<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1996
REGISTRATION NO. 333-11063
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CYBERMEDIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7372 95-4347239
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3000 OCEAN PARK BLVD., SUITE 2001
SANTA MONICA, CALIFORNIA 90405
(310) 581-4700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
UNNI S. WARRIER
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
CYBERMEDIA, INC.
3000 OCEAN PARK BLVD., SUITE 2001
SANTA MONICA, CALIFORNIA 90405
(310) 581-4700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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ARTHUR F. SCHNEIDERMAN EDWARD M. LEONARD
JUDITH M. O'BRIEN JOHN A. DENNISTON
WILSON SONSINI GOODRICH & ROSATI BROBECK, PHLEGER & HARRISON LLP
PROFESSIONAL CORPORATION TWO EMBARCADERO PLACE
650 PAGE MILL ROAD 2200 GENG ROAD
PALO ALTO, CALIFORNIA 94304 PALO ALTO, CALIFORNIA 94303
(415) 493-9300 (415) 424-0160
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 1996
PROSPECTUS
2,000,000 SHARES
LOGO
COMMON STOCK
All of the 2,000,000 shares of Common Stock offered hereby are being sold
by CyberMedia, Inc. (the "Company"). Prior to this offering, there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $11.00 and $13.00 per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Company has applied to have
the Common Stock approved for quotation on the Nasdaq National Market under the
symbol CYBR.
------------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
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Per Share......................... $ $ $
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Total (3)......................... $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting estimated expenses payable by the Company estimated at
$1,100,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Common Stock solely to cover over-allotments,
if any. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively.
------------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be ready for
delivery on or about October , 1996, at the office of the agent of Hambrecht &
Quist LLC in New York, New York.
HAMBRECHT & QUIST
LEHMAN BROTHERS
WESSELS, ARNOLD & HENDERSON
, 1996
<PAGE> 3
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. The shares of Common Stock offered hereby include a high
degree of risk. Investors should carefully consider the information set forth
under the heading "Risk Factors."
THE COMPANY
CyberMedia is a leading provider of automatic service and support software
products for Windows-based personal computer ("PC") users. The Company's First
Aid products enable PC users to diagnose and resolve problems automatically
without relying on costly and increasingly scarce technical support resources.
To date, the Company has sold over one million units of its First Aid family of
products. The Company's latest product, Oil Change (released in beta version in
June 1996), is designed to offer PC users a one-stop solution for automatically
updating their software applications and device drivers over the Internet.
In today's typical Windows-based PC configuration, the integration of a
wide range of hardware and software components from different vendors has
resulted in an increase in both the number and types of system errors and
technical difficulties. PC users and software and hardware vendors share a
common need for the timely resolution of technical support problems. These
technical support problems are compounded by the complexity of today's PC
environment and a decline in the average technical sophistication of PC users.
Dataquest estimates that approximately 200 million calls are expected to be
received at technical support centers nationwide in 1996, resulting in
expenditures of nearly $4 billion. In response to cost pressures and an often
unmanageable level of technical support calls, many software and hardware
vendors are scaling back or completely eliminating the technical support that
they once provided free of charge.
The Company has developed an innovative, vendor-neutral, automated approach
to technical support that enables the Company to deliver among the most
comprehensive and easy to use software support solutions available today for
Windows-based PC users. The Company's products are based on its scalable
ActiveHelp architecture that allows for the support of a broad range of PC
products and related problems and enables the Company's products to be regularly
and automatically updated through the Internet. The Company's objective is to
capitalize on the growing need for technical support by being first to market
with innovative products and product upgrades that leverage the Company's
proprietary technology and incorporate feedback from its extensive user base.
The Company's First Aid products utilize a knowledge base of general and
system-specific information supporting a wide range of software applications,
multimedia cards, modems, video cards and networks that, in the aggregate,
resolve over 10,000 potential combinations of problems. The Company has
introduced several versions of First Aid, including First Aid 95 and First Aid
95 Deluxe in September 1995 and March 1996, respectively, for the retail
distribution channels and First Aid 95 Deluxe, Network Version in June 1996 for
the corporate market. The First Aid title ranked in the top ten of all Windows
95 business software applications sold in the United States (by number of units)
in each month from November 1995 to July 1996 (PC Data).
The Company believes that the Internet is emerging as a medium for vendors
to quickly and cost-effectively disseminate software updates and patches to
correct problems or resolve compatibility issues associated with their products.
Despite the potential benefits of the Internet, few PC users have the time or
technical knowledge required to identify, locate, download and install the
updates and patches that apply to their PCs.
CyberMedia's Oil Change is designed to enable PC users to keep their
systems up-to-date, thereby enhancing overall system performance and avoiding
problems frequently encountered as a result of outdated software and device
drivers. The Company seeks to establish Oil Change as the de facto standard for
PC users to obtain updates and patches to third-party software applications and
device drivers over the Internet. The Company intends to launch the commercial
version of Oil Change during the fourth quarter of 1996 through both the retail
distribution channels and the Internet.
The Company sells its products to individual and corporate users primarily
through retail distribution channels and direct mail. The Company is expanding
the marketing and sale of its products through the Internet, internationally and
through strategic relationships.
3
<PAGE> 5
THE OFFERING
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Common Stock offered by the Company..................... 2,000,000 shares
Common Stock to be outstanding after the offering....... 10,982,449 shares (1)(3)
Use of proceeds......................................... For working capital, repayment of
debt and other general corporate
purposes.
Proposed Nasdaq National Market symbol.................. CYBR
</TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
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<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................. $ -- $ 20 $ 55 $ 241 $ 4,797 $ 1,724 $13,949
Gross profit.................. -- 20 41 135 2,694 1,306 9,061
Total operating expenses...... 19 352 772 1,230 5,987 1,336 11,265
Loss from operations.......... (19) (332) (731) (1,095) (3,293) (30) (2,204)
Net loss...................... $ (19) $ (333) $ (732) $(1,115) $(3,352) $ (57) $(2,229)
Net loss per share (2)........ $ -- $ (0.04) $ (0.10) $ (0.15) $ (0.44) $ (0.01) $ (0.29)
Shares used in per share
calculation (2)............ 7,631 7,631 7,663 7,676 7,692 7,676 7,726
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA (3) AS ADJUSTED (4)
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BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 569 $ 7,176 $27,946
Working capital (deficit).............................. (2,339) 4,268 25,088
Total assets........................................... 7,088 13,695 34,465
Note payable, long-term................................ 400 400 --
Total stockholders' equity (deficiency)................ (2,095) 4,512 25,732
</TABLE>
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(1) Based on shares outstanding at June 30, 1996. Excludes (i) 1,513,016 shares
of Common Stock subject to options outstanding as of June 30, 1996 at a
weighted average exercise price of $1.51 per share and (ii) an aggregate of
277,459 shares of Common Stock reserved for issuance and available for grant
under the Company's Amended 1993 Stock Plan, 1996 Director Option Plan and
1996 Employee Stock Purchase Plan. In August 1996, an additional 1,000,000
shares of Common Stock were authorized and reserved for issuance under the
Amended 1993 Stock Plan. See "Management -- Director Compensation,"
"-- Employee Benefit Plans," "Description of Capital Stock" and Notes 8, 9,
11 and 15 of Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for an explanation regarding per
share calculations.
(3) Reflects (i) the sale in July 1996 of 1,666,667 shares of Series C Preferred
Stock, convertible into approximately 833,334 shares of Common Stock, for
$5.0 million, (ii) the exercise of all outstanding warrants and (iii) the
conversion of each share of Preferred Stock into one-half share of Common
Stock upon the closing of this offering.
(4) As adjusted to reflect the sale of 2,000,000 shares of Common Stock offered
by the Company at an assumed initial public offering price of $12.00 per
share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
------------------------
Unless otherwise indicated, all information in this Prospectus (a) reflects
the one-for-two reverse stock split of the Company's Common Stock effected in
August 1996 and the adjustment to the conversion ratio, such that upon the
closing of this offering, each outstanding share of Preferred Stock shall
automatically convert into one-half share of Common Stock, (b) gives effect to
the reincorporation of the Company from California to Delaware, which will occur
prior to this offering and (c) assumes no exercise of the Underwriters'
over-allotment option. See "Description of Capital Stock," "Underwriting" and
Notes 8 and 15 of Notes to Financial Statements.
4
<PAGE> 6
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. In addition
to the other information in this Prospectus, the following factors should be
considered carefully in evaluating an investment in the shares of Common Stock
offered by this Prospectus. This Prospectus contains forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth below and elsewhere in this
Prospectus.
Limited Operating History and History of Operating Losses. The Company has
only a limited operating history upon which to base an evaluation of its
business and prospects. The Company commenced operations in November 1991 and
introduced its first automatic service and support product, Win Win, in 1993.
The Company introduced the first Windows 95 compatible version of its First Aid
product line in September 1995. During 1996, both the Company's net revenues and
operating expenses, particularly sales and marketing expenditures, increased
rapidly compared to prior periods. From inception to June 30, 1996, the Company
generated net revenues of $19.1 million, of which $13.9 million, or 73%, was
generated in the six months ended June 30, 1996. The Company has incurred net
losses in each of the last five fiscal years and for the six months ended June
30, 1996, resulting in an accumulated deficit of $7.8 million at June 30, 1996.
There can be no assurance that the Company's net revenues will continue to
remain at or increase from the level experienced in the first six months of 1996
or that net revenues will not decline. The Company anticipates that in the
future it will make significant investments in its operations, particularly to
support sales activities, and that as a result, operating expenses will increase
significantly. If net revenues do not correspondingly increase, the Company is
likely to continue to incur net losses and its financial condition will be
materially adversely affected. The Company has not yet achieved profitability,
and there can be no assurance that the Company will achieve or sustain
profitability on a quarterly basis or annual basis. Furthermore, operating
results for future periods are subject to numerous uncertainties. The Company's
prospects must be considered in light of the risks encountered by companies with
limited operating histories, particularly companies in new and rapidly evolving
markets. In addition, the Company's future operating results will depend upon,
among other factors, the demand for the Company's software products, the level
of product and price competition, the Company's success in expanding its direct
and indirect distribution channels, the Company's success in attracting and
retaining motivated and qualified personnel, the ability of the Company to
expand its international sales, develop and market new products and product
upgrades and manage product transitions, the ability of the Company to control
costs, the growth of activity on the Internet and the World Wide Web (the
"Web"), and general economic conditions. Many of these factors are beyond the
Company's control. If the Company is not successful in addressing such risks,
the Company will be materially adversely affected. See "-- Potential
Fluctuations in Quarterly Results; Seasonality," "-- Product Concentration;
Risks Associated with First Aid Upgrades," "-- Developing Market" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Potential Fluctuations in Quarterly Results; Seasonality. The Company's
quarterly operating results have fluctuated in the past and are expected to
fluctuate significantly in the future. These fluctuations may arise as a result
of a number of factors, including the number and timing of new product
introductions, upgrades and product enhancements by the Company or its
competitors, purchasing patterns of distributors and customers, marketing and
promotional programs, pricing and other competitive pressures, order deferrals
and product returns in anticipation of new products or upgrades to existing
products, the mix of distribution channels through which the Company's products
are sold, the Company's decisions regarding hiring and other expenses, market
acceptance of the Company's products, market acceptance of commerce over the
Internet, technological limitations of the Internet, the developing nature of
the market for the Company's products, general economic conditions and other
factors. The Company generally ships products as orders are received and,
accordingly, the Company has historically operated with relatively little
backlog. As a result, quarterly revenues will depend predominantly on the volume
and timing of orders received during a particular quarter, both
5
<PAGE> 7
of which are difficult to forecast. With the introduction of First Aid 95, the
Company significantly increased its level of operating expenses. The Company
anticipates that its operating expenses will continue to increase substantially
in the future as a result of efforts to expand its sales and marketing
operations, including expanding its international sales, to fund greater levels
of product development, and to increase its administrative infrastructure. To
the extent that such expenses precede or are not subsequently followed by
increased net revenues, the Company's business, results of operations and
financial condition will be materially adversely affected. A relatively high
percentage of the Company's expenses is fixed in the short term and the Company
is generally unable to adjust spending in a timely manner to compensate for
shortfalls in net revenues. In addition, the consumer software industry in which
the Company operates has seasonal elements. In recent years, the consumer
software industry has experienced relatively higher demand for software products
in the fourth quarter due to year-end holiday buying and relatively lower demand
in the summer months. If net revenues fall below the Company's expectations,
expenditure levels as a percentage of total net revenues could be
disproportionately high, and operating results would be immediately and
adversely affected. The Company believes that period-to-period comparisons of
its operating results are not meaningful and should not be relied upon as any
indication of future performance. Due to the foregoing factors, among others, it
is likely that the Company's future quarterly operating results from time to
time will not meet the expectations of securities analysts or investors, which
may have an adverse effect on the price of the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Product Concentration; Risks Associated with First Aid Upgrades. During
1995 and the first half of 1996, over 90% of the Company's net revenues were
attributable to sales of its First Aid products. The Company anticipates that
sales of its First Aid products will account for substantially all of the
Company's net revenues during 1996, and a substantial majority of its net
revenues in 1997. There can be no assurance that net revenues from the First Aid
products will continue to grow at historical rates or be sustainable at current
levels. The Company's future financial performance will depend in large part on
the successful development, introduction and customer acceptance of new product
offerings and enhanced versions of the First Aid products. The Company is
currently upgrading its First Aid products to incorporate new features to
respond to evolving technical support and competitive developments. These
upgrades are scheduled to be released in the fourth quarter of 1996 under the
First Aid 97 title. Distributors may delay or cancel orders and return or reduce
current inventory levels of First Aid 95 products in anticipation of the release
of these upgrades. Furthermore, any failure or delays in releasing First Aid 97
upgrades as announced could increase the risk of such actions by distributors.
In addition, the Company recently introduced a new product, Oil Change, in beta
version. To date, Oil Change has not generated any net revenues and the Company
does not expect it to generate significant net revenues for at least the near
future. There can be no assurance that Oil Change will generate significant net
revenues at any time in the future. Any decline in the demand for First Aid
products, failure to achieve market acceptance of upgrades to such products or
failure of net revenues derived from such products to meet the Company's
expectations, whether as a result of competition, technological change or other
factors, would have a material adverse effect on the Company's business, results
of operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business -- Products," and
"-- Technology."
Management of Growth; Dependence on Key Personnel. The Company's business
has grown rapidly during the past year and such growth has placed and, if
sustained, will continue to place, significant demands on the Company's
management and resources. Recently, the Company has significantly increased the
scale of its operations to support increased sales volumes and to address
critical infrastructure and other requirements. This increase included
substantial investments in sales and marketing to support sales activities and
the hiring of a number of new employees, which have resulted in higher operating
expenses. Between December 1, 1995 and July 31, 1996, the number of Company
employees increased from approximately 20 to approximately 104 and the Company
currently expects to hire many additional employees during 1996. The Company's
ability to manage any future growth,
6
<PAGE> 8
should it occur, will continue to depend upon the successful expansion of its
sales, marketing, research and development, customer support and administrative
infrastructure and the ongoing implementation and improvement of a variety of
internal management systems, procedures and controls. There can be no assurance
that the Company will be able to attract, manage and retain additional personnel
to support any future growth or will not experience significant problems with
respect to any infrastructure expansion or the attempted implementation of
systems, procedures and controls. Any failure in one or more of these areas
would have a material adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company's future success also depends on its continuing ability to
attract and retain highly qualified technical personnel. Competition for such
personnel is intense and there can be no assurance that the Company will be able
to retain its key technical employees or that it will be able to attract and
retain additional highly qualified technical personnel in the future. Any
inability to attract and retain the necessary technical personnel could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company is dependent upon certain of its executive officers. The
Company does not maintain any key person insurance policies on the lives of any
of its executive officers. The loss of or inability to retain these key
executive officers for any reason could have a material adverse effect upon the
Company's business, results of operations and financial condition. See
"Management."
Competition. The PC software industry is intensely competitive and
characterized by short product life cycles and frequent new product
introductions. The Company competes with software companies of varying sizes and
resources, including SystemSoft Corporation, Quarterdeck Corporation, Symantec
Corp. and others. The Company believes that a number of software companies will
be introducing automatic service and support software products in the near
future that will compete with the Company's products. The Company expects that
potential future competitors may include other software vendors, including
Internet software vendors. Many of the Company's existing and potential
competitors have substantially greater financial, technical and marketing
resources than the Company. Moreover, there are no proprietary barriers to entry
that could keep existing and potential competitors from developing similar
products or selling competing products in the Company's markets. To the extent
that the Company's competitors bundle their software products with leading
hardware, application software or operating system vendors, or if one or more of
the operating system vendors, such as Microsoft Corporation ("Microsoft"),
developed its own technical support software and incorporated such functionality
into its products, the Company's business, results of operation and financial
condition could be materially adversely affected. There can be no assurance that
the Company will be able to compete successfully with existing or potential
competitors. Increased competition may result in the loss of shelf space or a
reduction in demand or sell-through of the Company's products, any of which
could have a material adverse effect on the Company's business, results of
operations and financial condition.
Microsoft's position as a large, well-capitalized software company with a
dominant share of the market for PC operating system software could enable it to
develop products that compete effectively with those of the Company. In
particular, Microsoft is incorporating "Plug and Play" capabilities into future
versions of its operating systems. Plug and Play capabilities are designed to
allow PC users to add on any computer peripheral (such as a modem, video or
sound card) to a Windows-based system and enable that peripheral to work
immediately, without concern for software configuration errors or driver
conflicts. In addition, to the extent that Microsoft incorporates functionality
comparable, or perceived as comparable, to that offered by the Company into its
Windows products (or separately offers comparable products), sales of the
Company's products could be materially adversely affected. There can be no
assurance that any such action by Microsoft or others would not render the
Company's products noncompetitive or obsolete.
The Company's products also compete indirectly against alternative sources
of technical support, such as the technical support departments of hardware and
software vendors. Additionally, the
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<PAGE> 9
Internet provides hardware and software vendors with a new medium to offer
technical support services. The Company expects that many vendors will provide
Internet-based technical support services to support their existing and future
products. The availability of these technical support services could materially
dilute the value of the Company's products and have a material adverse effect on
the Company's market position, business, results of operations and financial
condition. See "Business -- Industry Background."
In addition, the Company may face increasing pricing pressures from current
and future competitors and, accordingly, there can be no assurance that
competitive pressures will not require the Company to reduce its prices. Any
material reduction in the price of the Company's products would negatively
affect the Company's business, results of operations and financial condition,
and would require the Company to increase unit sales in order to maintain
historic levels of net revenues. There can be no assurance that competitors will
not develop products that are superior to the Company's products or that achieve
greater market acceptance and thereby negatively affect sales of the Company's
products. See "Business -- Distribution and Marketing" and "-- Competition."
Dependence on Microsoft Windows. The Company's success is dependent on the
continued widespread use of the Windows operating systems for PCs. The Company's
First Aid products automatically detect, diagnose and resolve common software
conflicts and configuration errors arising in the Windows operating environment.
Although Windows operating systems are currently used by many PC users, other
companies, including International Business Machines Corporation and Apple
Computer, Inc., have developed or are developing other operating systems that
compete, or will compete, with Windows. In the event that any of these
alternative operating systems become widely accepted in the PC marketplace,
demand for the Company's products could be adversely affected, thereby
materially adversely affecting the Company's business, results of operations and
financial condition. In addition, Microsoft may introduce a new operating system
to replace Windows or could incorporate some or many of the key features of the
Company's First Aid products in new versions of its operating systems, thereby
eliminating the need for users to purchase the Company's products. The inability
to adapt current products or to develop new products for use with any new
operating systems on a timely basis would have a material adverse effect on the
Company's business, results of operations and financial condition.
In addition, the Company's ability to develop products based on Windows
operating systems and release these products immediately prior to, or at the
time of Microsoft's release of new and upgraded Windows products is
substantially dependent on its ability to gain pre-release access to, and to
develop expertise in, current and future versions of Windows. There can be no
assurance that the Company will be able to provide products that are compatible
with future Windows releases on a timely basis, with or without the cooperation
of Microsoft.
Developing Market. The Company's products address the new and rapidly
evolving market for automatic service and support software. The market for
automatic service and support software products has only recently begun to
develop and is characterized by an increasing number of existing and potential
market entrants who are in the process of introducing or developing automatic
service and support software. As is typical in the case of a new and rapidly
evolving market, the demand and market acceptance for recently introduced
products are subject to a high level of uncertainty and risk. It is difficult to
predict the future growth rate and size of this market. There can be no
assurance that the market for the Company's products will develop, that demand
for the Company's products or for automatic service and support software
products in general will increase or that the rate of growth of this demand will
be sustainable or will not decrease. The Company's ability to develop and
successfully market additional products depends substantially on the acceptance
of automatic service and support software by individual and corporate users as
an effective means of addressing their technical support requirements. If the
market fails to develop, develops more slowly than expected or becomes saturated
with competitors, or if the Company's products do not achieve or sustain market
acceptance, the Company's business, results of operations and financial
condition will be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations,"
"Business -- Industry Background" and "Business -- Products."
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<PAGE> 10
New Product Development and Technological Change. Substantially all of the
Company's net revenues have been derived, and substantially all of the Company's
future net revenues are expected to be derived, from the sale of its automatic
service and support software products. The market for automatic service and
support software products is characterized by rapid technological advances,
evolving industry standards in computer hardware and software technology and
frequent new product introductions and enhancements. The Company's products must
be continually updated to address the new and evolving technical support
requirements of third-party hardware and software. Failure to anticipate
technical difficulties that arise from use of these third-party products and
incorporate solutions to such difficulties into the Company's products would
have a material adverse effect on continued market acceptance of the Company's
products. The Company's ability to design, develop, test and support on a timely
basis new software products, updates and enhancements that respond to
technological developments and emerging industry standards is critical to the
Company's future success. The Company is currently upgrading its First Aid
products and expects these upgrades to be released in the fourth quarter of
1996. There can be no assurance that the Company will be successful in such
efforts or that the Company will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of new products
and enhancements, or that its new products, upgrades and enhancements will
adequately meet the requirements of the marketplace and achieve market
acceptance. The introduction of new products, upgrades or enhanced versions of
existing products is subject to the risk of development delays due to resource
constraints, technological change and other reasons. If the Company is unable to
develop on a timely basis new software products, upgrades or enhancements to
existing products or if such new products, upgrades or enhancements do not
achieve market acceptance, the Company's business, results of operations and
financial condition would be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Products," " -- Technology" and " -- Product Development."
The Company currently employs software engineers in India on a
work-for-hire basis. These engineers are primarily responsible for updating the
Company's knowledge bases for current applications and upgrades. Certain of
these engineers are responsible for adapting the Company's First Aid products to
Windows NT. Any loss of the services of these engineers due to political or
economic instability or for any other reason could adversely affect the
Company's product development efforts and thereby could materially adversely
affect the Company's business, results of operations and financial condition.
See "Business -- Product Development."
Dependence on Distribution Channels. The Company currently sells its First
Aid products primarily through distributors for resale to the retail channel and
through direct mail. Sales to such distributors and sales through direct mail
accounted for approximately 60% and 40%, respectively, of the Company's net
revenues in the first six months of 1996. Sales from direct mail have
historically operated at lower profitability levels than sales from
distributors. There can be no assurance that the mix or relative profitability
of such sales will remain at current levels in the future. The Company is
evaluating the use of alternative distribution channels for its products and
began distributing a beta version of Oil Change through the Internet in June
1996.
Sales to a limited number of distributors have constituted and are expected
to continue to constitute a substantial portion of the Company's net revenues.
Sales to the Company's top three distributors, Navarre Corporation ("Navarre"),
Ingram Micro, Inc. ("Ingram Micro") and Micro Central, Inc. ("Micro Central"),
accounted for approximately 22%, 20% and 11%, respectively, of the Company's net
revenues in the six months ended June 30, 1996. The loss of, or reduction in,
orders from any of these distributors could have a material adverse effect on
the Company's business, results of operations and financial condition.
Historically, margins for distributors in the PC software industry have been
low, competition has been intense and distributors have relied on timely
payments from their customers. In September 1996, NeoStar Retail Group, Inc.
("NeoStar"), a major PC software retailer and a reseller of the Company's
products, filed for Chapter 11 bankruptcy protection. In the event that NeoStar
is unable to come to a satisfactory resolution with its creditors, it may cause
9
<PAGE> 11
financial difficulties for one or more PC software distributors, including those
of the Company. Financial difficulties of any distributors could render the
Company's associated accounts receivable uncollectible, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, any special distribution arrangements or
product pricing arrangements that the Company may implement for strategic
purposes in one or more of its distribution channels could materially adversely
affect its margins.
The distribution channels through which consumer software products are sold
have been characterized by rapid change, including consolidations and financial
difficulties of certain distributors and retailers and the emergence of new
retailers such as general mass merchandisers. In addition, due to an increase in
the number of software applications, there are an increasing number of companies
competing for access to these channels. Retailers of the Company's products
typically have a limited amount of shelf space and promotional resources, and
there is intense competition for high quality and adequate levels of shelf space
and promotional support from the retailers. The Company believes this
competition for shelf space will increase in the near term as competitors
introduce new automatic service and support software. There can be no assurance
that retailers will continue to purchase the Company's products or provide the
Company's products with adequate levels of shelf space and promotional support,
the lack of which would have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business -- Distribution and Marketing."
Risk of Product Returns. The Company's business includes a substantial risk
of product returns from distributors, retailers and end users, either through
the exercise of contractual return rights or as a result of the Company's policy
of assisting customers in balancing and updating inventories. Individual end
users may return products within 60 days of the date of purchase for a full
refund. Most retailers, distributors and end users also have the ability to
return products for a full refund. In addition, competitors' promotional or
other activities could cause returns to increase sharply at any time. Further,
the rate of product returns could increase if general mass merchandisers become
a larger percentage of the Company's business or other changes in the Company's
distribution channel occur. Large shipments in anticipation of unrealized demand
can lead to overstocking by the Company's distributors or retailers and result
in substantial product returns. In addition, the inventory transition resulting
from the introduction of product upgrades, including the currently planned
introduction of First Aid 97, could result in an increased level of returns for
prior versions. Furthermore, the risk of product returns will increase if demand
for the Company's products declines.
Although the Company establishes reserves based on estimated future returns
of products, taking into account promotional activities, the timing of new
product introductions, distributor and retailer inventories of the Company's
products and other factors, there can be no assurance that actual levels of
returns will not significantly exceed amounts anticipated by the Company. In
addition, the Company provides price protection to its distributors in the event
the Company reduces its prices. Any material increase in the level of returns
could materially adversely affect the Company's business, results of operations
and financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Distribution and
Marketing."
Dependence on the Internet. The commercial viability of Oil Change and the
Company's ability to execute its strategy to leverage Oil Change as an
Internet-based platform for other products and services are dependent upon the
continued development and acceptance of the Internet as a delivery medium for
third-party software programs. In addition, the Company's future success may be
dependent upon continued growth in the use of the Internet in order to support
the distribution of products and future upgrades. The use of the Internet as a
distribution channel is new and unproven and represents a significant departure
from traditional distribution methods employed by software companies. Critical
issues concerning the commercial use of the Internet (including security,
reliability, cost, ease of use and access and speed) remain unresolved and may
affect the use of the Internet as a medium to distribute software. There can be
no assurance that the use of the Internet as a distribution channel will be
effective for either current or future products. The failure of the Internet to
be an effective distribution channel could have a material adverse effect on the
Company's business
10
<PAGE> 12
and prospects. The Company's future success depends, in part, upon the future
growth of the Internet for commercial transactions. There can be no assurance
that communication or commerce over the Internet will become widespread and it
is not known whether this market will develop to the extent necessary for demand
for the Company's products to emerge and become sustainable. The Internet may
not prove to be a viable commercial marketplace for a number of reasons,
including inadequate communications bandwidth and a lack of secure payment
mechanisms. To the extent that the Internet continues to experience significant
growth in the number of users and level of use, there can be no assurance that
the Internet infrastructure will continue to be able to support the demands
placed upon it. Moreover, the Internet could lose its viability due to delays in
the development or adoption of new standards and protocols required to handle
increased levels of Internet activity or due to increased governmental
regulation. Changes in or insufficient availability of telecommunications
services to support the Internet also could result in slower response times
which might adversely affect customers' ability or willingness to access the
Company's products or upgrades over the Internet. In addition, the security and
privacy concerns of existing and potential customers, as well as concerns
related to computer viruses, may inhibit the growth of the Internet marketplace
generally and the customer base for the Company's Oil Change product in
particular. The viability of Oil Change also depends upon the continuation of
the current practice of publishing new updates and patches to commonly used
software applications and device drivers on vendors' Web sites.
If use of the Internet does not continue to grow, if the Internet
infrastructure does not effectively support customer demand or if hardware and
software vendors do not continue to post updates and patches on the Internet,
the Company's business, results of operations and financial condition could be
materially adversely affected. If users fail to accept Oil Change as a technical
support solution, the Company may have to expend significant resources to
educate users and create demand for Oil Change. See "Business -- Products,"
"-- Technology" and "-- Distribution and Marketing."
Limited Protection of Proprietary Rights. The Company's success is heavily
dependent upon its proprietary software. The Company relies primarily on a
combination of copyright, trademark and trade secret laws, employee
confidentiality and nondisclosure agreements and third-party nondisclosure
agreements and other methods of protection common in the consumer software
industry to protect its proprietary rights. The Company licenses its products
primarily under "shrink wrap" license agreements that are not signed by
licensees and therefore may be unenforceable under the laws of certain
jurisdictions. In addition, the Company has two United States patent
applications pending and intends to seek international and further United States
patents on its technology. There can be no assurance that patents will issue
from the Company's pending applications or that any claims allowed from the
pending patent applications or those hereafter filed will be of sufficient scope
or strength, or be issued in all countries where the Company's products can be
sold, to provide meaningful protection or any commercial advantage to the
Company or that any patents which may be issued to the Company will not be
challenged and invalidated. In addition, existing copyright laws provide only
limited protection. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy or otherwise obtain and use the
Company's products or technology that the Company considers proprietary, and
third parties may develop similar technology independently. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. There can be
no assurance that the Company's means of protecting its proprietary rights will
be adequate. In addition, there can be no assurance that the Company's
competitors will not independently develop technologies and products that are
substantially equivalent or superior to those of the Company without violating
the Company's proprietary rights.
As the number of software products in the industry increases and the
functionality of these products increasingly overlaps, software developers may
become increasingly subject to infringement claims. From time to time, the
Company has received communications from third parties asserting that certain
products may infringe upon the intellectual property rights of others. To date,
no such claim has resulted in litigation or the payment of any damages. However,
there can be no assurance that
11
<PAGE> 13
existing or future infringement claims against the Company with respect to
current or future products will not result in costly litigation or require the
Company to enter into royalty bearing licenses with third parties or to
discontinue use of certain portions of the Company's technology if licenses are
not available on acceptable terms.
While to date the Company's international sales have been insignificant,
the Company intends to devote substantial resources in an effort to expand the
international distribution of its products. The laws of some foreign countries
either do not protect the Company's proprietary rights or offer only limited
protection for those rights. The Company has not registered its copyrights in
any foreign countries. While in most foreign countries registration is not
required in order to receive copyright protection, the ability to bring an
enforcement action and obtain certain remedies depends on compliance with that
country's copyright laws. Consequently, the Company's failure to register its
copyrights abroad may make enforcement of these rights more difficult or reduce
the available remedies in any enforcement action. In addition, the Company has
not to date pursued foreign registration of its trademarks due to the
significant costs involved and, as a result, the Company may not be able to
prevent a third party from using its trademarks in many foreign jurisdictions.
See "Business -- Proprietary Rights."
System Interruption and Security Risks. The Company's ability to provide
product functionality through the Internet is dependent on its ability to
protect its system from interruption, whether by damage from fire, earthquake,
power loss, telecommunications failure, unauthorized entry or other events
beyond the Company's control. Most of the Company's computer equipment,
including its processing equipment, is currently located at a single site. While
the Company believes that its existing and planned precautions of redundant
systems, regular data backups and other procedures are adequate to prevent any
significant system outage or data loss, there can be no assurance that
unanticipated problems will not cause such a failure or loss. Despite the
implementation of security measures, the Company's infrastructure may also be
vulnerable to computer viruses, hackers or similar disruptive problems caused by
its customers, employees or other Internet users. Any damage or failure that
causes interruptions in the Company's operations could have a material adverse
effect on the Company's business, results of operations and financial condition.
Computer break-ins and other disruptions could jeopardize the security of
information stored in and transmitted through the computer systems of the
individuals and businesses utilizing the Company's products, which could result
in significant liability to the Company and also may deter customers and
potential customers from using the Company's services. Persistent problems
continue to affect public and private data networks. For example, in a number of
networks, hackers have bypassed network security and misappropriated
confidential information.
Product Liability. Although the Company attempts to incorporate support for
most software conflicts and configuration errors in the Windows environment,
there can be no assurance that the Company's products will resolve any specific
problems encountered by a PC user. Furthermore, as a result of their complexity,
the Company's software products may contain undetected errors or failures, when
they are first introduced and as new versions are released. There can be no
assurance that, despite testing by the Company and testing and use by current
and potential customers, errors will not be found in new products after
commencement of commercial shipments or thereafter. The occurrence of any such
errors could result in the loss of, or a delay in, market acceptance of the
Company's products, which would have a material adverse effect on the Company's
business, results of operations and financial condition. The Company's license
agreements with its customers typically contain provisions designed to limit the
Company's exposure to potential claims for damages. It is possible, however,
that the limitation of liability provisions contained in the Company's license
agreement may not be effective under the laws of certain jurisdictions. Although
the Company has not experienced any such claims to date, the sale and support of
the Company's products may entail the risk of such claims. While the Company has
obtained insurance against product liability risks, there can be no assurance
that such insurance will provide adequate coverage. The Company does not
currently carry errors and omissions coverage which may protect against
allegations that the Company's products have
12
<PAGE> 14
failed to perform adequately. Any such claims for damages brought against the
Company could have a material adverse effect on the Company's business, results
of operations and financial condition.
Risks Associated With Global Operations. Since its inception, the Company
has derived less than 5% of its total net revenues in each year from sales to
customers outside of the United States. The Company is expanding its sales
operations outside of the United States which will require significant
management attention and financial resources. The Company's ability to expand
its product sales internationally is dependent on the successful development of
localized versions of the Company's products, acceptance of such products and
the acceptance of the Internet internationally. The Company expects to commit
significant resources to customizing its products for selected international
markets and to developing international sales and support channels. The
Company's First Aid products rely on a knowledge base that contains detailed
information based on specific English language versions of third-party hardware
and software applications. This knowledge base must be recreated for each
foreign language version that is developed to support foreign releases of such
products, many of which have been modified from their United States releases.
There can be no assurance that this task can be completed in a timely or
cost-effective manner or that enough products can be supported to ensure
customer acceptance. The Company believes that successful execution of a global
strategy is critical to maintaining its current market position and competitive
advantage. Failure to successfully expand its products to international markets
could cause the Company to lose business to global competitors or prevent the
development of strategic relationships with global hardware and software
vendors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Distribution and Marketing."
International operations are subject to a number of risks, including costs
of customizing products for foreign countries, dependence on independent
resellers, multiple and conflicting regulations regarding communications, use of
data and control of Internet access, longer payment cycles, unexpected changes
in regulatory requirements, import and export restrictions and tariffs,
difficulties in staffing and managing foreign operations, greater difficulty or
delay in accounts receivable collection, potentially adverse tax consequences,
the burdens of complying with a variety of foreign laws, the impact of possible
recessionary environments in economies outside the United States and political
and economic instability. Furthermore, the Company's export sales are currently
denominated predominantly in United States dollars. An increase in the value of
the United States dollar relative to foreign currencies could make the Company's
products more expensive and, therefore, potentially less competitive in foreign
markets. If the Company increases its international sales, its net revenues may
also be affected to a greater extent by seasonal fluctuations resulting from
lower sales that typically occur during the summer months in Europe and other
parts of the world. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Distribution and
Marketing."
Reliance on Outside Resources. The Company relies upon independent
contractors to perform a number of tasks, including product duplication and
packaging, reproduction of manuals and brochures and order fulfillment. The
Company depends on these outside parties to perform such functions to the
Company's specifications and quality standards. The Company currently does not
have long-term agreements with any of these outside parties. The Company also
employs software engineers in India on a work-for-hire basis to assist in its
product development efforts. Although the Company believes that alternative
resources exist or can be obtained, a disruption of the Company's relationship
with any of these outside parties or the failure of these outside parties to
continue to provide quality supplies and services on a timely basis could
materially adversely affect the Company's business, results of operations and
financial condition. See "Business -- Product Development" and "-- Operations."
Litigation. From time to time, the Company may be involved in litigation
relating to claims arising out of its products or operations in the normal
course of business. In July 1996, the Company filed a lawsuit in the U.S.
District Court, Northern District of California against Vertisoft Systems, Inc.
("Vertisoft"), a wholly-owned subsidiary of Quarterdeck Corporation, alleging
that Vertisoft's packaging materials included false and misleading statements
about the Company that constituted unfair
13
<PAGE> 15
competition and false advertising. Vertisoft has filed counterclaims against the
Company alleging that the Company's packaging materials included false and
misleading statements. Pending trial, the court has granted a preliminary
injunction in favor of the Company and against Vertisoft which prevents
Vertisoft from shipping products with existing packaging unless certain
statements are "stickered" over. The court has also denied Vertisoft's request
for a preliminary injunction to stop the Company from shipping its First Aid 95
and First Aid 95 Deluxe products, or even to require a form of "sticker" be
placed on the Company's products. The court's rejection of Vertisoft's request
does not preclude Vertisoft from filing other or additional motions in the suit,
including requests for injunctive relief or damages. See "Business -- Legal
Proceedings."
Control by Existing Management. Following this offering, the current
executive officers and directors of the Company and their affiliates will
beneficially own approximately 43.1% of the Company's outstanding Common Stock.
Accordingly, the current officers and directors of the Company will continue to
have the ability to significantly influence the outcome of elections of the
Company's directors and other matters presented to a vote of stockholders. See
"Principal Stockholders."
Shares Eligible For Future Sale. Sales of a substantial number of shares of
Common Stock (including shares issued upon the exercise of outstanding options
and warrants) in the public market following this offering could adversely
affect the market price for the Company's Common Stock. Such sales could also
make it more difficult for the Company to sell its equity or equity-related
securities in the future at a time and price that the Company deems appropriate.
Upon completion of this offering, the Company will have an aggregate of
10,982,449 shares of Common Stock outstanding. The 2,000,000 shares offered
hereby will be immediately tradeable without restriction. As a result of lock-up
agreements between certain stockholders and the Representatives of the
Underwriters, approximately 8,946,309 shares will not be available for immediate
sale in the public market until 181 days after the effectiveness of this
offering, subject in some cases to the volume and other restrictions of Rule 144
and Rule 701 under the Securities Act of 1933, as amended (the "Securities
Act"). However, Hambrecht & Quist LLC may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements. Shares eligible to be sold by affiliates pursuant to Rule
144 are subject to volume and other restrictions. Shortly after the
effectiveness of this offering, the Company intends to register approximately
2,790,475 shares of the Company's Common Stock reserved for issuance under its
stock option and stock purchase plans or currently subject to outstanding
options. See "Shares Eligible for Future Sale."
Anti-takeover Provisions. Immediately after the closing of this offering,
the Company's Board of Directors will have the authority to issue up to
2,000,000 shares of Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of holders of any Preferred Stock that may be issued in the future.
The issuance of Preferred Stock may delay, defer or prevent a change in control
of the Company. The Company has no present plans to issue shares of Preferred
Stock. In addition, Section 203 of the Delaware General Corporation Law, to
which the Company is subject, restricts certain business combinations with any
"interested stockholder" as defined by such statute. The statute may delay,
defer or prevent a change in control of the Company. See "Description of Capital
Stock."
No Prior Market For Common Stock. Prior to this offering, there has been no
public market for the Company's Common Stock, and there can be no assurance that
an active public market will develop or be sustained after this offering or that
investors will be able to sell the Common Stock should they desire to do so. The
initial public offering price will be determined by negotiations among the
Company and the Representatives of the Underwriters and may bear no relationship
to the price at which the Common Stock will trade upon completion of this
offering. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
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<PAGE> 16
Volatility of Stock Price. The market price of the shares of Common Stock
is likely to be highly volatile and could be subject to wide fluctuations in
response to factors such as actual or anticipated variations in the Company's
operating results, announcements of technological innovations, new products or
new contracts by the Company or its competitors, developments with respect to
patents, copyrights or proprietary rights, changes in financial estimates by
securities analysts, conditions and trends in the software and other technology
industries, adoption of new accounting standards affecting the software
industry, general market conditions and other factors. Further, the stock market
has experienced extreme price and volume fluctuations that have particularly
affected the market prices of equity securities of many high technology
companies and that often have been unrelated or disproportionate to the
operating performance of such companies. Declines in market prices generally may
adversely affect the market price of the Company's Common Stock. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such
company. Such litigation, if instituted, could result in substantial costs and a
diversion of management attention and resources, which would have a material
adverse effect on the Company's business, results of operations and financial
condition. These market fluctuations, as well as general economic, political and
market conditions, such as recessions or international currency fluctuations,
may adversely affect the market price of the Common Stock.
Dilution. Purchasers of the Common Stock in this offering will suffer
immediate and substantial dilution of $9.66 per share (assuming an initial
public offering price of $12.00 per share) in the net tangible book value of the
Common Stock from the initial public offering price. To the extent that
outstanding options to purchase the Company's Common Stock are exercised, there
may be further dilution. See "Dilution."
15
<PAGE> 17
THE COMPANY
The Company was incorporated in California in November 1991 and will
reincorporate in Delaware prior to this offering. As used in this Prospectus,
unless the context otherwise requires, the terms "CyberMedia" and the "Company"
refer to CyberMedia, Inc., a Delaware corporation and its predecessor
CyberMedia, Inc., a California corporation. The Company's executive offices are
located at 3000 Ocean Park Boulevard, Suite 2001, Santa Monica, California
90405, its telephone number at that location is (310) 581-4700.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock being offered hereby at the assumed initial public offering price
of $12.00 per share are estimated to be $21,220,000 ($24,568,000 if the
Underwriters' over-allotment option is exercised in full), after deducting
estimated underwriting discounts and commissions and estimated offering
expenses. The Company intends to use the net proceeds from this offering for
working capital and other general corporate purposes, including sales and
marketing activities and for the expansion of product development. In addition
the Company plans to use approximately $450,000 of the net proceeds from this
offering to pay the outstanding principal amount of the note payable to the
Industrial Credit and Investment Corporation of India Limited ("ICICI"), plus
accrued interest thereon. The ICICI note bears interest at the rate of prime
plus 2.25%, with principal payable in equal quarterly installments of $50,000
from January 1997 through April 1999. At June 30, 1996, the outstanding balance
of the note was $450,000. The Company may also use a portion of the net proceeds
of this offering to acquire or invest in complementary businesses and products,
or to obtain the right to use complementary technologies. Currently, there are
no agreements or understandings with respect to any such acquisitions or
investments and there can be no assurance that any such acquisitions or
investments will be made. Pending the use of the net proceeds for the above
purposes, the Company intends to invest such funds in investment-grade financial
obligations, including short-term, interest-bearing money market funds and
certificates of deposit.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain its earnings, if any, for use in
the operation of its business. In addition, an existing loan agreement prohibits
the Company from paying cash dividends on its capital stock without the lender's
written consent. See Note 8 of Notes to Financial Statements.
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<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 (i) on a historical basis, (ii) on a pro forma basis as described in
footnote (1) below and (iii) as adjusted to give effect to the sale by the
Company of 2,000,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $12.00 per share and the application of the net
proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with the Financial Statements and related Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (1) AS ADJUSTED (1)(2)
------- ------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Note payable, long-term............................... $ 400 $ 400 $ --
------- ------- -------
Stockholders' equity (deficiency):
Preferred Stock; $0.01 par value, issuable in
series; 12,835,654 shares authorized, 9,331,087
shares issued and outstanding, actual; 2,000,000
shares authorized, none issued and outstanding,
pro forma and pro forma as adjusted.............. 94 -- --
Common Stock; $0.01 par value; 10,833,334 shares
authorized; 2,484,025 shares issued and
outstanding, actual; 50,000,000 shares
authorized, 8,982,449 shares issued and
outstanding, pro forma; 10,982,449 shares issued
and outstanding, pro forma as adjusted........... 25 90 110
Additional paid-in capital.......................... 5,566 12,202 33,402
Accumulated deficit................................. (7,780) (7,780) (7,780)
------- ------- -------
Total stockholders' equity (deficiency).......... (2,095) 4,512 25,732
------- ------- -------
Total capitalization........................ $(1,695) $ 4,912 $ 25,732
======= ======= =======
</TABLE>
- ---------------
(1) Reflects (i) the sale in July 1996 of 1,666,667 shares of Series C Preferred
Stock, convertible into approximately 833,334 shares of Common Stock, for
$5.0 million, (ii) the exercise of all outstanding warrants, (iii) the
conversion of each share of Preferred Stock into one-half share of Common
Stock upon closing of this offering and (iv) the change in the number of
authorized shares of Preferred Stock from 12,835,654 shares to 2,000,000
shares.
(2) Excludes as of June 30, 1996 (i) 1,513,016 shares of Common Stock issuable
upon the exercise of stock options outstanding at a weighted average
exercise price of $1.51 per share and (ii) an aggregate of 277,459
additional shares of Common Stock reserved for issuance and available for
grant under the Company's Amended 1993 Stock Plan, 1996 Director Option Plan
and 1996 Employee Stock Purchase Plan. In August 1996, an additional
1,000,000 shares of Common Stock were authorized and reserved for issuance
under the Amended 1993 Stock Plan. See "Management -- Director
Compensation," "-- Employee Benefit Plans," "Description of Capital Stock"
and Notes 8, 9, 11 and 15 of Notes to Financial Statements.
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<PAGE> 19
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
June 30, 1996 was $4,512,000 or approximately $0.50 per share. Pro forma net
tangible book value per share represents the amount of the Company's
stockholders' equity, less intangible assets, divided by 8,982,449 shares of
Common Stock outstanding as of June 30, 1996 after giving effect to (i) the sale
in July 1996 of 1,666,667 shares of Series C Preferred Stock (see Note 15 of
Notes to Financial Statements), (ii) the exercise of all outstanding warrants
and (iii) the conversion of each share of Preferred Stock into one-half share of
Common Stock upon closing of this offering.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in the
offering made hereby and the pro forma net tangible book value per share of
Common Stock immediately after completion of the offering. After giving effect
to the sale by the Company of 2,000,000 shares of Common Stock in this offering
at an assumed initial public offering price of $12.00 per share, after deduction
of estimated underwriting discounts and commissions and offering expenses, the
pro forma net tangible book value of the Company as of June 30, 1996 would have
been $25,732,000 or $2.34 per share. This represents an immediate increase in
net tangible book value of $1.84 per share to existing stockholders and an
immediate dilution in net tangible book value of $9.66 per share to purchasers
of Common Stock in this offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $12.00
Pro forma net tangible book value per share at June 30, 1996.............. $0.50
Increase per share attributable to new investors.......................... 1.84
-----
Pro forma net tangible book value per share after this offering............. 2.34
-----
Dilution per share to new investors......................................... $ 9.66
=====
</TABLE>
The following table sets forth on a pro forma basis as of June 30, 1996 the
number of shares purchased from the Company, the total consideration paid and
the average price per share paid by the existing stockholders and by new
investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 8,982,449 81.8% $12,292,000 33.9% $ 1.37
New investors........................... 2,000,000 18.2 24,000,000 66.1 12.00
--------- ----- ----------- -----
Total......................... 10,982,449 100.0% $36,292,000 100.0%
========= ===== =========== =====
</TABLE>
The foregoing assumes no exercise of outstanding stock options. As of June
30, 1996, there were (i) 1,513,016 shares of Common Stock issuable upon exercise
of outstanding stock options at a weighted average exercise price of $1.51 per
share and (ii) an aggregate of 277,459 additional shares of Common Stock
reserved for issuance and available for grant under the Company's Amended 1993
Stock Plan, 1996 Director Option Plan and 1996 Employee Stock Purchase Plan. In
August 1996, an additional 1,000,000 shares of Common Stock were authorized and
reserved for issuance under the Amended 1993 Stock Plan. To the extent that
outstanding options are exercised, there will be further dilution to new
investors. See "Capitalization," "Management -- Director Compensation,"
"-- Employee Benefit Plans," "Description of Capital Stock" and Notes 8, 9, 11
and 15 of Notes to Financial Statements.
18
<PAGE> 20
SELECTED FINANCIAL DATA
The selected financial data presented below for, and as of, the end of each
of the years in the three-year period ended December 31, 1995 are derived from
the financial statements of the Company, which financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants. The
financial statements as of December 31, 1994 and 1995, and for each of the years
in the three-year period ended December 31, 1995, and the auditor's report
thereon, are included elsewhere in this Prospectus. Balance sheet data as of
December 31, 1993 is derived from audited financial statements not included
herein. The statements of operations data for the years ended December 31, 1991
and 1992 and the balance sheet data as of December 31, 1991 and 1992 have been
derived from the unaudited financial statements of the Company, which are not
included in this Prospectus. The selected financial data for the six months
ended June 30, 1995 and 1996 are unaudited but have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
contain all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations for such periods.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of results to be expected for the year or for any future
period. The selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues............................. $ -- $ 20 $ 55 $ 241 $ 4,797 $ 1,724 $13,949
Cost of revenues......................... -- -- 14 106 2,103 418 4,888
------- ------- ------- ------- ------- ------- -------
Gross profit........................... -- 20 41 135 2,694 1,306 9,061
Operating expenses:
Research and development............... -- 250 468 544 964 455 1,143
Sales and marketing.................... -- 27 220 439 4,036 678 8,609
General and administrative............. 19 75 84 247 987 203 1,513
------- ------- ------- ------- ------- ------- -------
Total operating expenses............. 19 352 772 1,230 5,987 1,336 11,265
------- ------- ------- ------- ------- ------- -------
Loss from operations................. (19) (332) (731) (1,095) (3,293) (30) (2,204)
Interest, net............................ -- (1) -- (19) (58) (27) (25)
------- ------- ------- ------- ------- ------- -------
Loss before income taxes............. (19) (333) (731) (1,114) (3,351) (57) (2,229)
Income tax expense....................... -- -- 1 1 1 -- --
------- ------- ------- ------- ------- ------- -------
Net loss............................. $ (19) $ (333) $ (732) $(1,115) $(3,352) $ (57) $(2,229)
======= ======= ======= ======= ======= ======= =======
Net loss per share (1)................... $ -- $ (0.04) $ (0.10) $ (0.15) $ (0.44) $ (0.01) $ (0.29)
======= ======= ======= ======= ======= ======= =======
Shares used in per share calculation
(1).................................... 7,631 7,631 7,663 7,676 7,692 7,676 7,726
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------------------------------------- JUNE 30, JUNE 30,
1991 1992 1993 1994 1995 1996 1996 (2)
------- ------- ------- ------- ------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 21 $ 148 $ 14 $ 102 $ 2,050 $ 569 $ 7,176
Working capital (deficit)............. (19) 94 (333) (671) 434 (2,339 ) 4,268
Total assets.......................... 54 178 25 189 3,855 7,088 13,695
Note payable, long-term............... -- -- -- 500 500 400 400
Total stockholders' equity
(deficiency)........................ 6 120 (610) (1,155) 7 (2,095 ) 4,512
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for per share calculations.
(2) Reflects (i) the sale in July 1996 of 1,666,667 shares of Series C Preferred
Stock (see Note 15 of Notes to Financial Statements), (ii) the exercise of
all outstanding warrants and (iii) the conversion of each share of Preferred
Stock into one-half share of Common Stock upon the closing of this offering.
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
CyberMedia is a leading provider of software products that provide
automatic service and support to PC users in the Windows environment. The
Company commenced operations in November 1991 and introduced its first automatic
service and support product, Win Win, in 1993. The Company introduced the first
Windows 95 compatible version of its First Aid product line in September 1995.
During 1995 and the first half of 1996, over 90% of the Company's net revenues
were attributable to sales of its First Aid products. Any decline in the demand
for First Aid products, failure to achieve market acceptance of upgrades to such
products or failure of net revenues derived from such products to meet the
Company's expectations, whether as a result of competition, technological change
or other factors, would have a material adverse effect on the Company's
business, results of operations and financial condition. See "Risk
Factors -- Product Concentration; Risks Associated with First Aid Upgrades."
The Company also has a number of new product development efforts under way,
including First Aid 97, an upgrade of its First Aid 95 products scheduled for
release in the fourth quarter of 1996, and a portion of future revenues is
dependent on the success of these activities. In June 1996, the Company
introduced the beta version of Oil Change, a product that automatically updates
many software applications and device drivers over the Internet. To date, Oil
Change has not generated any revenues, and the Company does not expect it to
generate significant net revenues for at least the near future.
The Company has a limited operating history upon which to base an
evaluation of its business and prospects. From inception to June 30, 1996, the
Company generated net sales of approximately $19.1 million, of which $13.9
million, or 73% of such amount, was generated in the six months ended June 30,
1996. The Company has incurred net losses in each of the last five fiscal years
as well as in the six months ended June 30, 1996. At June 30, 1996, the Company
had an accumulated deficit of $7.8 million. With the introduction of First Aid
95, the Company began focusing on building its product line and establishing
brand name awareness of its products, which has resulted in significantly
increased operating expenses. The Company anticipates that its operating
expenses will continue to increase significantly in the future as a result of
efforts to expand its sales and marketing operations, including international
sales, to fund greater levels of product development and to increase its
administrative infrastructure. In addition, during 1996, the Company's net
revenues and operating expenses increased rapidly as compared to prior periods.
There can be no assurance that the Company's net revenues will continue to
remain at or increase from the levels experienced in the first half of 1996 or
that net revenues will not decline. The Company's prospects must be considered
in light of the risks encountered by companies with limited operating histories,
particularly companies in new and rapidly evolving markets. Future operating
results will depend upon many factors, including the demand for the Company's
software products, the level of product and price competition, the Company's
success in expanding its direct and indirect distribution channels, the
Company's success in attracting and retaining motivated and qualified personnel,
the growth of activity on the Internet and the Web, the ability of the Company
to develop and market new products and to control costs and general economic
conditions. Many of these factors are beyond the Company's control. There can be
no assurance that the Company will be successful in addressing such risks. See
"Risk Factors -- Limited Operating History and History of Operating Losses" and
"-- Potential Fluctuations in Quarterly Results; Seasonality."
The Company sells its First Aid products primarily to distributors for
resale to the retail channel as well as directly to consumers through direct
mail. In addition, the Company sells its products through software catalogs
throughout the United States and Canada. Sales to the Company's top three
distributors, Navarre, Ingram Micro and Micro Central, accounted for
approximately 22%, 20% and 11%, respectively, of the Company's net revenues in
the six months ended June 30, 1996 and 9%, 16% and 19%, respectively, of net
revenues in 1995. Net revenues from direct mail sales in 1995 and the first six
months of 1996 represented approximately 40% of net revenues in each of these
periods, with the balance of net revenues attributable to sales through
distributors. Net revenues in prior periods were primarily attributable to sales
through distributors. Sales from direct mail have historically operated at
20
<PAGE> 22
lower profitability levels than sales from distributors. There can be no
assurance that the mix of sales or the relative profitability by distribution
channel will remain at current levels in the future.
The Company monitors the levels of purchases and returns on a customer by
customer basis and, to date, returns have been within management's expectations.
Sales are made subject to rights of return and reserves are established at time
of shipment for future return of product based on product history, analysis of
retail sell-through and other factors. In addition, the Company may allow
certain concessions, such as price protection, to maintain its relationship with
retailers and distributors and its access to distribution channels. See Note 10
of Notes to Financial Statements.
Revenues are recognized upon the shipment of products to distributors,
resellers and end users. With the introduction of First Aid 95 in September
1995, CyberMedia implemented a policy of offering customers updates to its First
Aid products over the Internet at no additional cost. Given this policy and
because updates are a fundamental and integral part of its First Aid products,
the Company defers a portion of all First Aid 95 and First Aid 95 Deluxe revenue
ratably over estimated update periods, generally one year from the date of sale.
At June 30, 1996 the Company's balance sheet included $3.1 million of unearned
revenues to reflect future support commitments and other unspecified
enhancements to First Aid products.
In accordance with Statement of Financial Accounting Standards No. 86, the
Company is required to capitalize eligible computer software development costs
upon the achievement of technological feasibility, subject to net realizable
value considerations. To date, the Company has charged all such costs to product
development expenses because such costs have not been material.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net revenues, statement
of operations data for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- ----------------
1993 1994 1995 1995 1996
--------- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Net revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................. 25.5 44.0 43.8 24.2 35.0
-------- ------ ------ ------ ------
Gross profit............................... 74.5 56.0 56.2 75.8 65.0
Operating expenses:
Research and development................... 850.9 225.7 20.1 26.4 8.2
Sales and marketing........................ 400.0 182.2 84.1 39.3 61.7
General and administrative................. 152.7 102.5 20.6 11.8 10.9
-------- ------ ------ ------ ------
Total operating expenses................ 1,403.6 510.4 124.8 77.5 80.8
-------- ------ ------ ------ ------
Loss from operations.................... (1,329.1) (454.4) (68.6) (1.7) (15.8)
Interest, net................................ -- (7.9) (1.2) (1.6) (0.2)
-------- ------ ------ ------ ------
Loss before income taxes................ (1,329.1) (462.3) (69.8) (3.3) (16.0)
Income tax expense........................... 1.8 0.4 -- -- --
-------- ------ ------ ------ ------
Net loss................................ (1,330.9)% (462.7)% (69.8)% (3.3)% (16.0)%
======== ====== ====== ====== ======
</TABLE>
Net Revenues. Net revenues were $55,000, $241,000 and $4.8 million in 1993,
1994 and 1995, respectively. For the six months ended June 30, 1996, net
revenues increased to $13.9 million from $1.7 million for the six months ended
June 30, 1995. The Company's net revenues consist of license fees for its
software products, less provision for returns. Substantially all of the
Company's net revenues have been derived from domestic sales in the United
States, with international sales representing less than 5% of net revenues in
each of these periods and less than 3% of net revenues in the first half of
1996. The Company sells its products primarily to distributors for resale to
retailers as well as directly to consumers through direct mail and through
software catalogs. The growth in net revenues in 1994 was primarily attributable
to the introduction of First Aid, as well as to the initiation of sales to major
software distributors. The growth in net revenues in 1995 was largely
attributable to the introduction of First Aid 95, the expansion of the Company's
retail distribution channels and direct mail marketing activities and increased
unit volume as a result of the market's growing awareness and acceptance of
First Aid 95. The growth in net revenues in the first six
21
<PAGE> 23
months of 1996 was largely attributable to increased market acceptance of First
Aid 95 and the introduction of First Aid 95 Deluxe in March 1996. The Company
does not believe that the historical growth rates of its net revenues will be
sustainable or are indicative of future results. See "Risk Factors -- Dependence
on the Internet," "-- Dependence on Distribution Channels," "-- Risk of Product
Returns" and "-- Risks Associated with Global Operations."
Cost of Revenues. Cost of revenues were $14,000, $106,000 and $2.1 million
in 1993, 1994 and 1995, respectively. For the six months ended June 30, 1996,
cost of revenues increased to $4.9 million from $418,000 for the six months
ended June 30, 1995. Cost of revenues consists primarily of the cost of product
media, product duplication, documentation and order fulfillment and royalties
paid to ICICI in conjunction with a grant associated with early stage financing
of the Company. Royalties accrued at the rate of 5% of net revenues up to a
lifetime total of $477,000 and the amounts of accrued royalties were $13,000,
$276,000 and $188,000 in 1994, 1995 and for the six months ended June 30, 1996,
respectively. Royalties payable to ICICI were fully accrued at March 31, 1996.
These royalties payable, together with the original grant of $318,000, are
reflected on the Company's balance sheet at June 30, 1996 as the $795,000 grant
payable. The increases in cost of revenues were due primarily to increased unit
shipments of the Company's products. See " -- Liquidity and Capital Resources."
Gross Margin. Gross margins were 75%, 56% and 56% in 1993, 1994 and 1995,
respectively, and 76% and 65% for the six months ended June 30, 1995 and June
30, 1996, respectively. Gross margins in the third and fourth quarters of 1995
and the first half of 1996 were negatively affected by the deferral of a portion
of First Aid 95 and First Aid 95 Deluxe net revenues pursuant to the Company's
revenue recognition policy, without a deferral of associated costs. Gross margin
in the first half of 1996 was also negatively affected by an increase in the
percentage of net revenues represented by direct sales, which generated a lower
gross margin than sales through distributors during the period.
Research and Development. Research and development expenses increased by
16% from $468,000 in 1993 to $544,000 in 1994 and by 77% to $964,000 in 1995,
representing 851%, 226% and 20% of net revenues in these years, respectively.
Research and development expenses increased from $455,000 for the six months
ended June 30, 1995 to $1.1 million for the six months ended June 30, 1996,
representing 26% and 8% of net revenues in these periods, respectively. Research
and development expenses consist primarily of personnel costs and, to a lesser
extent, payment to third parties for contract services, required to conduct the
Company's development efforts. The increase in research and development expenses
in each of these periods was primarily attributable to an increase in personnel
as the Company increased its product development efforts to accelerate the
timing of new product introductions and upgrades. The Company believes that
significant investments in product development are required to remain
competitive. As a consequence, the Company anticipates that it will continue to
devote substantial resources to research and development.
Sales and Marketing. Sales and marketing expenses grew from $220,000 in
1993 to $439,000 in 1994 and to $4.0 million in 1995, representing 400%, 182%
and 84% of net revenues in these years, respectively. Sales and marketing
expenses increased from $678,000 for the six months ended June 30, 1995 to $8.6
million for the six months ended June 30, 1996, representing 39% and 62% of net
revenues for these periods, respectively. Sales and marketing expenses consist
primarily of costs of all sales and marketing personnel, sales commissions,
co-op and other advertising costs, postage and printing costs associated with
direct mail sales, package design costs, trade show costs and costs of preparing
promotional materials. The increases in the dollar amount of sales and marketing
expenses in each of these periods were due primarily to increases in direct mail
marketing, costs associated with new product introductions, increased co-op
advertising and increases in the number of sales and marketing personnel
employed to address new sales opportunities and to support the introduction of
new products. The Company expects that sales and marketing expenditures will
increase in absolute dollars in the future as it invests in expanding its
third-party distribution channels, introduces new products and expands its
operations outside the United States.
General and Administrative. General and administrative expenses increased
from $84,000 in 1993 to $247,000 in 1994 and to $1.0 million in 1995,
representing 153%, 103% and 21% of net revenues in
22
<PAGE> 24
these years, respectively. General and administrative expenses increased from
$203,000 for the six months ended June 30, 1995 to $1.5 million for the six
months ended June 30, 1996, representing 12% and 11% of net revenues for these
periods, respectively. General and administrative expenses consist primarily of
personnel costs for finance, administration, operations and general management,
as well as legal, accounting and facilities expenses. The increase in the dollar
amount of general and administrative expenses during these periods was due
principally to growth in the infrastructure of the Company's finance,
administrative and operations groups in order to support the Company's expanded
operations. The decrease in general and administrative expenses as a percentage
of net revenues during these periods was due primarily to the growth in net
revenues. The Company expects that its general and administrative expenses will
increase in absolute dollars in the future as it expands its staffing,
information systems and infrastructure and takes on additional responsibilities
related to being a publicly traded company.
Interest, Net. Interest, net was $0, $19,000 and $58,000 in 1993, 1994 and
1995, respectively. For the six months ended June 30, 1996, interest, net
decreased from $27,000 for the six months ended June 30, 1995 to $25,000.
Interest, net consists of interest income and interest expense.
Income Tax Expense. Due to the losses before income taxes for each of the
years ended December 31, 1993, 1994 and 1995, the Company recorded minimum state
franchise tax. The Company had federal and state net operating loss
carry-forwards of approximately $3.8 million at December 31, 1995 and
approximately $2.8 million at June 30, 1996 to offset future taxable income.
These loss carry-forwards expire at various dates beginning in the year 2006 and
are subject to certain limitations as prescribed by Section 382 of the Internal
Revenue Code of 1986, as amended. Due to the losses in the six months ended June
30, 1995 and 1996, the Company recorded no income tax expense during these
periods.
23
<PAGE> 25
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly results of operations data
for each of the Company's last six fiscal quarters, as well as the percentage of
the Company's net revenues represented by each item. The unaudited financial
statements have been prepared on the same basis as the audited financial
statements appearing elsewhere in the Prospectus and in management's opinion
include all necessary adjustments (consisting only of normal recurring
adjustments) to present fairly the unaudited quarterly results when read in
conjunction with the audited Financial Statements of the Company and the Notes
thereto appearing elsewhere in this Prospectus. In view of the Company's recent
growth and other factors, the Company believes that quarter-to-quarter
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance. See "Risk
Factors -- Potential Fluctuations in Quarterly Results; Seasonality."
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues................................. $ 712 $1,012 $ 1,046 $2,027 $6,058 $7,891
Cost of revenues............................. 193 225 356 1,329 2,101 2,787
---- ------ ------ ------- ------- -------
Gross profit............................... 519 787 690 698 3,957 5,104
---- ------ ------ ------- ------- -------
Operating expenses:
Research and development................... 235 220 240 269 474 669
Sales and marketing........................ 151 527 1,003 2,355 3,879 4,730
General and administrative................. 83 120 172 612 611 902
---- ------ ------ ------- ------- -------
Total operating expenses................. 469 867 1,415 3,236 4,964 6,301
---- ------ ------ ------- ------- -------
Income (loss) from operations............ 50 (80) (725) (2,538 ) (1,007) (1,197 )
Interest, net................................ (13) (14) (14) (17 ) (10) (15 )
---- ------ ------ ------- ------- -------
Income (loss) before income taxes........ 37 (94) (739) (2,555 ) (1,017) (1,212 )
Income tax expense........................... -- -- -- (1 ) -- --
---- ------ ------ ------- ------- -------
Net income (loss)........................ $ 37 $ (94) $ (739) $(2,556 ) $(1,017) $(1,212 )
==== ====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET REVENUES
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues................................. 100.0% 100.0% 100.0% 100.0 % 100.0% 100.0 %
Cost of revenues............................. 27.1 22.2 34.0 65.6 34.7 35.3
--------- -------- --------- -------- --------- --------
Gross profit............................... 72.9 77.8 66.0 34.4 65.3 64.7
--------- -------- --------- -------- --------- --------
Operating expenses:
Research and development................... 33.0 21.7 22.9 13.3 7.8 8.5
Sales and marketing........................ 21.2 52.1 95.9 116.2 64.0 59.9
General and administrative................. 11.7 11.9 16.4 30.2 10.1 11.4
--------- -------- --------- -------- --------- --------
Total operating expenses................. 65.9 85.7 135.2 159.7 81.9 79.8
--------- -------- --------- -------- --------- --------
Income (loss) from operations............ 7.0 (7.9) (69.2) (125.3 ) (16.6) (15.1 )
Interest, net................................ (1.8) (1.4) (1.3) (0.8 ) (0.2) (0.2 )
--------- -------- --------- -------- --------- --------
Income (loss) before income taxes........ 5.2 (9.3) (70.5) (126.1 ) (16.8) (15.3 )
Income tax expense........................... -- -- -- -- -- --
--------- -------- --------- -------- --------- --------
Net income (loss)........................ 5.2% (9.3)% (70.5)% (126.1 )% (16.8)% (15.3 )%
========= ======== ======== ======== ========= ========
</TABLE>
The Company's quarterly operating results have fluctuated in the past and
are expected to fluctuate significantly in the future. These fluctuations may
arise from a number of factors, including the number and timing of new product
introductions, upgrades and product enhancements by the Company or its
competitors, purchasing patterns of distributors and customers, marketing and
promotional programs, pricing and other competitive pressures, order deferrals
and product returns in anticipation of new products or upgrades to existing
products, the mix of distribution channels through which the Company's products
are sold, the Company's decisions regarding hiring and other expenses, market
acceptance of the Company's products, market acceptance of commerce over the
Internet, technological limitations of the Internet, the developing nature of
the market for the Company's products, general economic conditions and other
factors. In addition, the consumer software industry in which the Company
operates has seasonal elements. In recent years, the consumer software industry
has experienced relatively higher demand for software products in the fourth
quarter due to year-end holiday buying and relatively lower demand in the summer
months. These seasonal elements,
24
<PAGE> 26
together with the other factors that affect quarterly results, can cause net
revenues and net income to vary. The Company's business may be affected by these
seasonal elements in the future.
The Company operates with little order backlog and historically
substantially all of its revenues in each quarter result from orders received in
that quarter. However, with the introduction of First Aid 95 in September 1995,
the Company implemented a policy of deferring a portion of the revenue
associated with its First Aid 95 products, and recognizing such revenue ratably.
At June 30, 1996, the Company's balance sheet included $3.1 million in unearned
revenues to reflect future support commitments and other unspecified
enhancements to First Aid products which will be recognized ratably over
estimated update periods, generally one year from the date of sale. Quarterly
revenues will continue to depend predominately on the volume of orders received
in a particular quarter, which is difficult to forecast.
Net revenues increased from the quarter ended September 30, 1995 to the
quarter ended December 31, 1995 due primarily to the introduction of First Aid
95 in September 1995. Net revenues continued to increase in the quarters ended
March 31, 1996 and June 30, 1996 as a result of sales of increasing unit volumes
of First Aid 95 and the introduction of First Aid 95 Deluxe in March 1996. The
substantial increases in cost of revenues and operating expenses in the fourth
quarter of 1995 and the resulting increase in the net losses reported for that
quarter were primarily attributable to expenditures related to the product
launch of First Aid 95, including manufacturing start-up costs, increased
product return reserves, increased sales and marketing expenses, the
implementation of a direct mail campaign as well as increased general and
administrative expenses required to establish the Company's finance,
administrative and operations groups to provide an adequate infrastructure to
support growth. In addition, the Company's operating results in the fourth
quarter of 1995 were affected by the implementation of the Company's revenue
recognition policy under which a portion of the Company's revenue for First Aid
95 was deferred. The substantial increase in cost of revenues and operating
expenses in the first two quarters of 1996 was primarily attributable to
increased sales and marketing expenses, including costs associated with direct
mail, expenses for the product launch of First Aid 95 Deluxe and increased
staffing levels, particularly in research and development. Beginning in the
second quarter of 1996, the Company has been engaged in an advertising campaign
using print and radio to increase end-user awareness and stimulate purchases.
The Company intends to continue to invest in its use of such advertising to
promote its products for the foreseeable future. See "Risk Factors -- Management
of Growth; Dependence on Key Personnel" and "Business -- Employees."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of Preferred Stock totaling $10.5 million, borrowings totaling
$1.8 million and a grant of $318,000 administered by the ICICI. In 1993, 1994,
1995 and the first half of 1996, the Company used $651,000, $795,000, $2.5
million and $2.2 million of cash, respectively, in operating activities. In
1993, 1994, 1995 and the first half of 1996, the Company used net cash in
operating activities primarily to fund net losses and increases in accounts
receivable associated with increased net revenues, partially offset by increases
in accounts payable, accrued expenses and unearned revenues.
In 1993, 1994, 1995 and the first half of 1996, the Company's investing
activities consisted of purchases of furniture, fixtures and equipment,
primarily PCs and accessories in the amount of $2,000, $13,000, $67,000 and
$608,000, respectively. The Company expects that its capital expenditures will
increase as the Company's employee base continues to grow. At June 30, 1996, the
Company had no material commitments for capital expenditures.
To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk.
Management expects that in the future cash in excess of current requirements
will be invested in short-term, interest-bearing, investment grade securities.
At June 30, 1996, the Company had $569,000 in cash and cash equivalents and
a working capital deficit of $2.3 million. The Company also had available a $3.0
million revolving line of credit secured
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<PAGE> 27
by the assets of the Company which expires in April 1997 and a $250,000
collateralized equipment purchase facility which expires in November 1996.
Borrowings under the credit facility are limited to the lesser of $3.0 million
or a percentage of eligible accounts receivable, as defined in the credit
agreement. See Note 6 of Notes to Financial Statements.
On July 3, 1996, the Company raised approximately $5.0 million through the
issuance of 1,666,667 shares of Series C Preferred Stock, currently convertible
into approximately 833,334 shares of Common Stock. The proceeds from the Series
C Preferred Stock are not included in the Company's Balance Sheet at June 30,
1996. The Company used a portion of the proceeds from this offering to pay down
the $1.3 million outstanding under its revolving line of credit.
The Company believes that the net proceeds from the sale of the Common
Stock offered by the Company hereby, together with its current cash balances,
cash available under its line of credit and cash flows from operations, if any,
will be sufficient to meet its working capital and capital expenditure
requirements for at least the next 12 months. Although operating activities may
provide cash in certain periods, to the extent the Company experiences growth in
the future, the Company anticipates that its operating and investing activities
may use cash. Consequently, any such future growth may require the Company to
obtain additional equity or debt financing, which may not be available on
attractive terms, or at all, or may be dilutive.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (the "FASB") issued Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," in
March 1995 which is effective for fiscal years beginning after December 15,
1995. SFAS No. 121 establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles and goodwill related to these
assets and certain identifiable intangibles to be disposed of. Since the
Company's current accounting policy is consistent with the provisions of SFAS
No. 121, the Company's management does not anticipate that the new pronouncement
will impact its Financial Statements.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation."
SFAS No. 123 established a fair value-based method of accounting for
compensation cost related to stock options and other forms of stock-based
compensation plans. However, SFAS No. 123 allows an entity to continue to
measure compensation costs using the principles of Accounting Principles Board
Opinion 25 ("APB No. 25") if certain pro forma disclosures are made. SFAS No.
123 is effective for fiscal years beginning after December 15, 1995. While the
Company is still evaluating SFAS No. 123, it currently expects to elect to
continue to measure and to recognize costs under APB No. 25 and to comply with
the pro forma disclosure requirements of SFAS No. 123. If the Company makes this
election, SFAS No. 123 will have no impact on the Company's Financial
Statements.
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<PAGE> 28
BUSINESS
CyberMedia is a leading provider of automatic service and support software
products for PC users in the Windows environment. The Company's products address
the growing technical support demands of PC users. Dataquest estimates that PC
users will make approximately 200 million calls for technical support in 1996.
The Company's products are designed to enable PC users to diagnose and resolve
problems automatically without relying on costly technical support resources.
The Company's products are based on the Company's scalable ActiveHelp
architecture that allows for the support of a broad range of PC products and
related problems and enables the Company's products to be regularly and
automatically updated through the Internet.
CyberMedia is recognized for its successful First Aid family of products
which has sold over one million units to date. The Company's First Aid products
automatically detect, diagnose and resolve common software conflicts and
configuration errors encountered by users in the Windows environment. The
Company has introduced several versions of First Aid, including First Aid 95 and
First Aid 95 Deluxe in September 1995 and March 1996, respectively, for the
retail distribution channels and First Aid 95 Deluxe, Network Version in June
1996 for the corporate market. The First Aid title ranked in the top ten of all
Windows 95 business software applications sold in the United States (by number
of units) in each month from November 1995 through July 1996 (PC Data).
CyberMedia's Oil Change, released in beta version in June 1996, is designed
to enable PC users to keep their systems up-to-date, thereby enhancing overall
system performance and avoiding problems frequently encountered as a result of
outdated software and device drivers. Oil Change will provide a one-stop
solution for PC users to locate easily many of the most recent software updates
and patches applicable to their systems and download and install them
automatically via the Internet. The Company intends to launch the commercial
version of Oil Change during the fourth quarter of 1996 through both the retail
distribution channels and the Internet.
The Company sells its products to individual and corporate users primarily
through a combination of retail distribution channels and direct mail. The
Company is expanding the marketing and sale of its products through the
Internet, internationally and through strategic relationships.
INDUSTRY BACKGROUND
The PC industry has grown rapidly during the last decade, with Microsoft
Windows emerging as the dominant operating system. As a result of technological
advances and increased functionality, combined with price decreases for entry
level systems, the PC has become a mass market consumer electronics product.
According to International Data Corporation, the worldwide installed base of PCs
at the end of 1995 had grown to approximately 225 million units. The mass market
appeal of PCs has resulted in an average PC user today who is less
technologically sophisticated than the average PC user of the early 1990s. As
evidence of this trend, Dataquest estimates that between mid-1995 and March 1996
approximately 58% of PCs sold in the United States were purchased by first-time
users.
At the same time that PCs have become more widely adopted, the hardware and
software content of the average PC has become more complex, largely due to the
open environment of the Intel PC-compatible platform. Many PCs today incorporate
high speed processors, hard disk drives, high resolution monitors, sound cards,
graphics boards, CD-ROM drives and other peripherals, which together provide
significantly enhanced processing, storage and multimedia capabilities. The
widespread availability of these increasingly powerful computers has in turn
driven demand for increasingly complex software operating systems and
applications that can take advantage of these enhanced hardware capabilities.
In today's typical Windows-based PC configuration, the integration of a
wide range of hardware and software components from different vendors has
resulted in an increase in both the number and types of system errors and
technical difficulties. The Company believes that a significant portion of
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<PAGE> 29
problems commonly encountered by PC users are configuration errors and software
conflicts that occur when users add new software applications or devices to
their computers. One typical problem affects Dynamic Link Library ("DLL") files
and subroutines, which perform important printing, spell checking and other
widely used functions. When a new software program is installed, these files are
sometimes moved without the user's knowledge, thereby causing existing
applications to no longer function properly. Other problems can occur for a
variety of reasons, including incorrectly removing applications and accidentally
deleting shared files. The likelihood of such problems is increased in a
multimedia environment where changes in system configurations occur frequently
due to the addition of new games, sound cards, CD-ROM drives and video cards.
The complexities introduced by the accelerating adoption of the Internet has
created additional difficulties, including modem and network configuration
problems. Even experienced PC users can encounter difficulty installing and
using new devices and software because the existing system often must be
reconfigured in order to eliminate the resulting internal conflicts.
Additionally, a large number of PC technical problems are related to new
versions of software that are incompatible with software and device drivers that
are already installed on the PC.
Due to the dramatic increase in the complexity of today's PC environment
and the growth in the number of PC users, approximately 200 million calls are
expected to be received at technical support centers nationwide in 1996,
resulting in expenditures of nearly $4 billion (Dataquest). At the same time, in
response to cost pressures in a competitive environment and an often
unmanageable level of technical support calls, many software and hardware
vendors are scaling back or completely eliminating the technical support that
they once provided free of charge with their products. Many vendors now offer
fee-based technical support services, such as 900 telephone numbers and
per-incident support plans. However, customers who select such services often
obtain busy signals or encounter lengthy delays before receiving assistance,
resulting in widespread dissatisfaction among users. Further, such support is
typically vendor-specific and is not designed to resolve compatibility issues or
conflicts between products from multiple vendors.
PC software and hardware vendors have typically released updated software
and device drivers to correct bugs discovered since the latest product release,
improve existing features, ensure compatibility with new devices or add new
features. These updates and "patches" have traditionally been provided free of
charge to users who request them and are distributed via the mail or posted to a
vendor's bulletin board. However, most vendors have been unwilling to incur the
costs of tracking, notifying and shipping product to all users who require such
updates or patches. As a result, PC users are frequently unaware of the
existence or location of vendor-provided updates and patches that can
significantly enhance the performance of their systems.
The Internet is emerging as a medium for vendors to quickly and
cost-effectively distribute software updates and patches. Today, many types of
software updates, from the Windows 95 Service Pack to new hardware device
drivers and bug fixes, are available free over the Internet from a wide range of
vendors. The accessibility of the Internet is enabling new releases of software
to be made available with such rapidity that software is becoming almost
"versionless." However, despite the potential benefits of the Internet as a
distribution medium, to date there is no central, vendor-neutral source for
locating software updates and patches. PC users must still manually log-on to
each vendor's Web site and check for new updates or patches. Few PC users have
the time or technical knowledge required to identify, locate, download and
install the updates and patches that apply to their PCs.
PC users and software and hardware vendors share a common need for the
timely resolution of technical support problems. PC users need a readily
accessible, vendor-neutral, easy-to-use solution that automatically identifies
and fixes their most commonly experienced problems. Software and hardware
vendors need to reduce their technical support burden and costs and to find
channels to rapidly and cost-effectively disseminate updates and patches.
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<PAGE> 30
THE CYBERMEDIA SOLUTION
The CyberMedia solution provides automatic service and support for PC users
and reduces support costs for software and hardware vendors. The Company has
developed an innovative, vendor-neutral, automated approach to technical support
that enables the Company to deliver among the most comprehensive and easy-to-use
software support solutions available today for Windows-based PC users. The
Company's products are based on its scalable ActiveHelp architecture that allows
for the support of a broad range of PC products and related problems and enables
the Company's products to be regularly and automatically updated through the
Internet.
CyberMedia's First Aid products automatically detect, diagnose and resolve
common software conflicts and configuration errors arising in the Windows
environment. The First Aid products are designed to reduce the need for
time-consuming technical support calls. The First Aid products employ a
rule-based engine to compare a PC's current configuration with a set of rules
determining how each application or device should be configured under ideal
conditions. The First Aid products access the Company's HelpCentral knowledge
base of general and system-specific information supporting a wide range of
software applications, multimedia cards, modems, video cards and networks that,
in the aggregate, resolve over 20,000 potential combinations of problems. This
knowledge base is regularly updated by the Company and is accessible to First
Aid users over the Internet.
CyberMedia's Oil Change, released in beta version in June 1996, is designed
to enable PC users to keep their systems up-to-date, thereby enhancing overall
system performance and avoiding problems frequently encountered as a result of
outdated software and device drivers. Oil Change will provide a one-stop
solution for PC users to easily locate many of the most recent software updates
and patches applicable to their systems and download and install them
automatically via the Internet. Oil Change develops a profile of installed
software applications and device drivers on a user's PC and compares this
profile with a local knowledge base residing on the user's PC and the Company's
HelpCentral knowledge base of information on updates and patches available at
vendor Web sites. Upon the user's request, Oil Change retrieves and installs the
selected updates and patches. As of September 16, 1996, the Company's
HelpCentral knowledge base contained information on over 400 updates and patches
from approximately 200 vendors, including Microsoft, Hewlett-Packard Company
("Hewlett-Packard") and Creative Labs, Inc. ("Creative Labs").
THE CYBERMEDIA STRATEGY
The Company's objective is to be the leading provider of automatic service
and support software products. Key elements of the Company's business strategy
include:
Maintain Market Leadership in Automatic Service and Support Software. With
the broad market acceptance of its First Aid products, the Company is widely
recognized as a leader in providing automatic service and support for PC users.
The Company seeks to maintain its leadership by being first to market with
innovative products and product upgrades that leverage the Company's proprietary
technology and incorporate feedback from its extensive user base.
Offer Comprehensive, Scalable Solutions. The Company's goal is to offer
comprehensive products that address most common technical support problems faced
by PC users and that are regularly updated to support their evolving needs.
These products are designed to enable PC users to diagnose and resolve problems
automatically without relying on costly technical support resources. The Company
maintains and regularly updates comprehensive knowledge bases of information on
a wide range of PC hardware and software products and related technical support
problems and on available updates and patches for commonly used software
applications and device drivers. These knowledge bases are easily accessible to
users of CyberMedia's products at the Company's Internet site.
Leverage the Internet. The Company believes that the Internet represents an
efficient medium for the delivery of automatic service and support and seeks to
develop products that can be continually updated and delivered over this medium.
The Company seeks to establish Oil Change as the de facto
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<PAGE> 31
standard for PC users to obtain updates and patches to third-party software
applications and device drivers over the Internet. The Company's open
architecture approach enables it to easily and rapidly incorporate support for
new updates, patches and other technical support information as they become
available on vendor Web sites. The Company is exploring potential revenue
opportunities using the unique information and access provided through the Oil
Change platform, including the sale of new full product releases of third-party
software and ancillary products and targeted advertising.
Pursue Strategic Alliances. The Company intends to pursue strategic
alliances with third-party hardware and software vendors to enhance the
functionality and increase the distribution of its automatic service and support
products. The Company is pursuing OEM relationships with leading PC and
peripherals vendors, operating systems software companies and other software
vendors to bundle full and limited versions of its products. The Company has
recently entered into an agreement with Phoenix Technologies Ltd. ("Phoenix"), a
leading provider of system-level software for PCs, to market its products on an
OEM basis to manufacturers of PCs and PC-compatible hardware devices. The
Company has also established a Medallion Partnership program for its Oil Change
product to encourage hardware and software vendors to communicate information
about new updates and patches to the Company as soon as they become available.
The Company also intends to provide third-party hardware and software vendors
with CyberScript, its powerful scripting language under commercial development,
to enable them to incorporate technical support information on new products
directly into the Company's HelpCentral knowledge bases. The Company believes
that these relationships will increase brand recognition of its products, expand
its customer base and provide early access to leading edge software, multimedia
and Internet/on-line technologies.
Promote Brand Awareness. The Company believes that brand awareness is a key
factor in software purchase decisions and, to that end, the Company strives to
develop products that achieve strong customer appeal, customer loyalty and long
life cycles. The Company seeks to reinforce and strengthen CyberMedia, First Aid
and Oil Change as leading brand names in automatic service and support by
increasing its level of public relations, advertising and direct marketing
activities and by establishing strategic relationships with hardware and
software vendors.
Expand International Presence. The Company intends to invest significant
resources to adapt its automatic service and support products to international
markets and expand its sales and marketing efforts overseas. The Company
currently sells its products internationally through authorized distributors in
the United Kingdom and Australia and is developing localized versions of certain
of its First Aid products for the French, German and Japanese markets. The
Company expects to introduce the French and German versions of its First Aid
products in the fourth quarter of 1996 and the Japanese version in 1997.
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PRODUCTS
The Company's products are designed to enable PC users to diagnose and
resolve problems automatically without relying on costly technical support
resources. The Company's scalable ActiveHelp architecture allows the Company's
products to support a broad range of PC products and related problems and to be
regularly and automatically updated through the Internet. The Company's products
also protect system integrity by creating a backup of all changes to critical
configuration files, enabling a user to restore their PC to a prior
configuration if desired. Each of the Company's products includes a 60-day
unconditional money-back guarantee. CyberMedia has developed the following
ActiveHelp products:
ACTIVEHELP PRODUCTS
<TABLE>
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------
SUGGESTED
PRODUCT DATE INTRODUCED STREET PRICE* DESCRIPTION
---------------------------------------------
------------------------------------------------------------------------------------------------------------
First Aid 95 Ver 2.0 - Sep. 95 $39.95 Automated technical support for
configuration errors and software conflicts
occurring on Windows-based PCs
------------------------------------------------------------------------------------------------------------
First Aid 95 Deluxe Ver 3.0 - Mar. 96 $59.95 Incorporates the core features of First Aid
95 and PC911 with the ability to obtain
automatic updates through the Internet
------------------------------------------------------------------------------------------------------------
First Aid 95 Deluxe, Ver 3.0 - Jun. 96 $32 per user** First Aid 95 Deluxe designed for corporate
Network Version local area networks
------------------------------------------------------------------------------------------------------------
PC911 Ver 1.0 - Sep. 94 $19.95 Automatically backs up all important
configuration files and parameters on a PC
and creates and updates an emergency disk
------------------------------------------------------------------------------------------------------------
Tech Support Ver 1.0 - Jun. 96 $19.95 Reference book and CD-ROM with contact
Yellow Pages information for 2,000 software and hardware
vendors
------------------------------------------------------------------------------------------------------------
Oil Change Beta - Jun. 96 $39.95 Automatically downloads and installs
updates and patches to commonly used
software applications and device drivers
via the Internet
------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* Actual prices vary depending on local conditions, distribution channels and
other factors.
** Based on a ten-user site license.
First Aid
The Company is recognized for its First Aid family of products with over
one million units sold to date. The First Aid family of products is designed to
detect, diagnose and resolve a wide range of software conflicts and
configuration problems associated with Windows-based PCs, using the Company's
knowledge base of product and vendor-specific technical support information.
This knowledge base, which is installed locally on a PC when First Aid is
installed, can be updated by connecting to CyberMedia's HelpCentral Internet
site, which houses a regularly updated knowledge base.
In 1994, 1995 and the first half of 1996, virtually all of the Company's
sales have been from the First Aid family, which includes First Aid, First Aid
95, First Aid 95 Deluxe and PC911. The First Aid title has ranked in the top ten
of all Windows 95 software applications sold in the United States (by number of
units) in each month from November 1995 through June 1996 (PC Data). First Aid
products are currently available for Windows 3.1, Windows 95 and Windows for
Workgroups 3.11.
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<PAGE> 33
LOGO
First Aid 95. The Company's flagship product, First Aid 95, has won
numerous awards, including the Windows Sources Stellar Award (December 1995) and
the PC Pro 4 Stars Award. Key features of First Aid 95 include the following:
- Fixes configuration and setup problems with Windows applications by
ensuring that all DLL files required by an application at startup are
present in the correct directories. Locates and copies misplaced DLLs to
the correct directories when needed.
- Performs thorough feature-by-feature checks on many popular
applications. Detects and fixes problems caused by misplaced DLLs and
invalid entries in Windows configuration files.
- Detects setup problems with many popular multimedia cards and CD-ROM
drives. Corrects problems by installing proper drivers and modifying
configuration files as needed.
- Identifies and resolves many setup problems with modems, on-line access
services and local area networks.
- Intercepts most General Protection Faults and other crashes. Returns
users to their original application where they can save their work.
Enables users to save their work that may have been lost otherwise.
- Verifies whether disk caches, memory buffers and other parameters on a
PC have been set for optimal performance. Makes recommendations that can
help boost PC performance.
- Allows users to recover hard disk space by removing and archiving
infrequently used features in many popular applications.
First Aid 95 Deluxe. Released in March 1996, First Aid 95 Deluxe is an
enhanced version of First Aid 95. First Aid 95 Deluxe includes all the features
of First Aid 95 and adds the following functions:
- Automatically monitors changes in a PC's configuration files and
maintains a history of the last 50 changes. Enables users to restore the
PC to a prior working configuration if the PC fails to work properly.
- Creates an emergency disk that backs up all critical files and
parameters. The emergency disk can be used to reboot and restore a PC's
setup files in the event these files are destroyed.
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- Enables users to update the First Aid knowledge base on their PCs
through automatic downloads from HelpCentral, an up-to-date knowledge
base residing on the Company's Internet server.
- Provides contact information for over 2,000 hardware and software
vendors, including direct "hot-links" to their Web sites.
The Company has implemented a marketing program to allow registered users
of First Aid 95 to upgrade to First Aid 95 Deluxe for $19.95 (plus shipping and
handling).
First Aid 95 Deluxe, Network Version. First Aid 95 Deluxe, Network Version
is specifically designed for use in Windows-based network environments. The
Network Version is designed to minimize internal support costs in an
organization by enabling PC users to fix many common problems without the
intervention of technical support professionals. The Network Version is
currently available on Windows 3.1, Windows 95 and Windows for Workgroups 3.11
and the Company expects to release a Windows NT version in the fourth quarter of
1996. The Network Version incorporates the following additional capabilities to
the stand-alone version of First Aid 95 Deluxe:
- Enables network administrators to install First Aid 95 Deluxe directly
from a network server.
- Automatically notifies network administrators of problems on users' PCs.
- Enables administrators to set preferences and security levels.
First Aid 97. First Aid 97, scheduled for introduction in the fourth
quarter of 1996, is an upgrade to the existing First Aid products. First Aid 97
combines all of the features of First Aid 95 Deluxe with additional diagnostic
checks and a simplified user interface. In addition, First Aid 97 incorporates
the following new features:
- Allows users to get instant, up-to-date help and advice by clicking on a
picture of a PC component or selecting from a list of common problems or
questions.
- Searches the Internet in the event of a crash to find updates and
patches that may prevent future crashes.
- Helps resolve hard disk problems and makes safety backups of a user's
work with Windows 95 disk repair tools.
- Helps resolve hardware configuration conflicts.
- Fixes additional problems associated with multimedia, Internet/on-line
and software applications.
PC911. PC911 helps users recover from problems caused by changes in
configuration files resulting from the installation or removal of hardware and
software. Upon startup, PC911 automatically detects and logs any changes it
finds in the PC's configuration files. In the event of problems following
installation or removal of hardware or software, users can use PC911 to restore
a prior working setup, or review all changes that occurred since installation or
removal. Many critical configuration files and parameters, if lost or corrupted,
can also prevent a PC from booting up. PC911 also creates an emergency disk that
backs up all such files and parameters, enabling them to be restored in case of
catastrophic failure.
PC911 was first introduced in September 1994. In order to promote the First
Aid brand name, the Company has incorporated the main features of PC911 into
First Aid 95 Deluxe and discontinued sales of PC911 through the retail
distribution channels. At present, PC911 is sold only through direct mail and
third-party catalogs.
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<PAGE> 35
Tech Support Yellow Pages
Tech Support Yellow Pages is an easy-to-use reference book and CD-ROM that
allows users to access contact information for over 2,000 hardware and software
vendors. Users can receive updates to the Tech Support Yellow Pages CD-ROM via
downloads from the Company's HelpCentral. The CD-ROM provides users with
Internet access with "hot links" to connect directly to any vendor Web site.
Oil Change
Oil Change is an Internet-based software product under development that is
designed to provide a one-stop solution for PC users to locate easily the most
recent software updates and patches applicable to their systems and download and
install them automatically via the Internet. Oil Change is designed to enable PC
users to keep their systems up-to-date, thereby enhancing overall system
performance and avoiding problems frequently encountered as a result of outdated
software and device drivers.
Oil Change examines a user's PC and develops a profile of the installed
software applications and hardware device drivers. Oil Change first checks a
local knowledge base, then connects to CyberMedia's HelpCentral server through
the Internet to compare this profile with the Company's regularly updated
central knowledge base of information on updates and patches available at
various vendor Web sites. Oil Change offers the user a list of available updates
and patches and the problems that these updates and patches are intended to
resolve. Upon the user's request, Oil Change retrieves and installs selected
updates and patches. The Company is designing Oil Change with the ability to
automatically notify users when new upgrades or patches of software running on
their systems become available.
The Company intends to provide Oil Change support initially for many of the
best selling software applications and device drivers. The Company has also
established a Medallion Partnership program to encourage hardware and software
vendors to communicate information about new updates and patches to the Company
as soon as they become available. As of September 16, 1996, the Company's
HelpCentral knowledge base contained information on over 400 updates and patches
from approximately 200 vendors, including Microsoft, Hewlett-Packard and
Creative Labs.
LOGO
Oil Change was released in a beta version in June 1996 and made available
free of charge through the CyberMedia Web site at www.cybermedia.com. The
Company intends to launch the commercial version of Oil Change during the fourth
quarter of 1996 through both the retail distribution channels and the Internet.
The initial version of Oil Change is designed to run on the Windows 95 platform.
The
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<PAGE> 36
street price for Oil Change is expected to be approximately $39.95 for a
one-year subscription, which includes an initial setup fee.
TECHNOLOGY
The Company's proprietary ActiveHelp technology consists of three
components, Agents, HelpCentral and CyberScript, which together provide an open,
scalable architecture for developing and continually updating the Company's
automatic service and support software products. The Company's ActiveHelp
architecture is illustrated below.
LOGO
Each of the Company's products incorporates Agents, client-level software
that detects and solves problems locally at the user's PC. These Agents connect
to CyberMedia's HelpCentral server through the Internet to access centralized
knowledge bases of up-to-date technical support information. Information on
HelpCentral is inputted and continually updated using CyberScript, the Company's
powerful proprietary scripting language. CyberScript enables technical support
information to be easily defined and added to HelpCentral in a standardized
format.
The technology components of CyberMedia's principal product lines, First
Aid and Oil Change, are described below.
First Aid
Agent. The First Aid Agent's primary function is to detect and solve
software conflicts and configuration problems locally at the user's PC. The
Agent can be activated directly by the user or set to run in the background to
be activated automatically upon the occurrence of certain events such as General
Protection Faults or system crashes. Once activated, the First Aid Agent gathers
data from the PC and then utilizes a rule-based diagnostic engine to compare a
PC's current configuration with a set of rules determining how each application
or device should be configured under ideal conditions. The First Aid Agent
includes a local version of the Company's HelpCentral knowledge base of systems,
software and hardware-related configuration information. If a problem cannot be
resolved locally, the First Aid Agent can connect to CyberMedia's HelpCentral
server through the Internet to update the local knowledge base with the
Company's up-to-date central knowledge base. Once a problem has been diagnosed,
the Agent displays the likely cause and proposed solution and presents the user
with
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<PAGE> 37
an "AutoFix" button. If the user selects this option, the Agent will then
automatically implement the solution.
HelpCentral. To support the First Aid Agent, CyberMedia's HelpCentral
knowledge base maintains up-to-date general and system-specific information
supporting a wide range of software applications, multimedia cards, modems,
video cards, and networks that, in the aggregate, resolve over 10,000 potential
combinations of problems. Hardware and software products are described in terms
of the configuration required for them to function properly. For example, a
software application is described in terms of the program files and DLLs that it
requires, and a multimedia card is described by the drivers and configuration
entries it requires. Vendor-specific information is also maintained on the
HelpCentral knowledge base, including addresses, telephone numbers and Web
addresses for over 2,000 hardware and software vendors. The information
maintained at HelpCentral is currently updated on a regular basis to support new
products and changes in vendor information.
Oil Change
Agent. The Oil Change Agent scans a user's PC to determine the installed
software applications and device drivers and builds a profile of every software
file, its location and current revision level. Once the profile has been
developed, the Oil Change Agent first contacts a local knowledge base residing
on the user's PC, then contacts CyberMedia's HelpCentral server through the
Internet to compare this profile with the Company's regularly updated knowledge
base of information on updates and patches available at various vendor Web
sites. The Agent displays all newer updates or patches and downloads those that
the user selects directly from the vendor's Web site. The Agent then unpacks and
installs the downloaded updates and patches. To ensure safety, the Agent creates
a backup of all changes, enabling a user to restore to the prior configuration
if desired.
HelpCentral. To support the Oil Change Agent, HelpCentral maintains
up-to-date information on new updates and patches for commonly used software
applications and device drivers. Information provided for each update and patch
is described in terms of its on-line location, the revision levels it represents
and its installation instructions. The information maintained at HelpCentral is
updated regularly by Company programmers who monitor new postings of upgrades
and patches on the Internet. The Company's Medallion Partners also communicate
information about new updates and patches to the Company via the Internet as
soon as they become available at their Web sites. The information is then
authenticated by the Company and added to the HelpCentral knowledge base. As of
September 16, 1996, the Company's HelpCentral knowledge base contained
information on over 400 updates and patches from approximately 200 vendors,
including Microsoft, Hewlett-Packard and Creative Labs.
CyberScript. A key component of CyberMedia's technology is CyberScript, a
powerful proprietary scripting language that enables product-specific knowledge
and other technical support information to be defined and added to HelpCentral
in a standardized format. In the future, the Company intends to publish the
specifications for CyberScript and make it available to third-party hardware and
software vendors to enable them to incorporate technical support information on
new products directly into the Company's HelpCentral knowledge bases. The
Company intends to develop easy-to-use interfaces and other development tools
for CyberScript so that it can be used by third parties with only minimal
training.
DISTRIBUTION AND MARKETING
Distribution
The Company sells its products to individual and corporate users primarily
through a combination of retail distribution channels and direct mail. The
Company is expanding the marketing and sale of its products through the
Internet, internationally and through certain strategic partners.
Domestic. The Company's principal domestic channels of distribution are
through software distributors for resale to the retail sales channel and through
direct mail. In addition, the Company's products can be ordered through the
Company's Web site. Sales to the Company's top three
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distributors, Navarre, Ingram Micro and Micro Central, accounted for
approximately 22%, 20% and 11%, respectively, of the Company's net revenues in
the six months ended June 30, 1996, and 9%, 16% and 19%, respectively, of net
revenues in 1995. The Company's products are currently available at more than
9,000 locations through major retailers, including CompUSA Inc., Sam's Club,
Micro Center, Egghead Software, Computer City, Fry's Electronics, Inc., Office
Depot, Inc., Best Buy and Price Costco Inc.
The Company maintains a stock balancing policy that allows distributors and
retailers to return products for credit. In addition, the Company provides price
protection to its distributors in the event the Company reduces its prices. The
Company establishes reserves, including reserves under the Company's stock
balancing policy, based on estimated future returns of products, taking into
account promotional activities, the timing of new product introductions,
distributor and retailer inventories of the Company's products and other
factors. Product returns or obligations resulting from the Company's price
protection policy that exceed the Company's reserves could adversely affect the
Company's business, results of operations and financial condition.
During 1995 and the first half of 1996, direct sales accounted for
approximately 40% of net revenues. Sales through direct mail are outsourced to
third-party mailing and fulfillment houses. The Company sells First Aid 95
Deluxe, Network Version through a limited direct sales organization comprised of
telesales, catalog and sales representatives to corporate customers.
International. Internationally, the Company markets its products through
authorized distributors in the United Kingdom and Australia who resell to retail
stores and through retailers. To date, international sales have accounted for
less than 5% of the Company's net revenues. The Company is developing localized
versions of certain of its First Aid products for the French, German and
Japanese markets. The Company expects to introduce the French and German
versions of its First Aid products in the fourth quarter of 1996 and the
Japanese version in 1997.
Marketing
The Company's marketing strategy in retail distribution channels has
typically focused on high impact product packaging, end-caps and rebate coupons.
In addition, the Company seeks to increase market share and brand recognition
through public relations activities involving introducing its products to local
user groups and obtaining press coverage in regional and national trade and
technical publications. From time to time, the Company utilizes aggressive
direct mail campaigns targeted specifically at Windows-based PC users. Beginning
in the second quarter of 1996, the Company has been engaged in an advertising
campaign using print and radio to increase end-user awareness and stimulate
purchases. The Company intends to continue to invest in its use of such
advertising to promote its products for the foreseeable future.
CyberMedia's marketing activities also include participation in trade and
computer shows and cooperative advertising programs directly with certain
distributors and retailers, whereby the Company receives marketing opportunities
through advertisements, brochures, and catalogs initially paid for by the
distributors. The Company provides for expenses related to these programs in
amounts established in the individual distributor agreements or in modifications
thereto. Additionally, the Company from time to time offers rebates to end users
who purchase the Company's products.
The Company's sales and marketing force as of July 31, 1996 consisted of 34
people, all of whom receive salaries, commissions, and/or incentive bonus
compensation. The Company's in-house marketing department coordinates most of
the design and development of the Company's product packaging, advertisements
and promotional items.
Strategic Alliances
CyberMedia seeks to establish strategic alliances with third-party hardware
and software vendors to enhance the functionality and increase the distribution
of its automatic service and support
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products. The Company is pursuing OEM relationships with leading PC and
peripherals vendors, operating systems software companies and other software
vendors to bundle full and limited versions of its products.
In September 1996, CyberMedia entered into a Distribution Agreement with
Phoenix. Under the terms of the Agreement, the Company granted Phoenix the
exclusive right to distribute First Aid 95 Deluxe and a limited version of Oil
Change, together with any upgrades, updates, enhancements and future releases
and versions thereof, to manufacturers of PCs. The Company also granted Phoenix
non-exclusive distribution rights to distribute and sublicense the
above-mentioned products to all other PC-compatible hardware device
manufacturers. The Company believes that Phoenix's worldwide OEM relationships
with leading PC manufacturers will enhance distribution of the Company's new and
existing products.
The Company has also recently entered into an OEM relationship with Diamond
Multimedia Systems, Inc. to provide a limited version of First Aid 95 Deluxe for
bundling with all of its products and a license agreement with NEC Technologies,
Inc. to provide a full version of First Aid 95 Deluxe for bundling with certain
of its products. The Company has also established a Medallion Partnership
program for its Oil Change product to encourage hardware and software vendors to
communicate information about new updates and patches to the Company as soon as
they become available. The Company also intends to make CyberScript available to
third-party hardware and software vendors to enable them to incorporate
technical support information on new products directly into the Company's
HelpCentral knowledge bases. The Company believes that these relationships will
increase brand recognition of its products, expand its customer base and provide
early access to leading edge software, multimedia and Internet/on-line
technologies.
TECHNICAL SUPPORT
The Company provides free telephone support to purchasers of its software
products during its regular business hours. End users are able to consult
directly with software support personnel with respect to software use, hardware
problems and peripheral needs or receive on-line support. The Company provides a
substantial amount of its technical support through on-line forums, such as
America Online, Inc. and CompuServe. In addition, the Company plans to offer its
corporate clients a variety of fee-based options, providing a range of service
levels designed to meet their technical support requirements. In Europe,
technical support is provided through third parties. As of July 31, 1996, the
Company had 17 professionals in technical support.
PRODUCT DEVELOPMENT
The Company believes that significant investment in product development is
required in order to remain competitive, accelerate the rate of product
introductions, incorporate new technologies, and sustain and improve the quality
of its products. In addition to engineering and quality assurance, the Company's
product development activities include the identification and validation of a
product's potential commercial success, as well as the incorporation of new
technologies in new products. The Company seeks to gain pre-release access to
and develop expertise in current and future versions of Windows and other
leading hardware and software products in order to develop and release such
products on a timely basis. The Company incorporates market research into the
design and development of its products to anticipate the evolving technical
support needs of PC users. In addition, the Company works closely with hardware
and software manufacturers to identify their technical support requirements and
to incorporate this feedback into the development of the Company's products.
These efforts are critical in enabling the Company to be competitive, improve
quality and consistency, update its current products and bring new products to
market quickly.
The Company's principal current product development efforts include: (i)
developing new releases of its First Aid product line, including First Aid 97
scheduled for release in the fourth quarter of 1996, (ii) enhancing its
HelpCentral knowledge bases to provide support for new third-party
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products and updates and patches to current applications, (iii) completing the
commercial development of Oil Change, (iv) broadening the appeal of First Aid
products in the corporate and international markets by providing support for the
Windows NT operating system and developing localized products for international
markets, (v) developing additional products that address evolving automatic
service and support requirements, and (vi) developing CyberScript for use by
third parties to incorporate information about their products into the Company's
knowledge base.
The Company utilizes work-for-hire software engineers in India to update
its knowledge bases to support new third-party products, updates and patches and
to develop a Windows NT version of its First Aid 95 Deluxe, Network Version. The
Company has exclusive ownership of all products developed by such engineers and
has no royalty obligations to these engineers.
Research and development expenses during 1993, 1994, 1995 and the first
half of 1996 were approximately $468,000, $544,000, $964,000 and $1.1 million,
respectively. As of July 31, 1996, the Company had 30 full-time employees in
research and development. See "Risk Factors -- New Product Development and
Technological Change."
COMPETITION
The PC software industry is intensely competitive and characterized by
short product life cycles and new product introductions. The Company competes
with software companies of varying sizes and resources, including SystemSoft
Corporation, Quarterdeck Corporation, Symantec Corp. and others. The Company
believes that a number of software companies will be introducing automatic
service and support software products in the near future that will compete with
the Company's products. The Company expects that potential future competitors
may include other software vendors, including Internet software vendors. Many of
the Company's existing and potential competitors have substantially greater
financial, technical and marketing resources than the Company. Moreover, there
are no proprietary barriers to entry that could keep existing and potential
competitors from developing similar products or selling competing products in
the Company's markets. To the extent that the Company's competitors bundle their
software products with leading hardware, application software or operating
system vendors, or if one or more of the operating system vendors, such as
Microsoft, developed its own technical support software and incorporated such
functionality into its products, the Company's business, results of operations
and financial condition could be materially adversely affected. There can be no
assurance that the Company will be able to compete successfully with existing or
potential competitors. Increased competition may result in the loss of shelf
space or a reduction in demand or sell-through of the Company's products, any of
which could have a material adverse effect on the Company's business, results of
operations and financial condition.
Microsoft's position as a large, well-capitalized software company with a
dominant share of the market for PC operating system software could enable it to
develop products that compete effectively with those of the Company. In
particular, Microsoft is incorporating "Plug and Play" capabilities into future
versions of its operating systems. Plug and Play capabilities are designed to
allow PC users to add on any computer peripheral (such as a modem, video or
sound card) to a Windows-based system and enable that peripheral to work
immediately, without concern for software configuration errors or driver
conflicts. In addition, to the extent that Microsoft incorporates functionality
comparable, or perceived as comparable, to that offered by the Company into its
Windows products (or separately offers comparable products), sales of the
Company's products could be materially adversely affected. There can be no
assurance that any such action by Microsoft or others would not render the
Company's products noncompetitive or obsolete.
The Company's products also compete indirectly against alternative sources
of technical support, such as the technical support departments of hardware and
software vendors. Additionally, the Internet provides hardware and software
vendors with a new medium to offer technical support services. The Company
expects that many vendors will provide Internet-based technical support services
to support their existing and future products. The availability of these
technical support
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services could materially dilute the value of the Company's products and have a
material adverse effect on the Company's market position, business, results of
operations and financial condition. See "-- Industry Background."
In addition, the Company may face increasing pricing pressures from current
and future competitors and, accordingly, there can be no assurance that
competitive pressures will not require the Company to reduce its prices. Any
material reduction in the price of the Company's products would negatively
affect the Company's business, results of operations and financial condition,
and would require the Company to increase unit sales in order to maintain
historic levels of net revenues.
The Company believes that the principal competitive factors in the software
industry are product features and quality, reliability, ease of use, brand name
recognition, access to distribution channels and price. Although the Company
believes it competes favorably with respect to these factors, there can be no
assurance that the Company will continue to do so. See "Risk
Factors -- Competition."
PROPRIETARY RIGHTS
The Company's success is heavily dependent upon its proprietary software.
The Company relies primarily on a combination of copyright, trademark and trade
secret laws, employee confidentiality and nondisclosure agreements and
third-party nondisclosure agreements and other methods of protection common in
the industry to protect its proprietary rights. The Company licenses its
products primarily under "shrink wrap" license agreements that are not signed by
licensees and therefore may be unenforceable under the laws of certain
jurisdictions. In addition, the Company has two United States patent
applications pending and intends to seek international and further United States
patents on its technology. There can be no assurance that patents will issue
from the Company's pending applications or that any claims allowed from the
pending patent applications or those hereafter filed will be of sufficient scope
or strength, or be issued in all countries where the Company's products can be
sold, to provide meaningful protection or any commercial advantage to the
Company or that any patents which may be issued to the Company will not be
challenged and invalidated. In addition, existing copyright laws provide only
limited protection. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy or otherwise obtain and use
products or technology that the Company considers proprietary, and third parties
may develop similar technology independently. Policing unauthorized use of the
Company's products is difficult, and while the Company is unable to determine
the extent to which piracy of its software products exists, software piracy can
be expected to be a persistent problem. There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate. In
addition, there can be no assurance that the Company's competitors will not
independently develop technologies and products that are substantially
equivalent or superior to those of the Company without violating the Company's
proprietary rights.
As the number of software products in the industry increases and the
functionality of these products increasingly overlaps, software developers may
become increasingly subject to infringement claims. From time to time, the
Company has received communications from third parties asserting that certain
products may infringe upon the intellectual property rights of others. To date,
no such claim has resulted in litigation or the payment of any damages. However,
there can be no assurance that existing or future infringement claims against
the Company with respect to current or future products will not result in costly
litigation or require the Company to enter into royalty bearing licenses with
third parties or to discontinue use of certain portions of the Company's
technology if licenses are not available on acceptable terms.
While to date the Company's international sales have been insignificant,
the Company intends to devote substantial resources in an effort to expand the
international distribution of its products. The laws of some foreign countries
either do not protect the Company's proprietary rights or offer only limited
protection for those rights. The Company has not registered its copyrights in
any foreign countries. While in most foreign countries registration is not
required in order to receive copyright
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protection, the ability to bring an enforcement action and obtain certain
remedies depends on compliance with that country's copyright laws. Consequently,
the Company's failure to register its copyrights abroad may make enforcement of
these rights more difficult or reduce the available remedies in any enforcement
action. In addition, the Company has not to date pursued foreign registration of
its trademarks due to the significant costs involved and, as a result, the
Company may not be able to prevent a third party from using its trademarks in
many foreign jurisdictions.
OPERATIONS
The production of the Company's software products includes diskette
duplication, purchased component assembly, printing of user manuals and final
packaging. The Company contracts with outside parties to perform these functions
to the Company's specifications and quality standards. The Company currently
does not have long-term agreements with any of these parties. Although the
Company believes that alternative resources exist or can be obtained, a
disruption of the Company's relationship with any of these outside parties could
adversely affect the Company's business, results of operations and financial
condition until replacement sources are established. In addition, any material
changes in product and service quality and pricing or failure to adhere to the
Company's specifications by these outside parties could adversely affect the
Company's business, results of operations and financial condition. The Company
has attempted to mitigate the risk of any such disruption by maintaining certain
levels of "safety stock" inventories and using second source vendors in certain
limited situations. In the past, the Company has experienced material
difficulties and delays in the manufacture and assembly of its products. There
can be no assurance that the Company will not continue to experience such
difficulties in the future. As of July 31, 1996, the Company had a total of
three employees in operations. See "Risk Factors -- Reliance on Outside
Resources."
BACKLOG
The Company normally ships products within one week after receipt of an
order. As a result, the Company has relatively little backlog at any time and
does not consider backlog to be a significant indicator of future performance.
EMPLOYEES
At July 31, 1996, the Company employed a total of 104 full-time employees,
including three in operations, 34 in sales and marketing, 17 in technical
support, 30 in research and development and 20 in finance and administration.
The Company also employs, from time to time, a number of temporary and part-time
employees as well as consultants on a contract basis. The Company has
experienced rapid growth in the past year and intends to hire additional
personnel during the next twelve months in each of these areas. The Company's
future success will depend in part on its ability to attract, train, retain and
motivate highly qualified employees, who are in great demand. There can be no
assurance that the Company will be successful in attracting and retaining such
personnel. The Company's employees are not represented by a collective
bargaining organization, and the Company has never experienced a work stoppage
or strike. The Company considers its employee relations to be good. See "Risk
Factors -- Management of Growth; Dependence on Key Personnel."
FACILITIES
The Company leases approximately 16,000 square feet of office space in
Santa Monica, California. These facilities serve as the Company's headquarters
and include all Company functions except outside sales. The Company believes
that its facilities are adequate for its current needs and that suitable
additional or alternative space will be available in the future on commercially
reasonable terms as needed.
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LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to
claims arising out of its products or operations in the normal course of
business. In July 1996, the Company filed a lawsuit in the U.S. District Court,
Northern District of California against Vertisoft, a wholly-owned subsidiary of
Quarterdeck Corporation alleging that Vertisoft's packaging materials included
false and misleading statements about the Company that constituted unfair
competition and false advertising. Vertisoft has filed counterclaims against the
Company alleging that the Company's packaging materials included false and
misleading statements. Pending trial, the court has granted a preliminary
injunction in favor of the Company and against Vertisoft which prevents
Vertisoft from shipping products with its existing packaging unless certain
statements are "stickered" over. The court has also denied Vertisoft's request
for a preliminary injunction to stop the Company from shipping its First Aid 95
and First Aid 95 Deluxe products, or even to require a form of "sticker" be
placed on the Company's products. The court's rejection of Vertisoft's request
does not preclude Vertisoft from filing other or additional motions in the suit,
including requests for injunctive relief or damages.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of September 25,
1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- --------------------------------------------
<S> <C> <C>
Unni S. Warrier 42 President, Chief Executive Officer and
Chairman of the Board
Leonard L. Backus 43 Vice President, International Sales
Jeffrey W. Beaumont 44 Vice President, Finance and Chief Financial
Officer
Srikanth Chari 44 Vice President, Marketing
Brad Kingsbury 32 Vice President, Engineering
Anne T. Lam 38 Vice President, Business Development
Charles M. Valentine 58 Vice President, Sales
Paul Dali(1) 54 Director
Peter Morris(1) 40 Director
Suhas Patil(1) 52 Director
Ronald S. Posner(2) 54 Director
Kanwal Rekhi(2) 49 Director
James R. Tolonen(2) 47 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Each director will hold office until the next Annual Meeting of
Stockholders and until his successor is elected and qualified or until his
earlier resignation or removal. Each officer serves at the discretion of the
Board of Directors (the "Board").
Mr. Warrier has served as President, Chief Executive Officer and Chairman
of the Board of the Company since co-founding the Company in November 1991. From
May 1989 to February 1991, he served as President and Chief Executive Officer of
NetLabs, Inc., a maker of UNIX network management products, which Mr. Warrier
co-founded. Mr. Warrier holds a B. Tech. in Physics from the Indian Institute of
Technology of Kanpur, India and a M. Tech. in Computer Science from the Indian
Institute of Technology of Madras, India. Mr. Warrier has also completed
coursework for a Ph.D in Computer Science from the University of California, Los
Angeles.
Mr. Backus has served as Vice President, International Sales of the Company
since April 1996. Prior to joining the Company, from October 1995 to April 1996,
he served as a Principal for Technology Marketing Alliance, a consulting
company. Prior to that, Mr. Backus served as Vice President, International Sales
and Marketing, of MediaVision Technology, Inc., a computer hardware manufacturer
from July 1994 to October 1995, and as Director of International Sales of
MediaVision Technology, Inc. from February 1991 to July 1994. Mr. Backus holds a
B.S. in Electrical Engineering from the University of Washington and an M.S. in
Electrical Engineering from the University of Southern California.
Mr. Beaumont has served as Vice President, Finance and Chief Financial
Officer of the Company since December 1995. From June 1995 to December 1995, he
served as an independent consultant to various companies. Prior to joining the
Company, from October 1994 to June 1995, he served as Chief Financial Officer of
Blyth Holdings, Inc., a software development company. From August 1989 to
October 1994, Mr. Beaumont served as Chief Financial Officer at Davidson &
Associates, Inc., an educational software development company. Mr. Beaumont
holds a B.A. in History from Hamilton College and an M.B.A. from the University
of Michigan.
Dr. Chari has served as Vice President, Marketing since co-founding the
Company in November 1991. From November 1991 to August 1996, Dr. Chari also
served as a director of the Company.
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From July 1990 to October 1991, he served as Director of Marketing for NetLabs,
Inc. Dr. Chari holds a B. Tech. in Electrical Engineering from the Indian
Institute of Technology of Delhi, India, an M.B.A. from the Indian Institute of
Management of Ahmedabad, India and a Ph.D. in Business from the University of
California, Los Angeles.
Mr. Kingsbury has served as Vice President, Engineering of the Company
since April 1996. Prior to joining the Company, from July 1985 to April 1996, he
served in various positions at Symantec Corporation, a software utilities
company, most recently as Chief Technologist and General Manager of the
Anti-Virus Business Unit. Mr. Kingsbury holds a B.S. in Computer Science from
California State University, Northridge.
Ms. Lam has served as Vice President, Business Development since
co-founding the Company in November 1991. From November 1991 to August 1996, Ms.
Lam also served as a director of the Company. From May 1989 to October 1991, she
served as Director, Strategic Sales of NetLabs, Inc, a company which she
co-founded. Ms. Lam holds a B.S. and an M.S. in Computer Science from the
University of California, Los Angeles.
Mr. Valentine has served as Vice President, Sales of the Company since
September 1996. Prior to joining the Company, from June 1992 to September 1996,
he served as Strategic Accounts Director of Microsoft, a software company. From
April 1990 to June 1992, Mr. Valentine served as Vice President, Sales of Fox
Software, Inc., a database software company. Mr. Valentine holds a B.S. in
Industrial Management from the Georgia Institute of Technology.
Mr. Dali has served as a director of the Company since September 1995.
Since December 1991, he has served as a general partner at Nazem & Company, a
venture capital investment firm. Prior to this, he served as Chief Executive
Officer of Regis McKenna, Inc., a marketing consulting company, and as General
Manager of Apple Computer, Inc. Mr. Dali holds a B.S. in Finance from California
State University, Northridge.
Mr. Morris has served as a director of the Company since September 1995.
Since January 1993, he has served as a partner at New Enterprise Associates, a
venture capital firm. From January 1991 to December 1992, he served as an
Associate at New Enterprise Associates. From February 1990 to December 1990, he
served as General Manager at Telebit, a communications company. Mr. Morris holds
a B.S. in Electrical Engineering and an M.B.A. from Stanford University.
Dr. Patil has served as a director of the Company since September 1995.
Since February 1984, he has served as Chairman of the Board of Cirrus Logic,
Inc., a manufacturer of advanced integrated circuits for personal computing,
communications, industrial and consumer markets, which Dr. Patil founded. Dr.
Patil holds a B. Tech and an M.S. in Electronics and Electrical Communication
from the Indian Institute of Technology of Kharagpur, India and a Sc.D. in
Electrical Engineering from Massachusetts Institute of Technology.
Mr. Posner has served as a director of the Company since September 1995.
Since January 1996, he has served as Chairman of the Board of Graphix Zone,
Inc., a CD-ROM publishing company, and since October 1993 he served as a
co-founder and Chairman of the Board of StarPress Multimedia, Inc., a CD-ROM
publishing company that merged with Graphix Zone, Inc. in July 1996. From
September 1990 to October 1993, he served as Chairman of the Board and Chief
Executive Officer of WordStar International, Inc., a PC software company. Mr.
Posner holds a B.S. in Mathematics from Renssalaer Polytechnic Institute and an
M.B.A. from Harvard University.
Mr. Rekhi has served as a director of the Company since September 1995.
From June 1989 to January 1995, Mr. Rekhi served as an Executive Vice President
and Chief Technology Officer of Novell, Inc. ("Novell"), a local area network
and software company. Mr. Rekhi also served as a director of Novell from June
1989 to September 1995. Mr. Rekhi currently serves as a director of Castelle,
Inc., a communications company, and Gupta, Inc., a database software company.
Mr. Rekhi holds a B. Tech. from the Indian Institute of Technology of Bombay,
India and an M.S. in Electrical Engineering from Michigan Technological
University.
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Mr. Tolonen has served as a director of the Company since August 1996.
Since June 1989 he has served as an Executive Vice President and Chief Financial
Officer of Novell. Mr. Tolonen also served as Chief Financial Officer of
Excelan, Inc., a networking company, from July 1983 through June 1989 before it
was acquired by Novell. Mr. Tolonen is a Certified Public Accountant and holds
both a B.S. in Mechanical Engineering and an M.B.A. from the University of
Michigan. Mr. Tolonen is currently the Chair of the Issuer Affairs Committee of
the Nasdaq.
BOARD COMMITTEES
The Board of Directors has a Compensation Committee, consisting of Messrs.
Dali, Morris and Patil and an Audit Committee, consisting of Messrs. Posner,
Rekhi and Tolonen. The Compensation Committee makes recommendations to the Board
concerning salaries and incentive compensation for the Company's officers and
employees and administers the Company's Amended 1993 Stock Plan and 1996
Employee Stock Purchase Plan. The Audit Committee reviews the results and scope
of the audit and other accounting related services and reviews and evaluates the
Company's internal control functions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the Board is an
officer or employee of the Company. No interlocking relationship exists between
the Company's Board or Compensation Committee and the Board of Directors or
compensation committee of any other company, nor has such an interlocking
relationship existed in the past.
The Company has entered into indemnification agreements with each of its
directors and officers. Such agreements require the Company to indemnify such
individuals to the fullest extent permitted by law. See
"Management -- Limitation of Liability and Indemnification Matters."
DIRECTOR COMPENSATION
The Company reimburses its directors for the out-of-pocket expenses
incurred in the performance of their duties as directors of the Company. The
Company does not currently pay fees to its directors for attendance at board
meetings. In October 1995, Messrs. Rekhi, Patil and Posner each received, in
recognition for their services to the Company as consultants, a nonstatutory
option exercisable to purchase 75,000 shares of the Company's Common Stock at an
exercise price of $0.14 per share. These options have a term of ten years and
vest over four years from the date of grant, assuming continued service by such
individuals as consultants of the Company. During the six months ended June 30,
1996, each of Messrs. Rekhi, Patil and Posner have exercised such options in
full, subject to the Company's right of repurchase which lapses over four years
from the date of the original option grants. In August 1996, in recognition of
his services to the Company as a consultant, Mr. Tolonen received a nonstatutory
option exercisable to purchase 75,000 shares of the Company's Common Stock at an
exercise price of $6.00 per share. This option has a term of ten years and vests
over four years from the date of grant, assuming continued service by Mr.
Tolonen as a consultant to the Company. See "-- Employee Benefit
Plans -- Amended 1993 Stock Plan" and "Certain Transactions."
1996 Director Option Plan. The Company's 1996 Director Option Plan (the
"Director Plan") provides for the automatic and nondiscretionary grant of
nonstatutory stock options to nonemployee directors of the Company who are first
elected to the Board after the adoption of the Director Plan ("Outside
Directors"). The Director Plan was approved by the Board in June 1996 and
stockholders in August 1996. A total of 50,000 shares of Common Stock are
reserved for issuance thereunder. Each Outside Director will automatically be
granted an option to purchase 5,000 shares on the date on which such person
first becomes an Outside Director ("First Option") at the fair market value of
the Company's Common Stock on the date of grant. Each First Option will become
exercisable as to one-fourth ( 1/4) of the shares subject to the option on the
first anniversary of the date of grant and as to one-forty-eighth ( 1/48) of the
shares subject to the option each month thereafter, subject to continued
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service as an Outside Director. In addition, each Outside Director will be
automatically granted an option to purchase 5,000 shares on December 1 of each
year beginning in 1997, provided he or she has served on the Board for at least
six months ("Subsequent Option"). Each Subsequent Option shall have an exercise
price equal to the fair market value of the Company's Common Stock as of the
date of grant and shall become exercisable as to one-fourth ( 1/4) of the shares
subject to the Subsequent Option three years and one month after the date of
grant and as to one-forty-eighth ( 1/48) of the shares on the last day of each
month thereafter, subject to continued service as an Outside Director.
In the event of the merger of the Company with or into another corporation
or sale of substantially all of the assets of the Company, each option shall
immediately become fully exercisable.
Options granted under the Director Plan have a term of ten years unless
terminated sooner upon termination of the optionee's status as a director or
otherwise pursuant to the Director Plan. Such options may not be transferred
other than by will or the laws of descent and are exercisable during the
lifetime of an Outside Director only by such Outside Director. Unless terminated
sooner, the Director Plan will terminate in 2006. The Board has the right to
amend or terminate the Director Plan, provided no such action may impair the
rights of any optionee without the optionee's consent.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation awarded, earned
or paid for services rendered to the Company in all capacities during the fiscal
year ended December 31, 1995 by the Company's Chief Executive Officer and each
of the Company's other executive officers whose total annual compensation
exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- ------------------------------------------------------------ -------- ----- ----------
<S> <C> <C> <C>
Unni S. Warrier............................................. $123,461 $500 79,550
President, Chief Executive Officer and Chairman of the
Board
Srikanth Chari.............................................. 104,654 500 42,775
Vice President, Marketing
Anne T. Lam................................................. 104,654 500 41,650
Vice President, Business Development
</TABLE>
The following table sets forth certain information concerning grants of
stock options to each of the Named Executive Officers during fiscal 1995. No
stock appreciation rights were granted to these individuals during such year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS (1) AT ASSUMED ANNUAL
-------------------------------------------------------- RATES OF STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION
SHARES OPTIONS FOR OPTION TERM
UNDERLYING GRANTED TO EXERCISE (2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------
NAME GRANTED FISCAL YEAR SHARE (3) DATE (3) 5% 10%
- --------------------------- ---------- -------------- ------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Unni S. Warrier............ 79,550 9.5% $0.14 12/06/05 $7,004 $17,750
Srikanth Chari............. 42,775 5.1 0.14 12/06/05 3,678 9,321
Anne T. Lam................ 41,650 5.0 0.14 12/06/05 3,667 9,293
</TABLE>
- ---------------
(1) The stock options granted to the Named Executive Officers in fiscal year
1995 were fully vested and exercisable on the date of grant.
(2) The potential realizable value is based on the term of the option at the
time of grant (ten years). Assumed stock price appreciation of five percent
and ten percent is used pursuant to the rules promulgated by the Securities
and Exchange Commission (the "Commission") and does not represent the
Company's estimate or projection of future Common Stock prices. The
potential
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<PAGE> 48
realizable value is calculated by assuming that the deemed fair value of the
Company's Common Stock for financial statement presentation purposes on the
date of grant appreciates at the indicated rate for the entire term of the
option and that the option is exercised at the exercise price and sold on
the last day of its term at the appreciated price.
(3) All options are granted at an exercise price equal to the fair market value
of the Company's Common Stock, as determined by the Board on the date of
grant, and have a term of 10 years.
The above table does not reflect options granted in January 1996 as
follows: Messrs. Warrier and Chari and Ms. Lam were granted options to purchase
150,050, 100,050 and 90,050 shares of Common Stock, respectively, at an exercise
price of $1.20 per share.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
No named officer exercised a stock option during 1995. The following table
sets forth certain information with respect to the stock options held by each of
the Named Executive Officers as of December 31, 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995 DECEMBER 31, 1995
----------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Unni S. Warrier......................... 292,050 -- $3,476,463 --
Srikanth Chari.......................... 142,775 -- 1,699,312 --
Anne T. Lam............................. 166,650 -- 1,982,303 --
</TABLE>
- ---------------
(1) Based upon an assumed initial public offering price of $12.00 per share less
the exercise price of the option.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company has entered into employment agreements with each of its
founders, including Srikanth Chari, Anne T. Lam and Unni S. Warrier with the
following terms: (i) in the event any founder is terminated without cause on or
after the date six months from September 29, 1995, the Closing of the Series B
Preferred Stock financing (the "Series B Closing") and prior to twelve months
from the date of the Series B Closing, the Company shall continue to pay such
founder's salary and provide benefits to such founder for a period of eighteen
months from the effective date of termination; (ii) in the event any founder is
terminated without cause on or after the date one year from the Series B Closing
and prior to eighteen months from the Series B Closing, the Company shall
continue to pay such founder's salary and provide benefits for a period of
twelve months from the date of termination; and (iii) in the event any founder
is terminated without cause on or after the date eighteen months from the Series
B Closing, the Company shall continue to pay such founder's salary and provide
benefits for a period of six months from the date of termination. All options to
purchase stock held by such founder shall continue to vest for one year from the
date of a termination under (i) or (ii) above and for six months from the date
of termination under (iii) above. In addition, the Company has entered into an
agreement with each of Mr. Chari and Ms. Lam that provides for the immediate
vesting of all of such individual's outstanding options in the event that the
Company terminates such individual without cause.
The Director Plan provides for accelerated vesting of all outstanding
options granted to directors thereunder upon a change in control in certain
circumstances. No options have been granted under the 1996 Director Plan prior
to this offering. See "-- Director Compensation -- 1996 Director Option Plan."
EMPLOYEE BENEFIT PLANS
Amended 1993 Stock Plan. The Company's 1993 Stock Plan was adopted by the
Board in February 1993 and approved by the Company's stockholders in June 1993.
The 1993 Stock Plan was
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<PAGE> 49
amended by the Board in June 1996 and approved by the Company's stockholders in
August 1996 (the "Amended 1993 Plan"). As of June 30, 1996, options to purchase
an aggregate of 1,513,016 shares of Common Stock were outstanding under the
Company's Amended 1993 Plan at a weighted average exercise price of $1.51 per
share and 127,459 shares of Common Stock were reserved for future issuance. The
aggregate maximum number of shares that may be issued under the Amended 1993
Plan is currently 3,902,000 shares of Common Stock, which number includes an
additional 1,000,000 shares authorized and reserved for issuance under the
Amended 1993 Plan in August 1996. Additionally, contingent and effective upon
the closing of this offering, the Board and stockholders have approved an
amendment to the Amended 1993 Plan that provides for an annual increase in the
maximum aggregate number of shares of Common Stock which may be optioned and
sold under the Amended 1993 Plan to the lesser of (i) 500,000 shares of Common
Stock, (ii) six percent of the shares of Common Stock outstanding on such date
or (iii) an amount determined by the Board. The Amended 1993 Plan provides for
(i) the granting to employees (including officers and employee directors) of
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), (ii) the granting to employees
and consultants of nonstatutory stock options and (iii) the granting of
restricted stock purchase rights ("SPRs") to employees and consultants.
The Amended 1993 Plan may be administered by the Board or a committee of
the Board (the "Administrator") and is currently administered by the Company's
Compensation Committee. Generally, options granted under the Amended 1993 Plan
become exercisable, assuming continued service with the Company, with respect to
one-fourth ( 1/4) of the shares covered by the option twelve months after the
date of grant and thereafter vest and become exercisable at a rate of
one-forty-eighth ( 1/48) of the shares subject to the option each month, with
the option being fully exercisable four years after the date of the grant. Each
option is fully exercisable upon grant subject to the Company's right to
repurchase the shares received upon exercise. This repurchase right lapses over
the same term as the option would have vested. To the extent that the aggregate
fair market value of the shares with respect to which options designated as
incentive stock options are exercisable for the first time by any optionee
during any calendar year exceeds $100,000, such excess options shall be treated
as nonstatutory stock options. The Administrator determines the terms of options
and SPRs granted under the Amended 1993 Plan, including the number of shares
subject to the option or SPR, exercise price, term and the rate at which the
options become exercisable. The exercise price of all incentive stock options or
SPRs granted under the Amended 1993 Plan must be at least equal to the fair
market value of the Common Stock of the Company on the date of grant. The
exercise price of any incentive stock option or SPR granted to an optionee who
owns stock representing more than 10% of the voting power of all classes of
stock of the Company must equal at least 110% of the fair market value of the
Common Stock on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of stock of
the Company, the term of an incentive stock option is limited to five years or
less. The term of all other options may not exceed ten years. In the case of
SPRs, unless the Administrator determines otherwise, the Company has a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). The aforementioned repurchase option lapses at a rate determined by
the Administrator. The purchase price for shares so repurchased by the Company
is the original price paid by the purchaser and may be paid by cancellation of
any indebtedness of the purchaser to the Company. The exercise price may be paid
in such consideration as determined by the Administrator, including cash and
promissory notes. If not terminated earlier, the Amended 1993 Plan will
terminate in 2003. Subject to certain limitations, the Board has the authority
to amend or terminate the Amended 1993 Plan as long as such action does not
adversely affect any outstanding option.
In the event of a proposed sale of all or substantially all of the
Company's assets, or a merger of the Company with or into another corporation,
each option and SPR may be assumed or an equivalent option or right substituted
by the successor corporation. In the absence of assumption or substitution of
such options or SPRs, an optionee will have the right to exercise such option or
SPR as to all of the shares of stock covered by the option or SPR.
48
<PAGE> 50
1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board in June 1996 and
approved by the Company's stockholders in August 1996. A total of 100,000 shares
of Common Stock are reserved for issuance under the Purchase Plan. The Purchase
Plan is intended to qualify as an employee stock purchase plan under Section 423
of the Internal Revenue Code of 1986, as amended, and is administered by the
Board or by a committee appointed by the Board. Employees (including officers
and employee directors of the Company) are eligible to participate if they are
employed by the Company (or a subsidiary of the Company designated by the Board)
for at least 20 hours per week, and for more than five months per calendar year.
The Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions, which may not exceed 10% of an employee's compensation. No
employee may purchase more than $25,000 worth of stock in any calendar year. The
Purchase Plan is divided into 24-month offering periods, each of which contains
four, six month purchase periods. The Purchase Plan is implemented through
consecutive, overlapping offering periods, with new exercise periods within each
offering period commencing on the first trading day on or after July 31 and
January 31 of each year. The initial offering period under the Purchase Plan
will begin on the effective date of this offering and end on August 31, 1998.
Subsequent offering periods will begin on the first trading day following
termination of an exercise period within a prior offering period and shall
terminate 24 months later. Each participant will be granted an option on the
first day of each offering period and such option will be automatically
exercised on the last day of each six month exercise period within such offering
period. The price of shares purchased under the Purchase Plan is 85% of the
lower of the fair market value of the Common Stock of the Company at (i) the
beginning of the offering period or (ii) the end of the applicable six month
exercise period. Employees may end their participation in the offering at any
time during the offering period, and participation ends automatically on
termination of employment with the Company. In the event of a merger of the
Company with or into another corporation, each option under the Purchase Plan
shall be assumed or an equivalent option shall be substituted by the surviving
entity, unless the Board determines, in lieu of such assumption or substitution,
to shorten the offering period in progress and set a new option exercise date.
If the Board shortens the offering period then in progress, each participant
shall be notified at least ten business days prior to the new exercise date, and
unless such participant ends his or her participation, the option will be
exercised automatically on the new exercise date. The Purchase Plan will
terminate in 2006, unless sooner terminated by the Board.
401(k). The Company sponsors a 401(k) Plan under which eligible employees
may contribute, on a pre-tax basis, up to 15% of the employee's total annual
income from the Company, excluding bonuses, subject to certain IRS limitations.
The Company may make discretionary contributions to the plan. All full-time
employees who have attained age 18 are eligible to participate in the plan. All
contributions are allocated to the employee's individual account and, at the
employee's election, are invested in one or more investment funds available
under the plan. Employee contributions are fully vested and nonforfeitable.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company intends to reincorporate in the State of Delaware immediately
prior to the effectiveness of this Prospectus. The Company decided to
reincorporate in the State of Delaware, in part, to take advantage of certain
provisions in the Delaware General Corporation Law (the "Delaware Code")
relating to limitations on liability of corporate officers and directors. The
Company believes that its reincorporation in Delaware, the provisions of its
Amended and Restated Certificate of Incorporation, Bylaws and the separate
indemnification agreements outlined below are all necessary to attract and
retain qualified persons as directors and officers.
At the time of reincorporation, the Company's Amended and Restated
Certificate of Incorporation will limit the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except for liability (i) for any breach
of their duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or that involve
49
<PAGE> 51
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware Code, or (iv) for any transaction from which the
director derived an improper personal benefit.
At the time of reincorporation, the Company's Bylaws will provide that the
Company shall indemnify its directors and executive officers and may indemnify
its other officers, employees and agents to the fullest extent permitted by law.
The Company's Bylaws also permit the Company to secure insurance on behalf of
any officer, director, employee or agent for any liability arising out of his or
her actions in such capacity, regardless of whether the Bylaws would permit
indemnification.
In addition to indemnification provided for in the Company's Bylaws, the
Company will also enter into indemnification agreements with its directors and
officers. These agreements may require the Company, among other things, to
indemnify the Company's directors and officers for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in the right of
the Company, arising out of such person's services as a director or officer of
the Company, any subsidiary of the Company or any other company or enterprise to
which the person provides services at the request of the Company. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified directors and officers.
The Company has obtained an insurance policy providing directors' and
officers' liability coverage. At present, there is no pending litigation or
proceeding involving any director, officer, employee or agent of the Company
where indemnification will be required or permitted. The Company is not aware of
any threatened litigation or proceeding that might result in a claim for such
indemnification.
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<PAGE> 52
CERTAIN TRANSACTIONS
Since its inception, the Company has issued, in private placement
transactions, shares of Preferred Stock as follows: 2,959,658 shares of Series A
Preferred Stock at $0.35 per share, 6,371,429 shares of Series B Preferred Stock
at $0.70 per share and 1,666,667 shares of Series C Preferred Stock at $3.00 per
share. In addition, the Company issued to the purchasers of the Series A
Preferred Stock warrants to purchase an aggregate of 1,766,471 shares of Series
A Preferred Stock at a weighted average exercise price of $0.35 and $0.45 per
share during 1994 and 1995, respectively. The holders of Common Stock into which
such shares of Preferred Stock are convertible are entitled to certain
registration rights with respect to such Common Stock. See "Description of
Capital Stock -- Registration Rights." Each share of the Company's Preferred
Stock automatically converts into one-half share of Common Stock upon the
closing of this offering. The following table sets forth the series of Preferred
Stock and number of shares purchased by the Company's executive officers,
directors, five percent stockholders and their respective affiliates:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS, WARRANTS TO
DIRECTORS AND SERIES A PURCHASE SERIES A SERIES B SERIES C TOTAL
5% STOCKHOLDERS PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK CONSIDERATION
- ------------------------ --------------- ----------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Unni S. Warrier......... 28,571 47,619 -- 31,000 $ 119,667
Anne T. Lam............. 28,571 47,619 -- 45,255 162,432
Srikanth Chari(1)....... 12,000 47,619 -- 28,000 104,867
Brad Kingsbury.......... -- -- -- 33,333 99,999
Leonard L. Backus....... -- -- -- -- --
Jeffrey W. Beaumont..... -- -- -- -- --
Charles M. Valentine.... -- -- -- -- --
Suhas Patil............. 1,400,093 1,207,714 1,000,000 33,333 1,429,202
Kanwal Rekhi(2)......... 142,857 -- 122,857 167,745 639,235
Paul Dali(3)............ -- -- 1,428,571 118,190 1,354,570
Ronald S. Posner........ -- -- 357,143 37,255 361,765
Peter Morris............ -- -- -- 8,333 24,999
James R. Tolonen........ -- -- -- -- --
Entities affiliated with
Draper
Associates(4)......... -- -- 1,071,428 63,644 940,932
Entities affiliated with
New Enterprise
Associates(5)......... -- -- 1,800,000 140,254 1,680,762
Entities affiliated with
Nazem & Company IV,
L.P.(3)............... -- -- 1,428,571 118,190 1,354,570
</TABLE>
- ---------------
(1) Includes 12,000 shares purchased by Srikanth Chari and Padma Chari, Trustees
of the Chari Family Trust U/D/T dated June 10, 1996.
(2) Includes 75,671 shares purchased by Kanwal Rekhi, Ann Holt Rekhi and
Navinder Jain, Trustees of the Benjamin Rekhi Trust dated 12/15/89, 75,672
shares purchased by Kanwal Rekhi, Ann Holt Rekhi and Navindera Jain,
Trustees of the Raj-Ann Kaur Rekhi Trust dated 12/15/89 and 155,615 shares
purchased by Kanwal Rekhi as Trustee of the Rekhi Family Trust dated
12/15/89.
(3) Includes 1,546,761 shares purchased by Nazem & Company IV, L.P. Mr. Dali is
a director of the Company and a general partner of Nazem & Company IV, L.P.
Mr. Dali disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest therein.
(4) Includes 567,536 shares purchased by Draper Associates II, L.P., 31,822
shares purchased by Draper International India, L.P. and 535,714 shares held
by Draper International Holdings, L.P.
(5) Includes 14,286 shares and 1,925,968 shares purchased by NEA Ventures 1995,
L.P. and New Enterprise Associates VI, Limited Partnership, respectively.
Mr. Morris is a director of the
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<PAGE> 53
Company and is a partner at New Enterprise Associates. Because Mr. Morris
does not have voting or dispository control over such shares, other than the
8,333 shares that Mr. Morris purchased, he disclaims beneficial ownership
over the shares of which he has no pecuniary interest.
In May 1992, the Company entered into a promissory note for $200,000 with
Suhas Patil, a director of the Company, at an interest rate of 6%. In October
1994, pursuant to the Series A Preferred Stock financing, Dr. Patil converted
$175,000 of the note into 500,000 shares of Series A Preferred Stock. The
balance of $25,000 was paid in cash to Dr. Patil in February 1995.
In September 1993, the Company entered into a promissory note at an
interest rate of 8% for $152,500 with Suhas Patil, a director of the Company,
and a certain other Investor. In February 1994, pursuant to the Company's Series
A Preferred Stock financing, the note and all accrued interest was converted
into shares of Series A Preferred Stock.
In June 1994, the Company obtained a $500,000 loan from the Industrial
Credit Development and Investment Corporation of India at an interest rate of
U.S. Prime Rate, plus 2.25%. The principal is payable to ICICI in ten quarterly
installments. The Company has repaid $50,000 of the loan to date and will
commence repayment of the remaining outstanding principal as of January 1997. In
order to secure the loan, Dr. Patil was required to personally guarantee
$300,000 of the loan amount. The remaining $200,000 was personally guaranteed by
certain founders of the Company, including Messrs. Warrier and Chari and Ms.
Lam, (the "Founders"). In consideration for their personal guarantees, the
Company issued warrants to purchase up to an aggregate of 900,000 shares of the
Company's Series A Preferred Stock at an exercise price of $0.35 per share.
In June 1995, the Company borrowed $500,000 as a Bridge Loan at an interest
rate of 8% from various investors of the Company including Kanwal Rekhi, a
director of the Company. The Company issued Mr. Rekhi warrants to purchase 7,143
shares of Common Stock at $1.40 per share in connection with this loan. This
Bridge Loan was repaid in full in September 1995.
In September 1995, Dr. Patil invested $700,000 in the Series B Preferred
Stock financing, $250,000 of which was represented by the conversion of a series
of loans to the Company at an interest rate of 8% which were made in order for
the Company to meet then-existing financial requirements. The Company and Dr.
Patil agreed that these advances would be converted into shares of Series B
Preferred Stock. In consideration for the loans provided to the Company, Dr.
Patil received warrants to purchase 17,857 shares of the Company's Common Stock
at an exercise price of $1.40 per share.
In connection with the sale of the Series B Preferred Stock, the Founders,
the holders of the Series A Preferred Stock and holders of the Series B
Preferred Stock (the holders of Series A Preferred Stock and Series B Preferred
Stock are hereafter "Investors") entered into a Key Employees' Right of First
Refusal, Co-Sale and Voting Agreement (the "Voting Agreement"), pursuant to
which, among other things, the Company agreed to take all actions to (i) cause
the nomination of one person designated by Nazem & Company IV, L.P. ("Nazem")
(the "Nazem Director") and one person designated by New Enterprise Associates
VI, L.P. ("NEA") (the "NEA Director") for election as directors of the Company
for so long as the holders of Series B Preferred Stock hold at least 20% of the
outstanding shares of capital stock, (ii) cause the nomination of up to three
individuals designated by the holders of shares of Common Stock and Series A
Preferred Stock of the Company (the "Series A Directors") voting together as a
single class, on an as converted basis, one of whom will be the Chief Executive
Officer of the Company, and (iii) to cause the nomination of up to four
additional directors ("Additional Directors") each of which must be (A)
nominated by any one of such aforementioned directors, (B) approved by the
remainder of such aforementioned directors and (C) elected by the holders of a
majority of the shares of Common Stock, Series A Preferred Stock and Series B
Preferred Stock voting together as a single class, on an as converted basis. The
current NEA Director is Mr. Morris, the current Nazem Director is Mr. Dali, the
current Series A Director is Mr. Warrier and the current Additional Directors
are Messrs. Rekhi, Patil, Tolonen and Posner. The Company's obligations to
nominate a Nazem Director and NEA Director do not terminate upon the
effectiveness of this offering.
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<PAGE> 54
The Voting Agreement provides that in the event a Founder proposes to sell
or transfer to a third party any Common Stock of the Company, then the Founder
must first offer the Company the right to purchase such securities at the same
price and on the same terms and conditions as the Founder has received from such
third party for a period of 15 days during which the Founder cannot sell or
transfer any Common Stock. Notice of the Company's election to accept, in whole
or in part, must be made in writing by an officer of the Company prior to the
expiration of the 15 day period. If the Company does not elect to purchase all
of such securities, the Company shall give notice to the Investors and shall
offer to sell to each Investor a portion of securities not elected to be
purchased by the Company on the same terms for a period of 20 days ("Investment
Offer").
In addition, the Voting Agreement provides investors with the right to
participate in any sale or transfer by a Founder to a proposed transferee upon
the same terms and conditions as set forth in an Investment Offer, provided that
(i) the Founder proposes to sell more than 5% of the total shares of Common
Stock held by such Founder during any twelve-month period or (ii) such sale or
transfer would result in a proposed transferee acquiring more than 5% of the
total outstanding capital stock of the Company on a fully diluted and converted
basis. The Voting Agreement provides that in instances where Investors have the
right to participate in sales or transfer by a Founder, each Investor shall have
the right to sell up to that number of shares of Common Stock equal to the
product of (i) the amount of securities offered by the transferring Founder
multiplied by (ii) a fraction, the numerator of which is the number of shares of
Common Stock owned or entitled to be received upon conversion of any Preferred
Stock owned by each Investor at the time of such sale or transfer, and the
denominator of which is the total number of shares of Common Stock owned or
entitled to be received upon conversion of any Preferred Stock owned by the
Founder and the Investors as a group, at the time of such sale or transfer. See
"Risk Factors -- Control by Existing Stockholders" and " -- Anti-takeover
Provisions."
In March 1995, the Company entered into employment agreements with each of
its founders, including Srikanth Chari, Anne T. Lam and Unni S. Warrier, with
the following terms: (i) in the event any founder is terminated without cause on
or after the date six months from September 29, 1995, the Closing of the Series
B Preferred Stock financing, (the "Series B Closing"), and prior to twelve
months from the date of the Series B Closing, the Company shall continue to pay
such founder's salary and provide benefits to such founder for a period of
eighteen months from the effective date of termination; (ii) in the event any
founder is terminated without cause on or after the date one year from the date
of Closing and prior to eighteen months from the date of Closing, the Company
shall continue to pay such founder's salary and provide benefits for a period of
twelve months from the date of termination; and (iii) in the event any founder
is terminated without cause on or after the date eighteen months from the date
of Closing, the Company shall continue to pay such founder's salary and provide
benefits for a period of six months from the date of termination. All options to
purchase stock held by such founder shall continue to vest for one year from the
date of a termination under (i) or (ii) above and for six months from the date
of termination under (iii) above. In addition, the Company has entered into an
agreement with each of Mr. Chari and Ms. Lam that provides for the immediate
vesting of all of such individual's outstanding options in the event that the
Company terminates such individual without cause.
In October 1995, each of Messrs. Rekhi, Patil and Posner received, in
recognition for their services to the Company as consultants, a nonstatutory
option exercisable to purchase 75,000 shares of the Company's Common Stock at an
exercise price of $0.14 per share. These options have a term of ten years and
vest over four years from the date of grant, assuming continued service by such
individuals as consultants of the Company. Each of Messrs. Rekhi, Patil and
Posner have exercised such options in full subject to the Company's right of
purchase which lapses over four years from the date of the original option
grants. In August 1996, in recognition of his services to the Company as a
consultant, Mr. Tolonen received a nonstatutory option exercisable to purchase
75,000 shares of the Company's Common Stock at an exercise price of $6.00 per
share. This option has a term of ten years and vests
53
<PAGE> 55
over four years from the date of grant, assuming continued service by Mr.
Tolonen as a consultant to the Company. See "Management -- Director
Compensation."
The Company has entered into indemnification agreements with each of its
directors and executive officers. These agreements require the Company to
indemnify such individuals to the fullest extent allowed by Delaware law for
certain liabilities to which they may be subject as a result of their
affiliation with the Company. See "Management -- Limitation of Liability and
Indemnification Matters."
The Company believes that all transactions set forth above were made on
terms no less favorable to the Company than would have been obtained from
unaffiliated third parties. The Company has adopted a policy whereby all future
transactions between the Company and its officers, directors and affiliates will
be on terms no less favorable to the Company than could be obtained from
unrelated third parties and will be approved by a majority of the disinterested
members of the Company's Board of Directors.
54
<PAGE> 56
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of June 30, 1996 and as
adjusted to reflect the sale of the shares of Common Stock offered hereby by (i)
each stockholder who is a beneficial owner of more than 5% of the Company's
Common Stock, (ii) each director, (iii) each executive officer (see
"Management -- Executive Compensation") and (iv) all executive officers and
directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
---------------------
NUMBER OF BEFORE AFTER
BENEFICIAL OWNER SHARES BENEFICIALLY OWNED OFFERING OFFERING
- -------------------------------------------------- ------------------------- -------- --------
<S> <C> <C> <C>
Suhas Patil(2).................................... 1,945,570 21.7% 17.7%
c/o Cirrus Logic, Inc.
3100 West Warren Avenue
Fremont, CA 94538
New Enterprise Associates(3)...................... 970,127 10.8 8.8
2490 Sand Hill Road
Menlo Park, CA 94025
Paul Dali(4)...................................... 773,381 8.6 7.0
3000 Sand Hill Road
Menlo Park, CA 94025
Nazem & Company IV, L.P.(4)....................... 773,381 8.6 7.0
3000 Sand Hill Road
Menlo Park, CA 94025
Unni S. Warrier(5)................................ 695,695 7.7 6.3
c/o CyberMedia, Inc.
3000 Ocean Park Blvd.
Suite 2001
Santa Monica, CA 90405
Draper Entities(6)................................ 567,536 6.3 5.2
50 Fremont Street, Suite 3500
San Francisco, CA 94105
Anne T. Lam(7).................................... 427,423 4.8 3.9
Kanwal Rekhi(8)................................... 298,873 3.3 2.7
Srikanth Chari(9)................................. 294,635 3.3 2.7
Ronald S. Posner(10).............................. 272,199 3.0 2.5
Brad Kingsbury(11)................................ 16,667 * *
Peter Morris(12).................................. 4,167 * *
James R. Tolonen(13).............................. -- -- --
Jeffrey W. Beaumont(14)........................... -- -- --
Leonard L. Backus(15)............................. -- -- --
Charles M. Valentine(16).......................... -- -- --
All Executive Officers and Directors as a Group
(12 persons)(17)................................ 4,728,610 52.7 43.1
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options or warrants that are currently
exercisable or exercisable within 60 days of June 30, 1996 are deemed to be
outstanding and to be beneficially owned by the person holding such options
or warrants for the purpose of computing the percentage ownership of such
person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.
55
<PAGE> 57
(2) Includes 75,000 shares of Common Stock subject to the Company's repurchase
option which lapses over time. See "Management -- Director Compensation."
(3) Represents 14,286 shares and 1,925,968 shares held by NEA Ventures 1995,
L.P. and New Enterprise Associates VI, Limited Partnership, respectively.
Mr. Morris is a director of the Company and is a partner at New Enterprise
Associates. Because Mr. Morris does not have voting or dispositive control
over such shares, other than the 4,167 shares that Mr. Morris holds, he
disclaims beneficial ownership over the shares of which he has no pecuniary
interest.
(4) Represents 1,546,761 shares held of record by Nazem & Company IV, L.P. Mr.
Dali, a general partner of Nazem & Company IV, L.P., is a director of the
Company. Mr. Dali disclaims beneficial ownership of such shares except to
the extent of his pecuniary interest therein.
(5) Includes 50 shares subject to options that are currently exercisable or
exercisable within 60 days of June 30, 1996.
(6) Represents 567,536 shares held by Draper Associates II, L.P., 31,822 shares
held by Draper International India, L.P. and 535,714 shares held by Draper
International Holdings, L.P.
(7) Includes 50 shares subject to options that are currently exercisable or
exercisable within 60 days of June 30, 1996.
(8) Represents 75,671 shares held by Kanwal Rekhi, Ann Holt Rekhi and Navinder
Jain, Trustees of the Benjamin Rekhi Trust dated 12/15/89, 75,672 shares
held by Kanwal Rekhi, Ann Holt Rekhi and Navindera Jain, Trustees of the
Raj-Ann Kaur Rekhi Trust dated 12/15/89 and 141,058 shares held by Kanwal
Rekhi as Trustee of the Rekhi Family Trust dated 12/15/89 and 7,143 shares
held by Mr. Rekhi. Includes 75,000 shares subject to the Company's
repurchase option which lapses over time. See "Management -- Director
Compensation."
(9) Includes 256,775 shares held by Srikanth Chari and Padma Chari, Trustees of
the Chari Family Trust U/D/T dated June 10, 1996. Includes 50 shares
subject to options that are currently exercisable or exercisable within 60
days of June 30, 1996.
(10) Includes 75,000 shares subject to the Company's repurchase option which
lapses over time. See "Management -- Director Compensation."
(11) In April, 1996, Mr. Kingsbury was granted an option exercisable for 172,500
shares of Common Stock. None of such shares are subject to options that are
currently exercisable or exercisable within 60 days of June 30, 1996.
(12) Mr. Morris is a director of the Company and is a partner at New Enterprise
Associates. Because Mr. Morris does not have voting or dispositive control
over such shares, other than the 4,167 shares that Mr. Morris holds, he is
not deemed to beneficially own such shares except for his pecuniary
interest therein.
(13) Mr. Tolonen was elected to the Board in August 1996 and granted an option
exercisable for 75,000 shares of Common Stock. None of such shares are
subject to options that are currently exercisable or exercisable within 60
days of June 30, 1996.
(14) In December 1995, Mr. Beaumont was granted an option exercisable for 75,000
shares of Common Stock. None of such shares are subject to options that are
currently exercisable or exercisable within 60 days of June 30, 1996.
(15) In April 1996, Mr. Backus was granted an option exercisable for 50,000
shares of Common Stock. None of such shares are subject to options that are
currently exercisable or exercisable within 60 days of June 30, 1996.
(16) In September 1996, Mr. Valentine was granted an option exercisable for
150,000 shares of Common Stock. None of such shares are subject to options
that are currently exercisable or exercisable within 60 days of June 30,
1996.
(17) Includes the shares and options referenced in footnotes (2), (4), (5) and
(7) through (11).
56
<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the sale of the shares offered hereby, the authorized
capital stock of the Company will consist of 50,000,000 shares of Common Stock,
$0.01 par value, and 2,000,000 shares of Preferred Stock, $0.01 par value. As of
June 30, 1996, and assuming the sale of Series C Preferred Stock, the exercise
of all outstanding warrants and the conversion of each outstanding share of
Preferred Stock into one-half share of Common Stock upon the closing of this
offering, there were outstanding 8,982,449 shares of Common Stock held of record
by approximately 150 stockholders and options to purchase 1,513,016 shares of
Common Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior rights of Preferred
Stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions available to the Common Stock. All outstanding shares of
Common Stock are fully paid and non-assessable, and the shares of Common Stock
to be issued upon completion of this offering will be fully paid and non-
assessable.
PREFERRED STOCK
Upon the closing of this offering, the Company will be authorized to issue
2,000,000 shares of undesignated Preferred Stock. The Board of Directors will
have the right to issue the undesignated Preferred Stock in one or more series
and to determine the powers, preferences and rights and the qualifications,
limitations or restrictions granted to or imposed upon any wholly unissued
shares of undesignated Preferred Stock and to fix the number of shares
constituting any series and the designation of such series, without any further
vote or action by the Company's stockholders. The issuance of Preferred Stock
may have the effect of delaying or preventing a change in control of the Company
without further action by the stockholders and may adversely affect the market
price of, and the voting and other rights of the holders of Common Stock. Upon
the closing of this offering, the Company will have no shares of Preferred Stock
outstanding. At present, the Company has no plans to issue any shares of
Preferred Stock. See "Antitakeover Effects of Delaware Law."
WARRANTS
As of June 30, 1996, warrants to purchase 116,310 shares of Common Stock
were outstanding at prices ranging from $1.40 to $4.50 per share. In addition,
warrants to purchase 1,766,471 shares of Series A Preferred Stock were
outstanding, at prices ranging from $0.35 to $0.70 per share, respectively.
These warrants will terminate if not exercised upon the closing of this
offering. The Company anticipates that all of the warrants will be exercised
prior to the closing of this offering. Certain of the warrants provide that the
warrant holder may exercise the warrant without payment of cash by surrendering
the warrants and receiving shares of Common Stock or Preferred Stock, as
appropriate, equal to the value of the warrants surrendered.
In April 1996, in connection with obtaining its line of credit, the Company
issued to Imperial Bank a warrant (the "Bank Warrant") to purchase 66,667 shares
of the Company's Common Stock at an exercise price of $4.50 per share, which
warrant is exercisable for six years, expiring in April 2002. The Bank Warrant
provides that the holder may exercise the Bank Warrant without payment of cash
by surrendering the Bank Warrant at the time of exercise and receiving a number
of shares of Common Stock reduced by the fair market value of the warrants
surrendered at the time of exercise.
57
<PAGE> 59
REGISTRATION RIGHTS
Pursuant to the Amended and Restated Registration Rights Agreement dated as
of July 3, 1996 among the Company and certain holders of its securities (the
"Rights Agreement"), the holders of 6,481,757 shares of Common Stock
("Registrable Securities") or their transferees are entitled to certain rights
with respect to the registration of such shares under the Securities Act of 1933
as amended (the "Securities Act"). Subject to certain limitations contained in
the Rights Agreement, the holders of at least 33% of the Registrable Securities
may require, on two occasions at least six months from the effective date of
this offering, that the Company use its best efforts to register the Registrable
Securities for public resale. If the Company registers any of its Common Stock
either for its own account or for the account of other security holders, the
holders of Registrable Securities are entitled to include their shares of Common
Stock in the registration. A holder's right to include shares in an underwritten
registration is subject to certain conditions, including the right of the
underwriters to limit the number of shares included in the offering. The holders
of Registrable Securities may also require the Company, on no more than one
occasion in any calendar year, to register all or a portion of their Registrable
Securities on Form S-3 under the Securities Act if use of such form is available
to the Company. All expenses other than underwriting discounts and commissions
incurred in connection with such registrations must be borne by the Company.
ANTITAKEOVER EFFECTS OF DELAWARE LAW
Upon the completion of the Company's reincorporation in the State of
Delaware prior to closing of this offering, the Company will be subject to
Section 203 of the Delaware General Corporation Law ("Section 203"), which,
subject to certain exceptions, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the Board of Directors of the corporation
approved either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder; (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned (a)
by persons who are directors and also officers and (b) by employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) on or subsequent to such date, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
The Company's Certificates of Incorporation continues to entitle
stockholders to use cumulative voting in the election of directors and to take
action by written consent.
58
<PAGE> 60
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First National
Bank of Boston.
LISTING
The Company has applied for quotation of its Common Stock on the Nasdaq
National Market under the symbol "CYBR." The Company has not applied to list its
Common Stock on any other exchange or quotation system. See "Risk Factors -- No
Prior Market for Common Stock" and "-- Volatility of Stock Price."
59
<PAGE> 61
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of
the Company. Therefore, future sales of substantial amounts of Common Stock in
the public market could adversely affect market prices prevailing from time to
time. Furthermore, since only a limited number of shares will be available for
sale shortly after this offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this offering, the Company will have 10,982,449
outstanding shares of Common Stock (assuming no exercise of options outstanding
under the Amended 1993 Plan after June 30, 1996, and the conversion of all
outstanding shares of Series A, Series B, and Series C Preferred Stock into
Common Stock and the exercise of warrants to purchase 116,310 shares of Common
Stock). Of these shares, the 2,000,000 shares sold in this offering will be
freely tradeable without restriction under the Securities Act. The remaining
8,982,449 shares of Common Stock held by existing shareholders are "restricted"
securities within the meaning of Rule 144 under the Securities Act. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k), 144A or 701
promulgated under the Securities Act, which rules are summarized below.
All officers, directors and certain other holders of Common Stock have
entered into contractual "lock-up" agreements providing that they will not
offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of Common Stock, or options to purchase Common Stock of the Company for
180 days after the effectiveness of this offering without the prior written
consent of the Representatives of the Underwriters. As a result of these
contractual restrictions, notwithstanding possible earlier eligibility for sale
under the provisions of Rules 144, 144(k) and 701, shares subject to lock-up
agreements will not be saleable until the agreements expire. Taking into account
the lock-up agreements, the number of shares that will be available for sale in
the public market will be as follows: (i) 10,000 shares of Common Stock, in
addition to the 2,000,000 shares sold in this offering, will be eligible for
sale as of the effectiveness of this offering, (ii) 28,881 additional shares of
Common Stock will be eligible for sale beginning 90 days after the effectiveness
of this offering and (iii) approximately 3,863,000 additional shares of Common
Stock will be eligible for sale beginning 181 days after the effectiveness of
this offering. The approximately 5,080,600 remaining restricted shares will not
be eligible for sale pursuant to Rule 144 until the expiration of their two-year
holding periods.
Additionally, pursuant to Rules 144 and 701, beginning 90 days after the
effectiveness of this offering and beginning 181 days after the effectiveness of
this offering upon the expiration of contractual lock-up arrangements with the
Company, an aggregate of approximately 28,881 shares and 562,078 shares,
respectively, will be vested and eligible for sale upon the exercise of
outstanding stock options.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has beneficially
owned restricted shares for at least two years but less than three years, will
be entitled to sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
(approximately 89,820 shares immediately after this offering) or (ii) the
average weekly trading volume during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Commission.
Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about the
Company. A person (or person whose shares are aggregated) who is not deemed to
have been an affiliate of the Company at any time during the 90 days immediately
preceding the sale and who has beneficially owned his or her shares for at least
three years is entitled to sell such shares pursuant to Rule 144(k) without
regard to the limitations described above. Rule 144A under the Securities Act as
currently in effect permits the immediate sale of restricted shares to certain
qualified institutional buyers without regard to volume restrictions. In
60
<PAGE> 62
general, under Rule 701 under the Securities Act as currently in effect, any
employee, consultant or advisor of the Company who purchases shares from the
Company in connection with a compensatory stock or option plan or other written
agreement related to compensation is eligible to resell such shares 90 days
after the effective date of this offering in reliance on Rule 144, but without
compliance with certain restrictions contained in Rule 144. Rule 701 is
available for shareholders of the Company as to all shares issued pursuant to
stock option exercises occurring on or after May 20, 1988 (the effective date of
the rule) of options granted prior to this offering.
The Company has agreed not to offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or enter into
any swap or similar agreement that transfers, in whole or in part, the economic
risk of ownership of the Common Stock, for a period of 180 days after the
effectiveness of this offering, without the prior written consent to Hambrecht &
Quist LLC, subject to certain limited exceptions.
At June 30, 1996, the Company had reserved (i) 2,902,000 shares of Common
Stock for issuance pursuant to the Amended 1993 Plan, 1,513,016 shares of which
were outstanding, (ii) 50,000 shares of Common Stock reserved for issuance
pursuant to the 1996 Director Plan, no shares of which were outstanding (the
"Option Plans") and (iii) 100,000 shares of Common Stock reserved for issuance
pursuant to the Purchase Plan. In August 1996, the Company increased the shares
reserved for issuance under the Amended 1993 Stock Plan to 3,902,000. The
Company intends to file a registration statement on Form S-8 under the
Securities Act shortly after the effectiveness of this offering to register
shares to be issued pursuant the Option Plans and Purchase Plan. Shares of
Common Stock issued under the Option Plans and Purchase Plan after the effective
date of such registration statement will be freely tradeable in the public
market, subject to lock-up agreements and subject in the case of sales by
affiliates to the amount, manner of sale, notice and public information
requirements of Rule 144. See "Underwriting."
There has been no prior market for the Common Stock and there is no
assurance a significant public market for the Common Stock will develop or be
sustained after the offering. Sales of substantial amounts of Common Stock in
the public market could adversely affect the market price of the Common Stock.
61
<PAGE> 63
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC,
Lehman Brothers, and Wessels, Arnold & Henderson, L.L.C., have severally agreed
to purchase from the Company the following respective numbers of shares of
Common Stock:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
------------------------------------------------------------- ----------------
<S> <C>
Hambrecht & Quist LLC........................................
Lehman Brothers..............................................
Wessels, Arnold & Henderson, L.L.C. .........................
------
Total........................................................ 2,000,000
======
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow and such dealers may
re-allow a concession not in excess of $ per share to certain other
dealers. The Underwriters have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
After the initial public offering of the shares of Common Stock offered hereby,
the offering price and other selling terms may be changed by the Representatives
of the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent the Underwriters exercise such option, each of the Underwriters will have
a firm commitment to purchase approximately the same percentage thereof which
the number of shares of Common Stock to be purchased by it shown in the table
above bears to the total number of shares of Common Stock offered hereby. The
Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
The Company has agreed that it will not, without the prior written consent
of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of
Common Stock, options, rights or warrants to acquire shares of Common Stock, or
securities exchangeable for or convertible into shares of Common Stock during
the 180-day period commencing on the effectiveness of this offering, except that
62
<PAGE> 64
the Company may grant additional options under its stock option plans, provided
that, without the Representatives' prior written consent, such additional
options shall not be exercisable during such period.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price are prevailing
market and economic conditions, revenues and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant. The estimated initial public offering price range set
forth on the cover of this Prospectus is subject to change as a result of market
conditions and other factors.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation ("WSGR"), Palo Alto, California. Certain legal matters in connection
with the offering will be passed upon for the Underwriters by Brobeck, Phleger &
Harrison LLP, Palo Alto, California. As of the date of this Prospectus, certain
members of WSGR and an investment partnership of which such persons are partners
beneficially own 25,343 shares of the Company's Common Stock. Arthur F.
Schneiderman, a member of WSGR, is Assistant Secretary of the Company.
EXPERTS
The financial statements of CyberMedia, Inc. as of December 31, 1994 and
1995, and for each of the years in the three-year period ended December 31,
1995, have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement, of which this Prospectus constitutes a
part, under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus omits certain information set forth in the Registration
Statement and reference is made to the Registration Statement and the exhibits
and schedules thereto for further information with respect to the Company and
the Common Stock offered hereby. Statements contained herein concerning the
provisions of any documents are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such statement is qualified in all respects by such
reference. The Registration Statement, including exhibits and schedules thereto,
may be inspected by anyone without charge at the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at 75 Park Place, Room 1400, New York, New York
10007 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street N.W., Washington, D.C. 20549, and its principal reference
facilities in New York, New York and Chicago, Illinois, at a prescribed rate.
The Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov.
63
<PAGE> 65
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-1
Balance Sheets........................................................................ F-2
Statements of Operations.............................................................. F-3
Statements of Stockholders' Equity (Deficiency)....................................... F-4
Statements of Cash Flows.............................................................. F-5
Notes to Financial Statements......................................................... F-6
</TABLE>
64
<PAGE> 66
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CyberMedia, Inc.:
We have audited the accompanying balance sheets of CyberMedia, Inc. as of
December 31, 1995 and 1994 and the related statements of operations,
stockholders' equity (deficiency) and cash flows for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CyberMedia, Inc. as of
December 31, 1995 and 1994 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Long Beach, California
June 26, 1996, except for
Note 15, which is as of
August 14, 1996
F-1
<PAGE> 67
CYBERMEDIA, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 102,000 $ 2,050,000 $ 569,000
Trade accounts receivable, net.................... 39,000 1,182,000 3,968,000
Inventory......................................... 5,000 412,000 1,235,000
Prepaid expenses.................................. 27,000 111,000 653,000
Other current assets.............................. -- 10,000 7,000
---------- ---------- ----------
Total current assets........................... 173,000 3,765,000 6,432,000
Furniture, fixtures and equipment, net.............. 16,000 90,000 656,000
---------- ---------- ----------
$ 189,000 $ 3,855,000 $ 7,088,000
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.................................. $ 258,000 $ 1,620,000 $ 2,947,000
Accrued expenses.................................. 230,000 419,000 596,000
Unearned revenues................................. -- 677,000 3,062,000
Grant payable..................................... 331,000 607,000 795,000
Notes payable to bank............................. -- -- 1,300,000
Note payable, current............................. -- -- 50,000
Other liabilities................................. 25,000 8,000 21,000
---------- ---------- ----------
Total current liabilities...................... 844,000 3,331,000 8,771,000
Note payable, long-term............................. 500,000 500,000 400,000
Other liabilities................................... -- 17,000 12,000
---------- ---------- ----------
Total liabilities.............................. 1,344,000 3,848,000 9,183,000
---------- ---------- ----------
Stockholders' equity (deficiency):
Series A Preferred Stock, $0.01 par value.
Authorized 4,726,129 shares; issued and
outstanding 2,816,801 shares in 1994, 2,959,658
shares in 1995, and 2,959,658 shares
(unaudited) in 1996............................ 28,000 30,000 30,000
Series B Preferred Stock, $0.01 par value.
Authorized 6,442,858 shares; issued and
outstanding 6,371,429 shares in 1995, 6,371,429
shares (unaudited) in 1996..................... -- 64,000 64,000
Series C Preferred Stock, $0.01 par value.
Authorized 1,666,667 (unaudited) shares in
1996, no shares issued and outstanding in
1996........................................... -- -- --
Common Stock, $0.01 par value. Authorized
10,000,000 shares in 1994 and 1995 and
10,833,334 shares (unaudited) in 1996; issued
and outstanding 1,172,500 shares in 1994,
1,222,500 shares in 1995 and 2,484,025 shares
(unaudited) in 1996............................ 12,000 13,000 25,000
Additional paid-in capital........................ 1,004,000 5,451,000 5,566,000
Accumulated deficit............................... (2,199,000) (5,551,000) (7,780,000)
---------- ---------- ----------
Stockholders' equity (deficiency).............. (1,155,000) 7,000 (2,095,000)
---------- ---------- ----------
Commitments and contingencies
$ 189,000 $ 3,855,000 $ 7,088,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 68
CYBERMEDIA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues...................... $ 55,000 $ 241,000 $ 4,797,000 $1,724,000 $13,949,000
Cost of revenues.................. 14,000 106,000 2,103,000 418,000 4,888,000
--------- ----------- ----------- ---------- -----------
Gross profit................. 41,000 135,000 2,694,000 1,306,000 9,061,000
--------- ----------- ----------- ---------- -----------
Research and development.......... 468,000 544,000 964,000 455,000 1,143,000
Sales and marketing............... 220,000 439,000 4,036,000 678,000 8,609,000
General and administrative........ 84,000 247,000 987,000 203,000 1,513,000
--------- ----------- ----------- ---------- -----------
772,000 1,230,000 5,987,000 1,336,000 11,265,000
--------- ----------- ----------- ---------- -----------
Loss from operations......... (731,000) (1,095,000) (3,293,000) (30,000) (2,204,000)
--------- ----------- ----------- ---------- -----------
Interest income................... -- -- 22,000 -- 21,000
Interest expense.................. -- (19,000) (80,000) (27,000) (46,000)
--------- ----------- ----------- ---------- -----------
Loss before income taxes..... (731,000) (1,114,000) (3,351,000) (57,000) (2,229,000)
Income tax expense................ 1,000 1,000 1,000 -- --
--------- ----------- ----------- ---------- -----------
Net loss..................... $ (732,000) $(1,115,000) $(3,352,000) $ (57,000) $(2,229,000)
Net loss per share
(See Note 1)............... $ (0.10) $ (0.15) $ (0.44) $ (0.01) $ (0.29)
--------- ----------- ----------- ---------- -----------
Weighted average common stock and
common stock equivalents
outstanding (See Note 1)........ 7,663,000 7,676,000 7,692,000 7,676,000 7,726,000
========= =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 69
CYBERMEDIA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(SIX MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK STOCKHOLDERS'
------------------- ------------------- ------------------- ADDITIONAL ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL DEFICIT (DEFICIENCY)
--------- ------- --------- ------- --------- ------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1992.......... 1,192,232 $12,000 -- $ -- 1,127,500 $11,000 $ 448,000 $ (352,000 ) $ 119,000
Issuance of
Common
Stock......... -- -- -- -- 45,000 1,000 2,000 -- 3,000
Net loss........ -- -- -- -- -- -- -- (732,000 ) (732,000 )
--------- ------- --------- ------- --------- ------- ---------- ----------- -----------
Balance at
December 31,
1993.......... 1,192,232 12,000 -- -- 1,172,500 12,000 450,000 (1,084,000 ) (610,000 )
Conversion of
notes payable
into Series A
Preferred
Stock......... 781,428 8,000 -- -- -- -- 267,000 -- 275,000
Issuance of
Series A
Preferred
Stock in
exchange for
cash.......... 843,141 8,000 -- -- -- -- 287,000 -- 295,000
Net loss........ -- -- -- -- -- -- -- (1,115,000 ) (1,115,000 )
--------- ------- --------- ------- --------- ------- ---------- ----------- -----------
Balance at
December 31,
1994.......... 2,816,801 28,000 -- -- 1,172,500 12,000 1,004,000 (2,199,000 ) (1,155,000 )
Issuance of
Series A
Preferred
Stock in
exchange for
cash.......... 142,857 2,000 -- -- -- -- 48,000 -- 50,000
Issuance of
Common Stock
upon exercise
of stock
options....... -- -- -- -- 50,000 1,000 2,000 -- 3,000
Conversion of
notes payable
into Series B
Preferred
Stock......... -- -- 635,714 6,000 -- -- 439,000 -- 445,000
Issuance of
Series B
Preferred
Stock in
exchange for
cash.......... -- -- 5,735,715 58,000 -- -- 3,958,000 -- 4,016,000
Net loss........ -- -- -- -- -- -- -- (3,352,000 ) (3,352,000 )
--------- ------- --------- ------- --------- ------- ---------- ----------- -----------
Balance at
December 31,
1995.......... 2,959,658 30,000 6,371,429 64,000 1,222,500 13,000 5,451,000 (5,551,000 ) 7,000
Issuance of
Common Stock
upon exercise
of stock
options
(unaudited)... -- -- -- -- 1,261,525 12,000 115,000 -- 127,000
Net loss
(unaudited)... -- -- -- -- -- -- -- (2,229,000 ) (2,229,000 )
--------- ------- --------- ------- --------- ------- ---------- ----------- -----------
Balance at June
30, 1996
(unaudited)... 2,959,658 $30,000 6,371,429 $64,000 2,484,025 $25,000 $5,566,000 $(7,780,000) $(2,095,000 )
========= ======= ========= ======= ========= ======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 70
CYBERMEDIA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- -----------------------
1993 1994 1995 1995 1996
--------- ----------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $(732,000) $(1,115,000) $(3,352,000) $ (57,000) $(2,229,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation............................................. 5,000 9,000 19,000 27,000 42,000
Royalty expense.......................................... -- 13,000 276,000 40,000 188,000
Changes in assets and liabilities:
Trade accounts receivable, net......................... -- (39,000) (1,143,000) (642,000) (2,786,000)
Inventory.............................................. -- (5,000) (407,000) (17,000) (823,000)
Prepaid expenses....................................... 4,000 (27,000) (84,000) (71,000) (542,000)
Other current assets................................... -- -- (10,000) (10,000) 3,000
Accounts payable....................................... (10,000) 258,000 1,362,000 31,000 1,327,000
Accrued expenses....................................... 82,000 111,000 189,000 639,000 177,000
Unearned revenues...................................... -- -- 677,000 -- 2,385,000
Other liabilities...................................... -- -- (25,000) (25,000) 13,000
--------- ----------- ----------- --------- -----------
Net cash used in operating activities............... (651,000) (795,000) (2,498,000) (85,000) (2,245,000)
--------- ----------- ----------- --------- -----------
Cash flows used in investing activities - purchase of
furniture, fixtures and equipment.......................... (2,000) (13,000) (67,000) (32,000) (608,000)
--------- ----------- ----------- --------- -----------
Cash flows from financing activities:
Proceeds from the issuance of Series A Preferred Stock..... -- 295,000 50,000 50,000 --
Proceeds from the issuance of Series B Preferred Stock..... -- -- 4,016,000 -- --
Proceeds from notes to shareholders........................ 228,000 71,000 -- -- --
Payments of capital lease obligation....................... -- -- (1,000) -- (5,000)
Proceeds from the issuance of Common Stock................. 3,000 -- 3,000 -- 127,000
Proceeds from note payable................................. -- 500,000 445,000 -- --
Payment of note payable.................................... -- -- -- -- (50,000)
Proceeds from notes payable to bank........................ -- -- -- -- 1,300,000
Proceeds from the receipt of grant......................... 288,000 30,000 -- -- --
--------- ----------- ----------- --------- -----------
Net cash provided by financing activities........... 519,000 896,000 4,513,000 50,000 1,372,000
--------- ----------- ----------- --------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... (134,000) 88,000 1,948,000 (67,000) (1,481,000)
Cash and cash equivalents at beginning of period............. 148,000 14,000 102,000 102,000 2,050,000
--------- ----------- ----------- --------- -----------
Cash and cash equivalents at end of period................... $ 14,000 $ 102,000 $ 2,050,000 $ 35,000 $ 569,000
========= =========== =========== ========= ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ -- $ -- $ 80,000 $ -- $ --
Income taxes........................................... $ -- $ 1,000 $ 1,000 $ -- $ --
Supplemental disclosure of noncash investing and financing
activities:
Conversion of notes payable to stockholders into Series A
Preferred Stock.......................................... $ -- $ 275,000 $ -- $ -- $ --
Conversion of notes payable into Series B Preferred
Stock.................................................... $ -- $ -- $ 445,000 $ -- $ --
Acquisition of equipment through capital lease
agreements............................................... $ -- $ -- $ 26,000 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 71
CYBERMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
CyberMedia, Inc. (the "Company"), a California corporation, develops and
markets software products that provide automatic service and support to PC users
in the Windows environment. Products are principally sold to distributors and
directly to consumers. In addition, the Company's products are sold directly to
catalog companies throughout the United States and Canada. The Company also
markets its products internationally through distribution and licensing
agreements. The Company is in the process of reincorporating in the State of
Delaware.
Cash Equivalents
The Company considers all highly liquid investments having original
maturities of three months or less to be cash equivalents.
Inventory
Inventory, consisting principally of software packaging materials, is
stated at the lower of cost (first-in, first-out method) or market.
Unearned Revenues
The Company offers customers update rights for certain products at no
additional cost. As a result, ratable revenue recognition is appropriate for a
portion of the license fees for such products. Accordingly, unearned revenues on
the accompanying balance sheets represent Internet and other product updates and
other unspecified future support commitments which will be recognized ratably
over the estimated update periods.
Revenue Recognition
Revenues are generated from sales of software to distributors, resellers
and end-users and are recognized upon shipment of products, net of provisions
for estimated future returns, provided that no significant vendor obligations
remain and collection of accounts receivable is deemed to be probable. On sales
of products having remaining vendor obligations, a portion of related revenue is
deferred based upon the relative retail value of future obligations and
recognized ratably over the estimated period for which obligations exist,
generally one year from the date of sale.
The Company provides routine telephone customer support as an accommodation
to purchasers of its products for a limited time. Costs associated with such
post-sale customer support were immaterial.
Revenue Related Reserves
Reserves for sales returns and doubtful accounts are established based upon
historical experience and management's estimates as shipments are made. The
allowance for sales returns and doubtful accounts aggregated $12,000, $767,000
and $1,715,000 at December 31, 1994 and 1995 and June 30, 1996, respectively,
and is shown as a reduction of accounts receivable on the accompanying balance
sheets.
F-6
<PAGE> 72
CYBERMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996 IS UNAUDITED)
Research and Development
Costs relating to designing, developing and testing new software products
are expensed as research and development as incurred. Although costs incurred
subsequent to establishing technological feasibility of software products are
permitted capitalization pursuant to Statement of Financial Accounting Standards
("SFAS") No. 86 (Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed), the Company has not capitalized any software
development costs since the impact to the financial statements for all periods
presented has been immaterial.
Depreciation and Amortization
Furniture, fixtures and equipment are stated at cost. Depreciation of
furniture, fixtures and equipment is calculated on the straight-line
depreciation method over the estimated useful lives as follows:
<TABLE>
<S> <C>
Computer equipment and software..... 3 years
Furniture, fixtures and equipment... 4 years
Assets under capital lease.......... Shorter of lease term or the
estimated useful life of asset
</TABLE>
Income Taxes
The Company accounts for income taxes using SFAS No. 109 (Accounting for
Income Taxes). SFAS No. 109 requires that deferred income taxes be recognized
for the tax consequences of temporary differences. This is achieved by applying
enacted statutory rates applicable to future years to differences between the
financial statement carrying amounts and the tax basis of existing assets and
liabilities.
Computation of Net Loss per Share
Net loss per share of Common Stock and Common Stock equivalents has been
computed using the weighted average number of shares of Common Stock and Common
Stock equivalents outstanding using the treasury stock method and is summarized
as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
-------------------------------------- -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average shares of Common
Stock outstanding............... 2,432,000 2,445,000 2,461,000 2,445,000 2,495,000
Weighted average shares of Common
Stock equivalents issued during
the twelve months preceding the
initial public offering date.... 5,231,000 5,231,000 5,231,000 5,231,000 5,231,000
---------- ---------- ---------- ---------- ---------
Shares used in net loss per
share calculation............... 7,663,000 7,676,000 7,692,000 7,676,000 7,726,000
======== ======== ======== ======== ========
</TABLE>
F-7
<PAGE> 73
CYBERMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996 IS UNAUDITED)
Pursuant to the requirements of the Securities and Exchange Commission,
Common Stock, stock options, warrants and Convertible Preferred Stock issued by
the Company during the twelve months immediately preceding the initial public
offering date have been included in the calculation of the weighted average
shares outstanding for all periods presented using the treasury stock method
based on the estimated initial public offering price for stock options and
warrants and using the if converted method for Convertible Preferred Stock.
Accordingly, weighted average Common Stock outstanding includes 1,272,000 shares
of Common Stock issued during 1995 shown as outstanding for all periods
presented. In addition, weighted average Common Stock equivalents outstanding
includes 1,212,000 Common Stock equivalents for Common Stock options and
warrants issued during 1995 and 1996 and 4,019,000 shares assumed to be issued
upon the conversion of the Series B and Series C Preferred Stock into Common
Stock, shown as outstanding for all periods presented.
For all loss periods presented, stock options, warrants, and Series A
Preferred Stock issued prior to the twelve months preceding the initial public
offering date are excluded from the computation for loss periods as their
inclusion would be anti-dilutive. On a pro forma basis, the loss per share for
the year ended December 31, 1995 and for the six months ended June 30, 1996
assuming the inclusion of all series of Convertible Preferred Stock, including
Series A Preferred Stock issued prior to the twelve months preceding the initial
public offering date as Common Stock equivalents outstanding is $(0.37) and
$(0.24), respectively.
Financial Instruments
The Financial Accounting Standards Board's SFAS No. 107 (Disclosures about
Fair Value of Financial Instruments) defines fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. The Company's carrying value of accounts
receivable, accounts payable, accrued expenses, grant payable and notes payable
approximates fair value because the instrument has a short-term maturity or
because the applicable interest rates are comparable to current borrowing rates.
Long-Lived Assets
In March 1995, SFAS No. 121 (Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of) was issued. This statement
provides guidelines for recognition of impairment losses related to long-term
assets and is effective for fiscal years beginning after December 15, 1995. The
Company's management does not believe that the adoption of this new standard
will have a material effect on the Company's financial statements.
Accounting for Stock Options
In October 1995, SFAS No. 123 (Accounting for Stock-Based Compensation) was
issued. This statement encourages, but does not require, a fair value based
method of accounting for employee stock options and will be effective for fiscal
years beginning after December 15, 1995. While the Company is still evaluating
SFAS No. 123, it currently expects to elect to continue to measure and to
recognize compensation costs under APB Opinion No. 25 (Accounting for Stock
Issued to Employees) and to comply with the pro forma disclosure requirements of
SFAS No. 123. If the Company makes this election, SFAS No. 123 will have no
impact on the Company's financial statements.
F-8
<PAGE> 74
CYBERMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996 IS UNAUDITED)
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(2) FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment, stated at cost, are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30, 1996
1994 1995 -------------
-------- -------- (UNAUDITED)
<S> <C> <C> <C>
Office furniture and equipment........... $ 4,000 $ 3,000 $ 243,000
Computer equipment....................... 37,000 131,000 499,000
-------- -------- --------
41,000 134,000 742,000
Less accumulated depreciation............ (25,000) (44,000) (86,000)
-------- -------- --------
$ 16,000 $ 90,000 $ 656,000
======== ======== ========
</TABLE>
Assets acquired under capitalized leases, which are principally included in
computer equipment above, at December 31, 1995 and June 30, 1996 aggregated
$26,000 for both periods. Accumulated depreciation related to these assets
aggregated $1,000 and $4,000 at December 31, 1995 and June 30, 1996,
respectively.
(3) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30, 1996
1994 1995 -------------
-------- -------- (UNAUDITED)
<S> <C> <C> <C>
Accrued compensation and related
expenses............................... $213,000 $268,000 $ 427,000
Other.................................... 17,000 151,000 169,000
-------- -------- --------
$230,000 $419,000 $ 596,000
======== ======== ========
</TABLE>
(4) GRANT PAYABLE
In August 1992, the Company received a grant under the Program for the
Advancement of Commercial Technology Provided by the United States Agency for
International Development and administered by the Industrial Credit and
Investment Corporation of India Limited ("ICICI"). As of December 31, 1994, the
Company had received $318,000 which had been allocated to the Company,
concurrent with the development of its products. Under the terms of the
agreement, the Company repays the grant at a rate of 250% of the amount of grant
received, or $795,000, through royalties based on 5% of product sales. The
Company incurred royalty expense related to this grant of $13,000 and $276,000
during the years ended December 31, 1994 and 1995, respectively, and $188,000
for the six months ended June 30, 1996. As of June 30, 1996, the Company's
maximum obligation of $795,000 has been fully accrued.
F-9
<PAGE> 75
CYBERMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996 IS UNAUDITED)
(5) NOTE PAYABLE
At December 31, 1994 and 1995 and June 30, 1996, the Company had a note
payable to ICICI, bearing interest at the U.S. prime rate plus 2.25% and payable
quarterly, with principal payable in equal quarterly installments of $50,000
from January 1997 through April 1999. To secure the loan, certain directors and
founders of the Company provided personal guarantees for the total loan amount.
In consideration for the personal guarantees, the guarantors received warrants
to purchase up to an aggregate of 900,000 shares of the Company's Series A
Preferred Stock at an exercise price of $0.35 per share.
Annual principal payments due subsequent to December 31, 1995 are as
follows:
<TABLE>
<S> <C>
Year ending December 31,
1996............................ $ --
1997............................ 200,000
1998............................ 200,000
1999............................ 100,000
--------
$500,000
========
</TABLE>
At December 31, 1994 and 1995, the Company was not in compliance with
certain financial loan covenants under the $500,000 note payable agreement. The
lender has waived compliance with these covenants through December 31, 1996.
During the six months ended June 30, 1996, the Company opted to make a
voluntary payment of $50,000. Accordingly, at June 30, 1996, the outstanding
balance of the note was $450,000.
(6) NOTES PAYABLE TO BANK
During the year ended December 31, 1995, the Company obtained two credit
facilities consisting of a $1,500,000 collateralized revolving line of credit
bearing interest at the prime rate plus 1% and a $250,000 collateralized
equipment purchase facility bearing interest at the prime rate plus 2%. The
collateralized equipment purchase facility expires in November 1996. No amounts
had been drawn against these lines of credit as of December 31, 1995.
On April 29, 1996, the Company secured an increase in its revolving line of
credit from $1,500,000 to $3,000,000, as available, based on eligible accounts
receivable. The line of credit bears interest at the prime rate (8.25% per annum
at June 30, 1996) plus 1% and expires in April 1997. As of June 30, 1996, the
Company had outstanding borrowings of $1,300,000 on the revolving line of
credit. The line of credit is collateralized by all assets of the Company.
(7) INCOME TAXES
The provision for income taxes, all current, for the years ended December
31, 1993, 1994 and 1995 consists solely of the annual minimum California
franchise tax of approximately $1,000. No provision for income taxes for the six
months ended June 30, 1996 has been recorded.
The provision for income taxes differs from the expected tax benefit
computed by applying the federal corporate tax rate of 34% to loss before income
taxes principally due to the effect of net operating loss carryforwards.
F-10
<PAGE> 76
CYBERMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996 IS UNAUDITED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- JUNE 30, 1996
1993 1994 1995 -------------
--------- --------- ----------- (UNAUDITED)
<S> <C> <C> <C> <C>
Deferred tax assets:
Accounts receivable.................. $ -- $ -- $ 307,000 $ 686,000
Accrued expenses..................... -- 90,000 32,000 84,000
Unearned revenues.................... -- -- 243,000 1,225,000
Grant payable........................ 115,000 132,000 127,000 --
Net operating losses................. 295,000 546,000 1,506,000 1,138,000
Other................................ -- 88,000 -- --
--------- --------- ----------- -----------
Total gross deferred tax assets... 410,000 856,000 2,215,000 3,133,000
Less valuation allowance.......... (410,000) (856,000) (2,215,000) (3,133,000)
--------- --------- ----------- -----------
Net deferred tax assets........... $ -- $ -- $ -- $ --
========= ========= =========== ===========
</TABLE>
The net change in the valuation allowance for the years ended December 31,
1993, 1994 and 1995 and for the six months ended June 30, 1996 was an increase
of $410,000, $446,000, $1,359,000 and $918,000, respectively. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers projected future taxable
income and tax planning strategies in making this assessment. Based on the level
of historical taxable income and projections for future taxable income over the
periods in which the level of deferred tax assets are deductible, management
believes that it is not more likely than not that the Company will realize the
benefits of these deductible differences at December 31, 1995 and June 30, 1996.
Accordingly, a valuation allowance has been provided for the total gross
deferred tax assets.
The Company had available at December 31, 1995 and June 30, 1996
approximately $3,765,000 and $2,845,000, respectively, of net operating losses
to offset future taxable income that expire beginning in the year 2006. Use of
these net operating losses will be limited under rules governing changes in
ownership of the Company. These rules restrict the amount of the net operating
loss carryforwards which may be used in a particular year. The maximum amount of
net operating loss carryforwards which are available on an annual basis for use
subsequent to the year ended December 31, 1996 is approximately $214,000.
(8) STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred Stock
During 1994, the Company issued 843,141 shares of Series A Preferred Stock
for cash consideration and issued 781,428 shares of Series A Preferred Stock
upon conversion of certain notes payable.
During 1995, the Company issued 5,735,715 shares of Series B Preferred
Stock for cash consideration and issued 635,714 shares of Series B Preferred
Stock upon conversion of certain notes payable. The Company also issued 142,857
shares of Series A Preferred Stock for cash consideration in 1995.
F-11
<PAGE> 77
CYBERMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996 IS UNAUDITED)
Each share of Series A Preferred Stock and Series B Preferred Stock is
automatically converted into one-half share of Common Stock upon the earlier of
the affirmative vote of the holders of at least 66 2/3% of the outstanding
shares of the Preferred Stock, or immediately upon the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, in which the aggregate gross
proceeds exceed $10,000,000 and the price per share is not less than $7.00 per
share. At June 30, 1996, the conversion of all Series A Preferred Stock and
Series B Preferred Stock shares would yield 1,479,829 and 3,185,715 shares of
Common Stock, respectively.
When, and if, declared by the Board of Directors, the holders of Series A
Preferred Stock and Series B Preferred Stock are entitled to receive dividends
at an annual rate of $0.028 per share and $0.056 per share, respectively. Such
dividends are not cumulative. No dividends were declared during the years ended
December 31, 1994 and 1995 or the six months ended June 30, 1996.
Preferred Stock has certain limited voting rights, is not callable by the
Company and has no redemption date.
In the event of any liquidation or dissolution of the Company, either
voluntary or involuntary, the holders of Preferred Stock are entitled to
receive, prior and in preference to any distribution of any of the assets of the
Company to the holders of Common Stock by reason of their ownership, an amount
per share equal to $0.35 for each outstanding share of Series A Preferred Stock
held by them and an amount per share equal to $0.70 for each outstanding share
of Series B Preferred Stock held by them, plus a further amount equal to any
dividends declared but unpaid on such shares. In the event the assets of the
Company are insufficient to provide for preferential payment, then all such
assets will be distributed ratably among the holders of the Preferred Stock in
proportion to the full preferential amount each such holder is otherwise
entitled to receive. After the payment to the holders of Preferred Stock of the
preferential amounts payable to them, the holders of Common Stock will be
entitled to receive pro rata the remaining assets of the Company.
On the closing of the Company's contemplated initial public offering all of
the 10,997,754(1) outstanding shares of Preferred Stock will be converted into
5,498,877 shares of Common Stock. The following table presents the Company's pro
forma unaudited stockholders' equity as if all such
F-12
<PAGE> 78
CYBERMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996 IS UNAUDITED)
conversions had occurred at June 30, 1996 and all outstanding warrants had been
exercised and converted, as applicable, to Common Stock at June 30, 1996:
<TABLE>
<CAPTION>
JUNE 30, 1996 (1)
-----------------
<S> <C>
Pro Forma Stockholders' Equity:
Series A Preferred Stock, $0.01 par value
Authorized 4,726,129 shares........................ $ --
Series B Preferred Stock, $0.01 par value
Authorized 6,442,858 shares........................ --
Series C Preferred Stock, $0.01 par value
Authorized 1,666,667 shares........................ --
Common Stock, $0.01 par value. Authorized 10,833,334
shares; issued and outstanding 8,965,782 shares.... 90,000
Additional paid-in capital........................... 12,202,000
Accumulated deficit.................................. (7,780,000)
-----------
$ 4,512,000
===========
</TABLE>
- ---------------
(1) Gives effect to the July 3, 1996 sale of Series C Preferred Stock shares
(see note 15).
Common Stock
During the year ended December 31, 1993, the Company issued 45,000 shares
of Common Stock for cash consideration of $3,000.
During the year ended December 31, 1995, an option holder exercised stock
options to purchase 50,000 shares of Common Stock at an exercise price of $0.05
per share.
During the six months ended June 30, 1996, certain option holders exercised
stock options to purchase 1,261,525 shares of Common Stock at exercise prices
ranging from $0.08 to $0.14 per share.
In June 1996, the Board of Directors approved the increase in the
authorized number of shares of Common Stock from 10,000,000 to 10,833,334.
Dividends are payable when, and if, declared by the Board of Directors only
after payment of any unpaid dividends to holders of Preferred Stock.
Stock Warrants
The Company issued warrants for the purchase of 833,141 shares of Series A
Preferred Stock and 933,330 shares of Series A Preferred Stock at exercise
prices ranging from $0.35 to $0.70 per share during the years ended December 31,
1994 and 1995, respectively. No value was ascribed to the warrants because
management is of the opinion that the impact of any such value is negligible to
the accompanying financial statements. No warrants expired or were exercised in
the years ended December 31, 1994 and 1995 or during the six months ended June
30, 1996. Warrants for the purchase of 833,141 shares of Series A Preferred
Stock were outstanding as of December 31, 1994 and warrants for the purchase of
1,766,471 shares of Series A Preferred Stock were outstanding as of December 31,
1995 and June 30, 1996. The warrants expire on the earlier of five years from
the date of issue or the closing of an initial public offering if not exercised.
F-13
<PAGE> 79
CYBERMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996 IS UNAUDITED)
The Company issued warrants for the purchase of 49,644 shares of Common
Stock at $1.40 per share during the year ended December 31, 1995 and issued
warrants for the purchase of 66,667 shares of Common Stock at an exercise price
of $4.50 per share during the six months ended June 30, 1996. The warrants for
the number of shares of Common Stock and the related exercise price are subject
to adjustments under certain circumstances as described more fully in the
warrant agreement. No value was ascribed to the warrants because management is
of the opinion that the impact of any such value is negligible to the
accompanying financial statements. Warrants for the purchase of 49,644 and
116,310 shares of Common Stock were outstanding as of December 31, 1995 and June
30, 1996, respectively. The warrants for the purchase of 49,644 shares of Common
Stock outstanding as of December 31, 1995 expire on the earlier of five years
from the date of issue or the closing of an initial public offering if not
exercised. The warrants for the purchase of 66,667 shares of Common Stock issued
during the six months ended June 30, 1996 expire in April 2002.
(9) STOCK OPTIONS
The Company has a 1992 Stock Plan and an Amended 1993 Stock Plan in which
various options have been issued which allow the option holder to purchase
shares of the Company's Common Stock at the fair market value at the date of
grant, as determined by the Company's Board of Directors. As of December 31,
1995, the Board of Directors had reserved 1,750,000 shares of Common Stock for
issuance under the Amended 1993 Stock Plan. As of June 30, 1996, the Board of
Directors approved the increase in the number of shares of Common Stock reserved
for issuance under the Amended 1993 Stock Plan to 2,902,000. Stock option
activity under the plans is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------- SIX MONTHS ENDED
1993 1994 1995 JUNE 30, 1996
---------------- ---------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at beginning of
period..................... 50,000 95,000 821,500 1,846,025
Granted.................... 45,000 726,500 1,074,525 1,031,715
Exercised.................. -- -- (50,000) (1,261,525)
Canceled................... -- -- -- (103,199)
------------- ------------- ----------- -----------
Balance at end of period..... 95,000 821,500 1,846,025 1,513,016
------------- ------------- ----------- -----------
Exercisable stock options.... 95,000 821,500 1,213,692 1,266,015
------------- ------------- ----------- -----------
Price range of options....... $ 0.05 and 0.08 $ 0.05 and 0.08 $ 0.05 - 0.14 $0.08 - 4.50
============= ============= =========== ===========
</TABLE>
Options granted vest immediately or over periods as determined by the
Company's Board of Directors, generally 4 years. During the six months ended
June 30, 1996, the Company issued Common Stock to certain directors who
exercised unvested options to purchase 206,250 shares of Common Stock, subject
to the terms of their respective stock option agreements. As defined more fully
in the stock option agreements, the Company retains the right to purchase such
stock at the original exercise price.
In June 1996, the Company's Board of Directors approved the 1996 Director
Option Plan. The Plan provides for the automatic and nondiscretionary grant of
nonstatutory stock options to nonemployee directors of the Company who are first
elected to the Board after the adoption of the Director Option Plan ("Outside
Directors"). A total of 50,000 shares of Common Stock have been reserved for
issuance under the Director Option Plan. Each Outside Director elected after the
adoption of the Plan will automatically be granted an option to purchase 5,000
shares on the date on which such person first becomes an Outside Director
("First Option") at the fair market value of the Company's Common
F-14
<PAGE> 80
CYBERMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996 IS UNAUDITED)
Stock at the date of grant. Each First Option granted vests ratably over
specified periods, approximately four years, subject to continued service as an
Outside Director. Thereafter, each Outside Director will be automatically
granted an option to purchase 5,000 shares on December 1 of each year beginning
in 1997, provided he or she shall have served on the Board for at least six
months ("Subsequent Option"). Each Subsequent Option shall have an exercise
price equal to the fair value of the Company's Common Stock as of the date of
grant and shall be exercisable ratably over four years, beginning three years
and one month from the date of grant, subject to continued service as an Outside
Director.
(10) SIGNIFICANT CUSTOMERS, CONCENTRATION OF CREDIT RISK AND OTHER
CONCENTRATIONS
Significant Customers
One customer accounted for 16% of net revenues for the year ended December
31, 1994, and three customers accounted for 19%, 16% and 9% of net revenues for
the year ended December 31, 1995, respectively. Five customers accounted for
14%, 14%, 13%, 12% and 11% of net revenues for the six months ended June 30,
1995, respectively, and three customers accounted for 22%, 20% and 11% of net
revenues for the six months ended June 30, 1996, respectively.
Concentration of Credit Risk
Certain financial instruments potentially subject the Company to credit
risk. These financial instruments consist primarily of trade receivables. The
Company sells to distributors, resellers and directly to end-users. The Company
performs ongoing credit evaluations of its customers and maintains reserves,
including reserves to estimate the potential for future product returns. The
Company's three major customers in 1995, each of whom accounted for more than
10% of net revenues, represented 41%, 26% and 21%, respectively, of trade
accounts receivable, net at December 31, 1995. The Company's three major
customers for the six months ended June 30, 1996 represented 32%, 28% and 13%,
respectively, of trade accounts receivable, net at June 30, 1996.
Other Concentrations
One product line constitutes over 90% of the Company's net revenues for the
years ended December 31, 1994 and 1995 and for the six months ended June 30,
1995 and 1996. Any technical difficulties or other factors affecting sales of
this product line could adversely affect operating results.
As of June 30, 1996, the Company received approximately 90% of its
fulfillment services from one fulfillment firm. A delay in product shipments
from this fulfillment company could result in a possible loss of sales, which
could adversely affect operating results.
(11) EMPLOYEE BENEFIT PLANS
On May 1, 1996, the Company adopted a 401(k) Plan. All full-time employees
who have reached age 18 and who have been employed for at least 30 days are
eligible to participate in the Plan. The Company may make discretionary
contributions to the Plan. As of June 30, 1996, the Company had not made any
contributions to the Plan.
On June 26, 1996, the Company's Board of Directors and stockholders
approved the 1996 Employee Stock Purchase Plan, which is intended to qualify
under Section 423 of the Internal Revenue Code. A total of 100,000 shares of
Common Stock have been reserved for issuance under the Employee
F-15
<PAGE> 81
CYBERMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996 IS UNAUDITED)
Stock Purchase Plan. Employees are entitled to participate if they satisfy
certain criteria, as defined, in the Employee Stock Purchase Plan agreement.
(12) RELATED PARTY TRANSACTIONS
In connection with the sale of the Series B Preferred Stock, the Company's
founders and the holders of the Series A Preferred Stock and the Series B
Preferred Stock entered into a Key Employees' Right of First Refusal, Co-Sale
and Voting Agreement ("Voting Agreement"). Pursuant to the Voting Agreement, the
Company is obligated to designate certain directors. In addition, in the event a
Company founder proposes to sell or transfer any Common Stock, the founder must
first offer such securities to the Company at comparable terms and conditions.
If the Company does not elect to purchase all of such securities, the Company
must provide the holders of the Series A Preferred Stock and Series B Preferred
Stock with the right to purchase such securities at the same terms.
In October 1995, three of the Company's directors each received options to
purchase 75,000 shares of the Company's Common Stock. The options have an
exercise price equal to the fair market value of the stock at the date of grant
and vest over four years from the date of grant, subject to providing continued
consulting services to the Company. During the six months ended June 30, 1996,
each of the directors exercised such options, including the unvested options,
and such shares are subject to repurchase on the same four-year vesting
schedule. See Note 9.
In September 1995, a director of the Company advanced a series of loans to
the Company to meet then-existing financial requirements. The loans were
converted into Series B Preferred Stock in consideration for the loans to the
Company. The director received warrants to purchase 17,857 shares of the
Company's Common Stock at an exercise price of $1.40 which expire on the earlier
of five years from the date of issue or the closing of an initial public
offering.
(13) COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under operating leases which expire on
July 9, 2000. Rent expense for the years ended December 31, 1993, 1994 and 1995
and for the six months ended June 30, 1995 and 1996 aggregated $72,000, $39,000,
$79,000, $27,000 and $214,000, respectively. Future minimum lease payments under
noncancelable operating leases as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1996................................ $ 302,000
1997................................ 322,000
1998................................ 341,000
1999................................ 358,000
2000................................ 179,000
----------
Total minimum lease payments... $1,502,000
=========
</TABLE>
The Company has entered into employment agreements with Company founders
which include terms whereby the founders are to receive full payment of salary
and benefits for specified periods, as set forth more fully in the employment
agreements, in the event of early termination.
F-16
<PAGE> 82
CYBERMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996 IS UNAUDITED)
(14) SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT END
DESCRIPTION PERIOD EXPENSES DELETIONS OF PERIOD
- ------------------------------------------ ------------ ---------- --------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended:
December 31, 1993.................... $ -- $ -- $ -- $ --
December 31, 1994.................... $ -- $ 3,000 $ -- $ 3,000
December 31, 1995.................... $ 3,000 $ 97,000 $ -- $ 100,000
Six months ended:
June 30, 1996
(unaudited).......................... $100,000 $ 100,000 $ -- $ 200,000
Reserve for sales returns
Year ended:
December 31, 1993.................... $ -- $ -- $ -- $ --
December 31, 1994.................... $ -- $ 9,000 $ -- $ 9,000
December 31, 1995.................... $ 9,000 $ 921,000 $(263,000)(1) $ 667,000
Six months ended:
June 30, 1996
(unaudited).......................... $667,000 $1,561,000 $(713,000)(1) $1,515,000
</TABLE>
- ---------------
(1) Actual product returns.
(15) SUBSEQUENT EVENTS
On July 3, 1996, the Company issued 1,666,667 shares of Series C Preferred
Stock at a price of $3.00 per share, convertible into approximately 833,333
shares of Common Stock. Each share of Series C Preferred Stock is automatically
converted into one-half of a share of Common Stock upon the earlier of the
affirmative vote of the holders of at least 66 2/3% of the outstanding shares of
the Preferred Stock, or immediately upon the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, in which the aggregate gross proceeds exceed
$10,000,000 and the price per share is not less than $7.00.
On July 17, 1996, the Board of Directors approved a one-for-two reverse
stock split of the Company's Common Stock. Accordingly, all references to the
number of shares authorized, issued and outstanding and per share information
for all periods presented have been adjusted to give effect to the
aforementioned reverse stock split. The reverse stock split became effective on
August 14, 1996.
On July 23, 1996, the Company filed a lawsuit against a competitor which
alleged that the competitor's packaging materials include false and misleading
statements about the Company. The competitor has filed counterclaims against the
Company alleging the Company's packaging materials include false and misleading
statements. Pending trial, the U.S. District Court has granted a preliminary
injunction in favor of the Company and against the competitor. The Company
believes that it has meritorious defenses to such counterclaims and intends to
vigorously defend itself if suit is subsequently filed.
On August 13, 1996, the Company's Board of Directors approved the increase
in the number of shares of Common Stock reserved under the Amended 1993 Stock
Plan to 3,902,000.
F-17
<PAGE> 83
CYBERMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996 IS UNAUDITED)
The Company is in the process of reincorporating in the State of Delaware.
The Company anticipates that the reincorporation will result in an increase in
the number of shares of authorized Common Stock to 50,000,000.
F-18
<PAGE> 84
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 5
The Company............................... 16
Use of Proceeds........................... 16
Dividend Policy........................... 16
Capitalization............................ 17
Dilution.................................. 18
Selected Financial Data................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 20
Business.................................. 27
Management................................ 43
Certain Transactions...................... 51
Principal Stockholders.................... 55
Description of Capital Stock.............. 57
Shares Eligible for Future Sale........... 60
Underwriting.............................. 62
Legal Matters............................. 63
Experts................................... 63
Additional Information.................... 63
Index to Financial Statements............. 64
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,000,000 SHARES
LOGO
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
HAMBRECHT & QUIST
LEHMAN BROTHERS
WESSELS, ARNOLD & HENDERSON
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 85
APPENDIX -- DESCRIPTION OF GRAPHICS
Front Cover of Prospectus:
The graphic reads "The Problem: While Windows-based PCs have achieved mass
market appeal, they have also become more complex, resulting in increased system
errors and technical difficulties." Underneath the heading, there is a picture
of a person in front of a PC terminal, speaking on the phone, on the left of the
page. Underneath this graphic is the following text: "User Perspective" with the
following bullet points: "PCs are complex, programs crash causing loss of work,
compatibility programs occur frequently, its difficult to fix problems. It is
frustrating to get technical support." On the right is a picture of a building
labelled "Vendor" with telephones walking out the door. Underneath the graphic
is the following text, "Vendor Perspective" with the following bullet points:
"Its expensive to provide technical support calls now exceed $20* (reference to
Dataquest), calls are pouring in, over 200 million calls expected in 1996, hard
to diagnose conflicts with other vendors' products, no central, cost-effective
way to disseminate updates and partners. Running along the bottom is the
caption, "In 1996 the PC industry is expected to spend approximately $4.0
billion on technical support. Dataquest."
On the inside pages of the cover, is the heading "The Solution: CyberMedia's
ActiveHelp Products" and "CyberMedia's products provide automatic service and
products for PC users and reduce support costs for software and hardware
vendors. The products are designed to enable PC users to diagnose & resolve
problems automatically without relying on costly technical support resources."
On the left page is a picture of a PC labelled "First aid with a local knowledge
base" and the following text: "First Aid detects, diagnoses and resolves over
10,000 potential combinations of problems using a local knowledge base of
general and system-specific information, supporting a wide range of software
applications, multimedia cards, modems, video cards, and networks," with an
arrow pointing to the "Internet" and text reading: "Users can update this local
knowledge base as needed by connecting to a large and regularly updated
knowledge base at CyberMedia's HelpCentral Internet site," with an arrow to a
CPU labelled "CyberMedia HelpCentral" with the text: "The HelpCentral knowledge
base is kept up-to-date by CyberMedia and through partnerships with hardware and
software vendors." Underneath the graphic is the heading: First Aid with the
pictures of three box cover of First Aid 95, First Aid 95 Deluxe and First Aid
95 Deluxe, Network Version and the text: "First Aid is available in stand alone
network versions." On the right page is a PC with the text: "Oil Change examines
a user's PC and develops a profile of installed software applications and
hardware device drivers." The products are designed to enable PC users to
diagnose & with an arrow to the "Internet" with the text: "Oil Change checks a
regularly updated knowledge base at CyberMedia's HelpCentral Internet site to
see what applications updates or patches are available at vendor Web sites,"
with an arrow to a PC and CPU with the text: "Oil Change displays a list of
available updates and patches and lets the user select the desired ones," with
an arrow pointing to a PC with the text: "Oil Change automatically retrieves and
installs selected updates and patches underneath. Beneath those graphics is the
heading: "Oil Change," with a picture of the Oil Change package and the
following text: "An Internet subscription service that locates downloads and
installs new updates, patches and drivers for PCs."
On the back cover, are pictures of two box covers of First Aid and First Aid 95
Deluxe Network Version, with a picture of the Company's employees in the middle
and pictures of First Aid 95 Deluxe, Oil Change and Tech Support Yellow Pages.
Page 29
The graphic reads "First Aid" across the top. At the left of the graphic is a
picture of a PC, with the screen showing a first aid cross and central
processing unit ("CPU") with an arrow to the World Wide Web (picture of
continents on a spider web). The caption under the PC reads "1. First Aid
detects, diagnoses and resolves over 10,000 potential combinations of problems
using a local knowledge base of
<PAGE> 86
general and system-specific information, supporting a wide range of software
applications, multimedia cards, modems, video cards and networks." The caption
under the World Wide Web reads "2. Users can update this knowledge base as
needed by connecting to a larger and regularly updated knowledge base at
CyberMedia's HelpCentral Internet site." There is an arrow pointing from the
World Wide Web to a CPU. The caption under the CPU reads "3. The HelpCentral
knowledge base is kept up-to-date by CyberMedia and through partnerships with
hardware and software vendors."
Page 31
The graphic reads "Oil Change" across the top. At the left of the graphic is a
picture of a PC, with an arrow pointing to the World Wide Web. The caption under
the PC reads "1. Oil Change examines a users PC and develops a profile of
applications and hardware device drivers." The caption under the World Wide Web
reads "2. Oil Change first checks a local knowledge base, then CyberMedia's
HelpCentral Internet site to see what applicable updates or patches are
available." There is an arrow pointing from the World Wide Web to a CPU next to
a PC. The caption under the PC reads "3. Oil Change displays a list of available
updates and patches to the user and gives them the option to select the update
they want." The PC has an arrow pointing to a PC with a mouse. The caption under
the PC reads "4. Oil Change automatically retrieves and installs selected
updates and patches."
Page 32
At the left of the graphic is a PC with the heading "Agent" directly under the
PC and a caption that reads "1. Agents detect and solve a wide range of problems
locally on a PC." There is an arrow pointing from the PC to a World Wide Web
with the heading "Internet" directly under the Web and the caption "2. Agents
use the Internet to access HelpCentral, a centralized up-to-date knowledge base,
to solve additional problems." There is an arrow pointing from the World Wide
Web to a CPU. The heading above the CPU reads "CyberScript" and the heading
below the CPU reads "HelpCentral." The caption under the CPU reads "3.
HelpCentral is kept up-to-date by CyberMedia and through partnerships with
hardware and software vendors using CyberScript, a powerful scripting language."
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered hereunder. All of the amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC Registration Fee............................................. $ 13,087
NASD Filing Fee.................................................. 4,295
Nasdaq National Market Application Fee........................... 45,000
Legal Fees and Expenses.......................................... 350,000
Accounting Fees and Expenses..................................... 210,000
Director and Officer Insurance................................... 250,000
Blue Sky Qualification Fees and Expenses......................... 15,000
Printing and Engraving Fees and Expenses......................... 200,000
Transfer Agent and Registrant Fees............................... 10,000
Miscellaneous.................................................... 2,618
Total.......................................................... $1,100,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Amended and Restated Certificate of Incorporation includes a
provision that eliminates the personal liability of its directors for monetary
damages for breach or alleged breach of their duty of care. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, the Bylaws of
the Registrant provide that: (i) the Registrant is required to indemnify its
directors and executive officers and persons serving in such capacities in other
business enterprises (including, for example, subsidiaries of the Registrant) at
the Registrant's request, to the fullest extent permitted by Delaware law,
including in those circumstances in which indemnification would otherwise be
discretionary; (ii) the Registrant may, in its discretion, indemnify employees
and agents in those circumstances where indemnification is not required by law;
(iii) the Registrant is required to advance expenses, as incurred, to its
directors and executive officers in connection with defending a proceeding
(except that it is not required to advance expenses to a person against whom the
Registrant brings a claim for breach of the duty of loyalty, failure to act in
good faith, intentional misconduct, knowing violation of law or deriving an
improper personal benefit); (iv) the rights conferred in the Bylaws are not
exclusive, and the Registrant is authorized to enter into indemnification
agreements with its directors, executive officers and employees; and (v) the
Registrant may not retroactively amend the Bylaw provisions in a way that is
adverse to such directors, executive officers and employees.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the Bylaws, as well as certain additional procedural
protections. In addition, the indemnity agreements provide that directors and
executive officers will be indemnified to the fullest possible extent not
prohibited by law against all expenses (including attorney's fees) and
settlement amounts paid or incurred by them in any action or proceeding,
including any derivative action by or in the right of the Registrant, on account
of their services as directors or executive officers of the Registrant or as
directors or officers of any other
II-1
<PAGE> 88
Company or enterprise when they are serving in such capacities at the request of
the Registrant. The Company will not be obligated pursuant to the indemnity
agreements to indemnify or advance expenses to an indemnified party with respect
to proceedings or claims initiated by the indemnified party and not by way of
defense, except with respect to proceedings specifically authorized by the Board
of Directors or brought to enforce a right to indemnification under the
indemnity agreement, the Company's Bylaws or any statute or law. Under the
agreements, the Company is not obligated to indemnify the indemnified party (i)
for any expenses incurred by the indemnified party with respect to any
proceeding instituted by the indemnified party to enforce or interpret the
agreement, if a court of competent jurisdiction determines that each of the
material assertions made by the indemnified party in such proceeding was not
made in good faith or was frivolous; (ii) for any amounts paid in settlement of
a proceeding unless the Company consents to such settlement; (iii) with respect
to any proceeding brought by the Company against the indemnified party for
willful misconduct, unless a court determines that each of such claims was not
made in good faith or was frivolous; (iv) on account of any suit in which
judgment is rendered against the indemnified party for an accounting of profits
made from the purchase or sale by the indemnified party of securities of the
Company pursuant to the provisions of sec. 16(b) of the Securities Exchange Act
of 1934 and related laws; (v) on account of the indemnified party's conduct
which is finally adjudged to have been knowingly fraudulent or deliberately
dishonest, or to constitute willful misconduct or a knowing violation of the
law; (vi) on account of any conduct from which the indemnified party derived an
improper personal benefit; (vii) on account of conduct the indemnified party
believed to be contrary to the best interests of the Company or its
stockholders; (viii) on account of conduct that constituted a breach of the
indemnified party's duty of loyalty to the Company or its stockholders; or (ix)
if a final decision by a court having jurisdiction in the matter shall determine
that such indemnification is not lawful.
The indemnification provision in the Bylaws and the indemnification
agreements entered into between the Registrant and its directors and executive
officers, may be sufficiently broad to permit indemnification of the
Registrant's officers and directors for liabilities arising under the 1933 Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years prior to the effective date of this Registration
Statement, the Registrant has issued and sold the following unregistered
securities:
1. Since June 30, 1993, the Registrant has sold and issued the
following unregistered shares of Preferred Stock:
(a) The Registrant has sold the following shares of Series A
Preferred Stock of the Company: (i) on December 9, 1992, the Registrant
sold an aggregate of 1,177,946 shares of Series A Preferred Stock for an
aggregate of $412,281.10; (ii) on February 28, 1994, the Registrant sold
an aggregate of 843,141 shares of Series A Preferred Stock for an
aggregate of $295,000; (iii) on December 21, 1994, the Registrant sold
an aggregate of 781,428 shares of Series A Preferred Stock for an
aggregate of $275,000 and (iv) on January 13, 1995, the Registrant sold
an aggregate of 142,857 shares of Series A Preferred Stock for an
aggregate of $50,000.
(b) On September 29, 1995, the Registrant sold 6,371,429 shares of
Series B Preferred Stock for an aggregate purchase price of $4,461,000.
(c) On July 3, 1996, the Registrant sold 1,666,667 shares of Series
C Preferred Stock for an aggregate purchase price of $5,000,001.
2. On various dates since February 15, 1993, the Registrant has
granted options to purchase 2,877,740 shares (net of repurchases) of its
Common Stock to employees, directors and consultants at a weighted average
exercise price of $0.84 per share pursuant to the Amended 1993 Stock Plan.
Additionally pursuant to its 1992 Stock Plan, the Registrant has granted
options to purchase
II-2
<PAGE> 89
50,000 shares of its Common Stock to a consultant at a weighted average
exercise price of $0.05 per share.
3. On various dates since February 28, 1994, the Registrant has
granted warrants to purchase an aggregate of 116,310 shares of its Common
Stock and 1,766,471 shares of its Series A Preferred Stock to certain
investors at a weighted average exercise price of $3.18 per share and $0.45
per share, respectively.
The issuances of the securities described in paragraphs 1 and 2 above were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) under the Securities Act or Rule 701 promulgated under Section 3(b)
of the Securities Act as transactions by an issuer not involving a public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
1.1+ Form of Underwriting Agreement (draft dated , 1996).
3.1* Certificate of Incorporation of Registrant, as amended.
3.2+ Form of Amended and Restated Certificate of Incorporation of Registrant
to be filed upon the closing of the offering made under the Registration
Statement.
3.3 Bylaws of Registrant, as amended and restated.
3.5* Merger Agreement.
4.1 Form of Common Stock Certificate.
5.1 Opinion of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation
10.1* Form of Indemnification Agreement with directors and officers.
10.2 Amended 1993 Stock Plan and form of agreements thereunder.
10.3* 1996 Employee Stock Purchase Plan and form of agreement thereunder.
10.4* 1996 Director Option Plan and form of agreements thereunder.
10.5* Form of Key Employees' Right of First Refusal, Co-Sale and Voting
Agreement dated September 29, 1995 by and among Registrant and certain
individuals and entities.
10.6* Form of Amended and Restated Registration Rights Agreement dated as of
June 26, 1996 by and among Registrant and certain individuals and
entities.
10.7* Sublease Agreement dated December 1995 between Century Southwest Cable
Television, Inc. and the Registrant.
10.8* Business Loan Agreement dated April 30, 1996 between Imperial Bank and
the Registrant.
10.9** Distribution Agreement dated February 28, 1996 between the Registrant and
Ingram Micro Inc.
10.10** Distribution Agreement dated March 1, 1996 between the Registrant and
Navarre Corporation
10.11** Distributor Contract dated March 20, 1996 between the Registrant and
Micro Central, Inc.
10.12* Form of Employment Agreements dated March 12, 1995 between the Registrant
and the Founders.
10.13* Loan Agreement dated June 22, 1994 between ICICI and the Registrant.
10.14+ Form of Agreement dated August 26, 1996 between the Registrant and
certain executive officers.
10.15** Agreement dated September 8, 1996, between the Registrant and Phoenix
Technolgies, Ltd.
11.1 Statement Regarding Computation of Per Share Earnings.
</TABLE>
II-3
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
23.1 Consent of Independent Auditors.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney (See page II-5).
27.1* Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
+ To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the 1933 Act may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referenced in Item 14 of this
Registration Statement or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the 1933 Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the 1933 Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the 1933 Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the 1933 Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palo Alto, State of California, on the 27th day of
September 1996.
CYBERMEDIA, INC.
By: /s/ UNNI S. WARRIER
Unni S. Warrier
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------ --------------------
<S> <C> <C>
/s/ UNNI S. President, Chief September 27, 1996
WARRIER Executive Officer and
Unni S. Warrier Director
(Principal Executive
Officer)
* Chief Financial Officer September 27, 1996
Jeffrey W. Beaumont (Principal Financial and
Accounting Officer)
* Director September 27, 1996
Paul Dali
* Director September 27, 1996
Suhas Patil
* Director September 27, 1996
Ronald S. Posner
* Director September 27, 1996
Kanwal Rekhi
* Director September 27, 1996
Peter Morris
* Director September 27, 1996
James R. Tolonen
*By /s/ UNNI S.
WARRIER
Unni S. Warrier
Attorney-in-fact
</TABLE>
II-5
<PAGE> 92
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE NUMBER
----------- ---------------------------------------------------------------------
<S> <C> <C>
1.1+ Form of Underwriting Agreement (draft dated , 1996)......
3.1* Certificate of Incorporation of Registrant, as amended...............
3.2+ Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed upon the closing of the offering made under
the Registration Statement...........................................
3.3 Bylaws of Registrant, as amended and restated........................
3.5* Merger Agreement.....................................................
4.1 Form of Common Stock Certificate.....................................
5.1 Opinion of Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation..........................................................
10.1* Form of Indemnification Agreement with directors and officers........
10.2 Amended 1993 Stock Plan and form of agreements thereunder............
10.3* 1996 Employee Stock Purchase Plan and form of agreement thereunder...
10.4* 1996 Director Option Plan and form of agreements thereunder..........
10.5* Form of Key Employees' Right of First Refusal, Co-Sale and Voting
Agreement dated September 29, 1995 by and among Registrant and
certain individuals and entities.....................................
10.6* Form of Amended and Restated Registration Rights Agreement dated as
of June 26, 1996 by and among Registrant and certain individuals and
entities.............................................................
10.7* Sublease Agreement dated December 1995 between Century Southwest
Cable Television, Inc. and the Registrant............................
10.8* Business Loan Agreement dated April 30, 1996 between Imperial Bank
and the Registrant...................................................
10.9** Distribution Agreement dated February 28, 1996 between the Registrant
and Ingram Micro Inc. ...............................................
10.10** Distribution Agreement dated March 1, 1996 between the Registrant and
Navarre Corporation..................................................
10.11** Distributor Contract dated March 20, 1996 between the Registrant and
Micro Central, Inc. .................................................
10.12* Form of Employment Agreements dated March 12, 1995 between the
Registrant and the Founders..........................................
10.13* Loan Agreement dated June 22, 1994 between ICICI and the
Registrant...........................................................
10.14+ Form of Agreement dated August 26, 1996 between the Registrant and
certain executive officers...........................................
10.15** Agreement dated September 8, 1996, between the Registrant and Phoenix
Technolgies, Ltd. ...................................................
11.1 Statement Regarding Computation of Per Share Earnings................
23.1 Consent of Independent Auditors......................................
23.2 Consent of Counsel (included in Exhibit 5.1).........................
24.1* Power of Attorney (See page II-5)....................................
27.1* Financial Data Schedule..............................................
</TABLE>
- ---------------
* Previously filed.
** Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
CYBERMEDIA, INC.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I - STOCKHOLDERS..................................................................1
1.1 ANNUAL MEETINGS.........................................................1
1.2 SPECIAL MEETINGS........................................................1
1.3 NOTICE OF MEETINGS......................................................1
1.4 ADJOURNMENTS............................................................1
1.5 QUORUM..................................................................2
1.6 ORGANIZATION............................................................2
1.7 VOTING; PROXIES.........................................................2
1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.................3
1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE...................................3
1.10 ACTION BY CONSENT OF STOCKHOLDERS.......................................4
ARTICLE II - BOARD OF DIRECTORS...........................................................4
2.1 NUMBER; QUALIFICATIONS..................................................4
2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES...............................4
2.3 REGULAR MEETINGS........................................................5
2.4 SPECIAL MEETINGS........................................................5
2.5 TELEPHONIC MEETINGS PERMITTED...........................................5
2.6 QUORUM; VOTE REQUIRED FOR ACTION........................................5
2.7 ORGANIZATION............................................................5
2.8 INFORMAL ACTION BY DIRECTORS............................................5
ARTICLE III - COMMITTEES..................................................................6
3.1 COMMITTEES..............................................................6
3.2 COMMITTEE RULES.........................................................6
ARTICLE IV - OFFICERS.....................................................................6
4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATION; TERM OF
OFFICE; RESIGNATION; REMOVAL; VACANCIES.................................6
4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS.................................7
ARTICLE V - STOCK.........................................................................7
5.1 CERTIFICATES............................................................7
5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES........................................................7
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(continued)
Page
----
<S> <C>
ARTICLE VI - INDEMNIFICATION..........................................................................................8
6.1 THIRD PARTY ACTIONS.................................................................................8
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION.......................................................8
6.3 SUCCESSFUL DEFENSE..................................................................................8
6.4 DETERMINATION OF CONDUCT............................................................................9
6.5 PAYMENT OF EXPENSES IN ADVANCE......................................................................9
6.6 INDEMNITY NOT EXCLUSIVE.............................................................................9
6.7 INSURANCE INDEMNIFICATION...........................................................................9
6.8 THE CORPORATION.....................................................................................9
6.9 EMPLOYEE BENEFIT PLANS.............................................................................10
6.10 INDEMNITY FUND.....................................................................................10
6.11 INDEMNIFICATION OF OTHER PERSONS...................................................................10
6.12 SAVINGS CLAUSE.....................................................................................10
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT
OF EXPENSES........................................................................................11
ARTICLE VII - MISCELLANEOUS..........................................................................................11
7.1 FISCAL YEAR........................................................................................11
7.2 SEAL...............................................................................................11
7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS,
DIRECTORS AND COMMITTEES...........................................................................11
7.4 INTERESTED DIRECTORS; QUORUM.......................................................................11
7.5 FORM OF RECORDS....................................................................................12
7.6 AMENDMENT OF BYLAWS................................................................................12
</TABLE>
-ii-
<PAGE> 4
BYLAWS
OF
CYBERMEDIA, INC.
ARTICLE I
STOCKHOLDERS
1.1 ANNUAL MEETINGS
An annual meeting of stockholders shall be held for the election of
directors at such date, time and place, either within or without the state of
Delaware, as may be designated by resolution of the Board of Directors from time
to time. Any other proper business may be transacted at the annual meeting.
1.2 SPECIAL MEETINGS
Special meetings of stockholders for any purpose or purposes may be
called at any time by the Board of Directors, or by a committee of the Board of
Directors which has been duly designated by the Board of Directors and whose
powers and authority, as expressly provided in a resolution of the Board of
Directors, include the power to call such meetings.
1.3 NOTICE OF MEETINGS
Whenever stockholders are required or permitted to take any action at a
meeting, a written notice of the meeting shall be given which shall state the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. Unless otherwise provided
by law, the certificate of incorporation or these by-laws, the written notice of
any meeting shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.4 ADJOURNMENTS
Any meeting of stockholders, annual or special, may adjourn from time
to time to reconvene at the same or some other place, and notice need not be
given of any such adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
<PAGE> 5
1.5 QUORUM
Except as otherwise provided by law, the certificate of incorporation
or these by-laws, at each meeting of stockholders the presence in person or by
proxy of the holders of shares of stock having a majority of the votes which
could be cast by the holders of all outstanding shares of stock entitled to vote
at the meeting shall be necessary and sufficient to constitute a quorum. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided in Section 1.4 of these
by-laws until a quorum shall attend. Shares of its own stock belonging to the
corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of the corporation to vote stock, including but not limited to its own
stock, held by it in a fiduciary capacity.
1.6 ORGANIZATION
Meetings of stockholders shall be presided over by the Chairman of the
Board, if any, or in his absence by the Vice Chairman of the Board, if any, or
in his absence by the President, or in his absence by a Vice President, or in
the absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his absence
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
1.7 VOTING; PROXIES
Except as otherwise provided by the certificate of incorporation, each
stockholder entitled to vote at any meeting of stockholders shall be entitled to
one vote for each share of stock held by him which has voting power upon the
matter in question. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the corporation. Voting at meetings of stockholders need not be by written
ballot and need not be conducted by inspectors of election unless so determined
by the holders of shares of stock having a majority of the votes which could be
cast by the holders of all outstanding shares of stock entitled to vote thereon
which are present in person or by proxy at such meeting.
At a stockholders' meeting at which directors are to be elected, a
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such stockholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the stockholder has given notice prior
to commencement of the voting of the stockholders' intention to cumulate votes.
If any stockholder has given such a notice, then every stockholder entitled to
vote may cumulate votes for candidates in
-2-
<PAGE> 6
nomination either (i) by giving one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which the
stockholder's shares are normally entitled or (ii) by distributing the
stockholder's votes on the same principle among any or all of the candidates, as
the stockholder thinks fit. The candidates receiving the highest number of
affirmative votes, up to the number of directors to be elected, shall be
elected; votes against any candidate and votes withheld shall have no legal
effect.
1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors and which record date: (1) in the case of
determination of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law, not be more than
sixty nor less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (1) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The Secretary shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list
-3-
<PAGE> 7
shall also be produced and kept at the time and place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present. Upon
the willful neglect or refusal of the directors to produce such a list at any
meeting for the election of directors, they shall be ineligible for election to
any office at such meeting. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the corporation, or to vote in person or by proxy
at any meeting of stockholders.
1.10 ACTION BY CONSENT OF STOCKHOLDERS
Unless otherwise restricted by the certificate of incorporation, any
action required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE II
BOARD OF DIRECTORS
2.1 NUMBER; QUALIFICATIONS
The Board of Directors shall consist of one or more members, the number
thereof to be determined from time to time by resolution of the Board of
Directors. Directors need not be stockholders.
2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES
The Board of Directors shall initially consist of the persons named as
directors in the certificate of incorporation, and each director so elected
shall hold office until the first annual meeting of stockholders or until his
successor is elected and qualified. At the first annual meeting of stockholders
and at each annual meeting thereafter, the stockholders shall elect directors
each of whom shall hold office for a term of one year or until his successor is
elected and qualified. Any director may resign at any time upon written notice
to the corporation. Any newly created directorship or any vacancy occurring in
the Board of Directors for any cause may be filled by a majority of the
remaining members of the Board of Directors, although such majority is less than
a quorum, or by a plurality of the votes cast at a meeting of stockholders, and
each director so elected shall hold office until the expiration of the term of
office of the director whom he has replaced or until his successor is elected
and qualified.
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2.3 REGULAR MEETINGS
Regular meetings of the Board of Directors may be held at such places
within or without the State of Delaware and at such times as the Board of
Directors may from time to time determine, and if so determined notices thereof
need not be given.
2.4 SPECIAL MEETINGS
Special meetings of the Board of Directors may be held at any time or
place within or without the State of Delaware whenever called by the President,
any Vice President, the Secretary, or by any member of the Board of Directors.
Notice of a special meeting of the Board of Directors shall be given by the
person or persons calling the meeting at least twenty-four hours before the
special meeting.
2.5 TELEPHONIC MEETINGS PERMITTED
Members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting thereof by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this by-law shall constitute presence in person at such meeting.
2.6 QUORUM; VOTE REQUIRED FOR ACTION
At all meetings of the Board of Directors a majority of the whole Board
of Directors shall constitute a quorum for the transaction of business. Except
in cases in which the certificate of incorporation or these by-laws otherwise
provide, the vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
2.7 ORGANIZATION
Meetings of the Board of Directors shall be presided over by the
Chairman of the Board, if any, or in his absence by the Vice Chairman of the
Board, if any, or in his absence by the President, or in their absence by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
2.8 INFORMAL ACTION BY DIRECTORS
Unless otherwise restricted by the certificate of incorporation or
these by-laws, any action required or permitted to be taken at any meeting of
the Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board of Directors or such committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board of Directors or such committee.
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ARTICLE III
COMMITTEES
3.1 COMMITTEES
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of the committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in place of any
such absent or disqualified member. Any such committee, to the extent permitted
by law and to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it.
3.2 COMMITTEE RULES
Unless the Board of Directors otherwise provides, each committee
designated by the Board of Directors may make, alter and repeal rules for the
conduct of its business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board of Directors conducts its
business pursuant to Article III of these by-laws.
ARTICLE IV
OFFICERS
4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
RESIGNATION; REMOVAL; VACANCIES
The Board of Directors shall elect a President and Secretary, and it
may, if it so determines, choose a Chairman of the Board and a Vice Chairman of
the Board from among its members. The Board of Directors may also choose one or
more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or
more Assistant Treasurers. Each such officer shall hold office until the first
meeting of the Board of Directors after the annual meeting of stockholders next
succeeding his election, and until his successor is elected and qualified or
until his earlier resignation or removal. Any officer may resign at any time
upon written notice to the corporation. The Board of Directors may remove any
officer with or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
corporation. Any number of offices may be held by the same person. Any vacancy
occurring in any office of the corporation by death,
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<PAGE> 10
resignation, removal or otherwise may be filled for the unexpired portion of the
term by the Board of Directors at any regular or special meeting.
4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS
The officers of the corporation shall have such powers and duties in
the management of the corporation as may be prescribed by the Board of Directors
and, to the extent not so provided, as generally pertain to their respective
offices, subject to the control of the Board of Directors. The Board of
Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
ARTICLE V
STOCK
5.1 CERTIFICATES
Every holder of stock shall be entitled to have a certificate signed by
or in the name of the corporation by the Chairman or Vice Chairman of the Board
of Directors, if any, or the President or Vice President, and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the
corporation, certifying the number of shares owned by him in the corporation.
Any of or all the signatures on the certificate may be a facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES
The corporation may issued a new certificate of stock in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
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ARTICLE VI
INDEMNIFICATION
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director or officer of the corporation, or that such
director or officer is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture trust or other enterprise (collectively "Agent"), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was an Agent (as defined in Section 6.1)
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in manner he reasonably believed to be in or not opposed
to the best interests of the corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.
6.3 SUCCESSFUL DEFENSE
To the extent that an Agent of the corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
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6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that the indemnification of the Agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 6.1 and 6.2. Such determination shall be made (1) by the Board of
Directors or an executive committee by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) or if
such quorum is not obtainable or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or (3)
by the stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided or granted
pursuant to the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was an Agent of the corporation, or is or was
serving at the request of the corpora tion, as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors and officers, so that any person who is or
was a director or Agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under and subject to the
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provisions of this Article VI (including, without limitation the provisions of
Section 6.4) with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
VI.
6.10 INDEMNITY FUND
Upon resolution passed by the Board, the corporation may establish a
trust or other designated account, grant a security interest or use other means
(including, without limitation, a letter of credit), to ensure the payment of
certain of its obligations arising under this Article VI and/or agreements which
may be entered into between the corporation and its officers and directors from
time to time.
6.11 INDEMNIFICATION OF OTHER PERSONS
The provisions of this Article VI shall not be deemed to preclude the
indemnification of any person who is not an Agent (as defined in Section 6.1),
but whom the corporation has the power or obligation to indemnify under the
provisions of the General Corporation Law of the State of Delaware or otherwise.
The corporation may, in its sole discretion, indemnify an employee, trustee or
other agent as permitted by the General Corporation Law of the State of
Delaware. The corporation shall indemnify an employee, trustee or other agent
where required by law.
6.12 SAVINGS CLAUSE
If this Article or any portion thereof shall be invalidated on any
ground by any court of competent jurisdiction, then the corporation shall
nevertheless indemnify each Agent against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement with respect to any action,
suit, proceeding or investigation, whether civil, criminal or administrative,
and whether internal or external, including a grand jury proceeding and an
action or suit brought by or in the right of the corporation, to the full extent
permitted by any applicable portion of this Article that shall not have been
invalidated, or by any other applicable law.
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6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise prided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
MISCELLANEOUS
7.1 FISCAL YEAR
The fiscal year of the corporation shall be determined by resolution of
the Board of Directors.
7.2 SEAL
The corporate seal shall have the name of the corporation inscribed
thereon and shall be in such form as may be approved from time to time by the
Board of Directors.
7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES
Any written waiver of notice, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of any regular or special meeting
of the stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice.
7.4 INTERESTED DIRECTORS; QUORUM
No contract or transaction between the corporation and one or more of
its directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if: (1) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
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quorum: or (2) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (3) the contract or
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
7.5 FORM OF RECORDS
Any records maintained by the corporation in the regular course of its
business, including its stock ledger, books of account, and minute books, may be
kept on, or be in the form of, punch cards, magnetic tape, photographs,
microphotographs, or any other information storage device, provided that the
records so kept can be converted into clearly legible form within a reasonable
time. The corporation shall so convert any records so kept upon the request of
any person entitled to inspect the same.
7.6 AMENDMENT OF BY-LAWS
These by-laws may be altered or repealed, and new by-laws made, by the
Board of Directors, but the stockholders may make additional by-laws and may
alter and repeal any by-laws whether adopted by them or otherwise.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
CYBERMEDIA, INC.
Adoption by Incorporator
The undersigned person appointed in the Certificate of Incorporation to
act as the Incorporator of CyberMedia, Inc. hereby adopts the foregoing bylaws,
comprising twelve (12) pages, as the Bylaws of the corporation.
Executed this 25th day of June, 1996.
/s/ Kelly Miller
-------------------------------
Kelly Miller, Incorporator
Certificate by Secretary of Adoption by Incorporator
The undersigned hereby certifies that she is the duly elected,
qualified, and acting Secretary of CyberMedia, Inc. and that the foregoing
Bylaws, comprising twelve (12) pages, were adopted as the Bylaws of the
corporation on June 25, 1996, by the person appointed in the Certificate of
Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and
affixed the corporate seal this June 25, 1996.
/s/ Art Schneiderman
-------------------------------
Art Schneiderman, Assistant Secretary
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<PAGE> 17
CERTIFICATE OF ADOPTION OF BYLAWS
OF
CYBERMEDIA, INC.
Certificate by Secretary of Adoption by Stockholders' Vote
The undersigned hereby certifies that she is the duly elected,
qualified, and acting Secretary of CyberMedia, Inc. and that the foregoing
Bylaws, comprising 12 pages, excluding this page, were submitted to the
stockholders at their first meeting held on _______________, 19__, and recorded
in the minutes thereof and were ratified by the vote of stockholders entitled to
exercise the majority of the voting power of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and
affixed the corporate seal this 25th day of June 1996.
/s/ Art Schneiderman
--------------------------------
Art Schneiderman
Assistant Secretary
<PAGE> 18
EXHIBIT 3.3
AMENDED AND RESTATED
BYLAWS
OF
CYBERMEDIA, INC.
<PAGE> 19
TABLE OF CONTENTS
Page
----
ARTICLE I - STOCKHOLDERS................................................. 1
1.1 ANNUAL MEETINGS.............................................. 1
1.2 SPECIAL MEETINGS............................................. 1
1.3 NOTICE OF MEETINGS........................................... 1
1.4 ADJOURNMENTS................................................. 2
1.5 QUORUM....................................................... 2
1.6 ORGANIZATION................................................. 2
1.7 VOTING; PROXIES.............................................. 2
1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD ..... 3
1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE........................ 4
1.10 ACTION BY CONSENT OF STOCKHOLDERS............................ 4
ARTICLE II - BOARD OF DIRECTORS.......................................... 4
2.1 NUMBER; QUALIFICATIONS....................................... 4
2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES.................... 5
2.3 REGULAR MEETINGS............................................. 5
2.4 SPECIAL MEETINGS............................................. 5
2.5 TELEPHONIC MEETINGS PERMITTED................................ 5
2.6 QUORUM; VOTE REQUIRED FOR ACTION............................. 5
2.7 ORGANIZATION................................................. 6
2.8 INFORMAL ACTION BY DIRECTORS................................. 6
ARTICLE III - COMMITTEES................................................. 6
3.1 COMMITTEES................................................... 6
3.2 COMMITTEE RULES.............................................. 6
ARTICLE IV - OFFICERS.................................................... 7
4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
RESIGNATION; REMOVAL; VACANCIES.............................. 7
4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS...................... 7
ARTICLE V - STOCK........................................................ 7
5.1 CERTIFICATES................................................. 7
5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES............................................. 8
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<PAGE> 20
TABLE OF CONTENTS
(continued)
Page
----
ARTICLE VI - INDEMNIFICATION........................................... 8
6.1 THIRD PARTY ACTIONS........................................ 8
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION.............. 8
6.3 SUCCESSFUL DEFENSE......................................... 9
6.4 DETERMINATION OF CONDUCT................................... 9
6.5 PAYMENT OF EXPENSES IN ADVANCE............................. 9
6.6 INDEMNITY NOT EXCLUSIVE.................................... 9
6.7 INSURANCE INDEMNIFICATION.................................. 9
6.8 THE CORPORATION............................................ 10
6.9 EMPLOYEE BENEFIT PLANS..................................... 10
6.10 INDEMNITY FUND............................................. 10
6.11 INDEMNIFICATION OF OTHER PERSONS........................... 10
6.12 SAVINGS CLAUSE............................................. 11
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES .................................................. 11
ARTICLE VII - MISCELLANEOUS............................................ 11
7.1 FISCAL YEAR................................................ 11
7.2 SEAL....................................................... 11
7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES................................................. 11
7.4 INTERESTED DIRECTORS; QUORUM............................... 12
7.5 FORM OF RECORDS............................................ 12
7.6 AMENDMENT OF BYLAWS........................................ 12
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<PAGE> 21
AMENDED AND RESTATED
BYLAWS
OF
CYBERMEDIA, INC.
ARTICLE I
STOCKHOLDERS
1.1 ANNUAL MEETINGS
An annual meeting of stockholders shall be held for the election of
directors at such date, time and place, either within or without the state of
Delaware, as may be designated by resolution of the Board of Directors from time
to time. Any other proper business may be transacted at the annual meeting.
1.2 SPECIAL MEETINGS
A special meeting of the stockholders may be called at any time by the
Board of Directors, or by a committee of the Board of Directors which has been
duly designated by the Board of Directors, or by the Chairman of the Board, or
by the President, or by one or more stockholders holding shares in the aggregate
entitled to cast not less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
Board of Directors or the President, or by a committee of the Board of Directors
which has been duly designated by the Board of Directors, or the Chairman of the
Board, then the request shall be in writing, specifying the time of such meeting
and the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board, the President, any Vice
President or the Secretary of the corporation. The officer receiving the request
shall cause notice to be promptly given to the stockholders entitled to vote, in
accordance with the provisions of Section 1.3 of these by-laws. Nothing
contained in this paragraph of this Section 1.2 shall be construed as limiting,
fixing or affecting the time when a meeting of shareholders called by action of
the Board of Directors may be held.
1.3 NOTICE OF MEETINGS
Whenever stockholders are required or permitted to take any action at a
meeting, a written notice of the meeting shall be given which shall state the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. Unless otherwise provided
by law, the certificate of incorporation or these by-laws, the written notice of
any meeting shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given
<PAGE> 22
when deposited in the mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the corporation.
1.4 ADJOURNMENTS
Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
1.5 QUORUM
Except as otherwise provided by law, the certificate of incorporation or
these by-laws, at each meeting of stockholders the presence in person or by
proxy of the holders of shares of stock having a majority of the votes which
could be cast by the holders of all outstanding shares of stock entitled to vote
at the meeting shall be necessary and sufficient to constitute a quorum. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided in Section 1.4 of these
by-laws until a quorum shall attend. Shares of its own stock belonging to the
corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of the corporation to vote stock, including but not limited to its own
stock, held by it in a fiduciary capacity.
1.6 ORGANIZATION
Meetings of stockholders shall be presided over by the Chairman of the
Board, if any, or in his absence by the Vice Chairman of the Board, if any, or
in his absence by the President, or in his absence by a Vice President, or in
the absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his absence
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
1.7 VOTING; PROXIES
Except as otherwise provided by the certificate of incorporation, each
stockholder entitled to vote at any meeting of stockholders shall be entitled to
one vote for each share of stock held by him which has voting power upon the
matter in question. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as
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long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or another duly executed proxy bearing a later date
with the Secretary of the corporation. Voting at meetings of stockholders need
not be by written ballot and need not be conducted by inspectors of election
unless so determined by the holders of shares of stock having a majority of the
votes which could be cast by the holders of all outstanding shares of stock
entitled to vote thereon which are present in person or by proxy at such
meeting.
At a stockholders' meeting at which directors are to be elected, a
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such stockholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the stockholder has given notice prior
to commencement of the voting of the stockholders' intention to cumulate votes.
If any stockholder has given such a notice, then every stockholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which the stockholder's shares are normally
entitled or (ii) by distributing the stockholder's votes on the same principle
among any or all of the candidates, as the stockholder thinks fit. The
candidates receiving the highest number of affirmative votes, up to the number
of directors to be elected, shall be elected; votes against any candidate and
votes withheld shall have no legal effect.
1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors and which record date: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (1) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining
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<PAGE> 24
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The Secretary shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present. Upon the willful neglect or refusal of the directors to produce such a
list at any meeting for the election of directors, they shall be ineligible for
election to any office at such meeting. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list of stockholders or the books of the corporation, or to vote in person
or by proxy at any meeting of stockholders.
1.10 ACTION BY CONSENT OF STOCKHOLDERS
Unless otherwise restricted by the certificate of incorporation, any
action required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE II
BOARD OF DIRECTORS
2.1 NUMBER; QUALIFICATIONS
The Board of Directors shall consist of one or more members, the number
thereof to be determined from time to time by resolution of the Board of
Directors. Directors need not be stockholders.
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<PAGE> 25
2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES
The Board of Directors shall initially consist of the persons named as
directors in the certificate of incorporation, and each director so elected
shall hold office until the first annual meeting of stockholders or until his
successor is elected and qualified. At the first annual meeting of stockholders
and at each annual meeting thereafter, the stockholders shall elect directors
each of whom shall hold office for a term of one year or until his successor is
elected and qualified. Any director may resign at any time upon written notice
to the corporation. Any newly created directorship or any vacancy occurring in
the Board of Directors for any cause may be filled by a majority of the
remaining members of the Board of Directors, although such majority is less than
a quorum, or by a plurality of the votes cast at a meeting of stockholders, and
each director so elected shall hold office until the expiration of the term of
office of the director whom he has replaced or until his successor is elected
and qualified.
2.3 REGULAR MEETINGS
Regular meetings of the Board of Directors may be held at such places
within or without the State of Delaware and at such times as the Board of
Directors may from time to time determine, and if so determined notices thereof
need not be given.
2.4 SPECIAL MEETINGS
Special meetings of the Board of Directors may be held at any time or
place within or without the State of Delaware whenever called by the President,
any Vice President, the Secretary, or by any member of the Board of Directors.
Notice of a special meeting of the Board of Directors shall be given by the
person or persons calling the meeting at least twenty-four hours before the
special meeting.
2.5 TELEPHONIC MEETINGS PERMITTED
Members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting thereof by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this by-law shall constitute presence in person at such meeting.
2.6 QUORUM; VOTE REQUIRED FOR ACTION
At all meetings of the Board of Directors a majority of the whole Board of
Directors shall constitute a quorum for the transaction of business. Except in
cases in which the certificate of incorporation or these by-laws otherwise
provide, the vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
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<PAGE> 26
2.7 ORGANIZATION
Meetings of the Board of Directors shall be presided over by the Chairman
of the Board, if any, or in his absence by the Vice Chairman of the Board, if
any, or in his absence by the President, or in their absence by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.
2.8 INFORMAL ACTION BY DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
by-laws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board of Directors or such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or such committee.
ARTICLE III
COMMITTEES
3.1 COMMITTEES
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of the committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in place of any
such absent or disqualified member. Any such committee, to the extent permitted
by law and to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it.
3.2 COMMITTEE RULES
Unless the Board of Directors otherwise provides, each committee
designated by the Board of Directors may make, alter and repeal rules for the
conduct of its business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board of Directors conducts its
business pursuant to Article III of these by-laws.
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<PAGE> 27
ARTICLE IV
OFFICERS
4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
RESIGNATION; REMOVAL; VACANCIES
The Board of Directors shall elect a President and Secretary, and it may,
if it so determines, choose a Chairman of the Board and a Vice Chairman of the
Board from among its members. The Board of Directors may also choose one or more
Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers. Each such officer shall hold office until the first
meeting of the Board of Directors after the annual meeting of stockholders next
succeeding his election, and until his successor is elected and qualified or
until his earlier resignation or removal. Any officer may resign at any time
upon written notice to the corporation. The Board of Directors may remove any
officer with or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
corporation. Any number of offices may be held by the same person. Any vacancy
occurring in any office of the corporation by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the Board of
Directors at any regular or special meeting.
4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS
The officers of the corporation shall have such powers and duties in the
management of the corporation as may be prescribed by the Board of Directors
and, to the extent not so provided, as generally pertain to their respective
offices, subject to the control of the Board of Directors. The Board of
Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
ARTICLE V
STOCK
5.1 CERTIFICATES
Every holder of stock shall be entitled to have a certificate signed by or
in the name of the corporation by the Chairman or Vice Chairman of the Board of
Directors, if any, or the President or Vice President, and by the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the
corporation, certifying the number of shares owned by him in the corporation.
Any of or all the signatures on the certificate may be a facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
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<PAGE> 28
5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES
The corporation may issued a new certificate of stock in the place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE VI
INDEMNIFICATION
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director or officer of the corporation, or that such
director or officer is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture trust or other enterprise (collectively "Agent"), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was an Agent (as defined in Section 6.1)
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in manner he reasonably believed to be in or not opposed
to the best interests of the corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the
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<PAGE> 29
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
6.3 SUCCESSFUL DEFENSE
To the extent that an Agent of the corporation has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to in
Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case upon a
determination that the indemnification of the Agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 6.1 and 6.2. Such determination shall be made (1) by the Board of
Directors or an executive committee by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) or if
such quorum is not obtainable or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or (3)
by the stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided or granted
pursuant to the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was an Agent of the corporation, or is or was
serving at the request of the corpora tion, as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
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<PAGE> 30
6.8 THE CORPORATION
For purposes of this Article VI, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors and officers, so that any person who is or
was a director or Agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under and subject to the provisions
of this Article VI (including, without limitation the provisions of Section 6.4)
with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
VI.
6.10 INDEMNITY FUND
Upon resolution passed by the Board, the corporation may establish a trust
or other designated account, grant a security interest or use other means
(including, without limitation, a letter of credit), to ensure the payment of
certain of its obligations arising under this Article VI and/or agreements which
may be entered into between the corporation and its officers and directors from
time to time.
6.11 INDEMNIFICATION OF OTHER PERSONS
The provisions of this Article VI shall not be deemed to preclude the
indemnification of any person who is not an Agent (as defined in Section 6.1),
but whom the corporation has the power or obligation to indemnify under the
provisions of the General Corporation Law of the State of Delaware or otherwise.
The corporation may, in its sole discretion, indemnify an employee, trustee or
other agent as permitted by the General Corporation Law of the State of
Delaware. The corporation shall indemnify an employee, trustee or other agent
where required by law.
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<PAGE> 31
6.12 SAVINGS CLAUSE
If this Article or any portion thereof shall be invalidated on any ground
by any court of competent jurisdiction, then the corporation shall nevertheless
indemnify each Agent against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement with respect to any action, suit,
proceeding or investigation, whether civil, criminal or administrative, and
whether internal or external, including a grand jury proceeding and an action or
suit brought by or in the right of the corporation, to the full extent permitted
by any applicable portion of this Article that shall not have been invalidated,
or by any other applicable law.
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise prided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
MISCELLANEOUS
7.1 FISCAL YEAR
The fiscal year of the corporation shall be determined by resolution of
the Board of Directors.
7.2 SEAL
The corporate seal shall have the name of the corporation inscribed
thereon and shall be in such form as may be approved from time to time by the
Board of Directors.
7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES
Any written waiver of notice, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of any regular or special meeting
of the stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice.
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<PAGE> 32
7.4 INTERESTED DIRECTORS; QUORUM
No contract or transaction between the corporation and one or more of its
directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if: (1) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum: or (2) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (3) the contract or
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
7.5 FORM OF RECORDS
Any records maintained by the corporation in the regular course of its
business, including its stock ledger, books of account, and minute books, may be
kept on, or be in the form of, punch cards, magnetic tape, photographs,
microphotographs, or any other information storage device, provided that the
records so kept can be converted into clearly legible form within a reasonable
time. The corporation shall so convert any records so kept upon the request of
any person entitled to inspect the same.
7.6 AMENDMENT OF BY-LAWS
These by-laws may be altered or repealed, and new by-laws made, by the
Board of Directors, but the stockholders may make additional by-laws and may
alter and repeal any by-laws whether adopted by them or otherwise.
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<PAGE> 1
Exhibit 4.1
[CERTIFICATE]
CYBERMEDIA
CYBERMEDIA, INC.
THIS CERTIFICATE IS TRANSFERABLE IN THE CITY OF BOSTON, MA OR NEW YORK, NY
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR STATEMENTS RELATING TO RIGHTS, PREFERENCES, PRIVILEGES AND
RESTRICTIONS, IF ANY.
This Certifies that CUSIP 23249P 10 7
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $0.01 PAR VALUE, OF
CYBERMEDIA, INC.
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN
PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE
PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE
TRANSFER AGENT AND REGISTERED BY THE REGISTRAR.
WITNESS THE FACSIMILE SEAT OF THE CORPORATION AND THE FACSIMILE
SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
Dated
/s/ [Illegible] CYBERMEDIA, INC. /s/ [Illegible]
- -------------------------- CORPORATE SEAL ------------------------------
SECRETARY June 25, 1988 PRESIDENT AND CHIEF
DELAWARE EXECUTIVE OFFICER
Countersigned and Registered:
THE FIRST NATIONAL BANK OF BOSTON
Transfer Agent and Registrar
By: /s/ [Illegible]
-----------------------------
Authorized Signature
AMERICAN BANK NOTE COMPANY SEPTEMBER 10, 1996 fm
3504 ATLANTIC AVENUE
SUITE 12 046214fc
LONG BEACH, CA 90807
(310) 989-2333
(FAX) (310) 426-7450 308-19X proof: Rhy REV 1
<PAGE> 2
A statement of the rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes or series of shares and upon
the holders thereof as established, from time to time, by the Articles of
Incorporation of the Corporation and by any certificate of determination, and
the number of shares constituting each class and series and the designations
thereof, may be obtained by the holder hereof upon written request and without
charge from the Secretary of the Corporation at its corporate headquarters.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - __________Custodian___________
(Cust) (Minor)
under Uniform Gifts to Minors
Act___________________________
(State)
UNIF TRF MIN ACT - __________Custodian (until age________)
(Cust)
__________under Uniform Transfers
(Minor)
to Minors Act__________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
/ /
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_____________________________________
X__________________________________
X__________________________________
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF
THIS CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17 ACT 18.
AMERICAN BANK NOTE COMPANY SEPTEMBER 5, 1996 dw
3504 ATLANTIC AVENUE
SUITE 12 046214bk
LONG BEACH, CA 90807
(310) 989-2333
(FAX) (310) 426-7450 308-19X proof: Rhy NEW
<PAGE> 1
EXHIBIT 5.1
September 26, 1996
CyberMedia, Inc
300 Ocean Park Blvd. Suite 2001
Santa Monica, CA 90405
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you with
the Securities and Exchange Commission (the "Commission") on August 29, 1996 (as
such may be further amended or supplemented, the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended,
of 2,000,000 shares of your Common Stock (the "Shares"). The Shares, which
include up to 300,000 shares of Common Stock issuable pursuant to an
over-allotment option granted to the underwriters (the "Underwriters"), are to
be sold to the Underwriters as described in such Registration Statement for sale
to the public. As your counsel in connection with this transaction, we have
examined the proceedings proposed to be taken by you in connection with the
issuance and sale of the Shares.
Based on the foregoing, it is our opinion that, upon conclusion of the
proceedings being taken or contemplated by us, as your counsel, to be taken
prior to the issuance of the Shares and upon completion of the proceedings taken
in order to permit such transactions to be carried out in accordance with the
securities laws of various states where required, the Shares, when issued and
sold in the manner described in the Registration Statement, will be legally and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the used of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendments thereto, which has been approved by us as such may be further
amended or supplemented, or incorporated by reference in any registration
statement relating to the prospectus filed pursuant to Rule 462(b) of the Act.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
/S/ WILSON, SONSINI, GOODRICH & ROSATI
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EXHIBIT 10.2
CYBERMEDIA, INC.
AMENDED 1993 STOCK PLAN
(As amended and restated August 13, 1996)
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant of an option and subject to the applicable provisions of Section 422 of
the Code and the regulations promulgated thereunder. Stock purchase rights may
also be granted under the Plan.
2. Certain Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee appointed by the Board of
Directors in accordance with of Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means CyberMedia, Inc., a California corporation.
(g) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services; provided that the term Consultant shall not
include directors who are not compensated for their services or are paid only a
director's fee by the Company.
(h) "Continuous Status as an Employee" means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of
absence approved by the Board, provided that such leave is for a period of not
more than ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) transfers between
locations of the Company or between the Company, its Subsidiaries or its
successor.
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(i) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported, as quoted
on such system or exchange for the last market trading day prior to the time of
determination) as reported in the Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high and low asked prices for the Common Stock or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
(o) "Optioned Stock" means the Common Stock subject to an Option.
(p) "Optionee" means an Employee or Consultant who receives an
Option.
(q) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this 1993 Stock Plan.
(s) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 below.
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(t) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(u) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 7,804,000(1,2) shares of Common Stock plus an annual increase
to be added on each anniversary date of the adoption of the Plan equal to the
lesser of (i) 500,000 shares, (ii) six percent of the outstanding Shares on such
date or (iii) a lesser amount determined by the Board. The Shares may be
authorized, but unused or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Composition of Administrator.
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3
promulgated under the Exchange Act or any successor rule thereto, as in effect
at the time that discretion is being exercised with respect to the Plan ("Rule
16b-3"), and by any other legal requirements relating to the administration of
stock plans, if any, (collectively, "Applicable Laws"), the Plan may (but need
not) be administered by different bodies with respect to directors, non-director
officers and Employees who are neither directors nor officers.
(ii) Administration With Respect to Directors and Officers.
With respect to grants of Options or Stock Purchase Rights to Employees who are
also officers or directors of the Company, the Plan shall be administered by (A)
the Board if the Board may administer the Plan in compliance with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan,
or (B) a Committee designated by the Board to administer the Plan, which
Committee shall be constituted in such a manner as to permit the Plan to comply
with Rule 16b-3 with respect to a plan intended to qualify thereunder as a
discretionary plan. Once appointed, such Committee shall continue to serve in
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(1) The maximum aggregate number of shares which may be optioned and
sold under the Plan was increased from 2,000,000 shares to 3,500,000
shares by the Board of Directors of the Company on July 16, 1995.
The shareholders of the Company subsequently approved the amendment
to the Plan on September 8, 1995.
(2) The maximum aggregate number of shares which may be optioned and
sold under the Plan was increased from 5,804,000 shares to 7,804,000
shares by the Board of Directors of the Company on June 26, 1996.
The shareholders of the Company subsequently approved the amendment
to the Plan on August 13, 1996.
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its designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
(iii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options to Employees or Consultants who are
neither directors nor officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted to satisfy Applicable Laws. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the officers, Consultants and Employees to whom
Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and
Stock Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation or waiver of
forfeiture restrictions regarding any Option or other award and/or the shares of
Common Stock relating thereto, based in each case on such factors as the
Administrator shall determine, in its sole discretion);
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
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(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights; and
(x) to construe and interpret the terms of the Plan.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time, with or
without cause.
(e) The following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an additional 500,000 Shares
which shall not count against the limit set forth in subsection (i) above.
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(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the canceled Option will be counted against the limits
set forth in subsections (i) and (ii) above. For this purpose, if the exercise
price of an Option is reduced, the transaction will be treated as a cancellation
of the Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the shareholders of
the Company as described in Section 19 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 15 of the
Plan.
7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option, the per share
exercise price for the Shares to be issued pursuant to the exercise of an Option
shall be determined by the Administrator.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of
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an Incentive Stock Option, shall be determined at the time of grant) and may
consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares
which (x) in the case of Shares acquired upon exercise of an Option either have
been owned by the Optionee for more than six months on the date of surrender or
were not acquired, directly or indirectly, from the Company, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (5) delivery of a
properly executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, (6) any combination of the foregoing methods
of payment, or (8) such other consideration and method of payment for the
issuance of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan, but in no case shall vest at a rate of less than 20% per year over
five (5) years from the date the Option is granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may, as authorized by the Administrator, consist of
any consideration and method of payment allowable under Section 8(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee with the
Company (as the case may be), such Optionee may, but only within ninety (90)
days (or such other period of time as is determined by the Administrator, with
such determination in the case of an Incentive Stock Option being made at the
time of grant of the Option and not exceeding ninety (90) days) after the date
of such termination (but in no event later than the expiration date of the term
of such Option as set forth in the Option Agree-
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ment), exercise his Option to the extent that Optionee was entitled to exercise
it at the date of such termination. To the extent that Optionee was not entitled
to exercise the Option at the date of such termination, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate.
(c) Disability of Optionee. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her disability, the Optionee may, but only within twelve (12) months from the
date of such termination (and in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise the Option
to the extent otherwise entitled to exercise it at the date of such termination.
If such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall automatically cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option on
the day three months and one day following such termination. To the extent that
the Optionee was not entitled to exercise the Option at the date of termination,
or if the Optionee does not exercise such Option to the extent so entitled
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise
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the offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
ninety (90) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the Committee
may determine but in no case at a rate of less than 20% per year over five years
from the date of purchase.
(c) Other Provisions. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by
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the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not been previously exercised, each Option will terminate immediately
prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding Option and Stock Purchase
Right shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation.
In the event that such successor corporation does not agree to assume the Option
or Stock Purchase Right or to substitute an equivalent option or right, the
Administrator shall notify the Optionee that the Option or Stock Purchase Right
shall be exercisable to the extent then vested for a period of fifteen (15) days
from the date of such notice, and the Option will terminate upon the expiration
of such period.
13. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
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As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
16. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
17. Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Board shall approve from time to time.
18. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law.
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CYBERMEDIA, INC.
AMENDED 1993 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing Continuous Status as
an Employee or Consultant (as described in the Plan and the attached Restricted
Stock Purchase Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $_________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE
OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Stock Purchase Right is granted under and
governed by the terms and conditions of the CyberMedia, Inc. Amended 1993 Stock
Plan and the Restricted Stock Purchase Agreement, attached hereto as Exhibit
A-1, both of which are made a part of this document. You further agree to
execute the attached Restricted Stock Purchase Agreement as a condition to
purchasing any shares under this Stock Purchase Right.
GRANTEE: CyberMedia, Inc.
___________________________ By: ___________________________
Signature
___________________________ Title: ___________________________
Print Name
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EXHIBIT A-1
CYBERMEDIA, INC.
AMENDED 1993 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is
an Employee or Consultant of the Company, and the Purchaser's continued
participation is considered by the Company to be important for the Company's
continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Administrator has granted to the Purchaser a
Stock Purchase Right subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and
the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
(a) In the event the Purchaser's Continuous Status as an Employee or
Consultant terminates for any or no reason (including death or disability)
before all of the Shares are released from the Company's Repurchase Option (see
Section 4), the Company shall, upon the date of such termination (as reasonably
fixed and determined by the Company) have an irrevocable, exclusive option (the
"Repurchase Option") for a period of sixty (60) days from such date to
repurchase up to that number of shares which constitute the Unreleased Shares
(as defined in Section 4) at the original purchase price per share (the
"Repurchase Price"). The Repurchase Option shall be exercised by the Company by
delivering written notice to the Purchaser or the Purchaser's executor (with a
copy to the Escrow Holder) AND, at the Company's option, (i) by delivering to
the Purchaser or the Purchaser's executor a check in the amount of the aggregate
Repurchase Price, or (ii) by canceling an amount of the Purchaser's indebtedness
to the Company equal to the aggregate Repurchase Price, or (iii) by a
combination of (i) and (ii) so that the combined payment and cancellation of
indebtedness equals the aggregate Repurchase Price. Upon delivery of such notice
and the payment of the aggregate Repurchase Price, the Company shall become the
legal and beneficial owner of the Shares being
<PAGE> 14
repurchased and all rights and interests therein or relating thereto, and the
Company shall have the right to retain and transfer to its own name the number
of Shares being repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares to
be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4. Release of Shares From Repurchase Option.
(a) _______________________ percent (______%) of the Shares shall be
released from the Company's Repurchase Option [one year] after the Date of Grant
and __________________ percent (______%) of the Shares [at the end of each month
thereafter], provided that the Purchaser's Continuous Status as an Employee or
Consultant has not terminated prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in Section 6
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
Agreement, the
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<PAGE> 15
Company may require the spouse of Purchaser, if any, to execute and deliver to
the Company the Consent of Spouse attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares issued hereunder
shall be endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Purchaser understands that the
-3-
<PAGE> 16
Purchaser (and not the Company) shall be responsible for the Purchaser's own tax
liability that may arise as a result of the transactions contemplated by this
Agreement. The Purchaser understands that Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code"), taxes as ordinary income the difference
between the purchase price for the Shares and the Fair Market Value of the
Shares as of the date any restrictions on the Shares lapse. In this context,
"restriction" includes the right of the Company to buy back the Shares pursuant
to the Repurchase Option. The Purchaser understands that the Purchaser may elect
to be taxed at the time the Shares are purchased rather than when and as the
Repurchase Option expires by filing an election under Section 83(b) of the Code
with the IRS within 30 days from the date of purchase. The form for making this
election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the laws of the State of
[state]. This Agreement, subject to the terms and conditions of the Plan and the
Notice of Grant, represents the entire agreement between the parties with
respect to the purchase of the Shares by the Purchaser. Subject to Section 15(c)
of the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Agreement, the terms and conditions of
the Plan shall prevail. Unless otherwise defined herein, the terms defined in
the Plan shall have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be given
by either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this Agreement
shall not in any way be construed as a waiver of any such provision, nor prevent
that party from thereafter enforcing
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<PAGE> 17
any other provision of this Agreement. The rights granted both parties hereunder
are cumulative and shall not constitute a waiver of either party's right to
assert any other legal remedy available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE
OR CONSULTANT AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED
OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS AN EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD,
OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT
TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH
OR WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED:
----------------------------
PURCHASER: CyberMedia, Inc.
By:
- ---------------------------------- ------------------------------
Signature
Title:
- ---------------------------------- ------------------------------
Print Name
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<PAGE> 18
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto __________________________ (__________) shares of the Common
Stock of CyberMedia, Inc. standing in my name of the books of said corporation
represented by Certificate No. _____ herewith and do hereby irrevocably
constitute and appoint __________________________ to transfer the said stock on
the books of the within named corporation with full power of substitution in the
premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between ________________________ and
the undersigned dated ______________, 19__.
Dated: _______________, 19__
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 19
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
, 19
Corporate Secretary
Dear :
As Escrow Agent for both CyberMedia, Inc., a California corporation (the
"Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or
<PAGE> 20
certificates representing so many shares of stock as are not then subject to the
Company's Repurchase Option. Within 90 days after cessation of Purchaser's
continuous employment by or services to the Company, or any parent or subsidiary
of the Company, you shall deliver to Purchaser a certificate or certificates
representing the aggregate number of shares held or issued pursuant to the
Agreement and not purchased by the Company or its assignees pursuant to exercise
of the Company's Repurchase Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
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<PAGE> 21
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: CyberMedia, Inc.
PURCHASER: -----------------------
-----------------------
-----------------------
ESCROW AGENT: Corporate Secretary
CyberMedia, Inc.
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
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<PAGE> 22
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the laws of the State of California.
Very truly yours,
CyberMedia, Inc.
By:
--------------------------------------
Title:
--------------------------------------
PURCHASER:
--------------------------------------------
(Signature)
--------------------------------------------
(Typed or Printed Name)
ESCROW AGENT:
- ----------------------------
Corporate Secretary
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<PAGE> 23
EXHIBIT A-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of CyberMedia, Inc., as set forth in the Agreement, I hereby appoint my
spouse as my attorney-in-fact in respect to the exercise of any rights under the
Agreement and agree to be bound by the provisions of the Agreement insofar as I
may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: _______________, 19__
___________________________
Signature of Spouse
<PAGE> 24
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows:___________ shares (the "Shares") of the Common Stock of
CyberMedia, Inc. (the "Company").
3. The date on which the property was transferred is: _____________, 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the Shares
based on the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will never
lapse, of such property is:
$_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ___________________, 19____ ____________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____ ____________________________
Spouse of Taxpayer
<PAGE> 25
CYBERMEDIA, INC.
STOCK OPTION AGREEMENT
UNDER THE
AMENDED 1993 STOCK PLAN
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
Unless otherwise defined herein, the terms defined in the CyberMedia,
Inc. Amended 1993 Stock Plan (the "Plan") shall have the same meanings in this
Stock Option Agreement.
Grant Number: Grant No.
Optionee's Name: Name
Address: Address
<PAGE> 26
I. NOTICE OF STOCK OPTION GRANT
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Stock Option Agreement,
as follows:
Grant Number: Grant No.
Optionee's Name: Name
Date of Grant: Grant date
Type of Option: X Incentive Stock Option
---
Nonstatutory Stock Option
---
Total Shares Granted: No. Shares
Exercise Price per Share: Exercise Price
Total Exercise Price: Total Exercise Price
Term/Expiration Date: Exp. date
Vesting Commencement: Vesting date
Vesting Schedule: This Option may be exercised, in whole or
in part, in accordance with the following
"Vesting Schedule":
1/4th of the Shares subject to the Option
shall vest one year from the Vesting
Commencement Date, and 1/48th of the Shares
subject to the Option shall vest at the end
of each full month thereafter.
Termination Period: The "Termination Period" during which this
Option may be exercised is 90 days (3 months
maximum for Incentive Stock Options) after
termination of Optionee's employment or
consulting relationship, or such longer
period as may be applicable upon death or
Disability of Optionee as provided in the
Plan, but in no event later than the
Term/Expiration Date as provided above.
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<PAGE> 27
II. AGREEMENT
1. Grant of Option. The Company hereby grants to the Optionee named in
the Notice of Grant set forth as Part I above (the "Optionee"), an option (the
"Option") to purchase a total number of shares of Common Stock (the "Shares")
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the "Exercise Price") subject to the terms, definitions and
provisions of the Plan, which is incorporated herein by reference.
If designated an Incentive Stock Option ("ISO"), this Option is
intended to qualify as an incentive stock option as defined in Section 422 of
the Code. However, if this Option is intended to be an Incentive Stock Option,
to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall
be treated as a Nonstatutory Stock Option ("NSO"). If designated a Nonstatutory
Stock Option ("NSO"), this Option is not intended to qualify as an incentive
stock option.
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Stock Option Agreement. In the event
of Optionee's death, Disability or other termination of Optionee's employment or
consulting relationship, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Stock Option Agreement.
Notwithstanding the foregoing, this Option shall only be exercisable if
stockholder approval of the Plan is obtained within twelve months of the
adoption of the Plan by the Board.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
which shall state the election to exercise the Option, the number of Shares as
to which the Option is being exercised (the "Exercised Shares") and such other
representations and agreements as may be required by the Company pursuant to the
provisions of the Plan. The Exercise Notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The Exercise Notice shall be accompanied by payment of the aggregate
Exercise Price as to all Exercised Shares. This Option shall be deemed to be
exercised upon receipt by the Company of such fully executed Exercise Notice
accompanied by such aggregate Exercise Price and any required withholding tax.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares are then
listed. Assuming such compliance, for income tax purposes the Exercised Shares
shall be considered transferred to the Optionee on the date the Option is
exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(a) cash; or
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<PAGE> 28
(b) check; or
(c) if there is a public market for the Shares and they are
registered under the Securities Act, delivery of a properly executed exercise
notice together with such other documentation as the Administrator and the
broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price.
4. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
5. Termination of Relationship. In the event of termination of
Optionee's consulting relationship or Continuous Status as an Employee, Optionee
may, to the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise this Option during the Termination Period set out
in the Notice of Grant. To the extent that Optionee was not entitled to exercise
this Option at the date of such termination, or if Optionee does not exercise
this Option within the time specified herein, the Option shall terminate.
6. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. Standoff Agreement. Optionee agrees, in connection with any public
offering of the Company's equity securities, not to sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
Shares (other than those included in the registration, if any) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed one hundred eighty (180) days) from the
effective date of such registration as may be requested by the Company or such
underwriters; provided that the officers and directors of the company who own
stock of the Company also agree to such restrictions.
8. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
[This space intentionally left blank.]
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<PAGE> 29
9. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of some of the federal and California tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur
regular federal income tax and California income tax liability upon exercise of
a NSO. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the Fair
Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price. If the Optionee is an Employee or a former Employee,
the Company will be required to withhold from his or her compensation or collect
from Optionee and pay to the applicable taxing authorities an amount in cash
equal to a percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies
as an ISO, the Optionee will have no regular federal income tax or state income
tax liability upon its exercise, although the excess, if any, of the Fair Market
Value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price will be treated as an adjustment to alternative minimum taxable
income for federal tax purposes and may subject the Optionee to alternative
minimum tax in the year of exercise. In the event that the Optionee undergoes a
change of status from Employee to Consultant, any Incentive Stock Option of the
Optionee that remains unexercised shall cease to qualify as an Incentive Stock
Option and will be treated for tax purposes as a Nonstatutory Stock Option on
the ninety-first (91st) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least
one year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least
one year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price.
-5-
<PAGE> 30
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by California law except for that body of
law pertaining to conflict of laws.
[This space intentionally left blank.]
-6-
<PAGE> 31
CYBERMEDIA, INC.,
a California corporation
By:
-------------------------------
Title:
-------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and certain
information related thereto and represents that he is familiar with the terms
and provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions thereof. Optionee has reviewed the Plan and this Option in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the Option.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions arising under the
Plan.
Dated: ---------------------- ---------------------------------
Name
-7-
<PAGE> 32
EXHIBIT A
CYBERMEDIA, INC.
AMENDED 1993 STOCK PLAN
EXERCISE NOTICE
CyberMedia, Inc.
3000 Ocean Park Boulevard
Suite 2001
Santa Monica, CA 90405
Attention: Secretary
1. Exercise of Option. Effective as of today, _________________, the
undersigned ("Purchaser") hereby elects to purchase _________ shares (the
"Shares") of the Common Stock of CyberMedia, Inc. (the "Company") under and
pursuant to the Company's 1993 Stock Plan (the "Plan") and the Stock Option
Agreement dated June 26, 1996 (the "Option Agreement"). The aggregate purchase
price for the Shares shall be $__________, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions. Purchaser acknowledges
the representations made in the Option Agreement.
4. Rights as Stockholder. Subject to the terms and conditions of this
Agreement, Purchaser shall have all of the rights of a stockholder of the
Company with respect to the Shares from and after the date the stock certificate
evidencing such Shares is issued, as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company. A
share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE> 33
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties and supersede in their
entirety all prior undertakings and agreements of the Company and Purchaser with
respect to the subject matter hereof, and such agreement is governed by
California law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
PURCHASER: CYBERMEDIA, INC.
By:
- ------------------------------------ --------------------------
Signature
Name Its:
- ------------------------------ ------------------------------------
Print Name
Address: Address:
Address 3000 Ocean Park Blvd., Suite 2001
Santa Monica, CA 90405
-2-
<PAGE> 1
EXHIBIT 10.9
DISTRIBUTION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of February
28,1996 by and between INGRAM MICRO INC., a California corporation ("Ingram")
and CYBERMEDIA, a California corporation ("Vendor").
RECITALS
Vendor manufactures, produces, and/or supplies microcomputer products
and desires to grant to Ingram the right to sell and distribute certain of those
products, as hereinafter defined, upon the terms and conditions set forth below.
Ingram is engaged in the sale and distribution of microcomputer products and
desires to have the right to sell and distribute Vendor's products upon said
terms and conditions.
In consideration of the mutual covenants and agreements set forth
below, the parties hereto agree as follows:
1. GRANT OF DISTRIBUTION RIGHTS.
1.1 Vendor hereby grants to Ingram, and Ingram accepts, the non-exclusive right
to distribute in the USA and Canada all computer products produced and/or
offered by Vendor during the term of this Agreement, including those products
listed on Exhibit A attached hereto and made a part hereof (hereinafter all
products to be distributed shall be referred to as the "Product" or "Products").
1.2 Vendor agrees to make available and to sell to Ingram such Product as Ingram
shall order from Vendor at the prices and subject to the terms set forth in this
Agreement. Ingram shall not be required to purchase any minimum amount or
quantity of the Product.
1.3 Vendor may appoint other distributors to distribute its Products. Ingram
shall have the right to obtain and/or retain the rights to distribute any other
products, including products which may compete with the Products.
2. TERM.
2.1 The term of this Agreement shall be for a period of one (1) year, beginning
on the date first above written. Thereafter, this Agreement shall be renewed for
successive one (1) year terms without further notice, unless terminated sooner
as provided under the provisions of this Agreement.
2.2 Either party may terminate this Agreement, with or without cause, by giving
ninety (90) days written notice to the other party.
<PAGE> 2
3. OBLIGATIONS OF VENDOR.
3.1 Vendor shall use its best efforts to ship the Product within five (5) days
after receipt of Ingram's order for the Product, unless otherwise directed by
Ingram.
3.2 At no charge to Ingram, Vendor shall support the Product and any efforts to
sell the Product by Ingram, and provide sales literature, advertising materials
and reasonable training and support in the sale and use of the Product to
Ingram's employees and customers, if requested by Ingram.
3.3 Vendor shall notify Ingram at least thirty (30) days prior to the date any
new Product is to be introduced and shall make such Product available for
distribution by Ingram not later than the date it is first introduced in the
marketplace.
3.4 Vendor agrees to maintain sufficient Product inventory to permit it to fill
Ingram's orders as required herein. If a shortage of any Product in Vendor's
inventory exists in spite of Vendor's good faith efforts, Vendor agrees to
allocate its available inventory of such Product to Ingram in proportion to
Ingram's percentage of all of Vendor's customer orders for such Product during
the previous sixty (60) days.
3.5 For each Product shipment to Ingram, Vendor shall issue to Ingram an invoice
showing Ingram's order number and the Product part number, description, price
and any discount. At least monthly, Vendor shall provide Ingram with a current
statement of account, listing all invoices outstanding and any payments made and
credits given since the date of the previous statement, if any.
4. OBLIGATIONS OF INGRAM.
4.1 Ingram will list the Product in one or more of its catalogs and make the
Product available to its customers.
4.2 Ingram will advertise and/or promote the Products in a commercially
reasonable manner and will transmit Product information and promotional
materials to its customers, as reasonably necessary.
4.3 As reasonably necessary, Ingram will make its facilities available for, and
will assist Vendor in providing, Product training and support required under
Section 3.2 hereof.
4.4 Ingram will provide Product technical assistance to its customers as it is
reasonably able to do so, and will refer all other technical matters directly to
Vendor.
4.5 Ingram may handle its customers' Product returns by batching them for return
to Vendor for credit at regular intervals.
-2-
<PAGE> 3
5. PRICE AND TERMS.
5.1 The price and applicable discount, if any, for the Product shall be as set
forth in Exhibit A. Ingram shall not be bound to sell Product to its customers
at any prices suggested by Vendor.
5.2 Vendor shall have the right to change the list price of any Product upon
giving thirty (30) days' prior written notice to Ingram. In the event that
Vendor shall raise the list price of a Product, all orders for such Product
placed prior to the effective date of the price increase shall be invoiced at
the lower price.
5.3 In the event that Vendor reduces the price of any Product or offers the
Product at a lower price, including raising the discount offered, to any similar
distributor, Vendor shall promptly credit Ingram for the difference between the
invoice price charged to Ingram and the reduced price for each unit of Product
held in inventory by Ingram on the date the reduced price is first offered.
Vendor will also credit Ingram for the difference between the invoice price
charged to Ingram and the reduced price for each unit of Product held in
inventory by Ingram's customers on the date the reduced price is first offered
by Vendor if Ingram's customers request a credit resulting from Vendor's price
reduction. Should any of Ingram's customers request a price adjustment as
outlined in this Section, Ingram shall provide for an independent third party
audit of that customer's inventory upon Vendor's reasonable request and at
Vendor's expense. Ingram will use commercially reasonable efforts to provide
inventory reporting of its customers' inventory.
5.4 Terms of payment far any order shall bee percent (3%) cash discount with
order, net forty-five (45) except for Ingram's initial order for any Product,
for which payment shall be due ninety (90) days from receipt of the applicable
invoice by Ingram. For the purposes of earning a discount, payment is deemed to
be made on the postmark date of Ingram's transmittal.
5.5 Notwithstanding any other provision in this Agreement to the contrary,
Ingram shall not be deemed in default under this Agreement if it withholds any
payment to Vendor because of a legitimate dispute between the parties.
6. SHIPPING.
6.1 Vendor shall ship Product only pursuant to Ingram purchase orders received
by Vendor. Product shall be shipped F.O.B. Ingram's warehouse, with risk of loss
or damage to pass to Ingram upon delivery by Vendor to the warehouse designated
on Ingram's purchase order.
7. COOPERATIVE ADVERTISING AND MARKETING FUNDS.
7.1 Ingram may advertise and promote the Product and/or Vendor in a commercially
reasonable manner and may use Vendor's trademarks, service marks and trade names
in connection therewith;
-3-
<PAGE> 4
provided that, Ingram shall submit the advertisement or promotion to Vendor for
review and approval prior to initial release, which approval shall not be
unreasonably withheld or delayed.
7.2 Vendor agrees to cooperate with Ingram in advertising and promoting the
Product and/or Vendor and hereby grants Ingram a cooperative advertising
allowance of up to [ * ] of invoice amounts for Product purchased by Ingram from
Vendor to the extent that Ingram or customer/dealers use the allowance for any
pre-approved advertising and promoting which features Product and/or Vendor.
Upon receipt of reasonable evidence of advertising expenditures, Vendor agrees
to credit the amount of any such expenditures against future purchases by
Ingram.
7.3 Vendor understands that additional marketing programs may be offered by
Ingram to Vendor. Such programs may include a launch program that requires
additional funds in addition to the cooperative advertising funds specified in
Section 7.2.
8. DEMONSTRATION UNITS.
8.1 At the request of Ingram, Vendor shall consign to Ingram a reasonable number
of demonstration units of the Product to aid Ingram and its sales staff in the
support and promotion of the Product. All units consigned will be returned to
Vendor in good condition, reasonable wear and tear excepted, when requested by
Vendor at any time eleven (11) months after delivery to Ingram.
9. STOCK BALANCING.
9.1 General Stock Balancing. Notwithstanding anything else to the contrary in
this Agreement, at any time during the term of this Agreement, Ingram may return
any Products which are in their original packaging to Vendor for full credit of
the Products' purchase price, less any discounts or credits previously received.
All freight charges for returned Products will be paid by Ingram.
9.2 Returns After Termination. Ingram may return any Product in its inventory to
Vendor for credit against outstanding invoices, or for cash refund if there are
no invoices then outstanding, within sixty (60) days following the expiration or
earlier termination of this Agreement. Any credit or refund due Ingram for
returned Product shall be equal to the purchase price of the Product, less any
discounts or credits previously received, except for early payment or prepayment
discounts.
9.3 Returns after Product Discontinuation. Vendor shall provide Ingram with
thirty (30) days written notice prior to the Vendor's discontinuation of any
Product. Upon receipt of such notice, Ingram shall have the right to, at any
time during the term of this Agreement, return all discontinued Products
purchased from Vendor for full credit of the Products' purchase price, less any
discounts or credits previously received, except for early payment or prepayment
discounts.
- ---------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
-4-
<PAGE> 5
10. PRODUCT WARRANTIES.
10.1 VENDOR PROVIDES A WARRANTY WITH EACH PRODUCT. INGRAM WILL PASS SUCH
WARRANTY THROUGH TO ITS CUSTOMERS. EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION,
VENDOR DISCLAIMS ALL WARRANTIES, REPRESENTATIONS, AND STATEMENTS, EXPRESS OR
IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION , ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT
SHALL SUPPLIER BE LIABLE FOR IN INDIRECT, SPECIAL, CONSEQUENTIAL, OR INCIDENTAL
DAMAGES HOWEVER CAUSED, INCLUDING, WITHOUT LIMITATION, ANY DAMAGES ARISING OUT
OF THE USE OF OPERATION OF THE PRODUCTS, DELAY IN DELIVERY FOR REPAIR, LOSS OF
USE OF THE PRODUCTS, OR DAMAGE TO ANY DOCUMENTS OR OTHER PROPERTY OF DISTRIBUTOR
OR ITS CUSTOMERS.
10.2 Ingram may return Product found to be defective, or returned as defective
by a customer of Ingram, for immediate credit of the amount of the Product's
purchase price plus all freight charges incurred by Ingram in returning the
Product.
10.3 In the event Vendor recalls any or all of the Products due to defects,
revisions, or upgrades, Ingram shall provide reasonable assistance in such
recall; provided that, Vendor shall pay all of Ingram's expenses in connection
with such recall, including handling charges per unit of Product of not less
than two and one-half percent (2-1/2%) of Ingram's price.
11. INDEMNITY.
11.1 Vendor shall defend, indemnify, and hold harmless Ingram from and against
any claims, demands, liabilities, or expenses (including attorney's fees and
costs) for any injury or damage, including, but not limited to, any personal or
bodily injury or property damage, arising out of or resulting in any way from
any defect in Products. This duty to indemnify Ingram shall be in addition to
the warranty obligations of Vendor.
11.2 Vendor shall defend, indemnify and hold Ingram harmless from and against
all damages and costs incurred by Ingram arising from the infringement of or any
claims of infringement of any patents, copyrights, trademarks, trade secrets, or
other proprietary rights in the manufacture or marketing of the Products;
provided that, Ingram promptly notifies Vendor of the charge of infringement or
legal proceeding. If there is a claim made or threatened, Vendor may, at its
expense and option, either procure the right to continue using any part of
Product, replace same with a non infringing Product, or modify Product such that
it is non infringing; provided that, if within ninety (90) days after a claim
has been made, Vendor has not procured such right, replaced the Product, or
modified the Product so that it does not infringe, Ingram may return the Product
to Vendor for a full credit against future purchases or for a cash refund, at
Ingram's option.
-5-
<PAGE> 6
12. PRODUCT MARKINGS.
12.1 Vendor shall clearly mark on the packaging of each unit of Product the
Product's name and computer compatibility. Such packaging shall also bear a
machine-readable bar code identifier scannable in standard ABCD format which
identifies the Product and its serial number and fully complies with all
conditions regarding standard product labeling set forth in "Ingram Micro's
Guide To Bar Code: The Product Label," as amended from time to time.
13. REPRESENTATIONS AND WARRANTIES.
Vendor warrants and represents that:
13.1 The Products or their use do not infringe upon any patents, copyrights,
trademarks, trade secrets, or other proprietary rights of others, and that there
are not any suits or proceedings pending or threatened which allege that any
Product or the use thereof infringes upon such proprietary rights;
13.2 The Product prices offered herein are the best prices available to any
similar distributor to whom Vendor sells, and that in the future all prices for
Product made available to Ingram shall be the best prices available to any
similar distributor of the Products;
13.3 Sales to Ingram of the Products at the listed prices and/or discounts do
not in any way constitute violations of federal, state, or local laws,
ordinances, rules or regulations, including any antitrust laws or trade
regulations;
13.4 It has sufficient product liability insurance to enable it to meet its
obligations under Section 15 hereof.
14. DEFAULTS.
14.1 For purposes of this Agreement, a party shall be in default if (a) it
materially breaches a term of this Agreement and such breach continues for a
period of ten (10) business days after it has been notified of the breach, or
(b) it shall cease conducting business in the normal course, become insolvent,
make a general assignment for the benefit of creditors, suffer or permit the
appointment of a receiver for its business or assets, or shall avail itself of
or become subject to any proceeding under the Federal Bankruptcy Act or any
other federal or state statute relating to insolvency or the protection of
rights of creditors.
14.2 Upon the occurrence of an event of default as described in Section 14.1,
the party not in default may immediately terminate this Agreement by giving
written notice to the party in default.
14.3 The rights and remedies provided to the parties in this Section 14 shall
not be exclusive and are in addition to any other rights and remedies provided
by this Agreement or by law or in equity.
-6-
<PAGE> 7
15. INSURANCE.
15.1 During the term of this Agreement, Vendor shall carry insurance coverage
for product liability/completed operations with minimum limits of one million
dollars ($1,000,000). Within ten (10) days of the full execution of this
Agreement, Vendor shall provide Ingram with a Certificate of Insurance evincing
such insurance coverage including (a) a broad form vendor's endorsement naming
Ingram as an additional insured and (b) a mandatory thirty (30) day notice of
cancellation to Ingram.
16. OTHER PROVISIONS.
16.1 Construction. This Agreement shall be construed and enforced in accordance
with the laws of the State of California, except that body of law concerning
conflicts of law.
16.2 Notices. All notices, requests, demands and other communications called for
or contemplated hereunder shall be in writing and shall be deemed to have been
duly given when (i) personally delivered; (ii) two (2) days after mailing by
U.S. certified or registered first-class mail, prepaid; or (iii) one (1) day
after deposit with any nationally recognized overnight courier, with written
verification of receipt, and addressed to the parties at the addresses set forth
at the end of this Agreement or at such other addresses as the parties may
designate by written notice.
16.3 Attorney's Fees. In the event suit is commenced to enforce this Agreement
or otherwise relating to this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees and costs incurred in connection therewith.
16.4 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument; however, this Agreement shall be of no
force or effect until executed by both parties.
16.5 Confidential Information. Neither party shall disclose to the other any
information regarded as Confidential Information by the disclosing party or any
third party. Any confidential disclosures shall be exclusively governed by a
separate agreement.
16.6 No Implied Waivers. The failure of either party at any time to require
performance by the other party of any provision hereof shall not affect in any
way the full rights to require such performance at any time thereafter. The
waiver by either party of a breach of any provision hereof shall not be taken,
construed, or held to be a waiver of the provision itself or a waiver of any
breach thereafter or any other provision hereof.
16.7 Captions and Section Headings. Captions and section headings used herein
are for convenience only, are not a part of this Agreement, and shall not be
used in construing it.
16.8 Covenant of Further Cooperation. Each of the parties agrees to execute and
deliver such further documents and to cooperate in such manner as may be
necessary to implement and give effect to the agreements contained herein.
-7-
<PAGE> 8
16.9 Binding on Heirs and Successors. This Agreement shall be binding upon and
shall inure to the benefit of each party, its successors and assigns.
16.10 Severability. A judicial determination that any provision of this
Agreement is invalid in whole or in part shall not affect the enforceability of
those provisions found not to be invalid.
16.11 Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto pertaining to the subject matter hereof, superseding any and
all previous proposals, representations or statements, oral or written. Any
previous agreements between the parties pertaining to the subject matter of this
Agreement are hereby expressly canceled and terminated. The terms and conditions
of each party's purchase orders, invoices, acknowledgments/confirmations or
similar documentation shall not apply to any order hereunder, and any such terms
and conditions thereon shall be deemed to be objected to without need of further
notice or objection. Any modifications of this Agreement must be in writing and
signed by authorized representatives of both parties hereto.
16.12 Parties Executing. The parties executing this Agreement warrant that they
have the requisite authority to do so.
IN WITNESS WHEREOF, the parties hereunto have executed this Agreement.
"Ingram" "Vendor"
Ingram Micro Inc. CyberMedia
I 600 E. St. Andrew Place 3000 Ocean Park Blvd., Suite 2001
Santa Ana, California 92705 Santa Monica, California 90405
By: /s/ Sanat K. Dutta By: /s/ Unni Warrier
------------------------------- -------------------------------
Sanat K. Dutta Name: Unni Warrier
Executive Vice President -------------------------------
(print or type)
Title:* President
---------------------------
Date: 3/21/96 Date: 3/26/96
------------------------------ -----------------------------
*Agreement must be signed by president or by a duly authorized vice president or
partner.
-8-
<PAGE> 9
EXHIBIT A
PRODUCT PRICE LIST
The prices for the Products offered under this Agreement shall be (check one):
______ As shown on Vendor's price list dated _______________.
X As shown below.
PRODUCT LIST PRICE DISCOUNT
- ---------------------------------------------------------------
First Aid 95 $[ * ]
First Aid 95 Deluxe $[ * ]
- ---------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 1
EXHIBIT 10.10
COMPUTER SOFTWARE
DISTRIBUTION AGREEMENT
This Agreement is made and is effective as of the 1st day of March, by and
between Navarre Corporation ("Navarre") of 7400 49th Avenue North, New Hope,
Minnesota, 55428 and CyberMedia of 3000 Ocean Park Boulevard, Suite 2001, Santa
Monica, California 90405 ("Vendor".)
The Parties have agreed as follows:
1. DEFINITIONS
1.1 The term "Product(s)" shall mean all computer software and hardware,
and related products manufactured or marketed by Vendor during the term
of this Agreement as set forth in Exhibit "A."
1.2 The term "Dealer(s)" shall mean any third party or entity to which
Navarre markets any Products for remarketing.
2. GRANT OF MARKETING RIGHTS
2.1 Vendor grants to Navarre and Navarre accepts from Vendor the right to
purchase Products and to market and distribute Products to Dealers in
North America. This grant is non-exclusive unless otherwise agreed to
by the parties.
2.2 Vendor represents and warrants that as of the date of this Agreement
that it does not sell products to any Distributor not listed on Exhibit
"B" to this Agreement. Vendor agrees to notify Navarre of any new
Distributors added to this list within thirty (30) days of such
addition.
3. TERM
3.1 The initial term of this Agreement shall be for a period of one (1)
year, unless sooner terminated as provided by this Agreement.
3.2 After the initial term, this Agreement shall be automatically renewed
for successive one (1) year period, unless either party gives the other
written notice at least ninety (90) days prior to the expiration of the
then current contract period that it does not desire that the Agreement
<PAGE> 2
continue. If such notice is given, the Agreement shall terminate at the
end of the then current term.
4. ORDERS AND SHIPMENT AND DELIVERY OF PRODUCTS
4.1 Navarre shall issue orders in writing (which includes facsimile
transmission) or verbally (which must be confirmed in writing.)
4.2 Vendor shall make best efforts to deliver all Products ordered by
Navarre within the time agreed to.
4.3 All Products shall be shipped freight paid, F.O.B. destination.
Navarre's price, shown in Schedule A, includes freight to Navarre's
facility.
4.4 Navarre may cancel all or part of any order prior to the date of
shipment with written notice seven (7) working days before Navarre's
requested delivery date.
4.5 Navarre shall have the option to accept or reject any partial shipments
with written or verbal communication to CyberMedia before rejection of
the shipment.
4.6 A packing list showing Navarre's purchase order number, quantity
ordered, quantity shipped and a detailed identification of the Products
must accompany all shipments.
4.7 All Products shall bear a UPC part code (sell code), and all shipping
cartons shall contain a UPC shipping code (ship unit) [UPC number and
bar code.] The UPC numbers and codes on Products and shipping cartons
shall conform to the Uniform Code Council, National Office Products
Association and Retail Industry Standards.
4.8 Navarre has the right to charge back to Vendor costs incurred by
Navarre or its Dealers due to missing, defective or inaccurate UPC
codes. In no event shall such charges exceed two percent of the
suggested retail price of the Products.
5. PURCHASE PRICE
5.1 Vendor represents and warrants that the price, discounts, payment terms
and return and other provisions set forth with respect to any Product
shall never be less favorable to Navarre than those made available by
Vendor to any similar distributors of such Product. Vendor agrees that
if such a sale occurs, Vendors will offer to Navarre all the same terms
and conditions, taken as whole.
5.2 The Navarre price and the current suggest retail list price for each
Product manufactured or marketed by Vendor is shown on Exhibit "A".
Navarre has the option to add any or all future English language retail
products manufactured or marketed by Vendor. The Navarre price and the
suggested retail price for any Product may only be increased by thirty
(30) days advance
-2-
<PAGE> 3
written notice given by Vendor to Navarre. Vendor will notify Navarre
in writing of the availability of new products or new versions of
existing Products.
5.3 Any announced or published price decrease by Vendor shall apply to
Navarre orders shipped on or after the date the price decrease was
announced or published. In addition, Vendor shall credit to Navarre's
account an amount equal to the difference between the old cost to
Navarre for a Product and the new cost, times the total number of units
of the Product held in Navarre's inventory excluding-, Navarre's
Dealers. A similar credit shall be made available for all affected
Product held by Navarre's Dealers at the time of a price decrease@
Vendor shall cooperate with Navarre to implement the credit for Dealer
stocks of Product affected by a price decrease. Navarre agrees to
track, and keep Vendor informed, of Navarre's inventory and Product
held by Navarre's Dealers at all times, failing which, such credit's
shall not be made.
6. PAYMENT
On or after the date of shipment, Vendor shall invoice Navarre for the purchase
of Product. All amounts specified in any net invoice shall be paid by Navarre
within forty-five (45) days from the date of receipt of the Products. Navarre
shall be granted a three (30/o) percent discount on pre-paid purchases and/or
C.O.D. purchases. Navarre shall have the option to deduct from invoices due
Vendor any credits or money due Navarre from Vendor with prior approval by
Vendor. In case there is a balance due Navarre, Vendor shall issue a check to
Navarre within sixty (60) working days for the credit balance.
7. STOCK BALANCING, RETURNS, PRODUCT RECALLS AND CREDITS
7.1 Navarre may return for credit to Vendor any unit of a Product which, in
the opinion of Navarre, is defective in material or workmanship, is
overstocked or has been outdated by the release of a new version. Upon
receipt of such Product, Vendor shall credit Navarre's account with the
amount originally paid for the Product. All transportation charges
incurred with respect to defective Products or recalled Product shall
be paid by Vendor. Navarre shall pay transportation charges for other
Product returns.
7.2 Credits for products returns, advertising allowances or other credits
provided for by this Agreement will be handled by the issuance of
charge backs by Navarre, and the issuance of a credit memo by Vendor.
8. WARRANTIES, EXCLUSION OF CONSEQUENTIAL DAMAGES
Except as provided in Section 9 hereof, neither parry shall, under any
circumstances, be liable to the other for consequential, incidental, indirect or
special damages arising out of or related to this Agreement or the transactions
contemplated herein, even if such party has been appraised of the likelihood of
such damages occurring.
-3-
<PAGE> 4
9. INDEMNIFICATION
Vendor shall be solely responsible for the design, development, supply,
production and performance of the Products. Vendor agrees to indemnify and hold
Navarre harmless from and against any claim, loss, damage, expense or liability
(including legal fees and costs) that may result, in whole or in part, from:
(a) Any infringement, or any claim of infringement of any patent,
trademark, copyright, trade secret or other proprietary right
with respect to the Products.
(b) Any warranty or product liability claim with respect to the
Products.
(c) Vendor represents and warrants that it has and will maintain
during the term of this Agreement sufficient insurance
coverage, to enable it to meet its obligations under this
section.
10. ADVERTISING
10.1 Navarre shall have the right to utilize Vendor's trade name and any
trademarks and service marks associated with the Products to identify
the origin of the Products in advertising and promotional materials.
With respect to Products made by a third party, Vendor shall ensure
that Navarre has the right to use the third party's trademarks and
service marks associated with the Products in Navarre's advertising and
promotional materials. Navarre will follow established trademark
guidelines of Vendor or such third party.
10.2 Vendor shall support Navarre and Navarre's Dealers with advertising,
marketing and promotional activities. As a part of these activities,
Vendor shall implement cooperative advertising and market development
programs that Navarre and its Dealers can participate in.
11. TERMINATION
11.1 Either party may terminate this Agreement with or without cause with
thirty (30) days written notice. In the event of a material breach of
this Agreement, the party not in breach, may terminate the Agreement
after the failure of the other party to cure such breach within thirty
(30) days of written notification to cure.
11.2 Upon expiration or termination of this Agreement, Navarre shall have
the right, for 120 days after the termination, to return to Vendor all
or a portion of the Products in Navarre's inventory. Vendor agrees to
repurchase any such returned Products at the prices paid for them by
Navarre less any applied credits and discounts.
-4-
<PAGE> 5
12. MISCELLANEOUS
12.1 This Agreement shall be governed by the laws of the state of Minnesota.
Any dispute arising out of this Agreement shall be brought and
prosecuted in a court within Hennepin County Minnesota. For this
purpose, Vendor appoints the Secretary of State of Minnesota as its
agent for service of process.
12.2 This Agreement shall not be assignable by either party except in
connection with a merger or acquisition.
12.3 This Agreement supersedes all prior oral or written proposals and
communications between the parties related to this Agreement, and shall
not be modified, rescinded, waived or otherwise changed except with the
written consent of the parties.
12.4 Each party confirms that no inducements, promises or representations,
not written herein, caused it to enter into this Agreement.
12.5 Navarre shall have the option to deduct from invoices due Vendor any
credits or money due Navarre from Vendor, with prior written approval.
12.6 Neither party to this Agreement is the employee, agent or legal
representative of the other for any purpose whatsoever.
The parties, by the actions of their authorized representatives, have executed
this Agreement, including the attached Schedule A, as of the date first
mentioned above.
CYBERMEDIA NAVARRE CORPORATION
/s/ Unni Warrier Illegible
__________________________________ ________________________________________
By By
President Executive Vice President
__________________________________ ________________________________________
Title Title
3-7-96
__________________________________ ________________________________________
Date Date
-5-
<PAGE> 6
EXHIBIT "A"
to DISTRIBUTION AGREEMENT OF November 8, 1995
Between NAVARRE CORPORATION and CYBERMEDIA
<TABLE>
<CAPTION>
SUGGESTED RETAIL
PRODUCT NAME UPC NUMBER PRICE NAVARRE-PRICE*
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. First Aid for Windows 796244010201 $59.95 $[ * ]
2. PC 911 Ver. 2 796244020200 $39.95 $[ * ]
3. First Aid PC 911 Bundle 796244010096 $99.95 $[ * ]
4. $ $
------------------------- ------------ ----- -----
5. $ $
-------------------------- ------------ ----- -----
6. $ $
-------------------------- ------------ ----- -----
</TABLE>
ADDITIONAL DISCOUNTS
Navarre will be given a [ * ] discount and CyberMedia will receive a monthly
advertisement in Navarre's price book, issued as a credit, for the performance
of Value Added Services for retail accounts for which Navarre provides at least
two of the following services: 1) Advertising co-op assistance. Maintain and
administer co-op fund accrual amounts; 2) E.D.I. Maintain active electronic data
interchange functions; 3) MixAssistance. Manage full product mix selection and
make all mix decisions for retail accounts; 4) Pre-Ticketing. Provide and affix
retailers' price tags; and 5) Planogramming. Design and development of store
planograms.
Navarre may be given a discount, issued as a credit for sales to those retail
accounts to which Navarre provides a full racking service. Racking service means
monthly, instore personnel providing physical inventory management. Such
services and discounts have to be approved in writing by the Vendor.
*Show volume discounts and minimum order quantities here.
Please Sign this Page
/s/ Unni Warrier Illegible
__________________________________ ________________________________________
CYBERMEDIA NAVARRE CORPORATION
- ---------------
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 7
EXHIBIT "B"
American Software and Hardware
Ingram Micro
Micro Central
Merisel
Slash/GTI
<PAGE> 1
EXHIBIT 10.11
DISTRIBUTOR CONTRACT
This agreement is made and entered into jointly by MICRO CENTRAL, INC. a New
Jersey corporation located at 8998 Route 18, Old Bridge, New Jersey 08857 and
CyberMedia, located at 3000 Ocean Park Blvd. Santa Monica, CA and formed as a
corporation in the state of CA hereafter called MANUFACTURER.
1. Term and Right to Distribute
1.1 MANUFACTURER hereby grants Micro Central the right to purchase,
market and distribute certain PRODUCT as defined in Appendix A.
1.2 This agreement shall be for a period of three years beginning
on the date of acceptance of this contract. Thereafter, this
contract will extend automatically for consecutive one year
terms unless terminated under the terms of this contract.
1.3 Both parties signing this agreement warrant they have the legal
right to do so.
2. Obligation of Micro Central
2.1 Micro Central will process orders from customers in as timely
a manner as reasonable. It will offer them programs which may
include: warehouse locations, EDI capability, toll-free numbers,
return and support policies, credit terms, floor planning, DOA
processing and others as available.
2.2 Micro Central is only responsible for applicable property,
sales, Use, documentary, duties, income and other taxes
incurred once the product is received at our location. Micro
Central shall keep accurate records of necessary information,
as required by applicable government agencies, for the
appropriate times required by those agencies.
3. MANUFACTURER Support Policies
3.1 At no charge to Micro Central MANUFACTURER will support
PRODUCT and provide reasonable: efforts to sell PRODUCT;
amounts of sales literature; sales and technical support to
Micro Central and customers.
3.2 MANUFACTURER will, upon request, offer Micro Central a full
working PRODUCT for in house use, testing, training, and
support. In the case of software this PRODUCT shall either be
a network or site license and be at no charge. In the
<PAGE> 2
case of hardware MANUFACTURER shall not charge more than 15%
less than distributor cost.
3.3 MANUFACTURER shall make best effort to ship new PRODUCT, if
ordered by Micro Central, within 1 day of shipment to any other
customer. All other orders shall be processed in as fair and
equitable a manner as reasonable.
3.4 MANUFACTURER will make best effort to notify their marketing or
purchasing contact at Micro Central within 24 hours of notice
to any other customer of a policy, promotion, version, new or
discontinued PRODUCT, bankruptcy, or price decrease: a minimum
of 30 days notice of a change in price, part number or bar code
(This item is critical since Micro Central is under obligation,
and penalty, to inform many of our customers of these facts):
as soon as reasonable of their dropping any other distributor.
4. MANUFACTURER Channel Policies
4.1 MANUFACTURER will include Micro Central in all distributor
listings and prominently display our "Proudly distributed by
Micro Central" sign at all computer trade shows it exhibits.
4.2 Intentionally Omitted.
4.3 MANUFACTURER will recommend all resellers purchase through
distribution and if names are included Micro Central will
be included. If MANUFACTURER sells to resellers it agrees to
maintain a minimum of a 7% difference in pricing between
distributor and reseller pricing.
4.4 MANUFACTURER will give Micro Central a minimum of 30 days prior
written notice before adding a distributor.
4.5 If MANUFACTURER adds a new distributor then MANUFACTURER shall
within 10 days, have an officer of the corporation send a
notice that the specific terms of Item 4.7 are being honored.
4.6 Intentionally Omitted.
4.7 MANUFACTURER will not offer better pricing than described in
Appendix A, discounts, resources, rebates, conditions, terms, opening order
promotions, promotions, return privileges, or prices which are not offered in
writing to Micro Central. MANUFACTURER agrees that it will not divert, or
assist in diverting, any sales away from Micro Central by passing on customer
information to another distributor, intentionally not recommending Micro
Central, or offering terms and condition better than allowed in this contract.
-2-
<PAGE> 3
5. Payment Terms
5.1 MANUFACTURER shall grant Micro Central the option of the
following payment terms: Net 45.3% discount for pre-payment at
the time of shipping or COD, or 0% discount for payments made
within 30 days of receipt of PRODUCT and invoice. For purposes
of determining discount the payment will be deemed made on the
postmark date.
5.2 MANUFACTURER agrees to issue credit memos within 20 days from
receipt of PRODUCT or proper paperwork if not a PRODUCT return.
5.3 Prices and Payments are in US dollars.
5.4 In the event that a credit balance exists MANUFACTURER will
issue a check to Micro Central within 30 working days of
request. In the case where an accounting discrepancy exists the
undisputed portion should be paid, by either party, while the
disputed portion is being reconciled.
5.5 Neither party shall be considered to be in default of this
agreement if it withholds payment due to a legitimate dispute
with the other.
5.6 MANUFACTURER agrees to provide the opening order with terms of
Net 120.
5.7 Intentionally Omitted.
5.8 Micro Central shall be entitled to [*] rebate on all purchases
net of returns and discounts previously given, to compensate for
the increased cost of doing business. This credit shall be in
the form of a credit memo and shall be issued within 20 days of
the close of every month.
5.9 Intentionally Omitted.
6. Product Warranty and Indemnity
6.1 MANUFACTURER warrants PRODUCT act according to their published
specifications and that it holds the proper rights, patents or
agreements allowing them to sell such PRODUCT. MANUFACTURER
further warrants that it is not currently aware of any suits
against them which may effect their right to sell such PRODUCT.
6.2 MANUFACTURER shall defend, indemnify and hold Micro Central,
its officers, agents, employees, resellers, and representatives
harmless against alleged infringements of any patent,
copyrights, trademarks, design rights; or claims, demands,
liabilities, or expenses for any injury, damages or losses
arising from the use, sale, distribution, or transportation of
PRODUCT or arising out of negligence of the
- --------
*Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE> 4
MANUFACTURER. Micro Central agrees to promptly notify
MANUFACTURER of any such claims. MANUFACTURER reserves the right
to defend any such charge and shall be responsible for all legal
costs of its defense.
6.3 Micro Central shall defend, indemnify and hold MANUFACTURER, its
officers, agents, employees and representatives harmless against
claims, demands, liabilities or expenses for any injury, damages
or losses arising from the negligence or misrepresentation on
the part of Micro Central, its officers, agents, employees or
representatives.
7. Disputes
7.1 In the event that a dispute occurs both parties will make every
attempt to reconcile such matters including appointing a new
representative for attempting to reconcile and compromise such
matters. In the event of litigation or arbitration the
prevailing party shall be entitled to interest, as specified by
law, reasonable attorney fees, and court costs.
8. Inventory
8.1 Stock Rotation - Micro Central shall be allowed to return
PRODUCT for full credit. PRODUCT will be returned FOB Micro
Central's warehouse.
8.2 If MANUFACTURER decreases the cost of PRODUCT, by whatever
method. MANUFACTURER will price protect Micro Central by the
decrease in cost multiplied by the number of units in its
inventory, in transit, or in inventory of customers which Micro
Central price protects, less any credits or allowances
previously granted. Price protection will be in the form of a
credit memo. Credit memo will be issued within 10 working days
of receipt of reasonable documentation of the number and
location of units to be price protected. In the event of a
dispute, the undisputed portion will be promptly credited.
8.3 In the event that Micro Central wishes to return any PRODUCT it
will request an RMA. In the event that MANUFACTURER does not
issue an RMA within 20 days Micro Central shall have the right
to return PRODUCT without an RMA and MANUFACTURER shall be
obligated to accept such return.
8.4 MANUFACTURER shall apply a bar code to the outside of its
packaging in conformance with standard industry practices.
MANUFACTURER will indemnify Micro Central from any charges
incurred from a customer of Micro Central due to the
unscanability or changing or bar codes identifiers without
proper notice.
-4-
<PAGE> 5
9. Shipping
9.1 Shipping shall be FOB Destination MANUFACTURER shall be
responsible for all shipping and handling costs to Micro
Central's requested destination within the United States.
MANUFACTURER will ship other methods, upon request of Micro
Central, and may charge Micro Central actual shipping costs in
excess of UPS ground charges.
10. Termination
10.1 If either party breaches a term of this contract the other party
shall be allowed to terminate this contract if an adequate
remedy has not been implemented within 30 days of notice.
10.2 After termination of this contract either party has the right to
have all or any PRODUCT returned to Manufacturer for full
refund. The party whose breach causes termination shall pay
return shipping charges otherwise they will be paid by the
terminating party.
10.3 In the event either party becomes insolvent, or seeks
protection, voluntarily or involuntarily, through bankruptcy, or
ceases conducting business the other party shall have the
immediate right to terminate this agreement.
10.4 This contract may be terminated, by either party, at each
renewal date by giving notice to the other party no less than 60
days prior to its expiration that a renewal shall not occur.
10.5 If MANUFACTURER terminates this contract, or their breach causes
this contract to be terminated, all unaccrued claims are due in
full by MANUFACTURER.
10.6 In the event that MANUFACTURER ceases business, other than
through bankruptcy, then amounts and obligations due
MANUFACTURER shall be forgiven.
10.7 Sections 5.4, 5.7, 5.9, 6, 7, 8, 10, 11.2, 12.6, 12.7 and 13
shall survive the termination of this agreement.
11. Marketing
11.1 MANUFACTURER shall make available cooperative marketing funds to
Micro Central as determined by [*] of the purchases of Micro
Central less any returns and price protections. In order to
qualify for funds, all activities must be preapproved in writing
by MANUFACTURER. Funds will be reimbursed by credit memo within
10 days of receipt of reasonable documentation of performance or
upon invoice if payment is to be paid before performance.
- --------
*Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
-5-
<PAGE> 6
11.2 MANUFACTURER's approval of Co-op or MDF funds shall serve as
guarantee they will be paid upon submission or within a
reasonable amount of time thereafter.
11.3 Upon entering into this agreement MANUFACTURER shall allow
$_________ of additional Market Development funds (MDF) to be
used towards promoting their line to Micro Central employees,
resellers, and/or end-users. This amount shall be at least equal
or greater than any signing promotions that were offered to any
other distributor within the prior 12 months. If a new
distributor is later offered a greater signing promotion
MANUFACTURER shall offer the increase to Micro Central.
11.4 Intentionally Omitted.
12. Miscellaneous
12.1 MANUFACTURER's invoice for product shipped is limited to items
that are on Micro Central's foxed purchase order. MANUFACTURER
does not have the right of altering or adding amounts not
specifically stated on the purchase order. Prior to shipment of
PRODUCT, MANUFACTURER shall accept an alteration or cancellation
or a purchase order in order to: change delivery location,
quantities, or correct typographical errors.
12.2 Contract notices should be sent as follows via registered mail,
certified mail, return receipt requested, or overnight letter:
___________________ Micro Central, Inc.
___________________ PO Box 1009
___________________ Old Bridge, NJ 08857
___________________
___________________ Contract Administrator
Contact Name
12.3 This agreement constitutes the entire agreement in full between
the MANUFACTURER and Micro Central.
12.4 In no event shall this agreement be considered a joint venture
or partnership. Micro Central and MANUFACTURER are independent
contractors.
12.5 In the event that any item of this agreement is ruled to be
unenforceable then that item shall be considered to be stricken
from this contract and the contract shall exist without such
item.
-6-
<PAGE> 7
12.6 Both parties agree to keep the contents of this contract, as
well as all information designated confidential, as confidential
until such information is available outside of this relationship
or 3 years from date of receipt of information.
12.7 This agreement shall be interpreted and constructed to be taken
place in the State of New Jersey, United States of America and
act as the venue for all issues.
12.8 All terms and conditions of this contract are between the signed
parties and may not be transferred or granted without the prior
written permission of the other.
12.9 Intentionally Omitted.
12.10 Intentionally Omitted.
12.11 Any amendments and additions to this contract must be executed
in writing and signed by an authorized party.
12.12 This agreement shall be binding upon and inure to the benefit of
the successors or assigns of the respective parties.
13. The Product
13.1 Micro Central may not alter, copy, reverse code, or duplicate
the product, or any portion thereof, without the written consent
of the MANUFACTURER.
13.2 MANUFACTURER retains all copyrights, trademarks, patents, and
proprietary interest in these PRODUCTS.
________________________________ Micro Central, Inc.
MANUFACTURER Name
________________________________ ________________________________
Authorized Signature & Date Authorized Signature & Date
________________________________ Jay Lopatin, President
Print Name/Title
-7-
<PAGE> 8
APPENDIX A
PRODUCT LISTING AND PRICE SHEET
The MANUFACTURER's current price list including, where applicable,
retail, dealer, and distributor costs, part description, part number, UPC or
other bar code shall be considered incorporated herewith as well as all future
versions offered to any similar distributor.
<PAGE> 9
APPENDIX B
LIST OF CURRENT DISTRIBUTORS
INGRAM MICRO, INC.
MERISEL
NAVARRE CORP.
AMERICAN HW & SW
The MANUFACTURER's current price list including, where applicable, retail,
dealer, and distributor costs, part description, part number, UPC or other bar
code shall be considered incorporated herewith as well as all future versions
offered to any similar distributor.
<PAGE> 1
EXHIBIT 10.15
DISTRIBUTION AGREEMENT
This Agreement is made as of this 8th day of September, 1996 by and
between CyberMedia, Inc., a Delaware corporation with its principal offices at
3000 Ocean Park Boulevard, Suite 2001, Santa Monica, California 90405
("CyberMedia"), and Phoenix Technologies Ltd., a Delaware corporation with its
principal offices at 2770 De La Cruz Boulevard, Santa Clara, California 95050
("Phoenix"). CyberMedia and Phoenix may be referred to herein individually as a
"Party" and collectively as the "Parties."
RECITALS
A. CyberMedia designs, develops and markets a group of software products
under the primary trademarks "First Aid" and "Oil Change". Such software
products are designed for the purpose of permitting the end user to correct
problems with the PC device without having to seek support from the manufacturer
or others. CyberMedia markets its products primarily to end-users.
B. Phoenix designs, develops and markets standards-based system-level
software products, including basic input/output system (BIOS) software. Phoenix
markets its products primarily to manufacturers of personal computing devices,
including PC desktop and server systems, laptop devices, special purpose
PC-based systems or devices, motherboards and PC-related peripheral devices.
C. CyberMedia wants to expand the penetration of its products into the
OEM market and believes Phoenix has the expertise to do so and Phoenix wants to
utilize CyberMedia's expertise and the complementary nature of CyberMedia's
software products to be able to provide OEM customers with additional products.
D. CyberMedia and Phoenix desire to expand the capability and reach of
CyberMedia's products by combining certain of Phoenix's current system-level
software and software to be developed with CyberMedia products. This product,
preliminarily referred to as "First Aid Plus Pack" will be developed pursuant to
a development and license agreement to be negotiated and executed by the parties
within 30 days after the Effective Date of this Agreement or as soon thereafter
as possible.
NOW, THEREFORE, in consideration of the premises and the promises made
herein, the parties hereto agree as follows:
1. DEFINITIONS
"Coordinator" means the CyberMedia employee or the Phoenix employee
assigned from time to time by his or her respective employer, to coordinate
meetings, facilitate communication and serve as the focal point for the
resolution of issues in connection with or which may arise under this Agreement.
"Customization Tools" means those software programs developed or
licensed by CyberMedia as of the Effective Date or during the Term for the
purpose of customizing CyberMedia's Products which
<PAGE> 2
are licensed hereunder. The Customization Tools available as of the Effective
Date are described in Exhibit A attached hereto.
"CyberMedia Customer" means any OEM which has signed an agreement with
CyberMedia as of the Effective Date pursuant to which such entity is licensed to
copy, distribute or sublicense any of the CyberMedia Products. CyberMedia
Customers are named in Exhibit E attached hereto under the heading "CyberMedia
Customers."
"CyberMedia Products" means the CyberMedia products presently marketed
under the primary Mark "First Aid 95 Deluxe" and the OEM Version of Oil Change
(all as are described in Exhibit A attached hereto), together with all upgrades,
updates, enhancements, fixes, and future releases and versions thereof, and all
current and future documentation relating thereto commercially released by
CyberMedia or otherwise delivered by CyberMedia to Phoenix during the Term.
"Effective Date" means the date on which this Agreement has been
executed by both parties.
"Intellectual Property Rights" means patent rights, copyright rights
(including, but not limited to, rights in audiovisual works and moral rights),
trade secret rights, and any other intellectual property rights recognized by
the law of any applicable jurisdiction.
"Knowledge Base" means a collection of product and vendor-specific
technical support information, including without limitation detailed
configuration information regarding specific hardware and software products and
the Windows operating system.
"Marks" means the trademarks, trade names, service marks, and/or service
names of a party as specified from time to time.
"Object Code" means with respect to any particular product software in
machine-readable and executable form.
"OEM" means any entity, including its subsidiaries, parents, and
divisions, which manufactures a PC Computer.
"OEM Version of Oil Change" means those portions of the CyberMedia
products presently marketed under the primary Mark "Oil Change" which contain
the technology or functionality designed primarily to fix a hardware or software
problem in a PC Computer as described under Oil Change OEM Version in Exhibit A.
"Other Manufacturer" means any entity, including its subsidiaries,
parents and divisions, which manufactures a PC Peripheral.
"PC Computer" means any personal computing device capable of running
general purpose PC operating system software, including without limitation,
personal computers (PCs) (such as hand held, laptop or notebook computers,
desktop systems, and servers) and motherboards for PCs.
-2-
<PAGE> 3
"PC Peripheral" means any PC-compatible hardware device which is not a
PC Computer.
"Phoenix Customer" means any entity, including its subsidiaries,
parents, and divisions, which has a license agreement with Phoenix in effect on
the Effective Date and under which such entity licenses Phoenix products for use
on products manufactured by such entity which are PC Computers or PC
Peripherals.
"Prospect" means any OEM with whom CyberMedia has commenced negotiations
for agreements with CyberMedia pursuant to which such entity would be licensed
to copy, distribute or sublicense any of the CyberMedia Products on a PC
Computer to be sold to end users. Prospects are named in Exhibit E attached
hereto under the heading "Prospects."
"Source Code" means, with respect to any particular product, software in
human readable form and related design documentation, including all comments and
any procedural code.
"Specifications" means as to any particular product, the written
description of the product, which description shall include the product's
functionality and interfaces. The Specifications for the CyberMedia Products are
attached hereto as Exhibit A.
"Subdistributor" means any person, other than an OEM or Other
Manufacturer, authorized by or through Phoenix to sublicense CyberMedia Products
to OEMs or Other Manufacturers.
"Term" means the period from and including the Effective Date through
the date on which this Agreement is terminated in accordance with Section 13
hereof.
"Transition Period" means the thirty day period commencing with the
Effective Date.
"Year" means each calendar year during the term of this Agreement.
2. LICENSES
2.1 Grants by CyberMedia.
(a) Subject to the terms of this Agreement, CyberMedia grants
Phoenix a non-transferable, worldwide, royalty-bearing license for the Term and
any period after the Term during which Phoenix has rights to continue to
distribute CyberMedia Products (with right to sublicense as described below) to
use, perform and display the CyberMedia Products internally and externally, in
Object Code only, for purposes of demonstration, marketing and customization for
customers, and to copy such products and have the same copied as necessary for
such use and for sublicensing as provided below, and to market, sublicense and
distribute such products solely through OEMs and Other Manufacturers as follows:
Phoenix may grant sublicenses to such OEMs and Other Manufacturers to copy, have
copied and use the CyberMedia Products, in Object Code format only, for
demonstration and marketing purposes, to incorporate or bundle such products
with PC Computers or PC Peripherals, and to distribute and sublicense such
incorporated or bundled products to end users and to other OEMs. Phoenix may
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<PAGE> 4
exercise its distribution rights through the use of Subdistributors, provided
that such Subdistributors distribute CyberMedia Products only to OEMs and Other
Manufacturers in the manner required of Phoenix hereunder, and agree in writing
with Phoenix to be bound by licensing and confidentiality conditions at least as
restrictive as those in this Agreement that are applicable to Phoenix hereunder.
The licenses granted Phoenix and its Subdistributors hereunder expressly exclude
any right to distribute the CyberMedia Products on a standalone basis to any end
user. Any sublicense rights granted by Phoenix to an OEM or Other Manufacturer
will not restrict the OEM's or Other Manufacturer's ability to sublicense the
CyberMedia Products in the manner described above to its end users or OEM
customers anywhere in the world, except as required by law.
(b) Subject the terns of this Agreement, CyberMedia grants
Phoenix a non-transferable, worldwide, royalty-bearing license for the Term and
any period after the Term during which Phoenix has rights to continue to
distribute CyberMedia Products (with right to sublicense as described below) to
use, perform and display the Customization Tools, in Object Code only, for
internal business purposes only, to customize the CyberMedia Products for an OEM
or manufacturer of PC-based devices other than PC Computers. Phoenix may
sublicense such rights to an OEM or any such manufacturer pursuant to a written
agreement with such third party that it will be bound by licensing and
confidentiality conditions at least as restrictive as those in this Agreement
that are applicable to Phoenix hereunder. Phoenix and such third party
sublicensees may make a reasonable number of copies of such software as is
required for back-up purposes and to carry out the customization work permitted
hereunder. Phoenix may distribute such Customization Tools only to such third
party licensees, and such licensees may not further distribute the Customization
Tools. The Customization Tools are licensed to Phoenix pursuant to CyberMedia's
standard limited warranty in effect for such tools from time to time, a copy of
which may be obtained from CyberMedia upon request.
(c) The above license rights shall be non-exclusive, except that
Phoenix shall have the exclusive right to distribute through, and to sublicense
to, OEMs the CyberMedia Products so long as the number of copies of CyberMedia
Products reported as shipped in royalty reports issued by Phoenix pursuant to
Section 4.1 is equal to or greater than the minimum number of copies for the
applicable Year stated in Section 2.3(a) below. If such number falls below such
minimum, then CyberMedia may elect to convert the exclusive rights described in
this paragraph into non-exclusive rights, on the terms and conditions stated in
Section 2.3(a), and if converted, such rights shall continue as non-exclusive so
long as this Agreement is in effect and as to any distribution permitted
thereafter pursuant to Section 13.
(d) So long as the right to distribute CyberMedia Products to or
through OEMs granted Phoenix pursuant to Section 2.1(c) above remains exclusive
and for the Year during the Term in which CyberMedia properly elects to make
such right nonexclusive (the "Election Year"): (i) CyberMedia agrees that it
will not grant to any entity which develops or supplies BIOS software products
on a commercial basis to OEMs, which entities presently are comprised of Award
Software, American Megatrends Inc., SystemSoft Corporation, the SurePath BIOS
group of IBM Corporation, and Microid Research, any license to distribute any
CyberMedia Products; and (ii) Phoenix agrees that it will not develop or market
(including any distribution) any product which directly competes with CyberMedia
Products; provided, however, that during the Election Year, Phoenix shall not be
prohibited from developing any product which may directly compete with any
CyberMedia Product. If a prospective
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<PAGE> 5
OEM for CyberMedia Products has stated to Phoenix and CyberMedia that it will
not sublicense CyberMedia Products from Phoenix, the Parties will promptly meet
to discuss how to resolve the matter. If Phoenix agrees with an OEM that Phoenix
will not grant any other named OEM with a sublicense for CyberMedia Products,
then CyberMedia may enter into negotiations with such other named OEM for a
license of the CyberMedia Products.
(e) Commencing with the Effective Date, Phoenix will use all
commercially reasonable efforts to promote CyberMedia Products and the Parties
will use all commercially reasonable efforts to promote the relationship
established between the Parties hereunder, including the fact that Phoenix is
the exclusive distributor of CyberMedia Products to OEMs. For CyberMedia, such
efforts will include, without limitation, making joint sales calls with Phoenix
at Phoenix's request and advising Prospects regularly that it has appointed
Phoenix as its authorized exclusive distributor of CyberMedia Products to OEMs.
CyberMedia will use commercially reasonable efforts to convince Prospects to
sign license agreements for CyberMedia Products directly with Phoenix and to
convince each CyberMedia Customer either (i) to cancel its existing license
agreement for CyberMedia Products and to enter into a new agreement whereby the
CyberMedia Customer becomes an sublicensee of Phoenix for the CyberMedia
Products or (ii) if acceptable to Phoenix, to consent to the assignment of such
existing license agreement from CyberMedia to Phoenix. If during the Transition
Period and after the expenditure of all such efforts, a Prospect has stated that
it is unwilling to enter into an agreement with Phoenix for the CyberMedia
Products, but is willing to enter into an agreement with CyberMedia, CyberMedia
may do so provided such contract is signed by both parties on or before the end
of the Transition Period. After the end of Transition Period and so long as the
rights granted Phoenix remain exclusive in accordance with Section 2.1(c),
CyberMedia will have no right to sign any license agreement with OEMs for
CyberMedia Products, whether or not they were Prospects, except, if after the
Transition Period and after the expenditure of all such efforts, an OEM has
stated in writing to Phoenix or CyberMedia that it is unwilling to enter into an
agreement with Phoenix for the CyberMedia Products, but is willing to enter into
an agreement with CyberMedia, the Parties agree to discuss strategies for
resolving the situation.
(f) Any end user sublicense to use the CyberMedia Products and
the Customization Tools will be pursuant to a license agreement (including a
shrink wrap license agreement) containing terms no less restrictive than the
Minimum License Terms set forth in Exhibit B.
(g) CyberMedia does not grant to Phoenix any rights with respect
to the Source Code to the CyberMedia Products or the Customization Tools
hereunder and Phoenix agrees not to reverse engineer, decompile or disassemble
the Object Code to any of the CyberMedia Products or the Customization Tools.
(h) CyberMedia may place legitimate copyright notices in and on
the CyberMedia Products and the Customization Tools and on any documentation (or
such other place as CyberMedia and Phoenix may agree in writing) delivered to
Phoenix hereunder. Phoenix agrees that it will not remove any such copyright
notice from within the Object Code of any CyberMedia Product and the
Customization Tools.
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(i) As between CyberMedia and Phoenix, CyberMedia will own the
CyberMedia Products, the Customization Tools, any other software CyberMedia
provides Phoenix hereunder and the customized versions of CyberMedia Products
created by Phoenix with the Customization Tools. CyberMedia may sell, license or
otherwise distribute any customized version of CyberMedia Products unless
explicitly prohibited by the OEM for whom the customized version was created.
CyberMedia may not sell, license or otherwise distribute any translations
created by Phoenix except as provided herein.
2.2 Delivery of CyberMedia Products and Customization Tools. CyberMedia
will deliver to Phoenix one copy of the Object Code for the CyberMedia Products
and of upgrades, updates, enhancements, fixes and future releases and versions
as quickly as possible but within ten (10) working days (a) when shipped as a
production release to a customer and (b) when released internally for pre-
release use in beta release form. All such items will be delivered in electronic
form and, if requested by the receiving party, in hard copy form. CyberMedia
will deliver to Phoenix one copy of the Object Code for the Customization Tools
promptly after they are first available to CyberMedia engineers.
2.3 Obligations to Retain Exclusivity. In order to retain the exclusive
rights granted it pursuant to Section 2.1(a) above:
(a) Phoenix must have reported shipments by Phoenix or
Subdistributors to OEMs or by OEMs of a minimum number of copies of CyberMedia
Products each Year. For purposes of the foregoing, a copy of a CyberMedia
Product may be counted as shipped only once. The minimum number of copies will
be six million for the period commencing with the Effective Date and ending
December 31, 1997, it being understood that Phoenix's ability to reach such
number may be adversely affected if CyberMedia enters into license agreements
with Prospects during the Transition Period which are not subsequently and
quickly assigned to Phoenix. The Parties will negotiate in good faith the
minimum number of copies for each Year after 1997 no later than September 30
immediately preceding such Year. The determination of whether or not such
minimum number of copies has been achieved will be based on the shipments
reported in the royalty reports issued by Phoenix to CyberMedia pursuant to
Article 4 hereof. CyberMedia acknowledges that the relevant royalty reports
shall be those which are required to be made in the second, third and fourth
quarters of the Year being measured and in the first quarter of the following
Year. Such reports are subject to verification by CyberMedia pursuant to the
exercise of its audit rights granted in Article 5 hereof
If such minimum copies have not been shipped during the Year being
reviewed (or, with respect to the Year 1997, if Phoenix has failed to make
payment of all of the amounts set forth in Section 2.3(b) below), then
CyberMedia may elect to convert the exclusive rights granted Phoenix under
Section 2.1(a) hereof into non-exclusive rights. Such election must be made in
writing delivered to Phoenix within 30 days after Phoenix gives the final
royalty report for the Year being measured.
(b) In addition, Phoenix will have paid CyberMedia the following
amounts on or before the dates indicated:
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<TABLE>
<CAPTION>
PAYMENT DUE DATE AMOUNT DUE
- ---------------- ----------
<S> <C>
Effective Date
January 15, 1997
April 15, 1997 [ * ]
July 15, 1997
October 15, 1997
</TABLE>
Payments of these amounts are not refundable. Phoenix may not credit the
[ * ] payment due on the Effective Date against any payment obligation it may
have to CyberMedia under Section 4.1 hereof. Phoenix may credit all other
amounts set forth in this Section 2.3(b) against any payment obligation it may
have to CyberMedia under Section 4.1 hereof.
(c) The failure of Phoenix to meet the applicable minimum
shipments shall not be deemed a breach by Phoenix of any material obligation
hereunder and shall not give CyberMedia the right to terminate this Agreement or
any other right of Phoenix, except as otherwise set forth herein.
3. DISTRIBUTION OBLIGATIONS OF PHOENIX
3.1 Phoenix will use all reasonable diligent, good faith commercial
efforts to market and sublicense, directly or through Subdistributors, the
CyberMedia Products to OEMs.
3.2 (a) Phoenix will have the right to determine in its sole discretion,
the pricing it offers Subdistributors, OEMs and Other Manufacturers for
CyberMedia Products; provided, however, that from the Effective Date through
December 31, 1997, the minimum license fee Phoenix will pay CyberMedia for each
copy of a CyberMedia Product shipped by the OEMs, Other Manufacturers or
Subdistributors will be [ * ], unless otherwise agreed by the parties; and
provided, further, that Phoenix and CyberMedia will negotiate in good faith any
suggested change to such minimum price with respect to any subsequent Year
during the same period during which they are negotiating the minimum shipment
targets pursuant to Section 2.3(a) above.
(b) Phoenix may from time to time wish to bundle CyberMedia Products
with other Phoenix products in order to effect a sublicense of CyberMedia
Products to an OEM or Other Manufacturer. Phoenix will propose to CyberMedia an
allocation of the sublicense fees among the components of the bundled product
(including the rationale therefor) and CyberMedia will advise Phoenix as
promptly as practicable (but in no event in more than three working days) as to
whether or not it agrees with such allocation, which agreement will not be
unreasonably withheld. If CyberMedia doesn't agree with the allocation, the
parties will meet within one day thereafter to negotiate in good faith a
mutually acceptable allocation.
(c) Unless otherwise agreed, Phoenix will not significantly increase
the pricing of Phoenix products over that previously offered by it to an OEM or
Other Manufacturer while at or about
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*Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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<PAGE> 8
the same time offering the CyberMedia Products at a significant discount nor
will it maintain the pricing of such Phoenix products while significantly
decreasing the pricing of CyberMedia Products. Unless otherwise agreed, Phoenix
will not offer to license CyberMedia Products to a prospective customer at a
discount rate greater than that which is applicable to the Phoenix products
being concurrently offered to the prospective customer.
3.3 Phoenix and CyberMedia will jointly complete a market rollout
campaign to coordinate announcement and marketing of CyberMedia Products to both
the retail and OEM channels.
3.4 Phoenix will establish a direct technical support service with
respect to CyberMedia Products to Phoenix's sublicensees of CyberMedia Products
(i.e., its OEMs, Other Manufacturers and Subdistributors), which support will be
comparable to that provided by Phoenix for Phoenix software products.
3.5 Phoenix will attend such of CyberMedia' s technical training courses
as it determines and will send technically qualified personnel to such courses.
Phoenix will use all diligent commercial efforts to ensure that it has at least
two technical employees who have received technical training from CyberMedia
with respect to the CyberMedia Products.
3.6 Phoenix agrees (and agrees to include in its agreements with
Subdistributors the obligation of a Subdistributor): (a) to conduct its efforts
hereunder in a manner that reflects favorably on the CyberMedia Products and the
good name, goodwill and reputation of CyberMedia; (b) to avoid deceptive or
unethical practices, including but not limited to disparagement of the
CyberMedia Products; (c) to make no representations, warranties or guarantees to
OEMs or Subdistributors with respect to the specifications, features or
capabilities of the CyberMedia Products that are inconsistent with the
literature and other documentation provided by CyberMedia, or developed jointly
by the Parties, including all warranties and disclaimers.
3.7 The Parties acknowledge that they have a goal of achieving a public
image of joint cooperation and support of CyberMedia Products that will
consistently position the Parties' respective roles and contributions under this
Agreement. Toward that end, the parties will develop joint marketing and
promotional programs hereunder, which would include joint customer presentations
where appropriate, joint attendance at appropriate industry events, the
preparation of consistent marketing collateral and the issuance of appropriate
joint press releases. With respect to press releases, the Parties agree that
each will include a mutually agreeable reference to the other in press releases
and promotions relating to CyberMedia Products and, to the extent any such press
release relates to or involves a third party CyberMedia and Phoenix will use all
reasonable efforts to obtain such third party's consent to the issuance of such
press release. The parties will mutually agree on all sales and marketing
materials, press releases and other promotional materials relating to CyberMedia
Products.
3.8 Phoenix will use commercially diligent efforts to require its OEM
and Other Manufacturer sublicensees of CyberMedia Products to provide their
Knowledge Base, customizations and relevant end user information to Phoenix and
to CyberMedia. Phoenix will provide CyberMedia with copies of any such
information which the OEM agrees may be provided to CyberMedia.
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<PAGE> 9
4. PAYMENTS.
4.1 Phoenix will pay CyberMedia the following percentages of the license
fees, net of any amounts Phoenix is required to pay others as defined in this
Agreement, actually received by Phoenix from OEMs, Other Manufacturers and
Subdistributors for Object Code licenses of any CyberMedia Product: with respect
to the first [ * ] of such license fees, the percentage will be [ * ] [ * ] and
with respect to license fees after the first $ 1,000,000, the percentage will be
[ * ]. Payment shall be made within 30 days after the end of the quarter in
which such license fees were received and will be accompanied by a report
showing the number of units shipped for which payment was received.
4.2 If CyberMedia enters into a license agreement with a Prospect during
the Transition Period as contemplated by Section 2.1(e), CyberMedia will pay
Phoenix [ * ] of any license fees, net of any amounts CyberMedia is required to
pay others as defined in this Agreement, actually received by CyberMedia from
such Prospect; provided such Prospect is a Phoenix Customer as of the Effective
Date and provided that CyberMedia is the primary source of support to the
Prospect. CyberMedia will not owe Phoenix any portion of any license fees
CyberMedia collects from Prospects with whom it enters into a license agreement
for CyberMedia Products during the Transition Period if the Prospect is not a
Phoenix Customer as of the Effective Date. CyberMedia will pay Phoenix [ * ] of
license fees, net of any amounts it is required to pay others as defined in this
Agreement actually received by CyberMedia from any such Prospect if the Parties
agree, following good faith negotiations, that Phoenix is required to provide
significant support to such Prospect with respect to CyberMedia Products.
4.3 A Party will be entitled to deduct from license fees received by it
any sales, use, value-added, withholding or other tax or duty levied with
respect to such license fee, except and to the extent such tax is imposed by a
foreign entity and the Party is able to credit such tax in full against its U.S.
federal income taxes or commissions it may be required to pay to a third party
sales agent.
4.4 As a condition to entering into a sublicense agreement with Phoenix
for CyberMedia Products, an OEM or Other Manufacturer may request a program
whereby CyberMedia passes through to the OEM or Other Manufacturer and to
Phoenix a portion of license fees paid by an end user for upgrading a CyberMedia
Product. Provided the purchase of such upgrade will occur as a direct result of
actions taken by the OEM or Other Manufacturer, CyberMedia agrees to consider in
good faith any request from Phoenix for such a pass through but may withhold its
consent to such pass through in CyberMedia's sole discretion. The Parties will
use all commercial, efforts to develop a reasonable mechanism to determine
whether or not the purchase of the upgrade is the direct result of actions taken
by the OEM or Other Manufacturer. Payment of any fees which may be due under
this Section 4.4 from CyberMedia shall be made within 30 days after the end of
the quarter in which such license fees were received.
4.5 CyberMedia will invoice Phoenix, and Phoenix will pay net 30, any
invoice issued by CyberMedia for integration or customization services with
respect to CM Products performed by CyberMedia pursuant to Section 11.2(d)
below.
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*Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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<PAGE> 10
4.6 CyberMedia may choose to add third party software to CyberMedia
Products after the Effective Date for the purpose of adding features or
functionality and will keep Phoenix informed of any plans to so add third party
software. If the third party requires CyberMedia to pay a royalty with respect
to each copy of the software shipped (the "Third Party Royalty"), CyberMedia
will inform Phoenix as soon as practicable of the amount of such royalty and
Phoenix will have the following options:
(a) Phoenix will pay CyberMedia the Third Party Royalty with
respect to shipments of CyberMedia Products containing such third party software
for which an OEM, Subdistributor, or Other Manufacturer pays Phoenix license
fees. For purposes of Section 4.1, the Third Party Royalty will be subtracted
from the actual receipts before the percentage is applied;
(b) Phoenix may enter into an agreement directly with the third
party with respect to the payment of the Third Party Royalty, in which event,
for purposes of Section 4.1, the Third Party Royalty will be subtracted from the
actual receipts before the applicable percentage is applied; or
(c) Phoenix may elect to take the CyberMedia Products without
such third party software and will have no liability to CyberMedia for any Third
Party Royalty relating to such software.
For purposes of Section 4.2, if CyberMedia receives license fees from any
Prospect referred to in Section 4.2 for CyberMedia Products which include third
party software for which CyberMedia owes a Third Party Royalty, such Third Party
Royalty will be deducted from such fees before the percentage is applied.
5. REPORTS AND AUDITS
5.1 For at least two (2) years following payment of any amount owed the
other party hereunder, each party will maintain any records it may have with
respect to such payment, which shall include, without limitation, records
showing the number of units of CyberMedia Products to which such payment relates
and records received from any OEM, Other Manufacturer or Subdistributor.
5.2 A party may, at its own expense and upon at least five (5) working
days' notice to the other party, cause an audit to be performed by an
independent auditor (acceptable to both parties) of the records of the other
party described in Section 6.1 above. The audit shall be for the purpose of
confirming the accuracy of the payment of fees and royalties or other charges in
accordance with this Agreement. The auditor will report to the party requesting
the audit only such information obtained during the course of such audit as is
necessary to determine whether the payments made hereunder were correct. No
party may cause any audit to be conducted more frequently than once in any Year,
outside normal business hours, or at a location other than where the audited
party's records being audited are maintained. If any such audit discloses an
error in payment by a party of amounts owed the other party in an amount greater
than five percent (5%) of the total amounts owed for the period audited, the
audited party will also reimburse the auditing party for all expenses (including
the fees and expenses incurred by the independent auditor) reasonably incurred
in connection with the audit.
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6. WARRANTIES
6.1 Each party warrants and represents to the other that it has all
authority to enter into this Agreement and to perform its obligations hereunder.
6.2 CyberMedia warrants and represents that it has all right, title, and
interest and/or license rights in the CyberMedia Products and the Customization
Tools necessary to grant the licenses set forth herein and that it has not taken
any action or suffered any action to be taken with respect to the CyberMedia
Products or the Customization Tools which would restrict or affect the rights of
Phoenix and its sublicensees hereunder. By way of example, and not by
limitation, CyberMedia has not heretofore granted any person any exclusive
distribution rights, whether geographically based or otherwise, which will limit
the license rights granted herein.
6.3 CyberMedia represents and warrants that, to the best of its
knowledge, any software delivered by it to Phoenix hereunder will be free of any
harmful code, defined for purposes of this Agreement as any computer code,
programming instruction, or set of instructions which have been designed with
the ability to damage, interfere with, or otherwise adversely affect computer
programs, data files, or hardware, without the consent or intent of the end
user, including without limitation, self- replicating and self-propagating
programming instructions commonly referred to as viruses and worms.
6.4 CyberMedia represents and warrants that each production release of
the CyberMedia Products will, for a period of twelve (12) months after the date
such release is first shipped by CyberMedia to Phoenix, perform substantially in
accordance with its respective Specifications. CyberMedia will, at its option
and its own expense, either (a) correct or provide an acceptable workaround for
any verifiable conditions reported to CyberMedia by Phoenix within the warranty
period that cause such product not to perform in accordance with the above
warranty or (b) replace such nonconforming product with a conforming product;
regardless of the option chosen by CyberMedia, it will perform this warranty
service within the time frames set forth in Exhibit D. If CyberMedia is unable
to correct or provide an acceptable workaround for any such error after
reasonable efforts, CyberMedia will refund to Phoenix any license fees
previously paid to CyberMedia for copies of the affected product for which
Phoenix certifies in a writing signed by an executive officer of Phoenix that it
will be making a refund to an affected OEM or Subdistributor. The foregoing
shall be CyberMedia's sole liability and Phoenix's sole remedy in the event of a
breach of the warranty contained in this Section 6.4.
6.5 CYBERMEDIA MAKES NO WARRANTIES, EITHER EXPRESS OR IMPLIED WITH
RESPECT TO THE CYBERMEDIA PRODUCTS OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS
SECTIONS 6.2 THROUGH 6.4, INCLUSIVE, AND CYBERMEDIA EXPRESSLY DISCLAIMS ANY SUCH
WARRANTIES, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OR
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
6.6 Nothing herein shall diminish a party's support obligation to the
other as set forth elsewhere in this Agreement.
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7. INTELLECTUAL PROPERTY INDEMNITY
7.1 CyberMedia agrees to defend Phoenix, its officers, employees,
agents, representatives, sublicensees, and/or customers (collectively, the
"Indemnified Party"), at CyberMedia's expense, against any claim, action or
proceeding brought against any Indemnified Party to the extent that it is based
on a claim that the use of the CyberMedia Products and/or the Customization
Tools, including software and related documentation, licensed or sublicensed to
the Indemnified Party hereunder, when used in accordance with the terms and
conditions of this Agreement, infringes any copyright or U.S. patent or
misappropriates any trade secret and agrees to pay any liabilities, damages,
costs and expenses (including the actual fees of attorneys and other
professionals and all related costs and expenses) finally awarded in any such
claim, action or proceeding. CyberMedia will be relieved of its obligations
under this Section 7.1 unless Phoenix gives (a) prompt written notice of any
such claim, action or proceeding, (b) all authority to direct the defense and
settlement of such claim, action or proceeding (unless CyberMedia is not
defending the action in good faith), and (c) all authority, reasonably available
information and assistance (at CyberMedia's expense) reasonably requested by
CyberMedia for the defense of the same. In connection with the preceding
sentence, all of the facts and circumstances shall be considered in determining
whether or not Phoenix is complying, including without limitation, the
commitments of Phoenix personnel who may be needed to provide the information or
assistance so requested by. If any of the CyberMedia Products or the
Customization Tools are held in any such claim, action or proceeding to infringe
and use thereof is enjoined, CyberMedia will, at its own expense, procure for
the Indemnified Party the right to continue using them, replace them with
functionally equivalent non-infringing products, or modify them to become
functionally equivalent noninfringing products. EXCEPT FOR WILFUL INFRINGEMENT
OF ANY INTELLECTUAL PROPERTY RIGHT OF ANY THIRD PARTY, THIS SECTION 7.1 STATES
CYBERMEDIA'S ENTIRE OBLIGATION WITH RESPECT TO THE INFRINGEMENT OF ANY
INTELLECTUAL PROPERTY RIGHT OF ANY THIRD PARTY.
7.2 Notwithstanding the provisions of Section 7.1, CyberMedia will have
no liability for any infringement claim of any kind:
(a) to the extent the claim relates to a modified version of such
products, which modification was made other than by or for CyberMedia, if the
claim, suit or proceeding would have been avoided if the modification had not
been made; or
(b) to the extent it is based on a combination of any of the
CyberMedia Products or Customization Tool with software or hardware not supplied
by CyberMedia to perform an operation, function or process or to form an
apparatus that performs a function, operation or process other than those that
the CyberMedia Products or Customization Tools are designed by CyberMedia to
perform; or
(c) to the extent it results from the failure of the Indemnified
Party to use within 45 days after receipt thereof any updated or modified
version of CyberMedia Products or Customization Tools which CyberMedia notifies
the Indemnified Party is intended to avoid the infringement or alleged
infringement. For purposes of this Section 7.2(c) CyberMedia and Phoenix will
only be required to notify each other and the notified party will be required to
notify its customers and sublicensees; or
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<PAGE> 13
(d) to the extent it is based on or arises out of CyberMedia's
compliance with Phoenix's designs, specifications or instructions.
8. LIMITATION OF LIABILITY
REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN FAILS OF ITS ESSENTIAL
PURPOSE OR OTHERWISE, IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER OR
ANY THIRD PARTY FOR ANY CONSEQUENTIAL, INDIRECT, INCIDENTAL OR SPECIAL DAMAGES,
EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL EITHER
PARTY'S TOTAL LIABILITY AND INDEMNITIES UNDER THIS AGREEMENT FOR ALL CAUSES OF
ACTION ON A CUMULATIVE BASIS ARISING DURING ANY PARTICULAR YEAR EXCEED THE
PAYMENTS ACTUALLY MADE BY PHOENIX HEREUNDER DURING THE YEAR PRECEDING THE YEAR
DURING WHICH THE CLAIM UPON WHICH THE LIABILITY OR INDEMNITY IS BASED WAS FIRST
MADE (OR, IN THE CASE OF CLAIMS MADE DURING THE FIRST YEAR, TWO MILLION
DOLLARS); PROVIDED, HOWEVER, THAT THE PRECEDING CLAUSE SHALL NOT APPLY TO
CYBERMEDIA'S REFUND OBLIGATIONS UNDER SECTION 6.4 OR CYBERMEDIA'S OBLIGATIONS
UNDER SECTION 7 TO THE EXTENT ARISING OUT OF WILLFUL INFRINGEMENT.
9. CONFIDENTIALITY
9.1 (a) During the Term, each Party will hold any of the other's
Confidential Information (as defined below) in confidence and will: (i) use the
same degree of care to prevent unauthorized disclosure of the Confidential
Information and unauthorized disclosure or unauthorized use of the other's
Source Code that the receiving Party uses with its own information of like
nature (but in no event less than reasonable care), (ii) limit disclosure of the
Confidential Information, including any materials regarding the Confidential
Information that the receiving Party has generated, to such of its employees and
contractors, Subdistributors, OEMs, and Other Manufacturers as have a need to
know the Confidential Information to accomplish the purposes of this Agreement,
(iii) advise its employees, agents, contractors, Subdistributors, OEMs and Other
Manufacturers of the confidential nature of the Confidential Information and of
the receiving Party's obligations under this Agreement.
(b) For purposes of this Agreement, the term "Confidential
Information" refers to the following items relating to the confidential and
proprietary information, including trade secrets, of the disclosing Party: (i)
all written materials provided by the disclosing Party that are clearly marked
as confidential, (ii) any tangible materials provided by the disclosing Party
that are clearly marked as confidential, and (iii) all information that is
orally or visually disclosed by the disclosing Party if it is identified as
confidential at the time of disclosure and is reduced to written disclosure
delivered to the receiving Party within 30 days after the original disclosure.
All Source Code will be deemed to be "Confidential Information." "Confidential
Information" will not include, even if marked as confidential, any materials or
information which: (i) is rightfully known without obligations of
confidentiality by the receiving Party, (ii) is or becomes public knowledge
through no wrongful act of the receiving party, its agents, employees,
sublicensees or affiliates, (iii) is rightfully received by the receiving Party
from another party authorized by the disclosing Party to disseminate such
materials or information, (iv) is independently
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<PAGE> 14
developed by the receiving Party without breach of this Agreement, or (v) is
approved in writing for release by the disclosing Party. Any employee,
Subdistributor, OEM or Other Manufacturer of the receiving Party having access
to any Confidential Information will be required to sign a non-disclosure
agreement protecting the Confidential Information if not already bound by such
an agreement.
(c) Each Party agrees and acknowledges that unauthorized use or
disclosure of Confidential Information would cause the other party irreparable
harm which may not be adequately compensated for by monetary damages and that,
accordingly, a Party is entitled to preliminary and injunctive relief to remedy
any actual or threatened unauthorized use or disclosure of its Confidential
Information.
9.2 Except to the extent required by law or judicial order (including
rules or regulations of any federal, state or local authority) or except as
provided herein, neither Party shall disclose this Agreement or any of its terms
without the other's prior written consent, which consent will not be delayed or
unreasonably withheld. Either Party may disclose this Agreement to the extent
required by law or judicial order, or rules or regulations of any federal, state
or local organization, provided that the disclosing Party notifies the other
Party of the purpose of the disclosure and of the portions of the Agreement it
intends to disclose prior to such disclosure and will cooperate with such other
Party to seek appropriate protective treatment, if requested by such other
Party.
9.3 Prior to the Effective Date, the Parties will agree on the content
and timing on the issuance of a joint press release announcing the existence of
this Agreement.
9.4 Neither Party will be required to disclose to the other any
confidential information of any third party without having first obtained such
third party's consent.
9.5 The provisions of this Section 9 will survive for five years
following termination of this Agreement.
10. PROPRIETARY RIGHTS
10.1 The CyberMedia Products and the Customization Tools are and will
remain the sole and exclusive property of CyberMedia and its suppliers, if any.
10.2 Phoenix will use its reasonable efforts to protect CyberMedia's
intellectual property rights in the CyberMedia Products and the Customization
Tools and will report promptly to CyberMedia any infringement of such rights.
10.3 Marks. In order to promote brand recognition, the Parties agree to
use the CyberMedia Marks when promoting the CyberMedia Products. Subject to the
terms and conditions of this Agreement, CyberMedia grants Phoenix a
non-exclusive, non-transferable license for the Term to use its Marks relating
to the CyberMedia Products for use in marketing such products, provided that
such use is in accordance with such CyberMedia' s trademark usage guidelines
then in effect. When using CyberMedia's Marks, Phoenix will reference CyberMedia
as the owner of such Marks. Phoenix agrees that it will at no
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<PAGE> 15
time (i) claim any interest in CyberMedia Marks, (ii) register, seek to
register, or cause to be registered any of CyberMedia Marks, (iii) adopt and use
any trademark that might be confusingly similar to CyberMedia trade names,
trademarks or logos, or (iv) attach any trademark, logo or trade designation to
CyberMedia products other than the Marks. Each party will be responsible for
filing its Marks in such jurisdictions as it deems appropriate.
11. MAINTENANCE, SUPPORT AND TRAINING
11.1 Phoenix's Responsibilities. Throughout the Term, Phoenix will be
responsible for providing the following support to OEMs, Other Manufacturers and
Subdistributors sublicensed by Phoenix to use, copy or distribute CyberMedia
Products:
(a) First line technical support for CyberMedia Products
comparable to that provided by Phoenix to its customers for other Phoenix
products;
(b) Technical training with respect to CyberMedia Products to
OEMs provided on a regular, periodic basis;
(c) Creation of marketing materials (such as brochures, data
sheets, advertising, customer testimonials and the like) relating to CyberMedia
Products targeted for OEMs;
(d) Customization of the CyberMedia Products as may be requested
by such OEMs, Subdistributors and Other Manufacturers and agreed to by Phoenix
to the extent possible using the Customization Tools or with source Code
provided Phoenix by CyberMedia pursuant to Section 11.2(d);
(e) Advising OEMs, Other Manufacturers and Subdistributors with
whom it enters into agreements relating to CyberMedia Products that CyberMedia
will not provide first line support to end users that receive the CyberMedia
Products bundled with their OEM PC Computers.
(f) Internationalization. If an OEM or Other Manufacturer
requires a language version of CyberMedia Products which is neither available
nor is scheduled by CyberMedia to be released within the ensuing six months,
Phoenix will have the option of creating that language version, directly or
through a subcontractor. Phoenix may exercise such option by giving CyberMedia
notice of its desire to do so and CyberMedia will promptly provide Phoenix with
the materials (including Source Code) as are reasonably necessary to create such
language version of the CyberMedia Products. The use of any Source Code will be
at no charge but will be subject to a license agreement containing such
restrictions as CyberMedia may reasonably require. Phoenix will be entitled to a
credit of [ * ] per unit reported on any royalty report submitted pursuant to
Section 4.1 hereof until such credits equal one-half of the expense incurred by
Phoenix and CyberMedia to create (or have created for it) such other language
version of CyberMedia Products pursuant to the exercise of such option. Each
Party will provide the other with its records supporting the determination of
such expense. CyberMedia may elect to acquire the translation of the CyberMedia
Product created pursuant to the exercise by Phoenix of such option by giving
Phoenix written notice and paying Phoenix the other half of the expense incurred
by Phoenix to create (or have created for it) such translation.
- --------
*Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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<PAGE> 16
11.2 CyberMedia's Responsibilities. CyberMedia will provide Phoenix with
the following support throughout the Term:
(a) Technical training of Phoenix engineers (including Field
Applications Engineers) in the use and structure of CyberMedia Products and the
use of Customization Tools. At no charge to Phoenix, CyberMedia will train two
(or more if agreed) technically qualified employees of Phoenix at CyberMedia' s
facility where its research and development organization is located for
on-the-job training and such further technical training as may be further and
periodically agreed to by the Parties.
(b) Back-up technical support to Phoenix's first-line technical
support. This will include (i) direct telephonic support to Phoenix but not to
Phoenix's OEM, Subdistributor or Other Manufacturer sublicensees of CyberMedia
Products, (ii) electronic access by Phoenix whether via the Internet, dial-in,
BBS, or as otherwise agreed, (iii) the development and distribution of fixes to
errors discovered in the CyberMedia Products to Phoenix (or by making them
electronically available to Phoenix, OEMs, Other Manufacturers and
Subdistributors), and, (iv) if necessary, on-site support to Phoenix. The level
of technical support to be provided Phoenix by CyberMedia, including response
times, is set forth in Exhibit D attached hereto.
(c) Marketing support which includes creation and provision to
Phoenix brochures, data sheets, white papers, competitive analyses, advertising,
customer referrals and the like relating to CyberMedia Products. These items
will be provided in electronic form and, if requested by Phoenix, in hard copy,
camera-ready form.
(d) If the Customization Tools are not sufficient to enable
Phoenix to perform the customization or integration work requested by an OEM,
Other Manufacturer or Subdistributor, then at Phoenix's option, Phoenix will
advise CyberMedia and CyberMedia will, at its option, within 10 working days
after receipt of such advise, either provide Phoenix with the Source Code to the
CyberMedia Products or such other materials as are necessary to perform such
work or will provide the service of CyberMedia engineer(s) to perform such work
for Phoenix. Any license for such Source Code shall be at no charge to Phoenix
but will contain such restrictions as CyberMedia may reasonably require.
CyberMedia will invoice Phoenix and not the OEM, Other Manufacturer or
Subdistributor for such work and CyberMedia will bill for such services at the
rate of $150/hour plus all reasonable travel, stay and other incidental
expenses. The Parties agree that as between them, Phoenix will have the
exclusive right to provide such integration or customization services to OEMs if
such services can be performed using the Customization Tools or if CyberMedia
has agreed to license Phoenix with the Source Code needed to perform the
particular customization.
(e) During the Term, CyberMedia will use all reasonable
commercial efforts to promote, enhance and upgrade the CyberMedia Products and
to strive to keep CyberMedia Products competitive with other's products that
compete in the same market.
(f) Internationalization: CyberMedia either has versions of, or
has plans to develop CyberMedia Products in the languages set forth in Exhibit
A. CyberMedia will keep Phoenix informed as to those development plans and any
future plans for the development of CyberMedia Products in other
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<PAGE> 17
languages and will report on these plans at each meeting referred to in Section
11.3 below. Each language version of CyberMedia Products created by CyberMedia
will be treated as a CyberMedia Product for purposes of this Agreement.
11.3 Coordination and Program Reviews. The Coordinators and senior
executives of CyberMedia and Phoenix will meet at least once per month during
the first six months following the Effective Date and at least once per quarter
thereafter. At such meetings, the attendees will review progress and results
against each Party's marketing and engineering plans with respect to CyberMedia
Products, will establish development and marketing priorities and coordinate
overall marketing, promotional and development strategies for the PC automatic
service and support market. Such discussions will specifically include reports
by Phoenix on its progress toward entering into license agreements with OEMs and
Phoenix's forecasts for sales of CyberMedia Product licenses and reports by
CyberMedia as to its future CyberMedia Product development plans, including the
anticipated or planned use of any third party software and the expected royalty
obligation to the third party. In addition, the meetings can be used as a forum
for the Parties to resolve conflicts or disputes which may have arisen under the
Agreement. Each party will provide to the other their respective forecasts and
market projections for CyberMedia Products which will include such information
as the Parties agree.
11.4 Support for CyberScript. Promptly after the Effective Date, Phoenix
will attempt to schedule a meeting with appropriate personnel from Intel
Corporation ("Intel") for the purpose of proposing with CyberMedia that Intel
support CyberMedia's CyberScript language as the industry standard language for
Knowledge Bases.
12. OIL CHANGE AMENDMENT; FIRSTAID PLUS PACK DEVELOPMENT AGREEMENT
12.1 As soon as practical after the Effective Date, with a target of not
later than October 9, 1996, the Parties will use all reasonable commercial
efforts to negotiate in a definitive agreement relating to the development of
First Aid Plus Pack. Such agreement will be coterminous with this Agreement and
will contain such special terms and conditions, including without limitation a
detailed statement of work with respect to the First Aid Plus Pack, statements
as to ownership of First Aid Plus Pack, and special licensing and sublicensing
terms as the parties may negotiate.
13. TERM; TERMINATION; EFFECT OF TERMINATION
13.1 The initial Term shall be from the Effective Date through December
31, 2001, unless terminated earlier as provided herein; thereafter, this
Agreement will renew for consecutive one Year periods.
13.2 Either Party will have the right to terminate this Agreement:
(a) if the other Party breaches any material obligation imposed
on it under this Agreement and fails to cure such breach within 30 days after
the giving of written notice thereof by the Party alleging such breach or such
longer period as to which the parties may agree if such breach is not
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<PAGE> 18
capable of being cured within 30 days, provided that the breaching party has
begun working on the cure during such 30 day period. Such notice will specify
the obligation allegedly breached;
(b) the other Party becomes the subject of a voluntary petition
in bankruptcy or any voluntary proceeding relating to insolvency, receivership,
liquidation, or composition for the benefit of creditors;
(c) the other Party becomes the subject of an involuntary
petition in bankruptcy or any involuntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of credits, if such
petition or proceeding is not dismissed within 60 days of filing;
(d)
[ * ]
13.3 The following is applicable upon termination of this Agreement:
(a) The confidentiality provisions of this Agreement will survive
termination of this Agreement in accordance with the provisions of Section 9
above. In addition, the provisions of Articles 1, 5, 7, 8, 9, 11 and 14 and, for
the term of the license agreements as specified in Section 13.3(b), Sections 2.1
(other than subsection (d) thereof) and 2.2 will survive termination of this
Agreement.
(b) Notwithstanding the foregoing, on any termination of this
Agreement, Phoenix will have no rights to sublicense the CyberMedia Products to
any person other than to OEMs or Other Manufacturers during the then remaining
term of their respective license agreements with Phoenix and other than to
Subdistributors for sublicensing on to such OEMs and Other Manufacturers during
the then remaining term of each such OEMs' or Other Manufacturers' license
agreements with the Subdistributors. At the end of the terms of all such license
agreements, Phoenix will cease granting any further sublicensing rights with
respect to CyberMedia Products and will either promptly return to CyberMedia or
promptly destroy all but a single archival copy of the CyberMedia Products,
including related documentation, and, in the case of destruction, will cause an
officer of Phoenix to certify to CyberMedia in writing that such destruction has
occurred; and
(c) From and after the date Phoenix may no longer sublicense
CyberMedia products, neither Party will be required to provide the other with
any of its products or services.
14. GENERAL
14.1 A Party may assign its rights and delegate its duties, by operation
of law or otherwise, in whole but not in part, to any third party. However, the
assigning Party shall give the other Party prior written notice of any such
assignment Party and the non-assigning Party may terminate this Agreement at any
time thereafter on thirty days' prior written notice if such third party is a
competitor of the non-assigning Party. Subject to the foregoing, this Agreement
will be binding on and inure to the benefit of the respective successors and
assigns of the Parties.
- --------
*Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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<PAGE> 19
14.2 Any written notice required or permitted to be made or given under
this Agreement will be made by personal delivery, by courier or messenger (such
as Federal Express), by FAX to the telephone number indicated below, or by first
class mail, postage prepaid and will be deemed delivered upon receipt when sent
to the following respective addresses of the Parties:
To CyberMedia: CyberMedia, Inc.
3000 Ocean Park Blvd., Suite 2001
Santa Monica, CA 90405
Attn: Controller
FAX: 310-581-4751
with a copy to: Arthur M. Schneiderman, Esq.
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
To Phoenix: Phoenix Technologies Ltd.
2770 De La Cruz Blvd.
Santa Clara, CA 95050
Attn: George Adams, Coordinator
FAX: 408-452-1985
with a copy to the Attention of the Legal Department at the same address and FAX
number.
A Party may change its address for purposes of this Section 14.2 by
giving written notice in the manner set forth above.
14.3 No amendment or modification of this Agreement shall be effective
unless it is set forth in a writing which refers to the particular provision(s)
so amended or modified and is executed by authorized representatives of both
parties. No failure or delay by either Party in exercising any right, power or
remedy will operate as a waiver of any such right, power or remedy and any
waiver as to a breach of any particular provision will not be deemed to be a
waiver of any future breach of that same provision.
14.4 If any provision of this Agreement or the Exhibits is held by a
court of competent jurisdiction to be unenforceable or contrary to law, the
remaining provisions of this Agreement and the Exhibits will remain in full
force and effect.
14.5 The Exhibits are an integral part of this Agreement and are
incorporated herein by this reference.
14.6 This Agreement shall be governed by and construed in accordance
with the laws of the State of California, without reference to its choice of law
provisions, and United States patent and copyright laws.
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<PAGE> 20
14.7 Each party will, at its own expense, comply with any governmental
law, statute, ordinance, administrative order, rule or regulation applicable to
the exercise and performance of its duties and obligations hereunder and under
the Exhibits and shall procure all licenses and pay all fees and other charges
required thereby. Neither Party will export or re-export or authorize or permit
its employees, agents, contractors or sublicensees to export or re-export any
products covered under this Agreement to any country specified as a prohibited
destination in applicable federal, state and local laws, rules, regulations and
ordinances, including without limitation the regulations of the U.S. Department
of Commerce and/or the U.S. Department of State, without first obtaining any
requisite approval.
14.8 All rights and remedies, whether conferred hereunder or by any
other instrument or law, will be cumulative and may be exercised singularly or
concurrently. Failure by either Party to enforce any term will not be deemed a
waiver of future enforcement of that or any other term. The terms and conditions
stated herein are declared to be several.
14.9 Neither Party will be held liable for failure to fulfill any of its
obligations hereunder if such failure is due to flood, extreme weather, fire, or
other natural calamity, acts of government or other causes beyond the control of
such Party.
14.10 This Agreement may be executed in counterparts, each of which
shall be deemed to be an original and all of which when taken together shall
constitute one single agreement between the Parties.
14.11 The Parties agree to attempt to resolve any dispute hereunder
through good faith negotiations for at least 30 days before commencing any
litigation with respect to such dispute.
14.12 This Agreement, including the Exhibits, sets forth the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior communications, both written and oral, with respect to such
subject matter.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective duly authorized representative as of the date first above
written.
CYBERMEDIA, INC. PHOENIX TECHNOLOGIES LTD.
By: /s/ Unni Warrier By: ILLEGIBLE
--------------------------------- -------------------------
Name: Unni Warrier Name: ILLEGIBLE
--------------------------------- -------------------------
Title: President Title: ILLEGIBLE
--------------------------------- -------------------------
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<PAGE> 21
EXHIBIT A Specifications for CyberMedia Products
EXHIBIT B Minimum License Terms and Conditions
EXHIBIT C [DELETED.]
EXHIBIT D Support Commitments
EXHIBIT E Prospects and Customers
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<PAGE> 22
EXHIBIT A
SPECIFICATIONS FOR CYBERMEDIA PRODUCTS
1. FIRST AID 95 DELUXE
First Aid 95 Deluxe is a software product that is designed to detect,
diagnose and resolve a wide range of software conflicts and configuration
problems associated with Windows-based PCs, using a Knowledge Base of product
and vendor-specific technical support information. Users can update this
Knowledge Base one time during the six month period commencing on the date the
end user registers hiker copy of First Aid 95 Deluxe by connecting to
CyberMedia's Internet .site, which houses a regularly updated version of the
Knowledge Base. Key features of First Aid 95 Deluxe currently include:
[*]
During the course of this Agreement, CyberMedia may develop and market
new products that replace First Aid 95. Such replacement products and their
replacements shall also be covered under this License Agreement, subject to the
condition that all such products shall provide the end user with the
- --------
*Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE> 23
capability to access CyberMedia's Internet server via the Internet or other
available electronic means to perform various functions, including updating the
product Knowledge Base, one time during the six months after the end user
registers his/her copy of the product. In particular, CyberMedia plans to
introduce two products First Aid 3.1 and First Aid 97 during Q4 of 1996 that run
on the Windows 3.1 and Windows 95 platforms respectively and replace First Aid
95 Deluxe.
This Agreement will also cover the 1-user version of First Aid 95 Deluxe
that runs on the Windows NT platform as and when that product becomes available.
CyberMedia plans to develop and release the following translated
versions of First Aid 95 Deluxe and its replacements: French, International
German, Spanish and Japanese.
2. OIL CHANGE OEM VERSION
The OEM Version of Oil Change is an Internet-based software product
(currently in Beta) that is designed to enable users of PC Computers to locate
easily the most recent software updates, patches, and drivers applicable to
their systems and to download these via the Internet. The OEM Version of Oil
Change will include the following features:
[*]
Users will be entitled to use the OEM Version of Oil Change for six
months from the date the end user registers his/her copy of the OEM Version of
Oil Change, solely to retrieve and install updates, patches and drivers that
relate to hardware and software shipped with the OEM PC Computer that are posted
at CyberMedia's Internet site.
- --------
*Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
-2-
<PAGE> 24
EXHIBIT B
END-USER SUBLICENSE RESTRICTIONS
All end-user sublicenses of the Software shall include provisions that:
1. only a personal, nontransferable, and nonexclusive right to use the
Software on a single personal computer or PC device, as applicable, is granted
to such end user;
2. Seller's licensors retain all title to the Software, and all copies
thereof, and no title to the Software, or any intellectual property in the
Software, is transferred to such end user;
3. the end user may not copy the Software, except for one (1) copy of
the Software for backup or archival purposes only and only as necessary to use
the Software on the applicable personal computer or PC device, and all such
copies shall contain all copyright and other proprietary notices or legends of
Seller's licensors on the Software delivered to the end user; and no copies of
the accompanying documentation may be made by the end user;
4. the end user agrees not to reverse assemble, decompile, or otherwise
attempt to derive source code from the Software;
5. the end user agrees to comply with all export and re-export
restrictions and regulations of the Department of Commerce or other United
States agency or authority, and not to transfer, or authorize the transfer, of
any Software to a prohibited country or otherwise in violation of any such
restrictions or regulations;
6. the end user may transfer the Software to a transferee in connection
with the transfer of the applicable personal computer or PC device (i) to a
transferee within the same country as the original end-user sublicense was
granted, and (ii) to a transferee within a different country only with the
written consent of Seller, and in either case subject to the transferee's
executing a written end-user sublicense in the same form as the original end
user's sublicense;
7. Seller's licensors are a direct and intended beneficiaries of the
end-user sublicense and may enforce it directly against the end user; and
8. Seller's licensors shall not be liable to the end user for any
general, special, direct, indirect, consequential, incidental, or other damages
arising out of the sublicense of the Software.
<PAGE> 25
EXHIBIT D
MAINTENANCE AND SUPPORT
EMERGENCY SUPPORT
Qualified CyberMedia personnel will be available to respond seven days
per week, 24 hours per day, to work with Phoenix personnel to support emergency
problems in CyberMedia Products (such as line-down) which may have been caused
by CyberMedia Products. Such support should include, without limitation,
consideration of making modifications to the CyberMedia Products as a solution
to the problem. Nothing in this Section shall require CyberMedia employees to
perform in any manner that Phoenix does not expect of its own employees.
MAINTENANCE AND ROUTINE SUPPORT
During the term of this Agreement, CyberMedia will provide reasonable
maintenance and support of CyberMedia Products, as follows:
1. Documentation. CyberMedia shall supply Phoenix with its support documentation
necessary to enable Phoenix to provide first level support to Phoenix's
customers. In addition, CyberMedia shall permit Phoenix on-line and other access
to the internal bug list for CyberMedia Products or an equivalent database for
the CyberMedia Products.
2. Support. CyberMedia shall make reasonable efforts to supply Phoenix with
second level support as described in this Exhibit for CyberMedia Products.
CyberMedia will provide telephone responses to Phoenix as quickly as is
reasonable, but in no event more than one working day of receipt of Phoenix's
telephone support questions. CyberMedia will be available to take Phoenix's
support questions from 10AM to 7PM Pacific Time (Standard or Daylight during the
appropriate season). If Phoenix, in its reasonable judgment and discretion,
determines it cannot remedy a problem with a CyberMedia Product in supporting
its customers, Phoenix shall furnish CyberMedia a problem report which shall
identify and describe the problem using the following definitions:
Fatal: condition which precludes all useful work from
being done;
Severe Impact: condition which precludes one or more major
functions from being performed;
Degradation: condition which disables one or more non-essential
functions;
Minimal Impact: any other condition which requires correction.
<PAGE> 26
EXHIBIT D
MAINTENANCE AND SUPPORT (CONTINUED)
Upon receiving a problem report from Phoenix and unless the parties
agree in writing, CyberMedia shall respond and correct the problem in accordance
with the following table:
<TABLE>
<CAPTION>
WRITTEN
ACKNOWLEDGMENT OF PATCH, WORK AROUND, FORMAL FIX, UPDATE FIX
PROBLEM REPORT TEMPORARY FIX, BUG FIX, UPGRADE, OR
PRIORITY DESCRIPTION DELIVERED TO PHOENIX OR UPDATE RELEASE ENHANCEMENT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fatal Condition which Following business Constant effort by Within 60 days
precludes all useful highly qualified
work from being done CyberMedia personnel
until relief is provided,
but not more than 48
hours
- -------------------------------------------------------------------------------------------------------------------------------
Severe Impact Condition which Following business Constant effort by Within 60 days
precludes one or more highly qualified
major functions from CyberMedia personnel
being performed until relief is provided,
but not more than 72
hours
- -------------------------------------------------------------------------------------------------------------------------------
Degradation Condition which Two business days 10 days Within 100 days
disables one or more
non-essential functions
- -------------------------------------------------------------------------------------------------------------------------------
Minimal Impact Any other condition Ten business days 60 days Within 150 days
which requires
correction
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Phoenix Assistance. To assist CyberMedia in providing the most effective
responsiveness to trouble reporting and solution, Phoenix will provide access
(which at Phoenix's option, may be on-site at Phoenix) to at least two (2)
systems in which the problems can be reproduced (if CyberMedia does not have
such systems available), and access to Phoenix's hardware and software debugging
resources, if CyberMedia so requests.
2. Down Revisions. Unless otherwise agreed by the Parties, twelve (12) months
after CyberMedia ceases to ship a version of a CyberMedia Product to any third
party, the previous version need no longer be supported by CyberMedia.
3. Bug Fixes. If CyberMedia discovers any bugs in the technology delivered to
Phoenix hereunder, CyberMedia shall report them to Phoenix. If CyberMedia
creates a bug fix or maintenance release of the related technology, CyberMedia
shall make the bug fix available to Phoenix no later than it is made available
to any third party.
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<PAGE> 27
EXHIBIT E
LIST OF PROSPECTS AND CUSTOMERS
Prospects
- ---------
[*] [*]
CyberMedia Customers
- --------------------
[*]
- --------
*Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF PER SHARE LOSS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------- -------------------------
1993 1994 1995 1995 1996
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Earnings per Common and
Common Equivalent Share:
Estimated Initial Public Offering Price........ 12.00 12.00 12.00 12.00 12.00
Common Stock:
Weighted Average Common
Shares Outstanding during Period............... 1,160,000 1,173,000 1,189,000 1,173,000 1,223,000
Shares of Common Stock issued within
the last twelve months preceding the
initial filing date............................ 1,272,000 1,272,000 1,272,000 1,272,000 1,272,000
--------- --------- --------- --------- ---------
2,432,000 2,445,000 2,461,000 2,445,000 2,495,000
Common Stock Equivalents:
Common Stock options and warrants granted
within the last twelve months preceding the
initial filing date........................... 1,212,000 1,212,000 1,212,000 1,212,000 1,212,000
Preferred Stock convertible into Common Stock
and sold within the last twelve months
preceding the initial filing date............. 4,019,000 4,019,000 4,019,000 4,019,000 4,019,000
--------- --------- --------- --------- ---------
5,231,000 5,231,000 5,231,000 5,231,000 5,231,000
Weighted average common and
common equivalent shares....................... 7,663,000 7,676,000 7,692,000 7,676,000 7,726,000
========= ========= ========= ========= =========
Net loss for period............................ (732,000) (1,115,000) (3,352,000) (57,000) (2,229,000)
========= ========= ========= ========= =========
Loss per share................................. (0.10) (0.15) (0.44) (0.01) (0.29)
========= ========= ========= ========= =========
</TABLE>
See note 1 of the notes to the financial statements for an explanation
regarding per share calculation.
<PAGE> 1
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
CyberMedia, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Long Beach, California
September 26, 1996
