-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RzbCMCu13T6cLcG/TXRIAjW3p3WLk6f5AX4NWYiHeYGzzN/1Ka29MeV9IEUXBx0B 5PoKRhHw1kQO33Dk/E+FYg== 0000316222-96-000009.txt : 19960501 0000316222-96-000009.hdr.sgml : 19960501 ACCESSION NUMBER: 0000316222-96-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960131 FILED AS OF DATE: 19960430 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXCALIBUR TECHNOLOGIES CORP CENTRAL INDEX KEY: 0000316222 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 850278207 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-09747 FILM NUMBER: 96554072 BUSINESS ADDRESS: STREET 1: 1921 GALLOWS ROAD STREET 2: SUITE 200 CITY: VIENNA STATE: VA ZIP: 22182 BUSINESS PHONE: 703-790-2110 MAIL ADDRESS: STREET 1: 9255 TOWNE CENTRE DRIVE STREET 2: 9TH FLOOR CITY: SAN DIEGO STATE: CA ZIP: 92121 10-K 1 ANNUAL REPORT FOR THE YEAR ENDED 1/31/96 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1996 COMMISSION FILE NUMBER 0-9747 EXCALIBUR TECHNOLOGIES CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 85-0278207 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1921 GALLOWS ROAD, SUITE 200, VIENNA, VIRGINIA 22182 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (703) 790-2110 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK 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 the filing requirements for the past 90 days. Yes x No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x The aggregate market value of the voting stock held by non-affiliates of the registrant as of April 19, 1996 (based on the closing sales price as reported on the NASDAQ National Market System) was $ 228,840,167. The number of shares outstanding of the registrant's class of common stock as of April 19, 1996 was 12,333,417. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for the 1996 Annual Meeting of Shareholders are incorporated by reference into Part III. The Index to Exhibits begins on Page 20 EXCALIBUR TECHNOLOGIES CORPORATION ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 31, 1996 TABLE OF CONTENTS Page PART I Item 1. Business........................................... 1 Item 2. Properties......................................... 9 Item 3. Legal Proceedings.................................. 9 Item 4. Submission of Matters to a Vote of Security Holders 7 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................................ 11 Item 6. Selected Financial Data............................ 12 Item 7. Management's Discussion and Analysis of Financial.. Condition and Results of Operations ............... 14 Item 8. Financial Statements and Supplementary Data........ 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 21 PART III Item 10. Directors and Executive Officers of the Registrant. 22 Item 11. Executive Compensation ............................ 24 Item 12. Security Ownership of Certain Beneficial Owners and Management......................................... 24 Item 13. Certain Relationships and Related Transactions..... 24 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................ 25 - 1 - PART I ITEM 1. BUSINESS. OVERVIEW Excalibur Technologies Corporation ("Excalibur") is a leader in the development and sale of software solutions for information retrieval. Excalibur's software products combine two complementary technologies: Adaptive Pattern Recognition Processing (APRP(TM)) and semantic networks. The APRP(TM) technology identifies and indexes the underlying binary patterns in digital data, providing the capability to build content-based retrieval applications for any type of digital information, including text, images, video and sounds. Semantic networks leverage lexical knowledge, offering a system with built-in knowledgebases to search for specific word meanings enriched by related terms and concepts. Integration of these two approaches provides complete and powerful information retrieval capabilities with accuracy and speed. Excalibur's core technologies enable highly fault-tolerant fuzzy searching and natural language-based searching for text, as well as powerful query-by-example capabilities which can be applied to words, pictures, video clips, fingerprints, facial images and many other types of multi-media data. Using these technologies, Excalibur has developed a comprehensive suite of information retrieval software products, including libraries, services and applications, called RetrievalWare. RetrievalWare is a unified family of applications and software components for building retrieval solutions across multiple information types. Its flexible and modular architecture supports the full range of Excalibur development tools for value added resellers ("VARs"), original equipment manufacturers ("OEMs"), systems integrators ("SIs") and corporate and government information technology departments. Excalibur's RetrievalWare is a complete software component architecture, enabling developers to build information retrieval applications for workgroup, enterprises and across the internet. RetrievalWare platforms include all major UNIX and Windows/NT servers, with PC and UNIX clients. In July 1995, Excalibur acquired ConQuest Software, Inc. ("ConQuest"), a private company located in Columbia, Maryland, engaged in the business of providing natural language text management software tools, through the issuance of approximately 1,427,000 restricted shares of Excalibur common stock and options to purchase approximately 572,000 restricted shares of Excalibur common stock to the former ConQuest shareholders and option holders in exchange for all of the outstanding common stock of ConQuest. The transaction has been accounted for as a pooling of interests. The consolidated results of operations and the discussion thereof that are presented herein reflect the combined results of the pooled business for the respective periods presented. The Company established a wholly-owned subsidiary in the United Kingdom, Excalibur Technologies International, Ltd. ("ETIL"), which began operations in July 1992. Except as otherwise noted, Excalibur, ConQuest (the acquired company) and ETIL are collectively referred to hereinafter as the "Company." The Company markets and distributes its products through VARs, SIs, OEMs, direct sales, distribution agreements, and a marketing agreement with IBM. As of January 31, 1996, more than 600 customers were using the Company's information retrieval products. The Company can be contacted on the World Wide Web at http://www.excalib.com - 2 - SOFTWARE RETRIEVAL PRODUCTS The Excalibur RetrievalWare suite of information retrieval software products delivers integrated APRP(TM) and semantic network searching in a unified family of client/server based software components. RetrievalWare enables developers and integrators to build best-of-breed retrieval solutions across multiple information types. The RetrievalWare architecture is designed to support the entire range of the Company's products and capabilities: real-time and retrospective text searching; fingerprint, facial image and a developing family of other image and signal retrieval servers; and end-user systems for applications such as document management and intelligence analysis. RetrievalWare is licensed as a software developer's kit, a suite of text and other retrieval servers, a set of optional and third-party components and end-user applications. A description of each of the Company's products is set forth below. RETRIEVALWARE SDK The RetrievalWare Software Developer's Kit (SDK) is a comprehensive set of tools for building information retrieval solutions. At its core is a highly scaleable, distributed client/server architecture. Independent server processes maximize the efficiency and reliability of document loading, indexing and query handling, and support security and encryption/decryption features. Dedicated server processes enable integration of text search and relational database (DBMS) storage capabilities through an open DBMS gateway. The RetrievalWare client environment is optimized for the development of graphical interfaces using industry standard tools. RetrievalWare delivers Windows Visual Basic and Motif interfaces as source code, as well as Visual Basic Custom Controls and RDBMS interface DLLs. The RetrievalWare API set includes engine-level, high-level and client/server APIs. RETRIEVALWARE TEXT SERVERS RetrievalWare text servers are built upon an open and extensible pipeline of processing modules. The RetrievalWare Semantic and Pattern Server includes both semantic network and APRP(TM) search engines and offers a complete range of text retrieval options: word meaning-based and pattern recognition-based searching, natural language searching and fuzzy searching, statistical searching and full Boolean logic searching. The RetrievalWare Server combines APRP(TM), statistical and Boolean techniques and is optimized for applications requiring a high level of fault-tolerance, such as document management applications based upon the scanning and optical character recognition of large volumes of hard copy documents. RETRIEVALWARE WEB SERVER The RetrievalWare Web Server is a component solution that interfaces with any HTTP server through a template-based common gateway interface and supports very large scale distributed electronic publishing and enterprise applications on the internet and the world wide web. The RetrievalWare Web Server deploys a dedicated front-end server, providing handling of large volumes of user queries and extensible functionality through integration with relational databases. The RetrievalWare Web Server includes an integrated security server and its functionality is easily extended with the full range of RetrievalWare components, including the RetrievalWare Profiling Server for real-time information filtering. - 3 - RETRIEVALWARE PROFILING SERVER The RetrievalWare Profiling Server is a high performance system for filtering newswires, electronic mail messages, file transfers and other dynamic information streams in real-time. Its architecture is optimized for real-time performance while preserving complete symmetry with RetrievalWare Text Servers. The design facilitates the development of applications which fully integrate retrospective searching and real-time content profiling. RETRIEVALWARE IMAGE SERVERS RetrievalWare Image Servers utilize APRP(TM) technology to provide tools for developing applications that can index and retrieve digital images based on their objective content. Image Servers provide components that automatically recognize certain types of visual information and offer extensive image management capabilities. RetrievalWare Image Servers include system components for building client/server applications that provide parallel network retrieval operations using the Company's inter-process communication layer. Additionally, RetrievalWare Image Servers include support for TCL/TK, a popular development environment and script interpreter that allows experienced programmers to optimize their image indexing and retrieval applications for a variety of specific image data types. The Company has developed RetrievalWare image application demonstrations for fingerprint, faces and character recognition and is continuing development on components for full-motion video, photographs, graphics and other digital media. The RetrievalWare suite of software components and related services accounted for approximately 30%, 19%, and 20% of total revenues in the fiscal years ended January 31, 1996, 1995, and 1994, respectively. ELECTRONIC FILING SOFTWARE (EFS) The Company's Electronic Filing Software ("EFS") is a multi-platform, commercial, end-user software application for document imaging and information retrieval. It is the latest version of the product which was originally introduced in 1991. Text and images can be entered into the system from computer files, scanners or facsimile machines (after the scanned image is converted to text by optical character recognition software) and is automatically filed and indexed in a replica of a physical file room with file cabinets, drawers, folders, in-baskets and wastebaskets, utilizing a graphical user interface. EFS provides users with four methods for document retrieval: retrieval based on the document contents using APRP(TM); retrieval via relational database query for document control information such as author and date; content-based queries on file room labels; and file room retrieval using icons representing cabinets, drawers and folders that users can open using a computer mouse. Excalibur EFS operates under the following UNIX operating systems in a client/server environment: Sun OS and Solaris, HP HP-UX, IBM RISC System/6000 AIX and Digital Ultrix and OSF/1; and under the Digital VMS and Open VMS operating systems. Client-only implementations are available on personal computers running Microsoft Windows and Apple Macintoshes. EFS also provides links to external databases including Oracle, Informix, Digital Rdb and Ingres. The most recent release of Excalibur EFS includes a Client API which gives users the ability to integrate EFS with other software applications and products. EFS is priced based upon the number of concurrent users on a system. Earlier versions of Excalibur EFS software programs include Pix Tex/EFS, Pix Tex/EFS ServerPlus, and PixTex, all of which are no longer being marketed by the Company, but are still supported under post-contract support agreements. - 4 - EFS WEBFILE The Company's EFS Webfile product is a turnkey document image management solution for the world wide web. EFS Webfile integrates accurate and robust search and retrieval, advanced Web server technology and an intuitive interface to provide organizations with unified, global access to mission critical document information. In conjunction with the Company's EFS product, EFS Webfile turns any standard HTML browser into a fully functional EFS client, accessing the intuitive, file-room graphical interface and advanced server capabilities. EFS Webfile includes HTML filters to fully leverage the power of HTML encoding. Users can index HTML files and view those files in native form, including all images and links to other URLs. The Webfile Server runs on IBM AIX, HP-UX, SunOS and Solaris, DEC Digital UNIX and VMS platforms. The Excalibur EFS family of products and related services accounted for approximately 70%, 81%, and 80% of total revenues in the fiscal years ended January 31, 1996, 1995, and 1994, respectively. MARKETING AND DISTRIBUTION The Company's marketing and distribution strategy has several components. The primary strategy is to sell through established relationships with VARs, SIs, OEMs, and distributors that sell licenses to customers to use the Company's software libraries, servers, toolkits and application products. The Company's marketing and distribution strategy also includes a direct sales force and agreements with selected VARs and vertical market suppliers who sell and distribute the Company's application products. During the past year, the Company has established relationships with selected VARs and SIs to develop new geographic and industry markets. The Company entered into an amendment to its General Services Administration Federal supply contract (the "GSA Contract") with the Federal government effective October 1, 1995 through September 30, 1996. The GSA Contract provides a contractual vehicle for government agencies to place orders for EFS with the Company. It includes information about the Company and its products, and establishes pricing, terms and conditions of sales. The Company expects to negotiate a renewal of the amended GSA Contract upon its expiration. TECHNICAL SUPPORT AND TRAINING The Company believes that it has established a reputation for excellent customer technical support by making it one of the Company's top priorities. Technical support is provided to the Company's customers by its technical support organization as well as by certain product distributors. Technical support consists of bug fixing, telephone support and product enhancements. After an initial 90-day period, during which technical support is provided without additional charge, technical support is provided typically to customers under a renewable annual contract. The Company also provides installation and consulting services to its customers on-site or through independent Certified Excalibur Consultants who have been trained and certified by the Company. The Company also conducts training seminars at its offices in Carlsbad, California, McLean, Virginia, and Columbia, Maryland for its customers and distribution channel partners. - 5 - STRATEGIC ALLIANCES In January 1995, the Company entered into a development and distribution agreement with IBM to integrate the RetrievalWare Image Server with certain versions of IBM's DATABASE 2 (DB2)(TM) database product. The Company will receive percentage royalties on revenues earned by IBM from licenses of DB2(TM) that contain the Company's RetrievalWare Image Server, as described in the agreement. In April 1996, the Company and IBM announced their intent to expand their existing development relationship to include the integration of Excalibur's EFS product with IBM's ImagePlus VisualInfo(TM). The combined products will provide enterprise-wide image and document management, work management and full-text retrieval on UNIX, OS/2, Windows NT and MVS/ESA. In July and August 1993, the Company entered into Cooperative Marketing Agreements with IBM, in the United States and Canada, under which IBM markets Excalibur's EFS product to IBM's customers. IBM receives a marketing fee equal to a percentage of the sales IBM generates of EFS. IBM made a guaranteed sales commitment to the Company for fiscal years 1995 and 1994. In April 1996, the Company and IBM announced their intent to expand the agreements to include Excalibur's RetrievalWare products. Under the agreement, IBM will resell and provide services for Excalibur's RetrievalWare full-text search solutions and Excalibur's EFS product. IBM will offer these retrieval products in tandem with its ImagePlus(TM) and FlowMark(TM) product lines to customers and channel partners in the United States and Canada. Revenues of approximately $1,538,000, or 12% of total revenues, were attributable to IBM under the various agreements in the fiscal year ended January 31, 1995. Such revenues were less than 10% of total revenues in the fiscal years ended January 31, 1996 and 1994. The Company signed an agreement with PRC, Inc. ("PRC"), a systems integrator, in February 1993. Under the agreement, the Company provides its software to PRC as part of a Federal procurement program. Under this contract, PRC paid to the Company a minimum $2,000,000 in license and maintenance fees over a period of two and one-half years. The Company expanded its relationship with PRC in April 1996 forming a strategic alliance to deliver advanced electronic document management to major manufacturing, utility and government markets. Under an OEM agreement, PRC will integrate the text search and retrieval functionality of Excalibur's RetrievalWare technology with its Productivity Edge(TM) electronic document management solution. The Company has earned research, development and royalty fees under a series of contracts with Nikkei Information Systems Co., Ltd. ("NIS"), a Japanese company, since 1985. Under the current agreement, which was effective June 1, 1993 through January 31, 1996, NIS paid a minimum monthly royalty fee of $34,583 against the royalties on the revenue generated. Through the life of the contract, the monthly royalties earned by the Company rarely exceeded the minimum monthly royalty. In February 1996, the Company and NIS agreed to discontinue the minimum monthly royalty fee and Excalibur will receive percentage royalties on revenues as NIS license sales are generated. The agreement also allows for distribution of third party products containing the Company's software technologies into Japan under a royalty sharing accord with NIS. - 6 - In January 1996, the Company and BTG Incorporated ("BTG") entered into an agreement designating BTG as the master Federal distributor for the Company's EFS product. BTG, a major reseller of information technology products and services to the Federal government, has been the Company's largest VAR in the Federal market since 1992. The agreement provides exclusive distribution rights to BTG in the Federal government market for Excalibur's EFS products for a period of two years. The Company will receive royalties on license sales including a minimum non-cancelable license royalty fee of $1,800,000 in the first year of the agreement. In May 1994, the Company entered into a Software Distribution Agreement with Professional Computer Systems B.V. ("PCS") that was subsequently amended in January 1995 to extend the contract expiration date to January 31, 1996. The agreement granted PCS exclusive rights to license and distribute the Company's EFS product throughout Belgium, the Netherlands and Luxembourg for a fee of $1,100,000 that was paid over the term of the agreement, as amended. In January 1996, the Company amended the agreement again to extend the exclusive rights to license and distribute the Company's EFS product to Belgium, the Netherlands, Luxembourg and Italy and extended the contract expiration date to January 31, 1997 for a fee of $1,100,000 payable over the twelve months of the contract extension period. Contemporaneously therewith, the Company executed a letter of intent to create a joint venture with PCS to market, sell and distribute Excalibur's EFS product and other products in the countries of Belgium, the Netherlands, Luxembourg, Germany, Austria, Switzerland, Scandinavia and Italy as well as to develop, market and distribute new products. This transaction is subject to further discussions, conditions and approvals, including approval of the definitive agreements by the boards of directors of each company. In December 1994, the Company entered into a software development and license agreement with Informix Software, Inc. ("Informix") to provide text and image retrieval technology to users of certain Informix products. The agreement calls for the integration of the Excalibur image and signal server across multiple platforms supporting certain Informix products. The Company will receive a percentage of the list price for such products licensed. PRODUCT DEVELOPMENT AND ADVANCED RESEARCH The Company's primary technologies are its proprietary adaptive pattern recognition processing software (APRP(TM)) and semantic networks processing. APRP(TM) consists of a software architecture for processing digital information to extract patterns in the primary types of computerized data: text, image, signal and video. The system provides high-speed pattern recognition that can be used to store, categorize, retrieve and refine data. The processing of digital patterns provides users with a way to store and use computerized data faster with more flexibility and with fewer data storage requirements than competing systems. The Company's pattern recognition methods use neural computing techniques to process data in a non-algorithmic, parallel fashion by generating responses to input data. Systems utilizing these methods are unlike traditional computer systems and are now being used in areas where traditional systems have been inefficient, such as natural language, machine vision, robotics, pattern matching and signal recognition. Neural computing systems are "trained" by processing data, not by programming. Once the system has extracted patterns from the digital data, these patterns can be sorted, labeled and used to make decisions. The Company has in place a research and development program to - 7 - explore and apply its proprietary pattern recognition technology in new areas such a image recognition, character recognition, forms recognition, fingerprint matching, facial identification and machine vision. The Company also has a product development program to enhance the features of its existing software products to address additional markets. Excalibur's semantic networks leverage lexical knowledge at the highest level, offering a system to search for specific word meanings enriched by related terms and concepts. With semantic networks, users find information using natural language processing. Semantic networks incorporate syntax, morphology and the actual meaning of words as defined by published dictionaries and other reference sources. The Company has conducted research and product development of pattern recognition and natural language systems since 1980. Research and product development expenditures for development of new products and enhancements to existing products were approximately $4,972,000, $5,085,000 and $5,483,000 in the fiscal years ended January 31, 1996, 1995 and 1994, respectively. PROTECTION OF PROPRIETARY TECHNOLOGY The Company regards its software as proprietary and relies primarily on a combination of copyright, trademark and trade secret laws of general applicability, employee confidentiality and invention assignment agreements, distribution and OEM software protection agreements and other intellectual property protection methods to safeguard its technology and software products. The Company has not obtained patents on any of its technology. The Company also relies upon its efforts to design and produce new products, and upon improvements to existing products, to maintain a competitive position in the marketplace. COMPETITION Competition in the computer and communications industry in general, and the software development industry in particular, is intense. The Company's competitors include many companies which are larger and more established and have substantially more resources than the Company. In the United States, the Company competes in two basic markets within the computer industry: the document imaging and information retrieval markets. Both markets have many competitors who are larger and more established than the Company and have access to greater resources. The Company considers its principal competitive advantage to be the performance of its products. The Company differentiates its products by using new technology to provide benefits such as labor savings from reduced manual pre-processing or organization of data, faster retrieval, access to many kinds of data, full integration with network architecture, less start-up training and more forgiving interaction in retrieving information stored in computers. The information retrieval market is competitive, with numerous companies offering products on multiple platforms. Most often, the Company competes with companies such as Fulcrum Technologies Inc. and Verity, Inc. in this market. In the document imaging market, the Company competes with large hardware companies and established software vendors. The Company's activities currently are subject to no particular regulation by governmental agencies other than those routinely imposed on corporate businesses, and no such regulation is now anticipated. - 8 - EMPLOYEES The Company had 125 employees as of January 31, 1996, of whom 47 were in research and development, 51 in sales and marketing, 14 in technical support, and 13 in finance and administration. The employees are not covered by collective bargaining agreements and the management of the Company considers relations with employees to be good. - 9 - ITEM 2. PROPERTIES. At January 31, 1996, the Company occupied approximately 6,000 square feet of space in an office building located at 2000 Corporate Ridge, McLean, Virginia 22102 under a lease agreement relating to 4,000 square feet that expires in May 1997 and a month-to-month arrangement for 2,000 square feet. This facility recently has served as the Company's corporate headquarters and contains the executive office and certain administrative and sales functions. The Company has signed an agreement, that expires in October 1999, to sublease approximately 14,200 square feet of space in an office building located at 1921 Gallows Road, Vienna, Virginia 22182. The Company intends to move its corporate headquarters to this location in May 1996. The Company leases two facilities that serve primarily as software development and customer support centers. The Company occupies approximately 31,000 square feet of space in an office building, under a six-year lease that commenced in November 1995 and expires in November 2001, located at 1959 Palomar Oaks Way, Carlsbad, California 92009. The Company also occupies approximately 6,700 square feet of space in an office building located at 10440 Little Patuxent Parkway, Columbia, Maryland 21044 under a renewed five-year lease that commenced January 1996 and expires in December 2000. The Company leases office space in Windsor, England and Vitrolles, France in support of its international sales operation. Under these leases, the Company occupies approximately 3,400 square feet and 800 square feet, respectively. The two leases for the Windsor offices expire in 1997, and the Vitrolles lease is renewable every three years over a nine year period, but may be cancelled with six months notice. During the fiscal year ended January 31, 1996, and in connection with the corporate restructuring that is discussed in Note 7 to the Consolidated Financial Statements, the Company vacated leased facilities located in San Diego, California, and Albuquerque, New Mexico that have remaining lease terms of approximately twenty three and eleven months, respectively. The Company believes that its facilities are maintained in good operating condition and are adequate for its operations. ITEM 3. LEGAL PROCEEDINGS. There are no material pending legal proceedings to which the Company is a party. - 10 - ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) The 1995 Annual Meeting of Shareholders was held on November 17, 1995. (b) The following individuals were elected to serve as the Board of Directors for terms expiring at the 1996 Annual Meeting: Number of Shares Voted ---------------------- For Against Abstain --- ------- ------- Richard M. Crooks, Jr 8,977,924 170,769 -- J. M. Kennedy ....... 8,967,499 181,194 -- Edwin R. Addison .... 9,025,018 123,675 -- James W. Dowe, III .. 9,034,409 114,284 -- Jay H. Diamond ...... 8,965,206 183,487 -- W. Frank King, III .. 9,033,193 115,500 -- Philip J. O'Reilly .. 8,965,206 183,487 -- (c) In the only other matter voted upon, the shareholders voted 8,677,296 shares in the affirmative and 358,943 shares in the negative to approve, for purposes of Section 422 of the Internal Revenue Code, the adoption of the Company's 1995 Stock Option Plan authorizing the granting of options to purchase up to 400,000 shares of the Company's common stock pursuant to which options to purchase 324,150 shares of the Company's common stock were granted to employees of the Company who were previously employed by ConQuest Software, Inc. - 11 - PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock is traded in the over-the-counter market and is listed on the National Market System of the NASDAQ System under the symbol EXCA. The following table sets forth, for the period February 1, 1994 through January 31, 1996, the high and low sale prices for the common stock as reported by the National Market System of NASDAQ. The number of shareholders of record as of January 31, 1996, was 1,295. The Company has never declared or paid dividends on its common stock, and anticipates that, for the foreseeable future, it will not pay dividends on its common stock. High Low Fiscal 1995 (02/01/94-01/31/95) First Quarter................ $12 $10 1/4 Second Quarter .............. 11 5 3/4 Third Quarter................ 8 1/2 6 Fourth Quarter............... 8 1/4 4 3/4 Fiscal 1996 (02/01/95-01/31/96) First Quarter................ $12 3/4 $ 7 Second Quarter .............. 18 1/2 11 3/4 Third Quarter................ 18 13 1/4 Fourth Quarter............... 39 3/4 15 3/4 ITEM 6. SELECTED FINANCIAL DATA. The selected financial data presented below are derived from the Company's consolidated financial statements and should be read in conjunction with such consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The selected financial data presented below as of January 31, 1994, 1993 and 1992 and for the fiscal years ended January 31, 1993 and 1992 has been derived from consolidated financial statements of the Company not contained herein. All of the historical information has been restated to reflect the pooling of interests with ConQuest Software, Inc. - 12 -
Fiscal Years Ended January 31 ---------------------------------------------------- 1996 1995 1994 1993 1992 (in thousands, except per share data) Statements of Operations Data: Revenues: Software.................$ 15,004 $ 10,133 $ 10,878 $ 7,943 $ 4,725 Maintenance............ 3,671 2,505 1,407 563 237 --------- --------- --------- --------- --------- 18,675 12,638 12,285 8,506 4,962 --------- --------- --------- --------- --------- Expenses: Sales and marketing.... 8,791 9,399 10,124 7,859 3,994 Research and product development.......... 4,972 5,085 5,483 5,483 3,367 General and administrative....... 3,330 5,597 3,758 3,148 2,161 Cost of software revenues............. 1,294 1,197 1,359 569 191 Cost of maintenance revenues............. 573 524 343 285 184 Restructuring costs.... 653 776 - - - Merger costs........... 490 - - - - --------- --------- --------- --------- --------- 20,103 22,578 21,067 17,344 9,897 --------- --------- --------- --------- --------- Operating loss........... (1,428) (9,940) (8,782) (8,838) (4,935) Interest income.......... 601 431 485 631 800 Interest expense......... (57) (87) (22) (42) (11) Other income............. - 208 - - - --------- --------- --------- --------- --------- Net loss................. (884) (9,388) (8,319) (8,249) (4,146) Preferred stock dividends................ 14 14 14 14 14 --------- --------- --------- --------- --------- Net loss applicable to common stock.........$ (898) $ (9,402) $ (8,333) $ (8,263) $ (4,160) ========= ========= ========= ========= ========= Net loss per share of common stock.........$ (.08) $ (0.85) $ (0.79) $ (0.85) $ (0.52) ========= ========= ========= ========= ========= Weighted average number of shares of common stock outstanding.... 11,496 11,094 10,532 9,763 7,985 ========= ========= ========= ========= =========
- 13 - Fiscal Years Ended January 31 ---------------------------------------------------- 1996 1995 1994 1993 1992 (in thousands, except per share data) Balance Sheet Data (at end of period)(1): Cash and cash equivalents..............$ 2,903 $ 2,645 $ 1,280 $ 1,928 $ 1,241 Working capital.......... 12,973 6,908 1,788 4,631 4,356 Total assets............. 23,046 17,951 18,015 21,125 14,041 Accumulated deficit...... (36,446) (35,367) (25,965) (17,646) (9,384) Total shareholders' equity (2)............... 15,251 9,475 12,363 17,138 12,096 (1) The Company had no significant long-term debt for any of the periods presented. (2) No dividends have been declared or paid on the Company's common stock.
- 14 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW In July 1995, Excalibur Technologies Corporation ("Excalibur") acquired ConQuest Software, Inc. ("ConQuest"), a private company located in Columbia, Maryland engaged in the business of providing natural language text management software tools. The acquisition was effected through the issuance of Excalibur common stock and options to purchase Excalibur common stock to the former ConQuest shareholders and optionholders in exchange for all of the outstanding common stock of ConQuest. The business combination was accounted for as a pooling of interests and, accordingly, the Company's consolidated financial statements and the discussion and analysis of such statements contained herein reflect the combined results of the pooled businesses for the respective periods presented. Prior to its acquisition by Excalibur, ConQuest reported operating results on a calendar year basis. ConQuest's separate results for prior years have not been restated to conform to the fiscal year of Excalibur. Therefore, the results of operations contained in the consolidated financial statements for the fiscal years ended January 31, 1995 and 1994 combine those of Excalibur for these periods, as previously reported, with those of ConQuest for the calendar years ended December 31, 1994 and 1993, respectively. ConQuest's separate results of operations for the month ended January 31, 1995 are not reflected in the consolidated statement of operations for the current fiscal year. The revenues, operating loss and net loss of ConQuest for the month ended January 31, 1995 were $138,000, $177,000 and $181,000, respectively. The Company's consolidated balance sheet at January 31, 1995 combines the consolidated balance sheet of Excalibur and Excalibur Technologies International ("ETIL") as of January 31, 1995 and the balance sheet of ConQuest as of December 31, 1994. The Company principally earns revenue from licensing its software to system integrators and original equipment manufacturers through its distributors, to value-added resellers, to strategic partners and to customers through a direct sales force. Revenues are provided from sales to new customers and sales to current customers for additional users, upgrades to newer product versions, telephone support, and other services. Revenues generated from product licenses can vary significantly within a period due to the relatively long sales cycle, variations in the size of license agreements, and the number of shipments made. Historically, the volume of customer orders and product shipments is greatest at the end of a reporting period, and the Company often recognizes a significant portion of license revenue towards the end of each fiscal period. Deferred revenues of $2,759,000 at January 31, 1996, related primarily to maintenance agreements and training, is not expected to cause significant fluctuations in future quarterly revenue. RESULTS OF OPERATIONS For the fiscal year ended January 31, 1996, total revenues were $18,675,000, an increase of 48% over total revenue of $12,638,000 in the prior year. Net loss for the fiscal year ended January 31, 1996 was $884,000 or $.08 per common share compared to a net loss of $9,388,000 or $.85 per common share last year. Included in expenses for the current fiscal year were charges of $653,000 related to the restructuring that is discussed below and $490,000 related to the acquisition of ConQuest. - 15 -
REVENUES FY `96 Change FY '95 Change FY'94 (in thousands) ------ ------ ------ ------ ----- Software $15,004 $ 4,871 48% $10,133 $ (745) (7)% $10,878 Maintenance 3,671 1,166 47% 2,505 1098 78% 1,407 -------- -------------- -------- -------------- --------- Total $18,675 6,037 48% $12,638 $ 353 3% $ 12,285 ======== ============== ======== ============== =========
In fiscal year 1996 compared with fiscal 1995, the Company experienced overall increases in revenues for both software products and maintenance of approximately 48% and 47%, respectively, to $15,004,000 and $3,671,000, respectively. Revenues from the sale of EFS and related products exceeded revenues of last year, primarily because international product revenues grew at a rate approximating 60%. In North America, revenues derived from the sale of EFS products to commercial and Federal customers grew at a rate of approximately 15% in the current fiscal year. The Company is working to establish a strong network of resellers to market the EFS products to customers in certain segments of the market, or franchises. Consistent with that direction, the Company recently entered into an agreement with a large systems integrator granting the exclusive right to resell the EFS product in the Federal market. The Company is continuing to focus direct sales and marketing efforts on the sale of its family of core technologies to customers looking for tools to build specialized applications that require, for example, a powerful search and retrieval engine. The rapid expansion of the internet and the proliferation of a variety of online service providers has presented new opportunities for the application of the Company's technologies in this manner. The Company licensed its RetrievalWare technology to several such providers in the current year, contributing to an overall increase in RetrievalWare product revenues from fiscal year 1995 to fiscal year 1996 of approximately 131%. Despite a 47% increase in product sales to international customers experienced in fiscal year 1995 compared with fiscal 1994, total software revenues declined in the prior year by 7%. This decline reflected the early effects of the shift in focus for the EFS product from direct sales to resellers. As a percentage of total revenues, the revenues related to the sale of RetrievalWare products and services did not change in fiscal year 1995 compared with fiscal year 1994. The growth of product maintenance revenues in the current fiscal year is consistent with the increase in software product revenues reflecting most significantly the expanding installed base of EFS customers. Maintenance revenues increased 78% in the prior fiscal year compared with the previous year due, in part, to the Company's efforts to keep customers current on annual maintenance contracts. Sales to international customers are made primarily by ETIL. As a percentage of total consolidated revenues, ETIL's results represented 19%, 18%, and 12% in each of the past three fiscal years, respectively. The continued growth in international operations is a result of a well established reseller network, including certain resellers with exclusive licenses to sell EFS in a particular country or region with guaranteed minimum sales levels. In February 1995, ETIL opened an office in Vitrolles, France to better penetrate markets in central Europe. Additionally, the political changes in Eastern Europe have opened new - 16 - markets for the Company's products, and ETIL has begun establishing resellers and generating sales in areas formerly under Communist rule. Tighter overall expense controls and reductions in personnel that took place in fiscal 1995 resulted in a $2.5 million, or 11%, decrease in operating expenses during fiscal 1996 compared to fiscal 1995. Excluding merger and restructuring charges, expenses decreased 13% between fiscal years. Fiscal 1995 operating expenses increased $1.5 million, or 7%, compared to the prior year primarily due to restructuring costs and litigation expenses. Due to both the increase in revenues and the decrease in operating expenses, total operating expenses as a percentage of total revenues dropped to 108% in fiscal 1996 compared to 179% and 171% in fiscal years 1995 and 1994, respectively.
EXPENSES FY `96 Change FY '95 Change FY '94 (in thousands) ------ ------ ------ ------ ------ Sales and marketing $ 8,791 (6)% $ 9,399 (7)% $10,124 Percentage of total revenues 47% 74% 82% ------------------------------------------------------------------- Research & product development $ 4,972 (2)% $ 5,085 (7)% $ 5,483 Percentage of total revenues 27% 40% 45% ------------------------------------------------------------------- General and administrative $ 3,330 (41)% $ 5,597 49% $ 3,758 Percentage of total revenues 18% 44% 31% ------------------------------------------------------------------- Total operating expenses $20,103 11% $22,578 7% $21,067 Percentage of total revenues 108% 179% 171% -------------------------------------------------------------------
Sales and marketing expenses were 47% of total revenues for fiscal year 1996 compared to 74% and 82% in the previous two fiscal years, respectively. Total sales and marketing expenses decreased $608,000, or 6%, and $725,000, or 7%, in fiscal years 1996 and 1995, respectively, compared in each case to the preceding year. The decreases occurred in the United States where the Company channeled more sales through its resellers in both fiscal 1996 and second half of fiscal 1995, thereby reducing its direct selling costs. Additionally, in fiscal year 1996, the marketing group operated with a smaller average number of personnel under a tighter budget for product promotion and other similar expenses than in the previous years. - 17 - Research and product development costs were 27% of revenues in fiscal year 1996 compared to 40% in fiscal year 1995 and 45% in fiscal 1994. Total research and development costs decreased $113,000, or 2%, in fiscal year 1996 from fiscal year 1995. These declines were the results of the restructuring during fiscal 1995 that included a reduction in the number of employees in research and development, primarily in the testing area, following a major release of the Excalibur EFS software. Additionally, the write-off of obsolete equipment in the second quarter of fiscal 1995 resulted in a reduction in depreciation expense during fiscal 1996. The decrease in expenses as a percentage of revenues was also due to ConQuest maintaining its development staff at a fairly constant level through fiscal 1995 and well into the current year. Total research and product development expenses decreased $398,000, or 7%, in fiscal year 1995 compared to 1994 primarily due to reductions in employee costs, depreciation and other equipment costs. General and administrative costs were 18% of revenues in fiscal year 1996 compared to 44% in fiscal year 1995 and 31% in fiscal year 1994. Included in the fiscal 1995 costs were litigation expenses, representing 7% of total revenues in the year, that related to a lawsuit settled at the beginning of fiscal 1996. A significant portion of the $2.3 million, or 41%, drop in general and administrative costs in fiscal 1996 compared to fiscal 1995 reflected the absence of such costs in the current year. Also, during fiscal 1995, the Company expensed $850,000 of compensation paid in the form stock grants and options to purchase stock at below market prices and recorded bad debt expense of $361,000. These expenses were $36,000 and $91,000, respectively for fiscal 1996. The $1.8 million, or 49%, increase in general and administrative expenses in fiscal 1995 compared to fiscal 1994 was the result of the litigation costs, stock compensation, and bad debt provision.
COST OF REVENUES FY `96 Change FY `95 Change FY `94 (in thousands) --------------------------------------------- Software costs $ 1,294 8% $ 1,197 (12)% $ 1,359 Percentage of software revenues 9% 12% 12% ------------------------------------------------------------------ Maintenance costs $ 573 9% $ 524 53% $ 343 Percentage of maintenance revenues 16% 21% 24% ------------------------------------------------------------------
Cost of software revenues increased $97,000, or 8%, in fiscal year 1996 from fiscal year 1995, and was 9% of software revenues for fiscal 1996 compared to 12% of software revenues in fiscal 1995. Fiscal year 1995 expenses included the costs of new software documentation for the new version of Excalibur EFS and other products, as well as the design and production of new product packaging. Cost of software revenues dropped $162,000, or 12%, in fiscal 1995 compared to fiscal 1994, but was 12% as a percentage of the related software revenues for each of the prior year periods. The decrease in costs in fiscal 1995 compared to fiscal 1994 was due primarily to a reduction in the amount of development work performed under contract by ConQuest. - 18 - Cost of maintenance revenues as a percentage of maintenance revenues dropped in each of the past two fiscal years. The Company's cost of generating maintenance revenues fluctuates with personnel costs. Such costs remained relatively flat in fiscal 1996 compared to fiscal 1995 and increased at a slower rate than maintenance revenues in fiscal year 1995 compared to fiscal 1994. Cost of maintenance revenues increased $49,000, or 9%, in fiscal year 1996 compared to fiscal year 1995 and the costs increased $181,000, or 53%, in fiscal year 1995 from fiscal year 1994, compared to increases of $1.2 million, or 47%, and $1.1 million, or 78%, respectively, in the associated revenues for the same reporting periods. Transaction costs totaling approximately $490,000 were paid in connection with the merger with ConQuest. These costs, which included primarily legal and accounting fees incurred by both Excalibur and ConQuest, were recorded in the second fiscal quarter of the current year as an operating expense. As discussed in Note 7 to the Consolidated Financial Statements, in the fourth quarter of fiscal year 1996, the Company completed an assessment of its personnel and facilities requirements and finalized a corporate restructuring and relocation plan. This plan included the relocation of the Company's headquarters from California to the Washington, D.C. area and the consolidation of the product development and related customer support teams into two facilities. The relocation moved corporate management closer to the Company's major domestic and European customers and better organized the technical staff to support the major product initiatives of the combined Company. In connection with this plan, the Company vacated leased facilities in San Diego, California, and Albuquerque, New Mexico, and consolidated employees on the west coast into a new leased facility in Carlsbad, California. In May 1996, the Company is scheduled to move into new leased office space, located in Vienna, Virginia, that will serve as the Company's corporate headquarters. In the fourth quarter, the Company also renewed the lease for its Columbia, Maryland, location (formerly the offices of ConQuest) that serves as the text products development center. The Company recorded a restructuring charge of $653,000 in the fourth quarter of the current fiscal year, consisting primarily of severance payments to terminated employees and lease abandonment costs. At January 31, 1996, payments under the plan of $215,000 had been made and the net costs of leasehold improvements at the vacated facilities had been written-off. The Company expects that substantially all of the remaining costs will be paid in fiscal year 1997. The Company also conducted restructuring activities in the prior year under a separate and distinct plan to consolidate a remote development facility, resulting in a restructuring charge of $312,000. Additionally, the Company recorded a charge of $464,000 for the write-off of equipment no longer meeting the requirements of the product development plan. Despite the restructuring and merger costs, total operating expenses were reduced by $2,475,000, or 11%, to $20,103,000 in fiscal year 1996. Total operating costs increased in fiscal year 1995 by $1,511,000, or 7%, to $22,578,000 due, in part, to the total restructuring costs of $776,000 recorded in fiscal 1995. Interest income increased $170,000, or 39%, in fiscal 1996 compared to fiscal 1995 primarily due to higher rates of return on invested funds. Interest income dropped $54,000, or 11%, in fiscal 1995 compared to fiscal 1994 as the amount of invested funds declined during the year. Interest expense of $57,000, $87,000, and $22,000 in fiscal years 1996, 1995 and 1994, respectively, represents primarily amounts accrued on the borrowings of ConQuest. - 19 - Other income in fiscal 1995 consists of approximately $208,000 received from ConQuest's former landlord as an incentive for ConQuest to terminate a lease for office space. LIQUIDITY AND CAPITAL RESOURCES At January 31, 1996, the Company had a balance of cash and cash equivalents of $2,903,000 compared to a balance of $2,645,000 at the end of the previous fiscal year, which represents an increase between years of $258,000. In fiscal year 1995, the balance of cash and cash equivalents increased by $1,365,000. In fiscal year 1994, the balance declined by $648,000. Marketable security investments, which are not considered cash equivalents, consisted entirely of U.S. Treasury Bills with maturities of less than one year at January 31, 1996. Investments increased by $1,736,000 during the year. The balance of investments declined by $746,000 and $3,479,000, respectively, during fiscal years 1995 and 1994. The combined increase in cash, cash equivalents and marketable securities for the current fiscal year was $1,994,000, compared with a net increase in the combined balance of $619,000 in fiscal year 1995 and a net decrease of $4,127,000 in the combined balance in fiscal year 1994. The total of cash, cash equivalents and marketable securities was $13,244,000 at January 31, 1996. The net positive cash flows in the last two fiscal years were due primarily to the sale of common stock to employees and investors. In fiscal year 1996, the Company raised cash proceeds of $6,688,000 from the exercise of stock options by employees and directors. In fiscal year 1995, the exercise of employee stock options and the private sale of common stock to investors provided cash proceeds of approximately $5,678,000. The Company also raised $2,877,000 in cash primarily from the exercise of employee stock options in fiscal year 1994. There can be no assurance that the Company will be able to obtain such funds from employees and investors in the future, if required. Subsequent to January 31, 1996, the Company was successful in closing a private placement sale of its common stock which provided net cash proceeds of approximately $8,388,000. The Company has used cash in its operating activities in each of the last three fiscal years. Net cash used in operations was $3,940,000, $4,469,000 and $6,063,000, respectively, for fiscal years 1996, 1995 and 1994. The usage of cash in the prior year periods was due primarily to the large net losses incurred in those years. In the current fiscal year, the amount of net loss was reduced substantially, however, the Company experienced a significant increase in the balance of accounts receivable. Accounts receivable increased by approximately $3,289,000, or 80%, in fiscal year 1996. The increase was due to several factors including the overall increase in the Company's revenues between years of approximately 48%, an increase in the amount of sales negotiated with extended customer payment terms, and an increase in the percentage of fourth quarter sales booked close to the end of the period. The effect of these factors was an increase in the amount of days sales outstanding at year end, although this measurement stayed at a constant level between the end of the previous fiscal year and the end of the current year's third quarter. Although the balance of accounts receivables increased during the year, the balance of the allowance for doubtful accounts increased by only $1,000 to $375,000. Management carefully reviewed the customer account balances at year end, noted payments made by customers after year end and considered the infrequent write-offs that the Company has experienced. Based on this analysis, it believes that the allowance is adequate at January 31, 1996. - 20 - The Company used $549,000 cash to pay-off several high-interest bearing notes payable that were obligations of ConQuest during the current fiscal year. The Company's current balances of cash, cash equivalents and investments, together with funds anticipated from future operations, are expected to provide sufficient cash to meet the Company's current projected needs in the next fiscal year, including the payment of the remaining restructuring costs, the future costs associated with the move into the new corporate headquarters, and the costs of providing computer equipment to new employees. Cash used to purchase computer equipment and leasehold improvements in the fiscal years ended January 31, 1996, 1995 and 1994 was $567,000, $695,000 and $1,202,000, respectively. FACTORS THAT MAY AFFECT FUTURE RESULTS The market for the Company's software products is growing rapidly and the Company's business environment is characterized by rapid technological changes, changes in customer requirements, new emerging market segments and increased competition. Consequently, to compete effectively, the Company must make frequent new product introductions and enhancements and deploy sales and marketing resources to take advantage of new business opportunities. The ability of the Company to achieve and manage the expected growth of the business and to develop new products will depend on the Company's success in retaining its key personnel and adding new employees with appropriate skills at the right times. Failure to make timely product introductions and enhancements or to capitalize on new market opportunities as they emerge may adversely affect future operating results. The Company's operations are also subject to certain other risks and uncertainties including, among others, the effectiveness of actual and potential competition, the success of the Company's relationships with its strategic partners and other distributors of the Company's products, and the risks associated with acquisitions and international expansion. The Company's business is seasonal. Typically, revenues in the first half of the fiscal year, particularly in the first quarter, are lower than total revenues in the second half of the fiscal year. The Company has incurred cumulative losses of approximately $18,591,000 over the last three fiscal years and the accumulated deficit of the Company at January 31, 1996 was $36,446,000. As explained in Note 5 to the Consolidated Financial Statements, the Company has significant net operating loss carryforwards ("NOL's") related to Excalibur and ConQuest of approximately $48,737,000 and $2,855,000, respectively. The deferred tax assets representing the benefits of the NOL's have been offset completely by a valuation allowance due to the Company's lack of an earnings history. The realization of the benefits of the NOL's is dependent on sufficient taxable income in future fiscal years. Lack of future earnings, or a change in the ownership of the Company, could adversely affect the Company's ability to utilize the NOL's. Further, because there was a change in the ownership of ConQuest during fiscal year 1996, the Company's ability to utilize the ConQuest NOL's may be limited. Despite the NOL carryforwards, the Company may have income tax liability in future years due to the application of the alternative minimum tax rules of the Internal Revenue Code. - 21 - The preparation of financial statements in conformity with generally accepted accepted principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company believes that inflation has not had a material effect on the results of its operations to date. ADOPTION OF NEW ACCOUNTING STANDARDS In October 1995, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." It encourages, but does not require, companies to recognize compensation expense for grants of stock and stock options to employees based on new fair value accounting rules. Companies that choose not to adopt the new rules will continue to apply the existing accounting rules. However, fair value accounting is required for transactions involving the issuance of stock options or other equity instruments to acquire goods or services from nonemployees. SFAS No. 123 will be effective for the Company's fiscal year 1997 consolidated financial statements. Currently, the Company does not expect to adopt the new fair value accounting rules of SFAS No. 123 for employee stock options. However, SFAS No. 123 will require the Company, in its fiscal 1997 financial statements, to disclose pro forma net income/loss and earnings per share under the fair value accounting method for stock option grants that occurred subsequent to January 31, 1995. In addition, the Company will be required to expand its disclosure about plan terms, exercise prices and the assumptions used in measuring the fair value of stock-based grants. Although the Company has not performed the pro forma calculation required by SFAS No. 123 for fiscal year 1996, it expects that the pro forma results will be lower than the historical results reported herein. In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The impact of adopting this statement is not expected to be material to the Company's results of operations or financial position. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Financial statements and supplementary data of the Company are submitted as a separate section of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None - 22 - PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information on directors of the Company will be included under the heading "Election of Directors" of the Company's definitive Proxy Statement relating the Annual Meeting of Shareholders to be held on June 28, 1996 (the "Proxy Statement") which is incorporated herein by reference. The directors of the Company are elected each year at the Annual Meeting of Shareholders to serve for the ensuing year until the next annual meeting and until their respective successors are elected and qualified. There are no family relationships between any of the executive officers of the Company. The following information indicates the position and age of the present members of the Board of Directors and the other executive officers at April 15, 1996 and their business experience. Name Age Position Richard M. Crooks, Jr. 56 Chairman of the Board of Directors Patrick C. Condo 39 President and Chief Executive Officer, Director James H. Buchanan 40 Vice President, Chief Financial Officer, Secretary and Treasurer Edwin R. Addison 39 Executive Vice President, Director James W. Dowe, III 54 Chief Scientist, Director Jay H. Diamond 44 Director J. M. Kennedy 49 Director W. Frank King III 56 Director Philip J. O'Reilly 58 Director Richard M. Crooks, Jr. has been Chairman of the Board of Directors and a Director of the Company since June 1990. Mr. Crooks has been President of RMC Consultants, a financial advisory services firm, since June 1990. Mr. Crooks is a director of and consultant to Allen & Company Incorporated ("Allen"), a privately held investment banking firm, which is the Company's principal shareholder. Mr. Crooks served as a Managing Director of Allen for more than five years prior to June 1990. Mr. Crooks is a director of IMRE Corporation, a biotechnology company engaged in developing, manufacturing and marketing products for the treatment of immune-related diseases and cancers. - 23 - Patrick C. Condo was named President and Chief Executive Officer in November 1995, and a Director in January 1996. Mr. Condo was President from May 1995 to November 1995. He became Executive Vice President in January 1995 after being the Director of Business Development since November 1992. From October 1987 to November 1992, Mr. Condo held several manager level positions for Digital Equipment Corporation's Image, Video and Voice Business Unit and Software Business Group in New Hampshire. James H. Buchanan joined the Company as Chief Financial Officer in September 1995. Mr. Buchanan was elected Secretary and Treasurer of the Company on November 17, 1995. From March 1991 to August 1995, Mr. Buchanan was Vice President Controller and Treasurer of Legent Corporation, a software development company. Prior to that, he held several financial management positions with Norfolk Southern Corporation and PepsiCo. Mr. Buchanan is a certified public accountant. Edwin R. Addison became the Executive Vice President and a Director of the Company in July 1995 in connection with the Company's acquisition of ConQuest Software, Inc., which Mr. Addison helped to found in 1989. Mr. Addison was the President of ConQuest. Prior to ConQuest, Mr. Addison was a Senior Associate at Booz Allen & Hamilton and a Senior Program Manager with Westinghouse Electric Corporation. He has served from time to time as a part-time graduate instructor in Computer Science and Electrical Engineering at the Johns Hopkins University in Baltimore, Maryland. James W. Dowe III has been the Company's Chief Scientist since its formation in February 1980 and from February 1980 until June 1990, Chairman of the Board. He was also President and Chief Executive Officer from the date of the Company's formation until July 1984. Mr. Dowe is a consultant to the Company and is a frequent keynote speaker at industry events. Jay H. Diamond has been a Director of the Company since February 1989. Mr. Diamond has been a partner in the law firm of Tenzer, Greenblatt, LLP since February 1996. Prior to that, he was a partner in the law firm of Holtzmann, Wise & Shepard, in New York, New York, where he had been in practice for more than five years. J. M. Kennedy has been a Director of the Company since March 1992. He also held the position of Chief Executive Officer of the Company from January 1992 to November 1995, and he was President of the Company from May 1992 until May 1995. From January 1990 to January 1992, Mr. Kennedy was a partner in Geneva Group International, a management consulting and search firm specializing in emerging software companies. Prior to that, he held several sales, marketing and management positions with Cullinet Inc., Seagate Technology, GRID Systems and IBM. W. Frank King III was elected a Director of the Company in June 1992. He is presently President and a Director of PSW Technologies, formerly Pencom Software, a leading provider of technology and resources for open systems computing. From 1988 to November 1991, Dr. King was a Senior Vice President of Development of Lotus Development Corporation, a software company. Prior to joining Lotus, Dr. King held various positions with IBM over 17 years, the most recent as Vice President of Development in its Entry Systems Division. Dr. King is a director of Weitek Corporation, a semiconductor company, State of the Art, Inc., a developer of high-end microcomputer accounting software, SystemSoft Corporation, a software engineering company, and Auspex, Inc, a computer server manufacturer. - 24 - Philip J. O'Reilly has been a Director of the Company since April 1988. Mr. O'Reilly is a partner in the law firm of O'Reilly, Marsh, Kearney & Corteselli P.C., in Mineola, New York. Mr. O'Reilly has been in private practice for more than the past five years. Mr. O'Reilly is a director of IMRE Corporation, a biotechnology company engaged in developing, manufacturing and marketing products for the treatment of immune-related diseases and cancers. ITEM 11. EXECUTIVE COMPENSATION. Information on executive compensation will be included under the heading "Executive Compensation" of the Proxy Statement incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information of beneficial ownership of the Company's voting securities by each director and all officers and directors as a group, and by any person known to beneficially own more than 5% of any class of voting security of the Company will be included under the heading "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information relating to certain relationships and related transactions will be included under the heading "Certain Relationships and Related Transactions" in the Proxy Statement incorporated herein by reference. - 25 - PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (A) DOCUMENTS FILED AS PART OF FORM 10-K 1. FINANCIAL STATEMENTS: The following financial statements of the Company are submitted in a separate section pursuant to the requirements of Form 10-K, Part I, Item 8 and Part IV, Items 14(a) and 14(d): Index to Consolidated Financial Statements Reports of Independent Public Accountants Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 2. SCHEDULES SUPPORTING FINANCIAL STATEMENTS: The following schedule is filed as part of this Annual Report on Form 10-K and should be read in conjunction with the Company's financial statements: Schedule II, Valuation and Qualifying Accounts All other schedules are omitted because they are not required, inapplicable, or the information is otherwise shown in the financial statements or notes to the financial statements. 3. EXHIBITS: EXHIBIT NUMBER AND DESCRIPTION 2.01 Agreement and Plan of Merger Between Excalibur Technologies Corporation, Excalibur Acquisition Corp. and ConQuest Software, Inc., dated July 5, 1995. (4) 3.01 Certificate of Incorporation of Excalibur Technologies Corporation. (2) 3.02 Bylaws of Excalibur Technologies Corporation. (2) 10.01 Savvy Research and Development Agreement between Excalibur Technologies Corporation and Nikkei Information Systems, signed on May 25, 1989. (2) 10.02 Savvy Programs Software Development and Marketing Agreement between Excalibur Technologies Corporation and Nikkei Information Systems, signed on May 25, 1989. (2) - 26 - 10.03 Producer Licensed, Digital Distributed Software Agreement, dated as of April 6, 1990, between Excalibur Technologies Corporation and Digital Equipment Corporation, as amended by First Amendment, dated December 26, 1990, and as modified by Amendment, dated December 31, 1991. (3) 10.04 Consulting Agreement with James W. Dowe III, dated July 1, 1990. (2) 10.05 Incentive Stock Option Plan, dated April 1989. (2) 10.06 Agreement and Plan of Merger Between Excalibur Technologies Corporation, Excalibur Acquisition Corp. and ConQuest Software, Inc., dated July 5, 1995. (4) 10.07 Employment Agreement, dated July 20, 1995, with Edwin R. Addison. 10.08 1995 Incentive Plan, dated November 1995. (5) 10.09 ConQuest Incentive Stock Option Plan, dated August 19, 1993. 10.10 Office Lease (10440 Little Patuxent Parkway, Suite 800, Columbia, MD), commencing January 1, 1996. 10.11 Office Lease (1959 Palomar Oaks Way, Carlsbad, CA), commencing November 15, 1995. 10.12 Office Lease (1921 Gallows Road, Vienna, VA), commencing in May 1996. 22.01 Subsidiaries of Excalibur Technologies Corporation. 23.01 Consent of Arthur Andersen LLP, Independent Public Accountants. 23.02 Consent of Price Waterhouse LLP, Independent Accountants. - ----------------------- (1) Incorporated herein by reference to Form 10-K for the year ended January 31, 1990, filed May 1, 1990. (2) Incorporated herein by reference to Form 10-K for the year ended January 31, 1991, filed April 22, 1991. (3) Incorporated herein by reference to the Registration Statement on Form S-3 (Registration No. 33-44287) of the Company, effective February 18, 1992. (4) Incorporated herein by reference to Form 8-K, filed August 4, 1995. (5) Incorporated herein by reference to the Proxy Statement for the 1995 Annual Meeting of Shareholders, dated October 16, 1995. - 27 - (B) REPORTS ON FORM 8-K. On March 25, 1996, the Company filed a report on Form 8-K announcing new customers and partners for its RetrievalWare searching and profiling software tools and its EFS turnkey document image management solution. On November 22, 1995, the Company filed a Report on Form 8-K containing its unaudited results of operations for the seven month period ended August 31, 1995, which included thirty days of postmerger combined operations. The publication of these results satisfied the requirement of ASR No. 135 which prohibited sales of Excalibur shares by Excalibur affiliates prior to such publication. Excalibur completed its acquisition of ConQuest Software, Inc. on July 20, 1995. On November 9, 1995, the Company filed an amendment to its Report on Form 8-K dated August 4, 1995, containing the audited financial statements and required pro forma financial information relating to the Company's acquisition of ConQuest Software, Inc. - 28 - INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE Reports of Independent Public Accountants F-1 Consolidated Balance Sheets As of January 31, 1996 and 1995 F-3 Consolidated Statements of Operations For the fiscal years ended January 31, 1996, 1995, and 1994 F-4 Consolidated Statements of Shareholders' Equity For the fiscal years ended January 31, 1996, 1995, and 1994 F-5 Consolidated Statements of Cash Flows For the fiscal years ended January 31, 1996, 1995, and 1994 F-6 Notes to Consolidated Financial Statements F-8 Schedule II - Valuation and Qualifying Accounts For the fiscal years ended January 31, 1996, 1995, and 1994 F-17 - F1 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Excalibur Technologies Corporation: We have audited the accompanying consolidated balance sheets of Excalibur Technologies Corporation (a Delaware corporation) and subsidiaries as of January 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended January 31, 1996. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We did not audit the financial statements for the year ended December 31, 1993, of ConQuest Software, Inc., a company acquired during fiscal year 1996 in a transaction accounted for as a pooling of interests, as discussed in Note 1. Such statements are included in the consolidated financial statements of Excalibur Technologies Corporation and subsidiaries for the fiscal year ended January 31, 1994 and reflect total revenues of 13 percent and net loss of 20 percent of the related consolidated totals for that fiscal year. These statements were audited by other auditors whose report, dated April 15, 1994, has been furnished to us, and our opinion, insofar as it relates to amounts included for ConQuest Software, Inc., is based solely upon the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Excalibur Technologies Corporation and subsidiaries as of January 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 1996, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in the index to consolidated financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Washington, D.C., March 22, 1996 - F2 - REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of ConQuest Software, Inc. In our opinion, the statements of operations, of changes in stockholders' deficit and of cash flows of ConQuest Software, Inc. (not presented separately herein) present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 (not presented separately herein) to the financial statements, the Company has suffered recurring losses from operations, has a net capital deficiency and has current liabilities in excess of current assets that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. PRICE WATERHOUSE LLP Washington, D.C. April 15, 1994 - F3 - EXCALIBUR TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share data)
January 31 ------------------------ ASSETS 1996 1995 --------- --------- Current Assets: Cash and cash equivalents.................... $ 2,903 $ 2,645 U.S. government securities, at cost.......... 10,341 8,605 Accounts receivable, net..................... 6,849 3,650 Prepaid expenses and other .................. 675 484 --------- --------- Total current assets.................... 20,768 15,384 Equipment and Leasehold Improvements, net....... 1,943 2,523 Other Assets.................................... 335 44 --------- --------- $ 23,046 $ 17,951 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable............................. $ 1,005 $ 968 Accrued expenses............................. 2,999 3,326 Deferred revenues............................ 2,759 3,018 Deferred compensation........................ 1,032 1,164 --------- --------- Total current liabilities............... 7,795 8,476 --------- --------- Shareholders' Equity: 5% Cumulative convertible preferred stock, $0.01 par value, preference in liquidation $10 per share, 1,000 shares authorized; 27 shares issued and outstanding........ 271 271 Common stock, $0.01 par value, 20,000 shares authorized; 11,953 and 11,231 shares issued and outstanding.......... 119 112 Additional paid-in capital................... 51,272 44,523 Deferred compensation........................ - (38) Accumulated deficit ......................... (36,446) (35,367) Cumulative translation adjustment............ 35 (26) --------- --------- Total shareholders' equity.............. 15,251 9,475 --------- --------- $ 23,046 $ 17,951 ========= ========= The accompanying notes to the financial statements are an integral part of these consolidated balance sheets.
- F4 - EXCALIBUR TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
For the Fiscal Years Ended January 31 ---------------------------------------- 1996 1995 1994 ---- ---- ---- Revenues: Software...................... $ 15,004 $ 10,133 $ 10,878 Maintenance................... 3,671 2,505 1,407 --------- --------- --------- 18,675 12,638 12,285 --------- --------- --------- Expenses: Sales and marketing........... 8,791 9,399 10,124 Research and product development................... 4,972 5,085 5,483 General and administrative................ 3,330 5,597 3,758 Cost of software revenues..... 1,294 1,197 1,359 Cost of maintenance revenues.. 573 524 343 Restructuring costs........... 653 776 - Merger costs.................. 490 - - --------- --------- --------- 20,103 22,578 21,067 --------- --------- --------- Operating loss................... (1,428) (9,940) (8,782) Other income / (expenses): Interest income............... 601 431 485 Interest expense.............. (57) (87) (22) Other income.................. - 208 - --------- --------- --------- Net loss......................... (884) (9,388) (8,319) Dividends on preferred stock..... 14 14 14 --------- --------- --------- Net loss applicable to common stock................ $ (898) $ (9,402) $ (8,333) ========= ========= ========= Net loss per common share........ $ (0.08) $ (0.85) $ (0.79) ========= ========= ========= Weighted-average number of common shares outstanding..... 11,496 11,094 10,532 ========= ========= ========= The accompanying notes to the financial statements are an integral part of these consolidated statements.
- F5 - EXCALIBUR TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands)
Preferred Stock Common Stock Add'l Cumulative --------------- ------------ Paid-in Deferred Accumulated Translation Shares $ Shares $ Capital Comp. Deficit Adjust. Total Balance, ------ ----- ----- ---- -------- ------- --------- ------ -------- January 31,1993 as previously reported....... 27 $ 271 8,842 $ 88 $33,992 $ - $(16,658) $ 10 $17,703 Adjustment for pooling of interests (Note 1)..... - - 894 9 414 - (988) - (565) ------ ----- ------ ---- -------- ------- --------- ------ -------- Balance as restated....... 27 $ 271 9,736 $ 97 $34,406 $ - $(17,646) $ 10 $17,138 Conversion of notes payable............. - - 45 - 185 - - - 185 Issuance of common stock upon exercise of options.. - - 305 3 2,479 - - - 2,482 Sales of common stock..... - - 109 1 454 - - - 455 Compensation paid in common stock........... - - 57 1 377 - - - 378 Issuance of common stock for fixed assets.......... - - 21 - 48 - - - 48 Translation adjustment................ - - - - - - - (4) (4) Net loss.................. - - - - - - (8,319) - (8,319) ------ ----- ------ ---- -------- ------- --------- ------ -------- Balance, January 31, 1994 27 $ 271 10,273 $102 $37,949 $ - $(25,965) $ 6 $12,363 Conversion of notes payable............. - - 7 - 29 - - - 29 Sales of common stock, net of offering costs..... - - 735 7 5,328 - - - 5,335 Compensation paid in common stock........... - - 156 2 848 - - - 850 Issuance of common stock upon exercise of options.. - - 76 1 463 (78) - - 386 Issuance of common stock for antidilution protection in agreement... - - 6 - - - - - - Treasury stock purchase... - - (22) - (94) - - - (94) Amortization of deferred compensation.............. - - - - - 40 - - 40 Accrued dividends paid.... - - - - - - (14) - (14) Translation adjustment.... - - - - - - - (32) (32) Net loss.................. - - - - - - (9,388) - (9,388) ------ ----- ------ ---- -------- ------- --------- ------ -------- Balance,January 31, 1995.. 27 $271 11,231 $112 $44,523 $ (38) $(35,367) $ (26) $ 9,475 Issuance of common stock upon exercise of options.. - - 714 7 6,726 - - - 6,733 Issuance of common stock for services.............. - - 8 - 36 - - - 36 Amortization of deferred compensation.............. - - - - (13) 38 - - 25 Accrued dividends paid.... - - - - - - (14) - (14) Translation adjustment.... - - - - - - - 61 61 Adjustment for change in ConQuest fiscal year...... - - - - - - (181) - (181) Net loss.................. - - - - - - (884) - (884) ------ ----- ------ ---- -------- ------- --------- ------ -------- Balance,January 31, 1996.. 27 $ 271 11,953 $119 $51,272 - $(36,446) $ 35 $15,251 ====== ===== ====== ==== ======== ======= ========= ====== ======== The accompanying notes to the financial statements are an integral part of these consolidated statements.
- F6 - EXCALIBUR TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the Fiscal Years Ended January 31 --------------------------------- 1996 1995 1994 --------- --------- --------- Cash Flows from Operating Activities: Net loss ................................... $ (884) $ (9,388) $ (8,319) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ........... 1,048 1,084 1,173 Loss on disposal of assets .............. 66 450 4 Compensation paid in common stock ....... 36 850 378 Amortization of deferred compensation ... 25 40 - Changes in operating assets and liabilities: Accounts receivable, net ................ (3,289) (266) (1,065) Prepaid expenses and other .............. (476) 131 111 Accounts payable and accrued expenses ... 47 1,196 50 Deferred revenues ....................... (244) 1,179 1,193 Deferred compensation ................... (88) 255 412 Adjustment for change in fiscal year of ConQuest ................................... (181) - - --------- --------- --------- Net cash used in operating activities ... (3,940) (4,469) (6,063) --------- --------- --------- Cash Flows from Investing Activities: Purchase of investments ................. (12,023) (8,903) (12,285) Proceeds from maturities of investments ............................. 10,287 9,649 15,764 Purchases of equipment and leasehold improvements ............................ (567) (695) (1,202) Proceeds from disposal of assets ........ 26 42 14 --------- --------- --------- Net cash (used in) provided by investing activities .................... (2,277) 93 2,291 --------- --------- --------- Cash Flows from Financing Activities: Proceeds from notes payable ............. 238 189 252 Proceeds from the issuance of common stock ......................... 6,688 5,678 2,877 Dividends paid .......................... (14) (14) - Repayment of notes payable .............. (549) (48) - --------- --------- --------- Net cash provided by financing activities .............................. 6,363 5,805 3,129 --------- --------- --------- The Effect of Exchange Rate Changes on Cash ....................................... 112 (64) (5) --------- --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents ........................... 258 1,365 (648) Cash and Cash Equivalents, beginning of period ..................................... 2,645 1,280 1,928 -------- -------- -------- Cash and Cash Equivalents, end of period ... $ 2,903 $ 2,645 $ 1,280 ======== ======== ======== The accompanying notes to the financial statements are an integral part of these consolidated statements.
- F7 -
EXCALIBUR TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued, in thousands) For the Fiscal Years Ended January 31 ----------------------------- 1996 1995 1994 ------ ------ ------- Supplemental Disclosures of Cash Flow Information: Cash paid for interest ........................ $ 61 $ 8 $ 13 ===== ===== ===== Supplemental Disclosures of Noncash Investing and Financing Activities: Purchase of treasury stock with note payable... $ - $ 94 $ - ===== ===== ===== Stock options exercised under deferred compensation arrangements...................... $ 45 $ 43 $ 60 ===== ===== ===== Conversion of notes payable into common stock.. $ - $ 29 $ 185 ===== ===== ===== Issuance of notes in relation to severance agreements..................................... $ - $ 89 $ - ===== ===== ===== Issuance of common stock for fixed assets...... $ - $ - $ 48 ===== ===== ===== The accompanying notes to the financial statements are an integral part of these consolidated statements.
- F8 - EXCALIBUR TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) THE COMPANY OPERATIONS AND ORGANIZATION The Company designs, develops, markets and supports computer software products used for the document imaging and multimedia information retrieval marketplaces. The Company also offers consulting, training, maintenance and systems integration services in support of its customers' use of its software products. In addition, the Company performs research and development under contract and licenses proprietary software products for use in compound-document, digital library, positive identification, and on-line services and information retrieval systems. Distribution of the Company's products occurs through value added resellers, system integrators, original equipment manufacturers, other distributors and a direct sales force to North American and international customers including commercial firms in various industries and government agencies. The Company has incurred cumulative losses of approximately $18.6 million over the last three fiscal years and the accumulated deficit of the Company at January 31, 1996 was $36,446,000. The Company's operations are subject to certain risks and uncertainties including, among others, actual and potential competition by entities with greater financial resources, experience and market presence than the Company; the success of the Company's product marketing and product distribution strategies; risks associated with acquisitions and international expansion; the need to manage growth and certain technology risks. The consolidated financial statements include the accounts of Excalibur Technologies Corporation ("Excalibur"); its wholly-owned subsidiary, Excalibur Technologies International, Ltd. ("ETIL"); and the acquired company, ConQuest Software, Inc. ("ConQuest"). These entities are collectively referred to hereinafter as the "Company." All significant intercompany transactions and accounts have been eliminated. Certain amounts presented in the prior years' financial statements have been reclassified to conform with the fiscal 1996 presentation. ACQUISITION OF CONQUEST SOFTWARE, INC. In July 1995, the Company acquired ConQuest, a private company located in Columbia, Maryland, engaged in the business of providing natural language text management software tools. The former shareholders of ConQuest received approximately 1,427,000 shares of common stock of Excalibur in exchange for all of the common stock of ConQuest. Outstanding options to purchase common stock of ConQuest were converted into options to purchase approximately 572,000 shares of Excalibur common stock. The acquisition was accounted for as a pooling of interests and, as such, the accompanying consolidated financial statements reflect the combined results of the pooled businesses for the respective periods presented. The Company recorded a charge of approximately $490,000 for the estimated transaction costs to complete the merger between Excalibur and ConQuest. The costs included legal, accounting and other professional fees of $363,000 and other costs of $127,000. These costs were paid by January 31, 1996. - F9 - Separate results of Excalibur and ConQuest for the periods preceding the acquisition are as follows (in thousands):
Fiscal quarter Fiscal years ended ended January 31 April 30, 1995 1995 1994 Revenues: ---------- ---------- ---------- Excalibur, previously reported ... $ 2,801 $ 10,841 $ 10,665 ConQuest.......................... 840 1,797 1,620 ---------- ---------- ---------- Total, as restated................... $ 3,641 $ 12,638 $ 12,285 ========== ========== ========== Net Loss: Excalibur, previously reported ... $ (466) $ (6,926) $ (6,641) ConQuest.......................... (137) (2,462) (1,678) ---------- ---------- ---------- Total, as restated................... $ (603) $ (9,388) $ (8,319) ========== ========== ==========
Prior to its acquisition by Excalibur, ConQuest reported operating results on a calendar year basis. ConQuest's separate results for prior years have not been restated to conform to the fiscal year of Excalibur. Therefore, the Company's consolidated balance sheet at January 31, 1995 combines the consolidated balance sheet of Excalibur and ETIL as of January 31, 1995 and the balance sheet of ConQuest as of December 31, 1994. Further, ConQuest's separate results of operations for the month ended January 31, 1995 are not reflected in the consolidated statement of operations for the current fiscal year. The revenues, operating loss and net loss of ConQuest for the month ended January 31, 1995 were $138,000, $177,000 and $181,000, respectively. The results of operations contained in these consolidated financial statements for the fiscal years ended January 31, 1995 and 1994 combine those of Excalibur for the periods, as previously reported, with those of ConQuest for the calendar years ended December 31, 1994 and 1993, respectively. (2) SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. - F10 - REVENUE RECOGNITION Revenues from the sale of computer software licenses are recognized upon shipment of product provided that no significant vendor obligations remain and that collection of the resulting receivable is considered probable. Revenues related to agreements with customers that contain future performance requirements are recognized in accordance with such performance requirements. Revenues related to customer support agreements are deferred and recognized ratably over the term of the respective agreements, usually one year. Maintenance revenues that are bundled with initial licensing fees are deferred and recognized over the term of the related maintenance periods, typically 90 days. RESEARCH AND DEVELOPMENT COSTS No product development costs were capitalized, and there were no capitalized costs not yet amortized, during the fiscal years ended January 31, 1996, 1995 and 1994. CASH AND CASH EQUIVALENTS For purposes of the balance sheets and statements of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. U.S. government securities are considered investments and are excluded from cash equivalents regardless of their maturities. Cash equivalents consist of funds deposited in money market accounts. Consequently, the carrying amount of cash and cash equivalents approximates fair value. MARKETABLE SECURITIES Under the Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting For Certain Investments in Debt and Equity Securities," that was adopted February 1, 1994, the Company classifies its marketable securities as held-to-maturity securities. Accordingly, marketable securities, consisting entirely of U.S. government securities, are carried at cost, adjusted for premium and discount amortization. At January 31, 1996 and 1995, the aggregate fair value of the securities based upon quoted market prices was $10,345,000 and $8,583,000, respectively. The Company's adoption of SFAS No. 115 did not have an impact on the Company's consolidated financial statements as marketable securities previously were carried at cost. INCOME TAXES Deferred taxes are provided utilizing the liability method as prescribed by SFAS No. 109, "Accounting for Income Taxes," whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. - F11 - DEPRECIATION AND AMORTIZATION Depreciation of office furniture and equipment is provided over the estimated useful lives of the assets on a straight-line basis. Lives range from three to ten years. Amortization of leasehold improvements is provided on a straight-line basis over the term of the applicable lease. Accumulated depreciation and amortization of office furniture and equipment and leasehold improvements as of January 31, 1996 and 1995 was approximately $2,838,000 and $1,912,000, respectively. NET LOSS PER COMMON SHARE Net loss per common share is calculated based on the weighted-average number of common shares outstanding during each period, after deducting the dividends on preferred stock (see Note 3). Common stock equivalents (stock options, warrants and cumulative convertible preferred stock) were excluded from the net loss per share computations for all periods presented herein because of their anti-dilutive effect. TRANSLATION OF FOREIGN FINANCIAL STATEMENTS Assets and liabilities of foreign operations are translated at the year-end rate of exchange. Statements of operations are translated at the average rates of exchange during the year. Gains or losses from translating foreign currency financial statements are accumulated in a separate component of shareholders' equity. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, marketable securities, and accounts receivable. The Company's investment policy limits its exposure to concentrations of credit risk. The Company sells its products primarily to U.S. government agencies and to major corporations, including value-added resellers that serve a wide variety of U.S. and foreign markets. The Company extends credit to its corporate customers based on an evaluation of the customer's financial condition, generally without requiring a deposit or collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. The allowance for doubtful accounts was $375,000 and $374,000, respectively, at January 31, 1996 and 1995. ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of," that will be effective for the Company's fiscal year 1997 consolidated financial statements. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The impact of adopting this statement is not expected to be material to the Company's results of operations or financial position. - F12 - In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." Effective with the Company's fiscal year 1997 consolidated financial statements, this statement will require new disclosures about certain employee stock options based on their fair value at the date of grant. Companies may also base the recognition of compensation cost for new and modified options on these fair values. Currently, the Company plans to continue to apply existing accounting rules for stock-based compensation pertaining to employees as allowed under SFAS No. 123. However, fair value accounting will be required for transactions involving the issuance of stock options or other equity instruments to acquire goods or services from nonemployees. (3) CAPITALIZATION STOCK OFFERINGS On March 8, 1996, the Company completed a private placement of 350,000 shares of the Company's common stock at an offering price of $25.00 per share, resulting in net proceeds of approximately $8,388,000. Allen & Company Incorporated ("Allen"), a shareholder of the Company, acted as the placement agency in this transaction and received a fee of approximately $350,000. On April 25, 1994, the Company completed a private placement of 625,000 shares of the Company's common stock to an unaffiliated institutional investor, at an offering price of $8.00 per share, resulting in net proceeds of approximately $4,800,000 to the Company. Allen acted as the placement agency in this transaction and received a fee of $200,000. CUMULATIVE CONVERTIBLE PREFERRED STOCK The cumulative convertible preferred stock is convertible into common stock at the rate of 10 shares of common stock per share of cumulative convertible preferred stock. Holders of the cumulative convertible preferred stock are entitled to receive cumulative dividends of $0.50 per share per annum, payable annually on April 1 if declared by the Board of Directors, in cash or shares of common stock (to be determined by the Board of Directors) valued at the lower of $1.00 per share or the market price on the date of declaration. The amount of accumulated dividends which have not been declared or accrued at January 31, 1996 is approximately $14,000. In the event of voluntary liquidation, dissolution or winding-up of the Company or upon any distribution of assets, whether voluntary or involuntary, holders of the convertible preferred stock would have a liquidation preference of $10 per share, plus accrued and unpaid dividends. - F13 - (4) EMPLOYEE BENEFIT PLANS STOCK OPTIONS The Company has an Incentive Stock Option Plan (the "Plan"), to attract, retain and reward key employees of the Company by offering such key employees performance-based stock incentives and/or other equity interest or equity-based incentives in the Company, as well as performance-based incentives payable in cash. The Plan is administered by a Committee appointed by the Board of Directors, which has the authority, among other things, to determine which officers, directors and key employees are eligible for awards under the Plan, the type and amount of incentives to be awarded, and the restrictions and terms of such incentives. In June 1993, the Company's shareholders approved an increase in the number of shares reserved for issuance under the Plan from 1,600,000 to 2,450,000. At January 31, 1996, 455,563 shares remain available for issuance under the Plan. The Plan provides for the issuance of qualified and non-qualified stock options. Qualified Incentive Stock Options are granted at an exercise price equal to the fair market value of the common stock, calculated as an average of the closing price on the ten trading days prior to the date of grant, have ten-year terms, and vest over four-year periods. Non-qualified options are granted at an exercise price at or below the fair market value of the common stock at the date of grant and may be immediately exercisable. The Company records compensation expense equal to the difference between the fair market value of the stock at the date of grant and the exercise price, over the vesting period. The Plan also provides that optionees may be granted stock appreciation rights (SARs) at the discretion of the Board of Directors. To date, no SARs have been granted. The vesting schedule of outstanding options, and SARs outstanding for at least six months, would accelerate under the Plan in the event of the occurrence of certain events constituting a change in control of the Company. In addition to the options awarded under the Plan, the Directors award and authorize additional options as they deem appropriate. During fiscal year 1996, no stock options were granted outside the Plan. - F14 - The following table summarizes the Company's stock option activity: Number Price Range Per Share ------ --------------------- Balance, January 31, 1993 2,044,705 $ .35 - 17.02 Granted 324,000 11.64 - 15.33 Exercised (290,705) .35 - 10.00 Canceled (96,100) 7.36 - 16.91 --------- Balance, January 31, 1994 1,981,900 1.00 - 17.02 Granted 145,000 6.34 - 11.60 Exercised (55,000) 6.25 - 6.25 Canceled (228,450) 8.47 - 16.64 ---------- Balance, January 31, 1995 1,843,450 1.00 - 17.02 Granted 588,000 7.44 - 26.21 Exercised (702,661) 1.00 - 16.91 Canceled (183,963) 7.44 - 16.64 ---------- Balance, January 31, 1996 1,544,826 $ 6.34 - 26.21 ========== At January 31, 1996, options to purchase a total of 933,189 shares were immediately exercisable at prices ranging from $6.34 to $20.56 per share. The Company also adopted the 1995 Incentive Plan (the "1995 Plan") in November 1995, under which Excalibur employees formerly employed by ConQuest were granted incentive stock options to purchase 324,150 restricted shares of Excalibur common stock at an exercise price of $15.23 per share; of these, 13,400 were canceled during fiscal 1996. The 1995 Plan authorizes the granting of options to purchase up to 400,000 shares of the Company's common stock. The terms of the 1995 Plan are identical to the terms of the Plan described above, except that the 1995 Plan does not provide for the award of stock appreciation rights. At January 31, 1996, options to purchase 38,844 shares were exercisable under the 1995 Plan. Pursuant to the merger with ConQuest, outstanding options to purchase common stock of ConQuest were converted into options to purchase 572,481 restricted shares of Excalibur common stock. The ConQuest Stock Option Plan (the "ConQuest Plan") was adopted in 1991 and provided for the issuance of qualified and nonqualified stock options. - F15 - The following table summarizes the activity under the ConQuest Plan, as converted to Excalibur shares: Number Price Range Per Share ------ --------------------- Balance, January 31, 1993 523,598 $ 1.04 - 4.14 Granted 98,597 4.14 - 4.14 Exercised - - Canceled - - ------ Balance, January 31, 1994 622,195 1.04 - 4.14 Granted 55,278 2.07 - 4.14 Exercised (37,930) 1.04 - 3.11 Canceled (67,062) 1.04 - 4.14 -------- Balance, January 31, 1995 572,481 1.04 - 4.14 Granted - - Exercised (11,944) 4.14 - 4.14 Canceled - - ------ Balance, January 31, 1996 560,537 $ 1.04 - 4.14 ======= At January 31, 1996, all of the outstanding options to purchase Excalibur shares under the ConQuest Plan were exercisable. DEFERRED COMPENSATION ConQuest entered into arrangements with certain of its officers, employees and independent consultants to defer a portion of their compensation. Deferred compensation to employees is restricted for use in the exercise of stock options. However, if the employees' options have expired because the term has lapsed or because employment has been terminated, the employee may request cash redemption one year after expiration, with 90 days notice. During fiscal years 1996, 1995 and 1994, deferred compensation of $45,000, $43,000 and $60,000, respectively, was settled through the exercise of options to purchase stock. Pursuant to the merger with ConQuest, deferred compensation of $88,000 was paid in cash. Effective January 1, 1993, ConQuest revised the deferred compensation arrangements and discontinued the accrual of interest on deferred compensation balances for employees only. Interest continues to accrue on deferred compensation payable to independent consultants. Accrued interest, which is included in the deferred compensation balances, totaled $60,000 and $67,000, respectively at January 31, 1996 and 1995. EMPLOYEE SAVINGS PLANS The Company has an employee savings plan which qualifies under Section 401(k) of the Internal Revenue Code (the "Code"). Under the plan, participating U.S. employees may defer up to 20 percent of their pre-tax salary, but not more than statutory limits. During fiscal year 1996, the Company made a discretionary contribution of $3,000 to the savings plan. - F16 - Effective January 1, 1994, ConQuest established an employee contribution plan intended to be a qualified plan under Section 401 (k) of the Code. Each participant may elect pre-tax salary deferrals, up to the maximum percentage allowable by the plan and under the Code. Matching contributions are discretionary and none were made through the end of fiscal 1996. (5) INCOME TAXES Since the Company incurred pretax losses for the fiscal year periods presented herein, there are no income taxes provided in the accompanying statements of operations. Though management believes that future net operating income and taxable income of the Company may be sufficient to realize the benefits of the Company's net operating loss carryforwards and to utilize the associated deferred tax asset, a valuation allowance has been recorded to offset completely the carrying value of such deferred tax asset due to the Company's lack of prior earnings and the size of the accumulated deficit. As of January 31, 1996, the Company had net operating loss carryforwards of approximately $48,737,000 that expire at various dates beginning in fiscal year 1997 through fiscal year 2011. Realization of the benefits of the net operating loss carryforwards may be limited in the event of future changes in the ownership of the Company. At the same date, the Company also had net operating loss carryforwards relating to ConQuest of approximately $2,855,000. Because there was a change in ownership of ConQuest, as defined by the Code, during fiscal year 1996, the Company's future realization of the benefits of these net operating loss carryforwards, that begin to expire in fiscal year 2009, also may be limited. Despite the NOL carryfowards, the Company may have income tax liability in future years due to the application of the alternative minimum tax rules of the Code. (6) COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS The Company conducts its operations using leased office facilities. The leases terminate at various dates through fiscal year 2002. The Company also has operating leases for automobiles at its foreign subsidiary which are included in the figures below. Future minimum rental payments under noncancelable operating leases as of January 31, 1996, net of sublease payments, are as follows (in thousands): Year Ending January 31 1997 $ 1,154 1998 996 1999 936 2000 849 2001 714 2002 480 =========== $ 5,129 =========== - F17 - Total rental expense under operating leases, net of sublease income, was approximately $870,000, $873,000, and $877,000 in the fiscal years 1996, 1995 and 1994, respectively. In fiscal year 1995, other income included approximately $208,000 that ConQuest received from its former landlord as incentive for ConQuest to terminate its lease for office space. EMPLOYMENT AGREEMENTS In connection with the merger with ConQuest, the Company entered into employment agreements with four former officers of ConQuest. The employement agreements, which expire in July 1997, provide for aggregate minimum annual salary compensation of $548,000 plus incentive compensation. (7) RESTRUCTURING COSTS In the fourth quarter of fiscal year 1996, the Company completed an assessment of its personnel and facilities requirements and finalized a corporate restructuring and relocation plan. This plan included the relocation of the Company's corporate headquarters from San Diego, California to McLean, Virginia and the consolidation of the product development and related customer support teams into two facilities. The relocation was made to move corporate management closer to the Company's major domestic and European customers and to better organize the technical staff to support major product development initiatives. Consequently, the Company recorded a restructuring charge of $653,000 in the fourth quarter of the current fiscal year. This charge consisted of severance payments to terminated employees, including a balance payable to the Company's former Chief Executive Officer under an employment agreement, and lease abandonment costs. A substantial amount of the balance accrued at January 31, 1996 should be paid during fiscal year 1997. During fiscal year 1995, the Company recorded a charge of $312,000 for a corporate restructuring that included the consolidation of a remote development facility. Additionally, the Company reviewed its computer equipment requirements, and consistent with its strategic direction, recorded a $464,000 charge for equipment no longer meeting the requirements of its current product development. - F18 - (8) OPERATIONS BY GEOGRAPHIC AREA The major portion of the international sales of the Company for the past three years were made by the Company's foreign subsidiary, ETIL, which was established in the United Kingdom during fiscal year 1993. The following table presents information about the Company's operations by geographical area (in thousands):
Fiscal Years Ended January 31 -------------------------------------- 1996 1995 1994 ---- ---- ---- Sales to unaffiliated customers: North American operations $15,124 $10,416 $10,867 ETIL 3,551 2,222 1,418 ----- ----- ----- $18,675 $12,638 $12,285 ======= ======= ======= Net loss: North American operations $ (597) $(9,069) $(7,899) ETIL (287) (319) (420) ----- ----- ----- $ (884) $(9,388) $(8,319) ========= ======== ======== Identifiable assets: North American operations $20,528 $16,324 $16,970 ETIL 2,518 1,627 1,045 ----- ----- ----- $23,046 $17,951 $18,015 ======= ======= =======
- F19 - (9) OTHER FINANCIAL DATA a) Equipment and leasehold improvements at January 31 consist of the following (in thousands): 1996 1995 ---- ---- Computer equipment $4,061 $3,664 Office furniture 631 615 Leasehold improvements 89 156 ------- ------ 4,781 4,435 Less accumulated 2,838 1,912 ----- ----- depreciation $1,943 $2,523 ====== ====== b) Accrued liabilities at January 31 consist of the following ( in thousands): 1996 1995 ---- ---- Accrued salaries, bonuses and commissions $1,413 1,331 Taxes payable 655 308 Accrued restructuring 473 130 costs Accrued legal costs 15 716 Other 443 841 --- --- $2,999 $3,326 ====== ====== c) The Company paid legal fees and expenses totaling approximately $361,000, $487,000 and $60,000, respectively, in fiscal 1996, 1995 and 1994 to a law firm in which a director of the Company is a partner. d) Revenues derived from contracts and orders issued by agencies of the U.S. government were approximately $4,255,000, $3,668,000 and $3,578,000, respectively, in the fiscal years ended January 31, 1996, 1995 and 1994. These revenues, expressed as a percentage of total revenues for the fiscal year, were approximately 23%, 29% and 29%, respectively. The Company has distribution and cooperative marketing arrangements with International Business Machines Corporation (IBM). Under these agreements, the Company recognized revenues of approximately $1,538,000, or 12% of total revenues, in the fiscal year ended January 31, 1995. Revenues related to these agreements were less than 10% of total revenues in fiscal years 1996 and 1994. - F20 - SCHEDULE II EXCALIBUR TECHNOLOGIES CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR FISCAL YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
Translation Balance at Additions Deductions Adjustment Balance Beginning Charged From During at End Description of Year to Expense Reserves the Period of Year - ----------- -------- ---------- ---------- ---------- ------- 1996 - ---- Deducted from accounts receivable: For doubtful accounts $374,000 $ 91,000 $96,000 (a) $ 6,000 $375,000 1995 - ---- Deducted from accounts receivable: For doubtful accounts $100,000 $361,000 $87,000 (a) $ - $374,000 1994 - ---- Deducted from accounts receivable: For doubtful accounts $100,000 $ - $ - $ - $100,000 Note (a) - Uncollected receivables written off, net of recoveries.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. EXCALIBUR TECHNOLOGIES CORPORATION By: /s/Patrick C. Condo ------------------------ Patrick C. Condo President and Chief Executive Officer Date: April 26, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/Patrick C. Condo - ---------------------- President, Chief Executive Patrick C. Condo Officer and Director (Principal Executive Officer) April 26, 1996 /s/Richard M. Crooks, Jr. - ---------------------- Chairman of the Board of Richard M. Crooks, Jr. Directors April 26, 1996 /s/James H. Buchanan Chief Financial Officer - ---------------------- Secretary and Treasurer James H. Buchanan (Principal Financial Officer and Principal Accounting Officer) April 26, 1996 - ---------------------- Chief Scientist and Director James W. Dowe III /s/Edwin R. Addison - ---------------------- Director April 26, 1996 Edwin R. Addison /s/Jay H. Diamond - ---------------------- Director April 26, 1996 Jay H. Diamond /s/J.M. Kennedy - ---------------------- Director April 26, 1996 J.M. Kennedy /s/W. Frank King III - ---------------------- Director April 26, 1996 W. Frank King III /S/Philip J. O'Reilly - ---------------------- Director April 26, 1996 Philip J. O'Reilly EX-10.07 2 EMPLOYMENT AGREEMENT, 7/20/95 W/ EDWIN R.ADDISON EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of July __, 1995, between Edwin Addison (the "Employee") and Excalibur Technologies Corporation, a Delaware corporation, having its principal office at 9255 Towne Centre Drive, San Diego, CA 92121 (the "Company"). WHEREAS, Employee presently serves as the Chief Executive Officer of ConQuest Software, Inc.; and WHEREAS, the Company's wholly-owned subsidiary, Excalibur Acquisition Corporation, is entering into an agreement and plan of merger with ConQuest Software, Inc. (the "Merger"); and WHEREAS, the Company desires to employ Employee in the position of Executive Vice President on the terms and conditions set forth herein; and the Employee is willing to accept and undertake such employment; WHEREAS, this Agreement supersedes Employee's prior employment agreement with ConQuest Software, Inc.; NOW, THEREFORE, in consideration of the foregoing and the provisions contained herein, Employee and the Company hereby agree as follows: 1. EMPLOYMENT. For a period commencing on the date of consummation of the Merger and extending until the second anniversary thereof (the "Employment Period"), the Company will employ Employee and the Employee agrees to and does hereby accept employment by the Company, as Executive Vice President. 2. DUTIES; FULL-TIME SERVICES. 2.1 DUTIES. Employee's responsibilities and duties shall be those described in the attached Exhibit A, which duties shall not be materially altered or diminished during the term of employment without the Employee's consent. The Employee shall report to the Company's Chief Executive Officer. 2.2 FULL-TIME SERVICES. The Employee agrees that during the Employment Period he will devote his full time and use his best efforts, ability and skill to promote and advance the Company's business and interest and to discharge his duties to the reasonable satisfaction of the Board of Directors of the Company. During the Employment Period, the Employee will not accept other gainful employment or become or remain an officer or director of any other corporation except with the consent of the Board of Directors of the Company. 2.3 LOCATION. The Employee's office shall be located in Columbia, Maryland. If the Company requires the Employee's relocation, and such relocation necessitates relocation of the Employee's residence (as reasonably determined by the Company), the Company shall promptly reimburse to the Employee his costs of relocation (including, but not limited to, real estate sales commission, moving costs, and trips incident to locating a new residence) plus an amount equal to the applicable state or federal income tax payable by the Employee in connection with such reimbursement. 3. COMPENSATION. 3.1 For all services performed by the Employee for the Company during the Employment Period, the Employee will be compensated as follows: (a) SALARY. During the Employment Period, the Company will pay the Employee an annual salary of $150,000 (the "Base Salary") in equal semi-monthly installments. (b) INCENTIVE COMPENSATION. The Employee will receive incentive compensation during the Company's fiscal year ended January 31, 1996 as set forth on Schedule A to this Agreement. During the balance of the Employment Period, Employee will receive incentive compensation pursuant to an incentive compensation plan which will be similar to the incentive compensation plans made available to other executive officers of the Company. The level of Employee's participation and the amount of his incentive compensation shall be commensurate with Employee's position as Executive Vice President and his performance during the relevant period. 3.2 OTHER BENEFITS. Employee will be entitled to receive such health, workmen's compensation, death, disability and other insurance benefits and to participate in such retirement and other plans, as are made available to other executive officers of the Company. The level of Employee's participation, or the amount of his benefits shall be commensurate with benefits made available to other employees 4. STOCK OPTIONS. Employee shall be granted 40,000 options to purchase shares of Excalibur Common Stock, of which 26,260 shall be qualified stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended) and 13,740 options shall be non-qualified options to purchase shares of Excalibur Common stock at an exercise price equal to the average closing price of Excalibur Common Stock during the ten trading days prior to the closing of the Merger. These options will vest in equal 12.5% increments every six months over four years. The Employee will participate in future grants under the Company's present (and any future) option plan at a level and on terms comparable to the Company's other senior executives, without regard to the number of options described within the first sentence of this paragraph. 5. CONFIDENTIALITY. 5.1 As used in this Agreement, "Confidential Information" means trade secrets and any other proprietary or confidential information that derives independent economic value to the Company or its affiliates from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use and that is the subject of efforts by the Company that are reasonable under the circumstances to maintain its secrecy including, without limitation, information with respect to marketing, sales, client and supplier list, corporate planning and financial projections. Confidential Information may include, but not be limited to, inventions, disclosures, processes, systems, know-how, methods, techniques, drawings, applications, solutions, materials, devices, research activities and plans, scientific data, specifications, costs of production, prices, promotional methods, financial information, marketing plans or customer and supplier information. The Employee agrees that any Confidential Information which Employee may acquire in the course of employment with the Company, shall be regarded as held by him in a fiduciary capacity, solely for the benefit of the Company, and shall not at any time, either during the term of this Agreement or thereafter, be disclosed, divulged, furnished or made available to any third party or be otherwise used by Employee other than in the regular course of business of the Company. Information or collections of information shall be considered covered by the preceding sentence if not known by the public generally, even though portions of such information may be publicly available or may be available to certain third parties pursuant to arrangements with the Company. 5.2 Upon termination of his employment with the Company, the Employee will deliver to the Company all writings relating to or containing Confidential Information, including without limitation, notes, memoranda, letters, drawings, diagrams, printouts, computer tapes, computer disks, and any other form of recorded information. 5.3 As a means reasonably calculated to prevent Employee from disclosing any Confidential Information concerning the Company acquired by Employee or used during the term of this employment, which would cause the Company to be injured, because disclosure or use of such information is difficult to detect and establish, and in recognition of Employee's critical and unique role in the Company, Employee agrees that, during the term of his employment by the Company, and for two years thereafter, he will not knowingly (i) on behalf of any person or any entity other than the Company employ, retain, or solicit for employment or retention any person who is at the time, an employee of the Company or any affiliated or subsidiary of the Company in an executive, creative, managerial, technical, marketing or sales capacity, or cause or assist any other person or entity to do the same, (ii) directly or indirectly solicit or contact, or cause, encourage or assist any other person or entity to solicit or contact, any client of the Company, for the purpose of competing with the Company in any way, or (iii) divert or attempt to divert, or cause, encourage or assist any other person or entity to divert any business or business opportunity of the Company of which the Employee became aware in connection with his employment by the Company. 6. DEVELOPMENTS. Employee agrees promptly to disclose to the Company all inventions, improvements, enhancements, discoveries and developments, which are within the scope of the Company's products currently marketed or under development during the Employment Period and which are made, developed or conceived by him, either solely or jointly with others, during the Employment Period. All such inventions, improvements, enhancements, discoveries and developments shall become and remain the property of the Company, whether or not patent or copyright applications have been filed thereon or with respect thereto, and the Employee in consideration for the execution of this Agreement, and his employment by the Company, hereby sells, assigns and transfers to the Company all right, title and interest in and to such inventions, improvements, enhancements, discoveries and developments, and further agrees that he will cooperate fully and unconditionally in all reasonable requests by the Company in furtherance of protecting, developing or exploiting commercially any inventions, improvements, enhancements, discoveries and developments disclosed pursuant to this Section 6. Further, Employee agrees that he will promptly execute all necessary documents request of him by the Company incidental to any patent or copyright application, assignments, powers of attorneys and all other documents and do such other things as, in the opinion of counsel for the Company, may be necessary or useful for the full enjoyment thereof throughout the world by the Company and its designees. 7. REMEDIES. Employee acknowledges that any breach of any of the covenants contained in Section 5 or Section 6 hereof may cause damage to the Company not readily susceptible to measurement in economic terms or for which economic compensation may be inadequate. Accordingly, in addition to any other remedy provided at law or in equity, Employee agrees that the Company shall be entitled to temporary, preliminary and/or permanent injunctive relief restraining Executive from any actual or threatened violation of the covenants contained in Section 5 or 6 (without any bond or security being required). 8. TERMINATION OF EMPLOYMENT. Employee's employment by the Company may be terminated in the manner, for the reasons and with the consequences provided for in this Section 8. (a) Employee's employment hereunder may be terminated by the Company effective at the end of the Employment Period without any additional payment being due to Employee, provided that the Company shall remain liable to pay the Employee the full amount of his salary and bonus and any other amounts otherwise payable to him by the Company, which amounts are attributable to any period prior to such termination. (b) In the event that Employee shall be disabled through illness or accident in performing his duties hereunder for a period in excess of six months, the Company shall have the option, upon giving of not less than 30 days' written notice thereof, exercisable only so long as such disability shall continue, to terminate Employee's employment under this Agreement. In the event that Employee's employment is so terminated, or the Employee dies during the term of this Agreement, the Company will pay to the Employee or his Estate, as the case may be an amount equal to the amount of the remaining salary payments due to Employee for the remainder of the Employment Period as set forth in Section 3.1. The Employee or his Estate shall be paid the foregoing amounts periodically, as though he were still on the Company's payroll. In addition, the Company will pay Employee or his Estate the share of any incentive compensation to which Employee would be entitled pro rated for the period of time during which Employee actually was employed. Finally, the Company will provide Employee (if he is disabled) with life and health insurance and such other similar benefits as Employee is receiving upon the date of discharge for the remaining term of the Employment Period. (c) Unless previously terminated pursuant to the provisions of subdivision (a) or (b) of this Section 8, Employee's employment hereunder may be terminated without any additional payment being due to Employee, if (i) Employee shall have materially violated any of the provisions of this Agreement and shall have continued to do so after receipt of written notice thereof from the Company and reasonable opportunity to cure to the extent that such breach is susceptible to complete cure or (ii) Employee shall have engaged in any action during Employee's employment hereunder involving willful malfeasance or gross negligence or shall have given aid to a competitor of the Company which reasonably could be expected to be detrimental to the Company. Notwithstanding anything contained herein to the contrary, the Company shall remain liable for the full amount of his salary and bonus and any other amounts otherwise payable to him by the Company, which amounts are attributable to any period prior to termination under this Section 8(c). (d) The Employee and the Company expressly agree that nothing in this Agreement shall prohibit the Company from discharging the Employee for any reason. If the Company discharges the Employee for any reason other than is set forth in Sections 8(a), (b) or (c) above, the Company will pay to the Employee the remaining salary payments due the Employee for the Employment Period. The Employee shall be paid the foregoing amount periodically as though he were still on the Company's payroll. In addition, the Company will pay Employee the share of any incentive compensation to which Employee would be entitled as an employee had he been employed through the Employment Period. 9. NON-SOLICITATION: NON-COMPETITION. Whereas, this Agreement is being executed in connection with the Agreement and Plan of Merger pursuant to which ConQuest Software, Inc. is being merged into a wholly-owned subsidiary of the Company pursuant to which all of Employees shares in ConQuest are being acquired in exchange for shares of the Company's Common Stock, Employee has agreed to the following provisions: 9.1 NON-SOLICITATION. In addition to the limitations contained in Section 2, the Employee agrees that during the term of this Agreement, and for a term of two years after termination of this Agreement, that he will not directly or indirectly solicit for employment any person employed by the Company or, at the end of the Employment Period, any person being recruited by the Company. In the event of breach of this covenant not to compete, the parties acknowledge that the Company may be irreparably damaged and may not have an adequate remedy at law. The Company may therefore obtain injunctive relief, without the necessity of posting a bond, for any breach or threatened breach of this covenant. 9.2 NON-COMPETITION. Employee agrees that during the term of this Agreement and for a period of two years after termination of his employment with the Company he will not compete, directly or indirectly, with the Company in fields of business in which the Company is engaged as of the date of the termination of his employment. For purposes of this Section 9.2 direct competition means designing, developing, producing or selling products competitive with those of the Company's products being marketed or under development during the term of this Agreement or providing assistance to any person or entity engaged in any such activity. Indirect competition means accepting employment, with the department, division, or other business unit of a third party which department, division or business unit produces products competitive with the Company's products marketed or under development during the term of this Agreement. Notwithstanding the foregoing, it shall be deemed a violation of this Section 9.2 if the Employee accepts employment during the two year period following the termination of this Agreement with any of the following: Fulcrum Technologies, Inc. Verity Personal Librarian Systems Dataware IDI Microsoft 23158/1111/JD/230341.1 Oracle 10. DILUTION PROTECTION. The following section from the Employee's previous employment agreement with ConQuest Software, Inc. shall not be effective until this Dilution Protection Section is explicitly approved by shareholders holding a majority of the Company's outstanding Common Stock as part of a stockholder vote: The Company retains the right to dilute its equity for the purposes of raising capital. Such dilution is intended at add value to the corporation. Whenever dilution takes place, all existing shares will be diluted equally with respect to the current base of 1.8 million shares, subject to the following exceptions: a. The board of directors may allocate up to 2% additional for use in incentives. b. Directors and officers are permitted to be distributed warrants uniformly in proportion to their equity in the event of a merger, acquisition, public offering, or major sale of equity in the event of a merger, acquisition public offering, or major sale of equity. Such warrants must be at prices at or above the then current stock price and are used as incentives for future performance, c. If shares are sold at a price less than any unexercised option price, such option price will be either adjusted downward to the sale price, or the number of shares which can be purchased at the aggregate option amount will be adjusted upward to reflect such price. 11. ABILITY TO PERFORM. The Employee hereby represents and warrants to the Company that he is under no legal disability and has entered into no agreements which in any way limit or render the Employee incapable of performing his obligations under this Agreement or his fiduciary duties as the Executive Vice President of the Company. The Employee further covenants that he will not impair his ability to carry out his obligations under this Agreement or his fiduciary duties as Executive Vice President of the Company by entering into any agreement or in any way assisting others, directly or indirectly, to enter into any agreement which will violate the nondisclosure, noncompetition and confidentiality provisions of this Agreement. 12. SURVIVAL OF OBLIGATIONS. The covenants and agreements set forth in this Agreement shall survive any termination of this Agreement and remain in full force and effect regardless of the cause of the termination to the full extent necessary to protect the interest of the party in whose favor they run. 13. ASSIGNABILITY OF AGREEMENT. 13.1 BY EMPLOYEE. Except as otherwise provided in this Agreement, the Employee shall not be entitled to assign (voluntarily or involuntarily, by operation of law or otherwise) any of his rights under this Agreement, nor delegate any of his duties or obligations under this Agreement, without the prior written consent of the Company. 13.2 BY THE COMPANY. The benefits hereunder with respect to the rights of the Company to the services of the Employee may be assigned by the Company to any other Company or other business entity which succeeds to all or substantially all of the business of the Company through merger, consolidation, corporate reorganization or by acquisition of all or substantially all of the assets of the Company or to a company controlled by it, or controlling it, or under common control with it; provided, however, that the obligations and liabilities of the Company under this Agreement shall be binding upon any such successors in interest or transferees. 14. NOTICES. All notices, consents, waivers or demands of any kind which either party to this Agreement may be required or may desire to serve on the other party in connection with this Agreement, shall be in writing and may be delivered by personal service or sent by facsimile or sent by registered or certified mail, return receipt requested, with postage thereon fully prepaid. All such communications shall be addressed as follows: Corporation: Excalibur Technologies Corporation 9255 Towne Centre Drive San Diego, California 92121 with copies to: Jay H. Diamond Holtzmann, Wise & Shepard 1271 Sixth Avenue 45th Floor New York, New York 10020 Employee Edwin Addison 8395 Scarlett Glenn Court Millersville, MD 21108 If sent by facsimile, a confirmed copy of such facsimile notice shall promptly be sent by mail (in the manner provided above) to the addresses. Service of any such communication made only by mail shall be deemed complete on the date of actual delivery as shown by the addressee's registry or certification receipt or at the expiration of the third (3rd) business day after the date of mailing, whichever is earlier in time. Either party thereto may from time to time, by notice in writing served upon the other as aforesaid, designate a different mailing address or a different person to which such notices or demands are thereafter to be addressed or delivered. Nothing contained in this Agreement shall excuse either party from giving oral notice to the other when prompt notification is appropriate, but any oral notice given shall not satisfy the requirement of written notice as provided in this Section. 15. SUPERSEDES OTHER AGREEMENTS. This Agreement supersedes and replaces all prior negotiations, proposed agreements and agreements, written or oral. 16. GOVERNING LAW. This Agreement shall be interpreted and enforced according to the laws of the State of Delaware (regardless of that jurisdiction's or any other jurisdiction's choice of law principles). 17. SEVERABILITY. If any provision of this Agreement is or becomes or is deemed invalid, illegal, or unenforceable in any jurisdiction, (a) such provision will be deemed amended to conform to applicable laws of such jurisdiction so as to be valid and enforceable, or, if it cannot be so amended without materially altering the intention of the parties, it will be stricken, (b) the validity, legality and enforceability of such provision will not in any way be affected or impaired thereby in any other jurisdiction, (c) the remainder of this Agreement will remain in full force and effect. 18. COUNTERPARTS. This Agreement may be executed in two original counterparts. Both counterparts shall constitute one and the same Agreement 19. ARBITRATION. Except for any claim or dispute which gives rise or could give rise to equitable relief under this Agreement, any disagreement, dispute or controversy arising under this Agreement shall be settled exclusively and finally by arbitration. The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA Rules") in Baltimore, Maryland or in such other city as the parities to the dispute may designate by mutual consent. The arbitration tribunal shall consist of three arbitrators (or such lesser number as may be agreed upon by the parties) selected according to the procedure set forth in the AAA Rules in effect on the date hereof. The chairman of the arbitration tribunal shall be appointed by the American Arbitration Association from among the three arbitrators so selected. The fees and expenses of the arbitration tribunal incurred in connection with such arbitration shall be borne equally by the parties to the arbitration or otherwise as the arbitrators may determine. -2- 23158/1111/JD/230341.1 IN WITNESS WHEREOF, the parties hereto have entered into the above Agreement as of the day and year first above written. [Edwin Addison] EXCALIBUR TECHNOLOGIES CORPORATION By: Name: Title: -3- 23158/1111/JD/230341.1 EXHIBIT A . General management of Federal Government business of Excalibur . General Management of the On-line (I.E., content providers) business of Excalibur . Director to the corporation . Negotiate/maintain select strategic relationships . Provide significant input to product/market strategy and business vision . Provide leadership/energy in establishing new business initiatives as appropriate . Communicate the company's vision to employees and customers * General Management includes all aspects of management of a business unit including revenue, delivery, net contribution, customer satisfaction. SCHEDULE A The Employee is eligible to earn incentive compensation for the fiscal year ended January 31, 1996 in an aggregate amount equal to 55% of the Base Salary payable to the Employee during such period. Payment of incentive compensation shall be determined as follows: 40% of the amount payable shall be paid quarterly (up to 10% for each quarter) in the event that the Company earns revenue equal or greater than the amount budgeted during each quarter; and 40% of the amount payable shall be paid quarterly (up to 20% for each quarter) in the event that the Company achieves profitability in the third and/or fourth quarter; 20% shall be payable in the discretion of the Compensation Committee of the Board of Directors EX-10.09 3 CONQUEST INCENTIVE STOCK OPTION PLAN, 8/19/93 CONQUEST SOFTWARE, INC. STOCK OPTION PLAN ConQuest Software, Inc., a Maryland corporation, (the "Company") hereby adopts the following Stock Option Plan, to be known as the ConQuest Software, Inc. Stock Option Plan (the "Plan"). 1. PURPOSE. The Plan is intended to promote the interests of the Company and its subsidiaries by providing the employees of the Company and such other persons as determined by the Board of Directors an additional financial incentive and, through stock ownership, increase their proprietary interest in the success of the Company and promote their continuity of association with the Company. 2. STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in paragraph 7 herein, the stock subject to the provisions of this Plan and reserved for issuance hereunder shall consist of Seven hundred fifty thousand (750,000) shares of the Company's common stock. The Stock to be optioned hereunder may either be authorized and unissued stock or stock reacquired by the Company as treasury stock. In the event any option granted hereunder shall expire, terminate or be forfeited for any reason without having been exercised in full, the unpurchased shares covered thereby shall be added to the shares otherwise available for options hereunder. 3. ELIGIBILITY. Options shall be granted hereunder at the discretion of the Board of Directors of the Company (the "Board") to any individual who is an employee or a director of the Company, or such other person as determined by the Board on the date of grant; provided, however, that Qualified Stock Options may be granted hereunder only to individuals who are employees of the Company at the time of grant. In no event shall a Qualified Stock Option be granted to any person who, at the time of grant, owns stock possessing more than a ten percent (10%) of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporations (hereinafter referred to as a "ten-percent shareholder"); provided, however, that this restriction shall not apply if at the time of grant the option price is not less than 110% of the fair market value of the Stock subject to the option and such option is not exercisable after the expiration of five (5) years from the date of grant. 4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board; provided, however, that the Board shall have authority, at its discretion, to create a Stock Option or Compensation Committee ( the "Committee") which shall consist of not less than two (2) Board members designated from time to time by the Board. The Committee, if created, shall have full authority to administer the Plan, subject to the requirement of reporting to the Board at least annually as to the number and extent of any options granted and the recipients thereof. All questions of interpretation and construction of the Plan and of any options issued under it shall be determined by a majority of the Board, or by a majority of the Committee, if created, and the determination of such majority shall be final, binding and conclusive upon all persons. No member of the Board or Committee shall be liable for any action or determination made in good faith, and the members shall be entitled to indemnification and reimbursement to the extent and as provided in the Company's bylaws and Articles of Incorporation. The Plan shall be administered so as to qualify stock options designated as Qualified Stock Options under the Plan as "Incentive Stock Options" under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 5. EFFECTIVE DATE AND AWARD OF OPTIONS. This Plan which was adopted by the Company and became effective on the 1st day of February, 1991 (the "Effective Date"), shall be subject to approval by a majority vote of the stockholders of the Company as required by Code Section 422(b)(1). Options may be granted hereunder from time to time after the Effective Date and prior to the expiration of ten (10) years from the Effective Date. No specific option as to any employee or any other person shall be effective unless specific Board or Committee action conferring said option has been taken and nothing in this Plan shall PER SE be construed as the grant of an option to any person. Options under this Plan shall be designated by the Board or Committee at the time of the grant as either a Qualified Stock Option or a Nonqualified Stock Option. Any option granted shall be formalized by a written agreement substantially in the form of the Option Agreement which is attached hereto as Exhibit "A" (for Qualified Stock Options) or exhibit "B" (for Nonqualified Stock Options), and executed by or on behalf of the Company and the person to whom such option is granted. Qualified Stock Options are intended to comply with Section 422 of the Code as "Incentive Stock Options." All other options granted under this Plan are Nonqualified Stock Options. 6. OPTION PRICES. The purchase price of the shares of Common Stock which are covered by all options granted hereunder shall be not less than the fair market value of the Stock at the time such option is granted. If the Board or the Committee does not establish a specific purchase price per share at the time of grant, the purchase price per share shall be equal to the fair market value of a share of Stock on the date of grant of the option. With regard to any specific option, the Board or Committee shall determine the option price within these guidelines. 7. CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding shares of Stock of the Company are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of a reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination of shares, or dividend payable in capital stock, appropriate adjustment shall be made by the Board or Committee in the number and kind of shares for the purchase of which options may be granted under the Plan, including the maximum number or amount that may be granted to any one participant. In addition, the Board or Committee shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable, to the end that the optionee's proportionate interest shall be maintained as before the occurrence of such event. Such adjustment in outstanding options shall be made without change in the total price applicable to the unexercised portion of the option and with a corresponding adjustment in the option price per share; provided, however, that each such adjustment in the number and kind of shares subject to outstanding options, including any adjustments in the option price, shall be made in such manner so that this Plan and the stock options designated as Qualified Stock Options granted and to be granted hereunder shall continue to qualify under Code Section 422. Any such adjustment made by the Board or Committee shall be conclusive. 8. EXERCISE RESTRICTIONS. (a) IN GENERAL: Subject to the vesting provisions described in Sections 8(b) and 8(c), no option granted hereunder shall be exercisable prior to the expiration of one (1) year from the date of grant, nor after the expiration of ten (10) years from the date of grant except that in the event a Qualified Stock Option is granted to a "ten-percent shareholder" (as herein-above defined), in which case such option, by its terms, may not be exercisable after the expiration of five (5) years from the date of grant; provided, however, that within these parameters the Board or Committee may prescribe the expiration date or term of each option granted hereunder. The aggregate fair market value (determined at the time the option is granted) of the Stock with respect to which Qualified Stock Options granted under this Plan are exercisable for the first time by an optionee during any calendar year (under all such plans of the optionee's employer corporation and its parent and subsidiary corporations) shall not exceed $100,000. (b) VESTING OF QUALIFIED STOCK OPTIONS: Subject to Section 8(a), each optionee shall acquire the right to exercise the Qualified Stock Options granted to him by completing twelve months of service with the Company, its parent and subsidiaries, such that upon completion of the service specified, and optionee may, subject to all other terms hereof, exercise the Qualified Stock Options. (c) VESTING OF NONQUALIFIED STOCK OPTIONS: Subject to Section 8(a), each optionee shall immediately acquire the right to exercise the Nonqualified Stock Options granted to him, subject to all other terms hereof, and is fully vested in his Nonqualified Stock Options. (d) BOARD OR COMMITTEE DISCRETION: Notwithstanding Sections 8(b) and (c), the Board or the Committee may, in its discretion, grant Qualified Stock Options or Nonqualified Stock Options with a different vesting schedule, even if that vesting schedule is less favorable than provided in sections 8(b) and (c), but such vesting schedule must be contained in the Agreement executed as provided in Section 5. However, the limitations in Section 8(a) may not be waived or modified under this Section 8(d). 9. METHOD OF EXERCISE. (a) IN GENERAL: To the extent that the right to purchase shares by the exercise of options has accrued hereunder, part or all of an option may be exercised from time to time by the optionee's delivery of a signed, written notice to the Company stating the number of shares with respect to which the option is being exercised. The shares purchased shall be delivered and payment therefore made thirty (30) days after the giving of such notice unless an earlier date shall have been mutually agreed upon. At the time of delivery and payment the Company shall, without transfer or issue tax to the optionee (or other person entitled to exercise the option), deliver to the optionee (or other person entitled to exercise the option) at the main office of the Company, or such other place as shall be mutually acceptable, a certificate or certificates for such shares out of theretofore authorized but unissued shares or reacquired shares of its Stock, as the Company may elect, against payment of the option price in full for the number of shares to be delivered by certified or bank cashier's check. If the optionee (or other person entitled to exercise the option) fails to accept delivery of or pay for all or any part of the number of shares specified in such notice upon tender of delivery thereof, his right to exercise the option with respect to such undelivered or non-paid shares may be terminated at the discretion of the Board or Committee. (b) NONQUALIFIED STOCK OPTIONS: The exercise of Nonqualified Stock Options shall be as provided in Section 9(a), as modified by this Section 9(b). Holders of Nonqualified Stock Options shall be entitled, at or prior to the time the written notice provided for in section 9(a) is delivered to the Company, to elect to have the Company withhold from the shares of Stock to be delivered upon exercise of the Nonqualified Stock Option that number of shares of Stock (determined based on the fair market value of a share of Stock on the date the notice set forth in section 9(a) is received by the Company) necessary to satisfy any withholding taxes attributable to the exercise of the Nonqualified Stock Option. Alternatively, such holder of a Nonqualified Stock Option may elect to deliver previously owned shares of common stock upon exercise of the Nonqualified Stock Option to satisfy any withholding taxes attributable to the exercise of the Nonqualified Stock Option. The maximum amount that an optionee may elect to have withheld from the shares of Stock otherwise deliverable upon exercise shall be equal to the minimum federal and state withholding. Notwithstanding the foregoing provisions, the Board or Committee may include in the Nonqualified Stock Option Agreement relating to any such Nonqualified Stock Option provisions limiting or eliminating the Option holder's ability to pay his withholding tax obligation with shares of Stock or, if no such provisions are included in the Agreement but in the opinion of the Board or Committee such withholding would have an adverse tax or accounting effect to the Company, at or prior to exercise of the Nonqualified Stock Option the Board or Committee may so limit or eliminate the optionee's ability to pay his withholding tax obligation with shares of Stock. 10. TRANSFERABILITY OF OPTIONS. An option shall not be transferable, except, in the event of the optionee's death, by will or the laws of descent and distribution, and an option may be exercised during the lifetime of an employee only by him. 11. TERMINATION OF EMPLOYMENT. In the event the employment, with the Company or a parent or subsidiary of the Company, of an employee to whom an option has been granted shall terminate for any reason, his vested options may be exercised only within ninety (90) days after the date of termination, notwithstanding the fact that, but for such termination, the option would have extended for a longer period. If an employee to whom an option has been granted shall die or become disabled, during the term of his employment by the Company or any of its subsidiaries, or within ninety (90) days thereafter, such option may be exercised (but only to the extent that the employee could have done so on the date of his death or his disability), at any time within one (1) year after the termination of employment. In any event an option shall not be exercisable by anyone after the date of expiration of the option period. 12. SECURITIES REGISTRATION. Neither the options granted hereunder nor the shares of the Company which may be acquired pursuant to such options are registered under the securities laws of the United States, or any state thereof, and upon issuance, the shares of stock will be "restricted," as that term is defined by the Securities Act of 1933, for United States securities law purposes. The shares of stock, upon acquisition, will not be transferable, pursuant to such Act, without the registration thereof under the Securities Act of 1933 and any applicable state securities laws, or an opinion of counsel to the Company that such registration is not required. Each participant shall agree to hold the shares acquired by his exercise of the options granted hereunder for investment purposes only and not with a view to or for resale, transfer or other distribution thereof to any other person or entity, and he shall deliver to the Company, upon exercise, a certificate to that effect and an investment letter in form approved by the Company's counsel. In the event that the company shall nevertheless deem it necessary to register under the Securities Act of 1933 or other applicable statutes, any shares with respect to which an option shall have been exercised, or to qualify any such shares for exemption from the Securities Act of 1933, then the Company shall take such action at its own expense before delivery of such shares. 13. RIGHTS AS A STOCKHOLDER. An optionee shall have no rights as a stockholder with respect to any shares covered by his option until the date of issuance of a stock certificate to him for such shares. No adjustment, other than as may be required by the terms of numerical paragraph seven (7) above, shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. Notwithstanding any other provision in this Plan, all options under this Plan shall be granted on the condition that, upon exercise of the option, the shares of common stock and the optionee are subject to the Shareholders Agreement which is attached hereto as Exhibit "C", or any successor thereto, as if the optionee had executed the Shareholders Agreement, and the shares issued upon exercise of the option shall bear any restrictive legend required by said agreement. 14. EFFECTIVE DATE AND TERMINATION OF PLAN. The Board of Directors may terminate this Plan at any time. Termination of the Plan will not affect rights and obligations theretofore granted and then in effect. 15. AMENDMENT OF PLAN. The Board of Directors may at any time amend the Plan, provided that without approval of stockholders there shall be, except by operation of the provisions of paragraph 7 above, no increase in the total number of shares covered by the Plan or which may be sold pursuant to options granted hereunder to any one person, there shall be no change in the class of employees eligible to receive options granted under the Plan, there shall be no reduction in the option price, and there shall be no extension of the latest date upon which options may be exercised, and provided further that no amendment may affect, without the consent of the optionee, then outstanding options or any unexercised portions thereof. 16. USE OF PROCEEDS. The proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company. 17. QUALIFICATION OF PLAN. The Qualified Stock Options granted hereunder are intended in all respects to comply with the terms of Code Section 422 and the Plan, as it relates to Qualified Stock Options, shall be so administered. To the extent not expressly set forth herein, the necessary applicable provisions of said Code Section 422 are incorporated herein by this reference. 18. PARENT AND SUBSIDIARY CORPORATIONS. For purposes of this Plan and any option agreement executed pursuant hereto, the terms "parent" and "subsidiary" corporations shall be defined as set forth in Code Sections 425(a) and 425(f), respectively. Signed this 19th day of August, 1993. CONQUEST SOFTWARE, INC. /s/ Dag Jensen By: /s/ Edwin R. Addison - ------------------------------- --------------------------------------- Financial Officer President EX-10.10 4 OFFICE LEASE/LITTLE PATUXENT PKWY, COLUMBIA, MD MARYLAND FULL-SERVICE OFFICE LEASE 30 COLUMBIA CORPORATE CENTER THIS LEASE is made and entered into as of the day of , 1995, by and between COLUMBIA MALL, INC., a Maryland corporation ("Landlord") by COLUMBIA MANAGEMENT, INC., Managing Agent, and EXCALIBUR TECHNOLOGIES CORPORATION, a Delaware corporation ("Tenant"). In consideration of the rents hereinafter reserved and the agreements hereinafter set forth, Landlord and Tenant mutually agree as follows: 1. SUMMARY OF TERMS. The following is a summary of the principal terms of the Lease. Any capitalized term set forth below shall, for the purposes of this Lease, have the meaning ascribed to it in this Section 1. A. DESCRIPTION OF PREMISES (1) BUILDING: The building known as 30 Columbia Corporate Center and located at 10440 Little Patuxent Parkway, Columbia, Maryland 21044. (2) BUSINESS COMMUNITY: Columbia Town Center. (3) PREMISES: Approximately 6,660 square feet of Rental Area on the eighth floor of the Building as shown on SCHEDULE A. B. RENT (1) ANNUAL BASIC RENT: TERM ANNUAL BASIC RENT MONTHLY INSTALLMENT 1/1/96-12/31/97 $113,220.00 $9,435.00 1/1/98-12/31/98 $114,885.00 $9,573.75 1/1/99-12/31/00 $116,550.00 $9,712.50 (2) ADVANCE RENT: Nine Thousand Four Hundred Thirty-five Dollars and No Cents ($9,435.00) representing the installment of Annual Basic Rent for the first leasehold month of the Term. (3) SECURITY DEPOSIT: Nine Thousand Five Hundred Seventy-three Dollars and Seventy-five Cents ($9,573.75) to be held by Landlord as provided in Section 6.4. C. ADJUSTMENTS. (1) BASE OPERATING COSTS: The Base Operating Costs for the Premises shall be the Operating Costs for the Operating Year (grossed up in accordance with Section 7.1.) which commences January 1, 1996, multiplied by Tenant's Fractional Share. (2) ADJUSTMENT PERIOD CONSUMER PRICE INDEX. Intentionally omitted. D. TERM (1) TERM: Five (5) years, subject to Section 4. (2) LEASE COMMENCEMENT DATE: January 1, 1996, subject to Section 4 and subject to satisfaction of the conditions set forth in the "Contingency" provision in Section 34. (3) TERMINATION DATE: December 31, 2000, subject to Section 4. E. NOTICE AND PAYMENT (1) Tenant Notice Address: Excalibur Technologies Corporation Thirty Columbia Corporate Center Suite 800 10440 Little Patuxent Parkway Columbia, Maryland 21044 (2) Landlord Notice Address: Columbia Management, Inc. 10420 Little Patuxent Parkway Suite 420 Columbia, Maryland 21044 with a copy to: Columbia Management, Inc. c/o The Rouse Company 10275 Little Patuxent Pkwy Columbia, Maryland 21044 Attention: General Counsel (3) Landlord Payment Address: Columbia Management, Inc. P.O. Box 64385 Baltimore, Maryland 21264-4385 2 F. BROKER Mr. David Cravedi The Fred Ezra Company 4520 East West Highway Bethesda, Maryland 20814 2. DEFINITIONS. For purposes of this Lease, the Schedules attached and made a part hereof and all agreements supplemental to this Lease, the following terms shall have the respective meanings as set forth in the following Section, subsection, paragraph and Schedule references: Reference Additional Rent..........................................................6.3 Advance Rent.........................................................1.B.(2) Alterations.............................................................15.1 Annual Basic Rent....................................................1.B.(1) Bankruptcy Code.........................................................19.1 Base Operating Cost..................................................1.C.(1) Building.............................................................1.A.(1) Casualty................................................................17.1 Common Area.............................................................10.1 Default Rate.............................................................6.5 Event of Default........................................................20.1 Event of Tenant's Bankruptcy............................................19.1 Fractional Share.........................................................7.1 Insolvency Laws.........................................................19.1 Landlord Notice Address.................................................1.E. Landlord Payment Address................................................1.E. Lease Commencement Date..............................................1.D.(2) Mortgage..................................................................27 Mortgagee.................................................................27 Operating Costs..........................................................7.1 Operating Costs Statement................................................7.2 Operating Year...........................................................7.1 Plans and Specifications.................................................5.1 Premises.............................................................1.A.(3) Prevailing Market Rate (Renewal Term)....................................4.3 Prevailing Market Rate (Expansion).........................................3 Property.................................................................7.1 Public Areas......................................................Schedule C Ready for Occupancy......................................................4.2 Renewal Term.............................................................4.3 Rental Area................................................................3 Rental Year..............................................................6.1 Rules and Regulations......................................................9 3 Security Deposit.....................................................1.B.(3) Tenant Improvements......................................................5.1 Tenant Notice Address...................................................1.E. Tenant's Share of Increased Operating Costs..............................7.2 Tenant's Personal Property..............................................15.3 Term.....................................................................4.1 Termination Date.....................................................1.D.(3) Transfer..................................................................25 3. LEASED PREMISES; MEASUREMENT; EXPANSION. 3.1. LEASED PREMISES; MEASUREMENT. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises as shown on the plan attached hereto as SCHEDULE A, together with the right to use, in common with others, the Common Area. The rental area of the Premises ("Rental Area") has been computed in accordance with the applicable formula set forth in SCHEDULE X attached hereto and made a part hereof. Within sixty (60) days following completion of the Tenant Improvements, either Landlord or Tenant shall have the right to remeasure the Premises in accordance with the above formula and if such measurement shall disclose that the Rental Area of the Premises is different from that set forth in Section 1.A. hereof, the Annual Basic Rent and the Tenant's Fractional Share shall be adjusted accordingly. If neither party elects to remeasure the Premises during such sixty (60) day period, then the Rental Area set forth in Section 1.A. shall be conclusively deemed the Rental Area of the Premises. 3.2. RIGHT OF FIRST OFFER. Subject to (i) the provisions set forth hereinafter, (ii) the superior rights of third parties, and (iii) any renewal(s) (whether by amendment/extension agreement or by the execution of a new lease agreement) of the term of the lease between Landlord and Molinaro Associates, Inc., the tenant currently occupying the Additional Premises or the term of the Lease for the replacement tenant for Suite 870 (as hereinafter defined), Tenant shall have a one-time right of first offer to lease from Landlord approximately 1,861 square feet of space in the Building as identified on SCHEDULE A-1 ("Suite 870"), on the same terms as contained in this Lease for the Premises, except that the per square foot Annual Basic Rent for Suite 870 shall be equal to the per square foot rate of Annual Basic Rent in effect for the Premises at the time that Tenant takes occupancy of the Additional Premises, which per square foot Annual Basic Rental shall, thereafter, be subject to the same per square foot graduations of Annual Basic Rental set forth in Section 1.B.(1) at the times set forth therein. In addition, subject to (i) the provisions set forth hereinafter, (ii) the superior rights of third parties, and (iii) the term of the Lease of the next tenant occupying Suite 890 (as hereinafter defined), Tenant shall have a one-time right of first offer to lease from Landlord approximately 1,465 square feet of space in the Building as identified on SCHEDULE A-1 ("Suite 890"), on the same terms as contained in this Lease for the Premises, except that the per square foot Annual Basic Rent for Suite 890 shall be equal to the per square foot rate of Annual Basic Rent in effect for the Premises at the time that Tenant takes occupancy of Suite 890, which per square foot Annual Basic Rental shall, thereafter, be subject to the same per square foot graduations of Annual Basic Rental set forth in Section 1.B.(1) at the times set forth therein. Tenant acknowledges that Suite 890 is presently vacant and Tenant declined to include Suite 890 with the Premises and Tenant's rights herein are subject to the term of a lease of the next tenant to occupy the space regardless of the length of time Suite 890 is vacant before Landlord obtains a tenant. 4 Tenant agrees to accept Suite 870 and/or Suite 890 in their as-is condition as of the date of delivery of Suite 870 and/or Suite 890 by Landlord to Tenant and further acknowledges that Landlord is not obligated to provide any improvements whatsoever to either Suite 870 or Suite 890. Tenant shall exercise its right of first offer by written notice to Landlord within fifteen (l5) days following receipt of written notice from Landlord that Suite 870 and/or Suite 890 is available for lease. In the event that Tenant exercises the right granted herein, Landlord and Tenant shall enter into an amendment to this Lease to incorporate Suite 870 and/or Suite 890 and to make necessary adjustments to the Annual Basic Rent and similarly affected provisions of this Lease. In the event Tenant declines to exercise its right as above provided for, or fails to deliver notice thereof within the time period stipulated above, or fails to execute the requisite amendment to this Lease, this right of first offer shall lapse and be of no further force and effect. The foregoing right of first offer shall not be severed from this Lease or separately sold, assigned or transferred and shall be subject to the following additional conditions, namely: (a) that the lease term for any additional space shall run concurrently with this Lease; (b) that the rental for Suite 870 and/or Suite 890 shall be as set forth hereinabove; (c) that there shall be no abatement of rent; (d) that, unless otherwise set forth in this Section, Landlord shall not be obligated to construct, pay for or grant an allowance with respect to tenant improvements; (d) that, at the time that Tenant exercises this right of first offer for any additional space, an Event of Default by Tenant shall not exist under this Lease; (e) that, at the time Tenant exercises this right of first offer, Tenant shall be in occupancy and possession of the Premises, subject to Section 25.1.; (f) that Tenant shall enter into an amendment to this Lease to incorporate the additional space and make corresponding modifications to the provisions of this Lease; (g) that Landlord and Tenant shall enter into an amendment to this Lease to incorporate the Additional Premises and make corresponding modifications to the provisions of this Lease regarding Annual Basic Rent and Base Operating Costs; and (h) the holders of any superior rights to the Additional Premises have not exercised such rights. 5 4. TERM AND COMMENCEMENT OF TERM. 4.1. TERM. The Term shall be for the period of time specified in Section 1.D.(1) plus the part of the month, if any, from the Lease Commencement Date to the first day of the first full calendar month in the Term, unless earlier terminated pursuant to any other provision of this Lease or pursuant to law. 4.2. OPTION TO RENEW. Provided Tenant is in possession of at least fifty percent (50%) of the Premises (subject to Section 25.1.) and is not in default of any term, covenant or condition of this Lease, Tenant shall have one (1) option to renew the Term of this Lease for one (1) additional period of five (5) years ("Renewal Term") to commence immediately upon the expiration of the initial Term , upon the same terms, covenants and conditions as contained in this Lease, except that (i) the Annual Basic Rent during said Renewal Term shall be at ninety-five percent (95%) of the "Prevailing Market Rate" and (ii) there shall be no further option to renew except as specifically provided herein and (iii) Landlord shall not be obligated to construct, pay for or grant an allowance with respect to tenant improvements unless otherwise specifically provided for in this Lease. "Prevailing Market Rate" shall mean the current market rental rate for the Premises as determined by Landlord but shall not be more than the rate at which Landlord would offer such space or space of approximately the same size and location to a third party and shall include concessions being offered by Landlord in the business community including rent abatements. In no event, however, shall the Annual Basic Rent during the Renewal Term be less than the Annual Basic Rent reserved under this Lease for the Rental Year immediately preceding the Renewal Term for which the determination is being made. In order to exercise the option granted herein, Tenant shall notify Landlord, in writing, not less than six (6) months prior to the expiration of the initial Term that it is considering exercising its option to renew the Term. On receipt of such notice, Landlord will, in writing, not later than thirty (30) days after receipt of the notice from Tenant, quote to Tenant what the new Annual Basic Rent will be for the ensuing Renewal Term. Tenant shall then notify Landlord, in writing, not later than fifteen (15) days after notice received of such Annual Basic Rent, as to whether or not it will exercise the option herein granted and if no such notice of exercise of the option is received, the option shall be deemed waived. In the event Tenant exercises the option, Landlord and Tenant shall execute a modification to this Lease acknowledging such renewal and setting forth the new Annual Basic Rent. The option shall be void if, at the time of exercise of such option, Tenant is not in possession of at least fifty percent (50%) of the Premises or there is an Event of Default under this Lease or if Tenant fails to deliver the requisite notice thereof within the time period specified above. The option granted herein shall not be severed from this Lease, separately sold, assigned or transferred. 5. TENANT IMPROVEMENTS AND ACCEPTANCE OF PREMISES. 5.1. TENANT IMPROVEMENTS. Landlord shall, at its sole expense, in a manner agreed upon by Landlord and Tenant, perform the improvements to the Premises set forth in the Plans and Specifications attached as or described in SCHEDULE B hereto ("Tenant Improvements"). Landlord shall diligently pursue completion of the construction of the Tenant Improvement and complete such construction as soon as possible but in no event later than April 1, 1996. All materials shall be building-standard materials unless otherwise specified in SCHEDULE B. Except as otherwise specifically provided in this Lease, Landlord shall not be responsible for performing or paying for the moving or installation of telephone and computer systems, wiring or cabling, or the acquisition, moving or installation of Tenant's furnishings, fixtures and equipment in the Premises. 6 Any other initial improvements to the Premises not shown on SCHEDULE B are subject to Landlord's prior written approval which approval shall not unreasonably be withheld, conditioned or delayed and such improvements shall be performed by Landlord, the cost thereof to be paid by Tenant to Landlord within thirty (30) days following receipt of Landlord's invoice for same. SCHEDULE B may be modified by the parties, provided they mutually agree to (i) the modifications to be made; (ii) the cost, if any, of the modifications; and (iii) the manner in which any additional cost shall be paid or reflected in the rent. Modification of the Plans and Specifications, where requested by Tenant, shall not affect Tenant's obligation to pay rent. Any amounts payable by Tenant hereunder shall include Landlord's standard construction management fee computed on the total cost of construction, including but not limited to the cost of developing, preparing and modifying construction drawings. Landlord shall have the right to enter the Premises to construct the Tenant Improvements, and such entry and work by Landlord, its agents, servants, employees or contractors for such purpose shall not constitute an actual or constructive eviction, in whole or in part, entitle Tenant to any abatement or diminution of rent, relieve Tenant of any of its obligations under this Lease, be deemed an interference with Tenant's right to peaceful and quiet enjoyment of the Premises, or impose any liability upon Landlord or its agents, employees or contractors except for damage caused by its negligence or willful misconduct. Landlord shall use all reasonable efforts not to disrupt Tenant during such period of construction. In the event the Tenant Improvements are not completed on or before April 1, 1996, subject to the provisions of Section 24 and except for delays caused by Tenant, Tenant shall have the right, with notice to Landlord at the notice address, to complete the Tenant Improvements and Landlord shall reimburse Tenant for the reasonable cost of the Tenant Improvements completed by Tenant. 5.2. ACCEPTANCE OF PREMISES. After substantial completion of the Tenant Improvements by Landlord, Landlord and Tenant shall conduct a joint inspection of the Premises during which they shall develop a mutually agreeable punchlist of items to be completed by Landlord which shall be completed by Landlord within thirty (30) days unless requested materials or parts are special or back ordered items. Landlord shall have the right to enter the Premises to complete or repair any such punchlist items and entry by Landlord, its agents, servants, employees or contractors for such purpose shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent or relieve Tenant of any of its obligations under this Lease, or impose any liability upon Landlord or its agents, servants, employees or contractors. 6. RENT. 6.1. ANNUAL BASIC RENT. Tenant shall pay to Landlord during each Rental Year of the Term fixed rent equal to the Annual Basic Rent as set forth in Section 1.B.(1). Annual Basic Rent shall be payable in advance on the first day of each month of the Term in equal monthly installments, without notice, demand, abatement (except as otherwise specifically provided in this Lease), deduction or set-off. If the Term of this Lease shall commence on a day other than the first day of a month, the first payment shall include any prorated Annual Basic Rent for the period from the Lease Commencement Date to the first day of the first full calendar month of the Term. "Rental Year" shall mean each successive twelve (12) calendar month period occurring during the Term of this Lease, or portion of such a period, with the first Rental Year commencing as of the Lease Commencement Date and ending on the last day of the twelfth full calendar month thereafter and the last Rental Year ending on the Termination Date. For any Rental Year of less or more than twelve full months, Annual Basic Rent shall be adjusted accordingly. All Annual Basic Rent and Additional Rent shall be paid to Landlord at the Landlord Payment Address. 6.2. INTENTIONALLY OMITTED. 6.3. ADDITIONAL RENT. Tenant shall pay to Landlord as additional rent ("Additional Rent") all other sums of money which shall become due and payable hereunder, including but not limited to the payment of Tenant's Share of Increased Operating Costs. Unless a date for payment is otherwise specified herein, all Additional Rent shall be due and payable within thirty (30) days of invoicing by Landlord. 6.4. ADVANCE RENT AND SECURITY DEPOSIT. A. ADVANCE RENT. Tenant shall, upon execution of this Lease, pay to Landlord an amount equal to the Advance Rent which shall be held by Landlord as security for the performance by Tenant of all of its obligations occurring prior to the Lease Commencement Date. If Tenant shall default in the performance of such obligations, Landlord may retain the Advance Rent as an offset against any damages thereby incurred by Landlord provided that the retention of such Advance Rent shall not preclude Landlord from pursuing any other remedy which it might have against Tenant. If no default shall occur by Tenant then the Advance Rent shall be applied against the installment of Annual Basic Rent payable for the month identified in Section 1.B.(2). B. SECURITY DEPOSIT. Tenant shall, upon execution of this Lease, deposit with Landlord the Security Deposit to assure Tenant's performance of all terms, provisions and conditions of this Lease. Landlord shall have the right, but not the obligation, at any time, to apply the Security Deposit to cure any breach by Tenant under this Lease and, in that event, Tenant shall immediately pay Landlord any amount necessary to restore the Security Deposit to its original amount. To the extent permitted by law, Landlord shall be entitled to the full use of the Security Deposit and shall not be required either to keep the Security Deposit in a separate account or to pay interest on account thereof. Any portion of the Security Deposit which is not utilized by Landlord for any purpose permitted under this Lease shall be returned to Tenant within sixty (60) days after the end of the Term provided Tenant has performed all of the obligations imposed upon Tenant pursuant to this Lease. 6.5. LATE CHARGE. If Tenant fails to make any payment of Annual Basic Rent, Additional Rent, or other sums required to be paid hereunder on or before the date when payment is due, Tenant shall pay to Landlord, as Additional Rent, a late charge to cover extra administrative costs and loss of use of funds equal to (a) six percent (6%) of the amount due for the first month or portion thereof that such amount is past due plus (b) interest on the amount remaining unpaid thereafter at the rate of eighteen percent (18%) per annum or six percent (6%) above the prime rate charged by Citibank, N.A., as of the due date of such amount, whichever rate is the greater; provided, however, that should such late charge at any time violate any applicable law, the late charge shall be reduced to the highest rate permitted by law (the foregoing rate being herein referred to as the "Default Rate"). Landlord's acceptance of any rent after it has become due and payable shall not excuse any delays with respect to future rental payments or constitute a waiver of any of Landlord's rights under this Lease. Notwithstanding the above, the late charge set forth above shall be waived up to two (2) times in any twelve (12) month period, provided that Tenant pays the above described sums within five (5) days after the date due. 7. OPERATING COST ESCALATIONS. 7 7.1. DEFINITIONS. For purposes of this Lease, the following definitions shall apply: a. "Operating Year" means each respective calendar year or part thereof during the Term of this Lease or any renewal thereof, or at the option of Landlord, any other twelve month period or part thereof designated by Landlord during the Term of this Lease or any renewal thereof. b. "Property" means the Building, the land upon which the Building is situated, the Common Area, and such additional facilities in subsequent years as may be determined by Landlord to be reasonably necessary or desirable for the management, maintenance or operation of the Building. c. "Operating Costs" means all expenses and costs (but not specific costs which are allocated or separately billed to and paid by specific tenants) of every kind and nature which Landlord shall pay or become obligated to pay because of or in connection with owning, operating, managing, painting, repairing, insuring and cleaning the Property, including, but not limited to, the following: (i) cost of all supplies and materials used, and labor charges incurred, in the operation, maintenance, decoration, repairing and cleaning of the Property, including janitorial service for all floor area leased to tenants; (ii) cost of all equipment purchased or rented which is utilized in the performance of Landlord's obligations hereunder, and the cost of maintenance and operation of any such equipment; (iii) cost of all maintenance and service agreements for the Property and the equipment therein, including, without limitation, alarm service, security service, window cleaning, and elevator maintenance; (iv) accounting costs, including the cost of audits by certified public accountants, outside legal and engineering fees and expenses incurred in connection with the operation and management of the Property; (v) wages, salaries and related expenses of all on-site and off-site agents or employees engaged in the operation, maintenance, security and management of the Property; provided, however, the wages, salaries and related expenses of any agents or employees not exclusively engaged in the operation, maintenance, security and management of the Property shall be apportioned as deemed appropriate by Landlord; (vi) cost of all insurance coverage for the Property from time to time maintained by Landlord, including but not limited to the costs of premiums for insurance with respect to personal injury, bodily injury, including death, property damage, business interruption, workmen's compensation insurance covering personnel and such other insurance as Landlord shall deem necessary, which insurance Landlord may maintain under policies covering other properties owned by Landlord in which event the premium shall be reasonably allocable; (vii) cost of repairs, replacements and general maintenance to the Property, including without limitation the mechanical, electrical and heating, ventilating and air-conditioning equipment and/or systems (excluding alterations attributable solely to tenants, capital improvements unless they are included under c(xi), and repairs and general maintenance paid by proceeds of insurance or by tenants or other third parties); 8 (viii) any and all Common Area maintenance, repair or redecoration (including repainting) and exterior and interior landscaping; (ix) cost of removal of trash, rubbish, garbage and other refuse from the Property as well as removal of ice and snow from the sidewalks on or adjacent to the Property; (x) all charges for electricity, gas, water, sewerage service, heating, ventilation and air-conditioning and other utilities furnished to the Property (including legal, architectural and engineering fees incurred in connection therewith); (xi) amortization of capital improvements made to the Building after the year of substantial completion of the Building, which improvements were undertaken by Landlord with the reasonable expectation that the same would result in more efficient operation of the Building or are made by Landlord pursuant to any governmental law, regulation or action not applicable to the Building at commencement of construction of the Building; provided that the cost of each such capital improvement, together with any financing charges incurred in connection therewith, shall be amortized over the useful life thereof and only that portion attributable to each Operating Year shall be included herein for such Operating Year; (xii) a management fee for the operation and management of the Property; (xiii) costs and expenses incurred in order to comply with covenants and conditions contained in liens, encumbrances and other matters of public record affecting the Property; and (xiv) all real estate taxes, assessments (special or otherwise), levies, ad valorem charges, benefit charges, water and sewer rents, rates and charges, privilege permits and any other governmental liens, impositions or charges of a similar or dissimilar nature, and any payments in lieu of such charges, regardless of whether any such items shall be extraordinary or ordinary, general or special, foreseen or unforeseen, levied, assessed, or imposed on or with respect to all or any part of the Property or upon the rent due and payable hereunder by any governmental authority (all of the aforesaid being hereinafter referred to as "Taxes"); provided, however, that if at any time during the Term or any extension thereof the method of taxation prevailing at the commencement of the Term shall be altered or eliminated so as to cause the whole or any part of the above items which would otherwise be included in Taxes to be replaced by a levy, assessment or imposition, which is (A) a tax assessment, levy, imposition or charge based on the rents received from the Property whether or not wholly or partially a capital levy or otherwise, or (B) a tax, assessment, levy, imposition or charge measured by or based in whole or in part upon all or any portion of the Property and imposed on Landlord, or (C) a license fee measured by the rent payable by Tenant to Landlord, or (D) any other tax, levy, imposition, charge or license fee, however described or imposed, then such levy, assessment or imposition shall be included in Taxes; provided, however, in no event shall Tenant be required to pay any inheritance, estate, succession, income, profits or franchise taxes unless they are in lieu of or in substitution for any of the above items which would otherwise be included in Taxes; Any of the foregoing costs which under generally accepted accounting principles would be considered capital expenditures shall be amortized in accordance with generally accepted accounting principles. Notwithstanding the above, Operating Costs shall not include: 9 (a) payments of principal, interest, points and fees on any mortgages, deeds of trust or other financing instruments relating to the financing of the Property; (b) leasing commissions or brokerage fees; (c) costs associated with preparing; improving or altering space for any leasing or releasing of any space within the Building; (d) any increase in real estate taxes based on a re-assessment of the Property resulting from the sale of the Property; (e) any ground lease rental; (f) costs of capital improvements and equipment, except for those as set forth in subsection c(xi) above; (g) rentals for items (except when needed in connection with normal repairs and maintenance of permanent systems) which if purchased, rather than rented, would constitute a capital improvement which is specifically excluded in Subsection (f) above (excluding, however, equipment not affixed to the Building which is used in providing janitorial or similar services); (h) costs incurred by Landlord for the repair of damage to the Building, to the extent that Landlord is reimbursed by insurance proceeds; (i) costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements in the Building or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant leasable space for tenants or other occupants of leasable premises in the Building; (j) depreciation, amortization and interest payments, except as provided herein and except on materials, tools, supplies and vendor-type equipment purchased by Landlord to enable Landlord to supply services Landlord might otherwise contract for with a third party where such depreciation, amortization and interest payments would otherwise have been included in the charge for such third party's services, all as determined in accordance with generally accepted accounting principles, consistently applied, and when depreciation or amortization is permitted or required, the item shall be amortized over its reasonably anticipated useful life; (k) marketing costs, including leasing commissions, attorney's fees in connection with the negotiation and preparation of letters, deal memos, letters of intent, leases, subleases and/or assignments, space planning costs, and other costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transaction with present or prospective tenants or other occupants of the Building; (l) costs incurred by Landlord for alterations which are considered capital improvements, and replacements under generally accepted accounting principles, consistently applied, except as permitted in (f) and (g) above; (m) costs of a capital nature, including without limitation, capital improvements, capital repairs, capital equipment and capital tools, all as determined in accordance with generally accepted accounting principles, consistently applied, excepted as permitted in (f) and (g) above; 10 (n) costs incurred by Landlord due to a violation by any other tenant of the terms and conditions of any lease; (o) any amounts paid by Landlord for, materials, labor or equipment shall be limited to the amounts which would have been paid for the aforesaid, based upon their procurement from an unaffiliated party in an arms length transaction; (p) Landlord's general corporate overhead and corporate general and administrative expenses, to the extent such overhead and expenses exceeds the management fee; (q) any compensation paid to clerks, attendants or other persons, rendering services on behalf of Landlord in commercial concessions operated by Landlord, or any compensation paid to attendants working in a parking garage in the Building or any other parking facility operated by Landlord; (r) except for making repairs or keeping permanent systems in operation while repairs are being made, rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment ordinarily considered to be of a capital nature, except equipment not affixed to the Building which is used in providing janitorial or similar services; (s) All items and services for which Tenant or any other tenant in the Building reimburses Landlord (other than through Tenant's Percentage Share of Operating Expenses), or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement; (t) Advertising of a non-employment nature and promotional expenditures, and procurement costs of signs in or on the Building identifying the owner of the Building; (u) Electric power costs for which any tenant directly contracts with the local public service company; (v) Tax penalties incurred as a result of Landlord's negligence, inability or unwillingness to make payments when due; (w) Costs incurred in curing a violation of environmental laws regarding the storage, use or disposal of hazardous materials or substances (as defined by applicable laws) in effect in or about the Building or Property including, without limitation, hazardous substances in the ground water or soil, unless such violation of environmental laws are caused by Tenant; (x) Costs arising from Landlord's charitable or political contributions; (y) Costs arising from latent defects in the base, shell or core of the Building or the Premises; (z) Costs for procuring sculpture, paintings or other objects of art; (aa) attorney fees, costs, and disbursements (including settlements) and other expenses incurred in connection with proposals, negotiations, or disputes with other tenants or occupants or prospective tenants or other occupants, or associated with the enforcement of any leases or the defense of Landlord's title to or interest in the Premises, the Building or its appurtenances, or any part thereof. Landlord further agrees that since one of the purposes of Operating Expenses and the Increase in Operating Costs provision is to allow the Landlord to require the Tenant to pay for the costs attributable to its Premises, Landlord agrees that (i) Landlord will not collect or be entitled to collect Operating Costs from all of its tenants in an amount which is in excess of 100% of the Operating Costs actually paid by Landlord in connection with the operation of the Building. For any Operating Year during which less than ninety-five percent (95%) of the Rental Area of the Building is occupied, the calculation of that portion of Operating Costs which vary with occupancy shall be adjusted to equal the Operating Costs which Landlord projects would have been incurred had the Building been ninety-five percent occupied during such Operating Year. Landlord represents that the Building is completely constructed and improved and fully assessed for tax purposes. d. "Fractional Share" shall mean a fraction, the numerator of which is the Rental Area of the Premises and the denominator of which is the total Rental Area of the Building. For the purposes of this subparagraph, the Rental Area of the Building shall mean the sum of the Rental Area of all floors of the Building as determined by Landlord. As of the Lease Commencement Date, Tenant's Fractional Share is equal to 4.98%. 7.2. PAYMENT OF OPERATING COST ESCALATION. For each Operating Year, commencing January 1, 1997, Tenant shall pay to Landlord, in the manner provided herein, Tenant's Share of Increased Operating Costs which shall be computed by multiplying the Operating Costs for the Operating Year by Tenant's Fractional Share and subtracting the Base Operating Costs from the result obtained; provided, however, that for the Operating Years during which the Term begins and ends, Tenant's Share of Increased Operating Costs shall be prorated based upon the actual number of days Tenant occupied, or could have occupied, the Premises during each such Operating Year. Notwithstanding the foregoing, Tenant's Share of Increased Operating Costs (excluding taxes, insurance, utilities and snow removal costs) for the 1997 Operating Year shall not exceed eight percent (8%) of the Base Operating Costs (excluding taxes, insurance, utilities and snow removal costs). For purposes of calculating Tenant's Share of Increased Operating Costs for the 1997 Operating Year , Operating Costs shall not exceed one hundred eight percent (108%) of the Base Operating Costs. For each Operating Year thereafter, Tenant's Share of Increased Operating Costs (excluding taxes, insurance, utilities and snow removal costs) shall not exceed ten percent (10%) of the of the Operating Costs for the preceding Operating Year. For purposes of calculating Tenant's Share of Increased Operating Costs, Operating Costs shall not exceed one hundred ten percent (110%) of the preceding Operating Costs. Tenant's Share of Increased Operating Costs shall be paid, in advance, without notice, demand, abatement (except as otherwise specifically provided in this Lease), deduction or set-off, on the first day of each calendar month during the Term, said monthly amounts to be determined on the basis of estimates prepared by Landlord on an annual basis and delivered to Tenant prior to the commencement of each Operating Year. If, however, Landlord fails to furnish any such estimate prior to the commencement of an Operating Year, then (a) until the first day of the month following the month in which such estimate is furnished to Tenant, Tenant shall pay to Landlord on the first day of each month an amount equal to the monthly sum payable by Tenant to Landlord under this subsection 7.2 in respect of the last month of the preceding Operating Year; (b) promptly after such estimate is furnished to Tenant, Landlord shall give notice to Tenant whether the installments of Tenant's Share of Increased Operating Costs paid by Tenant for the current Operating Year have resulted in a deficiency or overpayment compared to payments which would have been paid under such estimate, and Tenant, within ten (10) days after receipt of such estimate, shall pay any deficiency to Landlord and any overpayment shall be credited against future payments required by Tenant under such estimate; and (c) on the first day of the month following the month in which such estimate is furnished to Tenant and monthly thereafter throughout the remainder of the Operating Year, Tenant shall pay to Landlord the monthly payment shown on such estimate. Landlord may at any time or from time to time furnish to Tenant a revised estimate of Tenant's Share of Increased Operating Costs for such Operating Year, and in such case, Tenant's monthly payments shall be adjusted and paid or credited, as the case may be, substantially in the same manner as provided in the preceding sentence. After the end of each Operating Year, Landlord shall determine actual Operating Costs for such Operating Year and shall provide to Tenant an "Operating Costs Statement" setting forth the actual Tenant's Share of Increased Operating Costs for such Operating Year. Within thirty (30) days after delivery of the Operating Costs Statement, Tenant shall pay Landlord any deficiency between the amount shown as Tenant's Share of Increased Operating Costs in the Operating Costs Statement and the total of the estimated payments made by Tenant during the Operating Year. In the event of overpayment, such amount shall be credited against future payments required on account of Tenant's Share of Increased Operating Costs, or if the Term has expired, Landlord shall refund to Tenant the amount of any overpayment within sixty (60) days. Each Operating Costs Statement provided by Landlord shall be conclusive and binding upon Tenant unless within thirty (30) days after receipt thereof, Tenant notifies Landlord that it disputes the correctness thereof, specifying those respects in which it claims the Operating Costs Statement to be incorrect. Unless resolved by the parties, such dispute shall be determined by arbitration in accordance with the then prevailing rules of the American Arbitration Association. If the arbitration proceedings result in a determination that the Operating Costs Statement contained an aggregate discrepancy of less than five percent (5%), Tenant shall bear all costs in connection with such arbitration. If the arbitration proceedings result in a determination that the Operating Costs Statement contained an aggregate discrepancy of greater than five percent (5%), Landlord shall bear all costs in connection with such arbitration. Pending determination of the dispute, Tenant shall pay any amounts due from Tenant in accordance with the Operating Costs Statement, but such payment shall be without prejudice to Tenant's claims. Tenant, for a period of ninety (90) days after delivery of the Operating Costs Statement in each Operating Year and upon at least ten (10) days written notice to Landlord, shall have reasonable access during normal business hours to the books and records of Landlord relating to Operating Costs for the purpose of verifying the Operating Costs Statement, Tenant to bear all costs relating to such inspection. Tenant shall reimburse Landlord for any cost for photocopying that it desires. 8. USE, CARE AND REPAIR OF PREMISES BY TENANT. 8.1. PERMITTED USES. Tenant shall use and occupy the Premises solely for general office purposes in accordance with applicable zoning regulations and for no other purpose. Tenant shall not do anything or permit anything to be done in or on the Premises, or bring or keep anything therein which will, in any way, obstruct, injure, annoy or interfere with the rights of Landlord or other tenants, or subject Landlord to any liability for injury to persons or damage to property, or interfere with the good order of the Building, or conflict with the laws, rules or regulations of any Federal, state or city authority. 8.2. CARE OF PREMISES. Tenant shall, at its sole expense, keep the Premises and the improvements and appurtenances therein in good order and condition consistent with the operation of a first-class office building, and at the expiration of the Term, or at the sooner termination of this Lease as herein provided, deliver up the same broom clean and in as good order and condition as at the beginning of the Term, ordinary wear and tear and damage by fire or other casualty excepted. Tenant, at its sole expense, shall promptly replace damaged or broken doors and glass in and about the interior of the Premises and shall be responsible for the repair and maintenance of all Tenant Improvements and Alterations, including, without limitation, the repair and replacement of appliances and equipment installed specifically for Tenant such as refrigerators, disposals, computer room air conditioning, sinks and special plumbing, special light fixtures and bulbs for those fixtures, non-standard outlets and plug-in strips, and special cabinetry. Consistent with the provisions of Section 22, Tenant shall pay for all damage to the Property and any fixtures and appurtenances related thereto, as well as for all property damage sustained by other tenants or occupants of the Building, due to any waste, misuse or neglect of the Premises and any fixtures and appurtenances related thereto or due to any breach of this Lease by Tenant, its employees, agents, representatives or invitees. 8.3. HAZARDOUS SUBSTANCES. For purposes of this provision, "Hazardous Substances" shall mean any hazardous or toxic substance, material or waste, now or hereafter defined or regulated under the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 ET SEQ.), the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. ss. 9601 ET SEQ.), the Clean Water Act (33 U.S.C. ss. 1251 ET SEQ.), the Clean Air Act (42 U.S.C. ss. 7401 ET SEQ.), and the Toxic Substances Control Act (15 U.S.C. ss. 2601 ET seq.), and all similar federal, state and local statutes, laws, rules and regulations in connection with environmental conditions, health and safety, including without limitation, asbestos and petroleum products (collectively, "Environmental Laws"). Tenant covenants and agrees that it will not use or allow the Premises to be used for the storage, use, treatment or disposal of any Hazardous Substance, without Landlord's prior written consent. Notwithstanding the foregoing, Landlord's prior written consent shall not be required with respect to Tenant's use, storage or sale of certain supplies or products, which might contain or might be considered a Hazardous Substance, in the normal course of Tenant's business in accordance with the specific use permitted by this Lease, provided, however, that Tenant shall (i) comply with all other provisions of this Section; (ii) notify Landlord in writing from time to time of the identity and approximate quantity of such Hazardous Substance; and (iii) keep each such Hazardous Substance on the Premises in quantities as small as reasonably practicable, but in no event large enough to activate reporting requirements under any Environmental Law. Tenant shall indemnify and hold harmless Landlord, its partners, affiliates and agents from and against any damages, claims, judgments, fines, penalties, costs, liabilities (including sums paid in settlement of claims) or loss including reasonable attorneys' fees, reasonable consultants' fees, and reasonable expert fees incurred by any of them to the extent resulting from Tenant's use, handling, generation, treatment, storage, disposal, other management or release of any Hazardous Substance at or from the Premises or the Property, whether or not Tenant has acted negligently with respect to such Hazardous Substance. This indemnity shall survive the expiration or earlier termination of this Lease. Landlord warrants and represents to Tenant that to Landlord's actual knowledge, there are no Hazardous Substances in violation of any Environmental Regulations in the Property of which the Premises are a part. From and after the date of execution of this Lease, Landlord will not use or allow the Property to be used for the storage, use, treatment or disposal of any Hazardous Substance, in violation of any Environmental Regulations. Landlord shall promptly contain and remediate any release of a Hazardous Substance on the Property to the extent such release arises directly from the actions of Landlord, its agents, servants and employees, and not solely from Landlord's position as an owner or operator of the Property. Landlord shall indemnify, hold harmless and defend Tenant, its agents, servants and employees, from and against all claims, actions, losses and expenses made or incurred by third parties (including attorneys' and other professional fees), arising from any conduct, activity, act, omission, or operation involving the use, handling, generation, treatment, storage, disposal, or release of any Hazardous Substance in, from, or to the Property, to the extent caused directly by the actions of Landlord, its agents, servants, and employees, and not arising solely out of Landlord's position as an owner or operator of the Property. This indemnity shall survive the expiration or earlier termination of this Lease. 8.4. COMPLIANCE WITH LAWS. Tenant, at its sole cost and expense, shall conform to and comply with and shall cause the Premises to conform to and comply with all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, and ordinances applicable to Tenant or resulting from Tenant's use or occupancy of the Premises or the Property or any part thereof. Landlord warrants and represents to Tenant that, as of the Lease Commencement Date, Landlord is in the process of implementing a compliance plan for the Building, in accordance with the requirements of The Americans With Disabilities Act of 1990, and Landlord will proceed to execute such plan throughout the Term, subject to the provisions of Sections 7 and 15.1 of this Lease. 9. RULES AND REGULATIONS. Tenant and its agents and invitees shall abide by and observe the rules and regulations attached hereto as SCHEDULE C for the operation and maintenance of the Building or any new rules and regulations which may from time to time be issued by Landlord ("Rules and Regulations"), provided that any new rules or regulations are not inconsistent with the provisions of this Lease. Nothing in this Lease shall be interpreted to impose upon Landlord any duty or obligation to enforce any such rules and regulations against any other tenant in the Building, and Landlord shall not be liable to Tenant for any violation of these rules and regulations by any other tenant or its agents or invitees. All rules and regulations promulgated by Landlord shall be reasonable, shall not materially alter the terms of this Lease and any enforcement shall be uniform with respect to all tenants' use and occupancy of the Building and Common Area. 10. COMMON AREA. 10.1. DEFINITION OF COMMON AREA. As used herein, "Common Area" mean those areas and facilities which may be furnished by Landlord on or near the Property, as designated by Landlord from time to time, intended for the general common use and benefit of all tenants of the Building and their agents, representatives, licensees, employees and invitees, including, without limitation, any and all stairs, landings, roofs, utility and mechanical rooms and equipment, service closets, corridors, elevators, lobbies, lavatories and other public areas of the Building and all parking areas, access roads, pedestrian walkways, plazas and landscaped areas. 10.2. USE OF COMMON AREA. Tenant shall have the non-exclusive right to use the Common Area in common with Landlord, other tenants in the Building, and others entitled to the use thereof, subject to such reasonable rules and regulations governing the use of the Common Area as Landlord may from time to time prescribe and subject to such easements therein as Landlord may from time to time grant to others so long as there is not material interference of Tenant's use of the Common Areas. Tenant shall not obstruct in any way any portion of the Common Area or in any way interfere with the rights of other persons entitled to use the Common Area and shall not, without the prior written consent of Landlord, use the Common Area in any manner, directly or indirectly, for the location or display of any merchandise or property belonging to Tenant or for the location of signs relating to Tenant's operations in the Premises. The Common Area shall at all times be subject to the exclusive control and management of Landlord. 11 10.3. ALTERATIONS TO THE COMMON AREA. Landlord reserves the right at any time and from time to time (i) to change or alter the location, layout, nature or arrangement of the Common Area or any portion thereof, including but not limited to the arrangement and/or location of entrances, passageways, doors, corridors, stairs, lavatories, elevators, parking areas, and other public areas of the building, and (ii) to construct additional improvements on the Property and make alterations thereof or additions thereto and build additional stories on or in any such buildings or build adjoining same; provided, however, that no such change or alteration shall deprive Tenant of access to the Premises, materially interfere with Tenant's use of the Premises or reduce the Rental Area of the Premises, unless such reduction is required by Federal, State or local laws or regulations, in which event, a reduction in the Premises shall be permitted with a commensurate reduction in rent. Landlord shall have the right to close temporarily all or any portion of the Common Area to such extent as may, in the reasonable opinion of Landlord, be necessary to prevent a dedication thereof to the public, provided that Tenant is not thereby denied access to the Premises, or for repairs, replacements or maintenance to the Common Area, provided such repairs, replacements or maintenance are performed expeditiously and in such a manner as not to deprive Tenant of access to the Premises. 10.4. MAINTENANCE. Landlord covenants to keep, maintain, manage and operate the Common Area in a manner consistent with the operation of a first class office building and to keep the sidewalks and driveways, if any, constituting a portion of the Common Area clean and reasonably clear of snow and ice. Landlord reserves the right of access to the Common Area through the Premises for the purposes of operation, decoration, cleaning, maintenance, safety, security, alterations and repairs. 11. SERVICES AND UTILITIES. So long as Tenant is not in an Event of Default under this Lease, Landlord shall provide the following facilities and services to Tenant as part of Landlord's Operating Costs (except as otherwise provided herein): a. At least one elevator (if the building contains an elevator) subject to call at all times, including Sundays and holidays. The holidays observed by Landlord are New Year's Day, Memorial Day observed, Independence Day, Labor Day, Thanksgiving, and Christmas. b. During "normal business hours" as hereinafter defined, central heating and air conditioning during the seasons of the year when these services are normally and usually furnished, and within the temperature ranges and in such amounts normally or usually furnished in comparable office buildings in the immediate vicinity. For the purposes of this paragraph b, the term "normal business hours" shall mean the periods from 8:00 a.m. until 6:00 p.m. on business days and from 9:00 a.m. until 1:00 p.m. on Saturdays. Landlord shall provide the aforesaid services at other times, at Tenant's expense, provided Tenant gives Landlord notice by 1:00 p.m. on weekdays for after-hour service on the next weekday, by 1:00 p.m. the day before a holiday for service on a holiday, and by 1:00 p.m. on Friday for after-hour service on Saturday or service on Sunday. Such after-hour, holiday or special weekend service shall be charged to Tenant at rates to be calculated by Landlord based on Landlord's costs, which rates is currently Twenty-Five Dollars ($25.00) per hour. Landlord reserves the right to adjust, from time to time, the rate at which such services shall be provided corresponding to adjustments in Landlord's costs. Tenant shall pay for such service, as Additional Rent, promptly upon receipt of an invoice with respect thereto. c. Reasonable amounts of electric current for lighting and normal and customary items of office equipment (subject to the provisions of Section 12 below). 12 d. Cleaning in Landlord's standard manner. e. Replacement of light tubes or bulbs for building standard lighting fixtures. All light tube or bulb replacements for special non-standard lighting fixtures shall be furnished and installed by Landlord at Tenant's expense. f. Rest room facilities and necessary lavatory supplies, including hot and cold running water at the points of supply, as provided for general use of all tenants in the Building and routine maintenance, painting, and electric lighting service for all public areas of the Building in such manner as Landlord deems reasonable. Any failure by Landlord to furnish the foregoing services, resulting from circumstances beyond Landlord's reasonable control or from interruption of such services due to repairs or maintenance, shall not render Landlord liable in any respect for damages to either person or property, nor be construed as an eviction of Tenant, nor cause an abatement of rent hereunder, nor relieve Tenant from any of its obligations hereunder. If any public utility or governmental body shall require Landlord or Tenant to restrict the consumption of any utility or reduce any service for the Premises or the Building, Landlord and Tenant shall comply with such requirements, whether or not the utilities and services referred to in this Section 11 are thereby reduced or otherwise affected, without any liability on the part of Landlord to Tenant or any other person or any reduction or adjustment in rent payable hereunder. Landlord and its agents shall be permitted reasonable access to the Premises for the purpose of installing and servicing systems within the Premises deemed necessary by Landlord to provide the services and utilities referred to in this Section 11 to Tenant and other tenants in the Building. In the event any failure to supply services continues uninterrupted for a period of greater than fourteen (14) consecutive calendar days and thereby renders the Premises wholly or partially untenantable, the rent shall be abated to the extent of such untenantability. Landlord acknowledges that Tenant may require an additional HVAC unit for a portion of the Premises and Landlord agrees, at Tenant's sole cost and expense, to install such supplemental HVAC equipment upon written notice from Tenant of its additional HVAC requirements. Landlord reserves the right to charge Tenant the reasonable cost, based on usage, of the removal of all trash and the reasonable cost of water/sewerage or electric service to the extent Tenant's trash disposal, water/sewerage and/or electrical usage exceeds, in Landlord's reasonable opinion, normal usage for an office tenant. 12. ELECTRIC CURRENT. Landlord shall be under no obligation to furnish electrical energy to Tenant in amounts greater than needed for lighting and normal and customary items of equipment for general office purposes, and Tenant shall not install or use on the Premises any electrical equipment, appliance or machine which shall require amounts of electrical energy exceeding the standard wattage (4.5. watts per square foot exclusive of HVAC) provided for the Building, unless the installation and use of such additional electrical equipment, appliance, or machine has been approved by Landlord pursuant to terms and conditions set forth in a separate agreement, which approval may be conditioned upon the payment by Tenant, as Additional Rent, of the cost of the additional electrical energy and modifications to the Building's electrical system required for the operation of such electrical equipment, appliance, or machine. 13. LOSS, DAMAGE AND INJURY. 13 To the maximum extent permitted by law, Tenant shall occupy and use the Premises, the Building and the Common Area at Tenant's own risk. Consistent with the provisions of subsection 16.4, Tenant's Personal Property and the property of those claiming by, through or under Tenant, located in or on the Premises or the Building, shall be and remain at the sole risk of Tenant or such other person. No representation, guaranty, assurance, or warranty is made or given by Landlord that the communications or security systems, devices or procedures used, if any, will be effective to prevent injury to Tenant or any other person or damage to, or loss (by theft or otherwise) of any of Tenant's Personal Property or of the property of any other person, and Landlord reserves the right to discontinue or modify at any time such communications or security systems, devices, or procedures without liability to Tenant. 14. REPAIRS BY LANDLORD. Landlord shall keep the Premises and the Building and all machinery, equipment, fixtures and systems of every kind attached to, or used in connection with the operation of, the Building, including all electrical, heating, mechanical, sanitary, sprinkler, utility, power, plumbing, cleaning, refrigeration, ventilating, air conditioning and elevator systems and equipment (excluding, however, lines, improvements, systems and machinery for water, gas, steam and electricity owned and maintained by any public utility company or governmental agency or body) in good order and repair consistent with the operation of the Building as a first-class office building. Landlord, at its expense (subject to reimbursement by Tenant pursuant to Section 7), shall make all repairs and replacements necessary to comply with its obligations set forth in the immediately preceding sentence, except for (a) repairs required to be made by Tenant pursuant to Section 8 and (b) notwithstanding the provisions of Section 16.4, repairs caused by the negligence or willful misconduct of Tenant, its agents, employees, invitees and guests, which repairs shall be made by Landlord at the cost of Tenant, and for which Tenant shall pay promptly, as Additional Rent, upon receipt of an invoice setting forth the cost of such repairs. There shall be no abatement in rents due and payable hereunder and no liability on the part of Landlord by reason of any inconvenience or annoyance arising from Landlord's making repairs, additions or improvements to the Building in accordance with its obligations hereunder. In an emergency, Landlord shall use all reasonable efforts to commence the repair within twenty-four (24) hours after notification from Tenant and shall diligently work to complete the same. In all other instances, Landlord shall commence repairs as soon as reasonably possible after notice from Tenant and shall diligently work to complete the same. In the event Landlord fails to commence and diligently pursue any repairs or provide services for which Landlord is responsible within thirty (30) days after written notice from Tenant of the need for repair or such services, Tenant shall have the right with notice to Landlord at the notice address to perform the repairs or provide such services and Landlord shall reimburse Tenant for the reasonable cost of repair or provision of services. 15. ALTERATIONS, TITLE AND PERSONAL PROPERTY. 15.1. ALTERATIONS. Tenant shall in no event make or permit to be made any alteration, modification, substitution or other change of any nature to the mechanical, electrical, plumbing, HVAC and sprinkler systems within or serving the Premises. After completion of Tenant's Improvements within the Premises, Tenant shall not make or permit any other improvements, alterations, fixed decorations, substitutions or modifications, structural or otherwise, to the Premises or the Building ("Alterations") without the prior written approval of Landlord. Landlord shall not unreasonably withhold or delay its consent to Alterations which do not affect the structural, mechanical, plumbing or electrical elements or systems of the Building and which are not visible from outside the Premises, provided such work conforms with the design criteria, standards and architectural guidelines for the Building. Landlord's approval shall include the conditions under which acceptable Alterations may be made. Alterations shall include, but not be limited to, the installation or modification of carpeting, walls, partitions, counters, doors, shelves, lighting fixtures, hardware, locks, ceiling, window and wall coverings; but shall not include the initial Tenant's Improvements placed within the Premises pursuant to Section 5.1. All Alterations shall be based on complete plans and specifications prepared and submitted by Tenant to Landlord for approval, except in the instance of cosmetic changes, such as painting and carpeting, in which case Tenant shall provide Landlord with samples showing colors, styles, etc. All Alterations shall be made by Landlord at Tenant's sole cost, payable by Tenant, as Additional Rent, within thirty (30) days after receipt of an invoice for same from Landlord, which cost shall include Landlord's standard construction management fee. Tenant shall be responsible for the cost of any additional improvements within the Premises or the Common Area required by The Americans with Disabilities Act of 1990 as a result of Tenant's Alterations. If Tenant makes any Alterations without the prior consent of Landlord, then, in addition to Landlord's other remedies, Landlord may correct or remove such Alterations and Tenant shall pay the cost thereof, as Additional Rent, within ten (10) days of receipt of invoice from Landlord. 15.2. TITLE. The Tenant Improvements, all Alterations and all equipment, machinery, furniture, furnishings, and other property or improvements installed or located in the Premises by or on behalf of Landlord or Tenant, other than Tenant's Personal Property, (a) shall immediately become the property of Landlord and (b) shall remain upon and be surrendered to Landlord with the Premises as a part thereof at the end of the Term. Notwithstanding the foregoing, Landlord may, upon notice to Tenant at the time Alterations are made, elect that any Alterations be removed at the end of the Term, and thereupon, Landlord shall at Tenant's sole expense, cause such Alterations to be removed and restore the Premises to its condition prior to the making of such Alterations, reasonable wear and tear excepted. Tenant shall promptly reimburse Landlord, as Additional Rent, for the cost of such work, which reimbursement obligation shall survive termination of the Lease. 15.3. TENANT'S PERSONAL PROPERTY. "Tenant's Personal Property" means all equipment, machinery, furniture, furnishings and/or other property now or hereafter installed or placed in or on the Premises by and at the sole expense of Tenant with respect to which Tenant has not been granted any credit or allowance by Landlord and which (a) is not used, or was not procured for use, in connection with the operation, maintenance or protection of the Premises or the Building; (b) is removable without damage to the Premises or the Building; and (c) is not a replacement of any property of Landlord, whether such replacement is made at Tenant's expense or otherwise. Notwithstanding any other provision of this Lease, Tenant's Personal Property shall not include any Alterations or any improvements or other property installed or placed in or on the Premises as part of Tenant's Improvements, whether or not installed at Tenant's expense. Tenant shall promptly pay all personal property taxes on Tenant's Personal Property, as applicable. Provided that Tenant is not then in default of any of its obligations under this Lease, Tenant may remove all Tenant's Personal Property from the Premises at the termination of this Lease. Any property belonging to Tenant or any other person which is left in the Premises after the date the Lease is terminated for any reason shall be deemed to have been abandoned. In such event, Landlord shall have the right to declare itself the owner of such property and to dispose of it in whatever manner Landlord considers appropriate without waiving its right to claim from Tenant all expenses and damages caused by Tenant's failure to remove such property, and Tenant shall not have any right to compensation or claim against Landlord as a result. 16. INSURANCE. 14 16.1. TENANT'S INSURANCE. Tenant, at its expense, shall obtain and maintain in effect as long as this Lease remains in effect and during such other time as Tenant occupies the Premises or any part thereof insurance policies in accordance with the following provisions. A. COVERAGE. (i) commercial general liability insurance policy, including insurance against assumed or contractual liability under this Lease, with respect to the Property, to afford protection with limits, per occurrence, of not less than One Million Dollars ($1,000,000), combined single limit, with respect to personal injury, bodily injury, including death, and property damage and Two Million Dollars ($2,000,000) aggregate (occurrence form), such insurance to provide for no deductible; (ii) all-risk property insurance policy, including theft, written at replacement cost value and with replacement cost endorsement, covering all of Tenant's Personal Property in the Premises, and covering loss of income resulting from casualty, such insurance to provide for no deductible greater than Five Thousand Dollars ($5,000). (iii) worker's compensation or similar insurance policy offering statutory coverage and containing statutory limits, which policy shall also provide Employer's Liability Coverage of not less than Five Hundred Thousand Dollars ($500,000) per occurrence. (iv) Tenant shall require any construction contractor retained by it to perform work on the Premises to carry and maintain, at no expense to Landlord, during such times as contractor is working in the Premises, a non-deductible (a) commercial general liability insurance policy, including, but not limited to, contractor's liability coverage, contractual liability coverage, completed operations coverage, broad form property damage endorsement and contractor's protective liability coverage, to afford protection with limits per person and for each occurrence, of not less than Two Million Dollars ($2,000,000), combined single limit, and with respect to personal injury and death and property damage, Four Million Dollars ($4,000,000) aggregate (occurrence form) and Two Million Dollars ($2,000,000) aggregate completed operations; (b) automobile liability insurance in the amount of One Million Dollars ($1,000,000) combined single limit for bodily injury and property damage; (c) worker's compensation insurance or similar insurance in form and amounts as required by law; and (d) any other insurance reasonably required of Tenant by Landlord or any Mortgagee. (v) Notwithstanding anything set forth above in this subsection 16.1 to the contrary, with prior written notice to Tenant, all dollar limits specified herein shall be increased from time to time as reasonably necessary to effect economically equivalent insurance coverage, or coverage deemed adequate in light of then existing circumstances. B. POLICIES. Such policies shall be maintained with companies licensed to do business in the State where the Premises are located and in form reasonably acceptable to Landlord and will be written as primary policy coverage and not contributing with, or in excess of, any coverage which Landlord shall carry. Such policies shall be provided on an occurrence form basis unless otherwise approved by Landlord and shall include Landlord and its managing agent as additional insured as to coverage under paragraphs 16.1.A.(i) and 16.1.A.(iv). Such policies shall also contain a waiver of subrogation provision and a provision stating that such policy or policies shall not be canceled, non-renewed, reduced in coverage or materially altered except after thirty (30) day's written notice, said notice to be given in the manner required by this Lease to Landlord, Attention: Risk Management Department. All such policies of insurance shall be effective as of the date Tenant occupies the Premises and shall be maintained in force at all times during the Term of this Lease and all other times during which Tenant shall occupy the Premises. Tenant shall deposit the policy or policies of such required insurance or certificates thereof with Landlord prior to the Lease Commencement Date. 16.2. TENANT'S FAILURE TO INSURE. If Tenant shall fail to obtain insurance as required under this Section 16, Landlord may, but shall not be obligated to, obtain such insurance, and in such event, Tenant shall pay, as Additional Rent, the premium for such insurance upon demand by Landlord. 16.3. COMPLIANCE WITH POLICIES. Tenant shall not do or allow to be done, or keep, or allow to be kept, anything in, upon or about the Premises which will contravene Landlord's policies insuring against loss or damage by fire, other casualty, or any other cause, including without limitation, public liability, or which will prevent Landlord from procuring such policies in companies acceptable to Landlord. If any act or failure to act by Tenant in and about the Building and the Premises shall cause the rates with respect to Landlord's insurance policies to be increased beyond those rates that would normally be applicable for such limits of coverage, after notice to Tenant of such increase and verification from Landlord's insurance carrier, Tenant shall pay, as Additional Rent, the amount of any such increases upon demand by Landlord. 16.4. WAIVER OF RIGHT OF RECOVERY. Except as provided in Section 8.3, neither party, including Landlord's managing agent, shall be liable to the other party, including Landlord's managing agent, or to any insurance company (by way of subrogation or otherwise) insuring the other party, for any loss or damage to any building, structure or other tangible property, or loss of income resulting therefrom, or losses under worker's compensation laws and benefits even though such loss or damage might have been occasioned by the negligence of such party, its agents or employees. The provisions of this Section 16.4 shall not limit the indemnification for liability to third parties pursuant to Section 22. 16.5. LANDLORD'S INSURANCE. Landlord shall carry comprehensive general liability insurance with regard to the Property and all-risk property insurance on the Property, including Tenant Improvements and Alterations but excluding Tenant's Personal Property. Landlord shall not be obligated to repair any damage to Tenant's Personal Property or replace the same. 17. DAMAGE AND DESTRUCTION. 17.1. LANDLORD'S OBLIGATION TO REPAIR AND RECONSTRUCT. If, as the result of fire, the elements, accident or other casualty (any of such causes being referred to herein as a "Casualty"), the Premises shall be rendered wholly or partially untenantable (damaged to such an extent as to preclude Tenant's use of the Premises for the purposes originally intended), then, subject to the provisions of subsection 17.2, Landlord shall cause such damage to be repaired, including Tenant Improvements and Alterations, to the extent insurance proceeds are paid to Landlord, and the Annual Basic Rent and Additional Rent (but not any Additional Rent due Landlord either by reason of Tenant's failure to perform any of its obligations hereunder or by reason of Landlord's having provided Tenant with additional services hereunder) shall be abated proportionately as to the portion of the Premises rendered untenantable during the period of such untenantability. All such repairs shall be made at the expense of Landlord, subject to the availability of insurance proceeds and Tenant's responsibilities set forth herein. Landlord shall not be liable for interruption to Tenant's business or for damage to or replacement or repair of Tenant's Personal Property, all of which replacement or repair shall be undertaken and completed by Tenant, at Tenant's expense. 15 If the Premises shall be damaged by Casualty, but the Premises shall not be thereby rendered wholly or partially untenantable, Landlord shall promptly cause such damage to be repaired and there shall be no abatement of rent reserved hereunder. 17.2. TERMINATION OF LEASE. If the Premises are (a) rendered wholly untenantable, or (b) damaged as a result of any cause which is not covered by Landlord's insurance, or if the Building is damaged to the extent of fifty percent (50%) or more of the gross leasable area thereof, or if, for reasons beyond Landlord's control or by virtue of the terms of any financing of the Building, sufficient insurance proceeds are not available for the reconstruction or restoration of the Building or Premises, then, in any of such events, Landlord may elect to terminate this Lease by giving to Tenant notice of such election within sixty (60) days after the occurrence of such event, or after the insufficiency of such proceeds becomes known to Landlord, whichever is applicable. If such notice is given, the rights and obligations of the parties shall cease as of the date set forth in such notice, and the Annual Basic Rent and Additional Rent (but not any Additional Rent due Landlord either by reason of Tenant's failure to perform any of its obligations hereunder or by reason of Landlord's having provided Tenant with additional services hereunder) shall be adjusted as of the date set forth in such notice, or, if the Premises were rendered untenantable, as of the date of the Casualty. Within sixty (60) days following a Casualty, Landlord shall notify Tenant in writing of the date on which Landlord, in its best professional judgment, estimates restoration will be substantially completed. If restoration is expected to exceed one hundred eighty (180) days from the date of Landlord's notice, then Tenant shall have the right to terminate this Lease on written notice to Landlord within fifteen (15) days after receipt of Landlord's notice. 17.3. DEMOLITION OF THE BUILDING. If the Building shall be so substantially damaged that it is reasonably necessary, in Landlord's judgment, to demolish the Building for the purpose of reconstruction, Landlord may demolish the same, in which event the Annual Basic Rent and Additional Rent (but not any Additional Rent due Landlord either by reason of Tenant's failure to perform any of its obligations hereunder or by reason of Landlord's having provided Tenant with additional services hereunder) shall be abated to the same extent as if the Premises were rendered wholly untenantable by a Casualty. 17.4. INSURANCE PROCEEDS. If the Lease is not terminated pursuant to subsection 17.2, Landlord shall, subject to the terms of any Mortgage, disburse and apply any insurance proceeds received by Landlord to the restoration and rebuilding of the Building in accordance with subsection 17.1 hereof. All insurance proceeds payable with respect to the Premises and the Building shall belong to and shall be payable to Landlord. 18. CONDEMNATION. 18.1. TERMINATION. If either the entire Premises or the Building shall be acquired or condemned by any governmental authority under its power of eminent domain for any public or quasi-public use or purpose, this Lease shall terminate as of the date of vesting or acquisition of title in the condemning authority and the rents hereunder shall be abated on that date. If less than the whole but more than fifty percent (50%) of the Rental Area of the Premises or more than fifty percent (50%) of the total area of the Building (even if the Premises are unaffected) or such portion of the Common Area as shall render the Premises or the Building untenantable should be so acquired or condemned, Landlord and Tenant shall each have the option to terminate this Lease by notice given to the other within ninety (90) days of such taking. In the event that such a notice of termination is given, this Lease shall terminate as of the date of vesting or acquisition of title in the condemning authority and the Annual Basic Rent and Additional Rent (but not any Additional Rent due Landlord either by reason of Tenant's failure to perform any of its obligations hereunder, or by reason of Landlord's having provided Tenant with additional services hereunder) shall be adjusted as of such date. If (a) neither Landlord nor Tenant shall exercise their respective options to terminate this Lease, as hereinabove set forth, or (b) some lesser portion of the Premises or the Building or Common Area, which does not give rise to a right to terminate pursuant to this subsection 18.1, is taken by the condemning authority, this Lease shall continue in force and effect, but from and after the date of the vesting of title in the condemning authority, the Annual Basic Rent payable hereunder during the unexpired portion of the Term shall be reduced in proportion to the reduction in the total Rental Area of the Premises, and any Additional Rent (but not any Additional Rent due Landlord either by reason of Tenant's failure to perform any of its obligations hereunder, or by reason of Landlord's having provided Tenant with additional services hereunder) payable pursuant to the terms hereof shall be adjusted to reflect the diminution of the Premises and/or the Building, as the case may be. 18.2. RIGHTS TO AWARD. Tenant shall have no claim against Landlord arising out of the taking or condemnation, or arising out of the cancellation of this Lease as a result of any such taking or condemnation, or for any portion of the amount that may be awarded as damages as a result of any taking or condemnation, or for the value of any unexpired portion of the Term, or for any property lost through condemnation, and Tenant hereby assigns to Landlord all its right, title and interest in and to any such award with regard to the Premises; provided, however, that, in the event of a total taking, Tenant may assert any claim it may have against the condemning authority for compensation for Tenant's Personal Property lost thereby, loss of income, and for any relocation expenses compensable by statute and receive such awards therefor as may be allowed in the condemnation proceedings provided that such awards shall be made in addition to, and stated separately from, the award made for the Building, the underlying land and the Premises. Landlord shall have no obligation to contest any taking or condemnation. 19. BANKRUPTCY. 19.1. EVENT OF BANKRUPTCY. For purposes of this Lease, each of the following shall be deemed an "Event of Tenant's Bankruptcy": (a) if Tenant becomes insolvent, as defined in the Bankruptcy Code, or under the Insolvency Laws; (b) the commencement of any action or proceeding for the dissolution or liquidation of Tenant or for the appointment of a receiver or trustee of the property of Tenant, whether instituted by or against Tenant, if not bonded or discharged within thirty (30) days of the date of the commencement of such proceeding or action; (c) if Tenant files a voluntary petition under the Bankruptcy Code or Insolvency Laws; (d) if there is filed an involuntary petition against Tenant as the subject debtor under the Bankruptcy Code or Insolvency laws, which is not dismissed within sixty (60) days of filing, or results in issuance of an order for relief against the debtor; and (e) if Tenant makes or consents to an assignment of its assets, in whole or in part, for the benefit of creditors, or to a common law composition of creditors. 16 As used herein, (i) "Bankruptcy Code" means title 11 of the United States Code, 11 U.S.C. Section 101 et. seq. as amended or any successor statute and (ii) Insolvency Laws means the insolvency laws of any state or territory of the United States. 19.2. ASSUMPTION BY TRUSTEE. If Tenant becomes the subject debtor in a case pending under the Bankruptcy Code, Landlord's right to terminate this Lease under Section 20 hereof shall be subject to the applicable rights (if any) of the Trustee in Bankruptcy to assume or assign this Lease as then provided for in the Bankruptcy Code. However, the Trustee in Bankruptcy must give to Landlord and Landlord must receive proper written notice of the Trustee's assumption or rejection of this Lease, within sixty (60) days (or such other applicable period as is provided for in the Bankruptcy Code) after the date of the Trustee's appointment. The failure of the Trustee to give notice of the assumption within the period shall conclusively and irrevocably constitute the Trustee's rejection of this Lease and waiver of any rights of the Trustee to assume or assign this Lease. The Trustee shall not have the right to assume or assign this Lease unless the Trustee (i) promptly and fully cures all defaults under this Lease, (ii) promptly and fully compensates Landlord for all monetary damages incurred as a result of such default, and (iii) provides to Landlord adequate assurance of future performance. In the event Tenant is unable to: (i) cure its defaults, (ii) reimburse Landlord for its monetary damages, or (iii) pay the Rent due under this Lease on time, then Tenant hereby agrees in advance that it has not met its burden to provide adequate assurance of future performance, and this Lease may be terminated by Landlord in accordance with Section 20. 19.3. TENANT'S GUARANTOR'S BANKRUPTCY. Notwithstanding any of the other provisions of this Lease, in the event Tenant's obligations under this Lease are guaranteed by a guarantor, and said guarantor shall voluntarily or involuntarily come under the jurisdiction of the Bankruptcy Code, and thereafter said guarantor or its trustee in bankruptcy, under the authority of and pursuant to applicable provisions thereof, shall determine to assign the guarantee obligations of said guarantor hereunder, Tenant and its said guarantor agree that (a) said guarantor or its trustee will provide Landlord sufficient information enabling it to independently determine whether Landlord will incur actual and substantial detriment by reason of such assignment, and (b) "adequate assurance of future performance" in regard to such guarantee obligations of said guarantor, as that term is generally defined under the Bankruptcy Code, will be provided to Landlord by said guarantor or its trustee and its assignee as a condition of said assignment. 20. DEFAULT PROVISIONS AND REMEDIES. 20.1. EVENTS OF DEFAULT. Each of the following shall be deemed an Event of Default by Tenant under this Lease: a. failure of Tenant to pay Annual Basic Rent, Additional Rent, or any other sum required to be paid under the terms of this Lease, including late charges, within ten (10) days after notice from Landlord of non-payment; b. failure by Tenant to perform or observe any other term, covenant, agreement or condition of this Lease, on the part of Tenant to be performed (other than those obligations of Tenant set forth in subsection 16.2 for which Tenant shall be entitled to receive no prior notice, and other than the conditions set forth in paragraphs 20.1.a, c, d, e, f and g, which shall be governed solely by the provisions set forth herein), within thirty (30) days after notice thereof from the Landlord, unless such performance shall reasonably require a longer period, in which case Tenant shall not be deemed in default if Tenant commences the required performance promptly and thereafter pursues and completes such action diligently and expeditiously and in any event within not more than thirty (30) days; 17 c. the filing of a tax or mechanic's lien against any property of Tenant which is not bonded or discharged within thirty (30) days of the date such lien is filed; d. abandonment of the Premises by Tenant; provided, however, that Tenant shall not be deemed to be in default hereunder so long as Tenant shall continue the payment of Annual Basic Rent and Additional Rent under this Lease; e. an Event of Tenant's Bankruptcy; f. the sale of Tenant's interest in the Premises under attachment, execution or similar legal process; and g. the failure of Tenant to vacate the Premises upon the expiration of the Term, or the earlier termination thereof pursuant to the other provisions hereof. 20.2. REMEDIES. Upon the occurrence of an Event of Default, Landlord, without notice to Tenant in any instance (except where expressly provided for below or by applicable law) may do any one or more of the following: (a) Intentionally deleted (b) perform, on behalf and at the expense of Tenant, any obligation of Tenant under this Lease which Tenant has failed to perform and of which Landlord shall have given Tenant notice, the cost of which performance by Landlord, together with interest thereon at the Default Rate from the date of such expenditure, shall be payable by Tenant to Landlord, as Additional Rent, upon demand. Notwithstanding the provisions of this clause (b) and regardless of whether an Event of Default shall have occurred, Landlord may exercise the remedy described in clause (b) without any notice to Tenant if Landlord, in its good faith judgment, believes it would be materially injured by failure to take rapid action or if the unperformed obligation of Tenant constitutes an emergency; (c) elect to terminate this Lease and the tenancy created hereby by giving notice of such election to Tenant, and reenter the Premises, by summary proceedings or otherwise, and remove Tenant and all other persons and property from the Premises, and store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant without resort to legal process and without Landlord being deemed guilty of trespass or becoming liable for any loss or damage occasioned thereby; (d) declare any option which Tenant may have to renew the Term or expand the Premises to be null and void and of no further force and effect; or (e) exercise any other legal or equitable right or remedy which it may have. Any costs and expenses incurred by Landlord (including, without limitation, reasonable attorneys' fees) in enforcing any of its rights or remedies under this Lease shall be paid to Landlord by Tenant, as Additional Rent, upon demand. 18 20.3. DAMAGES. If this Lease is terminated by Landlord pursuant to Section 20.2.(c), Tenant nevertheless shall remain liable for (a) any Annual Basic Rent, Additional Rent, and damages which may be due or sustained prior to such termination, and (b) all reasonable costs, fees and expenses including, but not limited to, attorneys' fees, costs and expenses incurred by Landlord in pursuit of its remedies hereunder or in renting the Premises to others from time to time. In addition, Landlord may recover from Tenant additional damages to compensate Landlord for loss of rent resulting from termination of the Lease, which, at the election of Landlord, shall be either: (i) An amount equal to the rent which, but for termination of this Lease, would have become due during the remainder of the Term, less the amount of rent, if any, which Landlord shall receive during such period from others to whom the Premises may be rented (other than any Additional Rent received by Landlord as a result of any failure of such other person to perform any of its obligations to Landlord), in which case such damages shall be computed and payable in monthly installments, in advance, on the first day of each calendar month following termination of the Lease and continuing until the date on which the Term would have expired but for such termination; any suit or action brought to collect any such damages for any month shall not in any manner prejudice the right of Landlord to collect any damages for any subsequent month by a similar proceeding; or (ii) an amount equal to the present worth (as of the date of such termination) of rent which, but for termination of this Lease, would have become due during the remainder of the Term, in which case such damages shall be payable to Landlord in one lump sum on demand and shall bear interest at the Default Rate until paid. For purposes of this clause (ii), "present worth" shall be computed by discounting such amount to present worth at a discount rate equal to one percentage point above the discount rate then in effect at the Federal Reserve Bank nearest to the location of the Property. Notwithstanding anything to the contrary contained in this paragraph, Landlord agrees to limit its right to accelerate and collect the present worth of Annual Basic Rent due, to successive eighteen (18) month periods following the date of the Default until the Lease Termination Date. Damages shall be due and payable immediately upon demand by Landlord following any termination of this Lease pursuant to Section 20.2. If this Lease is terminated pursuant to Section 20.2., Landlord may re-lease the Premises or any part thereof, alone or together with other premises, for such term(s) (which may be greater or less than the period which otherwise would have constituted the balance of the Term) and on such terms and conditions (which may include concessions or free rent and alterations of the Premises) as Landlord, in its sole discretion, may determine. The failure or refusal of Landlord to re-lease the Premises or any part or parts thereof shall not release or affect Tenant's liability for damages. Notwithstanding anything to the contrary in this Section 20.3, Landlord shall use reasonable efforts to re-lease the Premises, provided that Landlord shall not be required to (i) use methods or procedures other than its usual methods and procedures for finding tenants for comparable space in the Building; (ii) lease the Premises in preference to any other space in the Building available for lease, regardless of when such other space became available for lease; (iii) lease the Premises at rents lower than the rate at which Landlord would otherwise offer such space to a third party; (iv) to make improvements to the Premises at Landlord's expense; and (v) lease the Premises for any purpose or use other than that specifically permitted by this Lease. Landlord shall not be liable to Tenant for Landlord's failure to re-lease the Premises despite the exercise of reasonable efforts pursuant to this paragraph, and no such re-leasing shall relieve Tenant of its obligations under the terms of this Lease, including, without limitation, the payment of rent as set forth herein. Nothing contained in this Lease shall limit or prejudice the right of Landlord to prove and obtain in proceedings for the termination of this Lease by reason of bankruptcy or insolvency, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater, equal to, or less than the amount of the loss or damages referred to above. 20.4. NO WAIVER. No act or omission by Landlord shall be deemed to be an acceptance of a surrender of the Premises or a termination of Tenant's liabilities hereunder, unless Landlord shall execute a written release of Tenant. Tenant's liability hereunder shall not be terminated by the execution by Landlord of any new lease for all or any portion of the Premises or the acceptance of rent from any assignee or subtenant. 20.5. REMEDIES NOT EXCLUSIVE. All rights and remedies of Landlord set forth in this Lease shall be cumulative, and none shall exclude any other right or remedy, now or hereafter allowed by or available under any statute, ordinance, rule of court, or the common law, either at law or in equity, or both. For the purposes of any suit brought or based hereon, this Lease shall be construed to be a divisible contract, to the end that successive actions may be maintained on this Lease as successive periodic sums shall mature hereunder. The failure of Landlord to insist, in any one or more instances, upon a strict performance of any of the covenants, terms and conditions of this Lease or to exercise any right or option herein contained shall not be construed as a waiver or a relinquishment for the future, of such covenant, term, condition, right or option, but the same shall continue and remain in full force and effect unless the contrary is expressed by Landlord in writing. The receipt by Landlord of rents hereunder, with knowledge of the breach of any covenant hereof or the receipt by Landlord of less than the full rent due hereunder, shall not be deemed a waiver of such breach or of Landlord's right to receive the full rents hereunder, and no waiver by Landlord of any provision hereof shall be deemed to have been made unless expressed in writing and signed by Landlord. 20.6. PERSISTENT FAILURE TO PAY RENT. In addition to any other remedies available to Landlord pursuant to this Lease or by law, Landlord may, at any time throughout the Term of this Lease, terminate this Lease upon Tenant's default on three (3) separate occasions during any twelve (12) month period under subsection 20.1.a, regardless of whether or not such prior defaults have been cured. Termination, pursuant to this subsection 20.6, shall be effective upon Landlord's delivery to Tenant of a notice of termination. 21. Intentionally deleted. 22. INDEMNITY. To the maximum extent permitted by law, Tenant shall indemnify, hold harmless and (at Landlord's option) defend Landlord, its agents, servants and employees from and against all claims, actions, losses, costs and expenses (including attorneys' and other professional fees), judgments, settlement payments, and, whether or not reduced to final judgment, all liabilities, damages, or fines paid, incurred or suffered by any third parties to the extent arising directly or indirectly from (a) any default by Tenant under the terms of this Lease, (b) the use or occupancy of the Property by Tenant or any person claiming through or under Tenant, and/or (c) any acts or omissions of Tenant or any contractor, agent, employee, invitee or licensee of Tenant in or about the Property. The foregoing indemnity is in addition to, and not in substitution for, any indemnity given by Tenant to Landlord under Section 8.3. To the maximum extent permitted by law, Landlord shall indemnify, hold harmless and defend Tenant, its agents, servants and employees from and against all claims, actions, losses, costs and expenses (including attorneys' and other professional fees), judgments, settlement payments, and, whether or not reduced to final judgment, all liabilities, damages, or fines paid, incurred or suffered by said third parties to the extent arising directly or indirectly from (a) any default by Landlord under the terms of this Lease, (b) the use or occupancy of the Common Area by Landlord or its contractors, agents, or employees, and/or (c) any acts or omissions of Landlord or any contractor, agent, or employee of Landlord in or about the Common Area. 23. LIMITATION ON LANDLORD LIABILITY. The term "Landlord" as used in this Lease shall mean only the owner or the Mortgagee or its trustees, as the case may be, then in possession of the Property so that in the event of any transfer by Landlord of its interest in the Property, the Landlord in possession immediately prior to such transfer shall be, and hereby is, entirely released and discharged from all covenants, obligations and liabilities of Landlord under this Lease accruing after such transfer provided that such new owner assumes all of Landlord's obligations under the Lease. In consideration of the benefits accruing hereunder, Tenant, for itself, its successors and assigns, covenants and agrees that, in the event of any actual or alleged failure, breach or default hereunder by the Landlord, and notwithstanding anything to the contrary contained elsewhere in this Lease, the remedies of Tenant under this Lease shall be solely and exclusively limited to Landlord's interest in the Property and where applicable, proceeds from sale. 24. LANDLORD AND TENANT OBLIGATIONS. Landlord agrees to perform all of its obligations under this Lease in a first class manner consistent with the standards applicable to similar buildings in the vicinity of the Building. Landlord and Tenant shall be excused for the period of any delay in the performance of any of its obligations (except for monetary obligations) when the delay is due to any cause or causes beyond it's control which include, without limitation, acts of God, all labor disputes, governmental regulations or controls, civil unrest, war, adverse weather condition, fire or other casualty, inability to obtain any material, services, or financing unless otherwise provided for in this Lease. Except where specifically set forth in this Lease, there shall be no abatement, set-off or deduction of Annual Basic Rent or Additional Rent due under this Lease. 25. ASSIGNMENT AND SUBLETTING. 25.1. PROHIBITED WITHOUT LANDLORD'S CONSENT. Tenant agrees for itself and its permitted successors and assigns in interest hereunder that it will not (a) assign or otherwise transfer, mortgage or otherwise encumber this Lease or any of its rights hereunder; (b) sublet the Premises or any part thereof or permit the occupancy or use of the Premises or any part thereof by any person other than Tenant; and/or (c) permit the assignment or other transfer of this Lease or any of Tenant's rights hereunder by operation of law (each of the events referred to in the foregoing clauses (a), (b) and (c) being hereinafter referred to as a "Transfer"), without the prior written consent of Landlord in each instance first obtained, which consent may be given or withheld in Landlord's sole and absolute subjective discretion, and any consent given shall not constitute a consent to any subsequent Transfer. Any attempted Transfer without Landlord's consent shall be null and void and shall not confer any rights upon any purported transferee, assignee, mortgagee, sublessee, or occupant. No Transfer, regardless of whether Landlord's consent has been granted or withheld, shall be deemed to release Tenant from any of its obligations hereunder or to alter, impair or release the obligations of any person guaranteeing the obligations of Tenant hereunder. Tenant hereby indemnifies Landlord against liability resulting from any claim made against Landlord by any assignee or subtenant or by any broker claiming a commission in connection with the proposed Transfer. In the event Landlord shall consent to a Transfer of this Lease, any option which Tenant may have to renew the Term shall be null and void unless Tenant continues to occupy at least fifty percent (50%) of the Premises. Notwithstanding the foregoing, Landlord shall not unreasonably withhold its consent to a sublet or assignment of this Lease by Tenant provided that: (a) the proposed transferee has a financial capacity and net worth sufficient to fulfill the terms of this Lease, as determined by Landlord based on financial information about such transferee provided by Tenant or such transferee; (b) the proposed use of the Premises by the proposed transferee is permitted by this Lease and is compatible with the operation of the Building; (c) the proposed transferee is not an existing tenant in the Building or was not a prospect for the Building within six (6) months prior to the proposed Transfer, and (d) an Event of Default does not exist under this Lease. Provided Tenant is not in default of any term, covenant or condition of this Lease, Tenant shall have the right to assign this Lease or sublet the Premises to a parent, subsidiary or affiliate corporation of Tenant as long as the proposed transferee has a financial capacity and net worth equal to Tenant without the consent of Landlord. Tenant shall deliver written notice to Landlord of any such Transfer. The foregoing waiver of right to consent does not constitute a waiver of the right of Landlord to consent to any Transfer not specifically permitted hereby. 25.2. STOCK TRANSFER. If Tenant or any Guarantor is a privately-held corporation, then each of the following events shall be deemed a prohibited Transfer under this Section 25 if such event results in a change in control of Tenant or Guarantor: any transfer of Tenant's or Guarantor's issued and outstanding capital stock; any issuance of additional capital stock; or the redemption of any issued and outstanding stock. If Tenant or any Guarantor is a partnership, any Transfer of any interest in the partnership or any other change in the composition of the partnership, which results in a change in management of Tenant or Guarantor from the person or persons managing the partnership as of the date hereof, shall be deemed a prohibited Transfer under this Section 25. 25.3. RENTS FROM TRANSFER. In the event Landlord shall consent to a Transfer of this Lease and the amount of the rents (or other compensation) to be paid to Tenant by any such transferee is greater than the rents required to be paid by Tenant to Landlord pursuant to this Lease or a premium is to be paid to Tenant for an assignment of this Lease, Tenant shall pay to Landlord fifty percent (50%) of any such excess or any such premium, as the case may be, less (a) any improvement allowance or other economic concession (planning allowance, moving expense, etc.), paid by Tenant to sublessee; (b) broker's commissions; (c) reasonable attorneys' fees; and (d) costs of advertising and/or promoting the space for sublease, upon receipt thereof by Tenant from such transferee. 25.4. PROCEDURE FOR OBTAINING LANDLORD'S CONSENT. A. In the event that, at any time or from time to time prior to or during the Term, Tenant desires to Transfer this Lease in whole or in part, whether by operation of law or otherwise, Tenant shall submit to Landlord for its consideration (a) in writing, the name and address of the proposed subtenant or assignee, a reasonably detailed statement of the proposed subtenant's or assignee's business and reasonably detailed financial references and information concerning the financial condition of the proposed subtenant or assignee, (b) a disclosure of the rents to be paid by any subtenant in excess of the rents reserved hereunder or the premium to be paid for the assignment, and (c) if a subletting, a description of the area of the Premises to be sublet. Tenant agrees to pay Landlord, as Additional Rent, all costs incurred by Landlord in connection with any actual or proposed Transfer, including, without limitation, the costs of making investigations as to the acceptability of a proposed subtenant or assignee and legal costs incurred in connection with any requested consent. B. Landlord's consent to an assignment of this Lease shall be effective upon the execution by Tenant, the assignee, and Landlord of an assignment document prepared by Landlord in which the assignee shall agree to assume, observe, perform, and be bound by, all of Tenant's obligations under this Lease and Tenant shall agree to remain primarily liable for such obligations. Any consent by Landlord to a subletting of all or a portion of the Premises shall be deemed to have been given only upon the delivery by Landlord to Tenant of a consent document prepared and executed by Landlord expressly consenting to such subletting. 26. HOLDING OVER. Tenant agrees to vacate the Premises at the end of the Term, and Landlord shall be entitled to the benefit of all summary proceedings to recover possession of the Premises at the end of the Term. If Tenant remains in possession of the Premises after the expiration of the Term, such action shall not renew this Lease by operation of law and nothing herein shall be deemed as a consent by Landlord to Tenant's remaining in the Premises. If Tenant fails to vacate the Premises as required, Landlord may consider Tenant as either (a) a "Tenant-at-Will" (i.e. month-to-month tenant) liable for the payment of rent at the then market rate as reasonably determined by Landlord or (b) as a "Tenant-Holding Over" liable for an amount equal to the actual damages incurred by Landlord as a result of Tenant's holding over, including, without limitation, all incidental, prospective and consequential damages and attorney's fees, but in no event shall such amount be less than an amount equal to one hundred fifty percent (150%) of the Annual Basic Rent, and Additional Rent, reserved hereunder applicable to the period of the holdover. In either event, all other covenants of this Lease shall remain in full force and effect. 27. SUBORDINATION AND ATTORNMENT. This Lease is subject and subordinate to the liens of all mortgages, deeds of trust and other security instruments hereafter placed upon the Building or the Property or any portion thereof and all ground and other underlying leases from which Landlord's interest is derived (said mortgages, deeds of trust, other security instruments, and ground leases being hereinafter referred to as "Mortgages" and the mortgagees, beneficiaries, secured parties, and ground lessors thereunder from time to time being hereinafter called "Mortgagees"), and to any and all renewals, extensions, modifications, or refinancings thereof, without any further act of the Tenant. If requested by Landlord, however, Tenant shall promptly execute any certificate or other document confirming such subordination. Tenant agrees that, if any proceedings are brought for the foreclosure of any of the Mortgages, Tenant, if requested to do so by the purchaser at the foreclosure sale, shall attorn to the purchaser, recognize the purchaser as the landlord under this Lease, and make all payments required hereunder to such new landlord without any deduction or set-off of any kind whatsoever. Tenant waives the provisions of any law or regulation, now or hereafter in effect, which may give, or purport to give, Tenant any right to terminate this Lease or to alter the obligations of Tenant hereunder in the event that any such foreclosure or termination or other proceeding is prosecuted or completed. 19 Notwithstanding anything contained herein to the contrary, any Mortgagee may at any time subordinate the lien of its Mortgages to the operation and effect of this Lease without obtaining the Tenant's consent thereto, by giving the Tenant written notice thereof, in which event this Lease shall be deemed to be senior to such Mortgages without regard to the respective dates of execution and/or recordation of such Mortgages and this Lease and thereafter such Mortgagee shall have the same rights as to this Lease as it would have had were this Lease executed and delivered before the execution of such Mortgages. Upon Tenant's written request, Landlord shall use reasonable efforts, excluding the payment of money, to obtain a subordination of mortgage agreement from Landlord's Mortgagee with respect to this Lease. Landlord agrees to submit to such Mortgagee on Tenant's behalf the form of agreement attached hereto as SCHEDULES D-1 and D-1, however, Landlord makes no representation that its Mortgagee will execute any such agreement. If, in connection with obtaining financing for the Building, a Mortgagee shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not materially adversely increase the obligations of Tenant hereunder, or materially adversely affect the leasehold interest hereby created or Tenant's use and enjoyment of the Premises, or increase the amount of Annual Basic Rent and Additional Rent payable hereunder. 28. ESTOPPEL CERTIFICATES. Tenant shall, without charge, at any time and from time-to-time, within fifteen (15) days after receipt of request therefor by Landlord, execute, acknowledge and deliver to Landlord a written estoppel certificate, in such form as may be determined by Landlord, certifying to Landlord, Landlord's Mortgagee, any purchaser of Landlord's interest in the Building, or any other person designated by Landlord, as of the date of such estoppel certificate, the following, without limitation: (a) whether Tenant is in possession of the Premises; (b) whether this Lease is in full force and effect; (c) whether there have been any amendments to this Lease, and if so, specifying such amendments; (d) whether there are then existing any set-offs or defenses against the enforcement of any rights hereunder, and if so, specifying such matters in detail; (e) the dates, if any, to which any rent or other charges have been paid in advance and the amount of any Security Deposit held by Landlord; (f) that Tenant has no knowledge of any then existing defaults of Landlord under this Lease, or if there are such defaults, specifying them in detail; (g) that Tenant has no knowledge of any event having occurred that authorizes the termination of this Lease by Tenant, or if such event has occurred, specifying it in detail; and (h) the address to which notices to Tenant under this Lease should be sent. Any such certificate may be relied upon by the person or entity to whom it is directed or by any other person or entity who could reasonably be expected to rely on it in the normal course of business. The failure of Tenant to execute, acknowledge and deliver such a certificate in accordance with this Section 28 within fifteen (15) days after a request therefor by Landlord shall constitute an acknowledgment by Tenant, which may be relied on by any person who would be entitled to rely upon any such certificate, that such certificate as submitted by Landlord to Tenant is true and correct. 29. PEACEFUL AND QUIET POSSESSION. Tenant, if and so long as it pays all rents due hereunder and performs and observes the other terms and covenants to be performed and kept by it as provided in this Lease, shall have the peaceable and quiet possession of the Premises during the Term free of any claims of Landlord or anyone lawfully claiming by, through or under Landlord, subject, however, to the terms of this Lease and to matters of public record existing as of the date of this Lease. 20 30. LANDLORD'S ACCESS TO PREMISES. Landlord and its agents may at any reasonable time and without incurring any liability to Tenant, other than liability for personal injuries and damages resulting solely from the negligence of Landlord or its agents, enter the Premises to inspect them or to make alterations or repairs or for any purpose which Landlord considers necessary for the repair, operation, or maintenance of the Building; provided, however, that in the case of an emergency, Landlord may enter the Premises at any time. Tenant shall allow the Premises to be exhibited by Landlord (a) at any time to any representative of a lender or to any prospective purchaser of the Building or Landlord's interest therein or (b) within six (6) months of the end of the Term to any persons who may be interested in leasing the Premises. 31. Intentionally deleted. 32. BROKERS, COMMISSIONS, ETC. Landlord and Tenant acknowledge, represent and warrant each to the other that, except as listed in Section 1.F., no broker or real estate agent brought about or was involved in the making of this Lease and that no brokerage fee or commission is due to any other party as a result of the execution of this Lease. Each of the parties hereto agrees to indemnify and hold harmless the other against any claim by any broker, agent or finder based upon the execution of this Lease and predicated upon a breach of the above representation and warranty. 33. RECORDATION. Neither Landlord nor Tenant shall record this Lease, any amendment to this Lease or any other memorandum of this Lease without the prior written consent of the other party, which consent may be withheld in the sole discretion of either party and, in the event such consent is given, the party requesting such consent and recording shall pay all transfer taxes, recording fees and other charges in connection with such recording. Notwithstanding the above, Tenant covenants that if at any time any mortgagee or ground lessor relating to the financing of the Property shall require the recordation of this Lease, or if the recordation of this Lease shall be required by any valid governmental order, or if any governmental authority having jurisdiction in the matter shall assess and be entitled to collect transfer taxes, documentary stamp taxes, or both, on this Lease, Tenant, upon the request of Landlord, shall execute such instruments, including a Memorandum of this Lease, as may be necessary to record this Lease, and shall pay all recording fees, transfer taxes and documentary stamp taxes, payable on, or in connection with, this Lease or such recordation; provided, however, if Landlord's Mortgagee requires such recordation, Landlord shall pay all such recording fees, transfer taxes and documentary stamp taxes. 34. MISCELLANEOUS. 34.1. SEPARABILITY. If any term or provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. 34.2. APPLICABLE LAW. This Lease shall be given effect and construed by application of the laws of the state where the Property is located, and any action or proceeding arising hereunder shall be brought in the courts of the State where the Premises are located. 21 34.3. AUTHORITY. If Tenant is a corporation or partnership, the person executing this Lease on behalf of Tenant represents and warrants that Tenant is duly organized and validly existing; that this Lease has been authorized by all necessary parties, is validly executed by an authorized officer or agent of Tenant and is binding upon and enforceable against Tenant in accordance with its terms. The undersigned agent of Landlord represents and warrants that it is authorized and empowered to enter into this Lease Agreement on behalf of the Landlord. 34.4. NO DISCRIMINATION. It is Landlord's policy to comply with all applicable state and federal laws prohibiting discrimination in employment based on race, age, color, sex, national origin, disability, religion, or other protected classification. It is further intended that the Building shall be operated so that all perspective tenants thereof, and all customers, employees, licensees and invitees of all tenants shall have equal opportunity to obtain all the goods, services, accommodations, advantages, facilities and privileges of the Building without discrimination because of race, age, color, sex, national origin, disability, or religion. To that end, Tenant shall not discriminate in the conduct and operation of its business in the Premises against any person or group of persons because of the race, age, color, sex, religion, national origin or other protected classification of such person or group of persons. 34.5. INTEGRATION OF AGREEMENTS. This writing is intended by the parties as a final expression of their agreement and is a complete and exclusive statement of its terms, and all negotiations, considerations and representations between the parties hereto are incorporated herein. No course of prior dealings between the parties or their agents shall be relevant or admissible to supplement, explain, or vary any of the terms of this Lease. Acceptance of, or acquiescence to, a course of performance rendered under this Lease or any prior agreement between the parties or their agents shall not be relevant or admissible to determine the meaning of any of the terms or covenants of this Lease. Other than as specifically set forth in this Lease, no representations, understandings or agreements have been made or relied upon in the making of this Lease. This Lease can only be modified by a writing signed by each of the parties hereto. 34.6. THIRD PARTY BENEFICIARY. Except as expressly provided elsewhere in this Lease, nothing contained in this Lease shall be construed so as to confer upon any other party the rights of a third party beneficiary. 34.7. CAPTIONS; GENDER. The captions used in this Lease are for convenience only and do not in any way limit or amplify the terms and provisions hereof. As used in this Lease and where the context so requires, the singular shall be deemed to include the plural and the masculine shall be deemed to include the feminine and neuter, and vice versa. 34.8. SUCCESSORS AND ASSIGNS. Subject to the express provisions of this Lease to the contrary (e.g., Section 25), the terms, provisions and covenants contained in this Lease shall apply to, inure to the benefit of, and be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns. 34.9. WAIVER OF JURY TRIAL. Landlord and Tenant hereby expressly waive trial by jury in any action or proceeding or counterclaim brought by either party hereto against the other party on any and every matter, directly or indirectly arising out of or with respect to this Lease, including, without limitation, the relationship of Landlord and Tenant, the use and occupancy by Tenant of the Premises, any statutory remedy and/or claim of injury or damage regarding this Lease. 22 34.10. JOINT AND SEVERAL LIABILITY. In the event that two (2) or more persons (i.e., natural persons, corporations, partnerships, associations and other legal entities) shall sign this Lease as Tenant, the liability of each such party to pay all rents due hereunder and perform all the other covenants of this Lease shall be joint and several. In the event Tenant is a general partnership or a limited partnership with two or more general partners, the liability of each partner, or general partner, under this Lease shall be joint and several. 34.11. NOTICES. All notices, demands and requests required under this Lease shall be in writing. All such notices, demands and requests shall be deemed to have been properly given if sent by United States certified mail, return receipt requested, postage prepaid, or hand delivered, or overnight delivery, addressed to Landlord or Tenant, at the Landlord Notice Address and Tenant Notice Address, respectively. Either party may designate a change of address by written notice to the other party, in the manner set forth above. Notice, demand and requests which shall be served by certified mail in the manner aforesaid, shall be deemed to have been given three (3) days after mailing. Notices sent by overnight delivery shall be deemed to have been given the day after sending. Without intending to limit the generality of the foregoing requirement that all notices, demands and requests be in writing, there are certain provisions in this Lease where, for emphasis alone, such requirement is reiterated. 34.12. EFFECTIVE DATE OF THIS LEASE. Unless otherwise expressly provided, all terms, conditions and covenants by Tenant contained in this Lease shall be effective as of the date first above written. 34.13. MECHANICS' LIENS. In the event that any mechanics' or materialmen's liens shall at any time be filed against the Premises purporting to be for work, labor, services or materials performed or furnished to Tenant or anyone holding the Premises through or under Tenant, Tenant shall cause the same to be discharged of record or bonded within thirty (30) days after the filing thereof. If Tenant shall fail to cause such lien to be discharged within thirty (30) days after the filing thereof, then, in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to, discharge the same by paying the amount claimed to be due; and the amount so paid by Landlord, and all costs and expenses, including reasonable attorneys' fees incurred by Landlord in procuring the discharge of such lien, shall be due and payable by Tenant to Landlord, as Additional Rent, on the first day of the next succeeding month. Notice is hereby given that Landlord shall not be liable for any labor or materials furnished to Tenant upon credit and that no mechanics', materialmen's or other liens for any such labor or materials shall attach to or affect the estate or interest of Landlord in and to the land and improvements of which the Premises are a part. 34.14. WAIVER OF RIGHT OF REDEMPTION. Tenant hereby expressly waives (to the extent legally permissible) for itself and all persons claiming by, through or under it, any right of redemption or right to restore the operation of this Lease under any present or future law in the event Tenant is dispossessed for any proper cause, or in the event Landlord shall obtain possession of the Premises pursuant to the terms of this Lease. Tenant understands that the Premises are leased exclusively for business, commercial and mercantile purposes and therefore shall not be redeemable under any provision of law. 34.15. MORTGAGEE'S PERFORMANCE. If requested by any Mortgagee, Tenant shall give such Mortgagee written notice of any default by Landlord under this Lease and a reasonable opportunity to cure such default. Tenant shall accept performance of any of Landlord's obligations hereunder by any ground lessor or mortgagee relating to the financing of the Property. 34.16. MORTGAGEE'S LIABILITY. No mortgagee or ground lessor relating to the financing of the Property, not in possession of the Premises or the Building, shall have any liability whatsoever hereunder. 23 34.17. SCHEDULES. Each writing or plat referred to herein as being attached hereto as a schedule or exhibit is hereby made a part hereof, with the same full force and effect as if such writing or plat were set forth in the body of this Lease. 34.18. TIME OF ESSENCE. Time shall be of the essence of this Lease with respect to the performance by Tenant of its obligations hereunder. 34.19. AMENDMENT. This Lease may be amended by and only by an instrument executed and delivered by each party hereto. No amendments of this Lease entered into by Landlord and Tenant, as aforesaid, shall impair or otherwise affect the obligations of any guarantor of Tenant's obligations hereunder, all of which obligations shall remain in full force and effect and pertain equally to any such amendments, with the same full force and effect as if the substance of such amendments was set forth in the body of this Lease. 34.20. AUTOMOBILE PARKING. Landlord shall provide unreserved parking for Tenant and its customers and employees and customers either in structured or surface parking areas near the Building at a ratio of four (4) spaces per one thousand (1,000) square feet of the Premises. 34.21. CONTINGENCY. Tenant acknowledges and understands that this Lease is contingent upon the existing tenant for the Premises, SSM Coal North America, Inc., surrendering and releasing the Premises on or before December 31, 1995. In the event Landlord is unable to deliver the Premises to Tenant on January 1, 1996, the Lease Commencement Date shall be delayed until the date when Landlord delivers the Premises to Tenant, and the Termination Date shall be adjusted accordingly. Landlord shall have no liability to Tenant for any delay in delivery of the Premises. If Landlord, despite its reasonable good-faith efforts, in unable to deliver the Premises to Tenant on or before June 1, 1996, this Lease will automatically terminate and the rights and obligations of the parties hereunder shall thereupon cease and terminate without the need for the execution of any further or other instrument. IN WITNESS WHEREOF, the parties hereto have executed this Lease under their respective seals as of the day and year first above written. ATTEST: LANDLORD: COLUMBIA MALL, INC. By: COLUMBIA MANAGEMENT, INC., Managing Agent - ---------------------------------- By:_____________________________(SEAL) Assistant Secretary Vice President ATTEST: TENANT: EXCALIBUR TECHNOLOGIES CORPORATION 24 - ---------------------------------- By:_____________________________(SEAL) Secretary of Corporation President SCHEDULE C RULES AND REGULATIONS 1. Tenant shall not obstruct or encumber the Common Area, and the sidewalks, driveways, and other public portions of the Property (herein "Public Areas") and such Public Areas shall not be used for any purpose other than ingress and egress to and from its Premises. Tenant shall not permit any of its employees, agents, licensees or invitees to congregate or loiter in any of the Public Areas. Tenant shall not invite to, or permit to visit, its Premises persons in such numbers or under such conditions as may interfere with the use and enjoyment by others of the Public Areas. Fire exits and stairways are for emergency use only, and they shall not be used for any other purpose. Landlord reserves the right to control, operate, restrict and regulate the use of the Common Areas, public facilities, and any facilities furnished for the common use of the tenants in such manner as it deems best for the benefit of the tenants, including but not limited to the allocation of elevators for delivery service, and the right to designate which Building entrances shall be used for deliveries. No doormat of any kind whatsoever shall be placed or left in any public hall or outside any entry door of the Premises. 2. No awnings or other projections shall be attached to the outside walls of the Building. No curtains, blinds, shades or screens shall be attached to, hung in, or used in connection with any window or door of its Premises, without the consent of Landlord. Such window or door coverings must be of a quality, type, design and color approved by Landlord and further they must be installed in a manner approved by Landlord. In order that the Building can and will maintain a uniform appearance to those persons outside of the Building, each tenant occupying the perimeter areas of the Building shall (a) use only building-standard lighting in areas where lighting is visible from the outside of the Building and (b) use only building-standard blinds in window areas which are visible from the outside of the Building. 3. Tenant shall be permitted an interior sign in accordance with the Building's sign criteria which Landlord shall provide at its sole cost. Except as set forth herein, no sign, insignia, advertisement, lettering, notice or other object shall be exhibited, inscribed, painted or affixed by Tenant on any part of the exterior or interior of the Premises or the Building or on doors, corridor walls, the Building directory or in the elevator cabs without the prior approval of Landlord. Landlord shall review the size, color, style, content and location of any proposed signage. Landlord shall have the right to prohibit any advertising or identifying sign by Tenant which, in the sole judgment of Landlord, impairs the appearance, reputation, or the desirability of the Building as a first-class office building. Upon Landlord's approval, Tenant shall obtain all necessary approvals and permits from governmental or quasi-governmental authorities in connection with such signs. Further, approved signs shall be inscribed, painted or affixed by signmakers approved by Landlord at Tenant's sole cost. In the event of a violation of the foregoing by Tenant, upon written notice from Landlord, Tenant shall refrain from and discontinue such advertising or identifying sign. In the event that Tenant does not promptly correct said violation, Landlord may remove such signs without any liability, and may charge the expense incurred in such removal to the Tenant violating this Rule and Tenant hereby agrees to pay Landlord, as Additional Rent, any such expense promptly upon demand. 4. No bicycles, vehicles, animals (except seeing eye dogs), fish or birds of any kind shall be brought into or kept in or about the Premises. 5. Nothing shall be done or permitted by Tenant which would impair or interfere with the use or enjoyment by any other occupant of the Building, including the playing of music. 6. Nothing shall be done or permitted in the Premises and nothing shall be brought into, installed or kept in or about the Premises, which would impair or interfere with any of the HVAC, plumbing, electrical, structural components of the Building or the services of the Building or the proper and economic heating, cleaning or other services of the Building or the Premises. Tenant nor its employees, agents, licensees or invitees shall at any time bring or keep upon the Premises any flammable, combustible or explosive fluid, chemical or substance. 7. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by Tenant, nor shall any changes be made in locks or the mechanism thereof. Duplicate keys for the Premises and restrooms shall be procured only from Landlord and Landlord may make a reasonable charge therefor. Tenant shall, upon the termination of the Lease, turn over to Landlord all keys to stores, offices and restrooms. In the event of the loss of any keys furnished by Landlord, Tenant shall pay to Landlord the cost of replacement locks and Tenant hereby agrees to pay said cost to Landlord, as Additional Rent, promptly upon demand. 8. Any delivery or moving of any safes, freight, furniture, packages, boxes, crates or any other such object shall take place at such time and in such manner so as not to interfere with other occupants of the Building. Tenant hereby acknowledges that this may involve overtime work for Landlord's employees. Further, Tenant hereby agrees to reimburse Landlord for extra costs incurred by Landlord including, but not limited to, Landlord's right to inspect all objects to be brought into the Building and to exclude from the Building any objects which may in Landlord's sole discretion violate the Lease and/or any of these Rules and Regulations. Tenant hereby agrees to pay any such costs to Landlord, as Additional Rent, promptly upon demand. No hand trucks shall be used for such moving activities except for those equipped with rubber tires, side guards and such other safeguards as Landlord shall require. Landlord may require any person leaving the Building with any package or other object to submit a statement indicating the tenant from whose premises the package or object is being removed, however, Landlord and Tenant hereby acknowledge that the establishment and enforcement of such requirement does not impose any responsibility on Landlord for the protection of Tenant against the removal of property from the Premises of Tenant. Landlord shall in no way be liable to Tenant for damages or loss arising from the admission, exclusion or ejection of any person to or from the Premises or the Building under the provisions of this Rule. 9. Tenant shall not use or occupy its Premises, or permit any portion thereof to be used or occupied for telephone or secretarial service, messenger service, wholesale or discount shop for sale of merchandise, retail service shop, labor union, company engaged in the business of renting office or desk space, a hiring or employment agency, or for any use which constitutes a nuisance, or is hazardous, or, in Landlord's opinion, likely to injure the reputation of a first-class office building. No tenant shall engage or pay any employee on its Premises, except those actually employed by such tenant, nor advertise for laborers giving an address at the Building. Except as specifically approved by Landlord in writing, no tenant shall use or permit the use of its Premises or any part thereof as a restaurant, shop, booth or other stand, or for the conduct of any business or occupation which predominantly involves direct patronage of the general public, manufacturing, or the sale at auction of merchandise, goods or property of any kind. 10. Tenant, before closing and leaving its Premises at any time, shall see that all lights, typewriters, copying machines and other electrical equipment are turned off. All entrance doors in Tenant's Premises shall be kept locked when not in use. Entrance doors shall not be left open at any time. 11. If Tenant shall request Landlord to perform any work on the Premises or Property, Tenant shall make such request at the management office for the Building. Tenant shall not request employees of Landlord to perform any work or do anything outside of their regular duties, unless under special instructions from Landlord. 12. Canvassing, soliciting and peddling in the Building are prohibited and Tenant shall cooperate to prevent the same. 13. Tenant shall not cause or permit any odors of cooking or other processes, or any unusual or objectionable odors, to emanate from its Premises which would annoy other tenants or create a public or private nuisance. No cooking shall be done in Tenant's Premises, except for a household microwave oven or as is expressly permitted in the Lease, or otherwise consented to in writing by the Landlord. 14. All paneling, doors, trim or other wood products not considered furniture shall be treated with fire-retardant materials. Before installation of any such materials, certification of the materials' fire-retardant characteristics shall be submitted to and approved by Landlord, and all such materials shall be installed in a manner approved by Landlord. 15. Whenever Tenant submits any plan, agreement or other document for the consent or approval of Landlord, Landlord may charge, on demand, a reasonable processing fee for the review thereof, which shall include the cost of any services of an architect, engineer or attorney employed by Landlord to review such plan, agreement or document. Tenant hereby agrees to pay any such processing fee to Landlord, as Additional Rent, promptly upon demand. 16. No contract of any kind with any supplier of towels, water, ice, toilet articles, waxing, rug shampooing, venetian blind washing, furniture polishing, lamp servicing, cleaning of electrical fixtures, removal of waste papers, rubbish or garbage, or any other cleaning, janitorial or like service shall be entered into by Tenant without the prior written consent of Landlord. Landlord shall not be responsible to Tenant for any loss of property from its Premises however occurring, or for any damage done to the effects of Tenant by Landlord's janitors or any of its employees, or by any other person or any other cause. The janitor's service furnished by Landlord does not include the beating or cleaning of carpets or rugs. 17. When electric wiring of any kind is introduced, it must be connected as directed by Landlord, and no stringing or cutting of wires will be allowed, except with the prior written consent of Landlord, and shall be done only by contractors approved by Landlord. The number and locations of telephones, telegraph instruments, electric appliances, call boxes, etc., shall be subject to Landlord's approval. Tenant shall not lay linoleum or other similar floor covering so that the same shall be in direct contact with the floor of the Premises; and if linoleum or other similar floor covering is desired to be used, an interlining of builder's deadening felt shall be first affixed to the floor by a paste or other material, the use of cement or other similar adhesive material being expressly prohibited. 18. Landlord hereby reserves to itself any and all rights not granted to Tenant hereunder, including, but not limited to, the following rights which are reserved to Landlord for its purposes in operating the Building: 2 (a) the exclusive right to use of the name of the Building for all purposes, except that Tenant may use the name as its business address and for no other purpose; (b) the right to change the name or address of the Building, without incurring any liability to Tenant for so doing; (c) the right to install and maintain a sign or signs on the exterior of the Building; (d) the exclusive right to use or dispose of the use of the roof of the Building; (e) the right to limit the space on the directory of the Building to be allotted to Tenant; and (f) the right to grant anyone the right to conduct any particular business or undertaking in the Building. 19. Tenant and its employees shall park their cars only in those portions of the parking area designated by Landlord. 20. Tenant shall not permit undue accumulations of garbage, trash, rubbish or any other refuse, and will keep such refuse in proper containers in the interior of the Tenant's Premises or other places designated by the Landlord. 21. Tenant shall not conduct or permit any bankruptcy sales, unless directed by order of a court of competent jurisdiction, or any fictitious fire or going out of business sale. 22. Landlord shall have the right to close and securely lock the Building during generally accepted holidays and during such other times as Landlord may, in its sole discretion, deem advisable for the security of the Building and its tenants. Landlord shall give Tenant twenty-four (24) hours notice before so closing and securely locking the Building except in an emergency. 23. Landlord reserves the right to rescind, alter, waive or add any rule or regulation at any time prescribed for the Building when Landlord deems it necessary or desirable for the reputation, safety, character, security, care, appearance or interests of the Building, the preservation of good order therein, the operation or maintenance of the Building or the equipment thereof, or the comfort of tenants or others in the Building. No rescission, alteration, waiver or addition of any rule or regulation with respect to one tenant shall operate as a rescission, alteration or waiver in respect of any other tenant. 24. In the event of a conflict between the Rules and Regulations and the terms of the Lease, the terms of the Lease shall govern the parties. 3 SCHEDULE X METHOD OF BUILDING MEASUREMENT FOR OFFICE SPACE I. SINGLE-TENANCY FLOORS The Rental Area of a single-tenancy floor shall be the area within the outside walls computed by measuring from the inside surface of the window glass to the inside surface of the opposite window glass including columns and projections necessary to the building as well as accessory areas within and exclusively serving only that floor, with their enclosing walls, toilets, janitors closets, electrical closets, air-conditioning rooms and fan rooms and telephone closets, together with four percent (4%) of the sum so determined as a "Common Area Factor". Rental Area will not include penetrations made by public stairs, fire towers, public elevator shafts, flues, vents, stacks, pipe shafts and vertical ducts. II. DIVIDED FLOORS The Rental Area of an individual office or a portion of a divided floor shall be the area computed by measuring from the inside surface of the window glass to the finished surface of the corridor side of corridor partitions and from center to center of the partitions that separate the Premises from adjoining Rental Areas including columns and projections necessary to the Building together with twelve percent (12%) of the sum so determined as a "Common Area Factor". TABLE OF CONTENTS SCHEDULES A - Plat showing location of the Premises B - Plans and Specifications for Tenant Improvements C - Rules and Regulations X - Method of Floor Measurement MARYLAND FULL-SERVICE OFFICE LEASE 30 COLUMBIA CORPORATE CENTER by and between COLUMBIA MALL, INC., Landlord by COLUMBIA MANAGEMENT, INC., Managing Agent, and EXCALIBUR TECHNOLOGIES CORPORATION, Tenant EX-10.11 5 OFFICE LEASE (1959 PALOMAR OAKS WAY, CARLSBAD, CA) LEASE BY THIS LEASE, MHPP, Inc., a California Corporation ("Landlord"), hereby leases Excalibur Technologies Corporation, a Delaware Corporation ("Tenant"), and Tenant hereby leases from Landlord, that certain real property, including all improvements therein or to be provided by Landlord under the terms of this Lease, and commonly known by the street address of 1959 Palomar Oaks Way, Carlsbad, located in the County of San Diego, State of California ("Building") and generally described as a three-story, 46,407 square foot office building, subject to all of the terms and conditions hereinafter set forth. 1. BASIC LEASE PROVISIONS. 1.1 DATE OF LEASE FOR REFERENCE PURPOSES. September 1, 1995 1.2 TENANT: Excalibur Technologies Corporation 1.3 TENANT'S ADDRESS PRIOR TO COMMENCEMENT DATE. 9255 Towne Centre, 9th Floor San Diego, CA 92121 Telephone No: (619) 625-7900 1.4 PREMISES. The entire ground floor and entire third floor of the building. 1.5 AREA. (a) Usable Area: approximately 27,704 square feet ("USF") (b) Rentable Area: approximately 31,029 square feet ("RSF) 1.6 BASE RENT. Base Rent shall be paid in monthly installments, payable on the first day of each month according to the following schedule: Months 1-2 $0.00 per month. $0.00 per RSF per month. Months 3-24 $41,889.15 per month. $1.35 per RSF per month. Months 25-48 $45,922.92 per month. $1.48 per RSF per month. Months 49-72 $50,577.27 per month. $1.63 per RSF per month. 1.7 SCHEDULED COMMENCEMENT DATE. November 15, 1995 1.8 EXPIRATION DATE. Seventy-two months after the Commencement Date, as hereinafter defined. Term: See section 2.1 of lease Options: See section 2.3 of lease 1.9 USE OF PREMISES. The operation of a business for corporate office use, marketing, product shipping, software research and related office uses. consistent with the zoning use. 1.10 PARKING. Tenant shall be entitled to 4.0 parking spaces per 1,000 square feet leased. Tenant shall be provided seven(7) spaces designated for visitor parking and two (2) designated for loading. 1.11 SECURITY DEPOSIT. None required, as long as tenant is not late, after the fifth of the month, in rent payments two times in any calendar year in which case a Security Deposit equal to one months rent will be required. 1.12 PROPERTY MANAGEMENT FEE. A 4% property management fee is included in the calculation of the building operating expenses as outlined in article 3.2. 1.13 BROKERS. CB/Madison Advisory Group for Tenant and Business Real Estate Brokerage Company for Landlord. 2. COMMENCEMENT. 2.1 COMMENCEMENT AND EXPIRATION OF TERM. The Term of this Lease and Tenant's obligation to perform all obligations and make all payments under this Lease shall commence on the date determined according to the terms and provisions of Section 1.7 or one (1) business day after substantial completion of Tenant Improvements, whichever is latter. (a) In the event the actual Commencement Date shall be other than the first day of the month, all obligations of Tenant for monetary payments shall be paid for the fractional month on a per diem basis (calculated on the basis of a thirty (30) day month) including but not limited to, the rent pursuant to paragraph 3, and thereafter all monetary obligations shall be paid in equal monthly installments on the first of each and every month in advance. All Lease expirations, renewal dates, notices of option to renew, and any other provisions hereof relating to the Commencement Date of this Lease shall be determined by reference to the Commencement Date as herein defined. (b) The Commencement Date shall be confirmed by Landlord in writing, but any delay or failure to do so shall not affect the validity of this Lease or the obligations of Tenant hereunder. The Term of this Lease shall end on the Expiration Date shown in subparagraph 1.8 of the Basic Lease Provisions, unless sooner terminated pursuant to any other provision hereof. 2.2 RENEWAL OPTIONS. Tenant shall have the option to extend the Lease on all the provisions contained in this Lease except for rent, for a total of two (2) consecutive five (5) year periods ("Extended Term") following expiration of the Term by giving Landlord written notice of the Option ("Renewal Option Notice") at least six (6) months, but not more than twelve (12) months, before the expiration of the Term. If Tenant is in default on the date of the Renewal Option Notice is given, the Renewal Option Notice Shall, at Landlord's option, be deemed ineffective, or if Tenant is in default on the date the Extended Term is to commence, the Extended Term shall, at the Landlord's option, not commence and this Lease shall expire at the end of the Term. The Base Rent for the option periods shall be at 100% of fair market value. Tenant shall receive a new Base Year for Common Expenses commensurate with the then current calendar year in which the majority of the first year of the Extended Term would fill under. In the event of renewal or exercising of this option, Landlord shall pay a two percent (2%) commission to CB/Madison Advisory Group, and a 1.0% commission to Business Real Estate Brokerage Company. 3. RENT. 3.1 BASE RENT. Tenant agrees to pay the Base Rent for the Premises the sum shown in subparagraph 1.6 of the Basic Lease Provisions. All sums due hereunder shall be payable in lawful money off the United States of America in advance, without notice, demand, deduction, or offset, except as hereinafter provided, as described in subparagraph 1.6 commencing on the Commencement Date and continuing on the first day of each calendar month thereafter. 3.2 COMMON EXPENSE ADJUSTMENTS (a) The Usable Area of the Premises as of the date hereof is approximately 27,704 square feet as set forth in paragraph 1.5 of the Basic Lease Provisions and the Usable Area of the Building as of the date hereof is approximately 41,435 square feet. The "Load Factor" for this building shall be deemed 1.12 or one hundred twelve percent (112%). Landlord shall, based upon Tenant's approved space plan, compute the actual Usable Area of the Premises and, based upon as built drawings for the Building, the actual Usable Area of the Building. Such computations shall be determined by Landlord's architect and verified by Tenant, applying BOMA standards of measurement. Landlord shall, after making such computations, give written notice to Tenant of the actual Usable Area of the Premises; the Rentable Area of the Premises (compute by multiplying the Usable Area of the Premises by the Load Factor); Common Expense Percentage (computed as the quotient derived by dividing (i) the product of the Usable Area of the Premises times the Load Factor by (ii) the product of the Usable Area of the Building times the Load Factor. (b) The term "Common Expenses" as used herein shall mean the aggregate amount of total costs and expense paid or incurred by Landlord in connection with the operation of the Building, and/or the operation repair and/or maintenance of the Building, including without limitation, (i) parking areas, loading and unloading areas, trash areas, roadways, driveways, walkways, landscaped areas, striping, bumpers, lighting facilities, elevator facilities air conditioning for Common Areas (as hereinafter defined), fences and gates; (ii) the cost of fire, extended coverage, boiler, sprinkler, public liability, property damage, earthquake, and other insurance obtained by landlord in connection with the Building and the deductible portion of any insured loss otherwise covered by such insurance (or the costs of any uninsured loss, as the case may be); (iii) the cost of trash disposal services; (iv) the cost of maintaining tenant directories; (v) the cost of operating, repairing, and maintaining life safety systems including, without limitation, sprinkler systems; (vi) the cost of security services, if provided by Landlord; (vii) the cost of water, sewer, electricity for Common areas only, gas, and any other utilities used in connection with the operation, maintenance, and/or repair of the Common Areas and the Building; (viii) permits, licenses, inspection fees, and certificates necessary to operate the Building; (ix) legal, accounting, and consulting fees and expenses associated with building operations; (x) property management costs including, without limitation, the Property Management Fee, and any administrative expense related to the Building; (xi) the cost of any capital improvements amortized over their useful life (excluding roofs) made to the Building, as a labor saving device or to affect other economies in the operation or maintenance of the Building, or made to the Building or the Center after the date of this Lease, which are required under any governmental law or regulation that was not applicable to the Building or the Center at the time that permits for the construction thereof were obtained, such cost to be amortized over their useful life; (xii) the cost of any other service generally provided to the tenants of the Building by Landlord; (xiii) the cost of taxes; (xiv) the cost of sewer charges; (xv) the cost of labor supplies, materials, equipment, tools, machinery, and equipment used in connection with the maintenance and operation of the Building; (xvi) fees or other charges incurred in conjunction with membership in energy conservation; and (xvii) property owner's association dues, fees, assessments and the like relating to the Building. (c) The term "insurance premiums" as used herein shall include all premiums on policies of insurance providing protection against any liability or loss for property damage or personal injury or other matters usually covered under comprehensive liability insurance; any peril included within the classification of fire and extended coverage, together with insurance against vandalism and malicious mischief, to the extent of the full replacement costs of the Building, including any fixtures, equipment or plate glass installed therein; and any other matters or coverage that a prudent owner, or the beneficiary under any mortgage or deed of trust encumbering the Building (or any portion thereof), might require. (d) "Taxes" shall mean all taxes, assessments, and charges levied upon or with respect tenant improvements the Center, including without limitation, the Building or any personal property of Landlord used in the operation thereof, or landlord's interest in the Building or such personal property. Taxes shall include, without limitation, all general real property taxes, supplemental taxes and general special assessments, charges, fees, or assessments for transit housing, police, fire, or other governmental services or benefits to the Building, service payments in lieu of taxes, and any tax, fee, or excise on the act of entering into this Lease or any other lease of space in the Building and the Center or on the occupancy of the Building and the Center or any part thereof. (e) Annual and other determinations of Common Expenses hereunder shall be made in good faith by Landlord. In the event of any dispute as to the amount thereof, Tenant shall have the right after reasonable notice to inspect Landlord's accounting. If, after such inspection, Tenant still disputes the Landlord's determination, certification as to the proper amount shall be made by Landlord's independent certified public accountant. Tenant agrees to pay the cost of such certification unless it is determined that Landlord's original determination was in error to Tenant's disadvantage by more than five percent (5%). Tenant agrees that the payment of any disputed sum and if applicable, the deposit of the estimated cost of certification, shall be conditions precedent to the initiation of the foregoing procedure. 3.3 LATE RENT. For the first occurrence in any one 12-month period, the following shall apply; If any rent or other sums owed by Tenant whether a portion of the Base Rent, or additional rent, which shall not be received by Landlord, or Landlord's designee, within five (5) days after receipt of written notice to Tenant, such sums shall bear interest at the rate of twelve (12%) percent per annum retroactive to the due date until paid. Acceptance of any late charge shall not constitute a waiver of the default or the right to collect any such amounts or charges with respect to the overdue amount and shall not prevent Landlord from exercising any of the other rights and remedies available to Landlord. For any additional occurrence in a 12-month period, the following shall apply; Any rent or other sum owed by Tenant whether a portion of the Base Rent, additional rent, or otherwise, which remains unpaid later than five (5) business days after the same is due, provided Tenant has received written notice, shall be deemed delinquent and shall constitute a breach and default under this Lease, whereupon Tenant shall immediately pay to Landlord, as additional rent due hereunder, a late charge equal to five percent (5%) of the sum of the amount not paid. Should Tenant not have made such payment within fifteen (15) days of the date such sum or amount is due, Tenant shall immediately pay to Landlord, as additional rent hereunder, an additional late charge equal to five percent (5%) of the sum or amount not so paid. Should Tenant not have made such payment within thirty (30) days of such sum or amount is due date, Tenant shall immediately pay to Landlord, as additional rent hereunder, an additional late charge equal to five percent (5%) of the sum or amount not so paid. The parties agree that if Tenant fails to pay such sum(s) or amount(s) when due, Landlord will incur damages, including administrative expenses, the exact amount of which is difficult to ascertain. The parties agree that the late charges described above represent a reasonable estimate of such damages and declare them to be liquidated damages and not a penalty or forfeiture. Any payments received from Tenant shall be applied first to late charges outstanding and overdue rent prior to its application to present rent due. Acceptance of any late charge or any portion of the rent or other sum without such late charge shall not constitute a waiver of the default or the right to collect any such amounts or charges with respect to the overdue amount and shall not prevent Landlord from exercising any of the other rights and remedies available to Landlord. 4. SECURITY DEPOSIT. - SEE SECTION 1.11 5. REPAIRS AND MAINTENANCE. 5.1 BY LANDLORD. Subject to subparagraph 5.2, Landlord shall be responsible for the maintenance of and repairs to the exterior walls, subflooring, foundations, roof, and other structural elements of the Building; the Building's elevators; the Building's plumbing, heating ventilation and air conditioning, and electrical systems. However, Landlord shall not be obligated to maintain, replace, or repair interior windows, doors, or interior surfaces of exterior walls. Except as otherwise provided herein, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations, or improvement in or to any portion of the Building or in or to fixtures, appurtenances, and equipment therein or thereon. Landlord shall not be liable for, and Tenant shall not be entitled to, any abatement of rent by reasons of Landlord's failure to furnish any of the foregoing when such failure is caused by accident, breakage, repairs, strikes, walkouts, or other labor disturbances or labor disputes of any character, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord but not to include the bankruptcy or insolvency of Landlord. Landlord shall not be liable under any circumstances of Force Majeure for a loss or injury to property, however occurring, through or in connection with or incidental to failure to furnish any of the foregoing. 5.2 BY TENANT. Tenant agrees that on a timely basis it will maintain and make all repairs to the Premises, and shall keep the Premises in good order and condition. In every instance, Tenant shall give Landlord at least five (5) days prior written notice of its intention to fulfill the requirements of this paragraph 5.2 so as to allow Landlord opportunity (exercisable at Landlord's option) to post such notices at or around the Premise giving notice to those performing work for Tenant of Landlord's non-responsibility for such work; and Tenant shall indemnify and hold Landlord harmless, from, for and against any and all such costs. Within thirty (30) days of receipt of Landlord's itemized invoices, Tenant will pay for any repairs to the Building made necessary by any negligence of Tenant or its assignees, subtenants, employees or their respective agents, or other persons permitted to enter by Tenant, and related parking area, and will maintain the Premises consistent with the maintenance standards utilized by Landlord in maintaining the Building, and will leave the Premises upon expiration or termination of this Lease in a safe, clean, neat, and sanitary condition. 6. IMPROVEMENTS AND ALTERATIONS. 6.1 TENANT'S OBLIGATIONS. After the initial construction of tenant improvements are completed, Tenant shall not make any alterations, additions, or improvements to or of the Premises, or any part thereof in excess of $10,000.00 without the prior written consent of Landlord, which such consent may be given or withheld by Landlord in its reasonable discretion. As a condition for giving such consent Landlord may, but need not, require one or more of the following: (a) That Tenant agree to remove some or all such alterations, improvements, additions, and/or utility installations (collectively hereafter sometimes referred to as the "Alterations") at the expiration or other termination of this Lease and to restore the Premises, (b) to become the property of Landlord upon expiration or other termination of this Lease, (c) and that some or all such Alterations be made under the supervision of a competent architect, or licensed structural engineer and by a general contractor approved by Landlord. Tenant shall give Landlord written notice at least five (5) days prior to the commencement of such Alterations, so that Landlord may, at its option, post a notice of non-responsibility; provided, however, that whether or not Landlord chooses to so post such notices, Tenant shall notify every entity performing work for Tenant and every supplier thereof of Landlord's non-responsibility for the costs of any such matter and Tenant shall indemnify and hold Landlord harmless, from, for and against any and all such costs. All such Alterations, (except movable furniture and trade fixtures) shall become the property of Landlord and shall be surrendered with the Premises, as a part thereof, at the expiration or earlier termination of the Term hereof. The same shall be made by Tenant at Tenant's sole cost and expense. Landlord shall not impose any fees in connection with construction of the Tenant improvements. Any contractor or person making such alteration must first be approved in written by Landlord. Upon the written demand by Landlord at its sole discretion, Tenant shall remove by the Expiration Date or any other termination of this Lease and prior to Tenant's vacation of the Premises, and at Tenant's sole cost and expense, any Alterations, made by Tenant and designated by Landlord to be removed, and repair and restore the Premises to their original condition, reasonable wear and tear excepted. 6.2 FLOOR LOADS. Tenant shall not place a load upon any floor of the Premises that exceeds the lesser of the floor load per square foot which such floor was designed to carry, or the maximum floor load per square foot allowed by law. Determinations of floor loads and the positioning of such loads within the Premises shall be made by Landlord's structural engineer. 7. LIENS. If a mechanic's or materialmen's lien shall be recorded against the Premises owing to any repairs, alterations, additions, improvements or utility installations made thereon at the request of Tenant, Tenant shall, at Tenant's sole cost and expense, obtain within fifteen (15) days after written notice to Tenant, the release of such lien, or provide to Landlord a surety bond in an amount equal to one hundred percent (100%) of such lien to insure Landlord against liability for such lien. Upon completion of the Tenant's work, Tenant shall submit to Landlord a copy of a lien waiver that has been fully executed by Tenant's contractor in connection with Tenant's Alterations work. 8. USE OF PREMISES. SEE ADDENDUM I, SECTION -Building Warranty. 8.1 GENERAL RESTRICTIONS. Tenant may use the Premises only as set forth in subparagraph 1.9 of the Basic Lease Provisions and shall not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord which shall not be unreasonably withheld. Tenant shall not use or occupy the Premises in violation of law or of the certificate of occupancy issued for the Building, and shall, upon five (5) days' receipt of written notice from Landlord, discontinue any use of the Premises which is declared by any governmental authority having jurisdiction to be a violation of law or of said certificate of occupancy. Tenant shall comply with any direction of any governmental authority having jurisdiction which shall, by reason of the nature of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupancy thereof. Tenant shall not do or permit to be done anything which will invalidate or increase the cost of any fire, extended coverage or any other insurance policy covering the Building and/or property located therein and shall comply with all rules, orders regulations and requirements of all applicable governmental agencies and/or insurance related rating entities. Tenant shall be notified by Landlord of any proposed premium increase due to Tenant's use, and shall provide a thirty (30) day opportunity to Tenant to remedy same, after which the Tenant shall reimburse Landlord, within thirty (30) days following Landlord's written request, for the full amount of any additional premium charged for such policy by reason of Tenant's failure to comply with the provisions of this paragraph. Tenant shall not in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy them, or use or allow the Premises to be used for any improper, immoral or unlawful purpose, nor shall Tenant cause, maintain, or permit any nuisance in, on, or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. Notwithstanding the foregoing, Landlord understands that Tenant shall have unlimited access 24 hours per day, seven days a week. 9. UTILITIES AND SERVICES. 9.1 FURNISHED BY LANDLORD. Landlord agrees to furnish or cause to be furnished to the Premises the utilities and services hereinafter described in this subparagraph 9.1, subject to the conditions and in accordance with the standards set forth below: (a) Landlord shall provide automatic elevator facilities on generally accepted business days from 8:00 a.m. to 8:00 p.m., and on Saturdays from 9:00 a.m. to 1:00 p.m. or such other hours may from time to time be requested by Tenant AND HAVE AT LEAST ONE ELEVATOR AVAILABLE FOR USE AT OTHER TIMES (b) On generally accepted business days from 8:00 a.m. to 6:00 p.m., and on Saturdays from 9:00 a.m. to 1:00 p.m., or such other hours may from time to time be requested by Tenant, Landlord shall provide ventilation heat or air conditioning when it is required for the comfortable occupancy of the Premises and/or the Common Areas during such days and hours, subject to any requirements or standards relating to, among other things, energy conservation imposed or established by governmental or cooperative organizations. Landlord shall make available at Tenant's expense after-hours heat or air conditioning for the Premises and/or the Common Areas..Tenant shall pay only the actual cost which Landlord incurs for the after hours operation of the HVAC (c) Landlord shall repair and maintain (including janitorial) the Common Areas, including without limitation, parking areas, loading and unloading areas, roadways, driveways, walkways, landscaped areas, lighting facilities fences, and gates in a manner comparable to that provided in other office buildings in the vicinity of the Building. (d) Landlord shall provide five day a week janitorial services to the Premises comparable to that provided in other first-class office buildings in the area. 9.2 FURNISHED BY TENANT. Tenant shall, at Tenant's sole cost and expense, be responsible for removal of all refuse and materials requiring any special handling or not disposable through generally available trash removal means including, but not limited to, hazardous materials. 9.3 CHARGES TO TENANT. Landlord shall furnish to the Premises, at Tenant's sole cost, the utilities and services hereinafter described in this subparagraph 9.1. Landlord may elect to separate for Tenant's individual charges for such utilities and services (including, without limitation, heating, ventilation, and air conditioning, whether provided for under this subparagraph 9.2 or subparagraph 9.1) or portions thereof ("Utilities Expenses"). Moreover Landlord may, at its election, allocate the sum if all tenant's Utilities Expenses operate in a manner deemed equitable by Landlord, including without limitation, accruing to rentable square feet or estimated usage. Notwithstanding the foregoing, separate meters for electrical energy may be installed for the Premises at locations stipulated by Landlord. Tenant acknowledges that charges for the other Utilities Expenses may be included within the Common Expenses. (a) Landlord shall furnish to the Premises, subject to interruptions beyond Landlord's control (but not to include Landlord's bankruptcy or insolvency), separately metered electrical energy service. (b) Landlord shall furnish water to the Premises, subject to interruptions beyond Landlord's control (but not to include Landlord's bankruptcy or insolvency) as required by Tenant. (c) Landlord may impose additional charges for special cooling, and ventilating needs in the Premises and Common Areas created by Tenant by the use of computers, medical equipment, hybrid telephone equipment, and other similar equipment or uses. Landlord may use a life cycle cost system in full or reasonably modified form to determine the cost of such services. (d) Except for separately metered electric, in the event Landlord shall choose to not include any or all of the Utilities Expenses in the Common Expenses for any given period, prior to the Commencement of the Lease Term or any applicable calendar year (or portion thereof) thereafter Landlord shall give Tenant a written estimate of Tenant's Utilities Expenses for the ensuing year or portion thereof. Tenant shall pay such estimated Utilities Expenses in twelve (12) equal monthly installments, in advance, concurrently with the regular Minimum Monthly Rental Installments. In such event, within ninety (90) days after the end of each calendar year, Landlord may elect to determine, pursuant to the provisions of this subparagraph 9.2, Tenant's actual Utilities Expenses. Landlord shall furnish to Tenant a statement showing in reasonable detail the method of arriving at Tenant's actual Utilities Expenses and the parties shall within thirty (30) days from receipt of a statement pay any overpayment or increase due over the estimated Utilities Expenses incurred by Landlord during such period. 9.4 ELECTRICAL EQUIPMENT. At no time shall Tenant's use of electrical current ever exceed the capacity of the feeders to the Building or the risers or wiring installation or the capacity of the service to the Premises. 9.5 COOPERATION. Tenant agrees to cooperate fully at all times with Landlord and to abide by all reasonably determined regulations and requirements which Landlord may prescribe for the use of the above utilities and services. 9.6 INTERRUPTIONS. Landlord shall not be liable for, and Tenant shall not be entitled to any abatement or reduction of rent by reason of Landlord's failure to furnish any of the foregoing when such failure is caused by accident, breakage, repairs, strikes, lockouts or other labor disturbance or labor dispute of any character, governmental action, inability by exercise of reasonable diligence to obtain electricity, water, or fuel or by any other cause beyond Landlord's reasonable control, but not to include Landlord's bankruptcy or insolvency. 9.7 MODIFICATIONS Notwithstanding anything hereinabove to the contrary, Landlord reserves the right from time to time to make reasonable and nondiscriminatory modifications to the above standards for utilities and services. 10. RULES AND REGULATIONS. Tenant agrees to abide by all reasonable rules and regulations of the Center imposed by Landlord and incorporated herein by this reference ("Rules and Regulations"), as the same may be reasonably changed from time to time by Landlord upon reasonable advance written notice to Tenant. These Rules and Regulations are imposed for cleanliness, good appearance, proper maintenance, and good order and reasonable use of the Premises, the Building and the Center, and as may be necessary for the enjoyment of the Building and the Center by all tenants and their clients, customers and employees. Breach of the Rules and Regulations shall not be grounds for termination of the Lease unless Tenant continues to breach the same after thirty (30) days advance written notice by Landlord; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under any California law. Landlord shall not be liable for the failure if any tenant, its agents, or employees, to conform to the Rules and Regulations; so long as Landlord shall take the same enforcement steps against any other tenant as provided in this paragraph 10. 11. TAXES ON TENANT'S PROPERTY. 11.1 TENANT'S LIABILITY. If any taxes, levies and assessments on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property or if the assessed value of the Building is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant, and if Landlord pays the taxes levies, and assessments based upon such increased assessment, which Landlord shall have the right to do regardless of validity thereof, Tenant shall, within thirty (30) days receipt of landlord's written notice, repay to Landlord the taxes, levies, and assessments so levied against Landlord, or the proportion of such taxes, levies, and assessments resulting from such increase in the assessment. 11.2 VALUATION OF TENANTS IMPROVEMENTS. If the Tenant Improvements in the Premises, whether installed and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which Tenant Improvements conforming to Landlord's building standard is assessed (for purposes herein defined to be $30.00 per square foot), then at Landlord's option the real property taxes and assessments levied against Landlord or the property by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of subparagraph 11.1. If Landlord elects to make the allocation authorized by this subparagraph and if the records of the County Assessor are available and sufficiently detailed to serve as a basis for determining whether said Tenant Improvements are assessed at a higher valuation than Landlord's building standards, such records shall be binding on both Landlord and Tenant; otherwise the actual cost of construction shall be the basis for such determination 11.3 TAX RENTALS PAYABLE TO LANDLORD. If at any time during the Lease Term the Premises are subject to a tax or excise on the rent or any other tax, however described, on account of rentals payable to Landlord under this Lease, such tax or excise shall be considered an assessment for which Tenant shall be solely liable under subparagraph 11.1 (excluding, however from such tax or excise any amount assessed against Landlord as state or federal income tax). Without limiting the foregoing, Tenant acknowledges that Tenant is liable for tax on rentals payable hereunder and Tenant shall remit an amount equal to any and all such tax with any such rental payment. 12. TENANT'S INSURANCE. 12.1 TYPES OF INSURANCE. Commencing upon Tenant's initial entry into the Premises, Tenant shall, at its own expense, provide and keep in force during the Term of this Lease, with a company(ies) licensed in the State of California, the following insurance (a) Comprehensive general liability insurance insuring Tenant against liability arising out of this Lease and the use, occupancy, or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be in the amount of $1,000,000 combined single limit for injury to or death of one or more persons for each occurrence, and for damage to tangible property, including loss of use for each occurrence The policy shall insure against loss resulting from tenant's operations in the Premises, actions of Tenant's independent contractors and Tenants contractual liability. The policy shall contain a provision that the insurance provided the Landlord hereunder shall be primary and non-contributing with any other insurance available to the Landlord. (b) All-risk insurance (excluding flood and earthquake insurance, unless required by lender), including sprinkler leakage, in an amount sufficient to cover the full cost of replacement of all improvements and betterment to the Premises paid for by Tenant and all of Tenant's trade fixtures and Tenant's other personal property. (c) Worker's compensation and employer's liability insurance, as required by state or local law. 12.2 CERTIFICATES OF INSURANCE. Tenant shall deliver to Landlord at least thirty (30) days prior to the time such insurance is first required to be carried by Tenant, and thereafter prior to expiration of each such policy, certificates of insurance evidencing the above coverage with limits not less than those specified above. Such certificates, with the exception of worker's compensation, shall name Landlord as an additional insured, and shall expressly provide that the interest of same therein shall not be affected by any breach by Tenant of any policy provision for which such certificates evidence coverage. Further, all such certificates shall expressly provide that no less than thirty (30) days' prior written notice shall be given Landlord in the event of material reduction in the required coverage for the leased premises to or cancellation of the coverage evidenced by such certificates. The insurance required by this paragraph 12 shall be the primary insurance as respects landlord (and any other additional insured designated by Landlord) and not contributory with any other available insurance. All policies shall be taken out with insurance companies authorized to do business in the State of California. If Tenant shall fail to procure and maintain said insurance, Landlord may, but shall not be required to procure and maintain same but at the sole expense of Tenant and the cost of said insurance shall be added to Tenant's monthly rent, but only for the prorate period of noncompliance. 12.3 NO CO-LNSURANCE. As it applies to property coverage, if, on account of the failure of Tenant to comply with the provisions of this paragraph 12, Landlord is adjudged a co-insurer by its insurance carrier, then any loss or damage Landlord shall sustain by reason thereof shall be borne by Tenant and shall be immediately paid by Tenant upon receipt of a bill therefor and evidence of such loss. 12.4 INSURANCE LIMITS. Landlord makes no representation that the limits of liability specified to be carried by Tenant under the terms of this Lease are adequate to protect Tenant against Tenant's undertaking under this Lease. In the event Tenant believes that any such insurance coverage called for under this Lease is insufficient, Tenant shall provide at its own expense such additional insurance as Tenant deems adequate. In no event shall the limits of coverage maintained by Tenant pursuant to this paragraph 12 be considered as limiting Tenant's ability under this Lease. 13. LANDLORD'S INSURANCE. 13.1 COVERAGE. Landlord may during the Term of this Lease maintain in effect a policy or policies of all-risk insurance, together with sprinkler leakage coverage covering the Building, including Landlord's interest in all tenant improvements in the Premises. The cost of such insurance shall be included in the Common Expenses to be reimbursed by Tenant to Landlord pursuant to subparagraph 3.2. 13.2 PREMIUM INCREASES. If the presence of any substances or equipment, including without limitation any medical substances or equipment, maintained by Tenant on the Premises causes landlord's insurer(s) to reasonably require that special safety precautions be taken, Tenant, at Tenant's sole cost and expense, shall cause the safety precautions to be taken. If the presence of such substances and equipment on the Premises causes Landlord's insurer(s) to increase insurance premiums, Tenant shall reimburse Landlord for such increases within thirty (30) days after receipt of Tenant's statement showing the amount of increased premiums if after thirty (30) days written notice from Landlord outlining the conditions causing the increase Tenant fails or refuses to correct those causes. If the presence of such substances and equipment on the Premises causes landlord's insurer(s) to cancel Landlord's insurance policies, and Landlord is unable to obtain insurance from another insurer, Tenant shall be obligated use any other substances and equipment generally accepted by Tenant's substances and equipment generally accepted by Tenant's professional associates which is acceptable to landlord's insurer(s). The provisions of this subparagraph shall apply to all types of insurance maintained by landlord. 14. WAIVER OF SUBROGATION RIGHTS. Landlord and Tenant hereby release each other and their respective authorized representatives, from any claims for injury, loss, or damage to any person, the Premises and/or the Building, and to the fixtures, personal property, improvements, and/or alterations of either party in or on the Premises or the Building, that are caused by or result from any of the risks insured against under any insurance policy(ies) carried by the parties as required under the terms of this Lease and in force at the time of any such injury, loss or damage, provided that such waiver is permitted by each party's insurance policies or endorsements thereon without invalidation of such policies. The foregoing reciprocal releases are, however, limited to the extent by which any such claims are covered by said insurance policy(ies). Each party shall cause each insurance policy obtained by it to provide that the insurer waives all right of recovery by way of subrogation against either party in connection with any injury, loss or damage covered by such policy. 15. WAIVER, LIMITATION OF LIABILITY. AND DEFENSE OF ACTIONS. 15.1 INDEMNIFICATION AND WAIVER. This Lease is made on the express condition that, except as otherwise provided herein, Landlord shall not be liable for or suffer loss by reason of injury to or death of any person or injury to property from whatever cause, all or in any way connected with the condition or use of the Premises or the installation or construction of improvements or personal property therein, including without limitation any liability for injury to the person or property of Tenant, its agents, officers, employees or invitees, and any liability arising from any act or neglect of any other tenant of the Building Tenant agrees to defend, indemnify, and hold harmless Landlord, its agents, employees, contractors, from damage to persons or property caused by and to the extent resulting from the negligence of Tenant or its agents, employees or invitees. Tenant shall immediately notify Landlord in writing in the event of any damage to the Premises or of any injury to persons or damage to property occurring in or about the Premises. In no event shall Tenant defend, indemnify and hold Landlord harmless from any injury or damage that may result to any property on the demised premises or to any person on the premises (I) if that injury or damage is the result of the negligence or reckless or willful misconduct of Landlord, Landlord's agents, servants, employees or contractors; and (ii) if such injury or damage does not result or arise from the negligence of Tenant, its agents, employees or contractors. Landlord agrees to defend, indemnify and hold Tenant harmless from any loss or injury to persons or property arising from the negligence of Landlord, its agents, employees or contractors in performance of the obligations under this Lease. Notwithstanding the foregoing, Tenant shall have no obligation to indemnify Landlord with regard to any amount against which the Landlord has been effectively insured, any amounts for which Landlord has the right of compensation or indemnification by any other party, or for any claims to the extent they arise from the negligent or intentional acts or omissions of Landlord, its agents, employees or contractors. The obligations of Tenant and Landlord under this paragraph 15 arising during the term shall survive any termination of this Lease. 15.2 DEFENSE OF ACTIONS. In case any action, suit, or proceeding is brought against Landlord by reason of any occurrence in, on, or about the Premises and which does not arise out of the act or omission of Landlord or its agents, employees or contractors, Tenant, upon Landlord's request and at Tenant's sole cost and expense subject to 15.1 second paragraph, shall resist, defend, indemnify and hold Landlord free for, from and against, such action, suit, or proceeding, or cause the same to be resisted and defended by counsel designated by the insurer whose policy covers the occurrence or by counsel designated by Tenant and approved by Landlord. 15.3 LIABILITY OF LANDLORD. The liability of Landlord hereunder or in connection with the Premises, the Building or the Park shall be limited to its interest herein, and in no event shall any other assets of Landlord or any constituent partner of Landlord be subject to any claim arising out of or in connection with the Lease or the Park. 16. COMMON AREAS. Tenant, for the use and benefit of Tenant, its agents, employees, customers, clients, licensees, and subtenants, shall have the nonexclusive right in common with Landlord and other present and future owners, tenants, and their agents, employees, customers, clients, licensees, and subtenants, to use common entrances, lobbies, elevators, ramps, drives, stairs, and similar access, service-ways and other common facilities within and around the Building (i.e. such areas as are not intended to be leased or rented by landlord) ("Common Areas"), subject to reasonable rules and regulations established by Landlord from time to time. 17. PARKING. 17.1 USE. Tenant shall have the nonexclusive right to use the Parking Facilities associated with the Building. 18. SIGNS. No signs, placard, pictures, advertisement, name, or notice shall be displayed, printed, inscribed or otherwise posted on or about the Premises, the Building, or any of the Common Areas, so as to be visible from outside the Building, without the prior written approval of Landlord, which will not be unreasonably withheld or delayed. Any signs visible from a corridor or other Common Areas, and the lobby directory, shall be of a size, color, and style acceptable to Landlord and in accordance with Landlord's sole signage criteria under this lease. Tenant may affix signs within the Premises provided that they are not visible from outside the Premises. Notwithstanding the foregoing, Landlord shall permit Tenant to install its name and logo on as many highly visible prominent locations on the exterior of the building and monument signage as allowed by the City of Carlsbad. 19. ENTRY BY LANDLORD. Landlord reserves for itself and its agents the right to enter the Premises, supplying janitorial services maintaining the Building, including the erection and maintenance of such scaffolding, canopies, fences, add props as may be required, posting notices of non-responsibility for alterations, additions, or repairs, and/or upon reasonable notice to Tenant exhibiting the Premises to existing or prospective purchasers, mortgagees, or tenants (during the last six (6) months of the Term hereof) without any abatement of rent and without any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby occasioned. So long as the Landlord has given reasonable notice to Tenant, any entry to the Premises obtained by Landlord for the purpose described in this paragraph, shall not be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant from the Premises or any portion thereof. 20. FIRE OR CASUALTY. In the event the Premises, or access to them, are wholly or partially destroyed by fire or other casualty covered by the form of fire and extended coverage insurance maintained by Landlord, Landlord shall rebuild, repair, or restore the Premises and access thereto substantially the same condition as when the same were furnished to Tenant within 120 days from the date of damage, excluding any improvements installed by Tenant or by Landlord at Tenant's request and expense, and the Lease shall continue in full force and effect. In the event, however, that the Premises, the Building or the Building are so damaged or destroyed to the extent of more than one-third of its replacement cost, or to any substantial extent by a casualty not so covered, Landlord may elect to terminate this Lease in lieu of so restoring the Premises. Landlord shall in no event be obligated to make any repairs or replacement of any items other than those items installed by or at the expense of Landlord. If the Premises are rendered partially or totally unusable by Tenant, rent shall abate during the period of reconstruction. Notwithstanding anything to the contrary contained in this paragraph, Landlord shall not have any obligation whatsoever to rebuild, repair, or restore the Premises when the damage from any casualty covered under this paragraph occurs during the last twelve (12) months of the Term of this Lease. 21. ASSIGNMENT AND SUBLETTING. 21.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not, either voluntarily or by operation of law, assign, transfer, mortgage, pledge, hypothecate, or encumber this Lease or any interest herein, and shall not sublet the Premises or any part thereof, without the written consent of Landlord, which consent the parties expressly agree will not unreasonably withheld or delayed by the Landlord. Without limiting the basis on which Landlord's consent may be reasonably withheld, Landlord may withhold consent based upon the following factors: (i) The assignee's or sublessee's (collectively, "Transferee") use of the Premises will be materially incompatible with the provisions of his Lease and the operation of the Center as a whole; (ii) The Transferee will materially affect the liability of the Premises and the Center as a whole to compete with similar properties; (iii) The financial stability and capacity, of the Transferee; (iv) The business reputation of the Transferee; (v) Whether the Transferee's intended use of the Premises materials conflicts with those purposes set forth in subparagraph 1.09 of the Basic Lease Provisions; While this list of factors is not intended to be exclusive, failure to satisfy Landlord relative to any one or more of those criteria shall be deemed reasonable grounds for withholding consent. A consent to one transfer of rights shall not be deemed to be a consent to any subsequent transfer of rights. Any such transfer of rights without such consent shall be void and shall, at the option of the Landlord, constitute a breach under this paragraph and a default under this Lease. no permitted transfer of rights in this Lease shall relieve other obligations to be performed by Tenant hereunder. Tenant's obligations and liabilities under this Lease shall continue notwithstanding the fact that Landlord may accept rent and other performance directly from any other person shall not be deemed to be a waiver by landlord of any provision of this Lease or be a consent to any transfer of rights. Notwithstanding the foregoing, Tenant shall have the right to sublease or assign its rights under the terms of this Lease to its subsidiaries, affiliates, successor legal entities or subsidiaries or affiliates of Excalibur Technologies Corp. without prior notice or consent of Landlord and without further compliance with subparagraph 21.2 below. Such company shall assume Tenant's obligations hereunder. 21.2 PROCEDURE AND LANDLORD'S OPTIONS. If Tenant desires at any time to effect a transfer of rights under this Lease, it shall have first received or procured a bona fide written offer to take an assignment or sublease which is not inconsistent with this Lease, and the acceptance of which would not breach any provision of this Lease if this paragraph is compiled with and being compiled with, and Tenant shall notify Landlord in writing enclosing the bona fide written offer. Tenant also shall provide Landlord with such financial and other information as Landlord may reasonably request concerning the offeror of the bona fide written offer. At any time within ten (10) days after Landlord's receipt of the bona fide written offer, Landlord may by written notice to Tenant elect to (i) sublease the Premises or portion thereof proposed to be subleased by Tenant (if the proposed transfer of rights is a sublease), or take an assignment of Tenant's leasehold estate hereunder or such part thereof as shall be specified in said bona fide written offer, (if the proposed transfer of rights is an assignment), on the same terms stated in this Lease, and in turn sublease or assign to the proposed subtenant or assignee on the terms specified in the bona fide written offer, or (ii) terminate this Lease as to the portion (including all) of the Premises so proposed to be subleased or assigned, with a proportionate abatement in the rent payable hereunder; provided, however, that if the proposed sublease will cover less than 1/2 of the area of the Premises covered by this Lease, will have a term (including all options to renew or extend the same) of less than two years, and will terminate more than two years prior to the Expiration Date, Landlord shall not be entitled to exercise option (ii) above, but may exercise option (i). If Landlord shall not be entitled to exercise any option set forth herein within said ten (10) day any option set forth herein within said ten (10) day period, but instead notifies Tenant in writing, that pursuant to the provisions of subparagraph 21.1 hereof, it consents to Tenant accepting the bona fide offer, then Tenant may enter into a valid assignment or sublease of the Premises or portion thereof, upon the terms and conditions set forth in said bona fide written offer. Landlord and Tenant agree to share equally in any profit that is derived from Tenants subleasing of the space, after Tenants recovery of any cost incurred in such sublease. 21.3 DOCUMENTATION AND PAYMENT OF LANDLORD'S COSTS. Any permitted transfer of rights shall be evidenced by a written instrument executed by a Tenant in a form reasonably satisfactory to Landlord. Each transferee shall, if required by Landlord, agree in writing for the benefit of Landlord to perform all of Tenant's obligations under this Lease, including the payment of all amounts due or to become due under this Lease directly to the Landlord. An executed copy of such written instrument shall be delivered to Landlord. Tenant shall pay to Landlord all of Landlord's reasonable attorney's fees and costs arising from or relating to the review, drafting and preparation of the documentation related to the proposed transfer of rights. 21.4 NO ADVERTISEMENT In no event shall Tenant display on or about the Premises, the building, and/or the Center any signs for the purpose of advertising the Premises for assignment, subletting, or other transfer rights. 22. TENANT'S DEFAULT. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Tenant: (a) The vacation or abandonment of the Premises by Tenant, coupled with non-payment of rent when due. (b) The failure by Tenant to make any payment of rent or make any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of five (5) days after receipt of written notice thereof by Landlord to Tenant. (c) Tenant's causing, permitting, or suffering, without the prior consent of Landlord, any act for which this Lease requires Landlord's prior written consent, or which is prohibited by this Lease; if such act continues for a period of ten (10) days (or is not cured) after written notice by Landlord to Tenant. (d) The failure by Tenant to observe or perform any of the material covenants, conditions, or provisions of this Lease to be observed or performed by Tenant, other than described in subparagraph (b) above, where such failure shall continue for a period of thirty (30) days after receipt of written notice thereof by Landlord to Tenant. (e) The making by Tenant of any general assignment or general arrangement for the benefit of creditors; or the filing by or against Tenant of a petition to have Tenant adjudged bankrupt, or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant; or the appointment of a trustee or a receiver to take possession of substantially all of Tenant's assets located at the Premises, or of Tenant's interest in this Lease, where possession is not restored to Tenant within sixty (60) days; or the attachment, execution, or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenants interest in this Lease; provided, however, that if any provision of this subparagraph (e) is contrary to applicable law, such provision shall be of no force or effect except to the broadest extent permitted by law. 23. REMEDIES UPON DEFAULT. 23.1 LANDLORD'S Recovery. In the event of default by Tenant, then in addition to any other remedies available to Landlord at law or in equity, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder by giving written notice of such intention to terminate. In the event that Landlord shall so elect to terminate this Lease, then Landlord may recover from Tenant: (a) The worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (b) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination; (c) At Landlord's election, such other amounts or addition to or in lieu of the foregoing as may be permitted from time to time by applicable California law. 23.2 REMOVAL AND STORAGE. In the event of any default by Tenant, Landlord shall also have the right, with or without terminating this lease, to re-enter the Premises and remove all persons and property from the Premises. Such property may be removed and stored in a public warehouse or elsewhere at the cost or and for the account of Tenant. 23.3 RELETTING, In the event of the vacation or abandonment of the Premises by Tenant, as defined in Paragraph 23(a), or in the event that Landlord shall elect to re-enter as provided above or shall take possession of the Premises pursuant to legal proceedings or pursuant to any notice provided by law, then, if Landlord does not elect to terminate this Lease as provided herein, Landlord may from time to time, without terminating this Lease, either recover all rental as it becomes due, or relet the Premises or any part thereof for such term or terms and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. In the event that Landlord shall elect to so relet, then rentals received by Landlord from such reletting shall be applied: (I) first, to the payment of any cost of such reletting; (ii) second, to the payment of the cost of any alterations and repairs to the Premises; (iv) fourth, to the payment of rent due and unpaid hereunder; and (v) the residue, if any, shall be held by Landlord and applied in payment of future rent owing by Tenant as the same may become due and payable as less than the rent payable during that month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord from time to time upon receipt of invoice. Tenant also shall pay to Landlord, any reasonable costs and expenses incurred by Landlord in reletting or in making alterations and repairs to the Premises upon receipt of invoice. 23.4 RE-ENTRY NOT AN ELECTION TO TERMINATE. No reentry or taking possession of the Premises by Landlord pursuant to this paragraph 24 shall be construed as an election to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any reletting without termination by Landlord because of any default by Tenant, Landlord may at any time after such reletting elect to terminate this Lease for any such default. 23.5 LANDLORD DEFAULT. In the event Landlord shall default in the performance of any of the covenants, obligations or agreements of this Lease and such default shall continue for five (5) days after receipt of written notice setting forth such default, and Landlord is not engaged in diligently pursuing to cure such default, Tenant shall have the right to cure such default and to recover all costs of curing said default from Landlord. In the event Tenant elects to cure said default, Tenant shall invoice Landlord for all expenses reasonably incurred in curing said default. If Landlord fails to reimburse Tenant within twenty (20) days after receipt of said invoice, Tenant shall have the right to withhold rent and other amounts due Landlord as an offset against the sums due Tenant. Any outstanding balance due Tenant shall accrue interest at the existing prime rate of interest plus an additional two percent (prime + 2%) annual percentage rate, compounded monthly. Without limiting any of Tenant's rights and remedies hereunder, and in addition to all other amounts, Landlord shall be obligated to pay it is expressly agreed that Tenant shall be entitled to recover from Landlord all costs and expenses, including actual and customary attorney's fees, incurred by Tenant in enforcing this Lease from and after Landlord's default. 24. RIGHT TO CURE TENANT'S DEFAULT. If Tenant shall default in the observance or performance or any term or covenant on Tenant's part to be observed or performed under this Lease, and shall not have cured such default within the respective periods specified hereunder, Landlord may, but without obligation so to do, immediately or at any time thereafter perform the same for the account of Tenant, and if Landlord makes expenditures or incurs any obligation for the payment of money therewith including, but not limited to, attorneys' fees in instituting, prosecuting or defending any action or proceeding, such sums paid or obligations incurred, with interest shall be deemed to be additional rent hereunder and shall be paid by Tenant to Landlord within 30 days after receipt of written request therefor. 25. ATTORNEY'S FEES. In the event any action, suit, or proceeding is commenced under or in connection with this Lease, the losing party shall pay to the prevailing party in such action, suit, or proceeding a reasonable sum as attorneys' fees incurred in connection therewith, together with all costs and expenses of said prevailing party. The term "prevailing party" shall include, without limitation, a party who obtains legal counsel or brings an action against the other by reason of the other's breach or default and obtains substantially the relief sought, whether by compromise, settlement, or judgment. 26. SURRENDER OF LEASE NOT MERGER. The voluntary or other termination or surrender of this Lease by Tenant, or a mutual cancellation hereof, shall not work a merger and shall, at the option of Landlord, terminate all or any existing subleases and/or sub tenancies, or may, at the option of Landlord, operate as an assignment to it of any or all of such subleases or subtenancies. Upon expiration or earlier termination of this Lease, any improvements to or of the Premises including, but not limited, wall covering, paneling, ceilings, carpeting, and built-in cabinet work, shall become part of the Building and belong to the Landlord. However, any furniture (including all panels or partitions), office equipment, ice makers, signage, refrigerators, supplemental air conditioning systems, security cameras and systems, UPS systems, generators, halon systems, raised flooring, cable wiring ladders, employee lockers, other trade fixtures, etc. shall at the option of the Tenant, remain the property of Tenant. Tenant shall have absolute right, but not obligation to remove all property belonging to the Tenant, but Landlord also has right to demand removal of all property belonging to the Tenant. Landlord shall within thirty (30) days prior to such expiration or earlier termination have the right to specify such property to be removed from the Premises by serving written notice to Tenant. In the absence of such notice, Tenant shall not be obligated to remove such property. In both cases, Tenant shall repair any damage caused by removal and restore the Premises to their original condition, reasonable wear and tear excepted. 27. CONDEMNATION. If any part of the Premises or the Building be taken or condemned for public or quasi-public use, or sold under threat of such taking, and a part thereof remains which is susceptible to occupation hereunder, this Lease shall, as to the part so taken, terminate as of the date title shall vest in the condemnor, and the rent shall be equitably adjusted; but in such event Landlord or Tenant shall have the option, at either parties sole discretion, to terminate this Lease as of the date when title to the part so condemned vests in the condemnor. If so much of the Premises is taken that there does not remain a portion reasonably acceptable for occupation hereunder, this Lease shall thereupon terminate. If a part or all of the Premises be taken, all compensation awarded upon such taking shall belong to Landlord, and Tenant shall have no claim thereto, and Tenant hereby irrevocably assigns and transfers to Landlord any right to compensation or damages to which Tenant may be entitled during the term hereof by reason of the taking of all or a part of the Premises provided, however, that Tenant shall be entitled to retain any award for Tenant's movable equipment, furnishings and other move costs. 28. WAIVER. The waiver by Landlord of the breach of any term, covenant, or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant, or condition herein contained. The acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant, or condition of this Lease, other than the failure of Tenant to pay the particular payment so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 29. EFFECT OF HOLDING OVER. If Tenant holds possession of the Premises after the expiration of the term, Tenant shall become a Tenant at sufferance from month to month upon the terms herein specified except that the rent shall be 125% of the rent last paid, payable monthly in advance. 30. TENANT'S STATEMENT. Tenant shall, at any time and from time to time, upon not less than twenty (20) days' prior written request from Landlord, execute, acknowledge, and deliver to Landlord a statement in writing (I) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified is in full force and effect) and the date to which the rent and other charges are paid in advance, if any; (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord, or specifying such defaults, if any, as are claimed; (iii) setting forth the date of commencement of rent and the Expiration Date; and (iv) setting forth such other matters known to Tenant as reasonably may be requested by Landlord. 31. TENANT'S FINANCIAL STATEMENTS. At any time during the term of this Lease, Tenant shall, upon thirty (30) days prior written notice from Landlord, provide Landlord with a copy of its most recent annual or quarterly report. 32. SALE OF BUILDING BY LANDLORD. In the event of any sale of the Building by Landlord, Landlord shall be and is hereby entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease arising out of any act, occurrence, or omission occurring after the consummation of such sale; and the purchases at such sale or any subsequent sale of Building shall be deemed, without any further agreement between the parties or their successors in interest or between the parties and any such purchases, to have assumed and agreed to carry out any and all of the covenants or obligations of Landlord under this Lease. 33. SUBORDINATION, ATTORNMENT. 33.1 SUBORDINATION. Tenant hereby agrees that this Lease shall be subordinate to the lien of any mortgage or deed of trust executed by Landlord for the benefit of any bank, insurance company, individual, corporation, partnership, unincorporated association, or other lending institution now or hereafter in force against the Premises, and to all advances made hereafter to be made upon the security of such mortgage or deed of trust. Within twenty (20) days advance request of Landlord, Tenant shall, in a written document in recordable form and upon receipt of a non disturbance agreement from any such prospective successor Landlord, confirm subordination of its rights hereunder to the lien of any mortgage or deed- of trust executed by Landlord for the benefit of any bank, insurance company, individual, corporation, partnership, unincorporated association, or other lending institution, now or hereafter in force against the Premises and to all advances made or hereafter to be made upon the security of such mortgage or deed of trust. 33.2 ATTORNMENT. In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by Landlord attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as Landlord under this Lease. 34. LANDLORD'S RIGHT TO ALTER BUILDING. Landlord reserves and shall have, at all times, the unilateral right to alter the Building and Common Areas for the enhancement or betterment of the Building, or make any additions thereto, and may for that purpose erect scaffolding and other necessary structures. In such event, Tenant shall not have any right to damages for any injury or inconveniences occasioned thereby, nor shall there be any abatement in the rent, provided any such work or alteration shall be performed and completed in a manner which is both reasonably prompt and reasonably prosecuted so as to minimize any inconvenience to Tenant in its use of the Premises. 35. NOTICES. Unless otherwise specifically provided herein, all notices, demands or other communications given hereunder shall be in writing and shall be deemed to have been duly delivered upon receipt by United States registered or certified mail or private express delivery, return receipt requested, postage prepaid, addressed as follows: If to Landlord. Gerald W. Bosstick MHPP, Inc. c/o Madison Square Properties, Inc. 5414 Oberlin Drive, Suite 140 San Diego, CA 92121 If to Tenant after the Commencement Date: Mr. Clyde Wooten Vice President Image Engineering Excalibur Technologies 1959 Palomar Oaks Way, Suite 300 Carlsbad, CA 92009 With a copy of default notices, if any to: Mr. Pat Condo Excalibur Technologies 2000 Corporate Ridge Suite # 1095 Mc Lean, VA 22102 Either party may change and designate a new address for notices hereunder by giving written notice to the other party in the manner specified above. 36. GENERAL PROVISIONS. 36.1 RIDERS. Exhibits, clauses, plats, riders and addenda, if any. 36.2 VENUE. The county of San Diego, California shall be deemed a proper place of jurisdiction and venue for actions hereunder. 36.3 JOINT AND SEVERAL OBLIGATIONS. If there be more than one Tenant, the obligations hereunder imposed shall be joint and several. 36.4 MARGINAL HEADINGS. The titles to the paragraphs of this lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. The use herein of (I) the neuter gender includes the masculine and the feminine, and (ii) the singular number includes the plural, whenever the context so requires. 36.5 TIME. Time is of the essence of this Lease and each and all of its provisions in which performance at, by or within a stated time is a factor. 36.6 SUCCESSORS. The covenants and conditions herein contained, subject to the provisions as to transfers of rights, apply to and bind the heirs, successors, executors, administrators, and assigns of the parties hereto. 36.7 RECORDATION. Tenant shall not record this Lease or a short form memorandum hereof, except at Landlord's request or with Landlord's consent which may be withheld in Landlord's sole discretion. 36.8 ENTIRE AGREEMENT. This Lease contains all of the agreements of the parties hereto with respect to any matters covered or mentioned in this Lease, and no prior agreements or understandings pertaining to any such matters shall be effective for any purpose. This Lease may not be amended except by an agreement in writing signed by the parties hereto or their respective successors in interest. This Lease shall not be effective or binding on any party until fully executed and exchanged by both parties hereto. 36.9 FORCE MAJEURE. This Lease and the obligations of Tenant and Landlord hereunder shall not be affected or impaired because Landlord or Tenant is unable to fulfill any of its obligations hereunder or is delayed in doing so, if such inability or delay is caused by reason of same, labor troubles, acts of God or any other cause beyond the reasonable control of Landlord, or Tenant. 36.10 SEVERABILITY. Any provision of this Lease which shall prove to be invalid, void or illegal, shall in no way affect, impair or invalidate any other provisions hereof, and such other provisions shall remain in full force and effect, to the extent permitted by law. 36.11 REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 36.12 APPLICABLE LAW. This Lease and any and all other documents and/or instruments executed hereunder or in furtherance hereof shall be governed by the laws of the State of California. Jurisdiction and venue of any action concerning this Lease, shall be in San Diego County, California. 36.13 INTERPRETATION. This Lease and all documents executed hereunder is/are the result of negotiations between the parties, each having had adequate opportunity to consult such counsel as they deem appropriate. The terms hereof shall be interpreted to give each its fair meaning. 36.14 BROKERS. The parties represent and warrant that they have had no dealings with any real estate broker or agent in connection with this Lease, excepting only the broker named in subparagraph 1.13 of the Basic Lease Provisions, and that neither party knows of any other real estate broker or agent who is or might be entitled to a commission in connection with this Lease. Each party hereby agrees to defend, indemnify, and hold the other, its agents, employees, contractors, and invitees harmless from any and all liability, loss, cost, or obligation on account of or arising out of any breach of its representation or warranty, including reasonable attorneys' fees and costs. Landlord shall pay a Brokerage Commission of four percent (4%) of the aggregate rental for months 1 through 60 and two percent (2%) for months 61 through 72 to CB/Madison for representing Tenant in this Lease. 36.15 NO LIGHT, AIR OR VIEW EASEMENT. No diminution or shutting off of view by any structure which may be erected on lands adjacent to or visible from the Building shall in any way affect this Lease or impose any liability on Landlord. 36.16 THIRD PARTY BENEFICIARIES. There are no third party beneficiaries to this agreement, including, without limitation, any real estate broker or salesperson. 36.17 CORPORATE AUTHORITY. If Tenant executes this Lease as a corporation, each of the persons executing this Lease on behalf of Tenant does hereby covenant and warrant that Tenant is a duly authorized and existing corporation, that Tenant is qualified to do business in the State of California, that the corporation has full right and authority to enter into this Lease, and that each person signing on behalf of the corporation is authorized to do so. 36.18 COMPLIANCE WITH LAWS. Tenant hereby covenants and agrees to comply with all the rules and regulations of the Board of Fire Underwriters, Officers or boards of the City, County or State having jurisdiction over the leased premises, and with all ordinances and regulations of governmental authorities wherein the leased premises are located, at Tenant's sole cost and expense, but only insofar as any such rules, ordinances and regulations pertain to the manner in which the Tenant shall use the leased premises; the obligation to comply in every other case, and also all cases where such rules, regulations and ordinances require repairs, alterations, changes or additions to the building (including the leased premises) or building equipment, or any part of either, being hereby expressly assumed by Landlord and Landlord covenants and agrees promptly and duly to comply with all such rules, regulations and ordinances with which Tenant has not herein expressly agreed to comply. Other Tenants in this project shall be subject to the terms of this clause. 36.19 QUIET ENJOYMENT. If Tenant is not in default of the Lease, Landlord warrants that Tenant shall have the right to peacefully and quietly have, hold and enjoy the Premises during the entire term without hindrance or interruption by anyone claiming by, through or under Landlord, subject, however, to the exceptions and provisions of the Lease 36.20 LEGAL HOLIDAYS. New Years Day, Memorial Day, July 4th, Labor Day, Thanksgiving Day and Christmas Day. IN WITNESS WHEREOF, this Lease has been deemed executed at Carlsbad, California, as of the date set forth at the beginning hereof. LANDLORD: MHPP, INC. a California corporation, By: ____________________________________ Title: ____________________________________ TENANT: EXCALIBUR TECHNOLOGIES CORPORATION By: ____________________________________ Title:____________________________________ ADDENDUM TO LEASE BETWEEN MHPP, INC. AND EXCALIBUR TECHNOLOGIES CORP. THIS ADDENDUM TO LEASE ("Addendum") is an integral portion of (and by this reference incorporated into) that certain Lease to which this Addendum is attached (which such lease, together with all exhibits, riders, attachments and addendum attached thereto is collectively referred to as the "Lease") wherein MHPP, Inc., a California Corporation, is named as "Landlord, and Excalibur Technologies Corp. is named as "Tenant". The terms set forth in this Addendum supplement, modify and/or amend the provision contained in the Lease. In the event of any conflict between the provisions set forth herein and the provisions of this Addendum shall govern and prevail. 1. GOVERNING LAW. The Lease and any and all documents executed thereunder or in furtherance thereof shall be governed by the laws of the State of California. 2. CONSTRUCTION OF TENANT IMPROVEMENTS. (a) Tenant shall have plans and specifications prepared by Tenant's architect for the tenant improvements to be constructed on the Property, and shall submit said plans and improvements to Landlord for Landlord's approval, which shall not be unreasonably withheld or delayed. (b) Tenant shall have the improvements constructed by a contractor of Tenant's own choosing, subject to Landlord's right to approve the contractor, which approval shall not be unreasonably withheld or delayed. (c) Landlord shall provide Tenant a Tenant Improvement Allowance of $3.00 per usable square foot, for Tenant's use in modifying the Premises to meet its requirements. Tenant may, at Tenant's option receive a cash allowance of up to an additional $50,000 contained in the Premises which allowance shall be amortized over the remaining Term of the lease at twelve percent 12%. 3. CONTINGENCIES. Tenant's obligations under this Lease are expressly contingent upon the obtaining of building permits for the construction of the improvements and a business license from the City of Carlsbad necessary for Tenant's operations. Tenant shall use its best efforts to cause these contingencies to be satisfied at the earliest possible date following execution of the Lease. 4. BASE YEAR EXPENSES. (a) Tenant shall pay to Landlord, as "Additional Rental", for each square foot of rentable area in the Premises, the amount by which Operating Costs (as hereinafter defined) per square foot for each square foot for the Building exceeds the actual Operating Costs for the calendar year 1996 per rentable square foot for the Building (such excess if hereinafter referred to as "Excess Operating Costs"). For purposes of this provision, "Operating Costs" shall mean the aggregate anniversary calendar year cost per square foot for the Building and the Land of the items. At the beginning of each calendar year during the term of this Lease, or at such other time or times as Landlord shall require including at the anniversary of commencement of the Term of the Lease (in the event such commencement shall be at other than the beginning of a calendar year), Landlord shall estimate the amount of Tenant's share of Excess Operating Costs for such complete or partial calendar year, and shall provide Tenant with an itemized statement of such amount. Tenant shall pay to Landlord such estimated share in monthly installments with Tenant's payment of Base Rental. As soon as is practical after the end of each calendar year, Landlord shall provide an itemized statement to Tenant of the actual Excess Operating Costs for the prior year. Tenant shall pay any deficiencies due to Landlord within thirty (30) days of such notice. Any surplus payments shall be credited to payments of estimated operating expenses for the current year. If the Building's average occupancy during the year is less than 95%, then the Variable Operating Expenses shall be adjusted to reflect 95 % occupancy. (b) Operating Cost Exclusions. The following shall be excluded from operating costs charged to Tenant: (1) Salaries and other compensation paid to executive employees above the grade of building manager, (including profit sharing, bonuses and 401 (k) savings plans); not including property manager; (2) Expenses relating to the management of the partnership status of Landlord, including accounting, auditing, and legal fees, and key man disability insurance; (3) Any expense for which Landlord is compensated through proceeds of insurance or which Landlord would have been compensated for had Landlord maintained insurance in an amount and type that a reasonably prudent owner of a comparable building located in California would normally maintain; (4) Expenditures for repairs, alterations, additions, changes, replacements and other items which under generally accepted accounting principles are properly classified as capital expenditures to the extent they upgrade or improve the Building as opposed to replacing existing items which have worn out unless such expenditures are mandated by law; (5) Costs or expenses of or any special services or equipment rendered or incurred for a tenant if the same are not generally rendered to other tenants of the Building; (6) The cost of repairs or replacements caused by the exercise of the right of eminent domain; (7) Expenses incurred in connection with the enforcement of the terms of any Lease; (8) The cost of procuring or relocating tenant, including attorneys' fees and broker commissions; (9) Any costs of initial construction; (10) Property management fees in excess of four percent (4%) of the gross rentals payable by tenants of the Building; (11) Cost of repairs incurred through the willful misconduct of Landlord; (12) Cost for which Landlord is entitled to receive reimbursement from other tenants as their share of operating expense; (13) The cost of any special service required by an occupant of premises in the Building, including heating and air conditioning outside of the hours referred to in the Lease provided, however, this shall not apply to common areas; (14) Costs of decorating, redecorating, or special cleaning or other services not typically provided or required on a regular basis to tenants of the Building; (15) Any excess representing an amount paid to a related corporation, entity, or person which is in excess of the amount which would be paid in the absence of such relationship; (16) Any charge for Landlord's income taxes, excess profit taxes, franchise taxes, or similar taxes on Landlord's business; (17) The cost of tools and equipment used initially in the construction of the Building; (18) Contributions to operating expense reserves which are not utilized during the term of this Lease; (19) Charitable contributions for which no services or materials are received; (20) Costs or expenses for sculpture (unless required by Statute), paintings or other works of art, including costs incurred with respect to the purchase, ownership, leasing, showing, promotion, repair and/or maintenance of same; (21) Any other costs or expenses which according to good accounting practice may not be included in "Operating Expenses". (22) Any operating expense amount that would exceed an increase of five percent (5%) of the prior years expenses, unless otherwise caused by a Governmental or Federal Imposition. In the event there exists a conflict as to an expense which is specified to be included in Operating Costs and is also specified to be excluded from Operating Expenses within the above Operating Costs Exclusions list, the exclusions listed above shall prevail and the expense shall be deemed excluded. 5. BUILDING WARRANTY: Landlord represents, with the exception of work currently being done in the building in compliance with the Americans with disabilities Act of 1990, to Tenant that to Landlord's actual knowledge, without any investigation, Landlord has received no notice that the building, Restrooms, and common Areas are not in compliance with the Americans with Disabilities Act of 1990 and all other applicable building codes as of Initial Commencement Date of the Lease. Landlord shall remedy any violation of this representation at its sole cost, promptly following receipt of notice for any condition in existence prior to the Initial Commencement Date but only to the extent required by law. However, in the event that the governing authorities do not notify the Landlord or the Tenant of an ADA violation, then Landlord shall not be required to make any alterations. Landlord shall warrant that the building, Restrooms, and Common Areas are in compliance with the Americans with Disabilities Act of 1990 and all other applicable building codes as of Initial Commencement Date of the Lease. Landlord shall remedy any violation of this Warranty at its sole cost, promptly following receipt of notice. However, in the event that the governing authorities do not notify the Landlord or the Tenant of an ADA violation, then Landlord shall not be required to make any alterations. 6. RIGHT OF FIRST REFUSAL: Tenant shall have a continuing Right of First Refusal to lease any space on the second floor of the Building which is currently available or later becomes available during its lease terms and any extensions thereof. The Right of First Refusal space should be offered to Tenant at the same terms and conditions (inclusive of tenant improvement allowance, commissions, base year, rental rate, etc.) as those proposed to and accepted by an interested third party. Tenant will have five (5) business days after receipt of Landlord's written notice of third party interest in which to exercise or not exercise the Right of First Refusal. If Tenant elects not to exercise the option, Landlord will have ninety (90) days to execute a lease with a third party at similar terms offered to Tenant. If Landlord prepares to offer said space at an effective rental rate (inclusive of rental rate, tenant Improvements, Base Year, etc.) which is lower that that originally offered to Tenant or if after ninety (90) days Landlord has failed to execute for the proposed space, Tenant's Right of First Refusal shall be reinstated. 7. NON DISTURBANCE AGREEMENT: With respect to any existing or future first lien mortgages, deeds of trust or other liens entered into by and between Landlord and any such mortgage and/or any beneficiary of any deed of trust or other such lien granted by Landlord (collectively referred to as "Landlord's Mortgagee"), Landlord shall secure and deliver a non-disturbance agreement from and executed by Landlord's Mortgagee for the benefit if Tenant. 8. ARBITRATION: The Lease shall provide that any disputes, including whether or not any action or inaction would constitute a default, shall be resolved by arbitration as described in detail under an arbitration provision to be included in the Lease. 9. JANITORIAL SERVICE: Tenant shall have the right to choose its own janitorial service. Landlord shall pay up to $.056 per rentable square foot for such services. Any additional cost shall be at the expense of Tenant. Future cost increase after the Base Year shall be passed through to Tenant subject to Article 4 of the Addendum. 10. COMPUTER ROOM HVAC; Tenant at its sole cost and expense shall have the right to remove the two existing air conditioning units in the computer room. if such is left by the existing Tenant Peregrine Systems. All retrofitting shall be at the expense of Tenant and Landlord shall be liable and responsible for the storage of said units. 11. OPTION TO RENEW: Provided the Tenant is not been in default and Tenant is in possession of the Premises, Tenant shall have two (2) five-year Options to Extend the Term of this Lease at a Rental Rate which shall be the then prevailing market rate for similar office space. Tenant must give notice in writing to Landlord one hundred eighty (180) days prior to the expiration of the Original Term of this Lease in order to exercise said Option. If Landlord and Tenant are unable to reach a written agreement on the Rent of this extension within forty-five (45) days, then the prevailing "Fair Market Rental Rate" shall be determined by appraisers appointed as herein set forth, based on comparable rentals then charged and collected in the area, taking into account items that professional real estate appraisers customarily consider including location, credit of the Tenants of other properties, size, age, design, utility and other relevant factors on the property in the area as they compare to the Subject Premises. The Option to Extend is personal to the Tenant and may not be exercised or signed voluntarily or involuntarily by or to any person or entity other than Tenant, except to an assignee not requiring Landlord's consent as provided in the Lease. Any required appraisal in regard to "Fair Market Rental Rate" shall be made as follows: If Landlord and Tenant are unable to come to a written agreement in regards to the Base Rent for the Option Period within forty-five (45) days of the exercise date, then Landlord and Tenant shall appoint in writing an independent qualified real estate appraiser who shall be a member of the American Institute of Real Estate Appraisers or equivalent. Each of these two (2) appraisers shall prepare a written determination of "Fair Market Rental Rate" within thirty (30) days. If the two (2) appraisals are within five percent (5%), then the average shall be calculated and the value thus determined shall conclusively be deemed to be the "Fair Market Rental Rate" of the Leased Premises for the purpose of this paragraph and shall accrue from the first (1st) day of the Extended Term thereof. However, if the two (2) appraisals are not within five percent (5%), then upon mutual agreement Landlord and Tenant shall instruct each of their appraisers to appoint a third (3rd) appraiser with qualifications as outlined above within ten(10) days. Such independent third (3rd) appraiser shall have twenty (20) days to make his own determination of "Fair Market Rental Rate" which shall then conclusively be deemed to be the "Fair Market Rental Rate" of the Leased Premises for the purposes of this Lease and shall accrue from the first (1st) day of the Extended Term hereof. Each party shall pay for the cost of its appointed appraiser at one-half (1/2) of the cost of the third (3rd) appraiser. If either Landlord or Tenant fails to appoint an appraiser, then the appraiser appointed by the party appointing an appraiser shall make the required appraiser acting alone and the decision of such appraiser as to "Fair Market Rental Rate" of the Premises, shall be conclusive and binding upon Landlord and Tenant. In no event shall the delay of the determination of the "Fair Market Rental Rate" of the Premises affect Tenant's obligation to pay the amount of Rent as is then in effect or the amount of increase, if any, immediately upon receipt of notification of the same. 12. Damage to Premises. Should there be extensive damage caused by Peregrine Systems' move out, then Excalibur shall not be responsible for the damage and repair thereof, if necessary. DATED THIS _____________ day of 1995. LANDLORD: MHPP, INC. a California corporation, By:________________________________ Title:_______________________________ TENANT: EXCALIBUR TECHNOLOGIES CORP. By:________________________________ Title:_______________________________ EX-10.12 6 OFFICE LEASE (1921 GALLOWS RD, VIENNA, VA) SUBLEASE This Sublease is entered into as of the _____ day of December, 1995, by and between AT&T Corp., a New York Corporation ("Sublessor") and Excalibur Technologies, Inc., ("Sublessee"). WITNESSETH: WHEREAS, Tysons Corner Associates II, as "Landlord," and AT&T Communications, Inc., as agent for American Telephone and Telegraph Company, as "Tenant" entered into a lease effective October 6, 1989, a copy of which together with all amendments, modifications, extensions or renewals thereof, if any, are attached hereto as Attachment "A" (all of which are hereinafter collectively referred to as "Master Lease") in which Landlord leased to Tenant and Tenant hired from Landlord certain space (the "Premises") in the Building known as 1921 GALLOWS ROAD, VIENNA, VIRGINIA which is more particularly described in the Master Lease; and WHEREAS, American Telephone and Telegraph Company changed its name to AT&T Corp. effective April 20, 1994. NOW, THEREFORE, Sublessor, for and in consideration of the covenants and agreement herein stated, hereby subleases to Sublessee a portion of the Premises hereinafter referred to as ("Subleased Premises") and consisting of 11,125 rentable square feet located on the 2nd floor, and 3,075 rentable square feet located on the 4th floor of the building (Attachment "B"). 1. TERM The term of this Sublease ("the Term") shall commence upon substantial completion of the Leasehold Improvements as described in Attachment "C" (the "Commencement Date") and shall expire on October 5, 1999. However, in no event will the Commencement Date be later than April 1, 1996. The Leasehold Improvements shall be deemed "substantially completed" upon the occurrence of all of the following: (i) Construction of the Leasehold Improvements in accordance with the plans and specifications listed in Attachment "B" and Attachment "C" and made a part hereof, and delivery to Sublessee by Sublessee's architect of a certificate to that effect; (ii) Agreement by Sublessee that the utility services contemplated by such plans and specifications have been fully installed and are operational for use by Sublessee; (iii) A final legally valid certificate of occupancy (non-residential use permit) has been issued relating to the Subleased Premises by all required governmental authorities; and (iv) The remaining work to be done to render the Subleased Premises fully completed shall consist solely of minor details of construction, mechanical adjustments or decoration, which will not interfere with Sublessee's use and enjoyment of the premises. Absent delays caused by Sublessee, if the conditions in the preceding sentence are not satisfied on or prior to 30 days after commencement of the Term as defined herein, Sublessee may terminate this Sublease. Furthermore, in the event that Sublessor has not vacated the Subleased Premises on or prior to December 31, 1995, Sublessee may terminate this Sublease. Sublessor shall use its diligent best efforts to assist the Sublessee in meeting all of the conditions set forth above, including, but not limited to communicating with the Landlord to obtain its consent to the Leasehold Improvements. 2. RENT (a) Beginning on the Commencement Date and ending on October 5, 1999, Sublessee shall pay to Sublessor as rent for the Subleased Premises the sum of $252,050.01 per annum, in monthly installments of $21,004.17. Rents for periods of occupancy of less than thirty (30) days shall be prorated in proportion to the number of days of occupancy in such period. Sublessor agrees to abate Sublessee's first full month's rental payment. (b) Beginning with the second lease year and continuing each year thereafter, the annual rent shall increase by two and one half percent (2.5%) of the previous year's base rent. (c) Such rental shall be payable in advance, on the first day of each moth of the Term of this Sublease, beginning one month after the Commencement Date, without demand or set-off as the office of the Sublessor herein designated as: AT&T Attention: Manager-Lease Administration 222 Mt. Airy Road Basking Ridge, NJ 07920 3. USE (a) The Subleased Premises shall be used for those purposes permitted under the Master Lease. (b) Sublessee, its agents or invitees, shall not perform any acts or carry on any practices that may interfere with the conduct of the Premises or the Building and shall keep the Subleased Premises in an orderly and presentable condition. 4. CONDITION OF SUBLEASED PREMISES The Sublessee's taking possession shall be conclusive evidence as against the Sublessee that the Subleased Premises were in good order and satisfactory condition when the Sublessee took possession. Sublessee understands and agrees that it is taking the Subleased Premises in "As Is" condition and all installations and improvements now or hereafter placed on the Subleased Premises shall be for Sublessee's account and at Sublessee's cost unless otherwise defined herein. 5. LEASEHOLD IMPROVEMENTS Sublessor shall provide Sublessee with Leasehold Improvement Allowance of $10.00 per rentable square foot (approximately $142,000) for Sublessee's desired improvements in connection with this Sublease. Additionally, Sublessor shall allow Sublessee to amortize up to an additional $10.00 per rentable square foot in Leasehold Improvement costs passed through directly to Sublessee over the term of the Sublease at an annual interest factor of ten percent (10%). 6. SECURITY DEPOSIT Sublessee has deposited with Sublessor the amount of $21,004.17 as security deposit in connection with this Sublease; such deposit to be held in escrow throughout the term of the Sublease. Provided Sublessee is not in default as defined herein, the security deposit will be refunded upon expiration of this Sublease. 7. REPAIRS (a) During the Term, Sublessee shall maintain the Subleased Premises in good order and condition, and shall promptly make repairs to correct damage caused by Sublessee, its agents employees or invitees. (b) Sublessee understands that, under the Master Lease, Sublessor and Landlord have certain specified responsibilities to maintain and repair the Premises in which the Subleased Premises are located and to keep the Premises in good and tenantable condition. Sublessor agrees to request that Landlord fulfill its responsibilities under the Master Lease, should the need arise, and Sublessor agrees to proceed with due diligence in its dealings with Landlord. It is specifically understood and agreed, however, that Sublessor and Landlord have no obligation or responsibility whatsoever with respect to maintenance or repair of Subleased Premises. 8. ALTERATIONS AND MECHANICS LIENS (a) Sublessee shall not make any alterations in or additions to the Subleased Premises without first submitting the plans for such alterations or additions to the Sublessor and Landlord and obtaining the Sublessor's and Landlord's prior written consent to such alterations or additions. Sublessor's consent shall not be unreasonably withheld or delayed. (b) Sublessee shall keep the Premises and the Subleased Premises free from any liens arising out of any work performed, materials furnished or obligations incurred by Sublessee. Landlord and Sublessor shall have the right to post and keep posted on the Premises or the Subleased Premises and notices that may be provided by the law or which Landlord of Sublessor may deem proper for the protection of Landlord or Sublessor, the Premises and the Subleased Premises. (c) If any such lien is claimed against the Premises or Subleased Premises, then, in addition to any other right or remedy of Sublessor, Sublessor may, but shall not be obligated to, discharge same. Any amount paid by Sublessor for such purposes shall be paid by Sublessee to Sublessor as "Additional Rent" within ten (10) days of Sublessor's demand therefore. 9. ADDITIONAL RENT Sublessee shall pay to Sublessor as Additional Rent its proportionate share of increases in real estate taxes and building operating expenses over and above actual expenses incurred in the 1996 calendar year, pursuant to paragraph 2.6 of the Master Lease. 10. LIABILITY FOR ACTS OR NEGLECT If any damage to the Premises, the Subleased Premises, to the Sublessor, his employees or agents, results from any act or neglect of the Sublessee, or of the Sublessee's agents, employees, invitees or licensees, the Sublessor may, at the Sublessor's option, repair such damage and the Sublessee shall, upon demand by the Sublessor, reimburse the Sublessor forthwith for the total cost of such repairs. (Sublessee's payments to the Sublessor shall not prohibit Sublessor from pursuing any other remedies that it may have under this Sublease or law. Nor shall such payments relive Sublessee from any liability to third parties.) All property belonging to the Sublessee shall be at the risk of the Sublessee only and neither Sublessor nor Landlord shall be liable for damage thereto or theft or misappropriation thereof. 11. WAIVER OF INDEMNITY (a) Notwithstanding any provision of this Sublease to the contrary, neither Sublessor nor its respective agents or employees shall be liable to Sublessee, or to Sublessee's agents or agents, for: (i) any damage to property or (except in the event of and to the extent of the negligence or willful misconduct of Sublessor or its duly authorized agents or employees) any injury to person due to the condition or design of or any defect in the Subleased Premises or the Premises or its mechanical systems and equipment which may exist or occur, or due to the land upon which it is situated, or any part thereof, becoming out of repair, or by defect in or failure of pipes or wiring, or by the backing up of drains, or by the bursting or leaking of pipes, faucets and plumbing fixtures, or by gas, water, steam, electricity or oil leaking, escaping or flowing into the Premises or Subleased Premises; or (ii) any damage to property or (except in the event of and to the extent of the negligence or willful misconduct of Sublessor, or its duly authorized agents or employees) any injury to person that may be occasioned by or through the acts of omissions or any other person whatsoever; or (iii) any loss or damage to an property or injury to any person occasioned by theft, fire, Act of God, public enemy, injunction, riot, insurrection, war, court order, requisition or order of government authority, or any other matter beyond the control of Sublessor. (b) Sublessee agrees that it will indemnify and hold and save Sublessor and Landlord, and their respective agents and employees, whole and harmless of, from and against; (i) all fines, suits, losses, costs, liabilities, claims, demands, actions and judgments of every kind and character by reason of any breach, violation or non-performance of any term, provision, convent, agreement or condition on the part of Sublessee under this Sublease; and (ii) all fines, suits, losses, costs, liabilities, claims, demands, actions and judgments suffered by and recovered from, or asserted against Sublessor or any of such indemnities, including injuries to persons or property, occurring on or about the Subleased Premises or in any way relating to Sublessee's occupancy or use of the Subleased Premises and any other matters not due solely to the negligence or willful misconduct of Sublessor. (c) Sublessee covenants and agrees that in case Sublessor or any of such indemnities shall be made a party to any litigation commenced by or against such indemnities with respect to which Sublessee has agreed to indemnify Sublessor and such other indemnities thereunder, or relating to this Sublease or to the Premises or the Subleased Premises, the Sublessee shall and will pay all reasonable costs and expenses, including reasonable attorneys' fees and court costs, incurred by Sublessor or such indemnities by virtue of any such litigation, to the extent contemplated by such indemnification, and the amount of such costs and expenses, including reasonable attorneys' fees and the court costs, shall be a demand obligation owing by Sublessee to Sublessor. 12. INSURANCE AND SUBROGATION (a) Sublessee shall procure and maintain, at its own cost and expense for the Term of this Sublease, policies of comprehensive general public liability insurance in companies and substance satisfactory to Sublessor, insuring Sublessee and, at Sublessor's option, including Sublessor as additional named insured, against any liability arising out of Sublessee's use or occupancy of the Premises. Such insurance shall further provide coverage in terms of occurrence and aggregate as follows: Bodily Injury $1,000,000 each occurrence $1,000,000 aggregate Property Damage $500,000 aggregate If Sublessee shall fail to procure and maintain said insurance, Sublessor may, by shall not be required, to procure and maintain same, but at the expense of Sublessee. (b) Sublessee shall carry fire and extended coverage insurance insuring its interest in the leasehold improvements in the Subleased Premises and its interest in its office furniture, equipment, supplies and any items stored on the Subleased Premises. (c) The aforesaid insurance shall not be subject to change or cancellation except after at least thirty (30) days prior written notice to Sublessor. The original insurance policies (or certificates thereof satisfactory to Sublessor together with copies of such policies), together with satisfactory evidence of payment of the premiums thereon, shall be deposited with Sublessor prior to the commencement of the Term. (d) Sublessee hereby waives all rights of action against the Sublessor for loss or damage to the tenant improvements in the Subleased Premises and to office furniture, equipment, supplies, vehicles and any items stored on the Subleased Premises, which pursuant to this Sublease shall be insured by a valid and collectible insurance policy as required herein. The policies required by this Sublease shall permit such waiver and shall be in form and content satisfactory to Sublessor. 13. ASSIGNMENT AND SUBLETTING Sublessee shall not, without the prior written consent of the Sublessor and Landlord in each instance, (i) assign, mortgage, pledge, hypothecate or otherwise transfer or permit the transfer of this Sublease or the interest of Sublessee in this Lease, in whole or in part, by operation of law or otherwise; (ii) sublet any part of the Subleased Premises; or (iii) permit the use or occupancy of all or any part of the Subleased Premises for any purpose not permitted under Paragraph 4, or by anyone other than Sublessee or Sublessee's employees or agents. Consent to any of the above events by Sublessor shall not be unreasonably withheld, delayed or conditioned. 14. EVENTS OF DEFAULT Each of the following shall constitute an event of default by Sublessee under this Sublease: (i) Sublessee fails to pay any installment of Rent, Additional Rent or any monetary sum required thereunder to be paid to Sublessor when due; (ii) Sublessee fails to observe or perform any of the other covenants or provisions of this Sublease to be observed or performed by Sublessee and fails to cure such default within ten (10) days after notice to Sublessee; provided, that if such default is not susceptible to being cured within such ten day (10) period, but Sublessee promptly commences such cure, said ten (10) day period shall be extended so long as Sublessee is actively, diligently and continuously attempting to effectuate such cure, but in no event shall said ten (10) day period be extended by more than thirty (30) days; (iii) the interest of Sublessee in this Sublease is levied upon under execution or other legal process; (iv) a petition is filed by or against Sublessee to declare Sublessee bankrupt or seeking a plan of reorganization or arrangement under any Chapter of the Bankruptcy Code, or any amendment, replacement or substitution for such Code; (v) a receiver is appointed for Sublessee or Sublessee's property; (vi) Sublessee vacates the Subleased Premises; or (vii) Sublessee, by its action or inaction, causes in whole or part, directly or indirectly, any breach of the Maser Lease, by Sublessor or Sublessee. 15. SUBLESSOR'S REMEDIES (a) If any voluntary or involuntary petition or similar pleading under any section or sections of any bankruptcy act shall be filed against the Sublessee, or any voluntary or involuntary proceeding in any court or tribunal shall be instituted to declare the Sublessee insolvent or unable to pay the Sublessee's debts, and in the case of an involuntary petition or proceeding, the petition or proceeding is not dismissed within thirty (30) days from the date it is filed, the Sublessor may elect, but is not required, and with or without notice of such election and with or without entry or other action by the Sublessor, to forthwith terminate this Sublease. Sublessor shall forthwith upon such termination be entitled to recover damages in an amount equal to the then present value of the Rent plus estimated Additional Rent for the remaining portion of the Term of this Sublease. (b) If the Sublessee defaults in the payment of Rent or any monetary sum required thereunder or if the Sublessee defaults in the prompt and full performance of any other provision of this Sublease, and the Sublessee does not cure the default within ten (10) days (forthwith if the default involves a hazardous condition) after written demand by the Sublessor that the default be cured, or if the leasehold interest of the Sublessee be levied upon under execution or be attached by process of law, or if the Sublessee makes an assignment for the benefit of creditors, or if a receiver be appointed for any property of the Sublessee, or if the Sublessee vacates the Subleased Premises, then and in any such event the Sublessor may, if the Sublessor so elects, but not otherwise, and with or without notice of such election and with or without any demand whatsoever, forthwith terminate this Sublease and the Sublessee's right to possession of the Subleased Premises or the Sublessor may terminate the Sublessee's right to possession only, without terminating the Sublease. (c) Upon any termination of this Sublease, whether by lapse of time or otherwise, or upon any termination of the Sublessee's right to possession without termination of the Sublease, the Sublessee shall surrender possession and vacate the Subleased Premises immediately, and deliver possession thereof to the Sublessor. (d) If the Sublessee vacates the Subleased Premises or otherwise entitles the Sublessor so to elect, and the Sublessor elects to terminate the Sublessee's right to possession only, without terminating the Sublease, the Sublessor may, at the Sublessor's option, enter into the Subleased Premises, remove the Sublessee's signs and other evidence of tenancy, and take and hold possession thereof as in Paragraph (c) of this Paragraph 15 provided, without such entry and possession terminating the Sublease or releasing the Sublessee, in whole or in part, from the Sublessee's obligation to pay the Rent thereunder for the Term, and in any such case the Sublessee shall pay forthwith to the Sublessor, if the Sublessor so elects, a sum equal to the entire amount of the Rent for the residue of the Term plus any other sums then due thereunder. (e) All rights and remedies of the Sublessor herein enumerated shall be cumulative, and none shall exclude any other right or remedy allowed by law. 16. UNTENANTABLITY If the Subleased Premises are made untenantable by fire or other casualty, the Sublessor may elect to terminate this Sublease as of the date of the fire or casualty by written notice to the Sublessee within ninety (90) days after that date. In the event of a termination of the Sublease pursuant to this Paragraph 16, Rent shall be apportioned on a per diem basis to be paid to the date of the fire or casualty. 17. EMINENT DOMAIN If the Premises or any substantial portion thereof affecting the Subleased Premises shall be taken or condemned by any competent authority for any public use or purpose, the Term shall end upon, and not before, the date when the possession of the part so taken shall be required for such use or purpose, and without apportionment of the condemnation award. The Sublessee shall have no right to share in such award. Rent shall be apportioned as of the date of such termination. If any condemnation proceeding shall be instituted in which it is sought to take or damage any part of the Premises, the Subleased Premises, or the land under it, or if the grade of any street or alley adjacent to the Premises or the Subleased Premises or the Subleased Premises is changed by a competent authority and such change of grade makes it necessary or desirable to remodel the Premises or the Subleased Premises to conform to the changed grade, the Sublessor shall have the right to cancel this Sublease upon not less than ninety (90) days notice prior to the date of cancellation designated in the notice. No money or other consideration shall be payable by the Sublessor to the Sublessee for the right of cancellation, and the Sublessee shall have no right to share in the condemnation award or in any judgment for damages caused by the change of grade. 18. SURRENDER OF SUBLEASED PREMISES Upon termination of Sublessee's right to possession of the Subleased Premises, Sublessee shall surrender and vacate the Subleased Premises immediately, and deliver possession of the Subleased Premises to Sublessor in clean, good and tenantable condition, ordinary wear excepted. In the event possession of the Subleased Premises is not immediately delivered to Sublessor, or if Sublessee so fails to remove Sublessee's furniture, machinery, trade fixtures and other items of movable personal property of every kind and description from the Subleased Premises, Sublessor may remove same without any liability to Sublessee. Any such property which may be removed from the Subleased Premises by Sublessee but which is not so removed shall be conclusively presumed to have been vacated by Sublessee and title to such Property shall pass to Sublessor without any payment or credit, and Sublessor may, at its option, and at Sublessee's expense, store and/or dispose of such property. 19. HOLDING OVER If Sublessee retains possession of the Subleased Premises or any part thereof after the termination of this Sublease, by lapse of time or otherwise, Sublessee shall pay Sublessor double the Rent and Additional Rent for the month immediately preceding the holdover for each thirty (30) day period or partial period which Sublessee retains possession of all or any part of the Subleased Premises after the expiration or termination of this Sublease and shall also pay all damages actually sustained by Sublessor on account thereof. Sublessee shall indemnify, defend and hold harmless Sublessor, its respective officers, partners and employees from and against any and all claims, liabilities, actions, losses, damages and expenses (including attorneys' fees) asserted against or sustained by any such party and arising from or by reason of such retention of possession. The provisions of this paragraph shall not constitute a waiver by Sublessor of any re-entry rights of Sublessor available under this Sublease or by law. 20. NOTICES (a) All notices and approvals to be given by one party to the other party under this Sublease shall be given in writing, mailed or delivered as follows: If to Sublessor: AT&T Manager-Lease Administration 222 Mount Airy Road Basking Ridge, NJ 07920 If to Sublessee: Excalibur Technologies, Inc. 1921 Gallows Road, Second Floor Vienna, VA 22180 (b) Sublessor and Sublessee shall have the right to specify such other person or persons or such other address or addresses upon giving five (5) days written notice thereof. (c) Notice shall be delivered by Unites States certified or registered mail, postage prepaid, return receipt requested or Overnight Delivery (e.g. Federal Express). Notices shall be considered to have been given upon receipt. 21. BROKER Sublessee represents to Sublessor that Sublessee has not dealt with any real estate broker, salesman or finder in connection with this Sublease, and no such person initiated or participated in the negotiation of this Sublease, or showed the Subleased Premises to Sublessee other than Spaulding & Slye and Cushman & Wakefield. Sublessor will pay the brokerage fees by the terms of a separate agreement between those parties. Sublessee agrees to indemnify, defend and hold harmless Sublessor, and its respective officers, partners and employees, from and against any and all claims, demands, liabilities, actions, damages, costs and expenses (including reasonable attorneys' fees) for brokerage commissions or fees arising out of a breach of such representation. 22. RIGHT OF ENTRY Sublessee shall permit Sublessor and/or Landlord and their respective agents to enter into and upon the Subleased Premises at all reasonable times for the purpose of inspecting same or for the purpose of maintaining the Premises or Subleased Premises or for the purpose of making repairs, alterations or additions to any other portion of the Building, including the erection and maintenance of such scaffolding canopies, fences and props as may be required, Sublessor or Landlord shall conduct all their activities as allowed in this Paragraph 22 or in a manner that will cause the least possible inconvenience, annoyance or interference with Sublessee's use of Subleased Premises. 23. LIMITATION OF SUBLESSOR'S LIABILITY It is expressly understood and agreed by Sublessee that none of Sublessor's covenants, undertaking or agreements are made or intended as personal covenants, undertakings or agreements by Sublessor or its agents or employees, and any liability for damage or breach or nonperformance by Sublessor shall be collectible only out of Sublessor's interest in the Subleased Premises and no personal liability is assumed by, nor at any time may be asserted against Sublessor, its agents or employees or any of its successors or assigns, all such liability, if any, being expressly waived and released by Sublessee. 24. RIGHT TO SUBLEASE Sublessor warrants that it has full right and authority to enter into this Sublease. Sublessor and Sublessee agree that the submittal of this Sublease document to Sublessee does not constitute an offer to Sublease and shall not be binding on Sublessor until duly executed by Sublessee. 25. SEVERABILITY If any term or provision of this Sublease shall, to any extent, be determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Sublease shall not be affected thereby, and each term and provision of this Sublease shall be valid and be enforceable to the fullest extent permitted by law. 26. MASTER LEASE Sublessee acknowledges and agrees that this Lease is a Sublease by Sublessor under the provisions of, and is subject and subordinate to, all of the terms and conditions of the Master Lease, and Sublessee assumes and agrees to duly perform all obligations of Sublessor under the Master Lease, unless otherwise specifically provided herein. All terms contained in this Sublease shall have the same meanings and definitions ascribed to them in the Master Lease, unless any such term is expressly defined in this Sublease. 27. MISCELLANEOUS (a) This Sublease shall be governed by the laws of the State of Virginia. (b) This Sublease shall be binding upon and shall inure to the benefit of each party's respective successors and assigns. (c) This Sublease sets forth all the covenants, agreements, representations and warranties between Sublessor and Sublessee concerning the Subleased Premises and there are no representations between them other than those stated in this Sublease. No subsequent alteration, amendment, change or addition to this Sublease shall be binding upon Sublessor or Sublessee in writing signed by both parties. (d) Time is of the essence of this Sublease and the performance of all obligations under this Sublease. (e) Neither party shall record this Sublease. (f) The captions of the paragraphs of this Sublease are for convenience only and are not a part of this Sublease and shall have no effect upon the construction and interpretation of this Sublease. (g) Sublessee specifically acknowledges and agrees that this Sublease shall not be effective unless and until Landlord has consented in writing to this Sublease, anything herein to the contrary notwithstanding. IN WITNESS WHEREOF, Sublessor and Sublessee have caused this Sublease to be executed as of date first above written. WITNESS SUBLESSOR: AT&T Corp. - ------------------------------- ------------------------------ District Manager-Real Estate WITNESS SUBLESSOR: Excalibur Technologies, Inc. /s/ Terry Yates /s/ James H. Buchanan - ------------------------------- ------------------------------ Title: CFO ------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ LANDLORD'S CONSENT AGREEMENT Tysons Corner Associates II, (herein "Landlord"), hereby consents to the foregoing Sublease and the terms and conditions thereunder. Landlord's consent shall not modify or affect the Master Lease or Sublease, or relieve AT&T Corp. from any liability thereunder. LANDLORD: Tysons Corner Associates II ------------------------------------------ Title: ------------------------------------- ATTACHMENT B (Second Floor) (Floorplan) ATTACHMENT B (Fourth Floor) (Floorplan) ATTACHMENT C (Leasehold Improvements) Page 1 POWER/DATA/TEL 1. All offices and work stations to have typical office level electricity/tel/data outlets. 2. In Training Room provide power/tel/data at each table. 3. Ring and string for tel/data. 4. Voice and cabling to be provided by tenant. 5. Dedicated outlet for copier in Copy/Mail Room. 6. Workstations will have power base. all workstations will be fed from column or adjacent wall. No floor outlets required. PLUMBING 1. Existing kitchen to remain. 2. Install 1/4" line to coffee maker in Main Kitchen and at coffee area in Training Room. 3. Relocate sprinkler heads as required by new layout. HVAC 1. Modify layout of air diffuser as required by new layout. 2. Provide double cfm in Training Room, Conference Room and Lan Room. FINISHES 1. Provide and install loop carpet throughout space. Allow $16/yd.- installed. 2. Install bldg. std. 2" vinyl base throughout. 3. All walls to be painted bldg. std. paint. 4. ADD ALTERNATE: Wallcovering (allow $1.20/yd-installed) in Executive Office, Conference Room and wall behind reception desk. MILLWORK 1. Install 6 linear feet of bldg. std. base and wall cabinets in Training Room coffee area. MISC. 1. Install tenant's white boards at (12) locations. This outline constitutes the architect's understanding of the Tenant's requirements. It is not intended for incorporation into a lease but, instead, should be used as a basis for discussion. Attachment C (Leasehold Improvements) Page 2 September 26, 1995 TENANT FIT UP DESCRIPTION Excalibur Technologies, Inc. 1921 Gallows Roads-2nd Floor Space Plan 9-25-95 GENERAL 1. The contractor is expected to visit the site prior to submitting any pricing. 2 Extent of demolition not shown on plan. PARTITIONS 1. All interior partitions to be bldg. std. (3-1/2"), ceiling high. 2. G.C. to confirm that demising partitions are deck high per base bldg. requirements. 3. The following rooms to have insulated walls: Conference Rooms (3), Demo Room and Training Room 4. All workstations indicated with dashed line are by tenant. DOORS AND HARDWARE 1. Existing glass entry to remain. 2. All new interior doors to be bldg. std.- match existing. 3. All new secondary suite doors to be bldg. std. 4. All hardware to be bldg. std. lever type ADA approved. All interior doors to have passage sets. 5. ADD ALTERNATE: Install one (3'x8') glass side light in cased gypsum board opening in entry to executive area. CEILING AND LIGHTING 1. Existing suspended ceiling throughout to remain. Replace any damaged tile or portions of grid as required. 2. Relocate existing and provide new base bldg. light fixtures 2'x4', (18) cell parabolic as required by new layout. 3. Provide and install approximately (12) compact fluorescent downlights in large Conference Room. EX-22.01 7 SUBSIDIARIES OF EXCALIBUR TECHNOLOGIES CORPORATION Exhibit 22.01 SUBSIDIARIES OF EXCALIBUR TECHNOLOGIES CORPORATION JANUARY 31, 1996 1.Excalibur Technologies International, Ltd. 2.Excalibur Acquisition Corp. EX-23.01 8 CONSENT OF ARTHUR ANDERSEN LLP Exhibit 23.01 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-3, File Nos. 33-79794, 33-90734, 33-65333 and 333-01595 and on Form S-8, File no. 33-89144. ARTHUR ANDERSEN LLP Washington, D.C. April 26, 1996 EX-23.02 9 CONSENT OF PRICE WATERHOUSE LLP Exhibit 23.02 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (Nos. 33-79794, 33-90734, 33-65333, 333-01595) and in the Registration Statement on Form S-8 (No. 33-89144) of Excalibur Technologies Corporation of our report dated April 15, 1994, relating to the financial statements of ConQuest Software, Inc. as of and for the year ended December 31, 1993, which appears on page F-2 in this Form 10-K of Excalibur Technologies Corporation. PRICE WATERHOUSE LLP Washington, D.C. April 26, 1996 EX-27 10 ARTICLE 5 FDS FILED WITH FORM 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 YEAR JAN-31-1996 JAN-31-1996 2,903 10,341 7,224 375 0 20,678 4,781 2,838 23,046 7,795 0 0 271 119 14,861 23,046 15,004 18,675 1,294 1,867 0 104 57 (884) 0 (884) 0 0 0 (884) (0.08) (0.08)
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