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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
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/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee required]
For the fiscal year ended MAY 31, 1997
OR
/ / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No fee
required]
For the transition period from to
Commission File Number: 0-26198
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UNISON SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 94-269687
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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5101 PATRICK HENRY DRIVE, SANTA CLARA, CALIFORNIA 95054
(Address of principal executive offices) (zip code)
(408) 988-2800
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of July 31, 1997, there were 11,966,680 shares of the Registrant's Common
Stock outstanding, and the aggregate market value of such shares held by
non-affiliates of the Registrant (based upon the closing sale price of such
shares on the Nasdaq National Market on July 31, 1997) was $77,270,546. Shares
of Common Stock held by each executive officer and director and by each entity
affiliated with such persons have been excluded from such calculation in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Registrant's definitive Proxy Statement for the 1997
Annual Meeting of Stockholders to be held on October 21, 1997 are incorporated
by reference in Part III of this Form 10-K to the extent stated herein.
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PART I
ITEM 1. BUSINESS.
THE DISCUSSION BELOW CONTAINS STATEMENTS THAT INCLUDE FORWARD-LOOKING
INFORMATION, INCLUDING STATEMENTS REGARDING THE DEVELOPMENT OF THE MARKETS FOR
THE COMPANY'S PRODUCTS; THE COMPANY'S FUTURE ACTIVITIES TO ADDRESS THIS MARKET
AND THEIR EFFECTIVENESS; THE ACCEPTANCE OF THE COMPANY'S PRODUCTS BY CUSTOMERS;
THE COMPANY'S FUTURE PRODUCT DEVELOPMENT ACTIVITIES; THE EFFORTS OF THE COMPANY
TO EXPAND ITS PRODUCT LINE TO OPERATE OVER MORE DIVERSE NETWORKS, THE EXPANSION
OF THE COMPANY'S SALES AND MARKETING ACTIVITIES; AND THE COMPANY'S RELATIONSHIP
WITH HEWLETT-PACKARD AND OTHER INDIRECT SALES CHANNEL PARTICIPANTS. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE DESCRIBED
IN "FACTORS AFFECTING BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION" OR
ELSEWHERE IN THIS REPORT.
OVERVIEW
Unison Software, Inc. develops, markets and supports networked systems
management software for distributed, heterogeneous computing environments. The
Company's workload management, storage management and output management tools
support the deployment of business critical applications in client/server
environments. Unison focuses principally on the UNIX and the Windows NT markets,
where it is leveraging its large customer base and its experience as a leading
supplier of networked systems management tools. Unison was incorporated in
California in 1980 and reincorporated in Delaware in July 1995. The Company's
principal executive office is located at 5101 Patrick Henry Drive, Santa Clara,
California 95054, and its telephone number is (408) 988-2800. Unison's home page
can be located on the World Wide Web at http://www.unison.com. Unison's common
stock is traded on the Nasdaq National Market under the symbol "UNSN." Except as
otherwise noted herein, all references to "Unison" or the "Company" shall mean
Unison Software, Inc. and its subsidiaries.
INDUSTRY BACKGROUND
The market for enterprise-wide computing systems used by large commercial
organizations has undergone a dramatic transition in recent years. Advances in
hardware, software and networking technologies have led to a shift from
mainframe and other "host-based" computer architectures to networked,
client/server architectures, in which computing tasks are distributed among
numerous computers throughout the network. A related trend has been the shift
from homogeneous, proprietary systems to heterogeneous, open systems, in which
computers, operating systems, applications and peripherals from various vendors
are interconnected to provide an optimized solution. Most open systems are based
on the UNIX operating system, which is available in different versions from
different computer manufacturers, or, more recently, on Microsoft Windows NT.
The flexibility and effectiveness of distributed processing in an open
systems environment have encouraged numerous large organizations to move their
computer applications to these systems. This transition has been accelerated by
adoption of Intranet technologies that utilize open distributed systems.
Although companies have historically deployed such systems for technical and
departmental applications, many companies are increasingly using them for
applications that are critical to the organization's day-to-day operations.
Strategic software applications such as payroll, human resources, financial
reporting, sales order processing, inventory control and other business
functions from vendors such as SAP and Oracle are increasingly run on
client/server systems rather than on central mainframes. Managing the operations
of a large-scale, client/server system, however, can be difficult and
labor-intensive. While client/server environments have many of the same systems
management needs as host-based environments, the highly networked nature of
modern distributed systems introduces a number of challenges that are not
present for traditional mainframe systems and requires networked systems
management tools designed specifically for distributed environments.
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Enterprise-wide networks are frequently complex, geographically dispersed
assemblages of computers, operating systems, peripherals and applications, each
of which may be supplied by multiple vendors. These networks are dynamic, in
that hardware and software resources are frequently added, deleted or modified,
and new applications are continually being deployed. Such networks can be
fragile, with many possible points of failure, and as a result one or more
network components may not be operational at any given time. Systems management
tools must be able to interoperate in a heterogeneous environment and be fault
tolerant so that users can rely on these systems for business critical
applications. Moreover, as such applications are distributed throughout the
network, systems management functions must operate in a distributed manner,
frequently under the control of non-experts. In a large,
geographically-dispersed network, it may be prohibitively expensive, if not
technically impossible, to have staff perform management tasks at each location.
In addition, the sheer size of many enterprise-wide networks and the volume of
data they use and produce require the use of automated tools.
Three primary networked systems management functions for which tools are
needed are workload management, storage management and output management.
Workload management tools automate the scheduling and allocation of hundreds or
thousands of interactive and batch jobs among the various computers on the
network. This scheduling and allocation may be based on such criteria as time
deadlines, the completion of other jobs, the needs of particular applications
and the availability of specific network resources. Workload management tools
must also monitor job completion status and allow systems administrators to
establish job or application priorities in order to optimize network
performance. Storage management tools provide reliable, high-speed backup and
recovery, tasks which require transferring many gigabytes of data between
multiple distributed computers and various types of archival storage media while
minimizing network downtime. Finally, output management tools direct and track
the distribution of reports and other results generated by distributed
applications to printers and other output devices located throughout the
network.
THE UNISON SOLUTION
Unison provides a suite of workload management, storage management and
output management tools with features and functionality designed to support
business critical software applications on distributed systems. These products
are based on the Company's twelve years of experience in developing effective
networked systems management tools. Unison supports a range of operating systems
and hardware platforms and enables the integrated management of new and legacy
applications in heterogeneous environments.
The Company's products have the following important attributes:
- SCALABILITY. The Company's products provide the same functionality across
a broad range of network sizes.
- FAULT-TOLERANCE. Unison's tools continue to operate despite the
unavailability of particular network resources and enable graceful
recovery following network or node failures.
- INTEGRATION. The Company's tools operate with IBM's NetView for AIX and
HP's OpenView network management platforms and HP's OpenView IT/Operations
and IBM/Tivoli's TME 10 systems management frameworks. In addition, the
Company's products integrate and operate directly with business
applications such as SAP R/3 and Oracle Applications and with legacy
systems such as IBM MVS.
- INTEROPERABILITY. Unison's products are able to manage UNIX-based systems
from HP, Sun, IBM, Silicon Graphics, Sequent, Siemens-Nixdorf, Data
General, Digital Equipment Corporation and NCR; Intel-based systems
running Windows NT and Santa Cruz Operation's UNIXWARE; and HP3000 system,
all in the same network.
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- ADHERENCE TO STANDARDS. The Company's products support POSIX, SNMP and
other standards that enable distributed, open environments.
- SECURITY. The Company's tools provide controlled access to important
systems management functions.
PRODUCTS
The Company provides a suite of networked systems management tools for UNIX,
Windows NT and HP3000 computing environments. The Company's workload, storage
and output management products are designed to optimize throughput and
efficiency in distributed computer systems and to reduce demands for computer
personnel and resources.
WORKLOAD MANAGEMENT
UNISON MAESTRO. Maestro is a full-featured tool for managing background
batch processing in a distributed computing environment. Maestro's architecture
allows for central administration, monitoring and control of planned and ad hoc
batch processing throughout a network. The administrator identifies planned and
ad hoc jobs, and specifies rules by which jobs are scheduled (E.G., every
payday), sequenced (I.E., some jobs may have to follow certain other jobs) or
otherwise constrained (E.G., certain jobs cannot run at the same time or only so
many jobs can run at one time). Maestro then selects planned jobs that need to
be run for all devices in the network, and manages their execution to maximize
the number of jobs processed without violating the specified constraints. As
additional ad hoc jobs are submitted by users, Maestro manages them together
with the planned jobs. Maestro provides a high degree of fault tolerance by
supporting peer-to-peer operation, such that each system is capable of
continuing full operations regardless of the availability of other resources.
Unison Maestro is available for UNIX, Windows NT and HP3000 computing
environments.
LOAD BALANCER. Load Balancer automatically distributes the processing load
across an entire network to make optimum use of the available computing
resources and avoid overloading any particular system. After a central
administrator specifies the characteristics of the various systems available in
the network and any unusual resource requirements of certain jobs or processes,
interactive users, as well as job schedulers such as Unison Maestro, can submit
processing requests for balanced execution. Load Balancer continuously maintains
a profile of resource availability across the entire network and can dispatch
both batch and interactive jobs to the best machine available. Load Balancer is
available for UNIX only.
STORAGE MANAGEMENT
UNISON ROADRUNNER. RoadRunner provides reliable, high-speed backup and
recovery of the increasingly large amounts of data being stored on network
servers and workstations. Utilizing sophisticated techniques such as file
interleaving, variable software compression and parallel data streams,
RoadRunner takes advantage of modern, multiprocessor architectures and multiple
archive devices located anywhere on the UNIX network. Unison RoadRunner
currently supports UNIX and HP3000 systems.
TAPES PLUS. Tapes Plus is a media management product that automatically
manages tape libraries, assigns tape labels, provides change control and helps
prevent accidental data loss. Tapes Plus is available for the HP3000 environment
only. The Company is currently developing a media management product for UNIX.
OUTPUT MANAGEMENT
SPOOLMATE. SpoolMate manages and distributes report output from production
processing on mixed UNIX and HP3000 networks. It supports UNIX and NetWare
printers and clients, as well as printers connected directly to the network.
Once reports, printers, recipients and distribution lists have been
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specified, SpoolMate automatically delivers reports to the printers most
convenient to each recipient, identifies the intended recipient for each copy,
and maintains an audit trail of all copies printed. By performing these and
other functions, SpoolMate reduces the labor required to distribute report
output and the incidence of lost reports and costly job reruns. SpoolMate is
available for the HP3000 environment and a mixed environment consisting of
HP3000 and the HP version of UNIX. The Company is currently developing an output
management product for Windows NT.
FORMATION. Formation is an output management product that allows users to
design forms for laser printers electronically and to integrate such forms into
applications, thereby eliminating the need for impact printers and preprinted
forms. Formation is available for the HP3000 environment only.
The Company's products are sold under perpetual, fully paid-up licenses.
Prices are based upon the number, and in some cases the capacity, of the
computers on which the software will operate. In certain cases, the Company
grants site or enterprise-wide licenses. The Company also offers product suites
which combine two or more of the Company's products. Domestic end-user list
prices for the Company's UNIX products typically range from $500 for certain
versions of Load Balancer to $240,000 for certain product suites, although
prices may vary with product options and customer volume. Prices for the
Company's HP3000 software range from $1,600 for Unison RoadRunner deployed in
small systems to $83,000 for certain product suites. Prices for the Windows NT
version of Unison Maestro ranges from $1,000 to $8,000.
SALES AND MARKETING
The Company markets and sells its software and services primarily through
its direct field sales and telesales organizations and, to a lesser extent,
through third-party distributors and other indirect sales channels. The Company
believes that the open systems market is significantly larger and more diverse
than the HP3000 market, and that systems management decisions for
enterprise-wide systems are frequently made at the corporate level. The Company
also believes that multiple distribution channels for the Company's products
help to improve market coverage and penetration. Consequently, the Company has
established a direct field sales force for its open systems products, in
addition to its telesales force for its HP3000. The Company is also focusing on
developing additional indirect distribution channels through ISV, VAR and OEM
relationships with major computer hardware and software companies, as well as
vendors of integrated application solutions for particular vertical markets. The
Company believes that it must continue to expand its direct field sales force
and indirect distribution channels to address the open systems environment
effectively. Expansion of the Company's field sales force has required and will
continue to require significant financial and managerial commitments by the
Company. Experienced field sales personnel in the Company's industry are in high
demand and may not be attracted and retained on terms advantageous to the
Company. Further, there can be no assurance that the Company's efforts to expand
its field sales force will be successful, and there can also be no assurance
that the Company's efforts to develop indirect sales channels will be
successful. The Company has had only limited experience with such channels. The
failure of such efforts would impair the Company's future growth, if any, and
business and operating results. See "Factors Affecting Business, Operating
Results and Financial Condition-- Indirect Distribution Channels" and
"--Management of Expanding Operations; New Management Team."
The Company's field sales organization consists of a staff of
field-office-based software sales professionals. Field offices are staffed by
both sales and technical pre-sales representatives and are located in Santa
Clara, Irvine and Los Angeles, California; Austin and Dallas, Texas; Atlanta,
Georgia; Chicago, Illinois; Boston, Massachusetts; Parsippany, New Jersey; Blue
Bell, Pennsylvania; the Washington, D.C. area; Seattle, Washington; Denver,
Colorado; Harpenden, England; and Paris, France. The Company believes that its
major customers require on-site sales and service activities as they evaluate
and select their enterprise-wide systems management software.
An important facet of the Company's sales and marketing strategy is the
development of indirect distribution channels, such as ISVs, VARs and OEMs
hardware vendors, systems integrators for particular
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vertical markets, application software vendors and other systems management
software vendors whose products fit well strategically with those of the
Company. The Company currently has several indirect distribution relationships,
including a distribution relationship with HP, which markets the Company's
Maestro product along with HP's OpenView and OpenView IT/Operations Center
product lines; IBM/ Tivoli, which markets Maestro with its TME 10 product;
Andersen Consulting, which markets the Company's products with its system
integration services; Sequent, which sells Maestro as an endorsed workload
management solution; and Summit Information Systems, an application vendor to
the credit union industry, that includes Maestro along with each of its systems.
The Company's efforts to expand these channels are intended to increase market
coverage and achieve broader acceptance of the Company's products as networked
systems management standards.
The Company has established and is expanding its direct sales force in
Europe and has distributor relationships in certain areas of Europe, the Pacific
Rim and Latin America. Distributors license the Company's products at a discount
for relicensing, and may provide training, support and consulting services to
end users. International sales and operations may be limited or disrupted by the
imposition of government controls, export license requirements, political
instability, trade restrictions, changes in tariffs and exchange rates,
difficulties in staffing, coordinating communications and managing international
operations and other factors. See "Factors Affecting Business, Operating Results
and Financial Condition--International Operations and Sales."
In support of these sales and distribution efforts, the Company conducts
marketing programs intended to position and promote its products and services.
Marketing personnel engage in a wide variety of activities in support of the
distribution channels, including direct mail, advertising, seminars, public
relations and trade shows, as well as overseeing the Company's participation in
industry programs and forums. Strategic marketing is conducted through market
analysis and interpretation, customer advisory board meetings for the purpose of
validating Company product development plans, senior management strategic
planning sessions, and the establishment of long- and short-term strategic
product goals. In addition, the marketing department also participates and
assists in preparing and giving sales and product training seminars for both the
Company's internal sales force and those of its channel partners. The marketing
organization also has a leading role in product marketing activities, including
product management, cooperative positioning and long-term product direction. The
Company spends considerable resources on Company and product positioning to
establish market segment leadership.
Because many of the Company's customers depend on the Company's products to
manage their business critical computer operations, the Company believes that
its ability to provide a high level of customer service and technical support is
crucial to its marketing efforts and to the building of long-term customer
relationships. The Company offers to its licensees through its own support
organization an annual maintenance program that includes product updates and
post-sales telephone, electronic mail, Internet and fax hotline support. The
price for annual maintenance is typically 13% to 20% of the current license fee.
The Company also offers installation and training services on a fee basis to
assist customers in deploying enterprise-wide applications utilizing the
Company's products. Training is offered at the Company's in-house facilities or
at the customers' sites. The Company's distributors and OEMs also offer first-
level customer support to their end users, while relying on the Company for any
additional support as needed.
The Company generally ships its products as orders are received. As a
result, the Company has relatively little backlog at any given time, and does
not consider backlog to be a significant indicator of future performance.
PRODUCT DEVELOPMENT
The Company has made substantial investment in research and development to
develop commercial-quality systems management tools. The Company's future
success will depend substantially on the ability of
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the Company to keep pace technologically with innovation in the networked
systems management market and to maintain a competitive advantage by developing
new products to meet the needs of the market. See "Factors Affecting Business,
Operating Results and Financial Condition--Changing Technology and Industry
Standards." The Company intends to expand its existing product offerings and to
introduce additional products for distributed open systems environments.
The Company's principal development efforts include adding new features and
functions to the Company's products and adapting them to new environments.
Recognizing that current open distributed environments and related systems are
heterogeneous and constantly evolving, the Company designs its products to be
portable and adaptable to new and related client/server hardware and software.
The Company is adapting its products to operate with additional versions of UNIX
which offer attractive market opportunities. The Company also intends to expand
its products to operate across more diverse open networks, which may encompass
an increasing variety of processor server and workstation types and multiple
operating systems including mainframe-based legacy systems, PC network servers
and new operating environments. In particular, the Company has developed a
version of its Maestro product for the Windows NT environment and is continuing
development of other products for that environment. The Company intends to
continue to respond to this continuing evolution by offering products which take
advantage of additional emerging standards, protocols and interfaces. Such
efforts will require significant commitments of financial and product
development resources, and there can be no assurance that such efforts will be
successful, especially given that the Company has had limited experience with
some of the components of these more diverse environments. The failure of such
efforts or the failure of any resulting products to achieve market acceptance
could have a material adverse effect on the Company's business and operating
results. See "Factors Affecting Business, Operating Results and Financial
Condition-- Support of Multiple Environments; Product Development."
The Company uses sophisticated software development tools to speed the
development process and to ensure product quality. These tools include
configuration management, code testing and graphical user interface design
tools. While the Company expects that certain of its new products will be
developed internally, the Company may also, based on timing and cost
considerations, acquire technology and/or products from third parties.
Additionally, notwithstanding the Company's efforts to ensure product quality,
software products as complex as those offered by the Company often contain
undetected errors or failures when first introduced or as new versions are
released. Testing of the Company's products is particularly challenging because
it is difficult to simulate the wide variety of computing environments in which
the Company's customers may deploy these products. Accordingly, there can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found after commencement of commercial shipments,
resulting in loss of or delay in market acceptance, any of which could have a
material adverse effect upon the Company's business and operating results. See
"Factors Affecting Business, Operating Results and Financial Condition--Product
Errors; Product Liability."
The Company's total expenditures for research and development for the fiscal
years ended May 31, 1995, 1996 and 1997 were $3.0 million, $4.0 million and $5.5
million, respectively. To date, the Company has not capitalized any software
development costs.
COMPETITION
The markets for networked systems management products for both the open
systems and HP3000 environments are intensely competitive and rapidly changing.
Principal competitive factors in these markets include product features and
functionality, product quality, reliability, ease-of-use, price, company
reputation and experience, breadth of product line, marketing efforts,
distribution methods and channels, and availability and quality of installation,
training and support services. The Company believes it generally competes
favorably on most of these factors, although certain competitive products
integrate with networked systems management products and interoperate with
operating systems and hardware platforms with which the Company's products do
not.
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Many of the Company's competitors have longer operating histories, greater
name recognition, greater market acceptance of their products and technologies,
broader product offerings and significantly greater financial, technical, sales,
marketing and other resources to devote to the development, promotion and sale
of their products. There can be no assurance that the Company's current
competitors or any new market entrants will not develop networked systems
management products or other technologies that offer significant performance,
price or other advantages over the Company's technology, which developments
could have a material adverse effect on the Company's business and operating
results. Moreover, increased competition could result in significant price
reductions with attendant negative effects upon the Company's margins.
The Company's competitors offer a variety of solutions to address the
networked systems management market. In the open systems environment, the
Company faces competition from companies that offer directly competitive
products, including PLATINUM Technology, Inc. for workload management tools and
Legato Systems, Inc. and VERITAS Software Corporation for backup tools, as well
as from standard software utilities which are commonly bundled with UNIX.
Moreover, Computer Associates International, Inc. ("CA") and a number of other
vendors market suites of systems management tools that compete with the
Company's UNIX products. In the HP3000 environment, the Company faces
competition from backup products offered by HP and others, in addition to
competition across the HP3000 product line from smaller companies. The Company
could also face competition for its Windows NT products from Microsoft in the
event Microsoft provides systems management functionality, either in the
operating system itself or separately.
The Company also faces competition for its UNIX products from manufacturers
of certain UNIX-based system hardware, including HP, Sun and IBM, which
currently offer products directly competitive with those of the Company. For
example, both HP and IBM offer load balancing software, and most manufacturers
offer backup software for use on their own hardware. Additional hardware
manufacturers may elect to offer similar competitive products in the future. In
addition, various vendors of client/server hardware and software may seek to
increase their presence in the networked systems management market by acquiring
or forming strategic alliances with competitors of the Company. There can be no
assurance that any such acquisition, development, marketing and other
cooperative arrangements will not adversely affect the Company's business and
operating results. Finally, the Company faces competition from companies that
have historically offered systems management products for the mainframe
environment, particularly CA. The Company anticipates that it may face
additional competition in the future from other mainframe environment companies
as they attempt to migrate their products to client/server environments. See
"Factors Affecting Business, Operating Results and Financial
Condition--Competition."
Additionally, although the Company considers its marketing, sales and
software development relationships with HP to be important to the Company's
business, and while HP is a reseller of Unison Maestro and participates with the
Company in cooperative marketing and product integration activities, certain of
HP's products compete with Load Balancer and Unison RoadRunner. In addition, HP
has reseller agreements with certain of the Company's competitors. The Company
would be materially adversely affected if HP decided to significantly reduce the
level of its reselling and integration activities with the Company or otherwise
reduce or terminate its relationship with the Company and its products. See
"Factors Affecting Business, Operating Results and Financial Condition--Indirect
Distribution Channels."
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies on a combination of copyright and trademark laws, trade
secrets, software security measures, license agreements and nondisclosure
agreements to protect its proprietary technology and software products. The
Company currently has no domestic or foreign patents or patent applications
pending. Despite the Company's precautions, it may be possible for unauthorized
third parties to copy aspects of, or otherwise obtain and use, the Company's
software products and technology without authorization. In addition, the Company
cannot be certain that others will not develop substantially
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equivalent or superseding proprietary technology or that equivalent products
will not be marketed in competition with the Company's products, thereby
substantially reducing the value of the Company's proprietary rights.
Furthermore, there can be no assurance that any confidentiality agreements
between the Company and its employees or any license agreements with its
customers will provide meaningful protection for the Company's proprietary
information in the event of any unauthorized use or disclosure of such
proprietary information.
From time to time the Company receives notices claiming that it is
infringing the proprietary rights of third parties, and there can be no
assurance that the Company will not become the subject of infringement claims or
legal proceedings by third parties with respect to current or future products.
In addition, the Company may initiate claims or litigation against third parties
for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Any such claims could be
time-consuming, result in costly litigation, cause product shipment delays or
lead the Company to enter into royalty or licensing agreements rather than
disputing the merits of such claims. Moreover, an adverse outcome in litigation
or similar adversarial proceedings could subject the Company to significant
liabilities to third parties, require expenditure of significant resources to
develop non-infringing technology, require disputed rights to be licensed from
others or require the Company to cease the marketing or use of certain products,
any of which could have a material adverse effect on the Company's business and
operating results. To the extent the Company wishes or is required to obtain
licenses to patents or proprietary rights of others, there can be no assurance
that any such licenses will be made available on terms acceptable to the
Company, if at all. As the number of software products in the industry increases
and the functionality of these products further overlaps, the Company believes
that software developers may become increasingly subject to infringement claims.
Any such claims against the Company, with or without merit, as well as claims
initiated by the Company against third parties, can be time-consuming and
expensive to defend or prosecute and to resolve. See "Factors Affecting
Business, Operating Results and Financial Condition-- Limited Intellectual
Property Protection."
EMPLOYEES
As of May 31, 1997, the Company had 225 full-time employees, consisting of
51 in product development, 104 in sales and marketing, 38 in support and
professional services, and 32 in finance and corporate administration. The
Company's success depends to a significant extent upon the contributions of its
executive officers and its other key sales, marketing, technical service and
engineering personnel and on its ability to continue to attract and retain
highly talented personnel. Competition for such personnel is intense, as certain
of these personnel have significant prior industry experience and are in great
demand. There can be no assurance that the Company will be able to attract and
retain such additional qualified personnel. See "Factors Affecting Business,
Opeating Results and Financial Condition--Management of Expanding Operations;
New Management Team" and "Dependence on Key Personnel." No employees are covered
by collective bargaining agreements, and the Company has not experienced any
work stoppages. The Company believes that its relationship with its employees is
good.
FACTORS AFFECTING BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
CERTAIN RISK FACTORS IN THIS REPORT CONTAIN FORWARD-LOOKING INFORMATION
INCLUDING STATEMENTS REGARDING THE MARKETS FOR THE COMPANY'S PRODUCTS; THE
COMPANY'S FUTURE ACTIVITIES TO ADDRESS THIS MARKET AND THEIR EFFECTIVENESS; THE
ACCEPTANCE OF THE COMPANY'S PRODUCTS BY CUSTOMERS; THE COMPANY'S FUTURE PRODUCT
DEVELOPMENT ACTIVITIES; THE EFFORTS OF THE COMPANY TO EXPAND ITS PRODUCTS TO
OPERATE OVER MORE DIVERSE NETWORKS; THE EXPANSION OF THE COMPANY'S SALES AND
MARKETING ACTIVITIES; AND THE COMPANY'S RELATIONSHIP WITH HEWLETT-PACKARD AND
OTHER INDIRECT SALES CHANNEL PARTICIPANTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS DUE TO A
NUMBER OF FACTORS, INCLUDING THOSE DESCRIBED BELOW, IN"ITEM 7--MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" OR
ELSEWHERE IN THIS REPORT.
9
<PAGE>
POTENTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS, SEASONALITY. The
Company's operating results have fluctuated, and may continue to fluctuate, on
an annual and quarterly basis as a result of a number of factors, many of which
are outside of the Company's control. These factors include the timing of
significant orders, the length of sales cycles, customer budget changes, the
timing of new product introductions, changes in pricing policies by the Company
or its competitors, product mix, market acceptance of new and enhanced versions
of the Company's products, and conditions and events in the computer industry
and the general economy. The Company does not maintain a significant backlog,
and therefore revenues for each quarter depend to a large extent on orders
booked and shipped in that quarter. Additionally, the Company typically realizes
a significant portion of license fee revenues in the last month of a quarter,
frequently in the last weeks or even days of a quarter. As a result, license fee
revenues for any quarter can be subject to significant variation. The Company
establishes its expenditure levels for sales, marketing. product development and
other operating expenses based, in large part, on its expected future revenues.
If revenues fall below expectations in a particular quarter, operating results
and net income are likely to be materially adversely affected. A significant
portion of the Company's operating expenses are fixed, and planned expenditures
are based primarily on sales forecasts. Any inability of the Company to adjust
spending quickly enough to compensate for any failure to meet sales forecasts or
to receive anticipated revenues, or any unexpected increase in product returns
or other costs, could magnify the adverse impact of such events on the Company's
operating results. Further, the purchase of the Company's products may involve a
significant commitment of capital by the customer, with the attendant delays
frequently associated with large capital expenditures and acceptance procedures
within an organization. For these and other reasons, the sales cycle associated
with the purchase of client/server networked systems management software is
typically lengthy and subject to a number of significant risks over which the
Company has little or no control, including customers' budgetary constraints,
internal acceptance reviews and third party financing arrangements. In addition,
the Company is increasingly attempting to direct customers to larger,
enterprise-wide implementations of the Company's products, which may further
increase the complexity and length of the sales cycle. In connection with such
larger sales, the Company may choose to grant greater pricing and other
concessions than for single department or local network sales. The Company's
reliance on such larger sales may also cause the Company's quarterly revenues to
fluctuate more widely. Based upon all of the foregoing, the Company believes
that its annual and quarterly revenues, expenses and operating results could
vary significantly in the future, that period-to-period comparisons of its
results of operations are not necessarily meaningful, and that, in any event,
such comparisons should not be relied upon as indicators of future performance.
Additionally, due to all of the foregoing factors, it is likely that in some
future period the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially adversely affected. The Company
experienced such a failure to meet expectations, and a consequential adverse
effect on its stock price in the fiscal quarter ended February 28, 1997.
The Company's business has experienced and is expected to continue to
experience significant seasonality, due, among other things, to customer capital
spending patterns, the general summer slowdown in the technology industry and
the fact that the Company's first fiscal quarter coincides with such summer
slowdown. Typically, net revenues are lowest during the first fiscal quarter
ending August 31 and highest during the fourth fiscal quarter ending May 31 of a
given fiscal year. Net revenues typically decline on a sequential basis from the
fourth fiscal quarter ending May 31 of a given fiscal year to the first fiscal
quarter ending August 31 of the next fiscal year. See "Item 7--Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION. The markets for networked systems management products are
intensely competitive and rapidly changing. Many of the Company s competitors
have longer operating histories, greater name recognition, greater market
acceptance of their products and technologies, broader product offerings and
significantly greater financial, technical, sales, marketing and other resources
to devote to the development, promotion and sale of their products. There can be
no assurance that the Company's current competitors or any new market entrants
will not develop networked systems management products or
10
<PAGE>
other technologies that offer significant performance, price or other advantages
over the Company's technology, which could have a material adverse effect on the
Company's business and operating results. Moreover, increased competition could
result in significant price reductions with attendant negative effects upon the
Company's margins, which would also materially adversely affect the Company's
business and operating results.
The Company's competitors offer a variety of solutions to address the
networked systems management market. In the open systems environment, the
Company faces competition from companies that offer directly competitive
products, including PLATINUM Technology, Inc. for workload management tools and
Legato Systems, Inc. and VERITAS Software Corporation for backup tools, as well
as from standard software utilities that are commonly bundled with UNIX.
Moreover, Computer Associates International, Inc. and a number of other vendors
market suites of systems management tools that compete with the Company's UNIX
products. In the HP3000 environment, the Company faces competition from backup
products offered by HP and others, in addition to competition across the product
line from smaller companies. The Company could also face competition from its
Windows NT products from Microsoft in the event Microsoft provides systems
functionality, either in the operating system itself or separately.
The Company also faces competition for its UNIX products from manufacturers
of certain UNIX-based system hardware, including HP, Sun and IBM, which
currently offer products directly competitive with those of the Company. For
example, both HP and IBM offer load balancing software, and most manufacturers
offer backup software for use on their own hardware. Additional hardware
manufacturers may elect to offer similar competitive products in the future. In
addition, various vendors of client/server hardware and software may seek to
increase their presence in the networked systems management market by acquiring
or forming strategic alliances with competitors of the Company. There can be no
assurance that any such acquisition, development, marketing or other cooperative
arrangements will not adversely affect the Company's business and operating
results. Finally, the Company faces competition from companies that have
historically offered systems management products for the mainframe environment,
particularly CA. The Company anticipates that it may face additional competition
in the future from other mainframe environment companies, as they attempt to
migrate their products to client/server environments.
CHANGING TECHNOLOGY AND INDUSTRY STANDARDS. The software industry is
characterized by rapid technological change, changes in customer demands,
evolving industry standards and frequent introductions of new hardware products,
operating systems, peripherals and applications, including emerging networked
systems management frameworks and network management platforms. The Company's
future success will depend substantially on the ability of the Company to keep
pace technologically with innovation in the networked systems management market
and to maintain a competitive advantage by developing new products to meet the
needs of this market. Market rejection of current industry standards, or the
adoption of new standards for distributed and open environments, could require
the Company to attempt to port its products quickly to maintain the market
position of such products. Additionally, there can be no assurance that other
operating systems, such as Windows NT, will not affect deployment of UNIX
systems for business critical applications. Any decline in sales of UNIX based
systems before the Company can successfully migrate its entire product line to
Windows NT or any other competitive operating systems would decrease the demand
for the Company's products and would have a material adverse effect on the
Company's business and operating results. Finally, there can be no assurance
that the Company will be successful in developing and marketing, on a timely
basis, product enhancements or new products that respond to technological change
or evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and sale of these products, or that any such new products or
product enhancements will adequately meet the requirements of the marketplace
and achieve market acceptance.
INDIRECT DISTRIBUTION CHANNELS. The Company has established and intends to
expand its indirect sales channels with ISVs, VARs and OEMs. The Company has had
only limited experience with such channels,
11
<PAGE>
and there can be no assurance that additional relationships will be successfully
developed, or that they will result in increased market presence for the
Company. Successful indirect sales efforts depend upon the abilities, resources,
reputation and motivation of the persons and organizations engaged by the
Company, and the Company has little control over such factors. Furthermore,
there can be no assurance that additional indirect channels are appropriate or
effective for addressing the market for open systems management products. The
failure of such efforts would impair the Company's future growth, if any, and
materially adversely affect the Company's business and operating results.
In particular, the Company considers its customer, marketing, sales and
software development relationships with HP to be an important element of its
success to date. HP has deployed certain of the Company's products to help
manage its own internal networked systems. HP also is a reseller of the
Company's products and participates with the Company in cooperative marketing
and product integration activities. Certain of HP's products, however, compete
with the Load Balancer and RoadRunner products. In addition, HP has reseller
agreements with certain of the Company's competitors. The Company would be
materially adversely affected if HP decided to significantly reduce the level of
its reselling and integration activities with the Company or otherwise reduce or
terminate its relationships with the Company and its products. Similarly, the
Company continues to have a reseller relationship with IBM/ Tivoli and the
Company's products are integrated with IBM/Tivoli's TME 10 systems management
framework. If the Company's relationship with IBM/Tivoli were lessened or
discontinued, the Company would have difficulty in maintaining effective product
integration and its business and operating results could be materially adversely
affected.
SUPPORT OF MULTIPLE ENVIRONMENTS; PRODUCT DEVELOPMENT. Given the Company's
focus on open distributed environments, especially the highly competitive UNIX
and Windows NT environments, the Company's future success will depend on the
timely and successful development and introduction of new products. Such
activities can involve substantial commitments of financial, product development
and other resources. Moreover, even if such efforts are successful, the Company
might have focused on particular applications that do not achieve or maintain
widespread market acceptance or whose users are predisposed to obtain their
management tools from other sources. The result of such occurrence could mean
that significant expenditures of time, effort and funds by the Company have
little or no value, which could have a material adverse effect on the Company's
business and operating results.
The Company has developed and is continuing to develop various versions of
its products for the Windows NT environment. The Company also intends to expand
its products to support additional applications and operate across more diverse
open networks, which may encompass an increasing variety of processor, server
and workstation types and multiple operating systems, including mainframe-based
legacy systems, PC network servers and new operating environments. Such efforts
will also require significant commitments of financial and product development
resources, and there can be no assurance that such efforts will be successful,
especially given that the Company has had limited experience with some of the
components of these more diverse environments. The failure of such efforts or
the failure of any resulting products to achieve market acceptance could have a
material adverse effect on the Company's business and operating results.
DEPENDENCE ON HP3000. A portion of the Company's revenues is currently and
is expected to continue to be derived from products and related services for the
proprietary mid-range HP3000 market. The HP3000 was originally introduced by HP
in 1972, and there can be no assurance as to how long it will continue to be a
viable product, especially in view of the trends toward open systems. Similarly,
there can be no assurance as to how long existing HP3000 users will continue to
use their systems in ways that benefit from use of the Company's management
tools. The Company's future business will be materially adversely affected if
the HP3000's share of the commercial market declines or if its installed
customer base erodes. See "Item 7--Management's Analysis of Financial Condition
and Results of Operations."
12
<PAGE>
INTERNATIONAL OPERATIONS AND SALES. Sales to customers outside of the
United States, including sales generated by the Company's United Kingdom
subsidiary, represented 25.6%, 24.2% and 22.1% of net revenues for fiscal 1995,
1996 and 1997, respectively. International sales and operations may be limited
or disrupted by the imposition of government controls, export license
requirements, political instability, trade restrictions, changes in tariffs and
exchange rates and other factors. In particular, fluctuations in currency
exchange rates could have a material adverse effect on the Company's business
and operating results. Additionally, the Company's business and operating
results may be materially adversely affected by difficulties in attracting and
retaining qualified personnel for international positions, coordinating
communications among geographically dispersed facilities and managing
international operations.
MANAGEMENT OF EXPANDING OPERATIONS; NEW MANAGEMENT TEAM. The Company has
grown rapidly in recent years, and continued growth, if any, will require
increased managerial, engineering, direct sales and other personnel, expanded
information systems and additional financial and administrative control
procedures. Continued expansion of the Company's direct and indirect sales
channels will require significant financial and managerial commitments by the
Company. In particular, experienced field sales personnel in the Company's
industry are in high demand and may not be attracted and retained on terms
advantageous to the Company, if at all. There can be no assurance that the
Company's continuing efforts to expand its direct and indirect sales channels
will be successful. Additionally, the Company is currently seeking a successor
to its founder and current Chief Executive Officer. Further, certain of the
Company's key employees, including its Vice Presidents of Marketing, of
Development and of European Operations, have only recently assumed their current
responsibilities. There can be no assurance that the Company will be able to
attract and retain additional qualified personnel, nor that such personnel will
be successful in managing the Company's expanding operations, including an
increasing number of customer relationships and geographically dispersed
locations.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon the contributions of its executive officers and its other key sales,
marketing technical service and engineering personnel and upon its ability to
continue to attract and retain highly talented personnel. Competition for such
personnel is intense, as certain of these personnel have significant prior
industry experience and are in great demand. The Company does not have and has
no current plans to obtain key-man life insurance for any of its personnel. None
of the Company's employees is subject to a noncompetition agreement. The loss of
the services of any of its executive officers or other key personnel could have
a material adverse effect on the Company's business and operating results, and
there can be no assurance that the Company will be successful in attracting and
retaining such personnel.
LIMITED INTELLECTUAL PROPERTY PROTECTION. The Company relies on a
combination of copyright and trademark laws, trade secrets, software security
measures, license agreements and nondisclosure agreements to protect its
proprietary technology and software products. The Company currently has no
domestic or foreign patents or patent applications pending. Despite the
Company's precautions, it may be possible for unauthorized third parties to copy
aspects of, or otherwise obtain and use, the Company's software products and
technology without authorization. In addition, the Company cannot be certain
that others will not develop substantially equivalent or superseding proprietary
technology, or that equivalent products will not be marketed in competition with
the Company's products, thereby substantially reducing the value of the
Company's proprietary rights. Furthermore, there can be no assurance that any
confidentiality agreements between the Company and its employees or any license
agreements with its customers will provide meaningful protection for the
Company's proprietary information in the event of any unauthorized use or
disclosure of such proprietary information.
From time to time the Company receives notices claiming that it is
infringing the proprietary rights of third parties, and there can be no
assurance that the Company will not become the subject of infringement claims or
legal proceedings by third parties with respect to current or future products.
In addition, the Company may initiate claims or litigation against third parties
for infringement of the Company's
13
<PAGE>
proprietary rights or to establish the validity of the Company's proprietary
rights. Any such claims could be time-consuming, result in costly litigation,
cause product shipment delays or lead the Company to enter into royalty or
licensing agreements rather than disputing the merits of such claims. Moreover,
an adverse outcome in litigation or similar adversarial proceedings could
subject the Company to significant liabilities to third parties, require
expenditure of significant resources to develop non-infringing technology,
require disputed rights to be licensed from others or require the Company to
cease the marketing or use of certain products, any of which could have a
material adverse effect on the Company's business and operating results. To the
extent the Company wishes or is required to obtain licenses to patents or
proprietary rights of others, there can be no assurance that any such licenses
will be made available on terms acceptable to the Company, if at all. As the
number of software products in the industry increases and the functionality of
these products further overlaps, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims against
the Company, with or without merit, as well as claims initiated by the Company
against third parties, can be time-consuming and expensive to defend or
prosecute and to resolve.
PRODUCT ERRORS, PRODUCT LIABILITY. Software products as complex as those
offered by the Company often contain undetected errors or failures when first
introduced or as new versions are released. Testing of the Company's products is
particularly challenging because it is difficult to simulate the wide variety of
computing environments in which the Company's customers may deploy such
products. Accordingly, there can be no assurance that, despite testing by the
Company and by current and potential customers, errors will not be found after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance, any of which could have a material adverse effect upon the Company's
business and operating results. Further, the Company's license agreements with
its customers contain provisions designed to limit the Company's exposure to
potential product liability claims. Although the Company has not experienced any
product liability claims, the sale and support of products by the Company
entails the risk of such claims. The Company does not currently maintain product
liability insurance. A successful product liability claim brought against the
Company could have a material adverse effect upon the Company's business and
operating results.
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION AND DELAWARE LAW. The Company's executive officers, directors and
their affiliates beneficially own approximately 39% of the outstanding shares of
the Company's Common Stock. As a result, these stockholders may be able to exert
significant influence over the election of the Company's directors, the approval
of all matters requiring stockholder approval, and in general the affairs of the
Company. Such concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of the Company. In addition, the
Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of such stock without further stockholder
approval. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. Issuance of Preferred Stock could have the effect
of delaying, deferring or preventing a change in control of the Company.
Furthermore, certain provisions of the Company's Certificate of Incorporation
and of Delaware law could have the effect of delaying, deferring or preventing a
change in control of the Company.
POSSIBLE VOLATILITY OF STOCK PRICE; IMMEDIATE AND SUBSTANTIAL
DILUTION. There can be no assurance that a viable public market for the Common
Stock will be sustained. Factors such as announcements of technological
innovations or new products by the Company, its competitors and other third
parties, as well as quarterly variations in the Company's anticipated or actual
results of operations and market conditions in high technology industries
generally, may cause the market price of the Company's Common Stock to fluctuate
significantly. In addition, the stock market has on occasion experienced extreme
price and volume fluctuations, which have particularly affected the market
prices of many high technology companies and which have often been unrelated or
disproportionate to the operating performance of such
14
<PAGE>
companies. These broad market fluctuations may adversely affect the market price
of the Company's Common Stock.
ITEM 2. PROPERTIES.
The Company is headquartered in Santa Clara, California, where it leases
approximately 22,870 square feet. The lease runs through March 31, 2000. The
Company also leases approximately 28,000 square feet of space for its operations
in Austin, Texas. The lease of the Austin facility runs through July 31, 2003.
The Company also leases office space in the United Kingdom and in several major
metropolitan areas in the United States. The Company believes that its current
facilities are adequate to meet its needs for the foreseeable future, or that it
can acquire additional space, if needed, on acceptable terms.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1997.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company who are appointed by and serve at the
discretion of the Board of Directors, and their ages, as of August 20, 1997 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------------------------ --- ---------------------------------------------------------
<S> <C> <C>
Don H. Lee...................................... 58 Chief Executive Officer and President
Michael A. Casteel.............................. 51 Executive Vice President, Chief Technology Officer and
Secretary
Richard J. Armitage............................. 53 Vice President, Finance, Chief Financial Officer,
Treasurer and Assistant Secretary
</TABLE>
The Company's executive officers are appointed by, and serve at the
discretion of, the Board of Directors. Each executive officer is a full time
employee of the Company. There is no family relationship between any executive
officer or director of the Company.
DON H. LEE was a founder of the Company and has served as its Chief
Executive Officer and as a member of the Board of Directors since 1980. In
addition, Mr. Lee served as President of the Company from its founding to July
1994, from July 1996 to August 1996 and from May 1997 until the present.
MICHAEL A. CASTEEL was a founder of the Company and has served as its
Executive Vice President and as a member of the Board of Directors since 1980.
Mr. Casteel has served as the Company's Secretary from its founding to September
1993 and again from July 1996 to the present, and was appointed Chief Technology
Officer in April 1994.
RICHARD J. ARMITAGE joined the Company in August 1991 as Vice President,
Finance and was appointed Chief Financial Officer, Treasurer and Assistant
Secretary in April 1995. From September 1987 to August 1991, Mr. Armitage was
the President of Business Systems International, Inc., a developer of laser
printing software. Mr. Armitage is a Certified Public Accountant.
15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the over-the-counter market and is
quoted on the Nasdaq National Market under the symbol "UNSN." The Company
declared a three-for-two stock split which was effective January 31, 1997. The
following table sets forth, for the periods indicated, the range of high and low
sale prices, adjusted for the three-for-two stock split, per share of Common
Stock of the Company as reported on the Nasdaq Market System:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDED MAY 31, 1996
First Quarter (from July 20, 1995)......................................... $ 10.00 $ 7.42
Second Quarter............................................................. $ 10.00 $ 7.68
Third Quarter.............................................................. $ 14.67 $ 7.83
Fourth Quarter............................................................. $ 14.75 $ 13.00
FISCAL YEAR ENDED MAY 31, 1997
First Quarter.............................................................. $ 21.50 $ 11.33
Second Quarter............................................................. $ 18.50 $ 11.83
Third Quarter.............................................................. $ 21.00 $ 16.17
Fourth Quarter............................................................. $ 16.50 $ 4.25
FISCAL YEAR ENDED MAY 31, 1998
First Quarter (through August 18, 1997).................................... $ 12.25 $ 6.25
</TABLE>
On July 31, 1997, there were 89 holders of record of the Company's Common
Stock. Because many of the shares of the Company's Common Stock are held by
brokers and other institutions on behalf of stockholders, the Company is unable
to estimate the total number of stockholders represented by these record
holders.
The Company has never declared or paid any cash dividends on its Common
Stock, and does not anticipate paying any cash dividends in the foreseeable
future.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
License fees............................................. $ 9,213 $ 8,812 $ 12,260 $ 20,924 $ 27,109
Services................................................. 5,391 6,271 7,426 9,091 12,727
--------- --------- --------- --------- ---------
Total net revenues..................................... 14,604 15,083 19,686 30,015 39,836
Costs and expenses:
Cost of license fees..................................... 501 559 562 853 1,185
Cost of services......................................... 719 969 1,186 2,052 3,254
Sales and marketing...................................... 5,789 7,070 9,998 13,598 17,822
Research and development................................. 2,559 3,003 2,985 3,969 5,498
General and administrative............................... 2,357 1,943 2,205 2,741 4,273
Nonrecurring charges..................................... 4,583 628 -- -- --
--------- --------- --------- --------- ---------
Total operating expenses............................... 6,508 14,172 16,936 23,213 32,032
--------- --------- --------- --------- ---------
Income (loss) from operations........................ (1,904) 911 2,750 6,802 7,804
Interest and other income (expense), net................... (270) (57) (68) 720 948
--------- --------- --------- --------- ---------
Income (loss) before provision for income taxes...... (2,174) 854 2,682 7,522 8,752
Provision for (benefit from) income taxes.................. (554) 228 982 2,855 3,370
--------- --------- --------- --------- ---------
Net income (loss).................................... $ (1,620) $ 626 $ 1,700 $ 4,667 $ 5,382
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share................................ $ (0.19) $ 0.07 $ 0.19 $ 0.40 $ 0.45
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in per share calculation....................... 8,462 8,786 8,925 11,775 12,092
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
MAY 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............. $ 3,413 $ 3,846 $ 5,217 $ 20,448 $ 26,498
Working capital.............................................. 1,201 1,348 2,923 21,670 23,619
Total assets................................................. 9,304 9,058 11,829 34,221 43,432
Long-term liabilities, net of current portion................ 3,476 2,752 2,077 872 535
Total stockholders' equity (deficit)......................... (757) 263 2,561 23,027 29,886
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE DISCUSSION BELOW CONTAINS STATEMENTS THAT INCLUDE FORWARD-LOOKING
INFORMATION, INCLUDING STATEMENTS REGARDING FUTURE REVENUES, REVENUE SOURCES,
OPERATING EXPENSES AND CAPITAL EXPEDITURES. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS DUE TO A
NUMBER OF FACTORS, INCLUDING THOSE DESCRIBED IN "ITEM 1--BUSINESS--FACTORS
AFFECTING BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION" OR ELSEWHERE IN
THIS REPORT.
OVERVIEW
The Company develops, markets and supports networked systems management
software for distributed, heterogeneous computing environments. The Company's
revenues are derived from license fees for software products and fees for a
range of services complementing such products, including software maintenance
and support, training and system implementation consulting. Software licenses
typically are granted on a perpetual, per-CPU basis, although the Company may
grant site or enterprise-wide licenses for larger installations. License fee
revenues are recognized upon product shipment if no significant vendor
obligations remain and collection of the resulting receivable is deemed
probable. Allowances are established for potential product returns and credit
losses, which have not been substantial to date. Fees for services are charged
separately from fees for software licenses. Service revenues from customer
maintenance services, which include on-going product support and periodic
product updates, are recognized ratably over the term of each contract, which is
typically twelve months. Payments for customer maintenance fees are generally
made in advance and are non-refundable. Service revenues from training and
consulting services are recognized when the services are performed.
License fee revenues have been derived principally from direct sales of
software products to end users through the Company's direct field sales and
telesales force and a national account sales group. Although the Company
believes that such direct sales will continue to account for a significant
portion of license fee revenues, the Company expects that revenues from sales
through ISVs, VARs, OEMs and other indirect channels will increase as a
percentage of license fee revenues. The Company's expansion of its field sales
force has caused, and is expected to continue to cause, sales and marketing
expenses to increase. The Company is also increasingly attempting to direct
customers to larger, enterprise-wide implementations of the Company's products,
which may increase the complexity and length of the sales cycle. In connection
with such larger sales, the Company may choose to grant greater pricing and
other concessions than for single department or local network sales. The
Company's reliance on such larger sales may also cause the Company's quarterly
revenues to fluctuate more widely.
The Company's operating results have fluctuated, and may continue to
fluctuate, on an annual and quarterly basis as a result of a number of factors,
many of which are outside of the Company's control. These factors include the
timing of significant orders, the length of sales cycles, customer budget
changes, the timing of new product introductions, changes in pricing policies by
the Company or its competitors, product mix, market acceptance of new and
enhanced versions of the Company's products, and conditions and events in the
computer industry and the general economy. The Company does not maintain a
significant backlog, and therefore revenues for each quarter depend to a large
extent on orders booked and shipped in that quarter. Additionally, the Company
typically realizes a significant portion of license fee revenues in the last
month of a quarter, frequently in the last weeks or even days of a quarter. As a
result, license fee revenues for any quarter can be subject to significant
variation. The Company establishes its expenditure levels for sales, marketing,
product development and other operating expenses based, in large part, on its
expected future revenues. If revenues fall below expectations in a particular
quarter, operating results and net income are likely to be materially adversely
affected. A significant portion of the Company's operating expenses is fixed,
and planned expenditures are based primarily on sales forecasts. Any inability
of the Company to adjust spending quickly enough to compensate for any failure
to meet sales forecasts or to receive anticipated revenues, or any unexpected
increase in product returns or other
18
<PAGE>
costs, could magnify the adverse impact of such events on the Company's
operating results. Further, the purchase of the Company's products may involve a
significant commitment of capital by the customer, with the attendant delays
frequently associated with large capital expenditures and acceptance procedures
within an organization. For these and other reasons, the sales cycle associated
with the purchase of client/ server networked systems management software is
typically lengthy and subject to a number of significant risks over which the
Company has little or no control, including customers' budgetary constraints,
internal acceptance reviews and third party financing arrangements. Furthermore,
the Company's business has experienced and is expected to continue to experience
significant seasonality, due, among other things, to customer capital spending
patterns, the general summer slowdown in the technology industry and the fact
that the Company's first fiscal quarter coincides with such summer slowdown.
Typically, net revenues are lowest during the first fiscal quarter ending August
31 and highest during the fourth fiscal quarter ending May 31 of a given fiscal
year. Net revenues typically decline on a sequential basis from the fourth
fiscal quarter ending May 31 of a given fiscal year to the first fiscal quarter
ending August 31 of the next fiscal year. Based upon the foregoing and other
factors, the Company believes that its annual and quarterly revenues, expenses
and operating results could vary significantly in the future, that
period-to-period comparisons of its results of operations are not necessarily
meaningful, and that, in any event, such comparisons should not be relied upon
as indicators of future performance.
RESULTS OF OPERATIONS
The following table sets forth certain selected financial information
expressed as a percentage of total net revenues for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net revenues:
License fees....................................................... 62.3% 69.7% 68.1%
Services........................................................... 37.7 30.3 31.9
--------- --------- ---------
Total net revenues............................................... 100.0 100.0 100.0
--------- --------- ---------
Costs and expenses:
Cost of license fees............................................... 2.9 2.8 3.0
Cost of services................................................... 6.0 6.8 8.2
Sales and marketing................................................ 50.8 45.3 44.7
Research and development........................................... 15.2 13.2 13.8
General and administrative......................................... 11.2 9.1 10.7
Total operating expenses......................................... 86.1 77.2 80.4
--------- --------- ---------
Income from operations......................................... 13.9 22.8 19.6
Interest and other income (expense), net............................. (0.3) 2.4 2.4
--------- --------- ---------
Income before provision for income taxes....................... 13.6 25.2 22.0
Provision for income taxes........................................... 5.0 9.5 8.5
--------- --------- ---------
Net income..................................................... 8.6% 15.7% 13.5%
--------- --------- ---------
--------- --------- ---------
</TABLE>
NET REVENUES
Net revenues increased from $19.7 million in fiscal 1995 to $30.0 million in
fiscal 1996 and $39.8 million in fiscal 1997, representing increases of 52% from
1995 to 1996 and 33% from 1996 to 1997. These increases were primarily the
result of growth in open systems license fees, attributable to increased market
acceptance of the Company's UNIX and Windows NT products, offset by a slight
decline in revenues from HP3000 products; increased revenues from indirect
channels; and increased revenues from services.
19
<PAGE>
The following chart sets forth the Company's net revenues from license fees
and services, with license fees broken out by UNIX/Windows NT versus HP3000:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
License fees:
UNIX/Windows NT............................................ $ 4,510 $ 13,406 $ 20,175
HP3000..................................................... 7,750 7,518 6,934
--------- --------- ---------
Total license fees....................................... 12,260 20,924 27,109
Services..................................................... 7,426 9,091 12,727
--------- --------- ---------
Total net revenues..................................... $ 19,686 $ 30,015 $ 39,836
--------- --------- ---------
--------- --------- ---------
</TABLE>
License fee revenues increased from $12.3 million in fiscal 1995 to $20.9
million in fiscal 1996 and $27.1 million in fiscal 1997, representing increases
of 71% from 1995 to 1996 and 30% from 1996 to 1997. UNIX and Windows NT licenses
increased from $4.5 million in fiscal 1995 to $13.4 million in fiscal 1996 and
$20.2 million in fiscal 1997, representing increases of 197% from 1995 to 1996
and 50% from 1996 and 1997. The increases in UNIX and Windows NT license fee
revenues both in absolute dollars and as a percentage of total license fees
resulted from the expansion of the Company's product offerings and its increased
efforts to address the open distributed systems market. The Company's future
growth, if any, will depend on continued growth in UNIX and Windows NT license
fees. License fees from HP3000 products have been, and are expected to continue
to be, a significant though declining portion of the Company's net revenues.
However, there can be no assurance as to how long the HP3000 will continue to be
a viable product or be used in ways which benefit from use of the Company's
networked systems management tools. The Company anticipates that HP3000 license
fees may continue to decline in the future, as the Company continues to focus on
the open distributed systems market. See "Item 1--Business--Factors Affecting
Business, Operating Results and Financial Condition."
Service revenues increased from $7.4 million in fiscal 1995 to $9.1 million
in fiscal 1996 and $12.7 in fiscal 1997, representing increases of 22% from 1995
to 1996 and 40% from 1996 to 1997. These increases reflect the increase in the
installed base of the Company's products and additional revenues generated as a
result of the expansion of the Company's consulting services group.
Sales to customers outside of the United States, including sales generated
by the Company's United Kingdom subsidiary, represented 25.6%, 24.2% and 22.1%
in fiscal 1995, 1996 and 1997, respectively. The Company's sales to customers
outside of the United States increased in absolute dollars in both fiscal 1996
and 1997 due to increased acceptance of the Company's products in such markets.
COST OF LICENSE FEES
Cost of license fees consists primarily of product packaging, shipping,
delivery media, documentation expenses, as well as third-party royalties and
other payments in connection with sales of certain of the Company's product and
sales of third-party products by the Company. Cost of license fees were
$562,000, or 4.6% of license fees, in fiscal 1995, $853,000, or 4.1% of license
fees, in fiscal 1996, and $1.2 million, or 4.4% of license fees, in fiscal 1997.
The increase in cost of license fees as a percentage of license fee revenues
from fiscal 1996 to fiscal 1997 was a result of increased revenues from products
that are subject to third-party royalty and other such payment obligations. The
Company anticipates that third-party royalties could continue to increase in the
future as the Company introduces additional products subject to such
obligations.
20
<PAGE>
COST OF SERVICES
Cost of services consists primarily of the direct and indirect costs of
providing software maintenance and support, training and consulting services to
the Company's customers. Cost of services increased from $1.2 million, or 16.0%
of services from revenue, in fiscal 1995 to $2.1 million, or 22.6% of services
revenue, in fiscal 1996 and to $3.3 million or 25.6% of services revenue, in
fiscal 1997. Such increases were due to increases in support personnel in each
fiscal year in anticipation of increasing demand for customer support services
relating to the Company's UNIX and Windows NT products and additional training
and consulting personnel to assist customers in deploying these products.
SALES AND MARKETING
Sales and marketing expenses consist principally of salaries, commissions,
travel and advertising and promotion costs. Sales and marketing expenses
increased from $10.0 million, or 50.8% of net revenues, in fiscal 1995 to $13.6
million, or 45.3% of net revenues, in fiscal 1996. Sales and marketing expenses
increased to $17.8 million, or 44.7% of net revenues, in fiscal 1997. The
increase in absolute dollars in fiscal 1997 was primarily the result of
continued expansion of the Company's sales organization and increased sales
compensation. Such expenses declined as a percentage of net revenues in fiscal
1997 as the Company began to realize benefits from the expanded sales
organization. The Company expects to continue to expand its field sales
organization, and accordingly that sales and marketing expenses will continue to
increase in the future.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of personnel related
costs. Such expenses increased from $3.0 million, or 15.2% of net revenues, in
fiscal 1995, to $4.0 million, or 13.2% of net revenues, in fiscal 1996. Research
and development expenses increased to $5.5 million, or 13.8% of net revenues, in
fiscal 1997. The increase in research and development spending in fiscal 1997
over 1996 was attributable to increased compensation expenses to attract new
personnel and retain existing personnel and additional hardware and software
tools to expand and enhance the Company's products. The Company expects research
and development expenses to continue to increase in absolute dollars as the
Company continues to invest in the development of new products and enhancement
of existing products.
GENERAL AND ADMINISTRATIVE
General and Administrative expenses increased in absolute dollars from $2.2
million, or 11.2% of net revenues, in fiscal 1995, to $2.7 million, or 9.1% of
net revenues, in fiscal 1996, and to $4.3 million, or 10.7% of net revenues, in
fiscal 1997. The increases were primarily the result of increased staffing and
related costs required to manage and support expanded operations and to comply
with the responsibilities of a public company.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net is comprised primarily of interest
and dividend income, gains on foreign currency translations and gains on sales
of assets, net of interest expense and any losses on the foregoing. Interest
income is comprised primarily of interest on proceeds from the Company's initial
public offering completed in July 1995. Interest expense has historically been
comprised primarily of interest on debt incurred in connection with a past
acquisition and the Company's guarantee of certain indebtedness of its Employee
Stock Ownership Plan. During the quarter ended August 31, 1995, the ESOP retired
its indebtedness with a portion of the proceeds from the ESOP's sale of shares
in the initial public offering. During the quarter ended February 29, 1996, the
Company retired a significant portion of the acquisition indebtedness.
21
<PAGE>
PROVISION FOR INCOME TAXES
The Company's effective tax rate was 36.6% in fiscal 1995, 38.0% in fiscal
1996 and 38.5% in fiscal 1997. The increases in the effective tax rate since
1995 were due primarily to the Company's inability to avail itself of research
and development credits. Such rates approximately represented the combined
federal and state statutory rate, as well as certain taxes due in the United
Kingdom.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations and capital expenditures
primarily with cash flow from operations. Net cash provided by operating
activities in fiscal 1995 was $2.0 million, resulting primarily from net income
and increases in accrued expenses and income taxes payable, offset in part by an
increase in accounts receivable. Net cash provided by operating activities in
fiscal 1996 was $2.2 million, resulting primarily from net income and increases
in accrued expenses and accounts payable, offset in part by an increase in
accounts receivable. Net cash provided by operating activities in fiscal 1997
was $6.7 million, resulting primarily from net income and increases in deferred
revenue and income taxes payable, offset in part by an increase in accounts
receivable.
The Company's accounts receivable increased from May 31, 1995 to May 31,
1996 as the Company's license fee revenues increased and the Company began to
offer longer payment terms on enterprise-wide customer sales. The Company's
accounts receivable continued to increase from May 31, 1996 to May 31, 1997 as
the Company's license fee revenues continued to increase, offset in part by the
Company's beginning to offer third-party financing to its customers making large
enterprise-wide purchases.
Net cash provided by investing activities in fiscal 1995 was $174,000,
consisting primarily of sales of marketable securities, offset in part by
purchases of equipment. Net cash used in investing activities was $15.7 million
in fiscal 1996, consisting primarily of purchases of marketable securities, net
of sales of marketable securities. Net cash used in investing activities in
fiscal 1997 was $1.1 million consisting primarily of purchases of marketable
securities and purchases of equipment, offset in part by sales of marketable
securities.
Net cash used in financing activities was $420,000 in fiscal 1995 consisting
primarily of repayments on notes payable, offset in part by the proceeds from
sales (net of repurchases) of Common Stock. Net cash provided by financing
activities was $14 million in fiscal 1996 consisting primarily of funds received
in the Company's public offering. Net cash provided by financing activities was
$498,000 in fiscal 1997 consisting primarily of funds received from issuance of
stock, offset in part by repayment of notes payable.
As of May 31, 1995, 1996 and 1997, the Company had cash, cash equivalents
and marketable securities of $5.2 million, $20.4 million and $26.5 million,
respectively. At May 31, 1997, the Company had no material capital commitments.
The Company believes that its current cash balances and cash flow from
operations, if any, will be sufficient to meet its working capital and capital
expenditure requirements for at least the next twelve months.
RECENT PRONOUNCEMENTS
During February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (SFAS 128), "Earnings per Share", which specifies the
computation, presentation and disclosure requirements for Earnings per Share.
SFAS 128 will become effective for the Company's 1998 fiscal year. The Company's
management is currently studying the implications of SFAS 128. The impact of
adopting SFAS 128 on the Company's financial statements has not yet been
determined.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
- ------------------------------------------------------------------------- ----
<S> <C>
Report of Coopers & Lybrand L.L.P., Independent Accountants.......... 24
Consolidated Balance Sheets at May 31, 1996 and 1997................. 25
Consolidated Statements of Operations for Years Ended May 31, 1995,
1996 and 1997...................................................... 26
Consolidated Statements of Stockholders' Equity for Years Ended May
31, 1995, 1996 and 1997............................................ 27
Consolidated Statements of Cash Flows for Years Ended May 31, 1995,
1996 and 1997...................................................... 28
Notes to the Consolidated Financial Statements....................... 29
FINANCIAL STATEMENT SCHEDULE
- -------------------------------------------------------------------------
The following financial statement schedule of the Company for the
three years ended May 31, 1997 is filed as part of this Form 10-K and
should be read in conjunction with the Consolidated Financial
Statements, and related notes thereto, of the Company.
Schedule II -- Valuation and Qualifying Accounts
Schedules other than that listed above have been omitted since they
are either not required or not applicable, or the information is
otherwise included.
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Unison Software, Inc.
We have audited the accompanying consolidated balance sheets of Unison
Software, Inc. and subsidiaries as of May 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended May 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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
Unison Software, Inc. and subsidiaries as of May 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 31, 1997, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Jose, California
July 3, 1997
24
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MAY 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 4,558 $ 10,674
Marketable securities..................................................................... 15,890 11,716
Accounts receivable, net of allowance for doubtful accounts of $176 and $388 at May 31,
1996 and 1997, respectively............................................................. 11,214 13,387
Prepaid expenses and other current assets................................................. 116 540
Deferred income taxes..................................................................... 214 313
--------- ---------
Total current assets.................................................................. 31,992 36,630
Property and equipment, net................................................................. 1,715 2,498
Deferred income taxes....................................................................... 237
Other assets, net........................................................................... 277 196
Marketable securities....................................................................... 4,108
--------- ---------
Total assets.......................................................................... $ 34,221 $ 43,432
--------- ---------
--------- ---------
LIABILITIES
Current liabilities:
Current portion of long-term debt......................................................... $ 308 $ 66
Accounts payable.......................................................................... 454 532
Income taxes payable...................................................................... 403 1,171
Accrued compensation...................................................................... 1,967 1,897
Accrued expenses.......................................................................... 1,187 1,386
Deferred revenue.......................................................................... 6,003 7,959
--------- ---------
Total current liabilities............................................................. 10,322 13,011
Long-term debt, net of current portion...................................................... 688 59
Deferred income taxes....................................................................... 73
Other long-term liabilities................................................................. 184
Deferred revenue............................................................................ 403
--------- ---------
Total liabilities..................................................................... 11,194 13,546
--------- ---------
--------- ---------
Commitments and contingencies (Note 6)
Stockholders' equity
Preferred stock, $0.001 par value:
Authorized: 5,000 shares;
Issued and outstanding: none
Common stock, $0.001 par value:
Authorized: 40,000 shares;
Issued and outstanding: 11,525 and 11,929 shares at May 31, 1996 and 1997,
respectively.......................................................................... 12 12
Additional paid-in capital................................................................ 16,087 17,595
Notes receivable for common stock........................................................... (135)
Unrealized holding losses on marketable securities, net..................................... (19) (19)
Cumulative foreign currency translation adjustments......................................... (55) 49
Retained earnings........................................................................... 7,002 12,384
--------- ---------
Total stockholders' equity............................................................ 23,027 29,886
--------- ---------
Total liabilities and stockholders' equity............................................ $ 34,221 $ 43,432
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net revenues:
License fees................................................................... $ 12,260 $ 20,924 $ 27,109
Services....................................................................... 7,426 9,091 12,727
--------- --------- ---------
Total net revenues......................................................... 19,686 30,015 39,836
--------- --------- ---------
Costs and expenses:
Cost of license fees........................................................... 562 853 1,185
Cost of services............................................................... 1,186 2,052 3,254
Sales and marketing............................................................ 9,998 13,598 17,822
Research and development....................................................... 2,985 3,969 5,498
General and administrative..................................................... 2,205 2,741 4,273
--------- --------- ---------
Total operating expenses................................................... 16,936 23,213 32,032
--------- --------- ---------
Income from operations................................................... 2,750 6,802 7,804
Interest and other income, net................................................... 181 848 970
Interest expense................................................................. (249) (128) (22)
--------- --------- ---------
Income before provision for income taxes................................. 2,682 7,522 8,752
Provision for income taxes....................................................... 982 2,855 3,370
--------- --------- ---------
Net income............................................................... $ 1,700 $ 4,667 $ 5,382
--------- --------- ---------
--------- --------- ---------
Net income per share............................................................. $ 0.19 $ 0.40 $ 0.45
--------- --------- ---------
--------- --------- ---------
Shares used in per share calculation............................................. 8,925 11,775 12,092
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NOTES UNREALIZED
COMMON STOCK ADDITIONAL RECEIVABLE HOLDING LOSSES
------------------------ PAID-IN FOR COMMON ON MARKETABLE
SHARES AMOUNT CAPITAL STOCK SECURITIES, NET
----------- ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Balances, May 31, 1994................................. 8,342 $ 8 $ 736 $ (84)
Issuance of common stock under employee stock option
plan at $0.67 to $2.00 per share..................... 169 1 200
Issuance of common stock, for cash and notes........... 135 225 $ (125)
Retirement of stock.................................... (120) (80)
Change in unrealized holding losses, net of taxes...... 54
Foreign currency translation adjustments...............
Net income.............................................
Reduction for guarantee of ESOP debt...................
----------- --- ----------- ----- ---
Balances, May 31, 1995................................. 8,526 9 1,081 (125) (30)
Issuance of common stock under employee stock option
plan at $0.67 to $7.50 per share..................... 362 860
Warrants exercised, net issuance....................... 46
Issuance of common stock in IPO, net of issuance
costs................................................ 2,550 3 13,378
Issuance of common stock, under the Employee Stock
Purchase Plan........................................ 41 195
Tax benefits related to exercise of stock options...... 573
Repayment of note receivable........................... 125
Change in unrealized holding losses, net of taxes...... 11
Foreign currency translation adjustment................
Net income.............................................
Reduction for guarantee of ESOP debt...................
----------- --- ----------- ----- ---
Balances, May 31, 1996................................. 11,525 12 16,087 -- (19)
Issuance of common stock under employee stock option
plan at $1.59 to $6.00 per share..................... 188 361
Warrants exercised, net issuance....................... 158
Issuance of common stock, under the Employee Stock
Purchase Plan........................................ 39 463
Tax benefits related to exercise of stock options...... 630
Warrants exercised..................................... 19 50
Amortization of deferred compensation.................. 4
Issuance of notes receivable to stockholder............ (135)
Foreign currency translation adjustment................
Net income.............................................
----------- --- ----------- ----- ---
Balances, May 31, 1997................................. 11,929 $ 12 $ 17,595 $ (135) $ (19)
----------- --- ----------- ----- ---
----------- --- ----------- ----- ---
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY REDUCTION FOR
TRANSLATION RETAINED GUARANTEE OF
ADJUSTMENTS EARNINGS ESOP DEBT TOTAL
--------------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
Balances, May 31, 1994................................. $ (2) $ 695 $ (1,090) 263
Issuance of common stock under employee stock option
plan at $0.67 to $2.00 per share..................... 201
Issuance of common stock, for cash and notes........... 100
Retirement of stock.................................... (60) (140)
Change in unrealized holding losses, net of taxes...... 54
Foreign currency translation adjustments............... (9) (9)
Net income............................................. 1,700 1,700
Reduction for guarantee of ESOP debt................... 392 392
--- ----------- ------------- ---------
Balances, May 31, 1995................................. (11) 2,335 (698) 2.561
Issuance of common stock under employee stock option
plan at $0.67 to $7.50 per share..................... 860
Warrants exercised, net issuance.......................
Issuance of common stock in IPO, net of issuance
costs................................................ 13,381
Issuance of common stock, under the Employee Stock
Purchase Plan........................................ 195
Tax benefits related to exercise of stock options...... 573
Repayment of note receivable........................... 125
Change in unrealized holding losses, net of taxes...... 11
Foreign currency translation adjustment................ (44) (44)
Net income............................................. 4,667 4,667
Reduction for guarantee of ESOP debt................... 698 698
--- ----------- ------------- ---------
Balances, May 31, 1996................................. (55) 7,002 -- 23,027
Issuance of common stock under employee stock option
plan at $1.59 to $6.00 per share..................... 361
Warrants exercised, net issuance....................... --
Issuance of common stock, under the Employee Stock
Purchase Plan........................................ 463
Tax benefits related to exercise of stock options...... 630
Warrants exercised..................................... 50
Amortization of deferred compensation.................. 4
Issuance of notes receivable to stockholder............ (135)
Foreign currency translation adjustment................ 104 104
Net income............................................. 5,382 5,382
--- ----------- ------------- ---------
Balances, May 31, 1997................................. $ 49 $ 12,384 $ -- 29,886
--- ----------- ------------- ---------
--- ----------- ------------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 1,700 $ 4,667 $ 5,382
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 358 258 311
Deferred income taxes....................................................... (9) 168 211
Other....................................................................... 70 (20) 316
Changes in operating assets and liabilities:
Accounts receivable....................................................... (1,325) (6,503) (2,385)
Prepaid expenses and other current assets................................. (16) 8 (424)
Accounts payable.......................................................... 72 174 78
Accrued expenses.......................................................... 806 1,336 129
Income taxes payable...................................................... 250 141 768
Deferred revenue.......................................................... 143 1,977 2,359
--------- ---------- ----------
Net cash provided by operating activities............................... 2,049 2,206 6,745
--------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment........................................... (308) (1,036) (1,090)
Increase (decrease) in other long-term assets................................. (43) (84) 81
Decrease in other long-term obligations....................................... (184)
Purchases of marketable securities............................................ (26,202) (19,839)
Sales of marketable securities................................................ 525 11,592 19,905
--------- ---------- ----------
Net cash provided by (used in) investing activities..................... 174 (15,730) (1,127)
--------- ---------- ----------
Cash flows from financing activities:
Issuance of common stock and warrants......................................... 301 15,009 1,504
Issuance of notes receivable.................................................. (135)
Note receivable forgiven for retirement of common stock....................... (140)
Repayment of notes receivable for common stock................................ 125
Repayment of notes payable.................................................... (539) (949) (817)
Payments on capital lease obligations......................................... (42) (58) (54)
--------- ---------- ----------
Net cash provided by (used in) financing activities..................... (420) 14,127 498
--------- ---------- ----------
Net increase in cash and cash equivalents....................................... 1,803 603 6,116
Cash and cash equivalents at beginning of year.................................. 2,152 3,955 4,558
--------- ---------- ----------
Cash and cash equivalents at end of year........................................ $ 3,955 $ 4,558 $ 10,674
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
UNION SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS:
Unison Software, Inc. (the Company) develops, markets and supports networked
systems management software for distributed, open computing environments. The
Company focuses on the UNIX and Microsoft Windows NT markets, where its software
tools support the development of business critical applications in client/server
environments.
BASIS OF CONSOLIDATION:
The consolidated financial statements include the accounts of Unison
Software, Inc. and its wholly owned subsidiaries after elimination of
intercompany balances and transactions.
CASH EQUIVALENTS:
The Company considers all investments with a maturity of three months or
less at the time of purchase to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Carrying value amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
other accrued liabilities approximate fair value due to their short maturities.
MARKETABLE SECURITIES:
All marketable securities as of May 31, 1996 and 1997 are considered to be
available-for-sale and therefore are carried at fair value. Unrealized holding
gains and losses on such securities are reported net of related taxes as a
separate component of stockholders' equity. Realized gains and losses on sales
of all such securities are reported in earnings and computed using the specific
identification cost method.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful life of the related asset (3 to 7
years). Leasehold improvements are amortized on a straight-line basis over the
lesser of the useful lives or the terms of the respective leases.
EMPLOYEE STOCK OWNERSHIP PLAN:
Prior to June 1, 1995, the Company recognized compensation expense based
upon contributions to the Employee Stock Ownership Trust to pay the principal
portion of debt service requirements. The contributions were determined by the
Board of Directors. All shares under the Employee Stock Ownership Plan whether
allocated or unallocated are considered outstanding for net income per share
calculations.
REVENUE RECOGNITION:
License fee revenues are recognized upon product shipment if no significant
vendor obligations remain and collection of the resulting receivable is deemed
probable. The Company's sales of individual licenses, as well as site and
enterprise-wide licenses, do not include post-contract customer support, which
is separately invoiced. Service revenues from customer maintenance are
recognized ratably over the term
29
<PAGE>
UNION SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
of each contract, which is typically twelve months. Revenues from other services
are recognized as services are performed. The Company maintains allowances for
estimated product returns and credit losses, which have not been material.
INCOME TAXES:
The Company accounts for income taxes under the liability method. Deferred
tax assets and liabilities are determined based on the difference between the
financial reporting and tax bases of assets and liabilities and are measured
using enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
CERTAIN RISKS AND CONCENTRATIONS:
The Company's products are concentrated in the networked systems management
software industry which is highly competitive and rapidly changing. The Company
has marketing and product integration relationships with a number of UNIX-based
computer manufacturers and software developers. The reduction or loss of the
reselling and the integration relationships, significant technological changes
in the industry, or emergence of competitor products with new capabilities or
technologies could adversely affect operating results.
As of May 31, 1996, one customer represented 11% of the net accounts
receivable balance.
ADVERTISING:
The Company expenses advertising costs as they are incurred. Advertising
expense for fiscal 1995, 1996, and 1997 was $830,000, $598,000, and $648,000,
respectively.
FOREIGN CURRENCY TRANSLATION:
The Company's foreign subsidiaries use the local currency as their
functional currency. Assets and liabilities are translated at year-end exchange
rates. Items of income and expense are translated at average exchange rates for
the relevant year. Translation gains and losses are not included in determining
net income but are accumulated as a separate component of stockholders' equity.
Net gains and losses arising from foreign currency transactions were not
material in fiscal 1995, 1996 and 1997.
COMPUTATION OF NET INCOME PER SHARE:
Net income per share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during the period. Dilutive
common equivalent shares consist of stock options and warrants (using the
treasury stock method for all periods presented).
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 amount of assets and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
30
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RECENT PRONOUNCEMENTS:
During February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (SFAS 128), "Earnings per Share", which specifies the
computation, presentation and disclosure requirements for Earnings per Share.
SFAS 128 will become effective for the Company's 1998 fiscal year. The Company's
management is currently studying the implications of SFAS 128. The impact of
adopting SFAS 128 on the Company's financial statements has not yet been
determined.
RECLASSIFICATIONS:
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform with the current year's presentation. These
reclassifications had no impact on previously reported working capital, income
from operations or net income.
2. MARKETABLE SECURITIES:
At May 31, 1996 and 1997, marketable securities are stated at estimated fair
value and consist of bonds, preferred stock and mutual funds.
Marketable securities at May 31, 1996 are summarized below (IN THOUSANDS):
<TABLE>
<CAPTION>
FAIR
MARKET COST UNREALIZED
VALUE BASIS LOSS
--------- --------- -------------
<S> <C> <C> <C>
Bonds and preferred stock................................... $ 12,493 $ 12,511 $ 18
Mutual funds................................................ 3,397 3,408 11
--------- --------- ---
$ 15,890 $ 15,919 29
--------- ---------
--------- ---------
Related deferred taxes...................................... 10
---
Unrealized holding loss, net................................ $ 19
---
---
</TABLE>
Marketable securities at May 31, 1997 are summarized below (IN THOUSANDS):
<TABLE>
<CAPTION>
FAIR
MARKET COST UNREALIZED
VALUE BASIS LOSS
--------- --------- -------------
<S> <C> <C> <C>
Bonds and preferred stock................................... $ 15,824 $ 15,855 $ 31
--------- --------- ---
$ 15,824 $ 15,855 31
--------- ---------
--------- ---------
Related deferred taxes...................................... 12
---
Unrealized holding loss, net................................ $ 19
---
---
</TABLE>
31
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MARKETABLE SECURITIES: (CONTINUED)
CONTRACTUAL MATURITIES OF MARKETABLE SECURITIES:
The scheduled maturities of marketable securities as of May 31, 1997 are as
follows:
<TABLE>
<CAPTION>
ESTIMATED
FAIR VALUE
-----------
<S> <C>
Due in one year or less.......................................................... $ 11,716
Due in one to five years......................................................... 2,508
Due after ten years.............................................................. 1,600
-----------
$ 15,824
-----------
-----------
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment comprise (IN THOUSANDS):
<TABLE>
<CAPTION>
MAY 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Office furniture and fixtures............................................ $ 298 $ 380
Computer and office equipment............................................ 2,671 3,673
Leasehold improvements................................................... 131 137
--------- ---------
3,100 4,190
Less accumulated depreciation and amortization........................... (1,385) (1,692)
--------- ---------
$ 1,715 $ 2,498
--------- ---------
--------- ---------
</TABLE>
Included in property and equipment are assets leased under capital lease
obligations as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
MAY 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Computer and office equipment................................................ $ 331 $ 331
Office furniture and fixtures................................................ 52 52
--------- ---------
383 383
Less accumulated amortization................................................ (307) (350)
--------- ---------
$ 76 $ 33
--------- ---------
--------- ---------
</TABLE>
32
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT:
Long-term debt consists of the following (IN THOUSANDS):
<TABLE>
<CAPTION>
MAY 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Notes payable issued in connection with the purchase of assets in 1992,
interest at 6.5% monthly payments through August 1999....................... $ 529
Notes payable issued in connection with securing rights to in-process research
and development, monthly payments through August 1999....................... 347 $ 58
Capital lease obligations at interest rates ranging from 10.5% to 13.2%....... 120 67
--------- ---------
Total long-term debt...................................................... 996 125
Less current portion.......................................................... (308) (66)
--------- ---------
Long-term debt, net of current portion........................................ $ 688 $ 59
--------- ---------
--------- ---------
</TABLE>
Future principal payments of long-term debt for the fiscal year ending May
31 are as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ------------------------------------------------------------------------------------- ---------
<S> <C>
1998................................................................................. $ 66
1999................................................................................. 53
2000................................................................................. 6
---------
Total............................................................................ $ 125
---------
---------
</TABLE>
5. GUARANTEE OF ESOP DEBT:
The Company had an Employee Stock Ownership Plan (ESOP) which enabled most
regular employees to acquire shares of the Company's common stock. The cost of
the ESOP was borne by the Company through annual contributions to an Employee
Stock Ownership Trust (ESOT) in amounts determined by the Company's Board of
Directors. Shares of common stock acquired by the ESOP were allocated to each
employee and held until the employee's retirement or death. The employee may
also choose early withdrawal or diversification to other qualified plans under
certain circumstances.
In August 1990, the ESOT borrowed $2,346,500 from a bank to purchase
2,427,312 shares of common stock from existing stockholders. Annual
contributions made by the Company to the ESOT were sufficient to service
principal and interest payments in connection with this indebtedness. Company
contributions to the ESOT were approximately $477,000 and $12,000 in fiscal 1995
and 1996, respectively. In July 1995, the ESOT sold shares in the Company's
initial public offering. Funds received from the sale of the stock were used to
retire the remaining debt outstanding. During fiscal 1996, the ESOP was assumed
by the Company's defined contribution plan (Note 8).
33
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES:
The Company leases facilities and equipment under noncancelable operating
leases. The leases expire at various dates through 2014, and the Company is
responsible for taxes, insurance and maintenance expenses. Rent expense under
operating leases was $754,000, $1,118,000 and $1,188,000 in fiscal 1995, 1996,
and 1997, respectively.
Future minimum lease payments under operating leases at May 31, 1997 are
summarized as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ------------------------------------------------------------------------------------- ---------
<S> <C>
1998................................................................................. $ 754
1999................................................................................. 483
2000................................................................................. 398
2001................................................................................. 140
2002................................................................................. 140
Thereafter........................................................................... 1,509
---------
$ 3,424
---------
---------
</TABLE>
The Company is engaged in certain legal and administrative proceedings
incidental to its normal business activities. While it is not possible to
determine the ultimate outcome of these actions, at this time management
believes that any liabilities resulting from such proceedings, or claims which
are pending or known to be threatened, will not have a material adverse effect
on the Company's consolidated financial position or results of operations.
7. CAPITAL STOCK:
STOCK OPTIONS:
1991 INCENTIVE STOCK OPTION PLAN:
In February 1991, the Company authorized the 1991 Incentive Stock Option
Plan (the 1991 Plan) under which the Board of Directors may issue incentive
stock options to employees of the Company. As of May 31, 1997, the Company had
reserved 1,800,000 shares of common stock for issuance under the 1991 Plan. The
Board of Directors has ceased to grant options under the 1991 Plan, and shares
otherwise available for future grant under the plan have been canceled.
1993 DIRECTOR STOCK OPTION PLAN:
In September 1993, the Company authorized the 1993 Director Stock Option
Plan (the Director Plan), under which members of the Board of Directors are
granted options to purchase shares of the Company's common stock. As currently
in effect, outside directors are each granted an option to purchase 22,500
shares upon their appointment and an option to purchase 7,500 shares on the
first day of each fiscal year thereafter. As of May 31, 1997, the Company had
reserved 225,000 shares of common stock for issuance under the Director Plan,
and 97,500 shares were available for future grants. The options are granted at
fair market value on the date of grant and vest over a three-year period, a
third on each one-year anniversary of the grant.
34
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CAPITAL STOCK: (CONTINUED)
1995 INCENTIVE STOCK OPTION PLAN:
In February 1995, the Company adopted the 1995 Incentive Stock Option Plan
(the 1995 Plan), under which the Board of Directors may issue incentive stock
options to employees of the Company. As of May 31, 1997, the Company had
reserved 1,875,000 shares of common stock for issuance under the 1995 Plan, and
1,090,676 shares were available for future grants. The Board of Directors has
the authority to determine to whom options will be granted, the number of
shares, the term and the exercise price, which cannot be less than fair market
value at date of grant. The options are exercisable at times and in increments
as specified by the Board of Directors, and generally expire five to ten years
from date of grant.
EXECUTIVE STOCK OPTION AGREEMENT:
In April 1997, the Company authorized the Executive Stock Option Agreement,
under which the Board of Directors granted options to purchase 242,640 shares of
the Company's common stock to an officer. The officer terminated his employment
and the options were canceled. The shares reserved under this agreement have
been canceled.
SUMMARY OF STOCK OPTION PLANS:
A summary of activity under the 1991 Plan, Director Plan, 1995 Plan, and the
Executive Agreement is as follows (IN THOUSANDS, EXCEPT PER SHARE DATA):
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS OUTSTANDING AVERAGE
SHARES ------------------------------------ EXERCISE
AVAILABLE SHARES EXERCISE PRICE TOTAL PRICE
----------- --------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balances, May 31, 1996.................................. 185 786 $ 1.15-$13.67 $ 3,298 $ 4.20
Additional shares reserved.............................. 1,443
Cancellation of shares reserved under the 1991 Plan..... (154)
Cancellation of shares reserved under the Executive
Stock Option Agreement................................ (243)
Options granted......................................... (1,047) 1,047 $ 6.75-$19.00 10,570 10.10
Options exercised....................................... (188) $ 1.59-$ 6.00 (360) 1.91
Options canceled........................................ 1,004 (1,004) $ 1.67-$18.83 (9,158) 9.12
----------- --------- --------- -----------
Balances, May 31, 1997.................................. 1,188 641 $ 1.67-$19.00 $ 4,350 $ 6.79
----------- --------- --------- -----------
----------- --------- --------- -----------
</TABLE>
As of May 31, 1997, approximately 118,000 shares were exercisable at an
average exercise price of $4.70 per share.
35
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CAPITAL STOCK: (CONTINUED)
SUMMARY OF STOCK OPTION PLANS:
The options outstanding and currently exercisable by exercise price at May
31, 1997 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ----------------------------------------------------- OPTIONS CURRENTLY EXERCISABLE
WEIGHTED -------------------------------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING (IN CONTRACTUAL EXERCISE EXERCISABLE (IN EXERCISE
EXERCISE PRICE THOUSANDS) LIFE PRICE THOUSANDS) PRICE
- ----------------- ----------------- --------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
$ 1.67 - $ 1.67 67 6.89 $ 1.67 14 $ 1.89
$ 2.00 - $ 2.20 77 7.11 $ 2.12 51 $ 2.08
$ 3.83 - $ 7.13 127 8.88 $ 6.37 10 $ 4.33
$ 7.38 - $ 7.38 222 9.60 $ 7.38 0 $ 7.38
$ 7.50 - $ 7.50 36 8.25 $ 7.50 12 $ 7.50
$ 7.83 - $ 7.83 27 8.27 $ 7.83 7 $ 7.83
$ 9.75 - $ 9.75 30 8.52 $ 9.75 24 $ 9.75
$11.67 - $11.67 18 4.17 $ 11.67
$16.00 - $16.00 23 9.44 $ 16.00
$19.00 - $19.00 14 9.01 $ 19.00
--- --- ----------- --- -----
$ 1.67 - $19.00 641 8.52 $ 6.79 118 $ 4.70
</TABLE>
NONQUALIFIED STOCK OPTIONS:
During fiscal 1991, in connection with the acquisition of BSI, the Company
issued nonqualified stock options to purchase 270,000 shares of the Company's
common stock. These options became exercisable in thirds in fiscal 1993, 1994
and 1995, contingent upon the performance of the Company. Each third of the
options had a different exercise price per share: $2.00 for options exercisable
in 1994; and $2.67 for options exercisable in 1995. In fiscal 1994, options to
purchase 90,000 shares of the Company's common stock became exercisable based on
achievement of the performance goals. In fiscal 1995, options to purchase 90,000
shares of the Company's common stock were canceled as the performance goals were
not met. During fiscal 1995, an option to purchase 45,000 shares of the
Company's common stock at an exercise price of $2.00 was exercised. During
fiscal 1996, options to purchase 45,000 shares of the Company's common stock at
an exercise price of $2.00 were exercised. As of May 31, 1997, all options
issued in connection with the BSI acquisition were either exercised or canceled.
WARRANTS:
During fiscal 1994, the Company granted warrants to purchase 288,750 shares
of common stock at an exercise price of $2.67 per share. The warrants expire
three to five years from the date of grant. During fiscal 1996 and 1997, 82,500
and 206,250 warrants were exercised, respectively. As of May 31, 1997, no
warrants were outstanding.
36
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CAPITAL STOCK (CONTINUED)
EMPLOYEE STOCK PURCHASE PLANS:
1985 EMPLOYEE STOCK PURCHASE PLAN:
The 1985 Employee Stock Purchase Plan was approved by the Board of Directors
on June 1, 1985, and amended by the Board of Directors on December 1, 1990. The
plan provides certain key employees the right to purchase shares of common stock
at a price determined by the Board of Directors on the date of grant. The
Company reserved a total of 1,500,000 shares of common stock for issuance under
the plan. As of May 31, 1997, a total of 633,637 shares had been issued under
this plan.
1995 EMPLOYEE STOCK PURCHASE PLAN:
In May 1995, the Company adopted the 1995 Employee Stock Purchase Plan which
authorized the grant of stock purchase rights to all eligible employees during
six-month offering periods with exercise dates approximately every six months.
The Company has reserved 187,500 shares of common stock for issuance under the
plan. The first offering period of the plan commenced on the first trading day
after the effectiveness of the Company's initial public offering. Shares are
purchased through employees' payroll deductions at exercise prices equal to 85%
of the lesser of the fair market value of the Company's common stock at either
the first day of an offering period or the last day of such offering period. No
participant may purchase more than $25,000 worth of common stock in any one
calendar year. To date, 80,433 shares have been issued under the plan.
PRO FORMA COMPENSATION EXPENSE:
The Company had adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
Plans (including the Employee Stock Purchase Plan). Had compensation cost for
the Plans been determined based on the fair value at the grant date for awards
in 1996 and 1997 consistent with the provisions of SFAS No. 123, the Company's
net income and net income per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Net income - as reported................................................... $ 4,667 $ 5,382
Net income - pro forma..................................................... 3,964 3,914
Net income per share - as reported......................................... 0.40 0.45
Net income per share - pro forma........................................... 0.34 0.32
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes method with the following weighted average assumptions:
<TABLE>
<S> <C>
Risk-free interest rate....................................... 5.37%-6.77%
Expected life in years........................................ 3.5
Expected dividends............................................ None
Expected volatility........................................... 0.75
</TABLE>
37
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CAPITAL STOCK (CONTINUED)
The weighted average expected life was calculated based on the vesting
period and exercise behavior. The risk-free interest rate was calculated in
accordance with the grant date and expected life calculated for each subgroup.
8. DEFINED CONTRIBUTION PLAN:
The Company sponsors a defined contribution plan that enables substantially
all regular employees of the Company to participate in the plan. Eligible
employees may contribute up to 20% of their base compensation to the plan, and
the Company may, but is not obligated to, match up to 50% of employee
contributions, up to a maximum of $100 per month per employee.
Company contributions to the defined contribution plan were approximately
$78,000, $57,000 and $91,000 in fiscal 1995, 1996 and 1997, respectively.
9. INCOME TAXES:
Details of the income tax provision consist of the following (IN THOUSANDS):
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Income before taxes:
Domestic........................................................................... $ 2,432 $ 6,663 $ 7,908
Foreign............................................................................ 250 859 844
--------- --------- ---------
Total.......................................................................... $ 2,682 $ 7,522 $ 8,752
--------- --------- ---------
--------- --------- ---------
Income tax provision:
Current:
Federal.......................................................................... $ 757 $ 2,111 $ 2,472
State............................................................................ 138 304 402
Foreign.......................................................................... 57 290 283
--------- --------- ---------
Total current provision........................................................ 952 2,705 3,157
--------- --------- ---------
Deferred:
Federal.......................................................................... 13 128 180
State............................................................................ 2 22 29
Foreign.......................................................................... 15 4
--------- --------- ---------
Total deferred provision....................................................... 30 150 213
--------- --------- ---------
Total income tax provision................................................... $ 982 $ 2,855 $ 3,370
--------- --------- ---------
--------- --------- ---------
</TABLE>
38
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES: (CONTINUED)
The significant components of the deferred tax assets were as follows (IN
THOUSANDS):
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash to accrual adjustment..................................................
Marketable securities....................................................... $ 10 $ 12
Accrued expense and other................................................... 204 301
--------- ---------
Net current assets........................................................ $ 214 $ 313
--------- ---------
--------- ---------
Noncurrent assets (liabilities):
Purchased technology........................................................ $ 261
Fixed assets and other...................................................... (24) (73)
--------- ---------
$ 237 $ (73)
--------- ---------
--------- ---------
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate as shown in the following schedule:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Income tax provision at statutory rate......................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit..................... 3.4 2.9 3.0
Foreign sales corporation...................................... (0.7)
Other, net..................................................... (0.1) 1.1 1.5
--- --- ---
36.6% 38.0% 38.5%
--- --- ---
--- --- ---
</TABLE>
10. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental cash flow information is summarized as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the year for:
Interest......................................................... $ 247 $ 128 $ 38
Income taxes..................................................... $ 735 $ 1,879 $ 1,410
Noncash investing and financing activities:
Change in unrealized holding losses on marketable securities..... $ (93) $ (11)
Common stock issued for notes.................................... $ 125
Common stock repurchased for cancellation of notes receivable.... $ 140
Property and equipment purchased under capital lease............. $ 199
</TABLE>
39
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. GEOGRAPHICAL INFORMATION:
FOREIGN OPERATIONS:
The Company develops, markets and supports networked systems management
software for distributed, heterogeneous computing environments and operates in
one industry segment. The following presents information about operations in
different geographic areas (IN THOUSANDS):
<TABLE>
<CAPTION>
UNITED
STATES EUROPE ELIMINATIONS TOTAL
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
1995
Total net revenues........................................ $ 17,131 $ 3,518 $ (963) $ 19,686
Portion of U.S. revenues from export sales................ 1,524 1,524
Income from operations.................................... 2,514 236 2,750
Identifiable assets....................................... 9,664 2,335 (170) 11,829
1996
Total net revenues........................................ $ 26,529 $ 5,351 $ (1,865) $ 30,015
Portion of U.S. revenues from export sales................ 1,899 1,899
Income from operations.................................... 5,957 845 6,802
Identifiable assets....................................... 31,488 2,903 (170) 34,221
1997
Total net revenues........................................ $ 35,560 $ 6,610 $ (2,334) $ 39,836
Portion of U.S. revenues from export sales................ 2,210 2,210
Income from operations.................................... 6,953 851 7,804
Identifiable assets....................................... 39,371 4,201 (140) 43,432
</TABLE>
Revenue and operating income (loss) from outside the United States include
the operating results of Unison Software (UK) Ltd. and Unison Software
Deutschland GmbH. Unison Software Deutschland GmbH was closed during fiscal
1997. Adjustments consist of eliminations of a charge by Unison Software, Inc.
for royalties on software license fees recorded by its European subsidiaries.
Identifiable assets are all assets, including corporate assets, identified with
operations in each geographic area. Revenues from the United States, including
export sales, are denominated in dollars. Revenues from European subsidiaries
are denominated predominantly in their local currencies.
40
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information required by this item concerning the Company's directors is
incorporated by reference to the information set forth in the section entitled
"Proposal One--Election of Directors-- Information Regarding Nominees" in the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders, to be
filed with the Commission within 120 days after the end of the Company's fiscal
year ended May 31, 1997. The information required by this item concerning the
executive officers of the Company is incorporated by reference to the
information set forth in the section entitled "Executive Officers of the
Company" at the end of Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item regarding executive compensation is
incorporated by reference to the information set forth in the section entitled
"Executive Officer Compensation" in the Company's Proxy Statement for the 1997
Annual Meeting of Stockholders, to be filed with the Commission within 120 days
after the end of the Company's fiscal year ended May 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Share Ownership by Principal
Stockholders and Management" in the Company's Proxy Statement for the 1997
Annual Meeting of Stockholders, to be filed with the Commission within 120 days
after the end of the Company's fiscal year ended May 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in the section entitled "Certain Transactions" in the Company's Proxy Statement
for the 1997 Annual Meeting of Stockholders, to be filed with the Commission
within 120 days after the end of the Company's fiscal year ended May 31, 1997.
41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Our report on the consolidated financial statements of Unison Software, Inc.
and Subsidiaries is included in this Form 10-K. In connection with our audits of
such financial statements, we have also audited the related financial statement
schedule included in this Form 10-K.
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 required to be
included therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
July 3, 1997
42
<PAGE>
SCHEDULE II
UNISON SOFTWARE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF THE
DESCRIPTION THE PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------------------------------ ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance for the year ended May 31, 1995
Allowance for doubtful accounts receivable...................... $ 81 71 152
Balance for the year ended May 31, 1996
Allowance for doubtful accounts receivable...................... 152 128 (104) 176
Balance for the year ended May 31, 1997
Allowance for doubtful accounts receivable...................... 176 247 (35) 388
</TABLE>
43
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Form 10-K:
1. FINANCIAL STATEMENTS.
See Index to Consolidated Financial Statements at Item 8, on page 24 of this
Report.
2. FINANCIAL STATEMENT SCHEDULES.
See Index to Financial Statement Schedules at Item 8, on page 24 of this
Report.
3. EXHIBITS.
<TABLE>
<C> <S>
3.1(1) Certificate of Incorporation
3.2(2) Amended and Restated Bylaws of Registrant, as amended
10.1(1)* 1991 Incentive Stock Option Plan.
10.2(1)* Forms of Option Agreement used under 1991 Incentive Stock Option Plan.
10.3(1)* 1993 Director Stock Option Plan, as amended and restated.
10.4(1)* Form of option agreement used under 1993 Director Stock Option Plan.
10.5(1)* 1995 Employee Stock Purchase Plan.
10.6(1)* Form of subscription agreement used under 1995 Employee Stock Purchase Plan.
10.7(3)* 1995 Stock Option Plan, as amended and restated.
10.8(1)* Forms of option and stock purchase right agreements used under 1995 Stock
Option Plan.
10.9(1)* Form of Indemnification Agreement between Registrant and its directors and
officers.
10.12(1) Lease dated July 1, 1994 for facilities located at 5101 Patrick Henry Drive,
Santa Clara, California.
10.14(1)+ Software License Agreement dated as of July 30, 1993, between the Registrant
and Hewlett-Packard Company, as amended.
10.15(1)+ Software Distribution and License Agreement dated as of May 1, 1995, between
the Registrant and Hewlett-Packard Company.
10.18(4)* Promissory Note of Dominic Gattuso Jr. dated February 7, 1997.
10.19 Lease dated May 31, 1997 for facilities located at 811 Barton Springs Road,
Austin, Texas.
11.1 Statement of computation of earnings per share.
21.1(1) Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
24.1 Power of Attorney (see page 46).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
(1) Incorporated herein by reference to identically numbered exhibit to
Registrant's Registration Statement on Form S-1 (Reg. St. No. 33-92748),
declared effective on July 20, 1995.
44
<PAGE>
(2) Incorporated herein by reference to identically numbered exhibit to
Registant's Annual Report on Form 10-K for the fiscal year ended May 31,
1996.
(3) Incorporated herein by reference to identically numbered exhibit to
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1996.
(4) Incorporated by reference to exhibit to Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended February 28, 1997.
* Indicates management compensatory plan, contract or arrangement.
+ Confidential treatment has been previously granted for certain portions of
these exhibits.
(b) REPORTS ON FORM 8-K.
None.
(c) EXHIBITS.
See Item 14(a) above.
(d) FINANCIAL STATEMENT SCHEDULE.
See Item 14(a) above.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized on this day of
August 1997.
<TABLE>
<S> <C> <C>
UNISON SOFTWARE, INC.
By: /s/ DON H. LEE
-----------------------------------------
Don H. Lee,
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Don Lee and Richard Armitage, and each of
them, jointly and severally, his attorneys-in-fact, each with full power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each said attorneys-in-fact or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on August , 1997 on
behalf of the Registrant and in the capacities and on the dates indicated:
SIGNATURES TITLE
- ------------------------------ --------------------------
Chief Executive Officer,
/s/ DON H. LEE President and Director
- ------------------------------ (Principal Executive
Don H. Lee Officer)
Vice President, Finance,
/s/ RICHARD J. ARMITAGE Chief Financial Officer
- ------------------------------ and Treasurer (Principal
Richard J. Armitage Financial and Accounting
Officer)
/s/ MICHAEL A. CASTEEL Executive Vice President,
- ------------------------------ Chief Technology Officer
Michael A. Casteel and Director
/s/ DONALD R. DIXON
- ------------------------------ Director
Donald R. Dixon
/s/ KENNETH A. GOLDMAN
- ------------------------------ Director
Kenneth A. Goldman
/s/ JEFFREY D. SAPER
- ------------------------------ Director
Jeffrey D. Saper
46
<PAGE>
UNISON SOFTWARE, INC.
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED MAY 31, 1997
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- --------------------------------------------------
<C> <S>
3.1(1) Certificate of Incorporation.
3.2(2) Amended and Restated Bylaws of Registrant, as
amended.
10.1(1)* 1991 Incentive Stock Option Plan.
10.2(1)* Forms of Option Agreement used under 1991
Incentive Stock Option Plan.
10.3(1)* 1993 Director Stock Option Plan, as amended and
restated.
10.4(1)* Form of option agreement used under 1993 Director
Stock Option Plan.
10.5(1)* 1995 Employee Stock Purchase Plan.
10.6(1)* Form of subscription agreement used under 1995
Employee Stock Purchase Plan.
10.7(3)* 1995 Stock Option Plan, as amended and restated.
10.8(1)* Forms of option and stock purchase right
agreements used under 1995 Stock Option Plan.
10.9(1)* Form of Indemnification Agreement between
Registrant and its directors and officers.
10.12(1) Lease dated July 1, 1994 for facilities located at
5101 Patrick Henry Drive, Santa Clara, California.
10.14(1)+ Software License Agreement dated as of July 30,
1993, between the Registrant and Hewlett-Packard
Company, as amended.
10.15(1)+ Software Distribution and License Agreement dated
as of May 1, 1995, between the Registrant and
Hewlett-Packard Company.
10.18(4)* Promissory Note of Dominic Gattuso Jr. dated
February 7, 1997.
10.19 Lease dated May 31, 1997 for facilities located at
811 Barton Springs Road, Austin, Texas.
11.1 Statement of computation of earnings per share.
21.1(1) Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
24.1 Power of Attorney (see page 46).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
(1) Incorporated herein by reference to identical number exhibit to the
Registrant's Registration Statement on Form S-1 (Registration St. No.
33-92748) declared effective on July 20, 1995.
(2) Incorporated herein by reference to identically numbered exhibit to
Registrant's Annual Report on Form 10-K for the fiscal year ended May 31,
1996.
(3) Incorporated herein by reference to identically numbered exhibit to
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1996.
(4) Incorporated by reference to exhibit to Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended February 28, 1997.
* Indicates management compensatory plan, contract or arrangement.
+ Confidential treatment has been previously granted for certain portions of
these exhibits.
<PAGE>
811 BARTON
OFFICE LEASE
BETWEEN
STEVE R. SCOTT
AND
UNISON SOFTWARE TEXAS, INC.
DATED MAY 31, 1997
<PAGE>
TABLE OF CONTENTS
Article 1 Premises and Term 1
Article 2 Base Rent 1
Article 3 Additional Rent 1
Article 4 Commencement of Term 3
Article 5 Condition of Premises 3
Article 6 Use and Rules 4
Article 7 Services and Utilities 4
Article 8 Alterations and Liens 5
Article 9 Repairs 6
Article 10 Casualty Damage 7
Article 11 Insurance, Subrogation, and Waiver of Claims 8
Article 12 Condemnation 9
Article 13 Return of Possession 9
Article 14 Holding Over 10
Article 15 No Waiver 10
Article 16 Attorneys' Fees 10
Article 17 Personal Property Taxes, Rent Taxes and Other Taxes 10
Article 18 Reasonable Approvals 11
Article 19 Subordination, Attornment and Mortgagee Protection 11
Article 20 Estoppel Certificate 11
Article 21 Assignment and Subletting 12
Article 22 Rights Reserved by Landlord 14
Article 23 Landlord's Remedies 15
Article 24 Landlord's Default 17
Article 25 Captions, Definitions and Severability 17
Article 26 Conveyance by Landlord and Liability 20
Article 27 Indemnification 21
Article 28 Safety and Security Devices, Services and Programs 21
Article 29 Communications and Computer Lines 21
i
<PAGE>
Article 30 Hazardous Materials 22
Article 31 Miscellaneous 23
Article 32 Right to Relocate 24
Article 33 Offer 24
Article 34 Notices 24
Article 35 Real Estate Brokers 25
Article 36 Security Deposit 25
Article 37 Entire Agreement 25
Certificate (If Tenant is a Corporation) 26
Exhibit A Description of Land 27
Exhibit B Floor Plan 28
Rider One Rules 29
Rider Two Base Rent 34
Rider Three Leasehold Improvements Agreement 35
Rider Four Parking Agreement 36
ii
<PAGE>
811 BARTON
OFFICE LEASE
THIS LEASE is made as of the 31st day of May, 1997 between STEVE R.
SCOTT, 811 Barton Springs Road #101, Austin, Texas 78704 ("Landlord", as
further defined in Article 25.05) and UNISON SOFTWARE TEXAS, INC., a Texas
corporation, whose address is 811 Barton Springs Road #611, Austin, Texas
78704 ("Tenant" as further defined in Article 25.05).
WITNESSETH:
ARTICLE 1
PREMISES AND TERM
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
that certain space known as Suites 511 and 611 ("Premises") described or
shown on Exhibit "B" attached hereto, in the building known as 811 Barton
Springs Road, Austin, Texas 78704 ("Property", as further described in
Article 25.10), subject to the provisions herein contained for general office
use.
The term ("Term") of this Lease shall commence on the 16th day of July,
1997 ("Commencement Date"), and end on the 31st day of July, 2003
("Expiration Date"), unless sooner terminated as provided herein. The
Commencement Date shall be subject to adjustment as provided in Article 4.
Landlord and Tenant agree that for purposes of this Lease the rentable area
of the Premises is 28,288 square feet.
ARTICLE 2
BASE RENT
Tenant shall pay Landlord monthly Base Rent as set forth in Rider Two in
advance on or before the first day of each calendar month during the Term,
except that Base Rent for the first full calendar month for which Base Rent
shall be due shall be paid when Tenant executes this Lease. If the Term
commences on a day other than the first day of a calendar month, or ends on a
day other than the last day of a calendar month, then the Base Rent for such
month shall be prorated on the basis of 1/30th of the monthly Base Rent for
each day of such month.
ARTICLE 3
ADDITIONAL RENT
3.01 OPERATING EXPENSES. In the event the Operating Expenses (as
defined in Article 25.08) of the Landlord upon the building of which the
Leased Premises are a part shall, in any calendar year during Tenant's
occupancy, exceed the sum of $6.75 per rentable square foot ("Expense Stop"),
Tenant agrees to pay as additional rental Tenant's pro rata share of the
excess Operating Expenses. The excess Operating Expense shall be defined as
the difference between the actual operating expenses for a given calendar
year and the Expense Stop, the difference of which shall be prorated for any
partial calendar year in which the Tenant occupies the Leased Premises and/or
vacates the Leased Premises by Lease termination. The terms "Operating
Expenses" and "Tenant's Pro Rata Share" shall have the meanings specified
therefor in Article 25.15.
3.02 MANNER OF PAYMENT. Operating Expenses shall be paid in the
following manner:
(A) Landlord may reasonably estimate in advance the amount Tenant
shall owe for Operating Expenses for any full or partial calendar year of the
Term. In such event, Tenant shall pay such estimated amounts, on a monthly
basis, on or before the first day of each calendar month, together with
Tenant's payment of Base Rent. Such estimate may be reasonably adjusted from
time to time by Landlord.
(B) Within 120 days after the end of each calendar year, or as soon
thereafter as practicable, Landlord shall provide a statement (the
"Statement") to Tenant showing (a) the amount of actual Operating Expenses
for such calendar year, with a listing of amounts for major categories of
Operating Expenses, (b) any amount paid by Tenant towards Operating Expenses
during such calendar year on an estimated basis, and (c) any revised estimate
of Tenant's obligations for Operating Expenses for the current calendar year.
<PAGE>
(C) If the Statement shows that Tenant's estimated payments were
less than Tenant's actual obligations for Operating Expenses for such year,
Tenant shall pay the difference. If the Statement shows an increase in
Tenant's estimated payments for the current calendar year, Tenant shall pay
the difference between the new and former estimates, for the period from
January 1 of the current calendar year through the month in which the
Statement is sent. Tenant shall make such payments within thirty (30) days
after Landlord sends the Statement.
(D) If the Statement shows that Tenant's estimated payments
exceeded Tenant's actual obligations for Operating Expenses, Tenant shall
receive a credit for the difference against payments of Rent (as defined in
Article 25.11) next due. If the Term shall have expired and no further Rent
shall be due, Tenant shall receive a refund of such difference, within thirty
(30) days after Landlord sends the Statement.
(E) So long as Tenant's obligations hereunder are not materially
adversely affected thereby, Landlord reserves the right to reasonably change,
from time to time, the manner or timing of the foregoing payments. No delay
by Landlord in providing the Statement shall be deemed a default by Landlord
or a waiver of Landlord's right to require payment of Tenant's obligations
for actual or estimated Operating Expenses. In no event shall a decrease in
Operating Expenses below the Expense Stop ever decrease the monthly Base
Rent, or give rise to a credit in favor of Tenant.
3.03 PRORATION. If the Term commences other than on January 1, or ends
other than on December 31, Tenant's obligations to pay estimated and actual
amounts toward Operating Expenses for such first or final calendar years
shall be prorated to reflect the portion of such years included in the Term.
Such proration shall be made by multiplying the total estimated or actual (as
the case may be) Operating Expenses for such calendar year by a fraction, the
numerator of which shall be the number of days of the Term during such
calendar year, and the denominator of which shall be 365.
3.04 LANDLORD'S RECORDS. Landlord shall maintain records respecting
Operating Expenses and determine the same in accordance with generally
accepted accounting and management practices, consistently applied. Although
this Lease contemplates the computation of Operating Expenses on a cash
basis, Landlord shall make reasonable and appropriate accrual adjustments to
ensure that each calendar year includes substantially the same recurring
items. Landlord reserves the right to change to a full accrual system of
accounting so long as the same is consistently applied and Tenant's
obligations are not materially adversely affected. Tenant or its
representative shall have the right to examine such records upon reasonable
prior notice specifying such records Tenant desires to examine, during normal
business hours at the place or places where such records are normally kept,
by sending such notice no later than forty-five (45) days following the
furnishing of the Statement. Tenant may take exception to matters included
in Operating Expenses, or Landlord's computation of Tenant's Pro Rata Share
of either, by sending notice specifying such exception and the reasons
therefor to Landlord no later than twenty (20) days after Landlord makes such
records available for examination. Such Statement shall be considered final,
except as to matters to which exception is taken after examination of
Landlord's records in the foregoing manner and within the foregoing times.
Tenant acknowledges that Landlord's ability to budget and incur expenses
depends on the finality of such Statement, and accordingly agrees that time
is of the essence of this Paragraph. If Tenant takes exception to any matter
contained in the Statement as provided herein, Landlord shall refer the
matter to an independent certified public accountant, whose certification as
to the proper amount shall be final and conclusive as between Landlord and
Tenant. Tenant shall promptly pay the cost of such certification unless such
certification determines that Tenant was overbilled by more than two percent
(2%). Pending resolution of any such exceptions in the foregoing manner,
Tenant shall continue paying Tenant's Pro Rata Share of Operating Expenses in
the amounts determined by Landlord, subject to adjustment after any such
exceptions are so resolved.
3.05 RENT AND OTHER CHARGES. Base Rent, Taxes (as defined in Article
25.13), Operating Expenses, and any other amounts which Tenant is or becomes
obligated to pay Landlord under this Lease or other agreement entered in
connection herewith, are sometimes herein referred to collectively as "Rent",
and all remedies applicable to the nonpayment of Rent shall be applicable
-------- ---------
Tenant Landlord
2
<PAGE>
thereto. Rent shall be paid at any office maintained by Landlord or its
agent at the Property, or at such other place as Landlord may designate.
ARTICLE 4
COMMENCEMENT OF TERM
The Commencement Date set forth in Article 1 shall be delayed and Rent
shall be abated to the extent that Landlord fails: (i) to substantially
complete any improvements to the Premises required to be performed by
Landlord under any separate agreement signed by both parties, or (ii) to
deliver possession of the Premises for any other reason, including but not
limited to holding over by prior occupants, except to the extent that Tenant,
its contractors, agents or employees in any way contribute to either such
failures. If Landlord so fails for a ninety (90) day initial grace period, or
such additional time as may be necessary due to fire or other casualty,
strikes, lockouts or other labor troubles, shortages of equipment or
materials, governmental requirements, power shortages or outages, acts or
omissions of Tenant or other Persons (as defined in Article 25.09), or other
causes beyond Landlord's reasonable control, Tenant shall have the right to
terminate this Lease by written notice to Landlord any time thereafter up
until Landlord substantially completes any such improvements and delivers the
Premises to Tenant. Any such delay in the Commencement Date shall not
subject Landlord to liability for loss or damage resulting therefrom, and
Tenant's sole recourse with respect thereto shall be the abatement of Rent
and right to terminate this Lease described above. Upon any such
termination, Landlord and Tenant shall be entirely relieved of their
obligations hereunder, and any Security Deposit (as defined in Article 35)
and Rent payments shall be returned to Tenant. If the Commencement Date is
delayed, the Expiration Date shall not be similarly extended, unless Landlord
shall so elect (in which case, the parties shall confirm the same in
writing). During any period that Tenant shall be permitted to enter the
Premises prior to the Commencement Date other than to occupy the same (e.g.,
to perform alterations or improvements), Tenant shall comply with all terms
and provisions of this Lease, except those provisions requiring the payment
of Rent. If Tenant shall be permitted to enter the Premises prior to the
Commencement Date for the purpose of occupying the same, Rent shall commence
on such date, and if Tenant shall commence occupying only a portion of the
Premises prior to the Commencement Date, Rent shall be prorated based on the
number of rentable square feet occupied by Tenant. Landlord shall permit
early entry, provided the Premises are legally available and Landlord has
completed any work required under this Lease or any separate agreement
entered in connection herewith.
ARTICLE 5
CONDITION OF PREMISES
Tenant has inspected the Premises, Property, Systems and Equipment (as
defined in Article 25.12), or has had an opportunity to do so, and agrees to
accept the same "as is" without any agreements, representations,
understandings or obligations on the part of Landlord to perform any
alterations, repairs or improvements, except as expressly provided in any
separate agreement that may be signed by the parties. Such improvements, if
applicable, are set forth in Rider Three of this Lease Agreement.
-------- ---------
Tenant Landlord
3
<PAGE>
ARTICLE 6
USE AND RULES
Tenant shall use the Premises for offices and no other purpose
whatsoever, in compliance with all applicable Laws (as defined in Article
25.06), and without disturbing or interfering with any other tenant or
occupant of the Property. Tenant shall not use the Premises in any manner so
as to cause a cancellation of Landlord's insurance policies, or an increase
in the premiums thereunder. Tenant shall comply with all rules set forth in
Rider One attached hereto (the "Rules"). Landlord shall have the right to
reasonably amend such Rules and supplement the same with other reasonable
Rules (not expressly inconsistent with this Lease) relating to the Property,
or the promotion of safety, care, cleanliness or good order therein, and all
such amendments or new Rules shall be binding upon Tenant after five (5) days
notice thereof to Tenant. All Rules shall be applied on a nondiscriminatory
basis, but nothing herein shall be construed to give Tenant or any other
Person any claim, demand or cause of action against Landlord arising out of
the violation of such Rules by any other tenant, occupant, or visitor of the
Property, or out of the enforcement or waiver of the Rules by Landlord in any
particular instance.
ARTICLE 7
SERVICES AND UTILITIES
Landlord shall provide the following services and utilities (the cost of
which shall be included in Operating Expenses unless otherwise stated herein
or in any separate rider hereto):
(A) Electricity for standard office lighting fixtures, and
equipment and accessories customary for offices (up to 280 hours per month)
where: (1) the connected electrical load of all of the same does not exceed
an average of 4 watts per square foot of the Premises (or such lesser amount
as may be available, based on the safe and lawful capacity of the existing
electrical circuit(s) and facilities serving the Premises), (2) the
electricity will be at nominal 120 volts, single phase (or 110 volts,
depending on available service in the Building, as defined in Article 25.01),
and (3) the safe and lawful capacity of the existing electrical circuit(s)
serving the Premises is not exceeded.
(B) Heat and air conditioning to provide a temperature required, in
Landlord's reasonable opinion and in accordance with applicable Law, for
occupancy of the Premises under normal business operations, from 7:00 a.m.
until 7:00 p.m. Monday through Friday, and 7:00 a.m. to 3:00 p.m. on
Saturdays, except on Holidays (as defined in Article 25.04 and Rider One).
Landlord shall not be responsible for inadequate air conditioning or
ventilation to the extent the same occurs because Tenant uses any item of
equipment consuming more than 500 watts at rated capacity without providing
adequate air conditioning and ventilation therefor. Any heat or air
conditioning requested after hours will be at extra cost to Tenant at $25.00
per hour. The hourly fee will increase periodically by the percentage
increase that is billed Landlord in excess of the rates billed Landlord on
January 1, 1997.
(C) Water for drinking, lavatory and toilet purposes at those
points of supply provided for nonexclusive general use of other tenants at
the Property.
(D) Customary office cleaning and trash removal service Monday
through Friday or Sunday through Thursday in and about the Premises.
(E) Operatorless passenger elevator service (if the Property has
such equipment serving the Premises) and freight elevator service (if the
Property has such equipment serving the Premises, and subject to scheduling
by Landlord) in common with Landlord and other tenants and their contractors,
agents and visitors.
(F) Landlord shall seek to provide such extra utilities or services
as Tenant may from time to time request, if the same are reasonable and
feasible for Landlord to provide and do not involve modifications or
additions to the Property or existing Systems and Equipment, and if Landlord
shall receive Tenant's request within a reasonable period prior to the time
such extra utilities or services are required. Landlord may comply with
written or oral requests by any officer
-------- ---------
Tenant Landlord
4
<PAGE>
or employee of Tenant, unless Tenant shall notify Landlord of, or Landlord
shall request, the names of authorized individuals (up to three (3) for each
floor on which the Premises are located) and procedures for written requests.
Tenant shall, for such extra utilities or services, pay such charges as
Landlord shall from time to time reasonably establish. All charges for such
extra utilities or services shall be due at the same time as the installment
of Base Rent with which the same are billed, or if billed separately, shall
be due within twenty (20) days after such billing.
Landlord may install and operate meters or any other reasonable system
for monitoring or estimating any services or utilities used by Tenant in
excess of those required to be provided by Landlord under this Article
(including a system for Landlord's engineer to reasonably estimate any such
excess usage). If such system indicates such excess services or utilities,
Tenant shall pay Landlord's reasonable charges for installing and operating
such system and any supplementary air conditioning, ventilation, heat,
electrical or other systems or equipment (or adjustments or modifications to
the existing Systems and Equipment), and Landlord's reasonable charges for
such amount of excess services or utilities used by Tenant.
Landlord does not warrant that any services or utilities shall be free
from shortages, failures, variations, or interruptions caused by repairs,
maintenance, replacements, improvements, alterations, changes of service,
strikes, lockouts, labor controversies, accidents, inability to obtain
services, fuel, steam, water or supplies, governmental requirements or
requests, or other causes beyond Landlord's reasonable control. None of the
same shall be deemed an eviction or disturbance of Tenant's use and
possession of the Premises or any part thereof, or render Landlord liable to
Tenant for abatement of Rent, or relieve Tenant from performance of Tenant's
obligations under this Lease. Landlord in no event shall be liable for
damages by reason of loss of profits, business interruption or other
consequential damages.
ARTICLE 8
ALTERATIONS AND LIENS
Tenant shall make no additions, changes, alterations or improvements
("Work") to the Premises or the Systems and Equipment pertaining to the
Premises without the prior written consent of Landlord. Landlord may impose
reasonable requirements as a condition of such consent, including without
limitation the submission of plans and specifications for Landlord's prior
written approval, obtaining necessary permits, posting bonds, obtaining
insurance, prior approval of contractors, subcontractors and suppliers, prior
receipt of copies of all contracts and subcontracts, contractor and
subcontractor lien waivers, affidavits listing all contractors,
subcontractors and suppliers, use of union labor (if Landlord uses union
labor), affidavits from engineers acceptable to Landlord stating that the
Work will not adversely affect the Systems and Equipment or the structure of
the Property, and requirements as to the manner and times in which such Work
shall be done. All Work shall be performed in a good and workmanlike manner
and all materials used shall be of a quality comparable to or better than
those in the Premises and Property and shall be in accordance with plans and
specifications approved by Landlord, and Landlord may require that all such
Work be performed under Landlord's supervision. If Landlord consents or
supervises, the same shall not be deemed a warranty as to the adequacy of the
design, workmanship or quality of materials, and Landlord hereby expressly
disclaims any responsibility or liability for the same. Landlord shall under
no circumstances have any obligation to repair, maintain or replace any
portion of the Work.
Tenant shall keep the Property and Premises free from any mechanic's,
materialman's or similar liens or other such encumbrances in connection with
any Work on or respecting the Premises not performed by or at the request of
Landlord, and shall indemnify and hold Landlord harmless from and against any
claims, liabilities, judgments, or costs (including attorneys' fees) arising
out of the same or in connection therewith. Tenant shall give Landlord
notice at least twenty (20) days prior to the commencement of any Work on the
Premises (or such additional time as may be necessary under applicable Laws),
to afford Landlord the opportunity of posting and recording appropriate
notices of nonresponsibility. Tenant shall remove any such lien or
encumbrance by bond or otherwise within thirty (30) days after written notice
by Landlord, and if Tenant shall fail to do so, Landlord may pay the amount
necessary to remove such lien or encumbrance, without being responsible for
investigating the validity thereof. The amount so paid shall be deemed
additional Rent under this Lease, payable upon demand, without limitation as
to other remedies available to Landlord under this Lease. Nothing contained
in this Lease shall
-------- ---------
Tenant Landlord
5
<PAGE>
authorize Tenant do any act which shall subject Landlord's title to the
Property or Premises to any liens or encumbrances, whether claimed by
operation of law or express or implied contract. Any claim to a lien or
encumbrance upon the Property or Premises arising in connection with any Work
on or respecting the Premises not performed by or at the request of Landlord
shall be null and void, or at Landlord's option shall attach only against
Tenant's interest in the Premises, and shall in all respects be subordinate
to Landlord's title to the Property and Premises.
ARTICLE 9
REPAIRS
Except for customary cleaning and trash removal provided by Landlord
under Article 7, and damage covered under Article 10, Tenant shall keep its
Leased Premises in good and sanitary condition, working order and repair,
reasonable wear and tear excepted (including without limitation carpet, wall
covering, doors, plumbing and other fixtures, equipment, alterations and
improvements, whether installed by Landlord or Tenant). In the event that
any repairs, maintenance or replacements are required, Tenant shall promptly
arrange for the same either through Landlord for such reasonable charges as
Landlord may from time to time establish, or such contractors as Landlord
generally uses at the Property or such other contractors as Landlord shall
first approve in writing, and in a first class, workmanlike manner approved
by Landlord in advance in writing. If Tenant does not promptly make such
arrangements, Landlord may, but need not, make such repairs, maintenance and
replacements, and the costs paid or incurred by Landlord therefor shall be
reimbursed by Tenant promptly after request by Landlord. Tenant shall
indemnify Landlord and pay for any repairs, maintenance and replacements to
areas of the Property outside the Premises caused, in whole or in part, as a
result of moving any furniture, fixtures, or other property to or from the
Premises, or by Tenant or its employees, agents, contractors, or visitors
(notwithstanding anything to the contrary contained in this Lease). Except as
provided in the preceding sentence, or for damage covered under Article 10,
Landlord shall keep the common areas of the Property in good and sanitary
condition, working order and repair (the cost of which shall be included in
Operating Expenses, as described in Article 25, except as limited therein).
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Tenant Landlord
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ARTICLE 10
CASUALTY DAMAGE
If the Premises or any common areas of the Property providing access
thereto shall be damaged by fire or other casualty, Landlord shall use
available insurance proceeds to restore the same. Such restoration shall be
substantially to the condition prior to the casualty, except for
modifications required by zoning and building codes and other Laws or by any
Holder (as defined in Article 25.03), except any other modifications to the
common areas deemed desirable by Landlord (provided access to the Premises is
not materially impaired), and except that Landlord shall not be required to
repair or replace any of Tenant's furniture, furnishings, fixtures or
equipment, or any alterations or improvements in excess of any work performed
or paid for by Landlord under any separate agreement signed by the parties in
connection herewith. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or its visitors, or injury to Tenant's business resulting
in any way from such damage or the repair thereof. However, Landlord shall
allow Tenant a proportionate abatement of Rent during the time and to the
extent the Premises are unfit for occupancy for the purposes permitted under
this Lease and not occupied by Tenant as a result thereof (unless Tenant or
its employees or agents caused the damage). Notwithstanding the foregoing to
the contrary, Landlord may elect to terminate this Lease by notifying Tenant
in writing of such termination within sixty (60) days after the date of
damage (such termination notice to include a termination date providing at
least ninety (90) days for Tenant to vacate the Premises), if the Property
shall be materially damaged by Tenant or its employees or agents, or if the
Property shall be damaged by fire or other casualty or cause such that: (a)
repairs to the Premises and access thereto cannot reasonably be completed
within 120 days after the casualty without the payment of overtime or other
premiums, (b) more than twenty-five percent (25%) of the Premises is affected
by the damage, and fewer than twenty-four (24) months remain in the Term, or
any material damage occurs to the Premises during the last twelve (12) months
of the Term, (c) any Holder shall require that the insurance proceeds or any
portion thereof be used to retire the Mortgage (as defined in Article 25.07)
debt (or shall terminate the ground lease, as the case may be), or the damage
is not fully covered by Landlord's insurance policies, or (d) the cost of the
repairs, alterations, restoration or improvement work would exceed
twenty-five percent (25%) of the replacement value of the Building, or the
nature of such work would make termination of this Lease necessary or
convenient. Tenant agrees that Landlord's obligation to restore, and the
abatement of Rent provided herein, shall be Tenant's sole recourse in the
event of such damage, and waives any other rights Tenant may have under any
applicable Law to terminate the Lease by reason of damage to the Premises or
Property. Tenant acknowledges that this Article represents the entire
agreement between the parties respecting damage to the Premises or Property.
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Tenant Landlord
7
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ARTICLE 11
INSURANCE, SUBROGATION, AND WAIVER OF CLAIMS
Tenant shall maintain during the Term comprehensive (or commercial)
general liability insurance, with limits of not less than $1,000,000.00
combined single limit for personal injury, bodily injury or death, or
property damage or destruction (including loss of use thereof) for any one
occurrence. Tenant shall also maintain during the Term worker compensation
insurance as required by statute, and primary, noncontributory, "all-risk"
property damage insurance covering Tenant's personal property, business
records, fixtures and equipment, for damage or other loss caused by fire or
other casualty or cause, including but not limited to vandalism and malicious
mischief, theft, water damage of any type (including sprinkler leakage,
bursting or stoppage of pipes, explosion), business interruptions, and other
insurable risks in amounts not less than the full insurable replacement value
of such property and full insurable value of such other interests of Tenant
(subject to reasonable deductible amounts). Landlord shall, as part of
Operating Expenses, maintain during the Term comprehensive (or commercial)
general liability insurance, with limits of not less than $1,000,000.00
combined single limit for personal injury, bodily injury or death, or
property damage or destruction (including loss of use thereof) for any one
occurrence. Landlord shall also, as part of Operating Expenses, maintain
during the Term worker compensation insurance as required by statute, and
primary, noncontributory, extended coverage or "all-risk" property damage
insurance, in an amount equal to at least ninety percent (90%) of the full
insurable replacement value of the Property (exclusive of the costs of
excavation, foundations and footings, and such risks required to be covered
by Tenant's insurance, and subject to reasonable deductible amounts), or such
other amount necessary to prevent Landlord from being a co-insured, and such
other coverage as Landlord shall deem appropriate or that may be required by
any Holder.
Tenant shall provide Landlord with certificates evidencing such coverage
(and, with respect to liability coverage, showing Landlord as additional
insured) prior to the Commencement Date, which shall state that such
insurance coverage may not be changed or canceled without at least twenty
(20) days prior written notice to Landlord, and shall provide renewal
certificates to Landlord at least twenty (20) days prior to expiration of
such policies. Landlord may periodically, but not more often than every three
(3) years, require that Tenant reasonably increase the aforementioned
coverage. Except as provided to the contrary herein, any insurance carried
by Landlord or Tenant shall be for the sole benefit of the party carrying
such insurance. Any insurance policies hereunder may be "blanket policies".
All insurance required hereunder shall be provided by responsible insurers
and Tenant's insurer shall be reasonably acceptable to Landlord. By this
Article, Landlord and Tenant intend that their respective property loss risks
shall be borne by responsible insurance carriers to the extent above
provided, and Landlord and Tenant hereby agree to look solely to, and seek
recovery only from, their respective insurance carriers in the event of a
property loss to the extent that such coverage is agreed to be provided
hereunder. The parties each hereby waive all rights and claims against each
other for such losses, and waive all rights of subrogation of their
respective insurers, provided such waiver of subrogation shall not affect the
right of the insured to recover thereunder. The parties agree that their
respective insurance policies are now, or shall be, endorsed such that said
waiver of subrogation shall not affect the right of the insured to recover
thereunder, so long as no material additional premium is charged therefor.
If Tenant shall fail to comply with any of the requirements contained
relating to insurance, Landlord may obtain such insurance and Tenant shall
pay to Landlord, on demand as additional Rent thereunder, the premium cost
thereof.
If an increase in any insurance premiums paid by Landlord for the Project
is caused by Tenant's use of the Leased Premises, or if Tenant vacated the
Leased Premises and caused an increase in such premiums, then Tenant shall
pay as additional Rent the amount of such increase to Landlord. Tenant
agrees to pay any amount due under this section within ten (10) days
following receipt of the invoice showing the additional Rent due.
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Tenant Landlord
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ARTICLE 12
CONDEMNATION
If the whole or any material part of the Premises or Property shall be
taken by power of eminent domain or condemned by any competent authority for
any public or quasi-public use or purpose, or if any adjacent property or
street shall be so taken or condemned, or reconfigured or vacated by such
authority in such manner as to require the use, reconstruction or remodeling
of any part of the Premises or Property, or if Landlord shall grant a deed or
other instrument in lieu of such taking by eminent domain or condemnation,
Landlord shall have the option to terminate this Lease upon ninety (90) days
notice, provided such notice is given no later than 180 days after the date
of such taking, condemnation, reconfiguration, vacation, deed or other
instrument. Tenant shall have reciprocal termination rights if the whole or
any material part of the Premises is permanently taken, or if access to the
Premises is permanently materially impaired. Landlord shall be entitled to
receive the entire award or payment in connection therewith, except that
Tenant shall have the right to file any separate claim available to Tenant
for any taking of Tenant's personal property and fixtures belonging to Tenant
and removable by Tenant upon expiration of the Term, and for moving expenses
(so long as such claim does not diminish the award available to Landlord or
any Holder, and such claim is payable separately to Tenant). All Rent shall
be apportioned as of the date of such termination, or the date of such
taking, whichever shall first occur. If any part of the Premises shall be
taken, and this Lease shall not be so terminated, the Rent shall be
proportionately abated.
ARTICLE 13
RETURN OF POSSESSION
At the expiration or earlier termination of this Lease or Tenant's right
of possession, Tenant shall surrender possession of the Premises in the
condition required under Article 9, ordinary wear and tear excepted, and
shall surrender all keys, any key cards, and any parking stickers or cards,
to Landlord, and advise Landlord as to the combination of any locks or vaults
then remaining in the Premises, and shall remove all trade fixtures and
personal property. All improvements, fixtures and other items in or upon the
Premises (except trade fixtures, appliances installed by Tenant, and personal
property belonging to Tenant), whether installed by Tenant or Landlord, shall
be Landlord's property and shall remain upon the Premises, all without
compensation, allowance or credit to Tenant. However, if prior to such
termination or within ten (10) days thereafter Landlord so directs by notice,
Tenant shall promptly remove such of the foregoing items as are designated in
such notice and restore the Premises to the condition prior to the
installation of such items; provided Landlord shall not require removal of
customary office improvements installed pursuant to any separate agreement
signed by both parties in connection with entering this Lease (except as
expressly provided to the contrary therein), or installed by Tenant with
Landlord's written approval (except as required by Landlord in connection
with granting such approval). If Tenant shall fail to perform any repairs or
restoration, or fail to remove any items from the Premises required
hereunder, Landlord may do so, and Tenant shall pay Landlord the cost thereof
upon demand. All property removed from the Premises by Landlord pursuant to
any provisions of this Lease or any Law may be handled or stored by Landlord
at Tenant's expense, and Landlord shall in no event be responsible for the
value, preservation or safekeeping thereof. All property not removed from
the Premises or retaken from storage by Tenant within thirty (30) days after
expiration or earlier termination of this Lease or Tenant's right to
possession, shall at Landlord's option be conclusively deemed to have been
conveyed by Tenant to Landlord as if by bill of sale without payment by
Landlord. Unless prohibited by applicable Law, Landlord shall have a lien
against such property for the costs incurred in removing and storing the same.
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Tenant Landlord
9
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ARTICLE 14
HOLDING OVER
Unless Landlord expressly agrees otherwise in writing, Tenant shall pay
Landlord 150% of the amount of Rent then applicable (or the highest amount
permitted by Law, whichever shall be less) prorated on per diem basis for
each day Tenant shall retain possession of the Premises or any part thereof
after expiration or earlier termination of this Lease, together with all
damages sustained by Landlord on account thereof. The foregoing provisions
shall not serve as permission for Tenant to hold over, nor serve to extend
the Term (although Tenant shall remain bound to comply with all provisions of
this Lease until Tenant vacates the Premises, and shall be subject to the
provisions of Article 13). Notwithstanding the foregoing to the contrary, at
any time before or after expiration or earlier termination of the Lease,
Landlord may serve notice advising Tenant of the amount of Rent and other
terms required, should Tenant desire to enter a month-to-month tenancy (and
if Tenant shall hold over more than one full calendar month after such
notice, Tenant shall thereafter be deemed a month-to-month tenant, on the
terms and provisions of this Lease then in effect, as modified by Landlord's
notice, and except that Tenant shall not be entitled to any renewal or
expansion rights contained in this Lease or any amendments hereto).
ARTICLE 15
NO WAIVER
No provision of this Lease will be deemed waived by either party unless
expressly waived in writing signed by the waiving party. No waiver shall be
implied by delay or any other act or omission of either party. No waiver by
either party of any provision of this Lease shall be deemed a waiver of such
provision with respect to any subsequent matter relating to such provision,
and Landlord's consent or approval respecting any action by Tenant shall not
constitute a waiver of the requirement for obtaining Landlord's consent or
approval respecting any subsequent action. Acceptance of Rent by Landlord
shall not constitute a waiver of any breach by Tenant of any term or
provision of this Lease. No acceptance of a lesser amount than the Rent
herein stipulated shall be deemed a waiver of Landlord's right to receive the
full amount due, nor shall any endorsement or statement on any check or
payment or any letter accompanying such check or payment be deemed an accord
and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the full amount due. The acceptance
of Rent or of the performance of any other term or provision from any Person
other than Tenant, including any Transferee (as defined in Article 21.01),
shall not constitute a waiver of Landlord's right to approve any Transfer.
ARTICLE 16
ATTORNEYS' FEES
In the event of any litigation between the parties, the prevailing party
shall be entitled to obtain, as part of the judgment, all reasonable
attorneys' fees, costs and expenses incurred in connection with such
litigation, except as may be limited by applicable Law.
ARTICLE 17
PERSONAL PROPERTY TAXES, RENT TAXES AND OTHER TAXES
Tenant shall pay prior to delinquency all taxes, charges or other
governmental impositions assessed against or levied upon Tenant's fixtures,
furnishings, equipment and personal property located in the Premises, and any
Work to the Premises under Article 8. Whenever possible, Tenant shall cause
all such items to be assessed and billed separately from the property of
Landlord. In the event any such items shall be assessed and billed with the
property of Landlord, Tenant shall pay Landlord its share of such taxes,
charges or other governmental impositions within thirty (30) days after
Landlord delivers a statement and copy of the assessment or other
documentation showing the amount of such impositions applicable to Tenant's
property. Tenant shall pay any rent tax or sales tax, service tax, transfer
tax or value added tax, or any other applicable tax on the Rent or services
herein or otherwise respecting this Lease.
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Tenant Landlord
10
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ARTICLE 18
REASONABLE APPROVALS
Whenever Landlord's approval or consent is expressly required under this
Lease (including Article 21) or any other agreement between the parties,
Landlord shall not unreasonably withhold or delay such approval or consent
(reasonableness shall be a condition to Landlord's enforcement of such
consent or approval requirement, and not a covenant), except for matters
affecting the structure, safety or security of the Property, or the
appearance of the Property from any common or public areas.
ARTICLE 19
SUBORDINATION, ATTORNMENT AND MORTGAGEE PROTECTION
This Lease is subject and subordinate to all Mortgages now or hereafter
placed upon the Property, and all other encumbrances and matters of public
record applicable to the Property. If any foreclosure proceedings are
initiated by any Holder or a deed in lieu is granted (or if any ground lease
is terminated), Tenant agrees, upon written request of any such Holder or any
purchaser at foreclosure sale, to attorn and pay Rent to such party and to
execute and deliver any instruments necessary or appropriate to evidence or
effectuate such attornment (provided such Holder or purchaser shall agree to
accept this Lease and not disturb Tenant's occupancy, so long as Tenant does
not default and fail to cure within the time permitted hereunder). However,
in the event of attornment, no Holder shall be: (i) liable for any act or
omission of Landlord, or subject to any offsets or defenses which Tenant
might have against Landlord (prior to such Holder becoming Landlord under
such attornment), (ii) liable for any security deposit or bound by any
prepaid Rent not actually received by such Holder, or (iii) bound by any
future modification of this Lease not consented to by such Holder. Any
Holder may elect to make this Lease prior to the lien of its Mortgage, by
written notice to Tenant, and if the Holder of any prior Mortgage shall
require, this Lease shall be prior to any subordinate Mortgage. Tenant
agrees to give any Holder, by certified mail, return receipt requested, a
copy of any notice of default served by Tenant upon Landlord, provided that
prior to such notice Tenant has been notified in writing (by way of service
on Tenant of a copy of an assignment of leases, or otherwise) of the address
of such Holder. Tenant further agrees that if Landlord shall have failed to
cure such default within the times permitted Landlord for cure under this
Lease, any such Holder whose address has been provided to Tenant shall have
an additional period of thirty (30) days in which to cure (or such additional
time as may be required due to causes beyond such Holder's control, including
time to obtain possession of the Property by power of sale or judicial
action). Tenant shall execute such documentation, as Landlord may reasonably
request from time to time, in order to confirm the matters set forth in this
Article in recordable form.
ARTICLE 20
ESTOPPEL CERTIFICATE
Tenant shall from time to time, within twenty (20) days after written
request from Landlord, execute, acknowledge and deliver a statement (i)
certifying that this Lease is unmodified and in full force and effect or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect (or if this Lease is
claimed not to be in force and effect, specifying the ground therefor) and
any dates to which the Rent has been paid in advance, and the amount of any
Security Deposit, (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or
specifying such defaults if any are claimed, and (iii) certifying such other
matters as Landlord may reasonably request, or as may be requested by
Landlord's current or prospective Holders, insurance carriers, auditors, and
prospective purchasers. Any such statement may be relied upon by any such
parties. If Tenant shall fail to execute and return such statement within
the time required herein, Tenant shall be deemed to have agreed with the
matters set forth herein.
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Tenant Landlord
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ARTICLE 21
ASSIGNMENT AND SUBLETTING
21.01 TRANSFERS. Tenant shall not, without the prior written consent of
Landlord, as further described below: (i) assign, mortgage, pledge,
hypothecate, encumber, or permit any lien to attach to, or otherwise
transfer, this Lease or any interest hereunder, by operation of law or
otherwise, (ii) sublet the Premises or any part thereof, except that Tenant
may continue to sublet the portion of the Premises which have been under
previous sublet, or (iii) permit the use of the Premises by any Persons other
than Tenant and its employees (all of the foregoing are hereinafter sometimes
referred to collectively as "Transfers" (as further defined below) and any
Person to whom any Transfer is made or sought to be made is hereinafter
sometime referred to as a "Transferee"). If Tenant shall desire Landlord's
consent to any Transfer, Tenant shall notify Landlord in writing, which
notice shall include: (a) the proposed effective date (which shall not be
less than thirty (30) nor more than 180 days after Tenant's notice), (b) the
portion of the Premises to be Transferred (herein called the "Subject
Space"), (c) the terms of the proposed Transfer and the consideration
therefor, the name and address of the proposed Transferee, and a copy of all
documentation pertaining to the proposed Transfer, and (d) current financial
statements of the Proposed Transferee certified by an officer, partner or
owner thereof, and any other information to enable Landlord to determine the
financial responsibility, character, and reputation of the proposed
Transferee, nature of such Transferee's business and proposed use of the
Subject Space, and such other information as Landlord may reasonably require.
Any Transfer made without complying with this Article shall, at Landlord's
option, be null, void and of no effect, or shall constitute a default under
this Lease. Tenant shall pay reasonable legal fees incurred by Landlord to
review such Transfer, within thirty (30) days after written request by
Landlord.
21.02 APPROVAL. Landlord will not unreasonably withhold its consent (as
provided in Article 18) to any proposed Transfer of the Subject Space to the
Transferee on the terms specified in Tenant's notice. The parties hereby
agree that it shall be reasonable under this Lease and under any applicable
Law for Landlord to withhold consent to any proposed Transfer where one or
more of the following applies (without limitation as to other reasonable
grounds for withholding consent): (i) the Transferee is of a character or
reputation or engaged in a business which is not consistent with the quality
of the Property, or would be a significantly less prestigious occupant of the
Property than Tenant, (ii) the Transferee intends to use the Subject Space
for purposes which are not permitted under this Lease, (iii) the Subject
Space is not regular in shape with appropriate means of ingress and egress
suitable for normal renting purposes, (iv) the Transferee is a government or
agency or instrumentality thereof, (v) the proposed Transferee does not have
a reasonable financial condition in relation to the obligations to be assumed
in connection with the Transfer, or (vi) Tenant has committed and failed to
cure a default at the time Tenant requests consent to the proposed Transfer.
Landlord hereby consents to an assignment of all or any portion of this
Lease to an Affiliate of Tenant (as hereinafter defined) or to a Successor
Entity (as hereinafter defined), provided that all the following conditions
are fulfilled: (i) no Event of Default then exists under this Lease, (ii)
Tenants sends to Landlord such organizational and transactional documents as
are sufficient to establish that such proposed assignee is an Affiliate of
Tenant or a Successor Entity, as the case may be, and (iii) Landlord is
provided with a true and correct copy of the fully executed assignment of
this Lease and copies of any other documents executed in connection with such
assignment. In addition, the Affiliate of Tenant or Successor Entity to
which this lease is assigned must execute an instrument reasonably
satisfactory to landlord in form and substance whereby such Affiliate of
Tenant or Successor Entity, as the case may be, assumes and agrees to perform
all of the obligations and agreements of Tenant under this Lease. No such
assignment by Tenant shall relieve Tenant of any covenants or obligations
under this Lease, unless Landlord agrees in writing to release Tenant from
its Lease obligations. For purposes hereof, the term "Affiliate of Tenant"
shall mean an entity, directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control with
Tenant. The term "control" as used in the immediately preceding sentence,
means, with respect to an entity that is a corporation, the right to
exercise, directly or indirectly, more than fifty percent (50%) of the voting
rights attributable to the shares of the controlled corporation, and, with
respect to an entity that is not a corporation, the possession, directly or
indirectly, of the power to direct or cause the direction of the management
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Tenant Landlord
12
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direction of the management or policies of the controlled entity. The term
"Successor Entity" as used herein shall mean either (a) an entity to which
all or substantially all of the assets or stock of Tenant are transferred in
an arms length transaction, or (b) an entity into which Tenant is merged or
consolidated in an arms length transaction.
21.03 TRANSFER PREMIUM. If Landlord consents to a Transfer, and as a
condition thereto which the parties hereby agree is reasonable, Tenant shall
pay Landlord one hundred percent (100%) of any Transfer Premium derived by
Tenant from such Transfer. "Transfer Premium" shall mean all rent,
additional rent or other consideration paid by such Transferee in excess of
the Rent payable by Tenant under this Lease (on a monthly basis during the
Term, and on a per rentable square foot basis, if less than all of the
Premises is transferred), after deducting the reasonable expenses incurred by
Tenant for any changes, alterations and improvements to the Premises, any
other economic concessions or services provided to the Transferee, and any
customary brokerage commissions paid in connection with the Transfer. If any
part of the consideration for such Transfer shall be payable other than in
cash, Landlord's share of such non-cash consideration shall be in such form
as is reasonably satisfactory to Landlord. The percentage of the Transfer
Premium due Landlord hereunder shall be paid within ten (10) days after
Tenant receives any Transfer Premium from the Transferee.
21.04 TERMS OF CONSENT. If Landlord consents to a Transfer: (a) the
terms and conditions of this Lease, including among other things Tenant's
liability for the Subject Space, shall in no way be deemed to have been
waived or modified, (b) such consent shall not be deemed consent to any
further Transfer by either Tenant or a Transferee, (c) no Transferee shall
succeed to any rights provided in this Lease or any amendment hereto to
extend the Term of this Lease, expand the Premises, or lease additional
space, any such rights being deemed personal to Tenant, (d) Tenant shall
deliver to Landlord, promptly after execution, an original executed copy of
all documentation pertaining to the Transfer in a form reasonably acceptable
to Landlord, and (e) Tenant shall furnish upon Landlord's request a complete
statement, certified by an independent certified public accountant, or
Tenant's chief financial officer, setting forth in detail the computation of
any Transfer Premium Tenant has derived and shall derive from such Transfer.
Landlord or its authorized representatives shall have the right at all
reasonable times to audit the books, records and papers of Tenant relating to
any Transfer, and shall have the right to make copies thereof. If the
Transfer Premium respecting any Transfer shall be found understated, Tenant
shall within thirty (30) days after demand pay the deficiency, and if
understated by more than two percent (2%), Tenant shall pay Landlord's costs
of such audit. Any sublease hereunder shall be subordinate and subject to
the provisions of this Lease, and if this Lease shall be terminated during
the term of any sublease, Landlord shall have the right to: (i) treat such
sublease as canceled and repossess the Subject Space by any lawful means, or
(ii) require that such subtenant attorn to and recognize Landlord as its
landlord under any such sublease. If Tenant shall default and fail to cure
within the time permitted for cure under Article 23.01, Landlord is hereby
irrevocably authorized, as Tenant's agent and attorney-in-fact, to direct any
Transferee to make all payments under or in connection with the Transfer
directly to Landlord (which Landlord shall apply towards Tenant's obligations
under this Lease) until such default is cured.
21.05 CERTAIN TRANSFERS. For purposes of this Lease, the term
"Transfer" shall also include (a) if Tenant is a partnership, the withdrawal
or change, voluntary, involuntary or by operation of Law, of a majority of
the partners, or a transfer of a majority of partnership interests, within a
twelve (12) month period, or the dissolution of the partnership, and (b) if
Tenant is a closely held corporation (i.e., whose stock is not publicly held
and not traded through an exchange or over the counter), the dissolution,
merger, consolidation or other reorganization of Tenant, or within a twelve
(12) month period: (i) the sale or other transfer of more than an aggregate
of fifty percent (50%) of the voting shares of Tenant (other than to
immediate family members by reason of gift or death), or (ii) the sale,
mortgage, hypothecation or pledge of more than an aggregate of fifty percent
(50%) of Tenant's net assets.
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Tenant Landlord
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ARTICLE 22
RIGHTS RESERVED BY LANDLORD
Except to the extent expressly limited herein, Landlord reserves full
rights to control the Property (which rights may be exercised without
subjecting Landlord to claims for constructive eviction, abatement of Rent,
damages or other claims of any kind), including more particularly, but
without limitation, the following rights:
(A) To change the name or street address of the Property; install
and maintain signs on the exterior and interior of the Property; retain at
all times, and use in appropriate instances, keys to all doors within and
into the Premises; grant to any Person the right to conduct any business or
render any service at the Property, whether or not it is the same or similar
to the use permitted Tenant by this Lease; and have access for Landlord and
other tenants of the Property to any mail chutes located on the Premises
according to the rules of the United States Postal Service.
(B) To enter the Premises at reasonable hours for reasonable
purposes, including inspection and supplying cleaning service or other
services to be provided Tenant hereunder; to show the Premises to current and
prospective mortgage lenders, ground lessors, insurers, and prospective
purchasers, tenants and brokers, at reasonable hours; and if Tenant shall
abandon the Premises at any time, or shall vacate the same during the last
three (3) months of the Term, to decorate, remodel, repair, or alter the
Premises.
(C) To limit or prevent access to the Property, shut down elevator
service, activate elevator emergency controls, or otherwise take such action
or preventative measures deemed necessary by Landlord for the safety of
tenants or other occupants of the Property or the protection of the Property
and other property located thereon or therein, in case of fire, invasion,
insurrection, riot, civil disorder, public excitement or other dangerous
condition, or threat thereof.
(D) To decorate and to make alterations, additions and
improvements, structural or otherwise, in or to the Property or any part
thereof, and any adjacent building, structure, parking facility, land, street
or alley (including without limitation changes and reductions in corridors,
lobbies, parking facilities and other public areas and the installation of
kiosks, planters, sculptures, displays, escalators, mezzanines, and other
structures, facilities, amenities and features therein, and changes for the
purpose of connection with or entrance into or use of the Property in
conjunction with any adjoining or adjacent building or buildings, now
existing or hereafter constructed). In connection with such matters, or with
any other repairs, maintenance, improvements or alterations, in or about the
Property, Landlord may erect scaffolding and other structures reasonably
required, and during such operations may enter upon the Premises and take
into and upon or through the Premises all materials required to make such
repairs, maintenance, alterations or improvements, and may close public
entryways, other public areas, rest rooms, stairways or corridors.
In connection with entering the Premises to exercise any of the foregoing
rights, Landlord shall: (a) provide reasonable advance written or oral notice
to Tenant's on-site manager or other appropriate person (except in
emergencies, or for routine cleaning or other routine matters), and (b) take
reasonable steps to minimize any interference with Tenant's business.
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ARTICLE 23
LANDLORD'S REMEDIES
23.01 DEFAULT BY TENANT. The following shall be deemed to be events of
default by Tenant under this Lease: (1) Tenant shall fail to pay any
installment of Rent or other payment required pursuant to this Lease within
three (3) days after Landlord's written notice thereof to Tenant; (2) Tenant
shall abandon any substantial portion of the Leased Premises; (3) Tenant
shall fail to comply with any term, provision or covenant of this Lease,
other than the defaults described in subparts (1) and (2) of this sentence,
and the failure is not cured within ten (10) days after written notice
thereof to Tenant; (4) Tenant or any guarantor of Tenant's obligations
hereunder shall file a petition or be adjudged bankrupt or insolvent under
any applicable federal or state bankruptcy or insolvency law or admit that it
cannot meet it financial obligations as they become due; or a receiver or
trustee shall be appointed for all or substantially all of the assets of
Tenant or any guarantor of Tenant's obligations hereunder; or Tenant or any
guarantor of Tenant's obligations hereunder shall make a transfer in fraud of
creditors or shall make an assignment for the benefit of creditors; (5)
Tenant shall do or permit to be done any act which results in a lien being
filed against the Leased Premises or the Project; or (6) the liquidation,
termination, dissolution or (if the Tenant is a natural person) the death of
Tenant or any guarantor of Tenant's obligations hereunder.
23.02 REMEDIES. If a default occurs and is not cured within any
applicable time permitted under Article 23.01, Landlord shall have the rights
and remedies hereinafter set forth, which shall be distinct, separate and
cumulative with and in addition to any other right or remedy allowed under
any Law or other provisions of this Lease:
(A) Landlord may terminate this Lease, repossess the Premises by
detainer suit, summary proceedings or other lawful means, and recover as
damages a sum of money equal to: (a) any unpaid Rent as of the termination
date, including interest at the Default Rate (as defined in Article 25.02),
(b) any unpaid Rent which would have accrued after the termination date
through the time of award, including interest at the Default Rate, less such
loss of Rent that Tenant proves could have been reasonably avoided, (c) any
unpaid Rent which would have accrued after the time of award during the
balance of the Term, less such loss of Rent that Tenant proves could be
reasonably avoided, and (d) any other amounts necessary to compensate
Landlord for all damages proximately caused by Tenant's failure to perform
its obligations under this Lease, including without limitation all Costs of
Reletting (as defined in Article 23.05). For purposes of computing the amount
of Rent herein that could have accrued after the time of award, Tenant's Pro
Rata Share of Operating Expenses shall be projected, based upon the average
rate of increase, if any, in such items from the Commencement Date through
the time of award.
(B) If applicable Law permits, Landlord may terminate Tenant's
right of possession and repossess the Premises by detainer suit, summary
proceedings or other lawful means, without terminating this Lease (and if
such Law permits, and Landlord shall not have expressly terminated the Lease
in writing, any termination shall be deemed a termination of Tenant's right
of possession only). In such event, Landlord may recover: (a) any unpaid
Rent as of the date possession is terminated, including interest at the
Default Rate, (b) any unpaid Rent which accrues during the Term from the date
possession is terminated through the time of award (or which may have accrued
from the time of any earlier award obtained by Landlord through the time of
award), including interest at the Default Rate, less any Net Reletting
Proceeds (as defined in Article 23.05) received by Landlord during such
period, and less such loss of Rent that Tenant proves could have been
reasonably avoided, and (c) any other amounts necessary to compensate
Landlord for all damages proximately caused by Tenant's failure to perform
its obligations under this Lease, including without limitation all Costs of
Reletting. Landlord may bring suits for such amounts or portions thereof, at
any time or times as the same accrue or after the same have accrued, and no
suit or recovery of any portion due hereunder shall be deemed a waiver of
Landlord's right to collect all amounts to which Landlord is entitled
hereunder, nor shall the same serve as any defense to any subsequent suit
brought for any amount not theretofore reduced to judgment.
23.03 SPECIFIC PERFORMANCE, COLLECTION OF RENT AND ACCELERATION.
Landlord shall at all times have the right and remedies (which shall be
cumulative with each other and cumulative and in addition to those rights and
remedies available under Article 23.02 above, or any Law or other
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provision of this Lease), without prior demand or notice except as required
by applicable Law to: (i) seek any declaratory, injunctive or other equitable
relief, and specifically enforce this Lease, or restrain or enjoin a
violation or breach of any provision hereof, and (ii) sue for and collect any
unpaid Rent which has accrued. Notwithstanding anything to the contrary
contained in this Lease, to the extent not expressly prohibited by applicable
Law, in the event of any default by Tenant not cured within any applicable
time for cure hereunder, Landlord may terminate this Lease or Tenant's right
to possession and accelerate and declare that all Rent reserved for the
remainder of the Term shall be immediately due and payable (in which event,
Tenant's Pro Rata Share of Taxes and Operating Expenses for the remainder of
the Term shall be projected based upon the average rate of increase, if any,
in such items from the Commencement Date through the date of such
declaration); provided Landlord shall, after receiving payment of the same
from Tenant, be obligated to turn over to Tenant any actual Net Reletting
Proceeds thereafter received during the remainder of the Term, up to the
amount so received from Tenant pursuant to this provision.
23.04 LATE PAYMENT CHARGE AND INTEREST PAYABLE. Other remedies for
nonpayment of Rent notwithstanding, if monthly rental payment is not received
by Landlord on or before the tenth day of the month for which the Rent is
due, or if any other payment hereunder due Landlord by Tenant is not received
by Landlord on or before the tenth day of the month next following the month
in which Tenant was invoiced, a late payment charge of five percent (5%) of
such past due amount shall become due and payable in addition to such amounts
owed under this Lease. Any payment due under this Lease not paid upon the
date herein specified to be paid shall bear interest from the expiration of
ten (10) days after the date such payment is due to the date of actual
payment at the highest lawful rate of interest permitted by law.
23.05 CERTAIN DEFINITIONS. "Net Reletting Proceeds" shall mean the
total amount of Rent and other consideration paid by any Replacement Tenants,
less all Costs of Reletting, during a given period of time. "Costs of
Reletting" shall include without limitation all reasonable costs and expenses
incurred by Landlord for any repairs, maintenance, changes, alterations and
improvements to the Premises, brokerage commissions, advertising costs,
attorneys' fees, any customary free rent periods or credits, tenant
improvement allowances, take-over lease obligations and other customary,
necessary or appropriate economic incentives required to enter leases with
Replacement Tenants, and costs of collecting Rent from Replacement Tenants.
"Replacement Tenants" shall mean any Persons to whom Landlord relets the
Premises or any portion thereof pursuant to this Article.
23.06 OTHER MATTERS. No re-entry or repossession, repairs, changes,
alterations and additions, reletting, acceptance of keys from Tenant, or any
other action or omission by Landlord shall be construed as an election by
Landlord to terminate this Lease or Tenant's right to possession, or accept a
surrender of the Premises, nor shall the same operate to release the Tenant
in whole or in part from any of Tenant's obligations hereunder, unless
express written notice of such intention is sent by Landlord or its agent to
Tenant. To the fullest extent permitted by Law, all Rent and other
consideration paid by any Replacement Tenants shall be applied: first, to the
Costs of Reletting, second, to the payment of any Rent theretofore accrued,
and the residue, if any, shall be held by Landlord and applied to the payment
of other obligations of Tenant to Landlord as the same become due (with any
remaining residue to be retained by Landlord). Rent shall be paid without
any prior demand or notice therefor (except as expressly provided herein) and
without any deduction, set-off or counterclaim, or relief from any valuation
or appraisement laws. Landlord may apply payments received from Tenant to
any obligations of Tenant then accrued, without regard to such obligations as
may be designated by Tenant. Landlord shall be under no obligation to
observe or perform any provision of this Lease on its part to be observed or
performed which accrues after the date of any default by Tenant hereunder not
cured within the times permitted hereunder. The times set forth herein for
curing of defaults by Tenant are of the essence of this Lease. Tenant hereby
irrevocably waives any right otherwise available under any Law to redeem or
reinstate this Lease.
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ARTICLE 24
LANDLORD'S DEFAULT
If Landlord shall fail to perform any term or provision under this Lease
required to be performed by Landlord, Landlord shall not be deemed to be in
default hereunder nor subject to any claims for damages of any kind, unless
such failure shall have continued for a period of thirty (30) days after
written notice thereof by Tenant; provided, if the nature of Landlord's
failure is such that more than thirty (30) days are reasonably required in
order to cure, Landlord shall not be in default if Landlord commences to cure
such failure within such thirty (30) day period, and thereafter reasonably
seeks to cure such failure to completion. The aforementioned periods of time
permitted for Landlord to cure shall be extended for any period of time
during which Landlord is delayed in, or prevented from, curing due to fire or
other casualty, strikes, lockouts or other labor troubles, shortages of
equipment or materials, governmental requirements, power shortages or
outages, acts or omissions by Tenant or other Persons, and other causes
beyond Landlord's reasonable control. If Landlord shall fail to cure within
the times permitted for cure herein, Landlord shall be subject to such
remedies as may be available to Tenant (subject to the other provisions of
this Lease); provided, in recognition that Landlord must receive timely
payments of Rent and operate the Property, Tenant shall have no right of self
help to perform repairs or any other obligations of Landlord, and shall have
no right to withhold, set off, or abate Rent.
ARTICLE 25
CAPTIONS, DEFINITIONS AND SEVERABILITY
The captions of the Articles and Paragraphs of this Lease are for
convenience of reference only and shall not be considered or referred to in
resolving questions or interpretation. If any term or provision of this
Lease shall be found invalid, void, illegal, or unenforceable with respect to
any particular Person by a court of competent jurisdiction, it shall not
affect, impair or invalidate any other terms or provisions hereof, or its
enforceability with respect to any other Person, the parties hereto agreeing
that they would have entered into the remaining portion of this Lease
notwithstanding the omission of the portion or portions adjudged invalid,
void, illegal, or unenforceable with respect to such Person.
25.01 "Building" shall mean the structure identified in Article 1 of
this Lease.
25.02 "Default Rate" shall mean eighteen percent (18%) per annum, or the
highest rate permitted by applicable Law, whichever shall be less.
25.03 "Holder" shall mean the holder of any Mortgage at the time in
question, and where such Mortgage is a ground lease, such term shall refer to
the ground lessor.
25.04 "Holidays" shall mean all federally observed holidays, including
New Year's Day, President's Day, Memorial Day, Independence Day, Labor Day,
Veterans' Day, Thanksgiving Day, the day following Thanksgiving Day,
Christmas Day, and to the extent of utilities or services provided by union
members engaged at the Property, such other holidays observed by such unions.
25.05 "Landlord" and "Tenant" shall be applicable to one or more
Persons as the case may be, and the singular shall include the plural, and
the neuter shall include the masculine and feminine; and if there be more
than one, the obligations thereof shall be joint and several. For purposes
of any provisions indemnifying or limiting the liability of Landlord, the
term "Landlord" shall include Landlord's present and future partners,
beneficiaries, trustees, officers, directors, employees, shareholders,
principals, agents, affiliates, successors and assigns.
25.06 "Law" shall mean all federal, state, county and local governmental
and municipal laws, statutes, ordinances, regulations, codes, decrees, orders
and other such requirements, applicable equitable remedies and decisions by
courts in cases where such decisions are considered binding precedents in the
state in which the Property is located, and decisions of federal courts apply
the Laws of such state.
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25.07 "Mortgage" shall mean all mortgages, deeds of trust, ground leases
and other such encumbrances now or hereafter placed upon the Property or
Building, or any part thereof, and all renewals, modifications,
consolidations, replacements or extensions thereof, and all indebtedness now
or hereafter secured thereby and all interest thereon.
25.08 "Operating Expenses" shall mean all expenses, costs, Taxes and
amounts of every kind and nature which Landlord shall pay during any calendar
year, any portion of which occurs during the Term, because of or in
connection with the ownership, management, repair, maintenance, restoration
and operation of the Property, including without limitation any amounts paid
for: (a) utilities for the Property, including but not limited to
electricity, power, gas, steam, oil or other fuel, water, sewer, lighting,
heating, air conditioning and ventilating, (b) permits, licenses and
certificates necessary to operate, manage and lease the Property, (c)
insurance applicable to the Property, not limited to the amount of coverage
Landlord is required to provide under this Lease, (d) supplies, tools,
equipment and materials used in the operation, repair and maintenance of the
Property, (e) accounting, legal, inspection, consulting, concierge and other
services, (f) any equipment rental (or installment equipment purchase or
equipment financing agreements), or management agreements (including the cost
of any management fee actually paid thereunder and the fair rental value of
any office space provided thereunder, up to customary and reasonable
amounts), (g) wages, salaries and other compensation and benefits for all
persons engaged in the operation, maintenance or security of the Property,
and employer's Social Security taxes, unemployment taxes or insurance, and
any other taxes which may be levied on such wages, salaries, compensation and
benefits, (h) payments under any easement, operating agreement, declaration,
restrictive covenant, or instrument pertaining to the sharing of costs in any
planned development, and (i) installation, operation, repair, and maintenance
of all Systems and Equipment and components thereof (including replacement of
components), janitorial service, pest control, alarm and security service,
window cleaning, trash removal, elevator maintenance, cleaning of walks,
parking facilities and building walls, removal of ice and snow, replacement
of wall and floor coverings, ceiling tiles and fixtures in lobbies,
corridors, rest rooms and other common or public areas or facilities,
maintenance and replacement of shrubs, trees, grass, sod and other landscaped
items, irrigation systems, drainage facilities, fences, curbs, and walkways,
repaving and re-striping parking facilities, and roof repairs. If the
Property is not fully occupied during all or a portion of any calendar year,
Landlord may, in accordance with generally accepted accounting and management
practices, determine the amount of variable Operating Expenses (i.e., those
items which vary according to occupancy levels) that would have been paid had
the Property been fully occupied, and the amount so determined shall be
deemed to have been the amount of variable Operating Expenses for such year.
Notwithstanding the foregoing, Operating Expenses shall not, however, include:
(A) depreciation, interest and amortization on Mortgages, and other
debt costs or ground lease payments, if any; real estate brokers' leasing
commissions; improvements or alterations to tenant spaces; the cost of
providing any service directly to and paid directly by any tenant; any costs
expressly excluded from Operating Expenses elsewhere in this Lease; costs of
any items to the extent Landlord receives reimbursement from insurance
proceeds or from a third party (such proceeds to be deducted from Operating
Expenses in the year in which received); and
(B) capital expenditures, except those: (a) made primarily to
reduce Operating Expenses, or to comply with any Laws or other governmental
requirements, or (b) for replacements (as opposed to additions or new
improvements) of nonstructural items located in the common areas of the
Property required to keep such areas in good condition; provided all such
permitted capital expenditures (together with reasonable financing charges)
shall be amortized for purposes of this Lease over the shorter of: (i) their
useful lives, (ii) the period during which the reasonably estimated savings
in Operating Expenses equals the expenditures, or (iii) three (3) years.
25.09 "Person" shall mean an individual, trust, partnership, joint
venture, association, corporation, and any other entity.
25.10 "Property" shall mean the Building, and any common or public areas
or facilities, easements, corridors, lobbies, sidewalks, loading areas,
driveways, landscaped areas, sky walks, parking garages and lots, and any and
all other structures or facilities operated or maintained in connection with
or for the benefit of the Building, and all parcels or tracts of land on
which all or
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any portion of the Building or any of the other foregoing items are located,
and any fixtures, machinery, equipment, apparatus, Systems and Equipment,
furniture and other personal property located thereon or therein and used in
connection therewith, whether title is held by Landlord or its affiliates.
Possession of areas necessary for utilities, services, safety and operation
of the Property, including the Systems and Equipment, fire stairways,
perimeter walls, space between the finished ceiling of the Premises and the
slab of the floor or roof of the Property there above, and the use thereof,
together with the right to install, maintain, operate, repair and replace the
Systems and Equipment, including any of the same in, through, under or above
the Premises in locations that will not materially interfere with Tenant's
use of the Premises, are hereby excepted and reserved by Landlord, and not
demised to Tenant.
25.11 "Rent" shall have the meaning specified therefor in Article 3.05.
25.12 "Systems and Equipment" shall mean any plant, machinery,
transformers, duct work, cable, wires, and other equipment, facilities, and
systems designed to supply heat, ventilation, air conditioning and humidity
or any other services or utilities, or comprising or serving as any component
or portion of the electrical, gas, steam, plumbing, sprinkler,
communications, alarm, security, or fire/life/safety systems or equipment, or
any other mechanical, electrical, electronic, computer or other systems or
equipment for the Property.
25.13 "Taxes" shall mean all federal, state, county, or local
governmental or municipal taxes, fees, charges or other impositions of every
kind and nature, whether general, special, ordinary or extraordinary,
including without limitation real estate taxes, general and special
assessments, transit taxes, water and sewer rents, taxes based upon the
receipt of rent, including gross receipts or sales taxes applicable to the
receipt of rent or service or value added taxes (unless required to be paid
by Tenant under Article 17), personal property taxes imposed upon the
fixtures, machinery, equipment, apparatus, Systems and Equipment,
appurtenances, furniture and other personal property used in connection with
the Property which Landlord shall pay during any calendar year, any portion
of which occurs during the Term (without regard to any different fiscal year
used by such governmental or municipal authority) because of or in connection
with the ownership, leasing and operation of the Property. Notwithstanding
the foregoing, there shall be excluded from Taxes all excess profits taxes,
franchise taxes, gift taxes, capital stock taxes, inheritance and succession
taxes, estate taxes, federal and state income taxes, and other taxes to the
extent applicable to Landlord's general or net income (as opposed to rents,
receipts or income attributable to operations at the Property). If the
method of taxation of real estate prevailing at the time of execution hereof
shall be or has been altered, so as to cause the whole or any part of the
taxes now, hereafter or heretofore levied, assessed or imposed on real estate
to be levied, assessed or imposed on Landlord, wholly or partially, as a
capital levy or otherwise, or on or measured by the rents received therefrom,
then such new or altered taxes attributable to the Property shall be included
within the term "Taxes", except that the same shall not include any
enhancement of said tax attributable to other income of Landlord. Any
expenses incurred by Landlord in attempting to protest, reduce or minimize
Taxes shall be included in Taxes in the calendar year such expenses are paid.
Tax refunds shall be deducted from Taxes in the year they are received by
Landlord, but if such refund shall relate to taxes paid in a prior year of
the Term, and the Lease shall have expired, Landlord shall mail Tenant's Pro
Rata Share of such net refund (after deducting expenses and attorneys' fees),
up to the amount Tenant paid towards Taxes during such year, to Tenant's last
known address. If Taxes for any period during the Term or any extension
thereof shall be increased after payment thereof by Landlord, for any reason,
including without limitation error or reassessment by applicable governmental
or municipal authorities, Tenant shall pay Landlord upon demand Tenant's Pro
Rata Share of such increased Taxes. Tenant shall pay increased Taxes whether
Taxes are increased as a result of increases in the assessments or valuation
of the Property (whether based on a sale, change in ownership or refinancing
of the Property or otherwise), increases in the tax rates, reduction or
elimination of any rollbacks or other deductions available under current law,
scheduled reductions of any tax abatement, as a result of the elimination,
invalidity or withdrawal of any tax abatement, or for any other cause
whatsoever. Notwithstanding the foregoing, if any Taxes shall be paid based
on assessments or bills by a governmental or municipal authority using a
fiscal year other than a calendar year, Landlord may elect to average the
assessments or bills for the subject calendar year, based on the number of
months of such calendar year included in each such assessment or bill.
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25.14 "Square feet" or "square foot" as used in this Lease includes the
area contained within the Leased Premises, together with a common area
percentage factor of the Leased Premises proportionate to the total Building
area as determined by Landlord.
25.15 "Tenant's Pro Rata Share" of Operating Expenses shall be the
rentable area of the Premises divided by the rentable area of the Property on
the last day of the calendar year for which Operating Expenses are being
determined, excluding any parking facilities. Tenant acknowledges that the
"rentable area of the Premises" under this Lease includes the usable area,
without deduction for columns or projections, multiplied by a load or
conversion factor, to reflect a share of certain areas, which may include
lobbies, corridors, mechanical, utility, janitorial, boiler and service rooms
and closets, rest rooms, and other public, common and service areas. Except
as provided expressly to the contrary herein, the "rentable area of the
Property" shall include all rentable area of all space leased or available
for lease at the Property, which Landlord may reasonably redetermine from
time to time, to reflect reconfigurations, additions or modifications to the
Property. If the Property or any development of which it is a part shall
contain non-office uses, Landlord shall have the right to determine, in
accordance with sound accounting and management principles, Tenant's Pro Rata
Share of Operating Expenses for only the office portion of the Property or of
such development, in which event, Tenant's Pro Rata Share shall be based on
the ratio of the rentable area of the Premises to the rentable area of such
office portion. Similarly, if the Property shall contain tenants who do not
participate in all or certain categories of Operating Expenses on a pro rata
based, Landlord may exclude the amount of Operating Expenses, or such
categories of the same, as the case may be, attributable to such tenants, and
exclude the rentable area of their premises, in computing Tenant's Pro Rata
Share.
ARTICLE 26
CONVEYANCE BY LANDLORD AND LIABILITY
In case Landlord or any successor owner of the Property or the Building
shall convey or otherwise dispose of any portion thereof in which the
Premises are located, to another Person (and nothing herein shall be
construed to restrict or prevent such conveyance or disposition), such other
Person shall thereupon be and become landlord hereunder and shall be deemed
to have fully assumed and be liable for all obligations of this Lease to be
performed by Landlord which first arise after the date of conveyance,
including the return of any Security Deposit, and Tenant shall attorn to such
other Person, and Landlord or such successor owner shall, from and after the
date of conveyance, be free of all liabilities and obligations hereunder not
then incurred. The liability of Landlord to Tenant for any default by
Landlord under this Lease or arising in connection herewith or with
Landlord's operation, management, leasing, repair, renovation, alteration, or
any other matter relating to the Property or the Premises, shall be limited
to the interest of Landlord in the Property (and the rental proceeds
thereof). Tenant agrees to look solely to Landlord's interest in the
Property (and the rental proceeds thereof) for the recovery of any judgment
against Landlord, and Landlord shall not be personally liable for any such
judgment or deficiency after execution thereon. The limitations of liability
contained in this Article shall apply equally and inure to the benefit of
Landlord's present and future partners, beneficiaries, officers, directors,
trustees, shareholders, agents and employees, and their respective partners,
heirs, successors and assigns. Under no circumstances shall any present or
future general or limited partner of Landlord (if Landlord is a partnership),
or trustee or beneficiary (if Landlord or any partner of Landlord is a trust)
have any liability for the performance of Landlord's obligations under this
Lease. Notwithstanding the foregoing to the contrary, Landlord shall have
personal liability for insured claims, beyond Landlord's interest in the
Property (and rental proceeds thereof), to the extent of Landlord's liability
insurance coverage available for such claims.
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ARTICLE 27
INDEMNIFICATION
Except to the extent arising from the intentional or grossly negligent
acts of Landlord or Landlord's agents or employees, Tenant shall defend,
indemnify and hold harmless Landlord from and against any and all claims,
demands, liabilities, damages, judgments, orders, decrees, actions,
proceedings, fines, penalties, costs and expenses, including without
limitation court costs and attorneys' fees, arising from or relating to any
loss of life, damage or injury to person, property or business occurring in
or from the Premises, or caused by or in connection with any violation of
this Lease or use of the Premises or Property by, or any other act or
omission of, Tenant, any other occupant of the Premises, or any of their
respective agents, employees, contractors or guests. Without limiting the
generality of the foregoing, Tenant specifically acknowledges that the
indemnity undertaken herein shall apply to claims in connection with or
arising out of any "Work" as described in Article 8, the installation,
maintenance, use or removal of any "Lines" located in or serving the Premises
as described in Article 29, and the transportation, use, storage,
maintenance, generation, manufacturing, handling, disposal, release or
discharge of any "Hazardous Material" as described in Article 30 (whether or
not any of such matters shall have been theretofore approved by Landlord),
except to the extent that any of the same arises from the intentional or
grossly negligent acts of Landlord or Landlord's agents or employees.
ARTICLE 28
SAFETY AND SECURITY DEVICES, SERVICES AND PROGRAMS
The parties acknowledge that safety and security devices, services and
programs provided by Landlord, if any, while intended to deter crime and
ensure safety, may not in given instances prevent theft or other criminal
acts, or ensure safety of persons or property. The risk that any safety or
security device, service or program may not be effective, or may malfunction,
or be circumvented by a criminal, is assumed by Tenant with respect to
Tenant's property and interests, and Tenant shall obtain insurance coverage
to the extent Tenant desires protection against such criminal acts and other
losses, as further described in Article 11. Tenant agrees to cooperate in any
reasonable safety or security program developed by Landlord or required by
Law.
ARTICLE 29
COMMUNICATIONS AND COMPUTER LINES
Tenant may install, maintain, replace, remove or use any communications
or computer wires, cables and related devices (collectively the "Lines") at
the Property in or serving the Premises, provided: (a) Tenant shall obtain
Landlord's prior written consent, use an experienced and qualified contractor
approved in writing by Landlord, and comply with all of the other provisions
of Article 8, (b) any such installation, maintenance, replacement, removal or
use shall comply with all Laws applicable thereto and good work practices,
and shall not interfere with the use of any then existing Lines at the
Property, (c) an acceptable number of spare Lines and space for additional
Lines shall be maintained for existing and future occupants of the Property,
as determined in Landlord's reasonable opinion, (d) if Tenant at any time
uses any equipment that may create an electromagnetic field exceeding the
normal insulation ratings of ordinary twisted pair riser cable or cause
radiation higher than normal background radiation, the Lines therefor
(including riser cables) shall be appropriately insulated to prevent such
excessive electromagnetic fields or radiation, (e) as a condition to
permitting the installation of new Lines, Landlord may require that Tenant
remove existing Lines located in or serving the Premises, (f) Tenant's rights
shall be subject to the rights of any regulated telephone company, and (g)
Tenant shall pay all costs in connection therewith. Landlord reserves the
right to require that the Tenant remove any Lines located in or serving the
Premises which are installed in violation of these provisions, or which are
at any time in violation of any Laws or represent a dangerous or potentially
dangerous condition (whether such Lines were installed by Tenant or any other
party), within three (3) days after written notice.
Landlord may (but shall not have the obligation to): (i) install new
Lines at the Property, (ii) create additional space for Lines at the
Property, and (iii) reasonably direct, monitor and/or supervise the
installation, maintenance, replacement and removal of, the allocation and
periodic reallocation of available space (if any) for, and the allocation of
excess capacity (if any) on, any
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Tenant Landlord
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Lines now or hereafter installed at the Property by Landlord, Tenant or any
other party (but Landlord shall have no right to monitor or control the
information transmitted through such Lines). Such rights shall not be in
limitation of other rights that may be available to Landlord by Law or
otherwise. If Landlord exercises any such rights, Landlord may charge Tenant
for the costs attributable to Tenant, or may include those costs and all
other costs in Operating Expenses under Article 25 (including without
limitation costs for acquiring and installing Lines and risers to accommodate
new Lines and spare Lines, any associated computerized system and software
for maintaining records of Line connections, and the fees of any consulting
engineers and other experts); provided any capital expenditures included in
Operating Expenses hereunder shall be amortized (together with reasonable
finance charges) over the period of time prescribed by Article 25.
Notwithstanding anything to the contrary contained in Article 13,
Landlord reserves the right to require that Tenant remove any or all Lines
installed by or for Tenant within or serving the Premises upon termination of
this Lease, provided Landlord notifies Tenant prior to or within thirty (30)
days following such termination. Any Lines not required to be removed
pursuant to this Article shall, at Landlord's option, become the property of
Landlord (without payment by Landlord). If Tenant fails to remove such Lines
as required by Landlord, or violates any other provision of this Article,
Landlord may, after twenty (20) days written notice to Tenant, remove such
Lines or remedy such other violation, at Tenant's expense (without limiting
Landlord's other remedies available under this Lease or applicable Law).
Tenant shall not, without the prior written consent of Landlord in each
instance, grant to any third party a security interest or lien in or on the
Lines, and any such security interest or lien granted without Landlord's
written consent shall be null and void. Except to the extent arising from the
intentional or negligent acts of Landlord or Landlord's agents or employees,
Landlord shall have no liability for damages arising from, and Landlord does
not warrant that the Tenant's use of any Lines will be free from, the
following (collectively called "Line Problems"): (x) any eavesdropping or
wire tapping by unauthorized parties, (y) any failure of any Lines to satisfy
Tenant's requirement, or (z) any shortages, failures, variations,
interruptions, disconnections, loss or damage caused by the installation,
maintenance, replacement, use or removal of Lines by or for other tenants or
occupants at the Property, by any failure of the environmental conditions or
the power supply for the Property to conform to any requirements for the
Lines or any associated equipment, or any other problems associated with any
Lines by any other cause. Under no circumstances shall any Line Problems be
deemed an actual or constructive eviction of Tenant, render Landlord liable
to Tenant for abatement of Rent, or relieve Tenant from performance of
Tenant's obligations under this Lease. Landlord in no event shall be liable
for damages by reason of loss of profits, business interruption or other
consequential damage arising from any Line Problems.
ARTICLE 30
HAZARDOUS MATERIALS
Tenant shall not transport, use, store, maintain, generate, manufacture,
handle, dispose, release or discharge any "Hazardous Material" (as defined
below) upon or about the Property, or permit Tenant's employees, agents,
contractors, and other occupants of the Premises to engage in such activities
upon or about the Property. However, the foregoing provisions shall not
prohibit the transportation to and from, and use, storage, maintenance and
handling within, the Premises of substances customarily used in offices (or
such other business or activity expressly permitted to be undertaken in the
Premises under Article 6), provided: (a) such substances shall be used and
maintained only in such quantities as are reasonably necessary for such
permitted use of the Premises, strictly in accordance with applicable Law and
manufacturers' instructions therefore, (b) such substances shall not be
disposed of, released or discharged on the Property, and shall be transported
to and from the Premises in compliance with all applicable Laws, and as
Landlord shall reasonably require, (c) if any applicable Law or Landlord's
trash removal contractor requires that any such substances be disposed of
separately from ordinary trash, Tenant shall make arrangements at Tenant's
expense for such disposal directly with a qualified and licensed disposal
company at a lawful disposal site (subject to scheduling and approval by
Landlord), and shall ensure that disposal occurs frequently enough to prevent
unnecessary storage of such substances in the Premises, and (d) any remaining
such substances shall be completely, properly and lawfully removed from the
Property upon expiration or earlier termination of this Lease.
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Tenant Landlord
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Tenant shall promptly notify Landlord of: (i) any enforcement, cleanup or
other regulatory action taken or threatened by any governmental or regulatory
authority with respect to the presence of any Hazardous Material on the
Premises or the migration thereof from or to other property, (ii) any demands
or claims made or threatened by any party against Tenant or the Premises
relating to any loss or injury resulting from any Hazardous Material, (iii)
any release, discharge or non-routine, improper or unlawful disposal or
transportation of any Hazardous Material on or from the Premises, and (iv)
any matters where Tenant is required by Law to give a notice to any
governmental or regulatory authority respecting any Hazardous Material on the
Premises. Landlord shall have the right (but not the obligation) to join and
participate as a party in any legal proceedings or actions affecting the
Premises initiated in connection with any environmental, health or safety
Law. At such times as Landlord may reasonably request, Tenant shall provide
Landlord with a written list identifying any Hazardous Material then used,
stored or maintained upon the Premises, the use and approximate quantity of
each such material, a copy of any material safety data sheets ("MSDS") issued
by the manufacturer therefor, written information concerning the removal,
transportation and disposal of the same, and such other information as
Landlord may reasonably require or as may be required by Law. The term
"Hazardous Material" for purposes hereof shall mean any chemical, substance,
material or waste or component thereof which is now or hereafter listed,
defined or regulated as a hazardous or toxic chemical, substance, material or
waste or component thereof by any federal, state or local governing or
regulatory body having jurisdiction, or which would trigger any employee or
community "right-to-know" requirements adopted by any such body, or for which
any such body has adopted any requirements for the preparation or
distribution of an MSDS.
If any Hazardous Material is released, discharged or disposed of by
Tenant or any other occupant of the Premises, or their employees, agents or
contractors, on or about the Property in violation of the foregoing
provisions, Tenant shall immediately, properly and in compliance with
applicable Laws clean up and remove the Hazardous Material from the Property
and any other affected property and clean or replace any affected personal
property (whether or not owned by Landlord), at Tenant's expense. Such clean
up and removal work shall be subject to Landlord's prior written approval
(except in emergencies), and shall include, without limitation, any testing,
investigation, and the preparation and implementation of any remedial action
plan required by any governmental body having jurisdiction or reasonably
required by Landlord. If Tenant shall fail to comply with the provisions of
this Article within five (5) days after written notice by Landlord, or such
shorter time as may be required by Law or in order to minimize any hazard to
Persons or property, Landlord may (but shall not be obligated to) arrange for
such compliance directly or as Tenant's agent, through contractors or other
parties selected by Landlord, at Tenant's expense (without limiting
Landlord's other remedies under this Lease or applicable Law). If any
Hazardous Material is released, discharged or disposed of on or about the
Property and such release, discharge or disposal is not caused by Tenant or
other occupants of the Premises, or their employees, agents or contractors,
such release, discharge or disposal shall be deemed casualty damage under
Article 10 to the extent that the Premises or common areas serving the
Premises are affected thereby; and in such case, Landlord and Tenant shall
have the obligations and rights respecting such casualty damage provided
under Article 10.
ARTICLE 31
MISCELLANEOUS
(A) Each of the terms and provisions of this Lease shall be binding upon
and inure to the benefit of the parties hereto, their respective heirs,
executors, administrators, guardians, custodians, successors and assigns,
subject to the provisions of Article 21 respecting Transfers.
(B) Neither this Lease nor any memorandum of lease or short form lease
shall be recorded by Tenant.
(C) This Lease shall be construed in accordance with the Laws of the
state in which the Property is located.
(D) All obligations or rights or either party arising during or
attributable to the period ending upon expiration or earlier termination of
this Lease shall survive such expiration or earlier termination.
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Tenant Landlord
23
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(E) Landlord agrees that, if Tenant timely pays the Rent and performs
the terms and provisions hereunder, and subject to all other terms and
provisions of this Lease, Tenant shall hold and enjoy the Premises during the
Term, free of lawful claims by any Person acting by or through Landlord.
(F) This Lease does not grant any legal rights to "light and air"
outside the Premises nor any particular view or cityscape visible from the
Premises.
(G) If the Commencement Date is delayed in accordance with Article 4 for
more than one year, Landlord may declare this Lease null and void, and if the
Commencement Date is so delayed for more than seven (7) years, this Lease
shall thereupon become null and void without further action by either party.
ARTICLE 32
RIGHT TO RELOCATE
Notwithstanding anything herein to the contrary, Landlord shall in all
cases retain the right and power to relocate Tenant within the Building in
space which is comparable in size and location and suited to Tenant's use,
such right and power to be exercised reasonably and such relocation to be
carried out at Landlord's sole cost and expense. Landlord shall not be
liable or responsible for any claims, damages, or liabilities in connection
with or occasioned by such relocation. Landlord's reasonable exercise of
such right and power shall include, but shall in no way be limited to, a
relocation to consolidate the occupied rental square feet in order to provide
Landlord's services more efficiently, or a relocation to provide contiguous
vacant space for a prospective tenant.
ARTICLE 33
OFFER
The submission and negotiation of this Lease shall not be deemed an offer
to enter the same by Landlord, but the solicitation of such an offer by
Tenant. Tenant agrees that its execution of this Lease constitutes a firm
offer to enter the same which may not be withdrawn for a period of ten (10)
days after delivery to Landlord (or such other period as may be expressly
provided in any other agreement signed by the parties). During such period
and in reliance on the foregoing, Landlord may, at Landlord's option (and
shall, if required by applicable Law), deposit any security deposit and Rent,
and proceed with any plans, specifications, alterations or improvements, and
permit Tenant to enter the Premises, but such acts shall not be deemed an
acceptance of Tenant's offer to enter this Lease, and such acceptance shall
be evidenced only by Landlord signing and delivering this Lease to Tenant.
ARTICLE 34
NOTICES
Except as expressly provided to the contrary in this Lease, every notice
or other communication to be given by either party to the other with respect
hereto, or to the Premises or Property, shall be in writing and shall not be
effective for any purpose unless the same shall be served personally or by
national air courier service, or United States certified mail, return receipt
requested, postage prepaid, addressed, if to Tenant, at the address first set
forth in the Lease, until the Commencement Date, and thereafter to the Tenant
at the Premises, and if to Landlord, at the address at which the last payment
of Rent was required to be made or such other address or addresses as Tenant
and Landlord may from time to time designate by notice given as above
provided. Every notice or other communication hereunder shall be deemed to
have been given as of the third business day following the date of such
mailing (or as of any earlier date evidenced by a receipt from such national
air courier service or the United States Postal Service) or immediately if
personally delivered. Notices not sent in accordance with the foregoing
shall be of no force or effect until received by the foregoing parties at
such addresses required herein.
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Tenant Landlord
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ARTICLE 35
REAL ESTATE BROKERS
Tenant represents that Tenant has not dealt with any broker, agent or
finder in connection with this Lease and agrees to indemnify and hold
Landlord harmless from all damages, judgments, liabilities and expenses
(including reasonable attorneys' fees) arising from any claims or demands of
any other broker, agent or finder with whom Tenant has dealt for any
commission or fee alleged to be due in connection with its participation in
the procurement of Tenant or the negotiation with Tenant of this Lease.
ARTICLE 36
SECURITY DEPOSIT
Tenant shall deposit with Landlord the amount of $ N/A ("Security
Deposit"), upon Tenant's execution and submission of this Lease. The
Security Deposit shall serve as security for the prompt, full and faithful
performance by Tenant of the terms and provisions of this Lease. In the
event that Tenant is in default hereunder and fails to cure within any
applicable time permitted under this Lease, or in the event that Tenant owes
any amounts to Landlord upon the expiration of this Lease, Landlord may use
or apply the whole or any part of the Security Deposit for the payment of
Tenant's obligations hereunder. The use or application of the Security
Deposit or any portion thereof shall not prevent Landlord from exercising any
other right or remedy provided hereunder or under any Law and shall not be
construed as liquidated damages. In the event the Security Deposit is reduced
by such use or application, Tenant shall deposit with Landlord, within ten
(10) days after written notice, an amount sufficient to restore the full
amount of the Security Deposit. Any remaining portion of the Security
Deposit shall be returned to Tenant within thirty (30) days after Tenant has
vacated the Premises in accordance with Article 13. If the Premises shall be
expanded at any time, or if the Term shall be extended at an increased rate
of Rent, the Security Deposit shall thereupon be proportionately increased.
ARTICLE 37
ENTIRE AGREEMENT
This Lease, together with Riders One through Four and Exhibits "A and B"
(WHICH COLLECTIVELY ARE HEREBY INCORPORATED HEREIN AND MADE A PART HEREOF AS
THOUGH FULLY SET FORTH), contains all the terms and provisions between
Landlord and Tenant relating to the matters set forth herein and no prior or
contemporaneous agreement or understanding pertaining to the same shall be of
any force or effect, except any such contemporaneous agreement specifically
referring to and modifying this Lease, signed by both parties. Without
limitation as to the generality of the foregoing, Tenant hereby acknowledges
and agrees that Landlord's leasing agents and field personnel are only
authorized to show the Premises and negotiate terms and conditions for leases
subject to Landlord's final approval, and are not authorized to make any
agreements, representations, understandings or obligations binding upon
Landlord respecting the condition of the Premises or Property, suitability of
the same for Tenant's business, or any other matter, and no such agreements,
representations, understandings or obligations not expressly contained herein
or in such contemporaneous agreement shall be of any force or effect. Neither
this Lease, nor any Riders or Exhibits referred to above, may be modified,
except in writing signed by both parties.
LANDLORD: TENANT:
UNISON SOFTWARE TEXAS, INC.,
a Texas corporation
By: By:
------------------------ --------------------------
Steve R. Scott
Name:
------------------------
Date: , 1997
--------------- Title:
-----------------------
Date: , 1997
------------------
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Tenant Landlord
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<PAGE>
CERTIFICATE FOR UNISON SOFTWARE TEXAS, INC.
(IF TENANT IS A CORPORATION)
I, ____________________________________________________, Secretary,
hereby certify that the officer executing the foregoing Lease on behalf of
Tenant was duly authorized to act in his capacity as _____________________
and his actions are the actions of Tenant.
(Corporate Seal)
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
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Tenant Landlord
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<PAGE>
EXHIBIT A
DESCRIPTION OF LAND
811 BARTON
TRACT I:
All that certain tract or parcel of land or premises, being out of the
Isaac Decker League in the City of Austin, Travis County, Texas, being a
portion of that certain 1.67 acre tract conveyed to Steve R. Scott by a
correction partition deed dated April 29, 1983, as recorded in Volume 8072,
Page 262 of the Travis County Deed Records and being 1.471 acres of land more
particularly described by metes and bounds as follows:
Beginning at an iron pin found at the southeast intersection of a sixty
foot wide roadway known locally as Bouldin Avenue and a one hundred foot wide
roadway known locally as Barton Springs Road, being the northwest corner of
the tract described herein;
Thence, with the south line of Barton Springs Road, S 66 DEG. 54' E
225.15 feet to an iron pin found at the northwest corner of Lot A, Vernon's
Addition, a subdivision of record, as recorded in Book 68, Page 62 of the
Travis County Plat Records, same being the northeast corner of the tract
described herein;
Thence, S 23 DEG. 06' W pass at 167.50 feet to an iron pin found at the
southwest corner of Lot A, Vernon's Addition, in all a distance of 281.23
feet to an iron pin found for the southeast corner of the tract described
herein;
Thence, N 60 DEG. 03' W 106.67 feet to an iron pin found for an angle
point in the south line of this tract;
Thence, N 60 DEG. 05' W 150.09 feet to an iron pipe found in the east
line of Bouldin Avenue for the southwest corner of the tract described herein;
Thence, with the east line of Bouldin Avenue, N 29 DEG. 53' E 252.46 feet
to the Point and Place of Beginning. There being contained within these
metes and bounds 1.471 acres of land area, more or less.
TRACT 11:
Lot A, Vernon's Addition, a subdivision in the City of Austin, Travis
County, Texas, according to the map or plat thereof recorded in Volume 68,
Page 62, Plat Records of Travis County, Texas.
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Tenant Landlord
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EXHIBIT B
FLOOR PLAN
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Tenant Landlord
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RIDER ONE
RULES
(1) On Saturdays, Sundays and Holidays (as further defined in Article
25 of the Lease), and on other days between the hours of 7:00 p.m. and 7:00
a.m. the following day, or such other hours as Landlord shall determine from
time to time, access to the Property (as defined in Article 25 of the Lease)
and/or to the passageways, entrances, exits, shipping areas, halls,
corridors, elevators or stairways and other areas in the Property may be
restricted and access gained by use of a key to the outside doors of the
Property, or pursuant to such security procedures Landlord may from time to
time impose. All such areas, and all roofs, are not for use of the general
public and Landlord shall in all cases retain the right to control and
prevent access thereto by all persons whose presence in the judgment of
Landlord shall be prejudicial to the safety, character, reputation and
interests of the Property and its tenants, provided, however, that nothing
herein contained shall be construed to prevent such access to persons with
whom Tenant deals in the normal course of Tenant's business unless such
persons are engaged in activities which are illegal or violate these Rules.
No Tenant and no employee or invitee of Tenant shall enter into areas
reserved for the exclusive use of Landlord, its employees or invitees.
Tenant shall keep doors to corridors and lobbies closed except when persons
are entering or leaving.
As used in the Lease, "business days" means Monday through Saturday
(except Holidays); "regular hours" means 7:00 a.m. to 7:00 p.m. on weekdays
and 7:00 a.m. to 3:00 p.m. on Saturday; and "Holidays" means New Year's Day,
President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, the
day after Thanksgiving, and Christmas, together with such other holidays
designated by Landlord consistent with those holidays designated by landlords
of comparable office buildings located in the county in which the Building
(as defined in Article 25 of the Lease) is located.
(2) Tenant shall not paint, display, inscribe, maintain or affix any
sign, placard, picture, advertisement, name, notice, lettering or direction
on any part of the outside or inside of the Property, or on any part of the
inside of the Premises which can be seen from the outside of the Premises,
without the prior consent of Landlord, and then only such name or names or
matter and in such color, size, style, character and material as may be first
approved by Landlord in writing. Landlord shall prescribe the suite number
and identification sign for the Premises (which shall be prepared and
installed by Landlord at Tenant's expense). Landlord reserves the right to
remove at Tenant's expense all matter not so installed or approved without
notice to Tenant.
(3) Tenant shall not in any manner use the name of the Property for any
purpose other than that of the business address of the Tenant, or use any
picture or likeness of the Property, in any letterheads, envelopes,
circulares, notices, advertisements, containers or wrapping material without
Landlord's express consent in writing.
(4) Tenant shall not place anything or allow anything to be placed in
the Premises near the glass of any door, partition, wall or window which may
be unsightly from outside the Premises, and Tenant shall not place or permit
to be placed any article of any kind on any window ledge or on the exterior
walls. Blinds, shades, awnings or other forms of inside or outside window
ventilators or similar devices shall not be placed in or about the outside
windows in the Premises except to the extent, if any, that the character,
shape, color, material and make thereof is first approved by the Landlord.
(5) Furniture, freight and other large or heavy articles, and all other
deliveries may be brought into the Property only at times and in the manner
designated by Landlord, and always at the Tenant's sole responsibility and
risk. Landlord may impose reasonable charges for use of freight elevators
after or before normal business hours. All damage done to the Property by
moving or maintaining such furniture, freight or articles shall be repaired
by Landlord at Tenant's expense. Landlord may inspect items brought into the
Property or Premises with respect to weight or dangerous nature. Landlord
may require that all furniture, equipment, cartons and similar articles
removed from the Premises or the Property be listed and a removal permit
therefor first be obtained from Landlord. Tenant shall not take or permit to
be taken in or out of other entrances or
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Tenant Landlord
29
<PAGE>
RIDER ONE - CONTINUED
elevators of the Property any item normally taken, or which Landlord
otherwise reasonably requires to be taken, in or out through service doors or
on freight elevators. Tenant shall not allow anything to remain in or
obstruct in any way any lobby, corridor, sidewalk, passageway, entrance,
exit, hall, stairway, shipping area, or other such area. Tenant shall move
all supplies, furniture and equipment as soon as received directly to the
Premises, and shall move all such items and waste (other than waste
customarily removed by Property employees) that are at any time being taken
from the Premises directly to the areas designated for disposal. Any
handcarts used at the Property shall have rubber wheels.
(6) Tenant shall not overload any floor or part thereof in the Premises
or Property, including any public corridors or elevators therein, bringing in
or removing any large or heavy articles, and Landlord may direct and control
the location of safes and all other heavy articles and require supplementary
supports at Tenant's expense of such material and dimensions as Landlord may
deem necessary to property distribute the weight.
(7) Tenant shall not attach or permit to be attached additional locks
or similar devices to any door or window, change existing locks or the
mechanism thereof, or make or permit to be made any keys for any door other
than those provided by Landlord. Tenant, upon termination of its tenancy,
shall deliver to the Landlord all keys of offices, rooms and toilet rooms
which have been furnished Tenant or which the Tenant shall have had made, and
in the event of loss of any keys so furnished shall pay Landlord therefor.
(8) If Tenant desires signal, communication, alarm or other utility or
similar service connections installed or changed, Tenant shall not install or
change the same without the prior approval of Landlord, and then only under
Landlord's direction at Tenant's expense. Tenant shall not install in the
Premises any equipment which requires more electric current than Landlord is
required to provide under this Lease, without Landlord's prior approval, and
Tenant shall ascertain from Landlord the maximum amount of load or demand for
or use of electrical current which can safely be permitted in the Premises,
taking into account the capacity of electric wiring in the Property and the
Premises and the needs of tenants of the Property, and shall not in any event
connect a greater load than such safe capacity.
(9) Tenant shall not obtain for use upon the Premises ice, drinking
water, towel, janitor and other similar services, except from Persons (as
defined in Article 25 of the Lease) approved by the Landlord. Any Person
engaged by Tenant to provide janitor or other services shall be subject to
direction by the manager or security personnel of the Property.
(10) Tenant shall not permit the use or the operation of any coin
operated machines on the Leased Premises, including without limitation
vending machines, video games, pinball machines, or pay telephones without
the prior written consent of Landlord.
(11) The toilet rooms, urinals, wash bowls and other such apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein and the expense of any breakage, stoppage or damage resulting from
the violations of this Rule shall be borne by the Tenant, who, or whose
employees or invitees, shall have caused it.
(12) The janitorial closets, utility closets, telephone closets, broom
closets, electrical closets, storage closets, and other such closets, rooms
and areas shall be used only for the purposes and in the manner designated by
Landlord, and may not be used by tenants, or their contractors, agents,
employees, or other parties without Landlord's prior written consent.
(13) Landlord reserves the right to exclude or expel from the Property
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of these Rules. Tenant shall not at any time manufacture,
sell, use or give away any spirituous, fermented, intoxicating or alcoholic
liquors on the Premises, nor permit any of the same to occur (except in
connection with occasional social or business events conducted in the
Premises which do not violate any Laws (as defined in Article 25 of the
Lease) nor
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Tenant Landlord
30
<PAGE>
RIDER ONE - CONTINUED
bother or annoy any other tenants). Tenant shall not at any time sell,
purchase or give away food in any form by or to any Tenant's agents or
employees or any other parties on the Premises, nor permit any of the same to
occur (other than in lunch rooms or kitchens for employees as may be
permitted or installed by Landlord, which does not violate any Laws or bother
or annoy any other tenant).
(14) Tenant shall not make any room-to-room canvass to solicit business
or information or to distribute any article or material to or from other
tenants or occupants of the Property and shall not exhibit, sell or offer to
sell, use, rent or exchange any products or services in or from the Premises
unless ordinarily embraced within the Tenant's use of the Premises specified
in the Lease. Tenant agrees to cooperate and assist Landlord in the
prevention of canvassing, soliciting and peddling within the Property.
(15) Tenant shall not waste electricity, water, heat or air conditioning
or other utilities or services, and agrees to cooperate fully with Landlord
to assure the most effective and energy efficient operation of the Property
and shall not allow the adjustment (except by Landlord's authorized Property
personnel) of any controls. Tenant shall keep corridor doors closed and
shall not open any windows, except that if the air circulation shall not be
in operation, windows which are openable may be opened with Landlord's
consent. As a condition to claiming any deficiency in the air conditioning
or ventilation services provided by Landlord, Tenant shall close any blinds
or drapes in the Premises to prevent or minimize direct sunlight.
(16) Except with the prior written consent of Landlord, Tenant shall not
sell, or permit the sale from the Lease Premises of, or use or permit the use
of any sidewalk or mall area adjacent to the Leased Premises for the sale of
newspapers, magazines, periodicals, theater tickets or any other goods or
merchandise, nor shall Tenant carry on, or permit or allow any employee or
other person to carry on, business in or from the Leased Premises for the
service or accommodation of occupants of any other portion of the Building,
nor shall the Leased Premises be used for manufacturing of any kind, or for
any business or activity other than that specifically provided for in
Tenant's lease.
(17) Tenant shall cooperate and comply with any reasonable safety or
security programs, including fire drills and air raid drills, and the
appointment of "fire wardens" developed by Landlord for the Property, or
required by Law. Before leaving the Premises unattended, Tenant shall close
and securely lock all doors or other means of entry to the Premises and shut
off all lights and water faucets in the Premises (except heat to the extent
necessary to prevent the freezing or bursting of pipes).
(18) Tenant will comply with all municipal, county, state, federal or
other government laws, statutes, codes, regulations and other requirements,
including without limitation environmental, health, safety and police
requirements and regulations respecting the Premises, now or hereinafter in
force, at its sole cost, and will not use the Premises for any immoral
purposes.
(19) Tenant shall not (i) carry on any business, activity or service
except those ordinarily embraced within the permitted use of the Premises
specified in the Lease and more particularly, but without limiting the
generality of the foregoing, shall not (ii) install or operate any internal
combustion engine, boiler, machinery, refrigerating, heating or air
conditioning equipment in or about the Premises, (iii) use the Premises for
housing, lodging or sleeping purposes or for the washing of clothes, (iv)
place any radio or television antennae other than inside of the Premises, (v)
operate or permit to be operated any musical or sound producing instrument or
device which may be heard outside the Premises, (vi) use any source of power
other than electricity, (vii) operate any electrical or other devise from
which may emanate electrical or other waves which may interfere with or
impair radio, television, microwave, or other broadcasting or reception from
or in the Property or elsewhere, (viii) bring or permit any bicycle or other
vehicle, or dog (except in the company of a blind person or except where
specifically permitted) or other animal or bird in the Property, (ix) make or
permit objectionable noise or odor to emanate from the Premises, (x) do
anything in or about the Premises tending to create or maintain a nuisance or
do any act tending to injure the reputation of the Property, (xi) throw or
permit to be thrown or dropped any article from any window or other opening
in the Property, (xii) use or permit upon the Premises anything that
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Tenant Landlord
31
<PAGE>
RIDER ONE - CONTINUED
will invalidate or increase the rate of insurance on any policies of
insurance now or hereafter carried on the Property or violate the
certificates of occupancy issued for the Premises or the Property, (xiii) use
the Premises for any purpose, or permit upon the Premises anything that may
be dangerous to persons or property (including but not limited to flammable
oils, fluids paints, chemicals, firearms or any explosive articles or
materials), nor (xiv) do or permit anything to be done upon the Premises in
any way tending to disturb any other tenant at the Property or the occupants
of neighboring property.
(20) If the Property shall now or hereafter contain a building garage,
parking structure or other parking area facility, the following Rules shall
apply in such areas or facilities:
(i) Parking shall be available in areas designated generally for
tenant parking, for such daily or monthly charges as Landlord may establish
from time to time, or as may be provided in any Parking Agreement attached
hereon (which, when signed by both parties as provided therein, shall
thereupon become effective). In all cases, parking for Tenant and its
employees and visitors shall be on a "first come, first served", unassigned
basis, with Landlord and other tenants at the Property, and their employees
and visitors, and other Persons to whom Landlord shall grant the right or who
shall otherwise have the right to use the same, all subject to these Rules,
as the same may be amended or supplemented, and applied on a
nondiscriminatory basis, all as further described in Article 6 of the Lease.
Notwithstanding the foregoing to the contrary, Landlord reserves the right to
assign specific spaces, and to reserve spaces for visitors, small cars,
handicapped individuals, and other tenants, visitors of tenants or other
Persons, and Tenant and its employees and visitors shall not park in any such
assigned or reserved spaces. Landlord may restrict or prohibit full size
vans and other large vehicles.
(ii) In case of any violations of these provisions, Landlord may
refuse to permit the violator to park, and may remove the vehicle owned or
driven by the violator from the Property without liability whatsoever, at
such violator's risk and expense. Landlord reserves the right to close all or
a portion of the parking areas or facilities in order to make repairs or
perform maintenance services, or to alter, modify, re-stripe or renovate the
same, or if required by casualty, strike, condemnation, act of God, Law or
governmental requirement, or any other reason beyond Landlord's reasonable
control. In the event access is denied for any reason, any monthly parking
charges shall be abated to the extent access is denied, as Tenant's sole
recourse. Tenant acknowledges that such parking areas or facilities may be
operated by an independent contractor not affiliated with Landlord, and
Tenant acknowledges that in such event, Landlord shall have no liability for
claims arising through acts or omissions of such independent contractor, if
such contractor is reputable.
(iii) Hours shall be 7:00 a.m. to 7:00 p.m., Monday through Friday,
and 7:00 a.m. to 3:00 p.m. on Saturdays, or such other hours as may be
reasonably established by Landlord or its parking operator from time to time;
cars must be parked entirely within the stall lines, and only small cars may
be parked in areas reserved for small cars; all directional signs and arrows
must be observed; the speed limit shall be five (5) miles per hour; spaces
reserved for handicapped parking must be used only by vehicles properly
designated; every parker is required to park and lock his own car; washing,
waxing, cleaning or servicing of any vehicle is prohibited; parking spaces
may be used only for parking automobiles; parking is prohibited: (a) in areas
not striped or designated for parking, (b) in aisles, (c) where "no parking"
signs are posted, (d) on ramps, and (e) in loading areas and other specially
designated areas. Delivery trucks and vehicles shall use only those areas
designated therefor.
(21) Tenant shall not any time occupy any part of the Leased Premises as
sleeping or lodging quarters.
(22) Landlord desires to maintain in the Property the highest standard
of dignity and good taste consistent with comfort and convenience for
Tenants. Any action or condition not meeting this high standard should be
reported directly to Landlord. Your cooperation will be mutually beneficial
and sincerely appreciated. Landlord reserves the right to make such other and
further reasonable rules and regulations as in its judgment may from time to
time be necessary, for
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Tenant Landlord
32
<PAGE>
RIDER ONE - CONTINUED
the safety, care and cleanliness of the Leased Premises and for the
preservation of good order therein.
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Tenant Landlord
33
<PAGE>
RIDER TWO
BASE RENT
Notwithstanding anything to the contrary contained in the Lease, the
parties agree as follows. The term "Lease Year" herein means each twelve
(12) month period or portion thereof during the Term, commencing with the
Commencement Date, without regard to calendar years.
(A) Upon Lease commencement and through July 31, 1998, Base Rent
shall be $15.20 per NRSF per year, $35,831.47 per month.
(B) Commencing on August 1, 1998, Base Rent shall be $16.10 per
NRSF per year, $37,953.07 per month.
(C) Commencing on August 1, 1999, Base Rent shall be $17.00 per
NRSF per year, $40,074.67 per month.
(D) Commencing on August 1, 2000, Base Rent shall be $17.75 per
NRSF per year, $41,842.67 per month.
(E) Commencing on August 1, 2001, Base Rent shall be $18.50 per
NRSF per year, $43,610.67 per month.
(F) Commencing on August 1, 2002, Base Rent shall be $18.80 per
NRSF per year, $44,317.87 per month.
-------- ---------
Tenant Landlord
34
<PAGE>
RIDER THREE
LEASEHOLD IMPROVEMENTS AGREEMENT
NONE.
-------- ---------
Tenant Landlord
35
<PAGE>
RIDER FOUR
PARKING AGREEMENT
Building: 811 Barton Suite Nos: 511, 611
Landlord: Steve R. Scott Date of Lease: July 16, 1997
Tenant: Unison Software Texas, Inc.
So long as the Lease of which this Agreement is a part shall remain in
effect, Landlord will provide Tenant and persons designated by Tenant a
minimum of ninety-four (94) parking spaces in the garage on either an
unreserved and nonexclusive basis, or a reserved basis.
Tenant shall pay $20.00 per space per month as additional rent for each
of the unreserved parking spaces and $40.00 per space per month as additional
rent for each of the reserved parking spaces.
Landlord expressly reserves the right to redesignate parking areas and to
modify the parking structure for other uses or to any extent.
A condition of any parking shall be compliance by the parker with garage
rules and regulations, including any sticker or other identification system
established by Landlord. The following rules and regulations are in effect
until notice is given to Tenant of any change. Landlord reserves the right
to modify and/or adopt such other reasonable and nondiscriminatory rules and
regulations for the garage as it deems necessary for the operation of the
garage. Landlord may refuse to permit any person who violates the rules to
park in the garage, and any violation of the rules shall subject the car to
removal.
RULES AND REGULATIONS
1. Cars must be parked entirely within the stall lines
painted on the floor.
2. All directional signs and arrows must be observed.
3. The speed limit shall be five (5) miles per hour.
4. Parking is prohibited:
(a) in areas not striped for parking;
(b) in aisles;
(c) where "no parking" signs are posted;
(d) in cross hatched areas; and
(e) in such other areas as may be designated by Landlord
or Landlord's agent(s).
5. Parking stickers or any other device or form of identification
supplied by Landlord shall remain the property of the Landlord and shall not
be transferable. There will be a replacement charge payable by Tenant equal
to the amount posted from time to time by Landlord for loss of any magnetic
parking card or parking sticker.
6. Garage managers or attendants are not authorized to make or allow
any exceptions to these Rules and Regulations.
7. Every parker is required to park and lock his own car. All
responsibility for damage to cars or persons is assumed by the parker.
8. No intermediate or full-sized cars shall be parked in
parking spaces limited to
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Tenant Landlord
36
<PAGE>
compact cars.
9. All motorcycles/motorized bicycles are to be parked in the
designated motorcycle area, and will be removed from the property if not in
the designated area.
Persistent failure after notice by Landlord on the part of Tenant or
Tenant's designated parkers to observe the Rules and Regulations above shall
give Landlord the right to terminate Tenant's right to use the parking
structure. No such termination shall create any liability on Landlord or be
deemed to interfere with Tenant's right to quiet possession of its Premises.
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Tenant Landlord
37
<PAGE>
EXHIBIT 11.1
UNISON SOFTWARE, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
------------------------------------------
MAY 31, 1995 MAY 31, 1996 MAY 31, 1997
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average common shares outstanding for the
period.......................................... 8,476 10,995 11,719
Common equivalent shares pursuant to Staff
Accounting Bulletin No. 83...................... 339
Common equivalent shares assuming conversion of
stock options and warrants under the treasury
stock method.................................... 110 780 373
------ ------------ ------------
Shares used in per share calculation.............. 8,925 11,775 12,092
------ ------------ ------------
------ ------------ ------------
Net income........................................ $1,700 $ 4,667 $ 5,382
------ ------------ ------------
------ ------------ ------------
Net income per share.............................. $ 0.19 $ 0.40 $ 0.45
------ ------------ ------------
------ ------------ ------------
</TABLE>
- ------------------------
(1) There is no difference between primary and fully diluted net income per
share for all periods presented.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
Form S-8 (No. 33-80903) of our report dated July 3, 1997, on our audits of the
consolidated financial statements and financial statement schedule of Unison
Software, Inc. and subsidiaries as of May 31, 1997 and 1996, and for the three
years in the period ended May 31, 1997, which report is included in this Annual
Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
San Jose, California
August 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF UNISON SOFTWARE, INC. FOR THE YEAR ENDED
MAY 31, 1997 INCLUDED ELSEWHERE IN THIS REPORT AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 10674
<SECURITIES> 15824
<RECEIVABLES> 13775
<ALLOWANCES> 388
<INVENTORY> 0
<CURRENT-ASSETS> 36630
<PP&E> 4190
<DEPRECIATION> 1692
<TOTAL-ASSETS> 43432
<CURRENT-LIABILITIES> 13011
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 29874
<TOTAL-LIABILITY-AND-EQUITY> 43432
<SALES> 0
<TOTAL-REVENUES> 39836
<CGS> 0
<TOTAL-COSTS> 4439
<OTHER-EXPENSES> 27593
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22
<INCOME-PRETAX> 8752
<INCOME-TAX> 3370
<INCOME-CONTINUING> 5382
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5382
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
