetary payments to Landlord hereunder when due
(without regard to any applicable notice or grace period herein) at any time
during the term of this Lease, then if requested by Landlord, Tenant shall
furnish to Landlord promptly after they are available to Tenant copies of
Tenant's annual financial statements (audited, if available) and unaudited
quarterly financial statements. It is understood and agreed that Landlord may
furnish copies of such financial statements to its mortgagees.
27.9 Security Deposit. Landlord acknowledges that it has received
from Tenant the sum of thirteen thousand, four hundred, and forty-seven dollars
and fifty cents ($13,447.50), as security for the payment of rents and the
performance and observance of
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<PAGE> 69
the agreements and conditions in this Lease contained on the part of Tenant to
be performed and observed. In the event of any default or defaults in such
payment, performance or observance, Landlord may apply said sum or any part
thereof towards the curing of any such default or defaults and/or towards
compensating Landlord for any loss or damage arising from any such default or
defaults. Upon the yielding up of the Demised Premises at the expiration or
other termination of the Term of this Lease, if Tenant shall not then be in
default or otherwise liable to Landlord, said sum or the unapplied balance
thereof shall be returned to Tenant within thirty (30) days. It is understood
and agreed that Landlord shall always have the right to apply said sum, or any
part thereof, as aforesaid in the event of any such default or defaults,
without prejudice to any other remedy or remedies which Landlord may have, or
Landlord may pursue any other such remedy or remedies in lieu of applying said
sum or any part thereof. No interest shall be payable on said sum or any part
thereof. If Landlord shall apply said sum or any part thereof as aforesaid,
Tenant shall upon demand pay to Landlord the amount so applied by Landlord, to
restore the security to its original amount. Whenever the holder of Landlord's
interest in this Lease, whether it be the Landlord named in this Lease or any
transferee of said Landlord, immediate or remote, shall transfer its interest
in this Lease, said holder shall turn over to its transferee said sum or the
unapplied balance thereof, and thereafter such holder shall be released from
any and all liability to Tenant with respect to said sum or its application or
return, it being understood that Tenant shall thereafter look only to such
transferee with respect to said sum, its application and return. The holder of
any mortgage upon property which includes the Demised Premises shall never be
responsible to Tenant for said sum or its application or return unless said sum
shall actually have been received in hand by such holder.
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to
be executed under seal, all as of the day and year first above written.
RIVERFRONT OFFICE PARK ASSOCIATES II
LIMITED PARTNERSHIP
By: DARVEL REALTY TRUST
Managing General Partner
By: /s/ MICHAEL P. SULLIVAN
-----------------------------------------------
Michael P. Sullivan, Vice President
THE VISION THING, INC. d/b/a GEER ZOLOT ASSOCIATES
By: /s/ DANIEL E. GEER, JR.
-----------------------------------------------
Daniel E. Geer, Jr., President
-46-
<PAGE> 70
EXHIBIT A
[COM/ENERGY SERVICES COMPANY BUILDING FLOOR PLAN]
<PAGE> 71
EXHIBIT B
DESCRIPTION OF LAND
A certain parcel of land in the City of Cambridge, Middlesex County,
Massachusetts, bounded and described as follows:
SOUTHWESTERLY at the intersection of Main Street and First Street,
by four lines measuring 44.72 feet, 129.49 feet,
24.15 feet, and 41.16 feet, respectively;
SOUTHERLY by Main Street by a line measuring 404.86 feet;
WESTERLY by Lot 1, by a line measuring 154.28 feet; and
NORTHERLY by the Broad Canal, 594.60 feet.
Said parcel is shown as Lot 2 on a "Subdivision Plan of Land in
Cambridge, Mass. (Middlesex County)", dated April 24, 1981, and revised
September 4, 1981, drawn by Boston Survey Consultants, and prepared for Darvel
Realty Trust, recorded with Middlesex Southern District Registry of Deeds in
Book 14412, Page 199.
<PAGE> 72
EXHIBIT D
Drawings
-49-
<PAGE> 73
EXHIBIT D Page 1 of 15
[LIST OF DRAWINGS]
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<PAGE> 74
EXHIBIT D Page 2 of 15
[DEMOLITION PLANS]
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<PAGE> 75
EXHIBIT D Page 3 of 15
[FLOOR PLANS]
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<PAGE> 76
EXHIBIT D Page 4 of 15
[REFLECTED CEILING PLAN]
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<PAGE> 77
EXHIBIT D Page 5 of 15
[DETAIL DRAWINGS]
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<PAGE> 78
EXHIBIT D Page 6 of 15
[DETAILS & SPECIFICATIONS]
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<PAGE> 79
EXHIBIT D Page 7 of 15
[SPECIFICATIONS]
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<PAGE> 80
EXHIBIT D Page 8 of 15
[FINISH FLOOR PLAN]
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<PAGE> 81
EXHIBIT D Page 9 of 15
[HVAC SPECIFICATION & SCHEDULE]
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<PAGE> 82
EXHIBIT D Page 10 of 15
[HVAC]
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<PAGE> 83
EXHIBIT D Page 11 of 15
[ELECTRIC SYMBOL LIST]
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<PAGE> 84
EXHIBIT D Page 12 of 15
[ELECTRIC POWER PLAN]
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<PAGE> 85
EXHIBIT D Page 13 of 15
[ELECTRIC LIGHTING PLAN]
-62-
<PAGE> 86
EXHIBIT D Page 14 of 15
[LEGEND, SPECIFICATIONS & DIAGRAMS]
-63-
<PAGE> 87
EXHIBIT D Page 15 of 15
[PLUMBING PLAN]
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<PAGE> 88
EXHIBIT E
PROCEDURE FOR ALLOCATION OF COSTS OF
ELECTRIC POWER USAGE BY TENANTS
1. Main electric service to the Building will be provided by the
local utility company to a single main meter. All charges by the utility will
be read from this meter and billed to and paid by Landlord at rates established
by the utility company.
(Separate electric service from the utility company directly to
tenants may be made available to retail tenants on the ground floor if Landlord
determines this to be appropriate to the tenancy involved.)
2. In order to allocate charges for electric service fairly among
tenants in relation to the relative amounts of electricity used by each tenant,
additional meters (known as "check meters") will be installed by Landlord for
each tenant to measure all electricity provided for lights and power to that
tenant. This shall not, however, include the following, which shall be wired
from the main building service and not through the check meters; stairwell and
emergency lights; elevators; heat pumps and HVAC in the Building; exterior
lighting; and all main building mechanical systems (common areas on each floor,
including the elevator lobby, corridors, and bathrooms, will have service
through the check meters on each floor) (the "Basic Building Electricity") and
which shall be separately metered.
3. Additional check meters may be installed by Landlord where
necessary to assure measurement of all electric service to tenant areas (e.g.,
in the case of separate dedicated circuits to computer rooms, cafeterias, or
other special purpose facilities). Ground floor tenant space will be check
metered if it is not separately metered. In addition, further modification to
the number and location of check meters may be made by Landlord if required to
improve the quality of information obtained thereby.
4. Landlord will cause the check meters to be read monthly by its
employees and will perform an analysis of the information for the purpose of
determining an equitable allocation of the costs of electric service among the
tenants in the Building in relation to the respective amounts of usage of
electricity by those tenants.
5. Each tenant's allocable share ("Tenant's Allocable Electricity
Cost"), shall be determined by Landlord on the following basis:
a. The total kilowatt hour usage for the period under evaluation
shall be established for each check meter and also for the
Building as a whole by a reading of the main building meter
for that period.
<PAGE> 89
b. The cost of the total amount of electricity supplied for usage
by tenants during the period (exclusive of the Base Building
Electricity) (herein called "Tenant Electricity") shall be
determined by multiplying the total cost of electricity as
invoiced by the utility company for the same period by a
fraction, the numerator of which is the total amount of
kilowatt hour usage as measured by all of the Tenant
Electricity check meters in the Building and the denominator
of which is the total amount of kilowatt hour usage for the
Building as measured by the main building electric meter.
c. Tenant's Allocable Electricity Cost for the period shall be
determined by multiplying the total costs of Tenant
Electricity by a fraction, the numerator of which is the
kilowatt hour usage of Tenant Electricity by said tenant
(calculated as the sum of kilowatt hour usage during the
period measured by all check meters serving its premises) and
the denominator of which is the total kilowatt hour usage of
Tenant Electricity for the same period.
d. Where part or all of the rentable area on a floor has been
occupied by a tenant for less than all of the period for which
said Tenant's Allocable Electricity Cost is being calculated,
appropriate and equitable modifications shall be made to the
allocation formula so that each tenant's allocable share of
costs equitably reflects its period of occupancy, provided
that in no event shall the total of all costs as allocated to
tenants be less than the total cost of Tenant Electricity for
said period.
6. All costs of Base Building Electricity to Landlord shall be
treated as part of the Operating Costs of the Building for purposes of
determining the allocation of those costs.
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<PAGE> 90
2X PER YEAR - Wash interior and exterior of perimeter windows.
MAIN LOBBY, ELEVATORS, BUILDING EXTERIOR AND CORRIDORS -CONTINUED
4. Spot clean any metal work in lobby.
5. Spot clean any metal work surrounding building entrance doors.
6. Spot clean and polish guard desk.
7. Vacuum all corridor carpets.
MONTHLY
1. All resilient tile floors in public area to be treated equivalent to
spray buffing.
2. Shampoo carpeting in elevator.
STAIRWELLS
DAILY - Monday through Friday inclusive, Massachusetts legal holidays excluded.
1. Sweep all stairwells.
-2-
<PAGE> 91
EXHIBIT G
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators,
vestibules, stairways, corridors or halls of the Building shall not be
obstructed or encumbered or used for any purpose other than ingress and egress
to and from the premises demised to any tenant or occupant.
2. No awnings or other projections shall be attached to the
outside walls or windows of the Building without the prior consent of Landlord.
No curtains, blinds, shades, or screens shall be attached or hung in, or used
in connection with, any window or door of the premises demised to any tenant or
occupant, without the prior consent of Landlord. Such awnings, projections,
curtains, blinds, shades, screens, or other fixtures must be of a quality type,
design and color, and attached in a manner, approved by Landlord.
3. No sign, advertisement, object, notice or other lettering
shall be exhibited, inscribed, painted or affixed on any part of the outside or
inside of the premises demised to any tenant or occupant or of the Building
without the prior written consent of Landlord. Interior signs on doors and
directory tables, if any, shall be of a size, color and style approved by
Landlord.
4. The sashes, sash doors, skylights, windows, and doors that
reflect or admit light and air into the halls, passageways or other public
places in the Building shall not be covered or obstructed, nor shall any
bottles, parcels, or other articles be placed or stored upon on any window
sills.
5. No show cases or other articles of any kind shall be put in
front of or affixed to any part of the exterior of the Building, nor placed in
the halls, corridors, vestibules or other parts of the Building.
6. The water and wash closets and other plumbing fixtures shall
not be used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags, or other substances shall be
thrown therein.
7. No tenant or occupant shall mark, paint, drill into, or in any
way deface any part of the Building or the premises demised to such tenant or
occupant. No boring, cutting or stringing of wires shall be permitted, except
with the prior consent of the Landlord, and as Landlord may direct. No tenant
or occupant shall install any resilient tile or similar floor covering in the
premises demised to such tenant or occupant except in manner approved by
Landlord.
<PAGE> 92
8. No bicycles, vehicles or animals of any kind shall be brought
into or kept in or about the premises demised to any tenant. Bicycles may be
stored in racks, if any, furnished for such purpose by Landlord in a common
area of the Building. No cooking shall be done or permitted in the Building by
any tenant without the approval of Landlord. No tenant shall cause or permit
any unusual or objectionable odors to emanate from the premises demised to such
tenant.
9. Without the prior consent of Landlord, no space in the
Building shall be used for manufacturing, or for the sale of merchandise, goods
or property of any kind at auction.
10. No tenant shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with other tenants or occupant of the
Building or neighboring buildings or premises, whether by the use of any
musical instrument, radio, television set or other audio device, unmusical
noise, whistling, singing, or in any other way. Nothing shall be thrown out of
any doors or windows.
11. Each tenant must, upon the termination of its tenancy, restore
to Landlord all keys, either furnished to, or otherwise procured by, such
tenant, including without limitation, all parking pass keys, Building keys,
office keys and keys to storage areas and toilet rooms.
12. All removals from the Building, or the carrying in or out of
the Building or the premises demised to any tenant, of any safes, freight,
furniture, or bulky matter of any description must take place at such time and
in such manner as Landlord or its agents may determine, from time to time.
Landlord reserves the right to inspect all freight to be brought into the
Building and to exclude from the Building all freight which violates any of the
Building Rules or the provisions of such tenant's lease.
13. No tenant shall use or occupy, or permit any portion of the
premises demised to such tenant to be used or occupied, as an office for a
public stenographer or typist, or to a barber or manicure shop, or as an
employment bureau. No tenant or occupant shall engage or pay any employees in
the Building, except those actually working for such tenant or occupant in the
Building, nor advertise for laborers giving an address at the Building.
14. No tenant or occupant shall purchase spring water, ice, food,
beverage, lighting maintenance, cleaning towels or other like service, from any
company or person not approved by Landlord, such approval not unreasonably to
be withheld.
15. Landlord shall have the right to prohibit any advertising by
any tenant or occupant which, in Landlord's opinion, tends to impair the
reputation of the Building or its desirability as a building for offices, and
upon notice from
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<PAGE> 93
Landlord, such tenant or occupant shall refrain from or discontinue such
advertising.
16. Landlord reserves the right to exclude from the Building,
between the hours of 6:00 p.m. and 8:00 a.m. on Business Days and otherwise at
all hours, all persons who do not present a pass to the building signed by the
Landlord. Landlord will furnish passes to persons for whom any tenant requests
such passes. Each tenant shall be responsible for all persons for whom it
requests such passes and shall be liable to Landlord for all wrongful acts of
such persons.
17. Each tenant, before closing and leaving the premises demised
to such tenant at any time, shall see that all entrance doors are locked and
windows closed.
18. Each tenant shall, at its expense, provide artificial light in
the premises demised to such tenant for Landlord's agents, contractors, and
employees while performing janitorial or other cleaning services and making
repairs or alterations in said premises.
19. No premises shall be used, or permitted to be used, for
lodging or sleeping, or for any immoral or illegal purpose.
20. There shall not be used in the Building, either by any tenant
or occupant or by their agents or contractors, in the delivery or receipt of
merchandise, freight or other matter, any hand trucks or other means of
conveyance, except those equipped with rubber tires, rubber side guards and
such other safeguards as Landlord may require.
21. Canvassing, soliciting and peddling in the Building are
prohibited and each tenant and occupant shall cooperate in seeking their
prevention.
22. If the premises demised to any tenant become infested with
vermin, such tenant, at its sole cost and expense, shall cause its premises to
be exterminated from time to time, to the satisfaction of Landlord and shall
employ such exterminators therefor as shall be approved by Landlord.
23. No premises shall be used, or permitted to be used, at any
time, without the prior approval of Landlord, as a store for the sale or
display of goods, wares or merchandise of any kind, or as a restaurant, shop,
booth, bootblack or other stand, or for the conduct of any business or
occupation which predominantly involves direct patronage of the general public
in the premises demised to such tenant, or for manufacturing or for other
similar purposes.
24. No tenant shall move, or permit to be moved, into or out of
the Building or the premises demised to such tenant, any heavy or bulky matter,
without the specific prior written
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<PAGE> 94
approval of Landlord. If any such matter requires special handing, only a
person holding a Master Rigger's License shall be employed to perform such
special handling. No tenant shall place, or permit to be placed on any part of
the floor or floors of the premises demised to such tenant, a load exceeding
the floor load per square foot which such floor was designed to carry and which
is allowed by law. Landlord reserves the right to prescribe the weight and
position of safes and other heavy matter, which must be placed so as to
distribute the weight.
25. The requirements of tenants will be attended to only upon
application at the office of the Building. Building employees shall not be
required to perform, and shall not be requested by any tenant or occupant to
perform any work outside of their regular duties, unless under specific
instructions from the office of the managing agent of the Building.
26. The temperature within the Demised Premises shall be
maintained at 68-72 degrees. In addition, the maximum off-hour temperature in
the Demised Premises shall be maintained at 78 degrees in the summer and the
minimum off hour temperature shall be maintained at 66 degrees in the winter.
27. There shall be 24 hour a day front desk security coverage.
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<PAGE> 95
EXHIBIT F
CLEANING SPECIFICATIONS
OFFICE AREA:
DAILY - Monday through Friday inclusive, Massachusetts legal holidays excluded.
1. Empty all waste receptacles and remove trash to designated area, wash
receptacles as necessary.
2. Empty and wipe all ashtrays.
3. Vacuum all rugs and carpets.
4. Hand dust and wipe clean with treated cloths all horizontal surfaces,
including furniture, office equipment, window wills, door ledges,
chair rails and convertor tops, within normal reach.
5. Wash clean all water fountains.
6. Remove and dust under all desk equipment and telephones and replace
same.
7. Wipe clean all brass and other bright work.
8. Sweep and dust mop all uncarpeted areas using a dust treated mop.
9. Hand dust all grill work within normal reach.
10. Wash clean kitchen counter, sink, exterior cabinetry and wet mop floor
in kitchen.
11. Wash clean shower and shower room floor.
WEEKLY
1. Dust coat racks and the like.
2. Remove all finger marks from private entrance doors, light switches
and doorways.
QUARTERLY - Render high dusting not reached in daily cleaning to include:
1. Dusting all pictures frames, charts, graphs and similar wall hangings.
2. Dusting all vertical surfaces such as walls, partitions and doors.
3. Dusting of all venetian blinds.
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1996 1995 1994
------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net loss.................................................... $ (510) $(18,112) $(42,727)
Weighted average common shares outstanding.................. 4,829 2,438 4,358
Shares related to Staff Accounting Bulletin Topic 4D
Common stock (treasury stock method)...................... 641 855 855
Common stock options (treasury stock method).............. 304 404 404
Convertible preferred stock (as-if converted method)...... 2,811 3,749 3,749
Total shares for primary and fully diluted net loss per
share..................................................... 8,585 7,446 9,366
Net loss per share.......................................... $ (0.06) $ (2.43) $ (4.56)
Calculation of shares outstanding for computing pro forma
net loss per share:
Shares used in computing net loss per share............... 8,585 7,446
Adjustment to reflect the effect of the assumed conversion
of convertible preferred stock from the date of
issuance (as if converted method)...................... 7,569 8,305
Shares used in computing pro forma net loss per share..... 16,154 15,751
Pro forma net loss per share................................ $ (0.03) $ (1.15)
</TABLE>
48
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8/S-3 No. 333-03261) pertaining to the 1996 Employee Stock Purchase Plan, 1996
Director Option Plan, and 1992 Stock Plan of OpenVision Technologies, Inc. of
our reports dated July 22, 1996, with respect to the consolidated financial
statements and schedule of OpenVision Technologies, Inc. included in the Annual
Report (Form 10-K) for the year ended June 30, 1996.
ERNST & YOUNG LLP
San Jose, California
September 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OPENVISION
TECHNOLOGIES, INC. 1996 FORM 10-K ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH COMMISSION FILE NUMBER: 0-28346.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 16,888
<SECURITIES> 13,667
<RECEIVABLES> 9,446
<ALLOWANCES> 484
<INVENTORY> 0
<CURRENT-ASSETS> 40,577
<PP&E> 7,553
<DEPRECIATION> 4,963
<TOTAL-ASSETS> 43,948
<CURRENT-LIABILITIES> 12,340
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 31,126
<TOTAL-LIABILITY-AND-EQUITY> 43,948
<SALES> 21,474
<TOTAL-REVENUES> 29,895
<CGS> 1,425
<TOTAL-COSTS> 3,614
<OTHER-EXPENSES> 26,358
<LOSS-PROVISION> (150)
<INTEREST-EXPENSE> 729
<INCOME-PRETAX> (510)
<INCOME-TAX> 0
<INCOME-CONTINUING> (510)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (510)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
