<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[MARK ONE]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 0-26298
HARBINGER CORPORATION
(Exact name of registrant as specified in Its charter)
GEORGIA 58-1817306
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1055 LENOX PARK BOULEVARD 30319
ATLANTA, GEORGIA (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 467-3000
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 [ ]
The number of shares of the issuer's class of capital stock outstanding as of
October 29, 1997, the latest practicable date, is as follows: 21,517,783 shares
of Common Stock, $.0001 par value.
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FORM 10-Q
PAGE 1
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HARBINGER CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) - September 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations (unaudited) -
Three months and nine months ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows (unaudited) -
Nine months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
PART III. SIGNATURES 21
</TABLE>
FORM 10-Q
PAGE 2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
HARBINGER CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
------------- -------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 48,066,000 $ 9,059,000
Accounts receivable, less allowances for returns and
doubtful accounts of $1,625,000 at September 30, 1997
and $2,077,000 at December 31, 1996 21,163,000 11,890,000
Deferred income taxes 1,627,000 1,517,000
Due from joint ventures -- 1,827,000
Other current assets 1,908,000 1,399,000
------------- -------------
Total current assets 72,764,000 25,692,000
------------- -------------
Property and equipment, less accumulated depreciation and amortization 11,949,000 8,226,000
Investments in joint ventures -- 407,000
Intangible assets, less accumulated amortization 16,011,000 13,147,000
Deferred income taxes and other assets -- 1,321,000
============= =============
$ 100,724,000 $ 48,793,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,236,000 $ 3,053,000
Accrued expenses 13,632,000 9,880,000
Deferred revenues 9,288,000 7,193,000
Note payable to bank -- 1,550,000
Current portion of long-term debt 371,000 907,000
------------- -------------
Total current liabilities 26,527,000 22,583,000
------------- -------------
Commitments and contingencies
Long-term debt, excluding current portion -- 1,368,000
Redeemable preferred stock:
Zero Coupon; 4,000,000 shares issued and outstanding
at September 30, 1997 and December 31, 1996 -- --
Shareholders' equity:
Common stock, $0.0001 par value; 100,000,000 shares
authorized, 21,500,070 shares and 18,690,265 shares issued
and outstanding at September 30, 1997 and December 31, 1996 2,000 2,000
Additional paid-in capital 118,537,000 45,291,000
Accumulated deficit (44,342,000) (20,451,000)
------------- -------------
Total shareholders' equity 74,197,000 24,842,000
============= =============
$ 100,724,000 $ 48,793,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
FORM 10-Q
PAGE 3
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HARBINGER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Services $ 13,637,000 $ 9,849,000 $ 37,892,000 $ 26,718,000
Software 7,874,000 5,881,000 20,307,000 15,269,000
------------ ------------ ------------ ------------
Total revenues 21,511,000 15,730,000 58,199,000 41,987,000
------------ ------------ ------------ ------------
Direct costs:
Services 4,830,000 3,600,000 12,921,000 9,522,000
Software 880,000 559,000 2,520,000 1,925,000
------------ ------------ ------------ ------------
Total direct costs 5,710,000 4,159,000 15,441,000 11,447,000
------------ ------------ ------------ ------------
Gross margin 15,801,000 11,571,000 42,758,000 30,540,000
------------ ------------ ------------ ------------
Operating costs:
Selling and marketing 4,123,000 3,745,000 11,614,000 10,947,000
General and administrative 3,929,000 3,635,000 10,999,000 9,691,000
Depreciation and amortization 1,067,000 784,000 3,033,000 2,022,000
Product development 1,830,000 2,558,000 5,700,000 6,305,000
Charge for purchased in-process product
development and acquisition related charges 14,949,000 -- 31,185,000 8,350,000
------------ ------------ ------------ ------------
Total operating costs 25,898,000 10,722,000 62,531,000 37,315,000
------------ ------------ ------------ ------------
Operating income (loss) (10,097,000) 849,000 (19,773,000) (6,775,000)
Interest (income) expense, net (399,000) 32,000 (426,000) (95,000)
Equity in losses of joint ventures -- 2,144,000 38,000 5,005,000
------------ ------------ ------------ ------------
Loss before income tax expense and
extraordinary item (9,698,000) (1,327,000) (19,385,000) (11,685,000)
Income tax expense (benefit) -- (94,000) 1,419,000 38,000
------------ ------------ ------------ ------------
Loss before extraordinary item (9,698,000) (1,233,000) (20,804,000) (11,723,000)
Extraordinary loss on debt extinguishment -- -- 2,419,000 --
------------ ------------ ------------ ------------
Net loss (9,698,000) (1,233,000) (23,223,000) (11,723,000)
Preferred stock dividends -- -- -- (28,000)
------------ ------------ ------------ ------------
Net loss applicable to common shareholders $ (9,698,000) $ (1,233,000) $(23,223,000) $(11,751,000)
============ ============ ============ ============
Net loss per share:
Loss before extraordinary item applicable to
common shareholders $ (0.47) $ (0.07) $ (1.07) $ (0.64)
Extraordinary loss on debt extinguishment -- -- (0.12) --
------------ ------------ ------------ ------------
Net loss per common share $ (0.47) $ (0.07) $ (1.19) $ (0.64)
============ ============ ============ ============
Weighted average number of common and common
equivalent shares outstanding 20,646,000 18,597,000 19,587,000 18,396,000
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
FORM 10-Q
PAGE 4
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HARBINGER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
September 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows (used in) provided by operating activities: $ (1,661,000) $ 1,888,000
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (4,629,000) (3,593,000)
Additions to software development costs (2,642,000) (1,829,000)
Acquisitions (13,709,000) (5,161,000)
------------ ------------
Net cash used in investing activities (20,980,000) (10,583,000)
------------ ------------
Cash flows from financing activities:
Dividends paid on preferred stock -- (28,000)
Exercise of stock options and warrants 2,657,000 745,000
Proceeds from stock issuance 60,757,000 --
Repayments of notes payable (3,544,000) (455,000)
Purchase of HNS subordinated debenture (1,500,000) --
------------ ------------
Net cash provided by financing activities 58,370,000 263,000
------------ ------------
Net increase (decrease) in cash and cash equivalents 35,729,000 (8,432,000)
Cash and cash equivalents at beginning of period 9,059,000 12,763,000
Effect of exchange rates on cash (48,000) (58,000)
Cash received from acquisitions 3,326,000 373,000
------------ ------------
Cash and cash equivalents at end of period $ 48,066,000 $ 4,646,000
============ ============
Supplemental disclosure of cash paid for interest $ 82,000 $ 120,000
============ ============
Supplemental disclosure of noncash investing activities:
Purchase of HNS subordinated debenture in exchange
for common stock $ 4,200,000 $ --
============ ============
Acquisition of HNS minority interest in exchange for
issuance of options $ 2,216,000 $ --
============ ============
Acquisition of businesses in exchange for assumption of
liabilities and issuance of common stock $ 3,277,000 $ --
============ ============
Acquisition of businesses in exchange for assumption of
liabilities and issuance of common stock and options
and warrants to acquire common stock $ -- $ 11,294,000
============ ============
Conversion of Series C preferred stock to common stock $ -- $ 2,485,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
FORM 10-Q
PAGE 5
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HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The financial
information included herein is unaudited; however, the information reflects all
adjustments (consisting solely of normal recurring adjustments) that are, in the
opinion of management, necessary to fairly present the financial position,
results of operations, and cash flows for the interim periods. Operating
results for the three and nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the financial statements
and footnotes thereto included in Harbinger Corporation's ("Harbinger" or the
"Company") Form 10-K for the year ended December 31, 1996 and the Company's
current report on Form 8-K dated July 1, 1997.
2. ACQUISITIONS
1996 ACQUISITIONS
Effective March 31, 1996, the Company acquired all of the common stock
of NTEX Holding, B.V. ("NTEX"), a Dutch corporation based in Rotterdam, The
Netherlands, for $8.0 million, consisting of $3,195,000 in cash, 107,778 shares
of the Company's common stock valued at $1.2 million, warrants to acquire 18,750
shares of the Company's stock at $11.33 per share valued at $100,500 and the
assumption of $3.5 million in liabilities including transaction costs. The
Company recorded the acquisition using the purchase method of accounting with
$4,449,000 of the purchase price allocated to in-process product development and
charged to the consolidated statement of operations on March 31, 1996, $204,000
allocated to purchased technology, $621,000 allocated to tangible assets and
$2.8 million allocated to goodwill.
Effective March 31, 1996, the Company acquired all of the common stock
of INOVIS GmbH & Co. ("INOVIS"), a German corporation based in Karlsruhe,
Germany for $6.1 million, consisting of $1,409,000 in cash, 210,276 shares of
the Company's common stock valued at $2.4 million, warrants to acquire 30,000
shares of the Company's stock at $10.17 per share valued at $104,000, a note
payable of $557,000 and the assumption of $1.7 million in liabilities including
transaction costs. The Company recorded the acquisition using the purchase
method of accounting with $3.4 million of the purchase price allocated to
in-process product development and charged to the consolidated statement of
operations on March 31, 1996, $600,000 allocated to purchased technology,
$1,077,000 allocated to tangible assets and $1.1 million allocated to goodwill.
Effective March 31, 1996, the Company acquired the remaining
outstanding common stock of Harbinger N.V. ("HNV"), a Dutch corporation based in
Hoofddorp, The Netherlands for $1.2 million, consisting of 58,065 shares of the
Company's common stock valued at $668,000 and the assumption of $554,000 in
liabilities. The Company recorded the acquisition using the purchase method of
accounting with $300,000 of the purchase price allocated to in-process product
development and charged to the consolidated statement of operations on March 31,
1996, $518,000 allocated to tangible assets and $447,000 allocated to goodwill
and other intangibles.
Effective August 1, 1996, the Company acquired all of the common stock
of Comtech Management Systems, Inc. ("Comtech"), a Texas corporation based in
Amarillo, Texas, for $500,000, consisting of 24,561 shares of the Company's
common stock valued at $422,000 and the assumption of $75,000 in liabilities.
The Company recorded the acquisition using the purchase method of accounting
with $114,000 of the purchase price allocated to tangible assets, $100,000
allocated to purchased technology, and $283,000 allocated to goodwill.
FORM 10-Q
PAGE 6
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HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
Effective October 15, 1996, the Company acquired all of the common
stock of EDI Integration Services Limited ("EISL"), a company based in
Hampshire, United Kingdom for $804,000 consisting of $134,000 in cash and the
assumption of a $670,000 note payable. The Company recorded the acquisition
using the purchase method of accounting with $250,000 allocated to purchased
technology, $548,000 allocated to goodwill, and $6,000 allocated to tangible
assets.
1997 ACQUISITIONS
HNS
On January 1, 1997, because of the expiration of restrictions on the
Company's ability to appoint a majority of the HNS Board of Managers, the
Company exercised its rights as majority shareholder of HNS by appointing a
majority of the members of the HNS Board of Managers. As a result, effective
January 1, 1997, the Company began accounting for its investment in HNS by
consolidating the statements of financial position and results of operations of
HNS with those of the Company.
Also on January 1, 1997, the Company entered into a debenture purchase
agreement with the holder of the Debenture whereby the Company acquired the
Debenture in exchange for $1.5 million in cash and 242,288 shares of the
Company's common stock valued at $4.2 million. The Company recorded an
extraordinary loss on early debt extinguishment of $2.4 million in the first
quarter of 1997 related to this transaction which represents the amount paid of
$5.7 million in excess of the face amount of the Debenture of $3.0 million plus
accrued interest of $280,000.
Immediately after this transaction, the Company acquired the minority
interest in HNS, consisting of 585,335 shares of HNS common stock and stock
options to acquire 564,727 shares of HNS common stock at exercise prices ranging
from $0.70 per share to $1.65 per share, by exchanging cash of $1.6 million and
stock options to acquire 355,317 shares of the Company's common stock at
exercise prices ranging from $15.22 per share to $16.53 per share which were
valued by the Company at $2.2 million. Including transaction and other costs of
$350,000, the Company paid $4.1 million for the acquisition of the HNS minority
interest which was accounted for using the purchase method of accounting with
$2.7 million of the purchase price allocated to in-process product development
and charged to the consolidated statement of operations on January 1, 1997, and
$1.4 million allocated to goodwill and purchased technology. The Company also
incurred integration costs during the first quarter of 1997 related to this
acquisition of $1.6 million which have been reflected in the acquisition related
charges in the accompanying consolidated statement of operations. The Company
recorded a net deferred income tax asset of approximately $840,000 as a result
of this acquisition and provided a valuation allowance against such net deferred
income tax asset to reduce it to zero.
Smart Solutions for Electronic Commerce, Inc. ("Smart Solutions"),
Effective May 1, 1997, the Company acquired all of the common stock of
Smart Solutions for Electronic Commerce Inc. ("Smart Solutions"), a Michigan
corporation based in Traverse City, Michigan, for $677,000, consisting of
19,757 unregistered shares of the Company's common stock valued at $454,000 and
the assumption of $223,000 in liabilities. The Company recorded the acquisition
using the purchase method of accounting with $100,000 of the purchase price
allocated to purchased technology, $71,000 allocated to tangible assets and
$506,000 allocated to goodwill.
Acquion, Inc.
Effective August 22, 1997, the Company acquired all of the common stock
of Acquion, Inc. ("Acquion"), a California corporation based in Greenville,
South Carolina for approximately $13.6 million, consisting of $12.0 million in
cash and the assumption of approximately $1.6 million in liabilities including
transaction costs. The Company recorded the acquisition using the purchase
method of accounting with $10.9 million of the purchase price allocated to
in-process product development and charged to the consolidated statement of
operations on
FORM 10-Q
PAGE 7
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HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
August 22, 1997, $641,000 allocated to purchased technology and $2.0 million
allocated to goodwill. The Company also incurred integration costs during the
third quarter of 1997 related to this acquisition of $2.3 million. In addition,
the Company incurred integration charges of $1.1 million related to additional
costs identified in connection with the HNS and STI acquisitions and $630,000 in
restructuring charges related to increasing synergies among all operating
divisions as a result of recent acquisitions. The Company recorded a net
deferred income tax asset of approximately $4.1 million as a result of this
acquisition and provided a valuation allowance against such net deferred income
tax asset to reduce it to zero.
PRO FORMA FINANCIAL INFORMATION
The balance sheets of the above companies have been included in the
Company's consolidated balance sheet as of September 30, 1997 and the results of
operations of the acquired companies have been included in the Company's
consolidated statements of operations beginning on March 31, 1996, except for
Comtech, EISL, HNS, Smart Solutions and Acquion, which have been included
beginning on August 1, 1996, October 15, 1996, January 1, 1997, May 1, 1997 and
August 22, 1997, respectively.
The unaudited pro forma results of operations of the Company for the
three and nine months ended September 30, 1997 and 1996 as if the acquisitions
described above had been effected on January 1, 1996 is summarized as follows:
<TABLE>
<CAPTION>
Three months Nine months Three months Nine months
ended ended ended ended
------------ ------------ ------------ ------------
September 30, 1997 September 30, 1996
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Revenues $21,632,000 $ 58,683,000 $15,996,000 $ 44,082,000
=========== ============ =========== ============
Net income (loss) applicable to common
shareholders $ 68,000 $(11,791,000) $(2,751,000) $(16,949,000)
=========== ============ =========== ============
Net loss per share applicable to common
shareholders $ -- $ (0.60) $ (0.15) $ (0.92)
=========== ============ =========== ============
Weighted average outstanding common
share and common share equivalent 20,646,000 19,587,000 18,597,000 18,490,000
=========== ============ =========== ============
</TABLE>
The unaudited pro forma results do not reflect the charges for
in-process product development or loss on extinguishment of the debenture
discussed above. The unaudited pro forma results do not necessarily represent
results which would have occurred if the acquisitions had taken place on the
dates indicated nor are they necessarily indicative of the results of future
operations.
STI ACQUISITION
On January 3, 1997, the Company acquired SupplyTech, Inc., a Michigan
corporation, and its affiliate, SupplyTech International, LLC, a Michigan
limited liability company (collectively "STI"), for 2,400,000 unregistered
shares of the Company's common stock in transactions accounted for using the
pooling-of-interests method of accounting. SupplyTech, Inc. was acquired in a
merger transaction pursuant to the terms of a merger agreement, dated January 3,
1997, by and among the Company, SupplyTech, Inc. and Harbinger Acquisition
Corporation II, a Georgia corporation and a wholly owned subsidiary of the
Company. SupplyTech, Inc. survived the merger as a wholly owned subsidiary of
the Company. SupplyTech International, LLC was acquired by the Company in a
series of related share purchases, which included the exchange of the Company's
common stock for all the outstanding shares of SupplyTech International, LLC.
In connection with the STI Acquisition, the Company incurred a charge
of $7.1 million in January 1997 for acquisition related expenses and asset write
downs and incurred integration costs of $4.8 million during the first
FORM 10-Q
PAGE 8
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HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
quarter of 1997. The Company recorded a net deferred income tax asset during the
first quarter 1997 of approximately $1.8 million relating to the STI Acquisition
and provided a valuation allowance against such net deferred income tax asset to
reduce it to zero.
The financial position and results of operations of the Company have
been restated for all periods prior to the merger to give retroactive effect to
the STI Acquisition.
Total revenues and net loss for the individual companies as previously
reported are as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
1996 1996
------------- -------------
<S> <C> <C>
Total revenues
Harbinger Corporation $11,154,000 $ 28,397,000
STI 4,576,000 13,590,000
----------- ------------
$15,730,000 $ 41,987,000
=========== ============
Net loss
Harbinger Corporation $ (246,000) $ (8,654,000)
STI (987,000) (3,097,000)
=========== ============
$(1,233,000) $(11,751,000)
=========== ============
</TABLE>
3. SHAREHOLDERS' EQUITY
Stock Split
On January 10, 1997, the Board of Directors declared a three-for-two
stock split in the form of a 150% stock dividend on the Company's common stock
payable on January 31, 1997, to shareholders of record on January 17, 1997. All
share, per share and shareholders' equity amounts included in the Company's
consolidated financial statements have been retroactively restated to reflect
the split for all periods presented.
Secondary Stock Offering
On July 29, 1997, the Company completed the public offering of 3.3
million shares of Common Stock, consisting of 2.1 million shares sold by the
Company and 1.2 million shares sold by selling shareholders, at a public
offering price of $30.75 per share. The offering resulted in net proceeds to the
Company of approximately $60.8 million.
4. CREDIT FACILITY
Effective April 16, 1997, the Company increased its credit facility to
$10 million with an interest rate of Prime and a commitment fee on the unused
portion of .375%.
FORM 10-Q
PAGE 9
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HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
5. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share." SFAS No. 128 requires companies that have publicly held common stock
or common stock equivalents to present both basic and diluted earnings per share
("EPS") on the face of the income statement. Basic EPS is calculated as income
available to common stockholders divided by the weighted average number of
common shares outstanding during the period. Diluted EPS is calculated to
reflect the potential dilution that would occur if stock options or other
contracts to issue common stock were exercised and results in additional common
stock that would share in the earnings of the Company. This statement is
effective for financial statements issued for interim and annual periods ending
after December 15, 1997. The Company does not believe the adoption of SFAS No.
128 will have a significant impact on its reported EPS.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure." SFAS No. 129 is effective for financial
statements for periods ending after December 15, 1997. The Company does not
expect that SFAS No. 129 will require significant revision of prior disclosures
since SFAS No. 129 lists required disclosures that had been included in a number
of previously existing separate statements or opinions.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires companies to display, with the same prominence as
other financial statements, the components of comprehensive income. SFAS No. 130
requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company's financial statements will
include the disclosure of comprehensive income in accordance with the provisions
of SFAS No. 130 beginning the first quarter of 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS 131
requires that an enterprise disclose certain information about operating
segments. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. The Company will evaluate the need for such disclosures
at that time.
6. SUBSEQUENT EVENTS
On October 23, 1997, the Company acquired Atlas Products International,
Limited, a company organized under the laws of England, based in Manchester,
England, for approximately 311,000 unregistered shares of the Company's common
stock, par value of $0.0001 per share. In connection with the transaction, which
will be accounted for as a pooling of interests, the Company expects to take a
charge for acquisition and integration related expenses between $3.0 and $5.0
million.
On October 23, 1997, the Company entered a definitive agreement to
acquire Premenos Technology Corp., a Delaware corporation based in Concord,
California. The Company will issue 0.45 of a share of its common stock in
exchange for each share of Premenos common stock. As of October 15, 1997,
approximately 11.8 million shares of Premenos common stock was outstanding. All
Premenos options and warrants will be converted into the Company's options and
warrants, and adjusted in accordance with the exchange ratio. In connection with
the transaction, which will be accounted for as a pooling of interests, the
Company expects to take a charge between $20.0 and $30.0 million for expenses
related to the transaction, which is expected to close on or before December 31,
1997.
FORM 10-Q
PAGE 10
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HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
In October, 1997, the Company entered into a lease agreement with its
current landlord to occupy space in an adjoining building. The expected
occupancy date is in Spring 1998. In conjunction with the lease, the Company was
required to provide a letter of credit for $2.75 million. The lease has a term
of 10 years with the right to cancel after 7 years and requires annual rent
payments of approximately $2,100,000. The Company anticipates incurring a charge
in the fourth quarter of $722,000, related to a write down of leasehold
improvements and deferred professional costs associated with moving to the new
facility.
FORM 10-Q
PAGE 11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and notes thereto included elsewhere
herein and the Company's Form 10-K for the year ending December 31, 1996 and the
Company's current report on Form 8-K dated July 1, 1997.
OVERVIEW
Harbinger Corporation (the "Company") generates revenues from various
sources, including revenues for services and license fees for software. Revenues
for services principally includes subscription fees for transactions on the
Company's Value Added Network ("VAN"), software maintenance and implementation
charges and charges for consulting and training services. Subscription fees are
based on a combination of monthly access charges and transaction-based usage
charges. Software maintenance and implementation revenues represent recurring
charges to customers and are deferred and recognized ratably over the service
period. Revenues for consulting and training services are based on actual
services rendered and are recognized as services are performed. License fees for
software are recognized upon shipment, net of estimated returns. Software
revenues include royalty revenues under the Company's distribution agreement
with a third party distributor which are recognized based upon sales to end
users by that distributor. During the first nine months of the year, the Company
incurred $31.2 million in in-process R&D, and acquisition related costs
primarily associated with its purchases of HNS, STI, and Acquion. These
acquisition-related costs included integration charges related to the HNS, STI,
and Acquion business combinations related to activities such as cross training,
planning, product integration, and marketing ("Integration Activities"). Due to
Integration Activities in the first and third quarters of 1997, certain internal
expense allocations ("Integration Activity Costs") included in the
acquisition-related charges category may recur in other expense categories in
the future and may result in an increase in some expense categories as a
percentage of total revenues.
1996 ACQUISITIONS
Effective March 31, 1996, the Company completed the acquisition of NTEX
Holding B.V. ("NTEX") for $8.0 million and the acquisition of INOVIS GmbH
("INOVIS") for $6.1 million. NTEX is a Rotterdam, The Netherlands-based supplier
of EC products and services with about 40 employees at the time of the
acquisition. It develops software for EDI, wide area communications, and web
site development, and it operates an electronic clearing center in The
Netherlands. NTEX builds value-added applications that utilize EDI and manages
trading communities for such markets as healthcare, agriculture, shipping and
education. INOVIS is a Karlsruhe, Germany-based supplier of EC products and
services with about 30 employees at the time of the acquisition. INOVIS develops
software for electronic catalogs and ordering systems that use both CD-ROM and
the Internet. It also manages an electronic clearing center serving the
German-speaking market. INOVIS builds value-added applications that utilize EDI
and manages trading communities for the music, book publishing, sporting goods,
and other markets. The Company's acquisitions of NTEX and INOVIS are expected to
accelerate the Company's realization of opportunities for its products in
international markets.
The Company also completed two other acquisitions during 1996, the
acquisition of the remaining outstanding common stock of Harbinger N.V. ("HNV")
and the acquisition of Comtech Management Systems, Inc., which did not have a
significant impact on the Company's financial position or results of operations.
1997 ACQUISITIONS
Harbinger Net Services LLC ("HNS")
On January 1, 1997, because of the expiration of restrictions on the
Company's ability to appoint a majority of the HNS Board of Managers, the
Company exercised its rights as majority shareholder of HNS by appointing a
majority of the members of the HNS Board of Managers. As a result, effective
January 1, 1997, the Company began accounting for its investment in HNS by
consolidating the statements of financial position and results of operations of
HNS with those of the Company.
FORM 10-Q
PAGE 12
<PAGE> 13
Also on January 1, 1997, the Company entered into a debenture purchase
agreement with the holder of the Debenture whereby the Company acquired the
Debenture in exchange for $1.5 million in cash and 242,288 shares of the
Company's common stock valued at $4.2 million. The Company recorded an
extraordinary loss on early debt extinguishment of $2.4 million in the first
quarter of 1997 related to this transaction which represents the amount paid of
$5.7 million in excess of the face amount of the Debenture of $3.0 million plus
accrued interest of $280,000.
Immediately after this transaction, the Company acquired the minority
interest in HNS, consisting of 585,335 shares of HNS common stock and stock
options to acquire 564,727 shares of HNS common stock at exercise prices ranging
from $0.70 per share to $1.65 per share, by exchanging cash of $1.6 million and
stock options to acquire 355,317 shares of the Company's common stock at
exercise prices ranging from $15.22 per share to $16.53 per share which were
valued by the Company at $2.2 million. Including transaction and other costs of
$350,000, the Company paid $4.1 million for the acquisition of the HNS minority
interest which was accounted for using the purchase method of accounting with
$2.7 million of the purchase price allocated to in-process product development
and charged to the consolidated statement of operations on January 1, 1997, and
$1.4 million allocated to goodwill and purchased technology. The Company also
incurred charges for Integration Activities during the first quarter of 1997
related to this acquisition of $1.6 million which has been reflected in the
acquisition related charges in the accompanying consolidated statement of
operations. The Company recorded a net deferred income tax asset of
approximately $840,000 as a result of this acquisition and provided a valuation
allowance against such net deferred income tax asset to reduce it to zero.
STI
On January 3, 1997, the Company acquired SupplyTech, Inc., a Michigan
corporation, and its affiliate, SupplyTech International, LLC, a Michigan
limited liability company (collectively "STI"), for 2,400,000 unregistered
shares of the Company's common stock in transactions accounted for using the
pooling-of-interests method of accounting. SupplyTech, Inc. was acquired in a
merger transaction pursuant to the terms of a merger agreement, dated January 3,
1997, by and among the Company, SupplyTech, Inc. and Harbinger Acquisition
Corporation II, a Georgia corporation and a wholly owned subsidiary of the
Company. SupplyTech, Inc. survived the merger as a wholly owned subsidiary of
the Company. SupplyTech International, LLC was acquired by the Company in a
series of related share purchases, which included the exchange of the Company's
common stock for all the outstanding shares of SupplyTech International, LLC.
In connection with the STI Acquisition, the Company incurred a charge
of $7.1 million in January 1997 for acquisition related expenses and asset write
downs and incurred integration costs of $4.8 million during the first quarter of
1997. The Company recorded a net deferred income tax asset during the first
quarter 1997 of approximately $1.8 million relating to the STI Acquisition and
provided a valuation allowance against such net deferred income tax asset to
reduce it to zero.
The financial position and results of operations of the Company have
been restated for all periods prior to the merger to give retroactive effect to
the STI Acquisition.
Smart Solutions for Electronic Commerce, Inc. ("Smart Solutions")
On May 1, 1997, the Company acquired Smart Solutions, which is not
expected to have a significant impact on the Company's financial position or
results of operations. Smart Solutions, located in Traverse City, Michigan, is a
provider of advanced ship notice and bar coding software.
Acquion, Inc.
Effective August 22, 1997, the Company acquired all of the common stock
of Acquion, Inc. ("Acquion"), a California corporation based in Greenville,
South Carolina for approximately $13.6 million, consisting of $12.0 million in
cash and the assumption of approximately $1.6 million in liabilities. The
Company recorded the acquisition using the purchase method of accounting with
$10.9 million of the purchase price allocated to in-process product development
and charged to the consolidated statement of operations on September 30, 1997,
$641,000
FORM 10-Q
PAGE 13
<PAGE> 14
allocated to purchased technology and $2.0 million allocated to goodwill. The
Company also incurred integration costs during the third quarter of 1997 related
to this acquisition of $2.3 million. In addition, the Company incurred
integration charges of $1.1 million related to additional costs identified in
connection with the HNS and STI acquisitions and $630,000 in restructuring
charges related to increasing synergies among all operating divisions as a
result of recent acquisitions. The Company recorded a net deferred income tax
asset of approximately $4.1 million as a result of this acquisition and provided
a valuation allowance against such net deferred income tax asset to reduce it to
zero.
RESULTS OF OPERATIONS
REVENUES
Total revenues increased 39% from $42.0 million in the nine months
ended September 30, 1996 to $58.2 million in the same period in 1997. Revenues
for services increased 42% from $26.7 million in the nine months ended September
30, 1996 to $37.9 million in the same period in 1997, reflecting an increase in
the number of subscribers utilizing the Company's VAN, increases in the average
volume of transmissions by subscribers, and an increase in professional services
revenues. In addition, increases in revenues for services reflect revenues
generated from the Company's European subsidiaries and Acquion which were
acquired at the end of the first quarter of 1996 and in the third quarter of
1997, respectively. Revenues from software maintenance and implementation also
increased, reflecting primarily an increase in the number of customers. Revenue
from software sales increased 33% from $15.3 million in the nine months ended
September 30, 1996 to $20.3 million in the same period in 1997. This increase
primarily reflects increases in licensed PC software, software revenues
generated from the Company's European subsidiaries and Acquion which were
acquired at the end of the first quarter of 1996, and in the third quarter 1997,
respectively, and increases in software license fees attributable to the
licensing of enterprise-wide software products. The increase in software license
fees was offset by a $2.4 million decrease in royalties recognized for software
products licensed through a third party distributor.
Total revenues increased 37% from $15.7 million in the three months
ended September 30, 1996 to $21.5 million in the same period in 1997. Revenues
for services increased 38% from $9.8 million in the three months ended September
30, 1996 to $13.6 million in the same period in 1997, reflecting an increase in
the number of subscribers utilizing the Company's VAN, increases in the average
volume of transmissions by subscribers, increases in professional services
revenues and revenue generated from Acquion which was acquired in the third
quarter of 1997. Revenues from software maintenance and implementation also
increased, reflecting primarily an increase in the number of customers. Revenues
from software license fees increased 34% from $5.9 million in the three months
ended September 30, 1996 to $7.9 million in the same period in 1997. This
increase primarily reflects increases in licensed PC and enterprise-wide
software products. The increase in software license fees was offset by a
$725,000 decrease in royalties recognized for software products licensed through
a third party distributor and a decrease in software sales at the European
divisions. During the third quarter, the Company's growth in revenue was
adversely affected by a fluctuation in currency exchange rates, management
issues associated with its European operations and general softness in demand in
the European markets.
DIRECT COSTS
Direct costs for services increased from $9.5 million, or 35.7% of
services revenues, in the nine months ended September 30, 1996, to $12.9
million, or 34.1% of services revenues, in the nine months ended September 30,
1997. Direct costs for software increased from $1.9 million, or 12.6% of
software revenues, in the nine months ended September 30, 1996, to $2.5 million,
or 12.4% of software revenues, in the nine months ended September 30, 1997.
Direct costs for services increased from $3.6 million, or 36.6% of
services revenue in the three months ended September 30, 1996, to $4.8 million,
or 35.4% of services revenue in the three months ended September 30, 1997.
Direct costs for software increased from $559,000, or 9.5% of software revenues,
in the three months ended September 30, 1996, to $880,000, or 11.2% of software
revenues, in the three months ended September 30, 1997.
FORM 10-Q
PAGE 14
<PAGE> 15
The increase in direct costs for software as a percentage of revenues is due to
royalties paid to a third party distributor on certain software products.
SELLING AND MARKETING
Selling and marketing expenses increased 6% from $10.9 million or 26.1%
of revenues in the nine months ended September 30, 1996 to $11.6 million or
20.0% of revenues in the nine months ended September 30, 1997. The decrease in
selling and marketing expenses as a percentage of revenues is primarily due to
the effect of increased revenues and efficiencies associated with other costs to
support increased sales activity, efficiencies associated with the STI merger,
and Integration Activities.
Selling and marketing expenses increased 10% from $3.7 million, or
23.8% of revenues in the three months ended September 30, 1996 to $4.1 million,
or 19.2% of revenues in the three months ended September 30, 1997. The decrease
in selling and marketing expenses as a percentage of revenues is primarily due
to the effect of increased revenues and efficiencies associated with other costs
to support increased sales activity, efficiencies associated with the STI
merger, and Integration Activities during the quarter.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 13% from $9.7 million in
the nine months ended September 30, 1996 to $11.0 million in the nine months
ended September 30, 1997. As a percentage of revenues, these expenses decreased
from 23.1% of revenues in the nine months ended September 30, 1996 to 18.9% of
revenues in the nine months ended September 30, 1997. The decrease as a
percentage of revenues reflects efficiencies associated with expanding the
Company's operations and the effect of increases in software and services
revenue, efficiencies associated with the STI merger, and Integration
Activities.
General and administrative expenses increased 8% from $3.6 million in
the three months ended September 30, 1996 to $3.9 million in the three months
ended September 30, 1997. As a percentage of revenues, these expenses decreased
from 23.1% of revenues in the three months ended September 30, 1996 to 18.3% of
revenues in the three months ended September 30, 1997. The decrease as a
percentage of revenues reflects efficiencies associated with expanding the
Company's operations and the effect of increases in software and services
revenue, efficiencies associated with the STI merger, and Integration Activities
during the quarter.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased 50% from $2.0 million in the
nine months ended September 30, 1996 to $3.0 million in the nine months ended
September 30, 1997. As a percentage of revenues, these expenses increased from
4.8% of revenues in the nine months ended September 30, 1996 to 5.2% of revenues
in the nine months ended September 30, 1997. The increase as a percentage of
revenues is primarily the result of the amortization of the intangible assets
related to the acquisitions of the European divisions completed at the end of
first quarter 1996, the acquisition of HNS at the beginning of 1997, and
increases in capital expenditures purchased during 1996 and 1997.
Depreciation and amortization increased 36% from $784,000 in the three
months ended September 30, 1996 to $1.1 million in the three months ended
September 30, 1997. As a percentage of revenues, these expenses represented 5.0%
of revenues in the three months ended September 30, 1996 and 1997.
FORM 10-Q
PAGE 15
<PAGE> 16
PRODUCT DEVELOPMENT
Total expenditures for product development, including capitalized
software development costs, increased from $8.1 million in the nine months ended
September 30, 1996 to $8.3 million in the same period in 1997. This increase
primarily reflects the additional product development personnel related costs
associated with the acquisitions. The Company capitalized product development
costs of $1.8 million and $2.6 million, in the nine months ended September 30,
1996 and 1997, respectively, which represented 22.5% and 31.7% of total
expenditures for product development in these respective periods. As a
percentage of total revenues, expenditures for product development costs
decreased from 19.4% of revenues in the nine months ended September 30, 1996 to
14.3% of revenues in the nine months ended September 30, 1997. The decrease in
product development expenditures as a percentage of revenue is primarily
attributable to increased revenues. Amortization of capitalized software
development costs is charged to direct costs of software revenues and totaled
$1.2 million in the nine months ended September 30, 1996 and 1997.
Total expenditures for product development, including capitalized
software development costs, decreased from $3.1 million in the three months
ended September 30, 1996 to $2.8 million in the same period in 1997. This
decrease is due to increased synergies realized from the STI merger and
Integration Activities. The Company capitalized software development costs of
$508,000 and $928,000 in the three months ended September 30, 1996 and 1997,
respectively, which represented 16.6% and 33.6% of total expenditures for
product development in these respective periods. The increase in capitalized
software development costs as a percentage of total expenditures for product
development is due to development activities on products that have reached
technological feasibility. As a percentage of total revenues, expenditures for
product development costs were 19% of revenues in the three months ended
September 30, 1996 and 13% in the three months ended September 30, 1997. The
decrease in product development expenditures as a percentage of revenue is
primarily attributable to increased revenues and Integration Activities.
Amortization of capitalized software development costs is charged to direct cost
of software revenues and totaled $386,000 and $400,000 in the three months ended
September 30, 1996 and 1997, respectively.
CHARGE FOR PURCHASED IN-PROCESS PRODUCT DEVELOPMENT AND OTHER ACQUISITION
RELATED CHARGES
The Company incurred a $31.2 million charge for acquired research and
development and other acquisition related charges during the nine months ended
September 30, 1997. In connection with the HNS and Acquion acquisitions
described above, the Company acquired in-process product development of
approximately $2.7 million and $10.9 million, respectively. Since the Company
determined that certain of the acquired technologies had not reached
technological feasibility, the Company expensed the portion of the purchase
price allocable to such in-process product development. In connection with the
STI acquisition, the Company incurred approximately $7.1 million for acquisition
related expenses and asset write downs. Additionally, the Company incurred
integration costs of $6.4 million in connection with both the HNS and STI
acquisitions and $2.3 million in connection with the Acquion acquisition. During
the third quarter of 1997, the Company incurred additional integration charges
of $1.1 million related to additional costs identified in connection with the
HNS and STI acquisitions. The Company also incurred $630,000 in restructuring
charges related to increased synergies among all operating divisions as a result
of recent acquisitions. Approximately $4.3 million of the costs and expenses
incurred in connection with HNS, STI, and Acquion were Integration Activity
Costs which may recur in other expense categories in the future and may result
in an increase in some expense categories as a percentage of revenue. In 1996,
the Company incurred an $8.4 million charge for acquired in-process product
development in connection with the European acquisitions.
FORM 10-Q
PAGE 16
<PAGE> 17
The Company incurred a $14.9 million charge for acquired research and
development and other acquisition related charges during the three months ended
September 30, 1997. In connection with the Acquion acquisition described above,
the Company acquired in-process product development of approximately $10.9
million. Since the Company determined that certain of the acquired technologies
had not reached technological feasibility, the Company expensed the portion of
the purchase price allocable to such in-process product development. The Company
incurred integration costs of $2.3 million in connection with the Acquion
acquisition. Additionally, in the third quarter of 1997, the Company incurred
additional integration charges of $1.1 million related to additional costs
identified in connection with the HNS and STI acquisitions. The Company also
incurred $630,000 in restructuring charges related to increased synergies among
all operating divisions as a result of recent acquisitions. Approximately $1.5
million of the costs and expenses incurred in connection with HNS, STI, and
Acquion were Integration Activity Costs which may recur in other expense
categories in the future and may result in an increase in some expense
categories as a percentage of revenue.
INTEREST INCOME AND EXPENSE
The Company recorded net interest income of $426,000 for the nine
months ended September 30, 1997 as compared to net interest income of $95,000
for the nine months ended September 30, 1996. This increase is primarily due to
the increase in cash balances available for investment resulting from the
proceeds received upon completion of the Company's stock offering in the third
quarter of 1997.
The Company recorded net interest income of $399,000 for the three
months ended September 30, 1997 as compared to net interest expense of $32,000
for the three months ended September 30, 1996. This increase is primarily due to
the increase in cash balances available for investment resulting from the
proceeds received upon completion of the Company's stock offering in the third
quarter of 1997.
EQUITY IN LOSSES OF JOINT VENTURES
The Company recognized equity in loss of SupplyTech Australia, Pty., a
joint venture investment formed in the second quarter of 1996, in the nine
months ended September 30, 1997 as compared to equity losses of Harbinger NV
("HNV") and HNS in the three and nine months ended September 30, 1996. Effective
March 31, 1996, the Company acquired the remaining outstanding stock of HNV.
Effective January 1, 1997, the Company acquired the remaining outstanding
minority interest of HNS.
INCOME TAXES
The Company recorded income tax expense of $1.4 million for the nine
months ended September 30, 1997 as compared to income tax expense of $38,000 for
the nine months ended September 30, 1996. The Company recorded an income tax
benefit of $94,000 for the three months ended September 30, 1996. The income tax
expense provided during 1997 reflects the nondeductible nature of certain of the
1997 acquisition related charges.
LOSS ON EARLY EXTINGUISHMENT OF DEBT
The Company recorded a loss of $2.4 million on early debt
extinguishment in the first quarter of 1997 related to the HNS transactions.
NET INCOME (LOSS) AND EARNINGS PER SHARE
The Company realized a net loss of $23.2 million for the nine months
ended September 30, 1997 as compared to a net loss of $11.8 million for the nine
months ended September 30, 1996. The net loss in the period ended September 30,
1997 reflects the effect of the charge for purchased in-process product
development and acquisition related charges of $31.2 million and the
extraordinary loss on early debt extinguishment of $2.4 million as compared to
the effect of the $8.4 million charge for purchased in-process product
development and other acquisition related charges resulting from the
acquisition of the European subsidiaries at the end of the first quarter
FORM 10-Q
PAGE 17
<PAGE> 18
of 1996. The Company realized a loss per share of $1.19 for the nine months
ended September 30, 1997 as compared to the loss per share of $0.64 for the nine
months ended September 30, 1996. Excluding the charges for purchased in-process
product development, extraordinary loss on debt extinguishment, equity loss of
HNS in 1996, and the related income tax effects, the Company would have reported
net income of $7.3 million or $0.34 per share as compared to net income of
$929,000 or $0.05 per share for the nine months ended September 30, 1997 and
1996, respectively.
The Company realized a net loss of $9.7 million for the three months
ended September 30, 1997 as compared to a net loss of $1.2 million for the three
months ended September 30, 1996. The Company realized a loss per share of $0.47
for the three months ended September 30, 1997 as compared to the loss of $0.07
for the three months ended September 30, 1996. Excluding the charges for
purchased in-process product development, equity loss of HNS in 1996, and the
related income tax effects, the Company would have reported net income of $3.3
million or $0.15 per share in the three months ended September 30, 1997 as
compared to net income of $498,000 or $0.03 per share for the three months ended
September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased $43.1 million from $3.1 million
as of December 31, 1996 to $46.2 million as of September 30, 1997. This increase
principally reflects proceeds received from the Company's stock offering in
third quarter of 1997. In the nine months ended September 30, 1997, the Company
used cash in operating activities of $1.7 million as compared to cash provided
by operations of $1.9 million for the nine months ended September 30, 1996. This
decrease is primarily due to the merger and integration costs incurred related
to the acquisitions which occurred in the first quarter and third quarter of
1997. The Company used net cash in investing activities of $21.0 million for the
nine months ended September 30, 1997 as compared to $10.6 million for the nine
months ended September 30, 1996. Cash used in investing activities for the
period ended September 30, 1997 included cash used in acquisitions, purchases of
property and equipment and additions to capitalized software development costs.
Cash provided by financing activities of $58.4 million in the nine months ended
September 30, 1997 as compared to $263,000 for the nine months ended September
30, 1996, resulted from proceeds received from the Company's stock offering in
third quarter 1997 and exercises of stock options.
In October, 1997, the Company entered into a lease agreement with the
current landlord to occupy space in an adjoining building. The expected
occupancy date is in Spring 1998. In conjunction with the lease, the Company was
required to provide a letter of credit for $2.75 million. The lease has a term
of 10 years with the right to cancel after 7 years and requires annual rent
payments of approximately $2,100,000. The Company anticipates incurring a charge
in the fourth quarter of $722,000, related to a write down of leasehold
improvements and deferred professional costs associated with moving to the new
facility.
Management expects that the Company will continue to be able to fund
its acquisitions, operations, investment needs and capital expenditures through
cash flows generated from operations, cash on hand, borrowings under a line of
credit and additional equity capital. Management believes that outside sources
for debt and additional equity capital, if needed, will be available to finance
expansion projects and any possible acquisitions. The form of any financing will
vary depending upon prevailing market and other conditions and may include
short- or long-term borrowings from financial institutions, or the issuance of
additional equity securities. However, there can be no assurances that funds
will be available on terms acceptable to the Company.
FORM 10-Q
PAGE 18
<PAGE> 19
This document contains statements which may constitute "forward looking
statements" within the meaning of the Securities Act of 1933 and the Securities
Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act
of 1995. 15 U.S.C.A. Sections 77Z-2 and 18U-5 (Supp. 1996). Those statements
include statements regarding the intent, belief or current expectations of
Harbinger Corporation and members of its management as well as the assumptions
on which such statements are based. Prospective investors are cautioned that any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those contemplated by such forward-looking statements. Important factors
currently known to management that could cause actual results to differ
materially from those in forward-looking statements are set forth in the Safe
Harbor Compliance Statement for Forward-Looking Statements included as Exhibit
99.1 to the Company's Current Report on Form 8-K dated and filed October 29,
1997. The Company undertakes no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time.
SECONDARY STOCK OFFERING
On July 29, 1997, the Company completed the public offering of 3.3
million shares of Common Stock, consisting of 2.1 million shares sold by the
Company and 1.2 million shares sold by selling shareholders, at a public
offering price of $30.75 per share. The offering resulted in net proceeds to the
Company of approximately $60.8 million.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share." SFAS No. 128 requires companies that have publicly held common stock
or common stock equivalents to present both basic and diluted earnings per share
("EPS") on the face of the income statement. Basic EPS is calculated as income
available to common stockholders divided by the weighted average number of
common shares outstanding during the period. Diluted EPS is calculated to
reflect the potential dilution that would occur if stock options or other
contracts to issue common stock were exercised and results in additional common
stock that would share in the earnings of the Company. This statement is
effective for financial statements issued for interim and annual periods ending
after December 15, 1997. The Company does not believe the adoption of SFAS No.
128 will have a significant impact on its reported EPS.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure." SFAS No. 129 is effective for financial
statements for periods ending after December 15, 1997. The Company does not
expect that SFAS No. 129 will require significant revision of prior disclosures
since SFAS No. 129 lists required disclosures that had been included in a number
of previously existing separate statements or opinions.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires companies to display, with the same prominence as
other financial statements, the components of comprehensive income. SFAS No. 130
requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company's financial statements will
include the disclosure of comprehensive income in accordance with the provisions
of SFAS No. 130 beginning the first quarter of 1998.
In June 1997, the Financial Accounting Standards Board issues SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS 131
requires that an enterprise disclose certain information about operating
segments. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. The Company will evaluate the need for such disclosures
at that time.
FORM 10-Q
PAGE 19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11. Computation of earnings per share
Exhibit 27. Financial Data Schedule (for SEC use only)
Exhibit 99A. Employment Agreement for European General
Manager
Exhibit 99B. Letter of Credit
Exhibit 99C. Building Lease Agreement
(b) Reports on Form 8-K
Form 8-K dated July 1, 1997 reporting under Item 5 the
retroactively restated financial information related to the
pooling-of-interests business combination of Harbinger
Corporation and SupplyTech, Inc. and SupplyTech International,
LLC and subsidiaries.
Form 8-K dated July 16, 1997 reporting under Item 5 the Safe
Harbor Compliance Statement for Forward-Looking Statements
filed as Exhibit 99.1 to the Harbinger Annual Report on Form
10-K for the year ended December 31, 1996.
Form 8-K dated September 2, 1997 reporting under Item 2 the
acquisition of Acquion, Inc.
FORM 10-Q
PAGE 20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARBINGER CORPORATION
Date: October 29, 1997 /s/ David T. Leach
--------------------------------- -----------------------------------
David T. Leach
Chief Executive Officer
(Principal Executive Officer)
Date: October 29, 1997 /s/ Joel G. Katz
--------------------------------- -----------------------------------
Joel G. Katz
Chief Financial Officer
(Principal Financial Officer;
Principal Accounting Officer)
FORM 10-Q
PAGE 21
<PAGE> 1
EXHIBIT 11
HARBINGER CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
PRIMARY 1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average common stock outstanding 20,646,000 18,597,000 19,587,000 18,396,000
Net effect of dilutive stock options and warrants
- based on the treasury method -- -- -- --
------------ ------------ ------------ ------------
Total 20,646,000 18,597,000 19,587,000 18,396,000
============ ============ ============ ============
Loss before extraordinary item
applicable to common shareholders $ (9,698,000) $ (1,233,000) $(20,804,000) $(11,751,000)
Extraordinary loss on debt extinguishment -- -- (2,419,000) --
------------ ------------ ------------ ------------
Net loss applicable to common
shareholders $ (9,698,000) $ (1,233,000) $(23,223,000) $(11,751,000)
============ ============ ============ ============
Loss per share applicable to common
shareholders before extraordinary item $ (0.47) $ (0.07) $ (1.07) $ (0.64)
Extraordinary loss per share on debt
extinguishment -- -- (0.12) --
------------ ------------ ------------ ------------
Net loss per share applicable to
common shareholders $ (0.47) $ (0.07) $ (1.19) $ (0.64)
============ ============ ============ ============
</TABLE>
Computational note:
In connection with the computations for all periods presented, all
common share equivalents have been excluded because their impact on the
Company's net loss per share is antidilutive.
FORM 10-Q
PAGE 22
<PAGE> 2
EXHIBIT 11
HARBINGER CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
FULLY DILUTED 1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average common stock outstanding 20,646,000 18,597,000 19,587,000 18,396,000
Net effect of dilutive stock options and warrants
- based on the treasury method -- -- -- --
------------ ------------ ------------ ------------
Total 20,646,000 18,597,000 19,587,000 18,396,000
============ ============ ============ ============
Loss before extraordinary item
applicable to common shareholders $ (9,698,000) $ (1,233,000) $(20,804,000) $(11,751,000)
Extraordinary loss on debt extinguishment -- -- (2,419,000) --
------------ ------------ ------------ ------------
Net loss applicable to common
shareholders $ (9,698,000) $ (1,233,000) $(23,223,000) $(11,751,000)
============ ============ ============ ============
Loss per share applicable to common
shareholders before extraordinary item $ (0.47) $ (0.07) $ (1.07) $ (0.64)
Extraordinary loss per share on debt
extinguishment -- -- (0.12) --
------------ ------------ ------------ ------------
Net loss per share applicable to common
shareholders $ (0.47) $ (0.07) $ (1.19) $ (0.64)
============ ============ ============ ============
</TABLE>
Computational note:
In connection with the computations for all periods presented, all
common share equivalents have been excluded because their impact on the
Company's net loss per share is antidilutive.
FORM 10-Q
PAGE 23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HARBINGER CORPORATION FOR THE SIX MONTHS ENDED JUNE 30,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 48,066
<SECURITIES> 0
<RECEIVABLES> 22,788
<ALLOWANCES> 1,625
<INVENTORY> 0
<CURRENT-ASSETS> 72,764
<PP&E> 20,506
<DEPRECIATION> 8,557
<TOTAL-ASSETS> 100,724
<CURRENT-LIABILITIES> 26,527
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 74,197
<TOTAL-LIABILITY-AND-EQUITY> 100,724
<SALES> 20,307
<TOTAL-REVENUES> 58,199
<CGS> 2,520
<TOTAL-COSTS> 15,441
<OTHER-EXPENSES> 62,531
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (426)
<INCOME-PRETAX> (19,385)
<INCOME-TAX> 1,419
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 2,419
<CHANGES> 0
<NET-INCOME> (23,223)
<EPS-PRIMARY> (1.19)
<EPS-DILUTED> (1.19)
</TABLE>
<PAGE> 1
EXHIBIT 99A
EMPLOYMENT AGREEMENT
FORM 10-Q
PAGE 24
<PAGE> 2
CONTRACT OF EMPLOYMENT
The undersigned:
1. HARBINGER CORPORATION, established in Atlanta, Georgia, USA (hereafter
known as the "Company")
and
2. MR. WILLEM VAN NIEUWENHUYZEN residing in Zeist, The Netherlands
(hereafter known as "Mr. van Nieuwenhuyzen" or the "Employee")
Declare Agreement as to the following:
1. Function
a. The Company employs Mr. van Nieuwenhuyzen in the function of
General Manager, Europe and Africa. He reports to the Chief
Executive Officer, Harbinger Corporation.
b. Mr. van Nieuwenhuyzen binds himself to undertaking the
responsibilities reasonably demanded of him by the Company in
the function of General Manager, Europe and Africa. Mr. van
Nieuwenhuyzen places his entire energies at the disposal of
the Company.
c. Mr. van Nieuwenhuyzen will not undertake any supplemental
employment, paid or unpaid, without written permission from
the Company.
d. Mr. van Nieuwenhuyzen agrees to perform to the best of his
abilities all duties which may reasonably be assigned to him
by or on behalf of the Company and which are connected with
the Company's business, and to follow the directions which
shall be given by or on behalf of the Company.
e. Mr. van Nieuwenhuyzen's principal place of work is The
Netherlands, unless changed by the Company. Mr. van
Nieuwenhuyzen will travel throughout Europe and Africa.
2. The Term of the Contract
This Agreement has been entered into for an indefinite period of time,
effective August 1, 1997 and starting October 1, 1997.
3. Salary, Bonus and Stock Option
Mr. van Nieuwenhuyzen's salary is Gldrs 30,770 per month. The salary
will be paid in arrears by the Company prior to the end of each month
into a bank account to be specified by Mr. van Nieuwenhuyzen.
Moreover, Mr. van Nieuwenhuyzen is entitled to the annual holiday
supplement, which is established at 8.33% of gross salary (Gldrs.
30,700) and will be paid annually in the month of July, adjusted
proportionately for actual length of service during a given year.
Total annual salary is 12 times monthly salary plus annual holiday
supplement, and excluding bonuses, commissions, incentives and other
allowances.
FORM 10-Q
PAGE 25
<PAGE> 3
The Company shall deduct and pay all the obligatory wage taxes and
social insurance premiums according to Dutch law in respect of all
amounts to be paid to Mr. van Nieuwenhuyzen under this Agreement;
unless, in accordance with Dutch law and regulations, it results from
this Agreement and from the nature of the payment to be made that it
can be made untaxed and not subject to withholding.
The employee cannot claim compensation for overwork.
In addition to the Base Salary, Mr. van Nieuwenhuyzen will be eligible
for participation in an incentive bonus program as established by the
Company (subject to meeting targets, based on criteria to be determined
by the Company at its sole discretion) with the bonus in the amount of
40% of Base Salary plus annual holiday supplement upon achieving the
targets. Such bonus is not guaranteed, but is subject to an
accelerator/decelerator based on beating/missing the European and
overall Company financial plan. It is expected that about 80% of this
payment will be based on European performance and 20% on total Company
performance, and may vary from year to year. For the first two quarters
of employment, the bonus will be guaranteed and paid in arrears at
40,000 Gldrs each quarter. Thereafter, bonus is not guaranteed and will
be paid annually soon after the end of the Company's fiscal year end
(December 31st).
In addition to the Base Salary, Mr. van Nieuwenhuyzen will receive a
stock option for 50,000 shares awarded under the Harbinger Corporation
1996 Stock Option Plan ("Plan"). Shares underlying award vest evenly
over 4 years. The option is awarded under the Plan approved by the
Dutch tax authorities. Mr. van Nieuwenhuyzen will be liable for any tax
liability from this award. The Company will loan Mr. van Nieuwenhuyzen
up to 100,000 Gldrs to pay these taxes, for one year, at an interest
rate of 9.0% after which principal and interest will be due and payable
in full.
Mr. van Nieuwenhuyzen will receive an expense allowance of Gldrs.
10,000 per year.
4. Company Car
a. In order to carry out his duties, the Company will place a
company car equal to a BMW 525 or equivalent at Mr. van
Nieuwenhuyzen's disposal, including petrol costs but excluding
VAT, on lease basis based on 30,000 km per year, with due
consideration of the clause below referring to private use.
The company car is provided pursuant to a separate company car
Agreement.
Mr. van Nieuwenhuyzen is authorized to use the company car for
reasonable private use including travel aboard. It is at the
discretion of the Company to decide what is understood by
reasonable private use.
b. When Mr. van Nieuwenhuyzen, for any reason, does not carry out
any duties for the Company for a period in excess of one
month, he is obliged to return the car to the Company.
c. Mr. van Nieuwenhuyzen acknowledges that the allowances and
private use of the car mentioned hereabove might give rise to
tax liability. The financial consequences of such liability
shall be borne by Mr. van Nieuwenhuyzen.
5. Paid Leave
a. Each calendar year the employee is entitled to 25 days leave.
The dates will be fixed by the Company after consultation with
Mr. van Nieuwenhuyzen.
b. The company will not provide financial compensation for unused
days of leave.
FORM 10-Q
PAGE 26
<PAGE> 4
c. Upon termination of employment, Mr. van Nieuwenhuyzen will
receive compensation for the remaining days of leave.
d. If Mr. van Nieuwenhuyzen has taken too many days leave in
proportion to the term of employment, he will repay the
Company with an amount representing the excess days. This
amount can be deducted by the Company from the amount still
owing to Mr. van Nieuwenhuyzen.
6. Incapacity to work due to illness
a. In the event that Mr. van Nieuwenhuyzen is unable to perform
his duties for reasons of illness, the Company will pay one
hundred percent (100%) of the Employee's last earned gross
Base Salary for a maximum period of four weeks. Thereafter the
Company will pay seventy (70%) of the Employee's last earned
gross Base Salary for a maximum period of 48 weeks.
b. The employee shall not be entitled to receive supplementary
payments 30% over the legal minimum of 70% of his salary
payments, if and to the extent that the employee shall have a
claim on a third party in connection with his disability to
work. Notwithstanding the foregoing, the Company may at its
sole discretion nevertheless decide to make these
supplementary payments by way of an advance on damages to be
received by the employee from such third party, subject to
assignment by the employee to the Company of that claim on a
third party for the amount of the advances made by the
Company.
7. Duty to Maintain Secrecy
a. The Company may disclose to Employee certain Trade Secrets and
Confidential Information (defined below). Employee
acknowledges and agrees that the Trade Secrets and
Confidential Information are the sole and exclusive property
of the Company (or a third party providing such information to
the Company) and that the Company or such third party owns all
worldwide rights therein under patent, copyright, trade
secret, confidential information, or other property right.
Employee acknowledges and agrees that the disclosure of the
Trade Secrets and Confidential Information to Employee does
not confer upon Employee and license, interest or rights of
any kind in or to the Trade Secrets of Confidential
Information. Employee may use the Trade Secrets and
Confidential Information solely for the benefit of the Company
while Employee is employed or retained by the Company. Except
in the performance of services for the Company, Employee will
hold in confidence and not reproduce, distribute, transmit,
reverse engineer, decompile, disassemble, or transfer,
directly or indirectly, in any form, by any means, or for any
purpose, the Trade Secrets or the Confidential Information or
any portion thereof. Employee agrees to return tot he Company,
upon request by the Company, the Trade Secrets and
Confidential Information and all materials relating thereto.
b. Employee's obligations under this Agreement with regard to the
Trade Secrets shall remain in effect for as long as such
information shall remain a trade secret under applicable law.
Employee acknowledges that its obligations with regard to the
Confidential Information shall remain in effect while Employee
is employed or retained by the Company and for three (3) years
thereafter. As used herein, "Trade Secrets" means information
of the Company, its licensers, suppliers, customers, or
prospective licensers or customers, including, but not limited
to, technical or non-technical data, formulas, patterns,
compilations, programs, devices, methods, techniques,
drawings, processes, financial data, financial plans, product
plans, or a list of actual or potential customers or
suppliers, which (a) derives economic value, actual or
potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or user; and (b)
is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. As used herein,
"Confidential Information" means information, other than Trade
Secrets, that is of value to its owner and is
FORM 10-Q
PAGE 27
<PAGE> 5
treated as confidential, including, but not limited to, future
business plans, licensing strategies, advertising campaigns,
information regarding executives and employees, and the terms
and conditions of this Agreement.
c. The employee must obtain written permission of the Company
before submission of any written material submitted for
publication, which have any relation to the Company or related
companies.
8. Supplementary Occupational Disability
The Company has arranged for a supplementary occupational disability
insurance, which will provide coverage in case of disability
(arbeidsongeschiktheid). The Company will pay 50% of the premium for
such insurance. This coverage will pay the difference between 70% of
the annual salary and the maximum payment by the state provided under
the Disability Act (WAO), known as wage-privation
(loondervingsuitkering). In many cases the state provided payment may
decrease significantly over time or be lower, if the employee does not
or no longer qualifies for this wage-privation payment. The difference
between the wage-privation payment and the lower level (known as
WAO-gat) will not be covered by the Company's disability plan. This
coverage is not mandatory. The employee can make arrangements for such
coverage at his own discretion.
This insurance is subject to satisfying medical eligibility. The
regulations of this insurance will be provided as a supplement to this
contract.
9. Health Insurance
The Company shall provide Employee with enrollment in Company's Dutch
medical plan subject to benefits and restrictions applicable to all
Dutch employees of the Company
10. Pension
There are no pension contributions by the company to Mr. van
Nieuwenhuyzen in his position.
11. Non-competition
Mr. van Nieuwenhuyzen will during a period of one year after
termination of his employment abstain by way of employment or otherwise
of exercising any activity, which may be considered to be competitive
with that, activity carried out by Harbinger Corporation and/or an
affiliated company. The restriction shall be valid in Europe and
Africa.
The Company may give permission in writing to allow Mr. van
Nieuwenhuyzen to not be bound by some or all of the terms of this
provision.
12. Severance Payment
In case of termination of this contract by the Company without cause,
the company will continue salary payments to the employee for a minimum
of three months after termination or one month per year, whichever is
greater.
13. Inventions
The Company must immediately be informed of all inventions (patentable
or not) made by the employee during his employment with the Company and
the three years thereafter, independently or in connection with others,
having any connection with the Company activities. All such invention
becomes
FORM 10-Q
PAGE 28
<PAGE> 6
unconditional property of the Company. The duty of maintaining secrecy
as described in Article 7 also applies in such cases.
All designs, drawings, memoranda, notes, brochures and similar
documents containing information concerning such inventions, or other
confidential, financial or business information will be returned by the
employee to the Company upon request.
As far as it is necessary, the employee will cooperate with
establishment of industrial property rights over the inventions as
described in this article and make over such rights to the Company.
14. Amendments
Amendments to this contract of employment can only be agreed upon in
written form.
15. Applicable Law
This Agreement will be governed by and shall be construed in accordance
with the laws of The Netherlands. All conflicts shall be submitted to
the competent court in The Netherlands. This Agreement cancels and
replaces all past Agreements, understandings and all letters or
documents exchanged between the parties, prior to the date of this
Agreement.
HARBINGER CORPORATION MR. VAN NIEUWENHUYZEN
/s/ David Leach /s/ Willem van Nieuwenhuyzen
- ---------------------- ----------------------------
By: The Employee
FORM 10-Q
PAGE 29
<PAGE> 1
EXHIBIT 99B
LETTER OF CREDIT
FORM 10-Q
PAGE 30
<PAGE> 2
ISSUING BANK: ISSUE DATE: OCTOBER 10, 1997
NATIONSBANK, N.A. EXPIRATION DATE: APRIL 13, 1999
AMOUNT: U.S. $2,750,000.00
IRREVOCABLE STANDBY LETTER OF CREDIT NO. 931659
BENEFICIARY:
1277 LENOX PARK BOULEVARD, LLC
ATTN: MR. CHARLES R. BROWN, PRESIDENT
SUITE 100
1055 LENOX PARK BOULEVARD, NE
ATLANTA, GA 30319
RE: IRREVOCABLE LETTER OF CREDIT NO. 931659
FOR U.S. $2,750,000.00
LADIES AND GENTLEMEN:
WE HEREBY ISSUE OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. 931659, IN FAVOR OF
1277 LENOX PARK BOULEVARD, LLC, A GEORGIA LIMITED LIABILITY COMPANY ("1277LLC"),
FOR THE ACCOUNT OF HARBINGER CORPORATION, A GEORGIA CORPORATION ("CUSTOMER").
WE UNDERTAKE TO HONOR FROM TIME TO TIME YOUR DRAFT OR DRAFTS AT SIGHT DRAWN ON
NATIONSBANK, N.A., NOT EXCEEDING THE TOTAL AGGREGATE AMOUNT U.S.$2,750,000.00,
(TWO MILLION SEVEN HUNDRED FIFTY AND 00/100 U.S. DOLLARS).
ANY DRAFT DRAWN UNDER THIS CREDIT MUST BE MARKED, "DRAWN UNDER IRREVOCABLE
STANDBY LETTER OF CREDIT NO. 931659, ISSUED BY NATIONSBANK, N.A." AND MUST BE
ACCOMPANIED BY A "CERTIFICATE" PURPORTEDLY EXECUTED BY AN AUTHORIZED SIGNER FOR
THE BENEFICIARY STATING THAT:
"THE COMMENCEMENT DATE HAS OCCURRED UNDER THE TERMS OF THAT CERTAIN
LEASE DATED OCTOBER 10, 1997, BY AND BETWEEN 1277LLC, AND CUSTOMER (THE
"LEASE") AND THE CUSTOMER IS IN DEFAULT UNDER THE TERMS OF THE LEASE."
PARTIAL DRAWINGS ARE PERMITTED.
IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT SHALL BE AUTOMATICALLY
DECREASED WITHOUT AMENDMENT IN ACCORDANCE WITH THE FOLLOWING SCHEDULE AS SET
FORTH AND CONTINUED AS FOLLOWS LESS ANY AMOUNT PREVIOUSLY DRAWN:
<TABLE>
<CAPTION>
DATE OF DECREASE AMOUNT OF DECREASE NEW AGGREGATE BALANCE
<S> <C> <C>
AUGUST 1, 1998 $521,472.00 $2,228,528.00
</TABLE>
NATIONSBANK, N.A.
IRREVOCABLE STANDBY LETTER OF CREDIT NO. 931659
ISSUE DATE: OCTOBER 10, 1997
PAGE NO. 1
FORM 10-Q
PAGE 31
<PAGE> 3
<TABLE>
<S> <C> <C>
NOVEMBER 1, 1998 521,472.00 1,707,056.00
FEBRUARY 1, 1999 521,472.00 1,185,584.00
</TABLE>
BUT IN NO EVENT WILL THE TOTAL DRAWS ALLOWED UNDER THIS LETTER OF CREDIT EXCEED
THE AMOUNT OF U.S. $2,750,000.00.
THIS LETTER OF CREDIT MAY BE TRANSFERRED IN FULL BY THE ISSUING BANK PROVIDED
THAT YOU DELIVER TO US OUR WRITTEN FULL TRANSFER FORM H-4 (H-4 ATTACHED OR TO
FOLLOW BY MAIL). THE ORIGINAL LETTER OF CREDIT TOGETHER WITH ALL ORIGINAL
AMENDMENTS (IF ANY) MUST BE RETURNED TO US WITH THE COMPLETED TRANSFER FORM AND
PAYMENT OF OUR CUSTOMARY CHARGE(S).
ANY NOTICE TO 1277LLC IN CONNECTION WITH THIS LETTER OF CREDIT SHALL BE IN
WRITING AND SHALL BE DELIVERED IN HAND WITH RECEIPT ACKNOWLEDGED, BY COURIER
SERVICE OR CERTIFIED MAIL (RETURN RECEIPT REQUESTED), TO 1277 LENOX PARK
BOULEVARD, LLC C/O TECHPOLE, INC., MANAGER, ATTN: MR. CHARLES R. BROWN,
PRESIDENT, SUITE 100, 1055 LENOX PARK BOULEVARD, NE, ATLANTA, GEORGIA 30319, (OR
TO SUCH OTHER ADDRESS AS THIS LETTER OF CREDIT MAY BE AMENDED).
WE AGREE THAT WE SHALL HAVE NO DUTY OR RIGHT TO INQUIRE AS TO THE BASIS UPON
WHICH 1277LLC HAS DETERMINED TO PRESENT TO US ANY DRAFT UNDER THIS LETTER OF
CREDIT.
THIS LETTER OF CREDIT IS SUBJECT TO THE 1993 REVISION OF THE UNIFORM CUSTOMS AND
PRACTICE FOR DOCUMENTARY CREDITS OF THE INTERNATIONAL CHAMBER OF COMMERCE
(PUBLICATION NO. 500).
WE HEREBY ENGAGE WITH YOU THAT ANY DRAFT DRAWN UNDER AND IN COMPLIANCE WITH THE
TERMS OF THIS CREDIT, WILL BE DULY HONORED ON PRESENTATION TO US AT OUR STANDBY
LETTER OF CREDIT DEPT., 901 MAIN ST. 9TH FL, DALLAS, TEXAS 75202, ON OR BEFORE,
APRIL 13, 1999, THE EXPIRATION DATE.
VERY TRULY YOURS,
NATIONSBANK, N.A.
/s/ Michael S. Paulson, VP
- ------------------------------
AUTHORIZED SIGNATURE
NATIONSBANK, N.A.
IRREVOCABLE STANDBY LETTER OF CREDIT NO. 931659
ISSUE DATE: OCTOBER 10, 1997
PAGE NO. 2
FORM 10-Q
PAGE 32
<PAGE> 1
EXHIBIT 99C
BUILDING LEASE AGREEMENT
FORM 10-Q
PAGE 33
<PAGE> 2
LEASE
THIS LEASE, made this 10th day of October, 1997 by and between 1277
LENOX PARK BOULEVARD, LLC, a Georgia limited liability company (herein called
"Lessor"), having an office at c/o Lenox Park Associates, Suite 100, 1055 Lenox
Park Boulevard, Atlanta, Georgia 30319, and HARBINGER CORPORATION, a Georgia
corporation (herein called "Lessee") having an office at Suite 340, 1055 Lenox
Park Boulevard, Atlanta, Georgia 30319;
W I T N E S S E T H: THAT,
WHEREAS, Lessor is the owner of that certain office building which is
currently under construction and situated at 1277 Lenox Park Boulevard, Atlanta,
DeKalb County, Georgia (herein called the "Building"), as more particularly
described in the Project Plans (as hereinafter defined) and located on the
property (herein called the "Land"; the Land and the Building are herein
collectively called the "Property") depicted and described on EXHIBIT "A",
attached hereto and by this reference incorporated herein and made a part
hereof; and
WHEREAS, the Land comprises a portion of a larger tract of land
originally containing approximately 164.3153 acres located in DeKalb and Fulton
Counties, Georgia and described on EXHIBIT "A-1", attached hereto and by this
reference incorporated herein and made a part hereof (herein called "Lenox
Park"); and
WHEREAS, Lessee wishes to lease from Lessor approximately 88,060
rentable square feet in the aggregate located in the first, fifth, sixth and
seventh floors in the Building, which areas are outlined on the diagrams marked
EXHIBIT "B", attached hereto and by this reference incorporated herein and made
a part hereof and which areas will be more particularly depicted in the working
drawings to be approved by Lessor and Lessee in accordance with Section 10.2
hereof (herein called the "Premises");
NOW, THEREFORE, in consideration of the payment of the rent and the
keeping and performance of the covenants and agreements by Lessee as hereinafter
set forth, Lessor does hereby lease to Lessee, and Lessee does hereby lease from
Lessor, the Premises. Lessor grants to Lessee the non-exclusive privilege to use
and enjoy the common areas of the Property and Lenox Park, subject to the terms
of this Lease, the protective covenants referenced in Section 26 hereof, any
rules and regulations made applicable to the Building or Lenox Park. No easement
for light or air is included in the Premises.
FOR AND IN CONSIDERATION of the leasing of the Premises as aforesaid,
the parties hereby covenant and agree as follows:
1. TERM. Subject to Section 22 hereof, the term (herein called
the "Original Lease Term") of this Lease shall commence on that date which is
four (4) weeks after Lessor's notice of substantial completion of the Premises,
as defined in Section 10.2 of this Lease (herein called the "Commencement Date")
and, unless sooner terminated pursuant to the provisions hereof, shall expire at
11:59 p.m. on the date that is ten (10) years after the Commencement Date (such
Original Lease Term as may be extended is herein called the "Lease Term");
provided, however, that except as otherwise provided in this Lease, Lessee shall
have no responsibility whatsoever with regard to the Premises and shall have no
obligations hereunder, prior to the date on which Lessor completes the work
described in Section 10.2 hereof and delivers possession of the Premises to
Lessee in a broom clean condition and free of all tenants and occupants with all
plumbing, heating, electrical and air conditioning systems in working order.
FORM 10-Q
PAGE 34
<PAGE> 3
2. RENT.
2.1 Subject to Lessee's obligations to pay the Additional Step
Rental as hereinafter provided and subject to Lessee's obligation to pay
Lessee's Proportionate Share of Operating Expenses, the annual base rental
(herein called "Annual Base Rental") for the Premises shall be as follows, and
shall be payable in equal monthly installments (herein called "Base Rent")
payable in advance on the first day of each and every calendar month during the
Lease Term commencing on the Commencement Date:
$24.00 per rentable square feet (the "Initial Rental Rate")
Annual Base Rental of $2,113.440.00
Monthly Base Rent of $176,120.00
The term "Year" as used in this Section 2.1 to designate the time period to
which each Annual Base Rental applies shall mean the twelve (12) month period
from the date that such Year commences to the date that is twelve (12) months
thereafter, with Year 1 commencing on the Commencement Date and each successive
Year commencing on the anniversary of the Commencement Date. Base Rent shall be
prorated at the rate of 1/30th of the Base Rent per day for any partial month.
In addition to the Annual Base Rental, Lessee shall also pay an additional
annual rental for the Premises equal to the Additional Step Rental (as
hereinafter defined), payable in equal monthly installments and in advance on
the first day of each and every calendar month during the Lease Term beginning
on the first (1st) day of the third (3rd) year of the Lease Term as follows:
The Additional Step Rental for the third and fourth Year shall equal
the product of 2.5% multiplied times the difference between (x) the
Annual Base Rental less (y) Lessee's Proportionate Share of the
Operating Expenses for the Base Year (such difference is herein called
the "Net Rental Amount").
The Additional Step Rental for the fifth Year shall equal the sum of
(x) the Additional Step Rental for the fourth Year plus (y) the product
of 2.5% multiplied times the sum of (i) the Additional Step Rental for
the fourth Year plus (ii) the Net Rental Amount.
The Additional Step Rental for the sixth Year shall equal the sum of
(x) the Additional Step Rental for the fifth Year plus (y) product of
2.5% multiplied times the sum of (i) the Additional Step Rental for the
fifth Year plus (ii) the Net Rental Amount.
The Additional Step Rental for the seventh Year shall equal the sum of
(x) the Additional Step Rental for the sixth Year plus (y) the product
of 2.5% multiplied times the sum of (i) the Additional Step Rental for
the sixth Year plus (ii) the Net Rental Amount.
The Additional Step Rental for the eighth Year shall equal the sum of
(x) the Additional Step Rental for the seventh Year plus (y) the
product of 2.5% multiplied times the sum of (i) the Additional Step
Rental for the seventh Year plus (ii) the Net Rental Amount.
The Additional Step Rental for the ninth Year shall equal the sum of
(x) the Additional Step Rental for the eighth Year plus (y) the product
of 2.5% multiplied times the sum of (i) the Additional Step Rental for
the eighth Year plus (ii) the Net Rental Amount.
The Additional Step Rental for the tenth Year shall equal the sum of
(x) the Additional Step Rental for the ninth Year plus (y) the product
of 2.5% multiplied times the sum of (i) the Additional Step Rental for
the ninth Year plus (ii) the Net Rental Amount.
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By way of example and for the avoidance of doubt, if the Annual Base Rental for
Lease Year 3 were $2,113,440.00 (i.e., $24.00 x 88,060 rentable square feet) and
Lessee's Proportionate Share of Operating Expenses for the Base Year were
$625,226.00 (i.e., $7.10 x 88,060 rental square feet), then the Additional Step
Rental for Years 3 and 4 would equal $37,205.35 for each such Year (i.e.,
$2,113,440.00 - $625,226.00 = $1,488,214.00 x 2.5% = $37,205.35)); the
Additional Step Rental for Year 5 would equal $75,340.84 (i.e.,$37,205.35 +
(2.5% x ($37,205.35 + $2,113,440.00 - $625,226.00); and the Additional Step
Rental for Year 6 would equal $114,429.71 (i.e., $75,340.84 + (2.5% x
($75,340.84 + $2,113,440.00 - $625,226.00)).
2.2 Lessee shall pay the rent and all other sums, amounts,
liabilities, and obligations which Lessee herein assumes or agrees to pay
(whether designated Annual Base Rental, Base Rent, Additional Step Rental,
additional rent, costs, expenses, damages, losses, or otherwise) (all of which
are hereinafter called "Amount Due") as herein provided promptly at the times
and in the manner herein specified without deduction, set off, abatement,
counterclaim, or defense, except for any claims based upon Lessor's unauthorized
draw on the Letter of Credit. If any Amount Due is not received by Lessor within
five (5) days after the date on which it is due, Lessee shall pay Lessor a late
charge equal to five percent (5%) of the amount of such past due payment,
notwithstanding the date on which such payment is actually paid to Lessor. If
such Amount Due is not paid within thirty (30) days of the date on which it was
originally due, then, in addition to such late charge, Lessee shall pay Lessor
interest on such Amount Due from the date on which it was originally due until
the date it is actually paid at a rate per annum equal to the lesser of (i) the
prime rate of interest announced by Wachovia Bank, N.A., or its successors, from
time to time (herein called the "Prime Rate") plus two percent (2%) or (ii) the
maximum rate permitted by applicable law. Any such late charge and interest
shall be due and payable at the time of actual payment of the Amount Due. Any
Amount Due payable to Lessor by Lessee shall be paid in cash or by check at the
office of Lessor, c/o Lenox Park Associates, Suite 100, 1055 Lenox Park
Boulevard, Atlanta, Georgia 30319, or at such other place or places as Lessor
may from time to time designate in writing.
2.3 The Annual Base Rental amount set forth in Section 2.1
hereof is based upon Lessor's architect's calculation of 80,054.3 usable square
feet of space in the Premises (herein called the "Calculation"), with rentable
square footage being as calculated in accordance with Exhibit "B", and totaling
88,060. Lessee shall have the right to object to the Calculation of useable
square feet actually contained within the Premises as depicted by the shaded
area on Exhibit "B" by delivering written notice to Lessor within ten (10) days
after the Commencement Date, failing which Lessee shall be deemed to have agreed
the Calculation is correct. If Lessee objects to the Calculation within said ten
(10) day period, Lessor and Lessee shall work together to confirm and adjust the
actual useable square feet in the Premises, and after the useable square feet of
the Premises has finally been determined, the rentable square feet within the
Premises shall be determined by applying the factor set forth on Exhibit "B" and
Lessor and Lessee shall execute a certificate stipulating and agreeing to the
same and the Annual Base Rental shall be adjusted accordingly. The rentable
square feet of the Premises and the Annual Base Rental as so agreed to between
Lessor and Lessee shall replace the square footage of rentable area of the
Premises and the Annual Base Rental set forth above and shall be deemed to be
the net rentable area of the Premises and the Annual Base Rental for all
purposes under this Lease. All payments of Annual Base Rental and all other
payments of rent and other sums of money required of Lessee herein shall be made
as and when required herein, notwithstanding any unresolved objections to the
Calculation. All such payments shall be based upon the Calculation prepared by
Lessor's architect until such objections have been finally resolved, whereupon
any overpayment or any underpayment theretofore made shall be adjusted by
increasing or reducing, as the case may be, the next installment of Base Rent
coming due. Notwithstanding the foregoing in this Section 2.3, in the event that
there is any inconsistency between Exhibit "B" and the Premises Plans or the
Project Plans, then the calculations completed in accordance with Exhibit "B"
shall control.
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3. OPERATING EXPENSES.
3.1 Beginning on the first day of January, 1999 and on the
first day of each January thereafter during the Lease Term, Lessee shall pay to
Lessor as additional rent Lessee's Proportionate Share (as hereinafter defined)
of Common Operating Expenses (as hereinafter defined) in excess of Lessee's
Proportionate Share of Common Operating Expenses for the calendar year 1998
(herein called the "Base Year"). The Common Operating Expenses for the Base Year
shall be estimated and calculated as accurately as possible as provided herein
and shall be equitably adjusted so that such operating expenses are grossed up
to reflect a full year of operation of the Building due to the Base Year not
being a full year of operation for the Building. The Common Operating Expenses
for the Base Year shall be further adjusted to reflect monthly totals which
would have been measured assuming that Lessee had occupied and been fully
operational in 100% of the Premises as of the Commencement Date; in determining
such monthly totals, Lessor shall give greatest weight to those months when
Lessee physically occupied 100% of the Premises. Lessee shall also pay as
additional rent all other charges, costs and expenses which are not included
within Common Operating Expenses or Building services if such services are to be
provided by Lessor under the terms hereof and which other charges, costs or
expenses are incurred by Lessor at the request of Lessee as a result of any use
of the Premises by Lessee, excluding any repairs or replacements to be made to
the Premises by Lessor and at Lessor's expense in accordance with Section 14
hereof and excluding any work to be performed by Lessor and at Lessor's expense
in accordance with Section 10 hereof. Lessee's Proportionate Share of Common
Operating Expenses shall be prorated as necessary for any calendar year during
which this Lease is in effect for less than the full twelve month calendar year.
Common Operating Expenses shall be calculated on an accrual basis.
3.2 "Lessee's Proportionate Share of Common Operating
Expenses" shall mean, for each calendar year (or portion thereof), the Operating
Expense Amount (defined below) multiplied times the number of rentable square
feet within the Premises. As used herein, "Operating Expense Amount" shall mean
an amount equal to: the amount of Common Operating Expenses for such year
divided by the greater of (i) 95% of the number of square feet of net rentable
area in all space leased or held for lease in the Building, or (ii) the total
net rentable area leased in the Building.
3.3 For purposes of this Lease, the term "Common Operating
Expenses" shall mean all costs and expenses of every kind, both fixed and
variable and including, without limitation, any and all federal, state and local
taxes and assessments (except income taxes, franchise taxes, inheritance taxes,
estate taxes, gift taxes, transfer taxes, excess profit taxes and any taxes
imposed in lieu of such taxes), all common area assessments under the protective
covenants referenced in Section 26 hereof, all management fees paid by the
Lessor or to the manager of the Building, expenses, costs, disbursements, and
any other fees or assessments which fees and assessments are charged or levied
by entities other than Lessor, as computed on an accrual basis, now or hereafter
existing, as are actually incurred by Lessor (without increase for profit or
overhead) with respect to the ownership, management, operation or maintenance of
the Building, any "Parking Facility" (defined to mean any parking structure
located adjacent to the Building, together with any connecting walkways, covered
walkways, or other means of access to said Building, the grounds related thereto
and any additional improvements at any time related thereto), the Land, any land
relating to the Parking Facility and any additional facilities now or hereafter
specifically relating to the Building or the Parking Facility (the Building, the
Parking Facility and such land and additional facilities being herein
collectively called the "Project"), and all appurtenances, the Project's share,
as determined in accordance with the Protective Covenants referenced in Section
26 of this Lease, of the landscape, maintenance and operating cost of the tracts
of land within Lenox Park now designated as common area or areas for the benefit
of the occupants of the Project and the other projects to be located within
Lenox Park (and with respect to any areas designated as common areas in the
future, the increases in such costs occurring after the first full twelve (12)
month period of designation and operation of such common areas) only to the
extent not included as other assessments specified above, all to be calculated
in accordance with generally accepted accounting principles and sound management
and accounting practices, consistently applied in each case, applicable to
first-class office buildings in Atlanta, Georgia. In addition, in the event the
Building is not assessed by the taxing authorities as a fully completed building
as of the Commencement Date, the taxes and assessments portion of the Common
Operating Expenses for the Base Year
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shall be estimated as if such full assessment had been made assuming a 95%
occupancy of the Building. In the event any of the above enumerated Common
Operating Expenses are incurred by Lessor as a joint or combined expense for any
other buildings in Lenox Park, including, without limitation, taxes and
assessments, driveways and other common areas of such other buildings in Lenox
Park, the portion of such expenses allocable to the Building shall be limited to
the Building's pro rata share of such expenses which shall be equal to the
product of a fraction having as its numerator the total rentable square feet of
the Building and having as its denominator the total rentable square feet of the
Building and such other buildings in Lenox Park, if any, multiplied by such
expenses.
3.4 Nothing contained in this Section 3, including, but not
limited to, the definition of "Common Operating Expenses" contained in Section
3.3 hereof, shall imply any duty on the part of Lessor to pay any expense or
provide any service not expressly required under the terms of this Lease or by
applicable governmental requirements.
3.5 Prior to December 31, 1998 and prior to December 31 of
each subsequent calendar year during the Lease Term, Lessor shall estimate the
amount of Common Operating Expenses and Lessee's Proportionate Share of Common
Operating Expenses for the ensuing calendar year or (if applicable) portion
thereof and notify Lessee in writing of such estimate. Such estimate shall be
made by Lessor in the exercise of its sole discretion and shall not be subject
to dispute by Lessee or arbitration. The amount of additional rent specified in
such notification shall be paid by Lessee to Lessor in equal monthly
installments in advance on the first day of each month of such ensuing calendar
year, at the same time and in the same manner as Base Rent.
3.6 Within ninety (90) days after December 31 of any calendar
year during the Lease Term for which additional rent is due under this Section
3, Lessor shall advise Lessee in writing ("Common Operating Expense Notice") of
the amount of actual Common Operating Expenses for such calendar year. If the
Common Operating Expenses for such calendar year prove to be greater than the
amount previously estimated, Lessor shall invoice Lessee for the deficiency as
soon as practicable after the amount of underpayment has been determined, and
Lessee shall pay such deficiency to Lessor within thirty (30) days following its
receipt of such invoice. If, however, Common Operating Expenses for such
calendar year are lower than the amount previously estimated, Lessee shall
receive a credit toward the next ensuing monthly payment or payments of the
estimated amount of Lessee's Proportionate Share of Common Operating Expenses in
the amount of such overpayment until depleted, but in no event shall Lessee's
Proportionate Share of Common Operating Expenses be deemed to be less than zero;
provided, however, that in the event of the expiration or other termination of
this Lease (other than a termination resulting from a Lessee default), Lessee
shall be refunded such overpayment as soon as practicable after the amount of
overpayment has been determined.
3.7 Once a year during the period being one hundred eighty
(180) days after a Common Operating Expense Notice, Lessee may, upon ten (10)
days' prior written notice to Lessor, at Lessee's expense and at any reasonable
time, audit the books and supporting documentation of Lessor pertaining
exclusively to the calculation of Common Operating Expenses for the period
affected by such notice. If Lessee disputes the amount of additional rent due
pursuant to Sections 3.5 and 3.6 hereof, Lessee may institute arbitration
proceedings and such dispute shall be settled by arbitration in the City of
Atlanta, Georgia, by a panel of three members in accordance with the rules then
in effect of the American Arbitration Association; provided, however, that
Lessee shall immediately pay any disputed amount to Lessor, and if the
arbitrators find that Lessee has paid more than the Lessee's Proportionate Share
of Common Operating Expenses for the previous calendar year, Lessor shall
immediately pay such amounts to Lessee together with interest at an amount equal
to the Prime Rate plus two percent (2%) per annum of such amounts accruing from
the date of Lessee's payment of such amounts to Lessor to the date of Lessor's
repayment of such amounts to Lessee. If the arbitrators find that Common
Operating Expenses for any calendar year period have been overstated by Lessor
by more than 5%, Lessor shall pay all costs of Lessee in performing such audit.
The decision of the arbitrators acting hereunder shall be binding and conclusive
upon the parties. Lessor and Lessee shall each pay one-half of the cost of such
arbitration; provided, however, that if the
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arbitrators determine that the arbitration proceedings were not instituted in
good faith by Lessee, Lessee shall pay the full cost thereof.
3.8 Except for the charges, costs and expenses incurred by
Lessor as a result of any use of the Premises by Lessee, as provided in Section
3.1 hereof, the Common Operating Expenses shall not include the following:
3.8.1 Leasing commissions, tenant improvements and
related costs and the costs of legal and other professional fees incurred in
preparing, negotiating and executing leases or in resolving any disputes with
other tenants of the Building;
3.8.2 Costs of electrical energy furnished and
metered directly to and paid by other tenants of the Building;
3.8.3 Costs of any special work or services
performed by or at the request of any tenant;
3.8.4 Depreciation, amortization and other non-cash
items;
3.8.5 Capital expenditures, as determined under
generally accepted accounting principles;
3.8.6 Financing and debt service costs and fees;
3.8.7 Advertising and promotional costs;
3.8.8 Costs of repair or replacement incurred by
fire or other casualty or caused by the exercise of a right of eminent domain;
3.8.9 Any item of cost which any tenant is required
to pay pursuant to any other provision of its lease.
3.8.10 All legal and accounting fees and other
expenses related to the sale or financing of the Building or any other part of
Lenox Park.
4. SECURITY. Lessor and Lessee agree that, subject to subsection
43.3, the amount of the initial security deposit to be held as security for the
performance by Lessee of Lessee's covenants and obligations under the Lease is
TWO MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($2,750,000.00). The
obligation to post such Security Deposit shall be satisfied by Lessee's
delivering to Lessor, contemporaneously with the execution of this Lease, an
irrevocable and unconditional standby letter of credit (the "Original Letter of
Credit"), in the amount of the initial Security Deposit, issued for the benefit
of Lessor (such Original Letter of Credit and any substituted or replacement
letter of credit issued in accordance with this Lease are hereinafter
collectively referred to as the "Letter of Credit"; the Letter of Credit, the
proceeds thereof and any other monies paid hereunder are hereinafter
collectively referred to as the "Security Deposit"), shall have an initial
expiration date not earlier than April 13, 1999, shall be issued by NationsBank
of Georgia, N.A. or another national or commercial bank as may be approved by
Lessor in writing, shall be assignable by Lessor concurrently with an assignment
by Lessor of this Lease and the assumption of Lessor's obligations hereunder by
the assignee.
Subject to the immediately following sentence and subsection
43.3, if Lessee is not in default under this Lease or Lessor has not drawn on
the Letter of Credit, then the amount of the Letter of Credit shall be reduced
(the "Reduced Security Deposit") on a quarterly basis by an amount equal to the
Base Rent received by
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Lessor for such period subsequent to the last reduction in the amount of the
Letter of Credit, as set forth in the schedule attached hereto as Exhibit "F",
and by this reference made a part hereof and incorporated herein, until the face
amount of the Letter of Credit equals an amount equal to THREE HUNDRED FIFTY
THOUSAND AND NO/100 DOLLARS ($350,000.00). Notwithstanding anything contained in
the previous sentence, but subject to 43.3, under no circumstances shall the
amount of the Letter of Credit be reduced below an amount equal to $350,000.00
by virtue of the reduction formula set forth in this paragraph, and when reduced
to such amount, the Security Deposit shall thereafter during the balance of the
Lease Term be $350,000. In the event the Commencement Date does not occur on or
before May 1, 1998, then Lessee shall deliver to Lessor an amendment to the
Letter of Credit extending the August 1, 1998 date set forth on Exhibit "F" to a
date which is the first day of the fourth full calendar month after the
Commencement Date the ("Initial Reduction Date") and extending the other dates
set forth on Exhibit "F" to the 1st day of the third and sixth calendar month,
respectively, after the month in which the Initial Reduction Date occurs.
Subject to the immediately following paragraph and not less
than thirty (30) days prior to the expiration of the Original Letter of Credit
and each year thereafter, Lessee shall deliver to Lessor a substituted or
replacement letter of credit issued for the benefit of Lessor in an amount equal
to the Reduced Security Deposit and with an expiration date not earlier than 365
days from issuance, and in the same form and content as the Original Letter of
Credit. Lessor may draw on the Letter of Credit in the event that, among other
things, Lessee fails to deliver to Lessor such substituted or replacement Letter
of Credit in the time and manner required by this Section. Upon delivery of a
replacement Letter of Credit, Lessor shall return the existing Letter of Credit
to Lessee.
From and after the Commencement Date, if Lessee (i) fails at
any time to pay any Amount Due when due (after expiration of any applicable
grace, notice or cure periods), or (ii) breaches any material covenant or
obligation of this Lease and such breach continues beyond any applicable cure
period, then Lessor may, but shall be under no obligation to, from time to time
and without prejudice to any other rights or remedies, draw upon such Letter of
Credit (in its entirety or in partial drawings from time to time) and use all or
a portion of the resulting monies to the extent necessary to pay any such Amount
Due, to cure any such breach or to compensate Lessor for its damages incurred by
reason of such breach. Notwithstanding the face amount of the Letter of Credit,
the maximum amount that Lessor may draw on the Letter of Credit is an amount
equal to the Reduced Security Deposit at the time of such default.
In the event that Lessor applies the Security Deposit or a
portion thereof as provided in this Section, Lessee shall immediately upon
notice from Lessor of such application pay the amount so applied to Lessor, it
being the intent of the parties that the Security Deposit to be held by Lessor
always be in the amount stated herein. It is expressly understood and agreed,
however, that the Security Deposit shall not be considered an advance payment of
rent or a measure of Lessor's damages in the event of a default by Lessee. Upon
Lessee's vacation of the Premises upon the expiration or other termination of
the Lease, and provided that Lessee is not then in default under the Lease, the
Security Deposit shall be returned by Lessor to Lessee without interest.
On May 1, 1998 and on every May 1 thereafter during the term
of this Lease, Lessee shall deliver to Lessor Lessee's most recent annual,
audited financial statements and any other financial materials and information
reasonably requested by Lessor; provided, however, that if Lessee's financial
information is available from the Securities and Exchange Commission or
otherwise publicly available, then Lessor shall obtain all such Lessor-required
financial information with respect to Lessee in satisfaction of this paragraph
from such other sources.
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5. USE.
5.1 Lessee (and its permitted assignees and subtenants) shall
use the Premises only for general office use, not in violation of the
restrictive covenants hereinafter referred to, and for no other purpose without
the prior written consent of Lessor. Lessee, its successors and assigns shall
not use the Premises at any time for the operation of a retail travel related
business or travel agency. Lessee shall operate its business in the Premises
during the entire Lease Term in a reputable manner in compliance with all
applicable laws, ordinances, regulations, covenants, restrictions, and other
matters shown on the public records, now in force or hereafter enacted. Lessee
will not permit, create, or maintain any disorderly conduct, trespass, noise, or
nuisance whatsoever about the Premises which has a tendency to annoy or disturb
any persons occupying adjacent premises either within or without the Building.
5.2 Lessee shall not place or maintain machines, equipment, or
other apparatus which causes vibrations or noise that may be transmitted to the
Building structure or to any space to such a degree as to be objectionable to
Lessor or to any tenant, occupant, or other person in the Building. Neither
Lessee nor any of Lessee's employees, agents or invitees shall place or maintain
within the Premises any stoves or ovens, except that Lessee may maintain one (1)
microwave oven per 7,500 rentable square feet of the Premises so long as such
microwave ovens use standard 110V electrical service and subject to Section 6.2,
Lessee may maintain space heaters in the Premises so long as Lessee conforms
strictly to all applicable governmental requirements, including, without
limitation, fire codes or ordinances, in its use or placement of such space
heaters. Lessee shall not make or permit any odor that is objectionable to the
public or to other occupants of the Building, to emanate from the Premises, and
shall not create, permit, or maintain a nuisance thereon, and shall not do any
act tending to injure the reputation of the Building.
5.3 Lessee shall cause all loading and unloading of any goods
or materials delivered to or sent from the Premises to be done only in the
loading dock area of the Premises or, if no loading dock area is located at the
Premises, then at the loading dock area of the Building or such other dock area
as Lessor may designate. Under no circumstances shall Lessee allow any goods or
materials delivered to or sent from the Premises to be stored on, accumulate on
or obstruct the loading dock area, dumpster pad, sidewalks, driveways, parking
areas, entrances or other public areas or spaces of the Building or the
Property. Lessee acknowledges that violations of this Section 5.3 shall
constitute a material breach of this Lease.
5.4 Lessee shall not perform or permit any work, including,
but not limited to, assembly, construction, mechanical work, painting, drying,
layout, cleaning, or repair of goods or materials, to be done on the loading
dock, sidewalks, driveways, parking areas, landscaped areas of the Building or
the Property.
5.5 Lessee shall not use, handle, store, deal in, discharge,
or fabricate any environmentally hazardous wastes, substances or materials as
the same are now or hereafter may be defined or classified by any local, state,
or federal environmental protection legislation or regulation issued pursuant
thereto.
5.6 Lessee shall not abandon or vacate any space located on
the first floor of the Building and reasonably visible from the lobby area of
the Building at any time during the Lease Term.
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6. UTILITIES AND SERVICE.
6.1 Except to the extent directly contracted for by Lessee,
Lessor shall furnish or cause to be furnished to the Premises between 7:00 a.m.
and 6:00 p.m. Monday through Friday and between 8:00 a.m. and 1:00 p.m. on
Saturdays, exclusive of all holidays, subject to any rules and regulations of
the Building, water and sewer services suitable for Lessee's intended use of the
Premises, electricity as set forth in Section 6.2 hereof, and heat and air
conditioning required in Lessor's reasonable judgment for the comfortable use
and occupation of the Premises. Lessor shall furnish to the Premises, subject to
any rules and regulations of the Building and governmental laws, rules or
regulations, hot and cold domestic water and electricity normally required for
the lighting of the Premises and Lessee's use of the Premises as an office, on a
seven (7) day per week, twenty-four (24) hour per day basis. After hours heating
and air conditioning shall be available to Lessee at the then customary cost,
which is as of the date hereof THIRTY-FIVE AND NO/100 DOLLARS ($35.00) per hour
per floor of the Building leased, and which is subject to increase. As used in
this Section 6.1, the term "holiday" shall mean the following holidays: New
Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Lessor shall provide lighting facilities for the common entries,
common hallways, common stairways, and common restroom facilities in the
Building and the Parking Facility. Lessee will install and pay for its own
telephone service.
6.2 Lessor, at Lessor's sole cost and expense, shall cause to
be furnished to the Premises sufficient power for building standard fluorescent
lighting, personal computers, normal office copying machines, typewriters, voice
writers, calculating machines, and other normal office machines of similar low
electrical consumption; but not including electricity required for electronic
data processing equipment or special lighting; provided, however that
notwithstanding the foregoing, the electrical service supplied by Lessor and
available for use by the Lessee shall not exceed, in the aggregate, three (3)
watts per rentable square foot for ordinary lighting (277/480 volts) and three
(3) watts per rentable square foot for ordinary office power (120/208 volts).
Lessee shall not install or use any other equipment using electric power without
the prior written consent of Lessor, and, if Lessor gives written consent, then
Lessee shall pay the cost of the power to operate the equipment, as determined
by Lessor, and if the installation of such electrical equipment requires
additional air conditioning capacity above that provided by the building
standard system, then the additional air conditioning installation and operating
costs will be the obligation of Lessee.
6.3 Except as otherwise expressly provided in this Lease,
Lessor shall not be in default hereunder or be held liable for any damage or
injury suffered by Lessee or by any of Lessee's licensees, agents, invitees,
servants, employees, contractors, or subcontractors or any other person or
entity engaged, invited, or allowed with Lessee's, its agents' or employees'
knowledge, to come onto the Premises by Lessee (hereinafter collectively called
"Lessee Parties"), resulting directly, indirectly, proximately, or remotely from
the installation, use, or interruption of any utility service to the Premises or
Building, including, but not limited to, temporary failure to supply any
heating, air conditioning, electrical, water, or sewer services, or any of them.
No temporary failure to provide services shall relieve Lessee from fulfillment
of any covenant of this Lease, including, without limitation, the covenant to
pay any Amount Due in the manner and amounts, and promptly at the times set
forth herein. Lessor shall use reasonable efforts with due diligence to cause
such utility services to be restored as soon as reasonably possible.
6.4 Notwithstanding anything in Section 6.3 to the contrary,
in the event any heating, air conditioning, ventilation, electrical, elevator,
water or sewer services to the Premises are interrupted by any cause within
Lessor's reasonable control, such interruption materially adversely affects
Lessee's use and occupancy of the Premises and such interruption continues for
more than twenty (20) consecutive business days after written notice thereof
given by Lessee to Lessor, then Lessee shall be entitled to abate rent,
additional rent and all other charges (other than any Cancellation Fee) under
this Lease from said twentieth (20th) business day for each day that the failure
is within Lessor's reasonable control until such services are restored. This
Section 6.4 shall not apply in the event of casualty or condemnation covered by
Section 14 hereof.
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6.5 Lessor shall furnish Lessee janitorial service five (5)
days per week, exclusive of holidays, in a manner that Lessor reasonably deems
to be consistent with the first-class standard of the Building as determined by
the standards of other first class office buildings located in the metropolitan
Atlanta, Georgia area. Lessor shall clean exterior and interior windows of the
Premises in a manner that Lessor reasonably deems to be consistent with the
first-class standard of the Building as determined by the standards of other
first class office buildings located in the metropolitan Atlanta, Georgia area.
6.6 Lessor shall furnish to Lessee non-exclusive multiple cab
passenger elevator service to the Premises between 7:00 a.m. and 6:00 p.m.
Monday through Friday and between 8:00 a.m. and 1:00 p.m. on Saturdays,
exclusive of holidays, and at least one cab passenger elevator service to the
Premises 24 hours per day and, subject to any rules and regulations which Lessor
may establish pursuant to Section 18 hereof, non-exclusive freight elevator
service during Building operating hours (all subject to temporary cessation for
ordinary repair and maintenance and during times when life safety systems
override normal Building operating systems) which such freight elevator service
available at other times upon reasonable prior notice and the payment by Lessee
to Lessor of any additional expense actually incurred by Lessor in connection
therewith.
6.7 Lessor shall furnish Lessee with five hundred (500)
computerized access cards for the Building standard corridor doors entering the
Building; provided, however, that such obligation on the part of Lessor shall be
satisfied by Lessee retaining its existing cards for the Parkside Building that
is located near the Building, and Lessee supplying the remainder of cards
necessary for the total number of cards to reach five hundred (500). Additional
keys (or cards) will be furnished by Lessor upon an order signed by Lessee and
at Lessee's expense. All such keys (or cards) shall remain the property of
Lessor. No additional locks shall be allowed on any door of the Premises without
Lessor's permission, and Lessee shall not make or permit to be made any
duplicate keys, except those furnished by Lessor. Subject to Section 10.4,
Lessor shall permit Lessee to install, maintain and remove, at Lessee's sole
cost and expense, a separate card access system within the Premises, provided
that Lessee shall provide Lessor with means of access. Subject to Section 10.4
hereof, Lessor shall permit Lessee to install, maintain and remove, at Lessee's
sole cost and expense, a separate security access system for its network
computer room, which network computer room shall not exceed 10,000 rentable
square feet and shall include a fireproofing system of a type reasonably
acceptable to Lessor. Lessee shall be able to restrict access to such network
computer room from Lessor and any other persons Lessee chooses, so long as the
operation and existence of such a restricted area does not in any way expose
Lessor to increased liability or in any way affect the insurance coverage of the
Building or the Premises as provided in Section 9.2 hereof, in which case or
cases Lessee shall immediately discontinue the restriction of the network
computer room or provide Lessor with access to such network computer room. Upon
expiration or other termination of this Lease, Lessee shall surrender to Lessor
all keys (or cards) to any locks on doors entering or within the Premises, and
give to Lessor the explanation of the combination of all locks for safes, safe
cabinets and vault doors, if any, in the Premises.
6.8 Lessor acknowledges that Lessee's intended use of the
Premises requires the installation and operation of an uninterruptable power
supply system and backup power generator. At its sole cost and expense, Lessee
may install such machinery and systems within the Premises or the Project in
such locations as are approved by Lessor, which approval shall not be
unreasonably conditioned, delayed or withheld; provided, that Lessee shall pay
all costs and expenses relating to electricity or other utility charges in
accordance with Section 6.2 hereof, which result from Lessee's operation of such
machinery and systems. With respect to Lessee's back up generator system(s),
Lessee shall work in good faith with Lessor to minimize (i) the noise and
visibility of such system(s), (ii) unsightly conditions, and (iii) the loss of
parking spaces available (other than the loss of Lessee's allowed spaces).
7. MAINTENANCE.
7.1 Except for damage arising from acts or omissions of Lessee
or the Lessee Parties, Lessor shall keep in good order and repair the roof,
foundation, exterior walls and common areas of the Building and the
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Parking Facility, structural aspects of the interior walls, ceilings and floors
of the Premises and all sewer and utility lines of the Building, including all
sewer connections, plumbing, heating appliances, wiring, and glass in the
Building, and shall furnish Lessee all Building standard florescent bulb
replacement in all areas of the Premises and all incandescent bulb replacement
in the common areas of the service areas within the Building. Notwithstanding
anything to the contrary contained herein and except as otherwise provided in
the preceding sentence, Lessor shall have no obligation to maintain, replace, or
repair any other improvements located within the Premises, the maintenance of
which is and shall be the responsibility of Lessee.
7.2 Lessor shall have no obligation to make any repairs unless
and until Lessee notifies Lessor in writing of the necessity thereof, in which
event Lessor shall have reasonable time in which to make such repairs; however,
Lessee may notify Lessor verbally of any minor, routine or day-to-day repairs
which need to be made.
7.3 Subject to Lessor's obligation to provide janitorial
services, Lessee shall keep the Premises free from all litter, dirt, debris, and
obstructions and in a clean and sanitary condition. Except as otherwise provided
in the first sentence of Section 7.1 hereof, Lessee shall maintain, replace, and
repair all improvements located within the Premises, including, but not limited
to, finishes, wall coverings, carpets, floor coverings, utility lines, sewer
connections, plumbing, wiring and glass, which are or were installed for Lessee.
At the expiration or other termination of this Lease, Lessee shall surrender the
Premises (and keys thereto) in as good condition as when received, loss by fire
or other casualty not the result of any act or omission by Lessee, or ordinary
wear and tear only excepted.
8. FORCE MAJEURE. Subject to Section 22, in the event that either
party hereto shall be delayed or hindered in or prevented from the performance
of any act required hereunder by reason of strikes, lockouts, labor troubles,
inability to procure materials, failure of power, restrictive government laws or
regulations, riots, insurrection, war, or other reason of a like nature other
than finance not the fault of the party delayed in performing work or doing acts
required under the terms of this Lease, then performance of such act shall be
excused for the period of the delay and the period for the performance of any
such act shall be extended for a period equivalent to the period of the delay.
Subject to Section 22, the provisions of this Section 8 shall not cancel,
postpone, or delay the due date of any payment to be made by Lessee hereunder,
nor operate to excuse Lessee from prompt payment of any Amount Due required by
the terms of this Lease.
9. PROPERTY AND LIABILITY INSURANCE.
9.1 Throughout the Lease Term, Lessor will insure the Building
(excluding foundations and excavations), the Building standard leasehold
improvements, and the machinery, boilers, and equipment contained therein owned
by Lessor (excluding any property Lessee is obliged to insure pursuant to
Section 9.3 below) against damage by fire and the perils insured in the standard
extended coverage endorsement. Lessor shall also, throughout the Lease Term,
carry public liability insurance with respect to the ownership and operation of
the Building.
9.2 Lessee shall comply with all insurance regulations so the
lowest fire, extended coverage, and liability insurance rates available for use
of the Building as normal office space may be obtained by Lessor and will not
use or keep any substance or material in or about the Premises which may vitiate
or endanger the validity of insurance on the Building, increase the hazard or
the risk beyond that for a normal office building, or result in an increase in
premium on the insurance on the Building. If any insurance policy upon the
Premises or the Building or any part thereof shall be canceled or shall be
threatened by the insurer to be canceled, the coverage thereunder reduced or
threatened to be reduced, or the premium therefor increased or threatened to be
increased in any way by the insurer by reason of the use and occupation of the
Premises by Lessee or by any assignee or subtenant of Lessee and if Lessee (i)
fails to provide Lessor within two (2) business days after notice from Lessor of
such cancellation, reduction, or premium increase or threat thereof with
evidence that Lessor deems adequate which shows that such
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condition giving rise to the cancellation, reduction or premium increase or
threat thereof was not caused by Lessee or any assignee or subtenant of Lessee
or (ii) fails to remedy the condition giving rise to the cancellation,
reduction, or premium increase or threat thereof within two (2) business days
after notice thereof by Lessor, Lessor may, at its option, do any one of the
following:
9.2.1 (i) In the event of a cancellation or threat
thereof as provided above, declare a default by Lessee, and thereupon the
provisions of Section 12 shall apply, or (ii) in the event of a reduction or
premium increase or threat thereof as provided above, declare a breach of this
Lease by Lessee, and thereupon the provisions of Section 12 shall apply; or
9.2.2 Enter upon the Premises and remedy the
condition giving rise to the cancellation, reduction, or premium increase or
threat thereof, and in such event, Lessee shall forthwith pay the cost thereof
to Lessor as additional rent; and if Lessee fails to pay such cost, Lessor may
declare a default by Lessee and thereupon the provisions of Section 12 shall
apply (Lessor shall not be liable for any damage or injury caused to any
property of Lessee or of others located on the Premises as a result of the
re-entry); or
9.2.3 If the sole action taken by the insurer is to
raise the premium or other monetary cost of the insurance, demand payment from
Lessee of the premium or other cost as additional rent hereunder, and if Lessee
fails to pay the increase to Lessor within ten (10) days of demand by Lessor,
Lessor may declare a default by Lessee and thereupon the provisions of Section
12 shall apply. Lessee acknowledges that it has no right to receive any proceeds
from any insurance policies carried by Lessor and that such insurance will be
for the sole benefit of Lessor with no coverage for Lessee for any risk insured
against.
9.3 Lessee shall, during its occupancy of the Premises and
during the entire Lease Term, at its sole cost and expense, obtain, maintain,
and keep in full force and effect, and with Lessee, Lessor, and Lessor's
mortgagees (if so requested by Lessor's mortgagees) named as additional insureds
therein as their respective interests may appear, the following types and kinds
of insurance:
9.3.1 Upon property of every description and kind
owned by Lessee and located in the Building or for which Lessee is legally
liable or which was installed by or on behalf of Lessee, including, without
limitation, furniture, fittings, installations, alterations, additions,
partitions, and fixtures (excluding, however, those improvements, if any,
installed by Lessor in accordance with Section 10.2 hereof), against all risk of
loss in an amount not less than one hundred percent (100%) of the full
replacement cost thereof;
9.3.2 Public liability insurance in an amount not
less than $3,000,000.00 for any one occurrence or such higher limits as Lessor
may reasonably require from time to time; the insurance shall include coverage
for "Fire Legal" liability with respect to the Premises and coverage against
liability for bodily injuries or property damage arising out of the use by or on
behalf of Lessee of owned, non-owned, or hired automobiles and other vehicles
for a limit not less than that specified above;
9.3.3 Workers' compensation insurance in the amount
required by law to protect Lessee's employees; and
9.3.4 Any other form or forms of insurance that
Lessor may reasonably require from time to time, in form, in amounts, and for
insurance risks against which a prudent tenant would protect itself.
9.4 All insurance policies shall be taken out with companies
acceptable to Lessor licensed and registered to operate in the State of Georgia
and in form reasonably satisfactory to Lessor. The insurance may be by blanket
insurance policy or policies. Lessee shall deliver certificates evidencing the
insurance policies and any endorsement, rider, or renewal thereof, to Lessor.
Certificates evidencing renewals shall be delivered to Lessor no later than
fifteen (15) days after each renewal, as often as renewal occurs, and in no
event less than fifteen (15)
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days prior to the date on which the policy would otherwise expire. All insurance
policies shall require the insurer to notify Lessor and Lessor's mortgagees in
writing thirty (30) days prior to any material change, cancellation, or
termination thereof.
9.5 Lessor and Lessee hereby release the other from any and
all liability or responsibility to the other or to anyone claiming through or
under them by way of subrogation or otherwise for any loss or damage to property
caused by fire or any other perils insured or insurable (whether or not such
insurance is obtained) in policies of fire and extended coverage insurance
covering such property even if such loss or damage shall have been caused by the
fault or negligence of the other party, or any one for whom such party may be
responsible (other than acts, such as intentional wrongdoing or criminal
conduct, that are not waived in the standard waiver of subrogation provision in
commercial property insurance at the time of the loss or damage).
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10. ALTERATIONS AND IMPROVEMENTS.
10.1 Lessor shall cause the Project to be constructed
substantially in accordance with the plans and specifications identified on
Exhibit "D", attached hereto and by this reference incorporated herein and made
a part hereof, as such plans and specifications may be revised, changed and
amended from time to time by Lessor in its sole discretion (the "Project Plans";
the improvements to be constructed substantially in accordance with the Project
Plans are herein called the "Project Improvements"); provided, however, that
Lessor may not revise, change or amend the Project Plans if any such revision,
change or amendment would materially and adversely affect the Premises, or
materially and adversely lessen the quality of the Building or the Project,
unless Lessee has approved any such revision, change or amendment, which
approval of Lessee will not be unreasonably withheld, delayed or conditioned.
The cost of the Project Improvements shall not be included as part or paid out
of the Allowance (as hereinafter defined). Lessor shall cause the Project
Improvements to be substantially completed on or before the date on which the
Lessor's Work (as hereinafter defined) is substantially completed.
10.2 Lessor shall cause the Premises to be constructed and
completed substantially in accordance with the "Premises Plans" to be prepared
by Jova Daniels Busbee, Inc. (the "Space Architect"), as the Premises Plans may
be revised from time to time with the approval of Lessor and Lessee. The work to
be performed in accordance with the Premises Plans is herein called the
"Lessor's Work". Lessor and Lessee shall adhere to the schedule of deliveries,
comments and approvals set forth on Exhibit "G" attached hereto, and by this
reference incorporated herein and made a part hereof, which includes the
requirement that Lessee deliver to Lessor final approved Premises Plans no later
than December 31, 1997.
Lessor and Lessee acknowledge and agree that HCB Contractors
(the "General Contractor") will be the general contractor for the construction
of the Premises improvements (the "Premises Improvements") in accordance with
the Premises Plans. The General Contractor's fee is estimated to be equal to the
sum of $72,506.00 plus 4.5% of the total cost of its work to be completed in
accordance with the Premises Plans, with such fee based upon (i) a build out of
the four (4) floors of the Building to be leased initially by Lessee in a
fashion not materially different than Lessee's current space in the Parkside
building located nearby this Building, and (ii) the occurrence of no change
orders or expansion by Lessee into space beyond such initial four (4) floors of
the Building.
Lessor shall provide Lessee with an allowance (the
"Allowance") equal to $31.50 per rentable square foot contained within the
Premises to pay the costs of the design, supervision and construction of the
Premises Improvements, including, without limitation, all costs of design, all
costs of materials and labor to install the Premises Improvements and the
General Contractor's fee and overhead. Lessor will pay all such costs as and
when incurred by Lessor on a timely basis only to the extent of the Allowance
and Lessee shall pay all such costs in excess of the Allowance. Lessee shall
promptly pay for all costs in excess of the Allowance upon the substantial
completion of Lessor's Work. If such costs shall be less than the Allowance,
then at Lessee's option Lessee may either (i) have Lessor make a cash payment to
Lessee upon the completion of Lessor's Work in an amount equal to the savings,
or (ii) abate the first accruing Base Rent or Amount Due payments in an amount
equal to the savings. Lessor agrees that it shall pay the Space Architect and
Lessee's other chosen, architects, engineers, and designers for their costs to
prepare architectural, mechanical, electrical, plumbing, finish schedules, and
furniture plans; and such payment shall be made on a timely basis following
Lessor's receipt of approved invoices from Lessee, and that such payments made
on behalf of Lessee shall be charged against the Allowance. Lessor will not
charge any construction management fees or other fees for its overseeing of the
construction of the Premises.
Except as may be extended in accordance with this Section
10.2, Lessor shall cause the Lessor's Work to be completed within seventeen (17)
weeks after Lessee's delivery of the approved Premises Plans to Lessor (herein
called the "Construction Period"). The Construction Period shall be extended
for: (i) strikes, lockouts, labor troubles, inability to procure materials in
the ordinary course of business in accordance with the pricing budget for
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the construction of the Premises, failure of power, restrictive government laws
or regulations, riots, insurrection, war and other conditions (excluding
finance), in each instance to the extent beyond Lessor's control, in which event
the Construction Period shall be extended for the period of the delay, (ii) any
amendments or other changes to the approved Premises Plans made at the request
of and with the approval of Lessee, in which event the Construction Period shall
be extended for the period of time reasonably attributable to such amendment or
other change, and (iii) the acts, neglect or failure to perform of Lessee, its
agents, contractors or employees, in which event the Construction Period shall
be extended for the period of time reasonably attributable to such acts or
omissions (any delays described in clauses (i), (ii) and (iii) are herein
collectively called the "Completion Delays"). In the event of any dispute
between Lessor and Lessee with respect to the number of days attributable to any
Completion Delay, the dispute shall be resolved by the Space Architect whose
decision shall be conclusive and binding on both Lessor and Lessee. If a
Completion Delay is attributable to either clause (ii) or (iii) above, and such
Completion Delay causes the Construction Period to be extended beyond the date
when the Construction Period would have otherwise ended after taking into
account all other Completion Delays, then such Completion Delay shall be
construed as a Tenant Delay for purposes of paragraph 22. If any Completion
Delay causes a delay in the completion of Lessor's Work then the time for
completion of such Lessor's Work shall correspondingly increase by the amount of
time reasonably attributable to such Completion Delay, such that Lessor would
have such additional time within which to substantially complete Lessor's Work.
Lessee must request each Lessee change order in writing and note
therein whether the change order is to be priced prior to Lessee's formal
request for the change order, or whether the change order is a formal request
for a change order to occur regardless of the price associated therewith. Upon
submission of a change order, Lessor shall notify Lessee of the time period in
which the change order can be completed, and whether or not such change order
results in any delays to the completion of Lessor's Work. To the extent that a
change order would increase the cost of the Lessor's Work above the Allowance,
then Lessee shall pay for such work at the time of and as a condition to the
approval of the change order.
As used herein, "substantial completion" of Lessor's Work
means: (i) the Space Architect for the Premises has issued a certificate of
substantial completion for the Premises, and (ii) a temporary or permanent
certificate of occupancy for the Premises has been issued; provided, however, if
a temporary certificate of occupancy is issued, then the basis for its
"temporary" designation shall not be any material deficiency in the Project
Improvements or the Premises Improvements. The occurrence of substantial
completion shall not in any way discharge or relieve the Lessor from its
obligation to fully complete Lessor's Work in an expeditious, good and
workmanlike manner. During the course of the performance of Lessor's Work,
Lessor shall keep Lessee informed as to any material change in Lessor's estimate
of the date upon which substantial completion of Lessor's Work will occur.
Lessor shall take reasonable efforts to allow Lessee and Lessee's agents,
employees and contractors prompt and reasonable access to the Premises (or
portions thereof) in order to permit Lessee and its vendors to install cabling,
wiring, telecommunication systems, furniture and equipment and to perform any
other similar installation work desired by Lessee, so long as such installation
and performance by or on behalf of Lessee does not (and Lessee covenants and
agrees not to) interfere with Lessor's completion of Lessor's Work on the
timetable within which such completion is to occur, and provided, however, that
if Lessee actually occupies the Premises prior to the Commencement Date for the
purposes other than as set forth above or as prior approved by Lessor, then the
Commencement Date shall be deemed to be the date upon which occupancy of the
Premises by Lessee first actually occurred. Lessee shall indemnify and hold
harmless Lessor from and against any and all cost, losses, damages, liabilities
and expenses arising out of or relating to such entry.
10.3 Lessee shall not make any alterations, additions, or
improvements in or to the Premises, nor install or attach fixtures in or to the
Premises, without the prior written consent of Lessor, which consent Lessor
shall not unreasonably withhold, delay or condition. All alterations, additions,
or improvements made, installed in, or attached to the Premises by Lessee, upon
the consent specified above, shall be made at Lessee's expense in a good and
workmanlike manner, strictly in accordance with the plans and specifications
approved by Lessor, all
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applicable laws, ordinances, regulations, and other requirements of any
appropriate governmental authority, and any applicable covenants or other
restrictions. Prior to the commencement of any such work, Lessee shall deliver
to Lessor certificates issued by insurance companies licensed and registered to
operate in the State of Georgia evidencing that workers' compensation insurance
and public liability insurance, all in amounts satisfactory to Lessor, are in
force and effect and maintained by all contractors and subcontractors engaged by
Lessee to perform the work. Lessee shall indemnify and hold harmless Lessor from
and against any and all cost, losses, damages, liabilities and expenses arising
out of or relating to such work.
10.4 Lessee shall keep the Premises free from all liens,
preliminary notices of liens, right to liens, or claims of liens of contractors,
subcontractors, mechanics, or materialmen for work done or materials furnished
to the Property at the request of Lessee. Whenever and so often as any such lien
shall attach or claims or notices thereof shall be filed against the Property or
any part thereof as a result of work done or materials furnished to the Property
at the request of Lessee, Lessee shall, within ten (10) days after Lessee has
notice of the claim or notice of lien, cause it to be discharged of record,
which discharge may be accomplished by deposit or bonding proceedings. If Lessee
shall fail to cause the lien, or such claim or notice thereof, to be discharged
within the ten-day period, then, in addition to any other right or remedy,
Lessor may, but shall not be obligated to, discharge it either by paying the
amount claimed to be due or by procuring the discharge of the lien, or claim or
notice thereof, by deposit or bonding proceedings. Any amount so paid by Lessor
and all costs and expenses, including, without limitation, attorneys' fees,
incurred by Lessor in connection therewith shall constitute additional rent
payable by Lessee under this Lease and shall be paid by Lessee in full on demand
of Lessor together with interest thereon at the rate set forth in Section 2.2
hereof from the date it was paid by Lessor. Lessee shall not have the authority
to subject the interest or estate of Lessor to any liens, rights to liens, or
claims of liens for services, materials, supplies, or equipment furnished to
Lessee, and all persons contracting with Lessee are hereby charged with notice
that they must look to Lessee and to Lessee's interest only to secure payment.
10.5 All alterations, additions, or improvements, including,
but not limited to, fixtures, partitions, counters, and window and floor
coverings, which may be made or installed by either of the parties hereto upon
the Premises, irrespective of the manner of annexation, and irrespective of
which party may have paid the cost thereof, excepting only movable office
furniture (which includes modular furniture which may be partially affixed to
the Premises and removed with no damage whatsoever to the Premises other than
minor holes for fittings in the walls) and shop equipment put in at the expenses
of Lessee, shall be the property of Lessor, and shall remain upon and be
surrendered with the Premises as a part thereof at the expiration or other
termination of this Lease, without disturbance, molestation, or injury.
Notwithstanding the foregoing, however, Lessor may elect that any or all
installations made or installed by or on behalf of Lessee be removed at the end
of the Lease Term. Lessee shall notify Lessor prior to any such installation,
and if Lessor has so stated its election in writing at the time such
installations are made, Lessee shall restore the Premises to the condition they
were prior to the alterations, additions, or improvements on or before the
expiration or other termination of this Lease. Such removal and restoration
shall be at the sole expense of Lessee. Further, notwithstanding anything
contained herein to the contrary except as otherwise provided in Section 9.3.1
hereof, Lessor shall be under no obligation to insure the alterations,
additions, or improvements or anything in the nature of a leasehold improvement
made or installed by or on behalf of Lessee, the Lessee Parties, or any other
person, and such improvements shall be on the Premises at the risk of Lessee
only.
10.6 In the event Lessor makes any capital investment, major
structural repairs or improvements in or to the Premises or Building which are
required due to any act or omission of Lessee or any of the Lessee Parties, any
and all cost and expenses incurred by Lessor in making the capital investment,
major structural repairs, or improvements, which costs and expenses are not
covered by insurance required under Section 9.1 hereof, shall constitute
additional rent payable by Lessee under this Lease and shall be paid by Lessee
in full on demand of Lessor, together with interest thereon from the date of the
demand at the rate set forth in Section 2.2 hereof.
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10.7 The subcontractors shall be selected to construct the
Premises Improvements in the following manner:
10.7.1 On Exhibit "H", the parties have identified
the major trades and no less than three (3) and no more than five (5) potential
subcontractors for each major trade that are acceptable to the parties to
construct the respective major trade improvements to the Premises and to which
the General Contractor will bid the major trades.
10.7.2 After Lessor's receipt of the Premises Plans,
as approved by Lessor, and Lessee gives Lessor a notice to proceed, the General
Contractor shall solicit bids from each subcontractor identified in Section
10.6.1 hereof, which bids shall set forth the price, terms, conditions and time
schedule that such subcontractor would require if chosen to construct the
Premises. Such bids must be received within fourteen (14) days after the date
hereof to be considered in Section 10.7.3 hereof.
10.7.3 Lessor shall, within seven (7) days after the
receipt of such bids and after consulting with Lessee (and Lessee hereby agrees
to consult with Lessor upon request), select the subcontractor from those
identified in Sections 10.7.1 and 10.7.2 hereof to construct the improvements to
the Premises. All other factors being equal, Lessor will choose the
subcontractor that submits the lowest bid.
10.7.4 The subcontractor so selected may be used by
Lessor to construct any additional improvements to the Premises or expanded
Premises without repeating the procedures set forth above.
10.8 Upon the substantial completion of Premises Improvements,
Lessor shall notify Lessee of such completion, and the parties hereto within
three (3) days after such notice shall perform a walk-through inspection of the
Premises. During such inspection the parties shall prepare a punch-list of
defective or incomplete items, if any, which items Lessor shall correct within
thirty (30) days after the date of such inspection.
11. ASSIGNMENT OR SUBLETTING.
11.1 Except as herein permitted, Lessee shall not assign this
Lease, or any interest herein, or sublet or allow any other person, firm, or
corporation to use or occupy the Premises, or any part thereof, without the
prior written consent of Lessor, which consent will not be unreasonably
withheld, conditioned or delayed. Lessee shall have the right without Lessor's
prior consent to assign this Lease to any corporation with which Lessee may
merge or consolidate or to any person or entity which may purchase all or
substantially all of Lessee's stock or assets, so long as the surviving
corporation or such purchaser, as the case may be, shall have a net worth at
least equal to the net worth of Lessee immediately prior to such merger or
consolidation and so long as the Letter of Credit and Lessor's rights in and to
the Security Deposit are in no way impaired. However, Lessee shall promptly
advise Lessor of any such merger or consolidation in writing. Lessor shall have
the right to make such investigations as it deems reasonable and necessary in
determining the acceptability of the proposed assignee or subtenant. Such
investigations may include inquiries into the financial background, business
history, capability of the proposed assignee or subtenant in its line of
business, and the quality of its operations. Under no circumstances shall Lessor
be obligated to consent to the assignment of this Lease or the subletting of the
Premises to any entity whose operations violate the restrictive covenants
described in Section 26 hereof. Lessee shall provide to Lessor such information
as Lessor may reasonably require to enable it to determine the acceptability of
the proposed assignee or subtenant, including information concerning all of the
foregoing matters, and Lessor shall have no obligation to consent to any
assignment or subletting unless it has received from Lessee (at no cost or
expense to Lessor) the most recent audited financial statements of the proposed
assignee or subtenant and such other information as Lessor reasonably requires.
For purposes of this Section 11, but subject to the exceptions set forth above,
an assignment of stock or other ownership interest in Lessee, which constitutes
a controlling interest in Lessee, shall be deemed an assignment within the
meaning of and be governed by this Section. No assignment or
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subletting (with or without the consent of Lessor) shall release Lessee from its
obligations under this Lease nor shall Lessee permit this Lease or any interest
herein or in the tenancy hereby created to become vested in or owned by any
other person, firm, or corporation by operation of law or otherwise. The power
of Lessor to give or withhold its consent to any assignment or subletting shall
not be exhausted by the exercise thereof on one or more occasions, but shall be
a continuing right and power with respect to any type of transfer, assignment or
subletting. In the event Lessor consents to an assignment or subletting of this
Lease, then Lessee shall pay to Lessor, on or before the fifteenth (15th) day of
each calendar month during the term of such sublease or assignment, as
additional rent, an amount equal to fifty percent (50%) of each of (i) the
excess of all rental and other charges of any kind paid by such assignee or
subtenant to Lessee pursuant to the sublease or assignment during the preceding
calendar month over (ii) the rental and other charges to be paid by Lessee to
Lessor pursuant to this Lease during such preceding calendar month, and (y) any
other amounts paid to or to the benefit of Lessee in connection with such
sublease or assignment.
11.2 If Lessee shall assign this Lease or sublet the Premises
in any way not authorized by the terms hereof, the acceptance by Lessor of any
Amount Due from any person claiming as assignee, sublessee, or otherwise shall
not be construed as a recognition of or consent to the assignment or subletting
or as a waiver of the right of Lessor thereafter to collect any rent from
Lessee, it being agreed that Lessor may at any time accept any Amount Due under
this Lease from any person offering to pay it without thereby acknowledging the
person so paying as a lessee in place of Lessee herein named, and without
releasing Lessee from the obligations of this Lease, and without recognizing the
claims under which such person offers to pay any Amount Due, but it shall be
taken to be a payment on account by Lessee.
12. DEFAULTS.
12.1 In the event that (i) Lessee shall fail to pay the Base
Rent or any other Amount Due within five (5) days after its due date, or (ii)
Lessee shall fail to comply with any of the terms, covenants, conditions, or
agreements herein contained or any of the rules and regulations now or hereafter
established for the government of the Building and such failure to comply
continues for thirty (30) days after Lessor's written notice to Lessee thereof,
or (iii) Lessee shall fail for more than thirty (30) days after written notice
thereof from Lessor to Lessee to comply with any term, provision, condition or
covenant of any other agreement between Lessor and Lessee; then Lessor shall
have the option, but not the obligation, to do any one or more of the following
in addition to, and not in limitation of, any other remedy permitted by law, in
equity or by this Lease:
12.1.1 Terminate this Lease, in which event Lessee
shall surrender the Premises to Lessor immediately upon expiration of ten (10)
days from the date of the service upon Lessee of written notice to that effect,
without any further notice or demand. In the event Lessor shall become entitled
to the possession of the Premises by any termination of this Lease herein
provided, and Lessee shall refuse to surrender or deliver up possession of the
Premises after the service of such notice, then Lessor may, without further
notice or demand, enter into and upon the Premises, or any part thereof, and
take possession of and repossess the Premises as Lessor's former estate, and
expel, remove, and put out of possession Lessee and its effects, using such
help, assistance and force in so doing as may be needful and proper, without
being liable for prosecution or damages therefor, and without prejudice to any
remedy allowed by law available in such cases. Lessee shall indemnify Lessor for
all loss, cost, expense, and damage which Lessor may suffer by reason of the
termination, whether through inability to relet the Premises, or through
decrease in rent or otherwise. In the event of such termination, Lessor may, at
its option, recover forthwith its actual damages a sum of money equal to the
total of (a) the cost of recovering the Premises (including, without limitation,
actual attorneys' fees reasonably incurred and cost of suit), (b) the unpaid
rent earned at the time of termination, plus late charges and interest thereon
at the rate specified in paragraph 2.2 hereof, (c) the present value (discounted
at the rate of 8% per annum) of the balance of the rent for the remainder of the
Lease Term less the present value (discounted at the same rate) of the fair
market rental value of the Premises for said period, and (d) any other sum of
money and actual damages owed by Lessee to Lessor.
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12.1.2 Without terminating this Lease, retake
possession of the Premises and rent the Premises, or any part thereof, for such
term or terms and for such rent and upon such conditions as Lessor may, in its
sole discretion, think best, making such changes, improvements, alterations, and
repairs to the Premises as may be required. All rent received by Lessor from any
reletting shall be applied first to the payment of any indebtedness other than
rent due hereunder from Lessee; second, to the payment of any costs and expenses
of the reletting, including but not limited to brokerage fees, attorneys' fees
and a ratable portion of costs of such changes, improvements, alterations, and
repairs; third, to the payment of rent due and unpaid hereunder; and the
residue, if any, shall be held by Lessor and applied in payment of future rent
or damage as they may become due and payable hereunder. If the rent received
from the reletting during the Lease Term is at any time insufficient to cover
the costs, expenses, and payments enumerated above, Lessee shall pay any
deficiency to Lessor, as often as it shall arise, on demand.
12.1.3 Correct or cure the default and recover any
amount expended in so doing, together with interest thereon until paid.
12.1.4 Recover any and all costs incurred by Lessor
resulting directly, indirectly, proximately, or remotely from the default,
including but not limited to reasonable attorneys' fees.
12.2 In addition to any other rights which Lessor may have,
Lessor, in person or by agent, may enter upon the Premises and take possession
of all or any part of Lessee's property in the Premises, and may sell all or any
part of such property at a public or private sale, in one or successive sales,
with or without notice, to the highest bidder for cash, and, on behalf of
Lessee, sell and convey all or part of the property to the highest bidder,
delivering to the highest bidder all of Lessee's title and interest in the
property sold to him. The proceeds of the sale of the property shall be applied
by Lessor toward the reasonable costs and expenses of the sale, including,
without limitation, attorneys' fees, and then toward the payment of all sums
then due by Lessee to Lessor under the terms of this Lease. Any excess remaining
shall be paid to Lessee or any other person entitled thereto by law. Such sale
shall bar Lessee's right of redemption.
12.3 In the event of a default or threatened default under
this Lease by Lessee, Lessor shall be entitled to all equitable remedies,
including, without limitation, injunction and specific performance.
12.4 Pursuit of any of the remedies herein provided shall not
preclude the pursuit of any other remedies herein provided or any other remedies
provided at law or in equity. Failure by Lessor to enforce one or more of the
remedies herein provided shall not be deemed or construed to constitute a waiver
of any default, or any violation or breach of any of the terms, provisions, or
covenants herein contained.
13. BANKRUPTCY. The filing or preparation for filing by or against
Lessee of any petition in bankruptcy, insolvency, or for reorganization under
the Federal Bankruptcy Code, any other federal or state law now or hereafter
relating to insolvency, bankruptcy, or debtor relief, or an adjudication that
Lessee is insolvent, bankrupt, or an issuance of an order for relief with
respect to Lessee under the Federal Bankruptcy Code, any other federal or state
law now or hereafter relating to insolvency, bankruptcy, or debtor relief, or
the execution by Lessee of a voluntary assignment for the benefit of, or a
transfer in fraud of, its general creditors, or the failure of Lessee to pay its
debts as they mature, or the levying on under execution of the interest of
Lessee under this Lease, or the filing or preparation for filing by Lessee of
any petition for a reorganization under the Federal Bankruptcy Code, or for the
appointment of a receiver or trustee for a substantial part of Lessee's assets
or to take charge of Lessee's business, or of any other petition or application
seeking relief under any other federal or state laws now or hereafter relating
to insolvency, bankruptcy, or debtor relief, or the appointment of a receiver or
trustee for a substantial part of Lessee's assets or to take charge of Lessee's
business, shall automatically constitute a default in this Lease by Lessee for
which Lessor may, at any time or times thereafter, at its option, exercise any
of the remedies and options
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provided to Lessor in Section 12 hereof; provided, however, that if such
petition be filed by a third party against Lessee, and Lessee desires in good
faith to defend against the petition and is not in any way in default of any
obligation hereunder at the time of filing the petition, and Lessee within
ninety (90) days thereafter procures a final adjudication that it is solvent and
a judgment dismissing the petition, then this Lease shall be fully reinstated as
though the petition had never been filed. In the event Lessor elects to
terminate this Lease as provided for in this Section, Lessee shall pay forthwith
to Lessor as liquidated damages, the difference between the unpaid rent reserved
in this Lease at the time of such termination and the then reasonable rental
value of the Premises for the balance of the Lease Term, and Lessee acknowledges
that said sum is reasonable and shall not be construed as a penalty.
14. DAMAGE AND CONDEMNATION.
14.1 In the event during the Lease Term the Premises are
damaged by fire or other casualty, but to such an extent that repairs and
rebuilding can reasonably be completed within one hundred twenty (120) days of
the date of the event causing the damage, Lessor may, at Lessor's option within
sixty (60) days of such event, elect to repair and rebuild the Premises. If
Lessor elects to repair and rebuild the Premises, this Lease shall remain in
full force and effect, but Lessor may require Lessee temporarily to vacate the
Premises while they are being repaired and, subject to the provisions of this
Section 14.1, rent shall abate during this period to the extent that the
Premises are untenantable; provided, however, that Lessor shall not be liable to
Lessee for any damage or expense which temporarily vacating the Premises may
cause Lessee. If the Premises are not repaired, rebuilt, or otherwise made
suitable for occupancy by Lessee within the aforesaid one hundred twenty (120)
day period, Lessee shall have the right, by written notice to Lessor within ten
(10) days of such period, to terminate this Lease, in which event rent shall be
abated for the unexpired Lease Term, effective as of the date of the written
notification, but the other terms and conditions of this Lease shall continue
and remain in full force and effect until Lessee shall have vacated the
Premises, removed all Lessee's personal property therefrom and delivered
peaceable possession thereof to Lessor. If within the aforesaid sixty (60) day
period Lessor elects not to repair and rebuild the Premises or if the Building
or any part thereof be so damaged that the Premises are untenantable and in
Lessor's reasonable opinion, which shall be given to Lessee within thirty (30)
days of such casualty, the repairs and rebuilding cannot be completed within one
hundred twenty (120) days of the date of the event causing the damage, then
within fourteen (14) days of Lessee's receipt of Lessor's opinion that such
rebuilding cannot be completed within one hundred twenty (120) days, Lessor or
Lessee may by seven (7) days' written notice to the other terminate this Lease
in which event rent shall be abated for the unexpired Lease Term, effective as
of the date of the written notification, but the other terms and conditions of
this Lease shall continue and remain in full force and effect until Lessee shall
have vacated the Premises, removed all Lessee's personal property therefrom and
delivered peaceable possession thereof to Lessor. Failure by Lessee to comply
with any provision of this Section 14.1 shall subject Lessee to such costs,
expenses, damages, and losses as Lessor may incur by reason of Lessee's breach
hereof. Notwithstanding any provision of this Lease to the contrary, if the
Premises, the Building, or any part thereof are damaged by fire or other
casualty caused by or materially contributed to by the negligence or misconduct
of Lessee or any of the Lessee Parties, Lessee shall be fully responsible, to
the extent not covered by insurance, for repairing, restoring, or paying for the
damage as Lessor shall direct and this Lease shall remain in full force and
effect without reduction or abatement of rent.
14.2 In the event the Building shall be taken, in whole or in
part, by condemnation or the exercise of the right of eminent domain, or if in
lieu of any formal condemnation proceedings or actions, if any, Lessor shall
sell and convey the Premises, or any portion thereof, to the governmental or
other public authority, agency, body, or public utility, seeking to take the
Premises, the Property or any substantial portion thereof which would materially
adversely affect Lessee's use and occupancy of the Building, then Lessor, at its
option, may terminate this Lease upon ten (10) days' prior written notice to
Lessee and prepaid rent shall be proportionately refunded from the date of
possession by the condemning authority. Lessor shall notify Lessee of the
commencement of any such condemnation proceeding within fourteen (14) days of
Lessor's becoming aware of the same. All damages awarded for the taking, or paid
as the purchase price for the sale and conveyance in lieu of
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formal condemnation proceedings, whether for the fee or the leasehold interest,
shall belong to and be the property of Lessor; provided, however, Lessee shall
have the sole right to reclaim and recover from the condemning authority, but
not from Lessor, such compensation as may be separately awarded or recoverable
by Lessee in Lessee's own right on account of any and all costs or loss
(including loss of business) to which Lessee might be put in removing Lessee's
merchandise, furniture, fixtures, leasehold improvements, and equipment to a new
location. Lessee shall execute and deliver any instruments, at the expense of
Lessor, that Lessor may deem necessary to expedite any condemnation proceedings,
to effectuate a proper transfer of title to such governmental or other public
authority, agency, body or public utility seeking to take or acquire the lands
and Premises, or any portion thereof. Lessee shall vacate the Premises, remove
all Lessee's personal property therefrom and deliver up peaceable possession
thereof to Lessor or to such other party designated by Lessor in the
aforementioned notice. Failure by Lessee to comply with any provisions of this
Section 14.2 shall subject Lessee to such costs, expenses, damages, and losses
as Lessor may incur by reason of Lessee's breach hereof. If Lessor chooses not
to terminate this Lease, then to the extent and availability of condemnation
proceeds received by Lessor and subject to the rights of any mortgagee thereto,
Lessor shall, at the sole cost and expense of Lessor and with due diligence and
in a good and workmanlike manner, restore and reconstruct the Premises within
one hundred eighty (180) days after the date of the physical taking, and such
restoration and reconstruction shall make the Premises reasonably tenantable and
suitable for the general use being made by Lessee prior to the taking; provided,
however, that Lessor shall have no obligation to restore and reconstruct
Lessee's leasehold improvements unless and to the extent that Lessor receives an
award of condemnation proceeds specifically designated as compensation for such
improvements. Notwithstanding the foregoing, if Lessor has not completed the
restoration and reconstruction within one hundred eighty (180) days after the
date of physical taking, Lessee, in addition to any other rights and remedies
Lessee may have, shall have the right to cancel this Lease. If this Lease
continues in effect after the physical taking, the rent payable hereunder shall
be equitably adjusted both during the period of restoration and reconstruction
and during the unexpired portion of the Lease Term.
14.3 In the event Lessor, during the Lease Term, shall be
required by any governmental authority or the order or decree of any court due
to a change in applicable laws or ordinances occurring after the Commencement
Date, to repair, alter, remove, reconstruct, or improve (herein collectively
called "Repairs") any part of the Premises, then the Repairs may be made by and
at the expense of Lessor and shall not in any way affect the obligations or
covenants of Lessee herein contained, and Lessee hereby waives all claims for
damages or abatement of rent because of the Repairs, unless such Repairs
materially adversely interfere with Lessee's use and occupancy of the Premises
so as to render the Premises completely unfit for Lessee's use and occupancy for
a period of thirty (30) consecutive business days, in which case Lessee may as
its sole and exclusive remedy have the Base Rent abated for the period during
which the Premises is unfit for Lessee's use and occupancy after such thirty
(30) days. If the Repairs shall render the Premises untenantable and if the
Repairs are not completed within one hundred eighty (180) days after the date of
the notice, requirement, order, or decree, either party hereto upon written
notice to the other party given not later than one hundred ninety (190) days
after the date of the notice, requirement, order, or decree, may terminate this
Lease, in which case rent shall be apportioned and paid to the date the Premises
were rendered untenantable; provided however that where the requirement by a
governmental authority having jurisdiction to repair, alter, remove,
reconstruct, or improve any part of the Premises arises out of any act or
omission by Lessee, then the Repairs shall be effected promptly at the sole cost
and expense of Lessee and there shall not, in any event, be any abatement of
rent nor any right in Lessee to terminate this Lease whether or not the
completion of the Repairs takes more than one hundred eighty (180) days.
15. TAXES.
15.1 Subject to Lessee's obligation to pay its Proportionate
Share thereof as a Common Operating Expense, Lessor shall pay all taxes,
assessments, and other governmental charges, general or special, ordinary or
extraordinary, foreseen or unforeseen, including any installments thereof,
levied, assessed, or otherwise imposed by any lawful authority or payable with
respect to the Project.
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15.2 In the event that a tax or assessment attributable to
environmental protection legislation, as distinguished from a tax or assessment
in the nature of a real estate property tax, is imposed upon Lessor by a
governmental authority having jurisdiction over the Project, which tax or
assessment is attributable to the Parking Facility, such tax or assessment shall
be included within the definition of "Impositions", unless such taxes or
assessments are included in the fees of parking in the Parking Facilities and
Lessee and Lessee's employees are actually paying such fees. In no event shall
Lessee be liable for any abatement or clean up cost resulting from any violation
of any environmental laws by Lessor or Lessor's agents, contractors, employees
or predecessors in title.
16. LIABILITY OF LESSOR.
16.1 Subject to Section 9.5 hereof, Lessee shall indemnify,
defend, and hold harmless Lessor, at Lessee's expense, against (a) any default
by Lessee or permitted assignee or subtenant hereunder; (b) any act or
negligence of Lessee or any of Lessee's agents, contractors, subcontractors,
employees, licensees and invitees; and (c) all claims for damages to persons or
property by reason of the use or occupancy of the Premises not caused by Lessor,
its agents, servants or employees. Lessee shall not be liable to Lessor, or
Lessor's agents, servants, employees, contractors, customers or invitees for any
damage to person or property caused by any act, omission or neglect of Lessor,
its agents, servants or employees. Moreover, Lessor shall not be liable for any
damage, injury, destruction, or theft to or of the Premises, the personal
property of Lessee or any of the Lessee Parties arising from any use or
condition of the Premises, or any sidewalks, entrance ways, or parking areas
serving the Premises, or the act or neglect of co-tenants or any other person,
or the malfunction of any equipment or apparatus serving the Premises, or any
loss thereof by mysterious disappearance or otherwise unless caused by any act,
omission or neglect of Lessor, its agents, servants or employees. Any and all
claims against Lessor for any damage or injury for which Lessee has indemnified
Lessor or for which Lessor is expressly not liable under this Section 16 are
hereby waived and released by Lessee.
16.2 Except as otherwise provided in the last sentence of this
Section 16.2 and Section 22, Lessee expressly agrees to look solely to Lessor's
interest in the Property (including rents and profits therefrom) for the
recovery of any judgment against Lessor, it being agreed that Lessor (and its
partners and shareholders) shall never be personally liable for any such
judgment. The provision contained in the foregoing sentence is not intended to,
and shall not, limit any right that Lessee might otherwise have to obtain
injunctive relief against Lessor or Lessor's successors-in-interest.
Notwithstanding the limitations on liability contained in the first sentence of
this Section 16.2, Lessee shall be entitled to sue and recover from Lessor any
damages suffered or incurred by Lessee as a result of any unauthorized draw on
the Letter of Credit by Lessor or any breach of the Lessor's obligation under
this Lease prior to the Commencement Date.
16.3 Subject to the limitations of liability set forth in
Section 16.2 hereof, Lessor shall indemnify, defend, and hold harmless Lessee,
at Lessor's expense, against (a) any act or negligence of Lessor, its agents,
servants, employees or contractors; and (b) all claims for damages to persons or
property caused by Lessor or its agents, servants, employees or contractors.
Lessor shall not be liable to Lessee or the Lessee Parties for any damage to
person or property caused by any act, omission or neglect of Lessee or the
Lessee Parties.
17. RIGHT OF ENTRY.
17.1 Lessor reserves the right, for itself, its mortgagees, or
their respective agents and duly authorized representatives, upon reasonable
advance notice to Lessee, which notice must be provided to Lessee except in the
event of an emergency as reasonably determined by Lessor, to enter and be upon
the Premises at any time and from time to time to inspect the Premises and to
repair, maintain, alter, improve, and remodel, but Lessor shall not materially
interfere with Lessee's normal operation except in case of an emergency. Lessee
shall not be entitled to any compensation, damages, or abatement or reduction in
rent on account of any such repairs,
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maintenance, alterations, improvements or remodeling. Except as otherwise
provided in this Lease, nothing contained in this Section 17.1 shall imply any
duty on the part of Lessor to repair, maintain, alter, improve, or remodel.
17.2 After notice to Lessee, Lessee shall permit Lessor or
Lessor's agents at any reasonable hour of the day to enter into or upon and go
through and view the Premises and to exhibit the Premises to prospective
purchasers or tenants.
18. BUILDING RULES AND REGULATIONS. Lessor reserves the right to
alter existing or establish reasonable rules and regulations pertaining to the
use and occupancy of the Building, which rules and regulations may be changed by
Lessor from time to time, and are initially set forth in Exhibit "E". Lessee
shall comply with any rules and regulations now existing or established by
Lessor pursuant to this Section 18. To the extent that any conflict exists
between the terms of this Lease and such rules and regulations, the terms of
this Lease shall control.
19. PROPERTY LEFT ON THE PREMISES. Upon the expiration of this
Lease, or if the Premises should be abandoned by Lessee, or if this Lease should
terminate for any cause, or if Lessee should be dispossessed after default, if
at the time of any such expiration, abandonment, termination or dispossession,
Lessee or its assignees, subtenants, agents, servants, employees, contractors,
or any other person controlled by Lessee or claiming under Lessee should leave
any property of any kind or character in or upon the Premises, such property
shall be the property of Lessor and the fact of such leaving of property in or
upon the Premises shall be conclusive evidence of the intent by Lessee or such
person to abandon such property so left in or upon the Premises, and such
leaving shall constitute abandonment of the property. It is understood and
acknowledged by the parties hereto that none of Lessor's servants, agents or
employees, have or shall have the actual or apparent authority to waive any
portion of this Section 19, and neither Lessee nor any other person designated
above shall have any right to leave any such property upon the Premises beyond
the time set forth herein without the written consent of Lessor. Lessor, its
agents or attorneys, shall have the right and authority without notice to Lessee
or anyone else, to remove and destroy, store, sell or otherwise dispose of, such
property, or any part thereof, without being in any way liable to Lessee or
anyone else therefor. Lessee shall be liable to Lessor for all reasonable and
necessary expenses incurred in such removal and destruction, storage, sale or
other disposition of such property, provided that if Lessor should sell the
property in accordance with Section 12.2 hereof then Lessor shall apply to such
expenses incurred the amount by which the sale proceeds exceed the Amounts Due
owed Lessor by Lessee hereunder. The said property removed or the proceeds from
the sale or other disposition thereof shall belong to the Lessor as compensation
for the removal and disposition of said property.
20. OTHER INTERESTS.
20.1 This Lease and Lessee's interest hereunder shall at all
times be subject and subordinate to the lien and security title of any deeds to
secure debt, deeds of trust, mortgages, or other interests heretofore or
hereafter granted by Lessor or which otherwise encumber or affect the Premises
and to any and all advances to be made thereunder and to all renewals,
modifications, consolidations, replacements, substitutions, and extensions
thereof (all of which are herein called the "Mortgage"); provided, however, that
with respect to any Mortgage hereinafter granted, such subordination is
conditioned upon delivery to Lessee of a non-disturbance agreement which
provides that Lessee shall not be disturbed in its possession of the Premises
hereunder following a foreclosure of such Mortgage and that the holder of such
Mortgage or the purchaser at a foreclosure sale shall perform all obligations of
Lessor under this Lease. In confirmation of such subordination, however, Lessee
shall, at Lessor's request, promptly execute, acknowledge, and deliver any
instrument which may be required to evidence subordination to any Mortgage and,
to the holder thereof, and, in the event of a failure so to do, Lessor may, in
addition to any other remedies for breach of covenant hereunder, execute,
acknowledge, and deliver the instrument as the agent or attorney-in-fact of
Lessee, and Lessee hereby irrevocably constitutes Lessor its attorney-in-fact
for
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such purpose, Lessee acknowledging that the appointment is coupled with an
interest and is irrevocable. Lessee hereby waives and releases any claim it
might have against Lessor or any other party for any actions lawfully taken by
the holder of any Mortgage. Lessor warrants and represents that the Mortgage
held by Wachovia Bank, N.A. is the only Mortgage encumbering the Premises as of
the date hereof.
20.2 In the event of a sale or conveyance by Lessor of
Lessor's interest in the Premises other than a transfer for security purposes
only, Lessor shall be relieved, from and after the date of transfer, of all
obligations and liabilities accruing thereafter on the part of Lessor, provided
that any funds in the hands of Lessor at the time of transfer in which Lessee
has an interest shall be delivered to the successor of Lessor. This Lease shall
not be affected by any such sale and Lessee shall attorn to the purchaser or
assignee.
20.3 Contemporaneous with the execution of this Lease, Lessor,
Lessee and Wachovia Bank, N.A. have executed a Subordination, Non-Disturbance
and Attornment Agreement.
21. TITLE. To the best of Lessor's actual knowledge, Lessor
represents and warrants to Lessee that Lessor owns fee simple title to the
Property, subject only to the matters set forth in Lessor's policy of title
insurance, a copy of which Lessor has provided to Lessee prior to the date
hereof, and such additional matters as do not materially and adversely affect
Lessee's interest under the Lease.
22. DELAYED POSSESSION. If due to or as a result of a Tenant Delay
substantial completion of Lessor's Work is delayed, then the Commencement Date
for the purpose of the date on which payment of rent commences shall be deemed
to be the date that is four (4) weeks after the date upon which Substantial
Completion of Lessor's Work would have occurred but for the Tenant Delay, and
the obligations of Lessee under this Lease shall commence on such deemed
Commencement Date. If Lessor fails to deliver to Lessee actual possession of the
Premises by the date that is four (4) weeks after Substantial Completion of
Lessor's Work, as extended for Tenant Delays, then rent shall abate until
possession is given, but Lessor shall not be liable to Lessee for such failure,
and the Commencement Date shall become the date on which possession is given.
Notwithstanding the foregoing, however, if the Project Improvements and Premises
Improvements are not substantially completed by Lessor on the date that is
seventeen (17) weeks plus ninety (90) days after approval of the Premises Plans,
as extended for Tenant Delays, then this Lease shall be voidable by Lessee, and
if voided, all payments made to Lessor by Lessee hereunder, if any, shall be
immediately refunded to Lessee by Lessor, Lessor shall return the Security
Deposit (and the Original Letter of Credit) and notwithstanding the limitation
of liability provisions of the first sentence of Section 16.2, Lessor shall
indemnify and hold harmless Lessee against all costs, damages and expenses
incurred by Lessee because of Lessor's failure to deliver the Project
Improvements and Premises Improvements as and when required by the Lease.
23. HOLDING OVER. There shall be no renewal, extension, or
reinstatement of this Lease by operation of law. In the event of holding over by
Lessee after the expiration or sooner termination of this Lease, with Lessor's
acquiescence and without any express agreement of the parties, Lessee shall be a
tenant at sufferance and all of the terms, covenants, and conditions of this
Lease shall be applicable during that period, except that Lessee shall pay
Lessor as Base Rent for the period of the hold over an amount equal to one and
one-half times the Base Rent which would have been payable by Lessee under
Section 2.1 hereof, as adjusted in accordance with Sections 3 and 6 hereof, had
the hold-over period been part of the original Lease Term, together with all
additional rent due hereunder and together with any other Amount Due under this
Lease. The rent payable by Lessee during the hold-over period shall be payable
to Lessor on demand. If Lessee holds over as a tenant at sufferance, Lessee
shall vacate and deliver the Premises to Lessor upon demand. In the event Lessee
fails to surrender the Premises to Lessor upon expiration or other termination
of this Lease or of such tenancy at sufferance, then Lessee shall indemnify
Lessor against any and all loss or liability resulting from any delay of Lessee
in surrendering the Premises, including, but not limited to, any amounts
required to be paid to third parties who were to have occupied the Premises and
any attorneys' fees related thereto.
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24. NO WAIVER. Lessee understands and acknowledges that no assent,
express or implied, by Lessor to any breach of any one or more of the terms,
covenants or conditions hereof shall be deemed or taken to be a waiver of any
succeeding or other breach, whether of the same or any other term, covenant or
condition hereof.
25. BINDING EFFECT. All terms and provisions of this Lease shall
be binding upon and apply to the successors, permitted assigns, and legal
representatives of Lessor and Lessee or any person claiming by, through, or
under either of them or their agents or attorneys, subject always, as to Lessee,
to the restrictions contained in Section 11 hereof.
26. COMPLIANCE WITH PROTECTIVE COVENANTS. In addition to and
without in any way limiting any of the other provisions of this Lease, Lessee
and Lessor shall comply with any protective covenants now or hereafter of record
against the Building or the Property and with any changes to the covenants duly
adopted so long as such changes do not materially and adversely interfere with
Lessee's use of the Premises as provided in Section 5 hereof. It is expressly
acknowledged that all uses of the Building and Premises are subject to the
covenants, conditions and restrictions of that certain Declaration of Protective
Covenants for Lenox Park, dated April 8, 1988 and recorded April 11, 1988 in
Deed Book 6104, page 520 in the Office of the Clerk of Superior Court, DeKalb
County, Georgia, as amended and extended (herein called the "Protective
Covenants"). Lessor represents and warrants to Lessee that the Building and the
Property as of the date hereof comply with all covenants, conditions and
restrictions of the Protective Covenants and that the contemplated use of the
Premises by Lessee as provided in Section 5 hereof will not violate the
Protective Covenants, and Lessor has obtained, caused to be obtained or will
obtain or cause to be obtained prior to the time needed all approvals required
for the construction of the improvements to the Premises in accordance with
Section 10 hereof.
27. SIGNS. Except as otherwise expressly provided for in this
Lease, Lessee shall not install, paint, display, inscribe, place, or affix any
sign, picture, advertisement, notice, lettering, or direction (hereinafter
collectively called "Signs") on the exterior of the Premises, the common areas
of the Building, the interior surface of glass and any other location which
could be visible from outside of the Premises without first securing written
consent from Lessor therefor, which consent shall not be unreasonably
conditioned, withheld or delayed. Any Sign permitted by Lessor shall at all
times conform with all municipal ordinances or other laws, regulations, deed
restrictions, and Protective Covenants applicable thereto. Lessee shall remove
all Signs at the expiration or other termination of this Lease, at Lessee's sole
risk and expense, and shall in a good and workmanlike manner properly repair any
damage caused by the installation, existence, or removal of Lessee's Signs.
Lessee may install at Lessee's sole cost and expense a standard identification
sign, the design, style and substance of which is acceptable to Lessor, in the
lobby of the Building. Lessee shall be permitted to place its corporate
name/logo on the Building's Monument sign(s) which will be located in the area
of the front driveway and made a part of and built into the wall forming the
driveway and the Parking Facility, in the location set forth in Exhibit "A", at
Lessee's sole cost and expense and subject to the prior approval of Lessor and
applicable local, state and county ordinances, and Lessor and Lessee will
cooperate in good faith to design such Building sign. Under no circumstances
shall Lessee be entitled to name the Building anything other than "Lakeside",
nor shall the Lessee's sign be placed above the name "Lakeside" in or on any
sign located on the Property or in the Building.
28. DIRECTORY BOARD. Lessee shall be entitled to have its name
shown upon the Directory Board of the Building. Lessor shall designate the style
of the Directory Board as well as the amount of space to be allocated to Lessee,
which Board shall be located in an area designated by Lessor in the main lobby
of the Building.
29. ESTOPPEL CERTIFICATE. Lessee shall, at any time and from time
to time, upon not less than ten (10) days' prior written notice from Lessor,
execute, acknowledge, and deliver to Lessor a statement in writing certifying
that this Lease is unmodified and in full force and effect (or if modified,
stating the nature of the modification and certifying that this Lease, as so
modified, is in full force and effect) and the dates to which the rent
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and other charges are paid, and acknowledging that Lessee is paying rent on a
current basis with no offsets or claims, and that there are not, to Lessee's
knowledge, any uncured defaults on the part of Lessor hereunder (or specifying
the offsets, claims, or defaults, if any are claimed), and such other
information reasonably required by Lessor. It is expressly understood and
acknowledged that any such statement may be relied upon by any prospective
purchaser or encumbrancer of all or any portion of the Property or by any other
person to whom it is delivered.
30. SEVERABILITY. The terms, conditions, covenants, and provisions
of this Lease shall be deemed to be severable. If any clause or provision herein
contained shall be adjudged to be invalid or unenforceable by a court of
competent jurisdiction or by operation of any applicable law, it shall not
affect the validity of any other clause or provision herein, but the other
clauses or provisions shall remain in full force and effect.
31. ENTIRE AGREEMENT. Lessee acknowledges that there are no
covenants, representations, warranties, or conditions, express or implied,
collateral or otherwise, forming part of or in any way affecting or relating to
this Lease save as expressly set out in this Lease and that this Lease together
with the Exhibits attached hereto constitutes the entire agreement between the
parties hereto and may not be modified except as herein explicitly provided or
except by subsequent agreement in writing of equal formality hereto executed by
Lessor and Lessee.
32. CUMULATIVE REMEDIES. In the event of any default, breach, or
threatened breach by Lessee of any of the covenants or provisions hereto, Lessor
shall, in addition to all other remedies as provided by this Lease, have the
right of injunction and/or damages and the right to invoke any remedy allowed at
law or in equity, and may have any one or more of the remedies
contemporaneously. Subject to Section 46.5, the various rights, remedies,
powers, options, and elections of Lessor reserved, expressed, or contained in
this Lease are cumulative and no one of them shall be deemed to be exclusive of
the others, or of such other rights, remedies, powers, options, or elections as
are now, or may hereafter, be conferred upon Lessor by law.
33. PARKING AREAS AND COMMON AREA CONTROL.
33.1 Lessee acknowledges and agrees that the common areas of
the Building including, without limiting the generality of the foregoing, lawns,
gardens, parking areas, sidewalks, driveways, foyers, hallways, washrooms, and
stairwells not within the Premises shall at all times be subject to the
exclusive control and management of Lessor. Lessor shall have the right to
change the area, level, location, and arrangement of common areas so long as in
so doing Lessor does not materially and adversely affect ingress to and egress
from the Building or the Premises.
33.2 Lessee and the Lessee Parties shall have the right to use
the Parking Facility. During the first ten (10) years of the Original Lease
Term, Lessee shall be entitled to use at no charge, 3.5 parking spaces in the
Parking Facility per each one thousand (1,000) rentable square feet of space
within the Premises, including no more than 0.3 spaces per one thousand (1,000)
rentable square feet of space within the Premises reserved exclusively for
Lessee at a location in the Parking Facility to be solely determined by Lessor,
in general conformity with Lessor's letter (from Don Reeves to Reid Davidson)
dated October 7, 1997; Lessor and Lessee shall explore alternate levels and
locations in good faith, should Lessee request to do the same. In addition to
the keys or access cards that Lessor provides to Lessee under Section 6.7,
Lessor, at Lessee's sole cost and expense, shall provide to Lessee additional
access cards to the Parking Facility as needed, up to an aggregate maximum of
five (5) keys or cards per 1,000 rentable square feet within the Premises, so
long as under no circumstances shall Lessee or any of the parties to whom Lessee
provides the use of such additional access cards have the right to, or use at
any time, more than 3.5 parking spaces per 1,000 rentable square feet within the
Premises in the aggregate, and if a breach of the foregoing clause occurs,
Lessor may request the return of such excess keys or cards, which Lessee shall
deliver immediately to
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Lessor upon such request. Thereafter, Lessee may use the Parking Facility at
whatever rates and under whatever conditions are then established or may be
established by Lessor or any other operator of the Parking Facility. The Parking
Facility shall contain parking spaces for hourly, visitor parking on a
first-come, first-serve basis at rates established by Lessor or the operator of
the Parking Facility from time to time. Lessee covenants and agrees to fully
cooperate with Lessor in the enforcement of any program of rules and regulations
designed for the orderly control and operation of Parking Facility.
34. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given when delivered in person or
when deposited in the United States mail, return receipt requested, addressed to
the parties at the respective addresses set out below:
If to Lessee: Prior to the Commencement Date:
Harbinger Corporation
1055 Lenox Park Boulevard
Suite 300
Atlanta, Georgia 30319
After the Commencement Date:
Harbinger Corporation
1277 Lenox Park Boulevard
Atlanta, Georgia 30319
with copy to:
John G. Morris, Esquire
Morris, Manning & Martin
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
If to Lessor:
c/o Technology Park/Atlanta, Inc.
Suite 100
1055 Lenox Park Boulevard
Atlanta, Georgia 30319
Attention: President
or to such other addresses as the parties may direct from time to time by thirty
(30) days' written notice. However, the time period in which a response to any
notice, demand, or request must be given, if any, shall commence to run from the
date of receipt of the notice, demand, or request by the addressee thereof.
Rejection or other refusal to accept or the inability to deliver because of
changed address of which no notice was given shall be deemed to be receipt of
the notice, demand, or request sent. Lessee hereby appoints as its agent to
receive service of all dispossessory or distraint proceedings and notices in
connection therewith, the person in charge of or occupying the Premises at the
time; and if no person is in charge of or occupying the Premises, then the
service or notice may be
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made by attaching it on the main entrance to the Premises and on the same day
enclosing, directing, stamping, and marking by first class mail a copy of the
service or notice to Lessee at the last known address of Lessee.
35. RECORDING. Neither this Lease nor any portion hereof shall be
recorded unless both parties hereto agree to the recording. However, Lessee and
Lessor shall execute and record a short form memorandum of this Lease generally
setting forth the term of this Lease and any renewal or expansion term
provisions. Upon the termination of this Lease, Lessee shall execute a document
in recordable form which states that the Lease is and has been terminated.
36. ATTORNEYS' FEES. In the event of any lawsuit or court action
between Lessor and Lessee arising out of or under this Lease, or the terms and
conditions herein, the prevailing party in such lawsuit or court action shall be
entitled to and shall collect from the non-prevailing party the reasonable
attorneys' fees and court costs actually incurred by the prevailing party with
respect to such lawsuit or action.
37. HOMESTEAD. Lessee waives all homestead rights and exemptions
which it may have under any law as against any obligations owing under this
Lease. Lessee hereby assigns to Lessor its homestead right and exemption.
38. TIME OF ESSENCE. Time is of the essence of this Lease.
39. NO ESTATE IN LAND. This Lease shall create the relationship of
landlord and tenant between Lessor and Lessee, and nothing contained herein
shall be deemed or construed by the parties hereto, or by any third party, as
creating the relationship of principal and agent, or of partnership, or of joint
venture, or of any relationship other than landlord and tenant, between the
parties hereto. No estate shall pass out of Lessor to Lessee pursuant to the
terms of this Lease.
40. ACCORD AND SATISFACTION. No payment by Lessee or receipt by
Lessor of a lesser amount than the Base Rent, additional rent, or any other
Amount Due herein stipulated shall be deemed to be other than on account of the
earliest of such amount then due, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Lessor may accept the check or payment without
prejudice to Lessor's right to recover the balance of the rent or pursue any
other remedy provided in this Lease.
41. BROKERS' FEES. Lessor and Lessee covenant, warrant and
represent to each other that no broker except TPA Realty Services, Inc. (herein
called "TPA"), which represents Lessor, and Davidson Associates, Inc. (herein
called "Broker"), which represents Lessee, was instrumental in consummating this
Lease and that Lessor and Lessee have had no conversations or negotiations with
any brokers except for TPA and Broker concerning Lessee's leasing of the
Premises. Lessor and Lessee agree to indemnify and hold harmless the other
against and from any claims for any brokerage commissions and all costs,
expenses, and liabilities, including, without limitation, attorneys' fees and
expenses, arising out of any conversations or negotiations had by the
indemnifying party with any broker other than TPA and Broker. Lessee shall be
solely responsible for paying all commissions and other compensation due Broker
in connection with this Lease and Lessor shall be solely responsible for paying
all commissions and other compensation due TPA in connection with this Lease.
42. OPTION TO EXTEND. Provided that Lessee has waived its Right to
Terminate under Section 44 hereof, if Lessee is not in default hereunder on the
last day of the Original Lease Term hereof and is in possession of the Premises
and if the Lease is then in full force and effect, Lessee shall have the option
(hereinafter called the "Option") to extend the Original Lease Term hereof for a
period of five (5) years after the last day of the Original Lease Term (herein
called the "Extended Lease Term"), upon the same terms and conditions provided
in this Lease, except for the Initial Rental Rate, Parking Rate, rent
escalations, and tenant improvement Allowances,
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collectively, which shall be at fair market rental rate as determined below. The
Option shall be exercised by written notice from Lessee to Lessor given on or
before the date that is twelve (12) months prior to the expiration of the
Original Lease Term.
42.1 The Annual Base Rental rate under this Lease for the
Extended Lease Term shall then be determined as follows:
42.1.1 Upon Lessee's written request prior to the
required exercise date of the option, Lessor shall promptly deliver written
notice to Lessee of Lessor's estimation of the fair market rental rate and shall
negotiate in good faith with Lessee in an attempt to agree upon such fair market
rental rate. The Annual Base Rental under this Lease shall be an amount equal to
the then "fair market rental rate", as hereinafter defined, for renewal leases
as agreed upon by Lessor and Lessee not later than forty-five (45) days after
Lessee's delivery to Lessor of written notice exercising the Option. In the
event Lessor and Lessee are unable to agree upon the definition of the fair
market rental rate prior to the required exercise date, then the Annual Base
Rental for the Extended Lease Term shall be an amount equal to the then "fair
market rental rate", for renewal leases as hereinafter defined and established.
The phrase "fair market rental rate" shall mean the annual rental rate
(projected to the date of the commencement of the Extended Lease Term) which
Lessee would expect to pay and Lessor would expect to receive under renewal
leases for space of comparable size and quality to the Premises for comparable
office buildings in the Buckhead, Atlanta, Georgia submarket area and as
provided for in, and upon terms and conditions comparable to, this Lease
covering renewal lease premises similar to the Premises and taking into account
the direct operating expenses payable by Lessee during the Extended Lease Term,
concessions offered by landlords, if any, for such comparable renewal lease
space to the Premises, and increases in Base Rent, Operating Expenses and
Parking Charges. If Lessor and Lessee have not reached agreement on a fair
market rental rate and executed an amendment to this Lease setting forth such
agreement on or before the date that is forty-five (45) days after Lessee's
delivery to Lessor of written notice exercising the Option, and Lessee still
desires to extend the term of this Lease, then, within ten (10) days after that
date, each party shall appoint and employ, a real estate professional to
appraise and establish the "fair market rental rate" for renewal leases. The two
real estate professionals, thus appointed, shall meet promptly and attempt to
agree upon and establish said rate or, upon failing to do so, shall then jointly
designate a third real estate professional within ten (10) days of the
appointment of the last two real estate professionals. If they are unable to
agree upon the third real estate professional, either of the parties, after
giving five (5) days' notice to the other, may apply to a judge of the Superior
Court of DeKalb County, Georgia (to whose jurisdiction for this limited purpose
both Lessor and Lessee hereby consent) for the selection of a third real estate
professional. Each of the parties shall bear one-half (1/2) of the cost of the
appointment of the real estate professionals. Within thirty (30) days after the
selection of the third real estate professional, the real estate professionals
shall agree upon the "fair market rental rate" for such renewal leases. If the
real estate professionals are unable to agree within the stipulated time, then
each of the real estate professionals shall independently estimate the fair
market rental rate for renewal leases. Any rate that is more than ten (10%)
percent different from the middle estimate shall be disregarded, and the
remaining estimates shall be averaged to determine the fair market rental rate
for renewal leases. In any of said events, the determination so chosen shall be
final, conclusive and binding upon both Lessor and Lessee.
42.2 There shall be no further extensions or renewals of the
Lease Term, except as expressly agreed to by the parties hereto in writing.
42.3 During the Extended Term, Lessor shall have no
obligations to make any alterations or improvements to the Premises under
Section 10.2 hereof.
42.4 Lessor shall have no obligation in the Extension Term to
pay any building allowances, design allowances or similar items, to Lessee.
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43. OPTION TO EXPAND.
43.1 During the Original Lease Term, and if Lessee is not in
default hereunder at the time of Lessee's exercise of the option provided
herein, and if Lessee is in possession of the Premises, and if the Lease is then
in full force and effect, then Lessee has the option to lease and expand the
"Premises" under this Lease (the "Expansion Option") to include within its
definition up to all of the fourth (4th) floor (as may be leased by Lessee,
called the "Expansion Space"), and all of the terms and conditions of this Lease
shall apply with full force and effect to the expanded Premises after such
expansion except as provided for in this Section 43. To exercise the Expansion
Option, Lessee shall deliver written notice to Lessor on or before the
Commencement Date which notice shall specify the space to be a part of the
expansion and containing approved plans for the construction of improvements to
the Expansion Space. The commencement date for the Expansion Space (the
"Expansion Space Commencement Date") shall be the later of (i) the date that is
six (6) months after the Commencement Date, or (ii) ten (10) days after
substantial completion of the tenant improvements in the Expansion Space, with
Lessee's obligation to pay Annual Base Rental, Base Rent, Annual Step Rental,
Amounts Due, and Proportionate Share of Common Operating Expenses for such
Expansion Space beginning on such Expansion Space commencement date, with Annual
Base Rental, Base Rent, Annual Step Rental, Amounts Due, and Proportionate Share
of Common Operating Expenses paid to Lessor at the rates provided for in the
Lease. If Lessee elects to lease less than the entire fourth (4th) floor, then
Lessor shall have the right to approve the location of the space that Lessee
shall lease pursuant to this Section 43 on the fourth (4th) floor. Lessor's
approval right shall not be unreasonably withheld, conditioned or delayed.
43.2 In the event Lessee fails to exercise its rights to the
Expansion Space prior to the Commencement Date, then the rights contained in
this Section 43 shall terminate, be void and of no force and effect as to such
space, Lessor shall have the right to lease such space free and clear of such
Expansion Option. Lessor shall promptly respond to reasonable requests of Lessee
concerning the availability of other space for lease in the Building. If Lessee
exercises any option provided in this Section 43 and in accordance with this
Section 43, Lessor and Lessee shall diligently and in good faith execute
whatever instruments or documents that are helpful or necessary in effecting the
provisions herein.
43.3 Upon exercise of Lessee's rights to the Expansion Space,
Lessor shall provide Lessee with an allowance (the "Allowance") equal to $31.50
per rentable square foot contained within the Expansion Space to pay the costs
of the design, supervision and construction of the improvements to the Expansion
Space (the "Expansion Space Improvements"), including, without limitation, all
costs of design, all costs of materials and labor to install the Expansion Space
Improvements and the General Contractor's fee and overhead. Lessor will pay all
such costs as and when incurred by Lessor on a timely basis only to the extent
of the Allowance and Lessee shall pay all such costs in excess of the Allowance.
If such costs shall be less than the Allowance, then at Lessee's option Lessee
may either (i) have Lessor make a cash payment to Lessee upon the completion of
Lessor's Work in an amount equal to the savings, or (ii) abate the first
accruing Base Rent or Amount Due payments in an amount equal to the savings.
Lessor agrees that it shall pay the Space Architect and Lessee's other chosen,
architects, engineers, and designers for their costs to prepare architectural,
mechanical, electrical, plumbing, finish schedules, and furniture plans; and
such payment shall be made on a timely basis following Lessor's receipt of
approved invoices from Lessee, and that such payments made on behalf of Lessee
shall be charged against the Allowance. Lessor will not charge any construction
management fees or other fees for its overseeing of the construction of the
Expansion Space.
43.4 Notwithstanding anything contained in this Section 43 or
in Section 4, in the event of any expansion of the Premises, Lessee shall
promptly cause a substitute or replacement letter of credit to be issued in the
same form and content as the Letter of Credit, except that the face amount of
the Letter of Credit shall be increased by an amount equal to the product of
$31.50 multiplied by the number of rentable square feet in the Expansion Space.
Correspondingly, the minimum amount of the Security Deposit shall increase to an
amount equal to the sum of $350,000 plus the product of $4.03 multiplied by the
number of rentable square feet in the Expansion Space.
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43.5 If the Expansion Space comprises less than 6,000 rentable
square feet of space, then Lessor reserves the right, at its sole option and
upon giving at least sixty (60) days written notice in advance to Lessee, to
transfer and remove Lessee from the Expansion Space from time to time to any
other available space in the Building of substantially equal area. Lessor will
bear the expense of such transfer and removal, as well as the expense of any
renovations or alterations which are necessary to make the new space conform
substantially in layout and appointment with the original Expansion Space.
Failure of Lessee to cooperate with Lessor pursuant to this paragraph and to
remove itself from the Expansion Space shall permit Lessor, among other things,
to enter the Expansion Space and to remove Lessee and its property therefrom and
to relocate Lessee and its property in the new space provided by Lessor pursuant
to this paragraph, all without being liable to Lessee in any manner whatsoever
for such acts, except for the expenses which are expressly provided in this
paragraph to be paid by Lessor.
43.6 Upon the Expansion Space Commencement Date, the term
"Premises" shall include the Expansion Space, and the term "Premises
Improvements" shall include the Expansion Space Improvements.
44. RIGHT TO TERMINATE. So long as Lessee is not in default
hereunder, Lessee shall have the right to terminate this Lease at 11:59 p.m. on
that date which is the seventh (7th) anniversary of the Commencement Date
(herein called the "Termination Date") by (i) giving written notice of such
cancellation to Lessor on or before the date that is one (1) year prior to the
Termination Date, and (ii) delivering to Lessor a cancellation fee in cash in an
amount equal to the product of $31.50 multiplied by the rentable area within the
Premises multiplied by thirty percent (30%). Upon such termination, as provided
in this Section 44, Lessee shall pay all Base Rent and other Amounts Due up to
the Termination Date, but after such Termination Date, Lessor and Lessee shall
have no further obligations under this Lease, except for those expressly
surviving termination as provided in this Lease. In the event of any expansion,
the cancellation fee shall be increased by an amount equal to the product of
$31.50 multiplied by the number of rentable square feet in the Expansion Space
multiplied by thirty percent (30%).
45. ENVIRONMENTAL CONCERNS. Lessor hereby warrants and represents
to Lessee that to the best of Lessor's knowledge, based on reasonable
investigation, the Building and the Land have not previously been used as a land
fill or as a dump for chemical or nuclear waste, garbage or refuse and that to
the best of Lessor's knowledge, there has been no release or disposal of
hazardous or toxic substances, wastes or materials in, on or under the Land
other than de minimis amounts generally found in similar commercial developments
of the same type, size and location as the Building.
46. MISCELLANEOUS.
46.1 Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural unless the context otherwise requires.
46.2 The captions are inserted in this Lease for convenience
only, and in no way define, limit, or describe the scope or intent of this
Lease, or of any provision hereof, nor in any way affect the interpretation of
this Lease.
46.3 This Lease is made and delivered in the State of Georgia
and shall be governed by and construed in accordance with the laws of the State
of Georgia.
46.4 Provided that Lessee pays all Base Rent and other Amounts
Due as provided herein and observes and performs all material covenants,
conditions and provisions on Lessee's part to be observed and performed
hereunder, Lessee shall have quiet use, possession and enjoyment of the Premises
for the Lease Term as provided herein.
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46.5 Notwithstanding anything to the contrary contained in
this Lease, neither Lessor nor Lessee shall be responsible or liable to the
other party for any punitive, exemplary or consequential damages which may be
alleged as resulting from a breach of this Lease.
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IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals the day and year first above written.
LESSOR:
1277 LENOX PARK BOULEVARD, LLC, a
Georgia limited liability company
BY: Techpole, Inc., a Georgia corporation,
its manager
By:
---------------------------------
Charles R. Brown
President
[SEAL]
LESSEE:
HARBINGER CORPORATION, a Georgia
corporation
By:
---------------------------------
Name:
Title:
[CORPORATE SEAL]
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