<PAGE>
As filed with the Securities And Exchange Commission on April 14, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SOFTWARE.COM, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7373 77-0392373
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
525 Anacapa Street
Santa Barbara, CA 93101
(805) 882-2470
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
John L. MacFarlane
Chief Executive Officer
525 Anacapa Street
Santa Barbara, CA 93101
(805) 882-2470
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Elizabeth R. Flint, Esq. Steven M. Spurlock, Esq.
Susan L. Stapleton, Esq. Richard R. Hesp, Esq.
Stephen E. Gillette, Esq. Kevin A. Lucas, Esq.
Jonathon J. Taylor, Esq. Gunderson Dettmer Stough
Wilson Sonsini Goodrich & Rosati Villeneuve Franklin & Hachigian, LLP
Professional Corporation 155 Constitution Drive
650 Page Mill Road Menlo Park, California 94025
Palo Alto, California 94304 (650) 321-2400
(650) 493-9300
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Proposed
Title of Each Class of Securities to be Maximum Aggregate Amount of
Registered Offering Price (1) Registration Fee
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<S> <C> <C>
Common Stock, par value $0.001........... $69,000,000 $19,182
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- ------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(o) solely for the purpose of computing the
amount of the registration fee.
---------------
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 hereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We +
+cannot sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 14, 1999
Shares
[LOGO]
Software.com, Inc.
Common Stock
---------
We are selling shares of common stock and the selling
stockholders are selling shares of common stock. We will
not receive any proceeds from shares of common stock sold by
the selling stockholders.
The underwriters have an option to purchase a maximum of
additional shares to
cover
over-allotments of shares.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $
and $ per share. We have applied to list our common stock on The
Nasdaq Stock Market's National Market under the symbol "SWCM."
Investing in our common stock involves risks. See "Risk Factors" on page 7.
<TABLE>
<CAPTION>
Underwriting
Discounts Proceeds to
Price to and Proceeds to Selling
Public Commissions Software.com Stockholders
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Per Share................... $ $ $ $
Total....................... $ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston Merrill Lynch & Co.
BancBoston Robertson Stephens
Prospectus dated , 1999.
<PAGE>
"Software.com provides Internet messaging solutions for many of the world's
largest service providers, including:"
Beneath this statement is a graphic that contains company logos arranged in
two columns.
The names of the companies whose logos are listed above are also written out
between the two columns of logos.
"MESSAGING SOLUTIONS FOR THE GLOBAL NETWORK"
<PAGE>
"Software.com is a global leader in Internet messaging solutions for many of
the world's largest service providers, with more than 37 million mailboxes
licensed to date."
"Software.com envisions a world where core communications services for both
consumers and businesses, including those on corporate LANs, will move rapidly
to the global network. This shift engenders a new class of communications
services that will enable universal email, unified messaging, and other
collaborative applications via the Internet. By enabling service providers to
deliver premium consumer and business messaging services, Software.com is
helping to lead the shift of communications infrastructures to the Internet and
away from the corporate LAN."
Beneath this statement is a chart entitled "Electronic Mailboxes Licensed by
Software.com." The x-axis is marked by 1995, 1996, 1997, 1998 and March 1999.
The y-axis, displayed on the right side of the graph is marked by mailboxes in
millions increasing in 5 million increments from 5 million to 40 million.
<PAGE>
"Software.com's strategic alliances include:"
Logo of Cisco Systems "We have worked informally on technology
development projects with Cisco Systems since
February 1997, when Cisco made the first of its
two investments in our company. For example, we
are working with Cisco to develop technology
that will support Internet standards-based
voicemail on Cisco's Internet infrastructure
equipment. We believe that this arrangement
will assist us in marketing our software to
service providers that use Cisco's equipment.
From time to time we have informally worked
together to develop networking technology."
Logo of Hewlett Packard "Hewlett-Packard recently selected InterMail as
its preferred messaging application for the
service provider market. Hewlett-Packard
markets these solutions to rapidly growing
service providers that are building the
infrastructure to offer hosted or "managed"
messaging services and to those offering
Internet email services to consumers and small
businesses. We also work closely with Hewlett-
Packard to customize our messaging software to
run on Hewlett-Packard's HP-UX operating
system. In April 1999, Hewlett-Packard
purchased a minority equity interest in
Software.com."
At the bottom of the page is the logo of Software.com The Internet
Infrastructure Company.
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Prospectus Summary................... 4
Risk Factors......................... 7
Use of Proceeds...................... 17
Dividend Policy...................... 17
Capitalization....................... 18
Dilution............................. 19
Selected Consolidated Financial 20
Data................................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business............................. 34
Management........................... 47
</TABLE>
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<CAPTION>
Page
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Certain Transactions................ 56
Principal and Selling Stockholders.. 58
Description of Capital Stock........ 61
Shares Eligible for Future Sale..... 64
Underwriting........................ 66
Notice to Canadian Residents........ 68
Additional Information.............. 69
Legal Matters....................... 69
Experts............................. 69
Change in Accountants............... 69
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Software.com--The Internet Infrastructure Company and InterMail are
registered trademarks of Software.com. Software.com and Post.Office are
trademarks of Software.com. All other trademarks or servicemarks appearing in
this prospectus are trademarks or servicemarks of the respective companies that
use them.
Dealer Prospectus Delivery Obligation
Until , 1999, (25 days after the commencement of this offering) all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in this offering. You should read the
entire prospectus carefully.
Software.com, Inc.
Software.com is a leading developer and provider of scalable, high
performance messaging software applications for providers of Internet
communications and services. We have developed an extensible software platform
utilizing Internet standards-based technologies, enabling our customers to
deliver a variety of messaging services. We have multiple messaging
applications based on this platform, including Web browser-based email, desktop
client-based email, outsourced or "managed" business messaging, and Internet-
based voicemail and faxmail messaging. We augment our product offerings with a
wide variety of consulting and support services in order to provide our
customers with complete messaging solutions.
Our service provider customers, including traditional telecommunications
carriers, Internet service providers and wholesalers, cable-based Internet
access providers, competitive local exchange telephone carriers, and Internet
destination sites or portals, use our software solutions to provide advanced
messaging services to their consumer and business users. To date, we have
licensed over 37 million mailboxes to over 1,000 service providers, including:
@Home Network, Ameritech Interactive Media Services, AT&T Canada, AT&T WorldNet
Service, Bell Atlantic Internet Services, Excite Inc., GTE Internetworking
Services, Hongkong Telecom, Pacific Internet, PSINet, Telecom Italia Net,
Telecom Malaysia, Telecom New Zealand, TeleDanmark, and Time Warner/Road
Runner. We have also established strategic relationships with Cisco Systems,
Hewlett-Packard, and IBM, in order to further develop, market, and sell our
messaging solutions. AT&T Ventures, Cisco Systems, and Hewlett-Packard have
each made minority equity investments in our company.
Our InterMail family of messaging product packages includes InterMail
Post.Office, for service providers with up to 25,000 users; InterMail Kx, for
service providers with up to 250,000 users; and InterMail Mx, for service
providers with more than 250,000 and up to millions of users. Our messaging
solutions have been proven to work in highly demanding environments, supporting
service providers with user bases ranging from hundreds to millions of
subscribers. Our distributed, fault-tolerant architecture enables service
providers to easily scale their service offerings as they rapidly add new
subscribers. We believe that we offer service provider customers the ability
to:
. easily deliver new services based on our Internet standards-based
messaging platform;
. rapidly scale the number of users they support;
. provide email and other messaging services that are highly reliable;
. increase overall customer satisfaction;
. decrease subscriber turnover; and
. reduce the overall cost of delivering these services.
4
<PAGE>
Our goal is to be the leading provider of scalable, high performance Internet
software designed for service providers. We seek to attain this objective by:
. extending our leadership position in providing Internet email solutions;
. utilizing our core messaging platform to deliver additional Internet
applications;
. providing our solutions exclusively to service providers;
. directly targeting large and well-known service providers; and
. leveraging our professional services expertise to provide complete
messaging solutions.
In April 1999, we completed the acquisition of Silicon Valley-based
Mobility.Net Corporation, the developer of a Java-based, high-performance and
customizable integrated Web mail, address book, and calender product, called
the Mobility.Net Integrated Web Mail System. The Integrated Web Mail System is
designed to be compatible with all leading email servers, computer operating
systems, Internet browsers, and palm-computing devices. We intend to
incorporate the Mobility.Net technology into our existing messaging platform to
extend our capabilities in offering multiple Web-based applications to service
providers.
In 1992, John MacFarlane, our founder and Chief Executive Officer, registered
the domain name Software.com with the idea to develop an Internet software
distribution business. In January 1993, he founded our company as a partnership
and began developing and marketing Internet standards-based email software.
Software.com, Inc. was incorporated in California in October 1994, and intends
to reincorporate in Delaware in May 1999. Our principal executive offices are
located at 525 Anacapa Street, Santa Barbara, California 93101 and our
telephone number is (805) 882-2470. Our World Wide Web site is
www.software.com. The information in our Web site is not incorporated by
reference into this prospectus.
All information in this prospectus reflects:
. the sale of 1,626,016 shares of Series D preferred stock on April 5,
1999,
. the issuance of 1,579,294 shares of common stock and the assumption of
74,424 options to purchase common stock in connection with the
acquisition of Mobility.Net on April 12, 1999.
In addition, except as otherwise indicated, all information in this
prospectus is based on the following assumptions:
. the reincorporation of Software.com into Delaware,
. the conversion of all outstanding shares of preferred stock into common
stock upon the closing of this offering, and
. no exercise of the underwriters' over-allotment option.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Software.com.. shares
Common stock offered by selling
stockholders......................... shares
Common stock to be outstanding after
this offering........................ shares
Use of proceeds....................... For repayment of indebtedness, working
capital and general corporate purposes.
Proposed Nasdaq National Market
symbol............................... SWCM
</TABLE>
Common stock to be outstanding after this offering is based on shares
outstanding as of April 5, 1999. It excludes:
. 8,572,764 shares of common stock issuable upon exercise of options
outstanding, of which 2,472,415 shares are exercisable, at a weighted
average exercise price of $3.57 per share, and
. 866,903 shares issuable upon exercise of warrants outstanding at a
weighted average exercise price of $4.23 per share.
----------------
Summary Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
July 11, 1994
(Inception) Year Ended December 31,
to December 31, ---------------------------------
1994 1995 1996 1997 1998
--------------- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Total revenues............ $ 648 $4,727 $ 7,882 $ 10,666 $25,619
Total cost of revenues.... 2 58 985 3,364 9,019
Gross profit.............. 646 4,669 6,897 7,302 16,600
Income (loss) from
operations............... (49) 2,043 (3,250) (11,707) (6,521)
Net income (loss)......... (58) 1,970 (3,163) (11,469) (7,403)
Net income (loss)
applicable to common
shareholders............. (58) 1,970 (3,343) (12,199) (8,228)
Basic and diluted net
income (loss) per share.. $ 0.00 $ 0.10 $ (0.13) $ (0.44) $ (0.29)
Weighted-average shares of
common stock outstanding
used in computing basic
and diluted net income
(loss) per share......... 15,106 20,080 25,419 27,814 28,228
Pro forma basic and
diluted net loss per
share.................... $ (0.23)
Shares used in computing
pro forma basic and
diluted net income (loss)
per share................ 32,110
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents...................... $ 5,447 $15,447 $
Working capital (deficiency)................... (115) 9,885
Total assets................................... 19,059 29,059
Long-term debt................................. 100 100
Redeemable convertible preferred stock......... 13,370 -- --
Total shareholders' equity (deficit)........... (10,061) 13,309
</TABLE>
See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing per share data.
The pro forma consolidated balance sheet information gives effect to the sale
of 1,626,016 shares of Series D preferred stock in April 1999, and the
conversion of all outstanding shares of preferred stock into shares of common
stock upon the closing of the offering.
The pro forma as adjusted numbers give effect to the conversion of all
preferred stock, including the Series D preferred stock, as well as the sale of
the shares of common stock offered hereby by Software.com at an
assumed public offering price of $ per share and after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by Software.com. See "Use of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in our common stock. The risks described below are not the
only ones that we face. Additional risks that we have not yet identified or
that we currently think are immaterial may also impair our business operations.
The trading price of our common stock could decline due to any of these risks,
in which case you could lose all or part of your investment. In assessing these
risks, you should also refer to the other information in this prospectus,
including our financial statements and the related notes.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. These statements relate to our future plans, objectives,
expectations and intentions, and may be identified by the use of words such as
"expects," "anticipates," "intends," and "plans" and similar expressions. Our
actual results could differ materially from those contemplated by these
statements, partially as a result of the factors discussed below.
Our future revenues are unpredictable and we expect our quarterly operating
results to fluctuate
We cannot accurately forecast our revenues in any given period as a result of
our limited operating history, the emerging nature of the markets in which we
compete and our reliance on a small number of products and large customers. Our
revenues could fall short of our expectations if we experience delays in
signing new customer accounts or cancellation of one or more current or new
customer accounts. A number of factors are likely to cause fluctuations in our
operating results, including:
. the volume and timing of mailbox activation by our InterMail Mx service
provider customers;
. the length of our sales and product deployment cycles for our InterMail
products;
. our ability to attract and retain customers in new markets, including
Europe and Asia;
. our continuing dependence on the InterMail line of products and related
services for all of our revenues;
. our dependence on a small number of large customers;
. our dependence on continued growth of the service provider market;
. any delays in our introduction of new products or enhancements;
. the amount and timing of operating costs and capital expenditures
relating to expansion of our operations;
. the announcement or introduction of new or enhanced products or services
by our competitors;
. adverse customer reaction to technical difficulties or "bugs" in our
software;
. the growth rate and performance of the Internet in general and of
Internet messaging in particular;
. the volume of sales by our distribution partners and resellers;
. any slowdown in software and systems spending or in general business
expansion by service providers in the latter part of 1999 and the
beginning of 2000 in connection with Year 2000 issues; and
. our pricing policies and those of our competitors.
We plan to significantly increase our operating expenses to expand our
international sales and marketing operations and fund greater levels of
research and development. Our operating expenses, which include sales and
marketing, research and development, and general and administrative expenses,
are based on expectations of future revenues and are relatively fixed in the
short term. If revenues fall below our expectations and we are not able to
quickly reduce our spending in response, our business, financial condition, and
operating results will suffer. Accordingly, period-to-period comparisons of our
operating results are not a good indication of our future performance. It is
possible that our operating results in some quarters will not meet the
expectations of stock market analysts and investors. In that event, our stock
price would probably decline.
7
<PAGE>
Variations in the time it takes to sell, deploy and activate mailboxes using
our InterMail Mx product may cause fluctuations in our operating results
Variations in the length of our sales and deployment cycles for InterMail Mx
could cause our revenue, and thus our business, financial condition and
operating results, to fluctuate widely from period to period. Our customers
generally take a long time to evaluate our InterMail Mx product, and many
people are involved in the evaluation process. We expend significant resources
educating and providing information to our prospective customers regarding the
use and benefits of InterMail Mx. Even after the purchase, our customers tend
to integrate InterMail Mx into their existing systems slowly and deliberately.
The timing of the deployment depends upon:
. the efforts of our professional services staff;
. the geographic disbursement of the customer's hardware;
. complexity of the customer's network and the resulting degree of
hardware configuration necessary to deploy InterMail Mx on their system;
. the internal technical capabilities of the customer;
. the customer's budgetary constraints; and
. the stability and sophistication of the customer's current messaging
system.
Because of the number of factors influencing the sales and deployment
processes, the period between our initial contact with a new customer and the
time when we begin to recognize revenue from that customer varies widely in
length. Our sales cycles for InterMail Mx typically range from six months to a
year, and our software deployment cycles typically range from three to six
months thereafter, although occasionally these cycles can be much longer.
During these cycles, we commit substantial resources in advance of receiving
any revenue.
Under our InterMail Mx license agreements, our customers typically pay us a
fee for each new user account, or "mailbox," they activate using InterMail Mx.
We recognize revenue from these agreements when we have obtained a report from
our customer or based on other information as to the number of mailboxes
activated by the customer, which typically occurs on a quarterly basis after
they have completed a deployment of InterMail Mx. Because we charge our
customers only for activating "new" mailboxes, a customer can reassign a lost
subscriber's mailbox to a new subscriber without having to pay us a fee. As a
result, the amount of revenue that we are able to recognize in any given period
depends on how quickly our customers activate new mailboxes and report the
activation of those new mailboxes to us. We cannot control how quickly our
customers activate new mailboxes. The primary factors affecting the timing are
the ability of our customers to retain subscribers and grow their subscriber
bases by attracting end users to their online services, and their willingness
to promote InterMail Mx messaging services with their subscribers. Mailbox
activations and the associated revenue may be concentrated in a particular
quarter and, as a result, our revenue for a particular quarter is not a good
indication of our future revenue. Our revenues may fluctuate widely from period
to period depending on the timing of our customers' activation of new
mailboxes, and any delay in or failure by our customers to activate new
mailboxes will harm our business, financial condition, and operating results.
In addition, we base our quarterly revenue projections, in part, upon our
expectations of how many mailboxes our InterMail Mx customers will activate in
that quarter. Because the timing of mailbox activation is outside of our
control, it is often difficult for us to make accurate forecasts. If our
expectations, and thus our revenue projections, are not accurate for a
particular quarter, our actual operating results for that quarter could fall
below the expectations of analysts and investors.
Because we have a limited operating history, it is difficult to evaluate our
business and prospects
We have only a limited operating history, which makes it difficult to predict
our future operating performance. When making your investment decision, you
should consider the risks, expenses, and difficulties that we may encounter as
a young company in a rapidly evolving market. These risks include our ability
to:
. expand our sales and marketing activities;
. expand our customer base;
8
<PAGE>
. develop and introduce new products and services;
. identify and integrate acquisitions; and
. compete effectively.
We cannot be certain that our business strategy will be successful or that we
will successfully address these risks.
We have a history of losses and we expect future losses
We have historically invested heavily in our sales and marketing efforts and
in technology research and development. We expect to continue to spend
substantial resources on developing and introducing new software products and
on expanding our sales and marketing activities, particularly in Europe and
Asia. As a result, we need to generate significant revenues to achieve and
maintain profitability. We expect that our sales and marketing expenses,
research and development expenses, and general and administrative expenses will
continue to increase in absolute dollars and may increase as percentages of
revenues.
We incurred net losses of approximately $12.7 million for the period from
July 1994 through December 31, 1997, and $7.4 million for the year ended
December 31, 1998. As of December 31, 1998, we had an accumulated deficit of
approximately $21.9 million. Although our revenues have grown significantly in
recent quarters, we may not be able to sustain these growth rates or obtain
sufficient revenues to achieve profitability. If we do achieve profitability,
we may not be able to sustain or increase profitability in the future. Our
failure to achieve and maintain profitability could adversely affect our stock
price.
We depend on a small number of customers for most of our revenues
We have generated a significant portion of our revenues from a limited number
of customers. We expect that a small number of customers will continue to
account for a significant portion of revenues for the foreseeable future. In
the year ended December 31, 1997, AT&T WorldNet Service accounted for
approximately 18% of our revenue. In the years ended December 31, 1997 and
1998, GTE Internetworking Services accounted for approximately 10% and 12% of
our revenue, and our top ten clients accounted for approximately 53% and 56% of
our revenue. Our target market is made up only of service providers, which
constitute only a small portion of all users of messaging solutions. As a
result, if we lose a major customer, or if there is a decline in usage, or if
there is a downturn in the service provider industry, our business, financial
condition, and operating results would suffer. In addition, we cannot be
certain that customers that have accounted for significant revenues in past
periods, individually or as a group, will continue to generate revenues for us
in any future period.
We must overcome significant and increasing competition in order to succeed
The market for Internet standards-based messaging products and services is
intensely competitive, and we expect it to become increasingly so in the
future. We compete in our core service provider market with many software
providers. We also compete against messaging solutions based on public domain
software that is developed internally by service providers. We compete to a
more limited extent with providers of messaging applications designed for the
enterprise market. We believe that competition will intensify as our current
competitors increase the sophistication of their offerings and as new market
participants, including providers of "outsourced" e-mail solutions, also known
as wholesalers, enter the market. Many of our current and future competitors
have longer operating histories, larger installed customer bases, greater brand
recognition, and significantly greater financial, marketing and other resources
than we do. In addition, these competitors may benefit from existing strategic
and other relationships with each other or with our current customers. We must
respond quickly and effectively to the new products, services, and enhancements
offered by our competitors in order to succeed.
9
<PAGE>
Our current competitors in the service provider market include Netscape and
Sun Microsystems, which has agreed to acquire many of Netscape's software
operations. We also compete with Microsoft whose current product was developed
for the enterprise market but is sold to some service providers. In addition,
Microsoft and Lucent Technologies, among others, are well-positioned to become
increasingly competitive in our core service provider messaging market. We
believe that Microsoft is currently in the process of developing electronic
messaging software to compete more directly in our core service provider
market. Because of its dominance in other software markets, Microsoft has many
competitive advantages over us. For example, Microsoft could incorporate
electronic messaging technology into its Web browser software, its client
operating system or email interface, or its server software offerings, possibly
at no additional cost to service providers or end users. In addition, Microsoft
may promote technologies and standards that are not compatible with our
technology, or that are less compatible with our technology than competitive
products offered by Microsoft. We believe that Microsoft's increasing presence
in the electronic messaging software industry will dramatically increase
competitive pressure in the market, leading to increased pricing pressure and
longer sales cycles. Such pressures may force us to reduce the prices of our
products, and may also materially reduce our market share. In addition, Lucent
Technologies could be a formidable competitor in the Internet voicemail market
because it owns Octel, a voicemail provider, and because it owns a proprietary
access server for the conversion of voice to data. If we are unable to compete
effectively with Microsoft, Lucent Technologies, or current or other emerging
competitors, our business, financial condition, and operating results will
suffer.
Our new InterMail Kx product may not be accepted by the market, and its
introduction may interfere with sales of our other products
Our software licenses revenue have been derived primarily from the sale of
our InterMail Post.Office and InterMail Mx products. We introduced our
Intermail Kx product in March 1999 and our future growth depends in part on the
commercial success of this product. Although we have tested InterMail Kx prior
to making it available to customers, we cannot be certain that we have
discovered and corrected all significant performance errors. We are initially
targeting service providers with 25,000 to 250,000 subscribers for our
InterMail Kx product. Several other software vendors, including Microsoft,
Netscape and Sun Microsystems, offer messaging products to service providers of
this size. These service providers may not choose our InterMail Kx product for
technical, cost, support, or other reasons. If our target customers do not
widely adopt and purchase InterMail Kx, our business, financial condition, and
operating results will suffer.
We currently have several licenses for our InterMail Post.Office product with
service providers that have more than 25,000 subscribers and we have licensed
our InterMail Mx product to service providers with fewer than 250,000
subscribers. Accordingly, InterMail Kx may compete to some extent with our
other products. Competition from InterMail Kx could have a negative effect on
our sales of InterMail Post.Office or InterMail Mx, or the prices we could
charge for these products. We may also divert sales and marketing resources
from InterMail Post.Office in order to successfully launch and promote
InterMail Kx. This diversion of resources could have a further negative effect
on our sales of InterMail Post.Office. If our revenues from InterMail Kx are
not sufficient to compensate for the effect of any decrease in sales or prices
of our other products, our business, financial condition, and operating results
will suffer.
Our expanding international operations are subject to uncertainties
In 1996, 1997, and 1998, revenues attributable to customers outside of North
America accounted for approximately 12%, 24%, and 37% of our total revenues. We
recently began to invest significant financial and managerial resources to
expand our sales and marketing operations in international markets, and we must
continue to do so for the foreseeable future in order to succeed in these
markets. In particular, we are making significant expenditures on expansion in
Europe and Asia, including the localization of our products for use in these
regions, and we expect such expenditures to continue or increase. We are
expending the most resources in the countries and regions that we think will be
the most receptive markets for our products. If our revenues from international
operations, and particularly from our operations in the countries and regions
on which we
10
<PAGE>
have focused our spending, do not exceed the expense of establishing and
maintaining these operations, our business, financial condition, and operating
results will suffer. In addition, we have only limited experience in
international operations, and we may not be able to compete effectively in
these markets. In this regard, we face certain risks inherent in conducting
business internationally, such as:
. fluctuations in currency exchange rates;
. problems caused by the ongoing conversion of various European currencies
into a single currency, the Euro;
. any imposition of currency exchange controls;
. unexpected changes in regulatory requirements applicable to the Internet
or our business;
. difficulties and costs of staffing and managing international operations;
. differing technology standards;
. difficulties in collecting accounts receivable and longer collection
periods;
. seasonal variations in customer buying patterns or electronic messaging
usage;
. political instability or economic downturns;
. potentially adverse tax consequences; and
. reduced protection for intellectual property rights in certain countries.
Any of these factors could harm our international operations and,
consequently, our business, financial condition, and operating results.
The loss of any of our senior management or key personnel could harm our
business
Our success depends on the skills, experience and performance of our senior
management and certain other key personnel, some of whom have worked together
for only a short period of time. We do not have employment agreements with any
of our senior management or other key personnel, and their employment is at
will. The loss of the services of any of our senior management or other key
personnel, including John MacFarlane, our Chief Executive Officer, and John
Poulack, our Senior Vice President, Operations, could harm our business,
financial condition, and operating results.
Our success depends on our ability to attract and retain highly skilled
employees
Our success depends on our ability to recruit, integrate, retain, and
motivate highly skilled sales and marketing, engineering, and quality assurance
personnel. In particular, our ability to attract and retain qualified sales
management personnel is critical to the success of our planned expansion in
Europe and Asia. Competition for these people in the Internet messaging
industry is intense, and we may not be able to successfully recruit, train, or
retain qualified personnel. If we fail to retain and recruit necessary sales
and marketing, engineering, and quality assurance personnel, our ability to
obtain new customers, develop new products and provide acceptable levels of
customer service could suffer, and this could harm our business, financial
condition, and operating results.
Our success depends on our ability to adapt to rapid changes in technology and
customer preferences
The Internet messaging industry is characterized by rapidly changing
technology, changes in customer and end user requirements and preferences, and
evolving industry standards and practices that could render our software
products obsolete. Our success depends on our ability to enhance our existing
messaging platform and products on a timely basis and to develop new products
that address the increasingly sophisticated and varied needs of our customers
and their end users. We must accurately forecast the features and functionality
required by our target customers and end users in order to continually improve
our products. For example, in response to customer and end user demand, we have
recently developed a voicemail feature for some of our products using the
Internet communications protocol, known as "IP". The development of proprietary
technology and product enhancements has required, and will continue to require,
substantial expenditures and lead-time, and we may not always be able to keep
pace with the latest technological developments. If we cannot, for technical,
11
<PAGE>
legal, financial, or other reasons, adapt our products to changing customer or
end user requirements or industry standards in a cost-effective and timely
fashion, or if any new product, enhancement, or feature, including InterMail
Kx, IP voicemail, or Web-applications technology acquired in the Mobility.Net
acquisition, is not favorably received and accepted by customers and end users,
our business, financial condition, and operating results will suffer.
Our software products may have unknown defects
Our product offerings consist of complex software, both internally developed
and licensed from third parties. Complex software such as ours is difficult to
integrate with customers' existing systems and often contains errors or
defects, particularly when first introduced or when new versions or
enhancements are released. Although we conduct extensive testing, we may not
discover software defects that affect our current or new products, including
our InterMail Kx and IP voicemail products, or Web-applications technology
acquired in the Mobility.Net acquisition, until after they are sold. Despite
testing by us, defects have in the past and may in the future occur in our
software. We also experience difficulty in deploying software at our customer's
sites due to its complex nature. Any defect in other software or hardware with
which our software interacts could be mistakenly attributed to our software by
our customers or their end users. These defects or perceptions of defects could
cause our customers and their end users to experience service interruptions.
Because our customers depend on our software to provide critical services to
their end users, any such interruptions could damage our reputation or increase
our product development costs, divert our product development resources, cause
us to lose revenue, or delay market acceptance of our products, any of which
could harm our business, financial condition, and operating results.
We must effectively manage the rapid growth of our operations
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We are increasing the scope of our operations and our
customer base domestically and internationally, and we have recently increased
our headcount substantially. From December 31, 1997 to December 31, 1998, our
total number of employees increased from 144 to 187. Our recent growth has
placed and will continue to place a significant strain on our management
systems, infrastructure, and resources. We expect that we will need to continue
to improve our financial and managerial controls and reporting systems and
procedures, and will need to continue to expand, train, and manage our
workforce worldwide. We expect that we will be required to manage an increasing
number of relationships with various customers and other third parties. Any
failure to expand any of the foregoing areas efficiently and effectively could
harm our business, financial condition and operating results. In addition,
there can be no assurance that our business will continue to grow at historical
rates.
Our acquisition strategy could cause financial or operational problems
Our success depends on our ability to continually enhance and broaden our
product offerings in response to changing technologies, customer demands, and
competitive pressures. To this end, we may acquire new and complementary
businesses, products, or technologies, instead of developing them ourselves.
For example, we completed the acquisition of Mobility.Net Corporation in April
1999. Integrating Mobility.Net or any other newly acquired business, product or
technology could be expensive and time-consuming, could disrupt our ongoing
business, and could distract our management. We do not know if we will be able
to complete any future acquisitions or that we will be able to successfully
integrate any acquired business, operate them profitably, or retain their key
employees. We may face competition for acquisition targets from larger and more
established companies with greater financial resources. In addition, in order
to finance any acquisitions, we might need to raise additional funds through
public or private financings. In such event, we could be forced to obtain
equity or debt financing on terms that are not favorable to us and, in the case
of equity financing, that results in dilution to our stockholders. If we are
unable to integrate Mobility.Net or any other newly acquired entities or
technologies effectively, our business, financial condition, and operating
results would suffer. In addition, any amortization of goodwill or other
assets, or other charges resulting from the costs of acquisitions could harm
our business, financial condition, and operating results.
12
<PAGE>
Our business depends on continued growth in use and improvement of the Internet
Because we are in the business of providing electronic messaging software,
our future success depends on the continued expansion of, and reliance of
consumers and businesses on, the Internet for communications. The Internet may
not be able to support an increased number of users or an increase in the
volume of data transmitted over it. As a result, the performance or reliability
of the Internet in response to increased demands will require timely
improvement of the high speed modems and other communications equipment that
form the Internet's infrastructure. The Internet has already experienced
temporary outages and delays as a result of damage to portions of its
infrastructure. The effectiveness of the Internet may also decline due to
delays in the development or adoption of new technical standards and protocols
designed to support increased levels of activity and due to the transmission of
computer viruses. There can be no assurance that the infrastructure, products,
or services necessary to maintain and expand the Internet will be developed, or
that the Internet will continue to be a viable medium for secure and reliable
personal and business communication.
Future sales of our common stock may depress our stock price
After this offering, a total of shares of our common stock will be
outstanding. All the shares sold in this offering will be freely tradable. As a
result of contractual lock-up restrictions, the remaining shares of
our common stock outstanding after this offering will become available for
public sale as follows:
<TABLE>
<CAPTION>
Percentage of
Number Shares Outstanding
Date of Availability for Sale of Shares After Offering
----------------------------- --------- ------------------
<S> <C> <C>
, 1999 (date of this prospectus)........
, 1999 (90 days after the date of this
prospectus)..................................
, 1999 (180 days after the date of this
prospectus)..................................
At various times thereafter upon the
expiration of one-year holding periods.......
</TABLE>
In addition, as of the date of this offering, shares of our common
stock were subject to vested stock options, were subject to unvested
stock options, and remained available for grant under our stock plans.
If our stockholders sell a substantial number of these shares, including shares
acquired upon exercise of these options, in the public market during a short
period of time, our stock price could decline significantly.
Problems related to the Year 2000 could harm our business
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or errors.
We are in the process of assessing our Year 2000 readiness and are
investigating and performing testing to determine whether our software products
are Year 2000 compliant. Our software products operate in complex network
environments, including the Internet, and directly and indirectly interact with
a number of other hardware and software systems. Despite preliminary
investigation and testing by us and our customers and partners, our software
products and the underlying systems and protocols running our products may
contain errors or defects associated with Year 2000 date functions. We are
unable to predict to what extent our business may be affected if our software
or the systems that operate in conjunction with our software, including the
Internet, experience a Year 2000 failure. Known or unknown errors or defects
that affect the operation of our software could result in delays or losses of
revenue, interruptions of email service, cancellations of contracts by our
customers, diversions of our development resources, damage to our reputation,
increased service and warranty costs, and litigation costs, any of which could
harm our business, financial condition, and operating results.
13
<PAGE>
If the performance of our software is adversely affected by Year 2000
problems in our customers' hardware or software programs with which our
software interacts, our customers or their end users may mistakenly believe
that such problems were caused by our software. Such customers and end users
could react by demanding extensive technical support from us or by filing suit
against us, either of which would cause a significant diversion of our
management and financial resources. Regardless of whether we experience Year
2000 problems, service providers and enterprises may reduce their spending on
software and systems during the latter part of 1999 and the beginning of 2000
in connection with Year 2000-related problems. Any such reduction in spending
could impede our ability to attract new customers and harm our business,
financial condition, and operating results.
Our intellectual property and proprietary rights may not be adequately
protected
We regard our copyrights, service marks, trademarks, trade secrets, and
similar intellectual property as critical to our success, and we rely on
trademark and copyright law, trade secret protection, and confidentiality
and/or license agreements with our employees, customers, partners, and others
to protect our proprietary rights. We have not, however, applied for or
received any patents covering our proprietary information. In addition, our
communication systems, while equipped with security features, are connected to
the Internet. Despite our precautions, unauthorized third parties might copy
certain portions of our software or reverse engineer and use information that
we regard as proprietary. The laws of some foreign countries do not protect
proprietary rights to the same extent as do the laws of the United States, and
our means of protecting our proprietary rights abroad may not be adequate. For
example, end-user license provisions protecting against unauthorized use,
copying, transfer, and disclosure of the licensed program may be unenforceable
under the laws of certain jurisdictions and foreign countries. Any
misappropriation of our proprietary information by third parties could harm our
business, financial condition, and operating results. If our proprietary
information were misappropriated, we might have to engage in litigation to
protect it. We might not succeed in protecting our proprietary information by
initiating intellectual property litigation, and such litigation is expensive
and time-consuming, and could divert our management's attention away from
running our business.
Our products may infringe the intellectual property rights of others
We cannot be certain that our products do not infringe issued patents or
other intellectual property rights of others. There are many issued patents as
well as patent applications in the electronic messaging field. Because patent
applications in the United States are not publicly disclosed until the patent
is issued, applications may have been filed which relate to our software
products. In addition, our competitors and other companies as well as research
and academic institutions have conducted research for many years in the
electronic messaging field, and this research could lead to the filing of
further patent applications. We may be subject to legal proceedings and claims
from time to time in the ordinary course of our business, including claims of
alleged infringement of the patents, trademarks, and other intellectual
property rights of third parties. Intellectual property litigation is expensive
and time-consuming, and could divert our management's attention away from
running our business. If we were to discover that our products violated the
intellectual property rights of others, we would have to obtain licenses from
these parties in order to continue marketing our products without substantial
reengineering. We might not be able to obtain the necessary licenses on
acceptable terms or at all, and if we could not, we might not be able to
reengineer our products successfully or in a timely fashion. If we fail to
address any infringement issues successfully, our business, financial
condition, and operating results will suffer.
The geographic dispersement of our senior management could impede their ability
to communicate effectively
Our senior management and key personnel are based in several different
offices. For example, John MacFarlane, our Chief Executive Officer, and John
Ingalls, our Chief Financial Officer, are based at our headquarters in Santa
Barbara, California, while Valdur Koha, our President, and John Poulack, our
Senior
14
<PAGE>
Vice President, Operations, are based at our office in Lexington,
Massachusetts. In addition, we intend to open an additional office in Silicon
Valley where we will work on integrating Mobility.Net's technology with ours.
The geographic dispersement of our senior management team and key personnel
could impede their ability to communicate effectively or work together
efficiently, either of which could harm our business, financial condition, and
operating results.
The security provided by our messaging products could be breached, in which
case our reputation and our business could suffer
A fundamental requirement for online communications is the secure
transmission of confidential information over the Internet. Third parties may
attempt to breach the security provided by our messaging products, or the
security of our customers' internal systems. If they are successful, they could
obtain confidential information about our customers' end users, including their
passwords, financial account information, credit card numbers, or other
personal information. Our customers or their end users may file suits against
us for any such breach in security. Even if we are not held liable, a security
breach could harm our reputation, and even the perception of security risks,
whether or not valid, could inhibit market acceptance of our products. Despite
our implementation of security measures, our software is vulnerable to computer
viruses, electronic break-ins and similar disruptions, which could lead to
interruptions, delays, or loss of data. We may be required to expend
significant capital and other resources to license encryption or other
technologies to protect against security breaches or to alleviate problems
caused by such breaches. In addition, our customers might decide to stop using
our software if their end users experience security breaches. The occurrence or
perception of security breaches could harm our business, financial condition,
and operating results.
Future governmental regulation of the Internet could adversely affect our
business
Although there are currently few laws and regulations directly applicable to
the Internet and commercial messaging, a number of laws have been proposed
involving the Internet, including laws addressing user privacy, pricing,
content, copyrights, distribution, antitrust, and characteristics and quality
of products and services. Further, the growth and development of the market for
online messaging may prompt calls for more stringent consumer protection laws
that may impose additional burdens on those companies, including us, that
conduct business online. The adoption of any additional laws or regulations may
impair the growth of the Internet or commercial online services, which would
decrease the demand for our services and could increase our cost of doing
business or otherwise harm our business, financial condition, and operating
results. Moreover, the applicability of existing laws governing property
ownership, sales and other taxes, libel, and personal privacy to the Internet
is uncertain and may take years to resolve.
Our stock price may be volatile, exposing us to securities class action
litigation
The stock market in general, and the stock prices of Internet-related
companies in particular, have recently experienced extreme volatility, which
has often been unrelated to the operating performance of any particular company
or companies. There has been no prior market for our stock, and if market or
industry-based fluctuations continue, our stock price could decline below our
initial public offering price regardless of our actual operating performance.
In the past, securities class action litigation has often been brought against
companies following periods of volatility in their stock prices. We may in the
future be the target of similar litigation. Securities litigation could result
in substantial costs and divert our management's time and resources, which
could harm our business, financial condition, and operating results. In
addition, an active market for our stock may not develop after this offering.
Provisions of our corporate documents and Delaware law could deter takeovers
Provisions of our certificate of incorporation, our bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
might be beneficial to our stockholders. For example, our certificate of
incorporation to be effective upon the closing of this offering will provide
that our board may issue up to 5,000,000 shares of preferred stock without
stockholder approval. See "Description of Capital Stock" for a more complete
discussion of these matters.
15
<PAGE>
Our management may not use the proceeds of this offering effectively
Our management has broad discretion over the use of a substantial portion of
the proceeds of this offering. Accordingly, it is possible that our management
may allocate the proceeds differently than investors in this offering would
have preferred, or that we will fail to maximize our return on such proceeds.
The initial public offering price of a share of our stock will exceed its book
value
The initial public offering price of our common stock will be substantially
higher than the book value per share of the outstanding common stock
immediately after the offering. If you purchase common stock in this offering,
you will incur immediate dilution of approximately $ in the book value
per share of the common stock from the price you pay. This calculation assumes
you purchase the common stock for $ per share.
You should not rely on forward-looking statements.
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify such
forward-looking statements. This prospectus also contains forward-looking
statements attributed to certain third parties relating to their estimates
regarding the growth of the use of the Internet, the number of mailboxes, email
usage, and related service markets and spending. You should not place undue
reliance on these forward-looking statements, which apply only as of the date
of this prospectus. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
risks described above and elsewhere in this prospectus.
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the shares
of common stock offered by us will be approximately $ million, at an
assumed initial public offering price of $ per share, and after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by us. If the underwriters' over-allotment option is exercised in full,
we estimate that such net proceeds will be approximately $ million. We
will not receive any proceeds from the sale of the common stock by the selling
stockholders.
We intend to use the net proceeds from this offering primarily for additional
working capital, repayment of indebtedness, and other general corporate
purposes, including increased international sales and marketing expenditures
and product development expenditures. Specifically, we plan to use a portion of
the net proceeds to repay the outstanding balance on our line of credit with
Coast Business Credit. As of March 31, 1999, we had borrowed approximately $7.9
million under this facility which bears interest at rates ranging from prime
rate plus 1.5% to prime rate plus 1.75% and matures in August 2000. In
addition, we may use a portion of the net proceeds to acquire complementary
products, technologies, or businesses; however, we currently have no
commitments or agreements and are not involved in any negotiations with respect
to any such transactions. Pending use of the net proceeds of this offering, we
intend to invest the net proceeds in interest-bearing, investment-grade
securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends
in the foreseeable future. In addition our existing bank line of credit
prohibits the payment of dividends.
17
<PAGE>
CAPITALIZATION
The following table sets forth the following information:
. the actual capitalization of Software.com as of December 31, 1998,
. the pro forma capitalization of Software.com gives effect to the sale of
1,626,016 of shares of Series D preferred stock in April 1999, and the
conversion of all outstanding shares of preferred stock into 6,332,378
shares of common stock upon the closing of this offering, and
. the pro forma as adjusted capitalization gives effect to the conversion
of all preferred stock, including the Series D preferred stock, as well
as the sale of shares of common stock that Software.com is offering
hereby at an assumed initial offering price of $ per share less
underwriting discounts and commissions and estimated offering expenses we
expect to pay in connection with this offering.
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except
share data)
<S> <C> <C> <C>
Cash and cash equivalents...................... $ 5,447 $15,447 $
======== ======== ========
Long-term debt................................. 100 100
Redeemable convertible preferred stock......... 13,370 --
Shareholders' equity (deficit):
Convertible preferred stock: no par value;
authorized: 1,329,781; issued and
outstanding................................... 6,848 -- --
Common stock: no par value; authorized:
50,000,000, actual; 60,000,000 proforma;
issued and outstanding: 28,632,156, actual;
34,964,534, pro forma and pro forma as
adjusted...................................... 6,396 36,614
Deferred compensation.......................... (1,447) (1,447)
Accumulated deficit............................ (21,858) (21,858)
-------- -------- --------
Total shareholders' equity (deficit)........... (10,061) 13,309
-------- -------- --------
Total capitalization........................... $ 3,409 $ 13,409 $
======== ======== ========
</TABLE>
This table excludes the following shares:
. 7,511,000 shares issuable upon exercise of outstanding options as of
December 31, 1998, and
. 866,903 shares of common stock issuable upon exercise of outstanding
warrants.
See "Management--Incentive Stock Plans," "Description of Capital Stock" and
Notes 4 and 7 of Notes to Consolidated Financial Statements.
18
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma net tangible book value per share of common
stock after this offering. The pro forma net tangible book value of our common
stock as of December 31, 1998, after giving effect to the conversion of all
outstanding shares of preferred stock, including the preferred stock issued in
April 1999, was $13,309,000 or approximately $0.38 per share. Pro forma net
tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by the pro forma number of shares of
common stock outstanding. Dilution in net tangible book value per share
represents the difference between the amount per share paid by purchasers of
shares of our common stock in this offering and the net tangible book value per
share of our common stock immediately after the completion of this offering.
After giving effect to the sale of the shares of common stock offered
by us hereby at an assumed public offering price of $ per share and after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by us, our pro forma net tangible book value as of December
31, 1998 would have been $ or approximately $ per share. This
represents an immediate increase in net tangible book value of $ per share
to existing stockholders and an immediate dilution in net tangible book value
of $ per share to new investors of common stock in this offering. The
following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share as of December 31,
1998............................................................. $0.38
Increase per share attributable to new investors..................
-----
Pro forma net tangible book value per share after the offering......
----
Dilution per share to new investors................................. $
====
</TABLE>
The following table sets forth, as of December 31, 1998, the differences
between the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid by existing holders of
common stock and by the new investors, before deducting the underwriting
discounts and commissions and estimated offering expenses payable by us, at an
assumed public offering price of $ per share.
<TABLE>
<CAPTION>
Total Average
Shares Purchased Consideration Price
----------------- ----------------- Per
Number Percentage Amount Percentage Share
------ ---------- ------ ---------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... % $ % $
New investors.......................
--- ------- ---- ------- ----
Total............................. 100.0% $ 100.0%
=== ======= ==== ======= ====
</TABLE>
The sale of common stock by the selling stockholders in this offering will
reduce the number of shares of common stock held by existing stockholders to
, or approximately % of the total shares of common stock outstanding
after this offering, and will increase the number of shares of common stock
held by new investors to , or % of the total number of shares of
common stock outstanding immediately after this offering. See "Principal and
Selling Stockholders."
The foregoing discussion and table assume no exercise of any stock options or
warrants outstanding as of December 31, 1998. As of December 31, 1998 there
were options outstanding to purchase 7,511,000 shares of common stock at a
weighted average exercise price of $3.10 per share and there were warrants
outstanding to purchase 866,903 shares of common stock at a weighted average
purchase price of $4.23 per share. To the extent any of these options or
warrants are exercised, there will be further dilution to investors. See
"Capitalization," "Management--Incentive Stock Plans," "Description of Capital
Stock," and Notes 4 and 7 of Notes to Consolidated Financial Statements.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
In reading the selected consolidated financial data set forth below, you
should refer to "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our Consolidated Financial Statements and the
Notes included elsewhere in this prospectus. The statement of operations data
for the years ended December 31, 1996, 1997, and 1998 and the balance sheet
data at December 31, 1998 are derived from our consolidated financial
statements, which have been audited by Ernst & Young LLP, independent auditors,
and are included elsewhere in this prospectus. The statement of operations data
for the period from July 11, 1994 (inception) to December 31, 1994 and the year
ended December 31, 1995 are derived from unaudited consolidated financial
statements not included in this prospectus. Our historical results are not
necessarily indicative of the results we will achieve in any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
July 11, 1994
(Inception) Year Ended December 31,
to December 31, ----------------------------------
1994 1995 1996 1997 1998
--------------- ------ ------- -------- -------
(in thousands, except per share
data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
Software licenses........ $ 612 $3,185 $ 6,555 $ 7,859 $17,462
Services................. 36 1,542 1,327 2,807 8,157
------ ------ ------- -------- -------
Total revenues......... 648 4,727 7,882 10,666 25,619
Cost of revenues:
Software licenses........ 2 58 218 689 1,568
Services................. -- -- 767 2,675 7,451
------ ------ ------- -------- -------
Total cost of
revenues.............. 2 58 985 3,364 9,019
------ ------ ------- -------- -------
Gross profit........... 646 4,669 6,897 7,302 16,600
Operating expenses:
Sales and marketing...... 83 552 4,554 8,607 10,769
Research and
development............. 373 1,263 3,457 6,309 8,716
General and
administrative.......... 239 811 2,136 3,093 4,036
Legal matter............. -- -- -- 1,000 (400)
------ ------ ------- -------- -------
Total operating
expenses.............. 695 2,626 10,147 19,009 23,121
------ ------ ------- -------- -------
Income (loss) from
operations................ (49) 2,043 (3,250) (11,707) (6,521)
Other income (expense):
Interest income.......... -- -- 87 298 293
Interest expense......... -- -- -- (59) (645)
Other.................... (2) (4) -- -- (84)
------ ------ ------- -------- -------
Total other income
(expense)............... (2) (4) 87 239 (436)
------ ------ ------- -------- -------
Income (loss) before income
taxes..................... (51) 2,039 (3,163) (11,468) (6,957)
Provision for income
taxes..................... 7 69 -- 1 446
------ ------ ------- -------- -------
Net income (loss).......... (58) 1,970 (3,163) (11,469) (7,403)
Accretion on redeemable
convertible preferred
stock..................... -- -- (180) (730) (825)
------ ------ ------- -------- -------
Net income (loss)
applicable to common
shareholders.............. $ (58) $1,970 $(3,343) $(12,199) $(8,228)
====== ====== ======= ======== =======
Basic and diluted net
income (loss) per share... $ 0.00 $ 0.10 $ (0.13) $ (0.44) $ (0.29)
====== ====== ======= ======== =======
Weighted average shares
outstanding used in
computing
per share calculation..... 15,106 20,080 25,419 27,814 28,228
====== ====== ======= ======== =======
Pro forma basic and diluted
net loss per share........ $ (0.23)
=======
Shares used in computing
pro forma basic and
diluted net loss per
share..................... 32,110
=======
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1997 1998
------ ------- --------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............................. $3,163 $ 6,083 $ 5,447
Working capital (deficiency).......................... 4,446 (531) (115)
Total assets.......................................... 7,692 13,944 19,059
Long-term debt ....................................... -- 340 100
Redeemable convertible preferred stock................ 4,710 12,838 13,370
Total stockholders' equity (deficit).................. 1,975 (9,912) (10,061)
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements the accuracy of which
involves risks and uncertainties. We use words such as "anticipates,"
"believes," "plans," "expects," "future" and "intends" and similar expressions
to identify forward-looking statements. Prospective investors should not place
undue reliance on these forward-looking statements, which apply only as of the
date of this prospectus. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
risks we face described in "Risk Factors" and elsewhere in this prospectus.
Overview
Software.com is a leading developer and provider of scalable, high
performance messaging software applications for providers of Internet
communications and services. We develop, market, sell, and support a variety of
Internet standards-based messaging software to service providers worldwide,
including traditional telecommunications carriers, Internet service providers
and wholesalers, cable-based Internet access providers, competitive local
exchange telephone carriers, and Internet destination sites or portals. We have
developed three product packages: InterMail Post.Office, InterMail Kx, and
InterMail Mx, based on our extensible object technology platform. These
products allow our customers to provide a variety of advanced messaging
services to their Internet-based consumer and business users.
We were incorporated in California in October 1994. Our operating activities
during 1994 and the first half of 1995 related primarily to research and
development of our messaging software platform. In November 1995, we licensed
the source code of an early version of our single server messaging product,
Post.Office, to Netscape for payments totaling $5.0 million. Of this amount,
Netscape paid $3.5 million for software licenses and $1.5 million for training
and testing services. Revenue from this agreement was recognized over a two
year period as software was delivered and services were performed. This license
to Netscape provided the funding for us to begin building our sales,
development, and administration organizations.
In May 1996, we merged with Accordance Corporation, a Massachusetts
corporation incorporated in July 1994, with Software.com as the surviving
company. Accordance had a multiple server messaging product called InterMail.
During the second half of 1996, we focused on integrating our two product lines
and building sales and marketing channels to target the service provider
market. We also worked extensively with AT&T WorldNet Service during 1996 as it
rapidly grew its Internet services. In October 1996, we completed a financing
with AT&T Ventures.
In March 1997, we began building our professional services organization and
offering systems architecture and deployment consulting services to our
customers. The initial professional services group consisted of five
consultants and grew to 14 by the end of 1997 and to 24 by the end of 1998 as
the number of customers requesting our services increased. During 1997, we also
continued to build our development and quality assurance teams using proceeds
from the sale of preferred stock to Cisco Systems in February 1997. Cisco
Systems increased its equity investment in August 1998, which we used to begin
our overseas expansion in Europe and Asia, as well as to grow our global direct
sales force and service organizations.
In March 1999, we entered into a marketing relationship with Hewlett-Packard
and, in connection with this agreement, Hewlett-Packard made an investment in
Software.com. In April 1999, we completed the acquisition of Mobility.Net
Corporation, a California company incorporated in July 1996. Mobility.Net has
developed an integrated Web mail system using a Java-based technology platform
that complements our product offerings. The acquisition was accounted for as a
pooling-of-interests. Accordingly, the financial information presented in the
Consolidated Financial Statements reflects the combined financial position and
operations of Software.com and Mobility.Net for all dates and periods
presented.
22
<PAGE>
We recognize revenue from sales of software upon delivery of a license key to
the customer, provided that persuasive evidence of an arrangement exists, the
license fee is fixed and determinable, and collection of the fee is considered
probable. If the license agreement has a multi-year term, as is typical with an
InterMail Mx contract, or the license fees are calculated based on variable
measures, such as the number of mailboxes in use, we recognize revenue as the
customer activates mailboxes on their system. When we enter into revenue
sharing arrangements with our customers, we recognize revenue as earned and
reported by the customer. Revenues from sales to resellers are not recognized
until the product is sold through to the end user and the license key is
issued.
Service revenue is composed of revenue from support and maintenance contracts
as well as professional services and training. Revenues from support and
maintenance contracts is recognized ratably over the term of the support and
maintenance period, which is typically quarterly. Consulting services revenues
are primarily related to deployment services performed on a time-and-materials
basis under separate service arrangements. We recognize revenues from
consulting and training services using the percentage of completion method.
When software and services are billed prior to the time the related revenue is
recognized, deferred revenue is recorded.
In a typical customer relationship, we receive software license revenue,
support and maintenance revenue, and, in some cases, also receive professional
services revenue. We recognize these three types of revenue at different stages
of our customer relationship. Substantially all of our professional services
are performed prior to the activation of mailboxes by the customer. As a
result, we generally recognize revenue from professional services in advance of
revenue from software license fees. If a customer has a large number of
existing users, we typically see a large revenue contribution at the time the
customer transfers existing user mailboxes to our software platform. After this
transfer, the software license revenue primarily reflects the growth in the
number of mailboxes. Support and maintenance revenue begins after installation
of our software and also primarily reflects the growth in the number of
mailboxes.
In 1996, 1997, and 1998, revenues attributable to customers outside of North
America accounted for approximately 12%, 24%, and 37% of our total revenues. We
are making significant expenditures on expansion in Europe and Asia, including
the localization of our products for use in these regions, and we expect such
expenditures to increase. If our revenues from international operations do not
exceed the expense of establishing and maintaining these operations, our
business, financial condition and operating results will suffer.
We believe our success depends on our ability to execute on our global sales
strategy and continue to develop carrier-class products and services which
address the unique requirements of service providers. Accordingly, we intend to
continue to invest heavily in sales, support, and research and development.
Furthermore, we expect to continue to incur substantial operating losses for
the next several quarters, and our expected increase in operating expenses will
require further increases in revenues before we become profitable.
In view of the rapidly changing nature of our business and our limited
operating history, we believe that period-to-period comparisons of revenues and
operating results are not necessarily meaningful and should not be relied upon
as indications of future performance. Additionally, despite our sequential
quarterly revenue growth during 1998, we do not believe that historical growth
rates are necessarily sustainable or indicative of future growth.
23
<PAGE>
Results of Operations
The following table sets forth our results of operations expressed as a
percentage of revenues.
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues:
Software licenses........................................ 83 % 74 % 68 %
Services................................................. 17 26 32
---- ---- ----
Total revenues......................................... 100 100 100
Gross margins:
Gross margin on software licenses........................ 97 91 91
Gross margin on services................................. 42 5 9
---- ---- ----
Gross profit........................................... 88 68 65
Operating expenses:
Sales and marketing...................................... 58 81 42
Research and development................................. 44 59 34
General and administrative............................... 27 29 16
Legal matter............................................. -- 9 (2)
---- ---- ----
Total operating expenses............................... 129 178 90
---- ---- ----
Loss from operations....................................... (41) (110) (25)
Other income (expense):
Interest income.......................................... 1 3 1
Interest expense......................................... -- (1) (3)
Other.................................................... -- -- --
---- ---- ----
Total other income (expense)............................... 1 2 (2)
---- ---- ----
Loss before income taxes................................... (40) (108) (27)
Provision for income taxes................................. -- -- 2
---- ---- ----
Net loss................................................... (40)% (108)% (29)%
==== ==== ====
</TABLE>
Comparison of Years Ended December 31, 1997 and 1998
Software Licenses. Software licenses revenue increased $9.6 million, or 122%,
from $7.9 million in 1997 to $17.5 million in 1998. The increase in software
licenses revenue was primarily due to an increase in the number of service
providers worldwide using InterMail Mx for their consumer email offering,
continued growth in the consumer email service of our existing customers, and
expansion of sales of InterMail Post.Office into the small to medium size
service provider market.
Services. Services revenue is primarily derived from consulting services,
maintenance, and support contracts, and, to a lesser extent, revenue from
training. Services revenue increased $5.4 million, or 191%, from $2.8 million
in 1997 to $8.2 million in 1998. As a percentage of total revenues, services
revenue increased from 26% in 1997 to 32% in 1998. The increase in services
revenue was due to an increase in support and maintenance revenue as our
customer base grew in 1998 and our number of deployments increased, including a
large InterMail Mx installation for which we recognized $2.4 million in
services revenue. The increase in services revenue as a percentage of total
revenues was primarily due to the recognition of services revenue from this
large InterMail Mx installation. Additionally, as our customer base grew in
1998, we experienced an increase in support and maintenance revenue over 1997.
24
<PAGE>
Cost of Software Licenses. Cost of software licenses consists primarily of
the salaries and related costs for our documentation department, the cost of
third party products integrated into our products or resold by us, and, to a
lesser extent, production of documentation for our InterMail products. Cost of
software licenses increased by $879,000, or 128%, from $689,000 in 1997 to $1.6
million in 1998. The increase was primarily due to an increase in the resale of
third party software used in conjunction with our InterMail Mx product and, to
a lesser extent, the increase in the number of employees in our documentation
department.
Cost of Services. Cost of services includes salaries and related costs of our
consulting services and customer support organizations, cost of third parties
contracted to provide consulting services to our customers, and an allocation
of our facilities and depreciation expenses. Cost of services increased by $4.8
million, or 179%, from $2.7 million in 1997 to $7.5 million in 1998. Cost of
services during this period increased commensurate with the increase in the
number of professional services deployments as well as growth in our customer
support organization as our customer base grew worldwide. We expect cost of
services to increase in absolute dollars in future periods primarily due to
anticipated growth in the professional services group.
Sales and Marketing. Sales and marketing expense consists primarily of
salaries and benefits of our sales, marketing, product management and business
development organizations, sales commissions, marketing programs, and an
allocation of our facilities and depreciation expenses. Sales and marketing
expense increased by $2.2 million, or 25%, from $8.6 million in 1997 to $10.8
million in 1998. The increase in sales and marketing expense was primarily due
to significant expansion in our global direct sales organization, primarily in
North America and to a lesser extent in Europe and Asia, as well as an increase
in our product management organization. The total number of employees in the
sales and marketing organization increased from 37 at the end of 1997 to 53 at
the end of 1998. The decrease in sales and marketing expense as a percentage of
total revenues from 81% in 1997 to 42% in 1998 was primarily due to the
recognition of InterMail Mx software licenses revenue from contracts signed in
1997. We expect sales and marketing expenses to increase in absolute dollars in
future periods, primarily due to the planned expansion of our international
sales and marketing operations.
Research and Development. Research and development expense consists primarily
of salaries and benefits of our engineering and quality assurance organization,
and an allocation of our facilities and depreciation expenses. Research and
development expense increased by $2.4 million, or 38%, from $6.3 million in
1997 to $8.7 million in 1998. The increase in research and development expense
was primarily due to costs associated with the development and testing of our
new InterMail Kx product package, which was introduced in March 1999, as well
as the cost of porting our InterMail messaging technology to the
Hewlett-Packard and IBM Unix platforms. The decrease in research and
development as a percentage of total revenues from 59% in 1997 to 34% in 1998
was primarily due to an increase in software licenses revenue from products
developed in previous periods. We believe that continued investment in research
and development is critical to attaining our strategic objectives and, as a
result, expect our research and development expenses to increase in absolute
dollars in future periods.
General and Administrative. General and administrative expense consists
primarily of salaries and benefits of our finance, human resources and legal
services organizations, third party legal, accounting, and other professional
services fees, and an allocation of our facilities and depreciation expenses.
General and administrative expense increased by $943,000, or 30%, from $3.1
million in 1997 to $4.0 million in 1998. The increase in general and
administrative expense is primarily due to increased allowances for accounts
receivable, legal fees in resolving a contract dispute with a third party
technology partner under a licensing agreement entered into in 1996, and
consulting and accounting fees related to the setup of overseas subsidiaries.
The decrease in general and administrative costs as a percentage of total
revenues is primarily due to our increase in software licenses revenue. We
expect general and administrative expenses to increase in absolute dollars in
future periods as we continue to build our infrastructure and due to the costs
of being a public company.
Legal Matter. We accrued in 1997 for an asserted claim related to a minimum
royalty obligation of $1 million purportedly owed by us under a licensing
agreement with a third party technology partner. In
25
<PAGE>
February 1999, we and the third party entered into an agreement to settle all
outstanding claims. Under the settlement agreement, we agreed to pay the third
party a minimum of $400,000, with a contingent obligation to pay an additional
$200,000 if we do not take certain actions prior to December 31, 1999.
Other Income (Expense). Other income (expense) consists primarily of interest
expense associated with our credit facility and interest income on short-term
investments. Interest expense increased $586,000, or 993%, from $59,000 in 1997
to $645,000 in 1998. The increase in interest expense relates primarily to an
increase in interest paid for our credit facility. The credit facility was
opened in November 1997, resulting in only two months of interest expense for
1997.
Provision for Income Taxes. For the year ended December 31, 1998, we had a
tax provision of $446,000 related to foreign withholding taxes.
As of December 31, 1998, we had federal and state net operating loss
carryforwards of approximately $15.9 million and $5.8 million, respectively.
The net operating loss and credit carryforwards will expire at various dates
beginning in 2010 through 2018 for federal and 2001 to 2003 for state, if not
utilized. On December 31, 1998, we also had federal and state research and
development tax credit carryforwards of approximately $462,000 and $150,000,
expiring in 2011 to 2013. We also have a foreign tax credit of approximately
$382,000, which will expire in 2003. As a result of changes in our equity
ownership resulting from our convertible preferred stock financings and this
offering, utilization of the net operating losses and tax credits may be
subject to substantial annual limitations. This is due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in the expiration of
net operating losses and tax credits before utilization. See Note 5 of Notes to
Consolidated Financial Statements.
Stock-based Compensation. We recorded deferred compensation of approximately
$1.5 million in 1998, representing the difference between the exercise prices
of options granted to employees during 1998 and the deemed fair value for
accounting purposes of our common stock on the grant dates. We amortized
deferred compensation expense of $48,000 during 1998. This compensation expense
relates to options awarded to individuals in all operating expense categories.
Total deferred compensation at December 31, 1998 of $1.45 million is being
amortized over the vesting periods of the options. The amortization of deferred
compensation recorded will approximate $416,000, $409,000, $331,000, and
$290,000 for the years 1999, 2000, 2001, and 2002.
Comparison of Years Ended December 31, 1996 and 1997
Software Licenses. Software licenses revenue increased by $1.3 million, or
20%, from $6.6 million in 1996 to $7.9 million in 1997. The license of source
code to Netscape accounted for $1.4 million of the total $6.6 million of
software licenses revenue in 1996. The increase in software licenses revenue
from 1996 to 1997 is primarily due to an increased number of customers using
InterMail Mx and an increase in the sales of InterMail Post.Office into the
market for smaller service providers.
Services. Services revenue increased by $1.5 million, or 112%, from $1.3
million in 1996 to $2.8 million in 1997. The Netscape agreement accounted for
$500,000 of the $1.5 million in services revenue in 1996. As a percentage of
total revenues, services revenue increased from 17% in 1996 to 26% in 1997. The
increase in services revenue was primarily due to revenue from consulting
services provided by our professional services organization formed in 1997 as
well as increased support and maintenance revenue.
Cost of Software Licenses. Cost of software licenses increased by $471,000,
or 216%, from $218,000 in 1996 to $689,000 in 1997. The increase from 1996 to
1997 was primarily due to an increase in the number of employees in our
documentation organization supporting our expanded product line.
Cost of Services. Cost of services increased by $1.9 million, or 249%, from
$767,000 in 1996 to $2.7 million in 1997. The increase in cost of services was
primarily due to an expansion of the consulting
26
<PAGE>
services provided by our professional services organization. The decrease in
gross margins from 42% to 5% was primarily due to the initial growth and
expense associated with the formation of our professional services
organization.
Sales and Marketing. Sales and marketing expense increased by $4.0 million,
or 89%, from $4.6 million in 1996 to $8.6 million in 1997. Sales and marketing
as a percentage of total revenues increased from 58% in 1996 to 81% in 1997.
The increase in sales and marketing expense in absolute dollars and as a
percentage of total revenues were primarily due to growth in the sales and
product management organizations and an increase in spending on marketing
events.
Research and Development. Research and development expense increased by $2.9
million or 82% from $3.5 million in 1996 to $6.3 million in 1997. Research and
development as a percentage of total revenues increased from 44% in 1996 to 59%
in 1998. The increase in absolute dollars and as a percentage of total revenues
was primarily due to expansion of the research and development organization to
further focus on the products and platform requirements of the service provider
market.
General and Administrative. General and administrative expense increased by
$1.0 million, or 45%, from $2.1 million in 1996 to $3.1 million in 1997. The
increase in general and administrative expense was primarily due to growth in
the executive, finance, and human resources organizations.
Legal Matter. In 1997, we expensed $1 million for royalties claimed by a
third party in this matter. The parties entered into a settlement agreement in
February 1999 with respect to this claim.
Other Income (Expense). Interest income increased by $211,000, or 243%, from
$87,000 in 1996 to $298,000 in 1997. The increase in interest income was
primarily due to an increase in interest derived from investment of the
proceeds of two equity financings in October 1996 and February 1997.
Provision for Income Taxes. No provision for federal or state income taxes
was recorded because we experienced cumulative net losses from inception
through 1997.
27
<PAGE>
Quarterly Results of Operations
The following table presents our unaudited quarterly results of operations
for the four quarters of 1998. You should read the following table in
conjunction with our Consolidated Financial Statements and the Notes included
elsewhere in this prospectus. We have prepared this unaudited information on
the same basis as the audited Consolidated Financial Statements. This table
includes all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of our financial position and
operating results for the quarters presented. You should not draw any
conclusions about our future results from the results of operations for any
quarter.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
--------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenues:
Software licenses............ $ 3,098 $ 4,325 $ 4,557 $ 5,482
Services..................... 1,800 1,815 2,320 2,222
------- ------- ------- -------
Total revenues............. 4,898 6,140 6,877 7,704
Cost of revenues:
Software licenses............ 485 273 294 516
Services..................... 1,647 1,586 2,004 2,214
------- ------- ------- -------
Total cost of revenues..... 2,132 1,859 2,298 2,730
------- ------- ------- -------
Gross profit................... 2,766 4,281 4,579 4,974
Operating expenses:
Sales and marketing.......... 2,284 2,345 2,779 3,361
Research and development..... 2,135 2,072 2,189 2,320
General and administrative... 960 973 938 1,165
Legal matter................. -- -- -- (400)
------- ------- ------- -------
Total operating expenses... 5,379 5,390 5,906 6,446
------- ------- ------- -------
Loss from operations........... (2,613) (1,109) (1,327) (1,472)
Other income (expense):
Interest income (expense)
net......................... (51) (90) (141) (119)
Other........................ (39) 30 (9) (17)
------- ------- ------- -------
Total other income
(expense)................. (90) (60) (150) (136)
------- ------- ------- -------
Loss before income taxes....... (2,703) (1,169) (1,477) (1,608)
Provision for income tax....... 1 -- -- 445
------- ------- ------- -------
Net loss....................... $(2,704) $(1,169) $(1,477) $(2,053)
======= ======= ======= =======
</TABLE>
Total revenues grew in each quarter of 1998 as the number of customers using
our products and services increased. Commensurate with total revenues growth,
total cost of revenues and total operating expenses have generally increased
from quarter to quarter. The decrease in total cost of revenues from the
quarter ended March 31, 1998 to the quarter ended June 30, 1998 was primarily
due to the cost of reselling third party software to one of our customers in
the first quarter of 1998. The decrease in services revenue from the quarter
ended September 30, 1998 to the quarter ended December 31, 1998 was due to a
decrease in the number of professional services projects in the fourth quarter.
28
<PAGE>
Our operating results may fluctuate substantially in the future as a result
of a variety of factors, many of which are outside our control. These factors
include:
. the volume and timing of mailbox activation by our InterMail Mx
service provider customers;
. the length of our sales and product deployment cycles for our
InterMail products;
. our ability to attract and retain customers in new markets, including
Europe and Asia;
. our continuing dependence on the InterMail line of products and
related services for all of our revenues;
. our dependence on a small number of large customers;
. our dependence on continued growth of the service provider market;
. any delays in our introduction of new products or enhancements;
. the amount and timing of operating costs and capital expenditures
relating to expansion of our operations;
. the announcement or introduction of new or enhanced products or
services by our competitors;
. adverse customer reaction to technical difficulties or "bugs" in our
software;
. the growth rate and performance of the Internet in general and of
Internet messaging in particular;
. the volume of sales by our distribution partners and resellers;
. any slowdown in software and systems spending or in general business
expansion by service providers in the latter part of 1999 and the
beginning of 2000 in connection with Year 2000 issues; and
. our pricing policies and those of our competitors.
Due to the foregoing factors, our quarterly operating results have fluctuated
significantly and we expect that future operating results will be subject to
similar fluctuations. Our revenue from large-scale installations of our
software depends heavily on the customers' timing of deployment of our
software, the migration of their installed base of users to our software
platform, and the rate of growth of their customer base. Accordingly, a delay
in a deployment past the end of a particular quarter could negatively impact
our results of operations for that quarter. It is possible that in future
quarters our operating results could fall below the expectations of public
market analysts or investors. In this event, the price of our common stock may
fall.
Liquidity and Capital Resources
We have funded our operations primarily through the private placement of
equity securities, which have raised net proceeds of approximately $30.0
million to date, and through a bank line of credit. At December 31, 1998, our
principal sources of liquidity included approximately $5.4 million of cash and
cash equivalents, and a bank credit facility. This credit facility provides for
a total line of credit not to exceed the lesser of $15.0 million (of which we
may draw down up to $2.5 million as an equipment acquisition loan), or an
amount based on certain receivables collection criteria. As of December 31,
1998 we had borrowed $7.7 million and an additional $4.2 million was available
under this credit facility. Borrowings under this line of credit are provided
at prime rate plus 1.5% and borrowings under the equipment acquisition loan are
provided at prime rate plus 1.75% and all borrowings are secured by
substantially all of our assets. The credit facility includes certain financial
and reporting covenants and expires on August 31, 2000. We intend to repay this
credit facility using a portion of the net proceeds from this offering.
Net cash used in operations was $4.2 million in 1996, and increased to $6.1
million in 1997 and $10.1 million in 1998. Cash used in operating activities in
1997 was primarily due to our net losses of $11.5 million, partially offset by
an increase in deferred revenue of $3.5 million and accrued expenses of
$1.5 million. Cash used in operating activities in 1998 was primarily due to
our net loss of $7.4 million and an increase in our accounts receivable of $7.1
million, partially offset by depreciation of $1.7 million and accrued expenses
of $1.3 million.
29
<PAGE>
Cash used in investing activities decreased by $2.7 million from $3.6 million
in 1997 to $912,000 in 1998. In 1997 we made substantial investments in
leasehold improvements and network infrastructure for our facilities.
Net cash provided by financing activities was $12.7 million in 1997 and $10.4
million in 1998. Net cash from financing activities during 1997 resulted
primarily from the sale of preferred stock and borrowings under the credit
facility. During 1998, net cash provided by financing activities resulted
primarily from the sale of preferred stock, from the sale of common stock
issued upon exercise of stock options, and increased borrowings under the
credit facility. In April 1999, we issued preferred stock to Hewlett-Packard
for aggregate proceeds of approximately $10 million.
We currently anticipate that the net proceeds from this offering, together
with our current cash, cash equivalents, short-term investments and credit
facility, will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. However, we
may need to raise additional funds in future periods through public or private
financings, or other arrangements. Any such additional financings, if needed,
might not be available on reasonable terms or at all. Failure to raise capital
when needed could harm our business, financial condition and results of
operations. If additional funds are raised through the issuance of equity
securities, additional dilution could result. Such equity securities might have
rights, preferences or privileges senior to our common stock.
Year 2000 Readiness Disclosure
Background
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with these Year 2000
requirements. The use of software and computer systems that are not Year 2000
ready could result in system failures or miscalculations causing disruptions of
operations including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
State of Readiness
We have instituted a Year 2000 Program Plan to address Year 2000 consequences
that may materially affect us. Our Program Plan consists of six, sometimes
concurrent, phases: (1) inventory, (2) prioritization, (3) assessment, (4)
contingency planning, (5) remediation, and (6) monitoring and status reporting.
We began taking preliminary inventory prioritization, and assessment steps in
the first quarter of 1998. To date, we have substantially completed our
inventory, prioritization and assessment phases. We have identified and
inventoried core business functions and their components, including our own
products and integrated third-party software, hardware, software, embedded
systems, critical business partnerships and external infrastructure services.
We defined and assigned preliminary criticality ratings to each of the
inventoried components and we currently are in the process of validating and
refining our inventory and prioritization processes. We expect to complete
these phases by the end of the second quarter of 1999, although no assurances
can be made that the inventory or prioritization process will not be redefined
at a later date as we continue to monitor and refine our plans and goals.
Assessment of the various inventoried items has included documentation and
review of the Year 2000 compliance status of third-party vendors and suppliers
of our hardware, software and embedded systems, business partners, and external
infrastructure services. We have received assurances from most of our key
hardware and software suppliers and partners that their products and services
are Year 2000 compliant or that they are also progressing through Year 2000
compliance programs of their own. We will either test products
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and services that are not yet compliant or work with the suppliers to gain
assurances that we can rely upon their products and services. For the
components of our operations that are deemed most critical, we are validating
these assessments and accordingly may reevaluate our scheduling and resource
allocations as needed.
Currently, our own quality assurance personnel are testing our products that
are used by a substantial majority of our customers. Additionally, we have
enlisted outside consultants to review and advise upon our testing methods, but
we have not secured outside, independent testing services. Our products
interoperate with and depend upon other software, hardware and firmware for
data, including date-related data. Based on our testing to date, we believe
that our products, when interoperating with Year 2000 compliant software,
hardware and firmware, are able to manage and manipulate such date-related data
in a Year 2000 compliant manner.
We are a comparatively new enterprise, and, accordingly, the majority of the
software and hardware we use to manage our business was purchased or developed
by us within the last 24 months. While this fact pattern does not uniformly
protect us against Year 2000 exposure, we believe we gain some mitigation from
the fact that the information technology we use to manage our business is not
based upon legacy hardware and software systems. Legacy systems are hardware
and software systems that were developed in previous decades when there was
less awareness of Year 2000 issues. Generally, hardware and software design
within the current decade and the past several years in particular has given
greater consideration to Year 2000 issues. However, we have determined that our
financial reporting system requires an update to be Year 2000 compliant and we
intend to make the system compliant through an upgrade to be completed by the
end of the third quarter of 1999. Until completion of the assessment phase, we
will not be able to completely evaluate whether contingency plans are warranted
or what other components of our systems need to be remediated through
replacement or revision. We expect to complete assessment and any necessary
remediation by the third quarter of 1999.
We have also applied program management practices by monitoring and status
reporting on the progress of our Year 2000 Program. As such, there is a program
manager assigned to monitor and remind various staff of deadlines and status
report due dates, as well as to keep all staff synchronized. Monitoring and
status reporting is an ongoing phase throughout the life of the program.
Costs
To date, we have not incurred significant incremental costs in order to
comply with Year 2000 requirements for our products or internal systems, and we
do not believe we will incur significant incremental costs in the foreseeable
future. However, there can be no assurance that Year 2000 issues will not be
discovered in our products or internal software systems and, if such issues are
discovered, there can also be no assurance that the costs of making such
products and systems Year 2000 ready will not harm our business, operating
results, and financial condition.
Risks
Our customers and we rely heavily upon information technology systems and the
Internet to conduct our businesses and internal operations. Our customers'
success in maintaining Year 2000 compliance is significant to our ability to
generate revenues and execute our business plan. There is no assurance that any
other software application, database software or computer hardware of our
customers which interfaces with our products (and which may be necessary in
order to use our products) is Year 2000 ready. There can also be no assurance
that implementations of our products on our customers' systems are, or will be,
Year 2000 ready. Interruptions in our customers' services and on-line
activities caused by Year 2000 problems could harm our revenues to the extent
that such interruptions limit or delay our customers' ability to provide
messaging services to end users. Year 2000 complications may disrupt the
operations, viability, or commercial acceptance of the Internet generally,
which also could harm our business, operating results and financial condition.
A significant percentage of our customers are located overseas and we believe
that the level of Year 2000 readiness may be lower in these areas. Accordingly,
our overseas customers may have greater risks of Year 2000 problems.
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If we, our customers, our providers of hardware and software, or external
infrastructure providers fail to remedy any Year 2000 issues, our business and
internal operations could be interrupted and our reputation, business,
operating results, and financial condition could suffer. We would consider such
an interruption to be the most reasonably likely unfavorable result of any
failure by us, or failure by the third parties upon which we rely, to achieve
Year 2000 compliance.
Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of such lawsuits against other software
vendors. Because we are in the business of selling software products, our risk
of being subjected to lawsuits relating to Year 2000 issues with our software
products is likely to be greater than that of companies in other industries.
Because computer systems may involve hardware, firmware and software components
from different manufacturers, it may be difficult to determine which component
in a computer system may cause a Year 2000 issue. As a result, we may be
subjected to Year 2000 related lawsuits independent of whether our products and
services are Year 2000 ready. Any such lawsuits, whether or not determined in
our favor or settled by us, may be costly and may divert the efforts and
attention of our management from normal business operations. The impact of any
such lawsuits cannot be determined at this time.
Contingency Plans
Presently, we believe we are unable to reasonably estimate the duration and
extent of any disruptions that may be due to Year 2000 issues, or quantify the
effect that it may have on our future revenues. We have yet to develop a
comprehensive contingency plan to address the issues that could result from
such an event. We are prepared to develop such a plan if our ongoing assessment
leads us to conclude we have significant exposure based upon the likelihood of
such an event. Responses received from all third-party vendors and service
providers will be taken into account in determining the need for and nature and
extent of any contingency plans. We intend to develop any required contingency
plan by the end of the third quarter of 1999.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Software for Internal Use" (SOP 98-1), which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The adoption of SOP 98-1 is not
expected to have a material impact on our financial condition or results of
operations. To date, we have not incurred significant costs developing
internal-use software which would be capitalizable.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). We are required to adopt FAS 133 for the
fiscal year ending December 31, 2000. FAS 133 established methods of accounting
for derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. To date, we have not entered
into any derivative financial instruments or hedging activities.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2 (SOP 97-2), which was amended by SOP 98-4 and
SOP 98-9, "Software Revenue Recognition." These statements provide guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. This guidance is effective for our transactions entered
into subsequent to January 1, 1998. The application of certain provisions were
deferred until fiscal years beginning on or after March 15, 1999. Final
adoption of these provisions is not expected to have a material impact on our
financial condition or results of operation.
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Qualitative and Quantitative Disclosures About Market Risk
We develop products in the United States and sell in North America, Asia and
Europe. As a result, our financial results could be affected by factors such as
changes in foreign currency exchange rates or weak economic conditions in
foreign markets. As all sales are currently made in U.S. dollars, a
strengthening of the dollar could make our products less competitive in foreign
markets. Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our investments are in
short-term instruments. Our interest expense is sensitive to changes in the
prime rate. Due to the nature of our short-term investments and debt, we have
concluded that there is no material market risk exposure. Therefore, no
quantitative tabular disclosures are required.
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BUSINESS
Company Overview
Software.com is a leading provider of email and other Internet messaging
applications for providers of Internet communications and services. These high
performance applications are built to run on our extensible, Internet
standards-based messaging platform and can scale to support millions of
consumer and business users. Using our software, our service provider customers
are able to deliver a variety of messaging services, including Web browser-
based email, desktop client-based email, outsourced or "managed" business
messaging, and Internet-based integrated faxmail and voicemail. In order to
deliver complete messaging solutions, we also offer our customers a broad range
of consulting and customer support services that complement our product
offerings.
Industry Background
People and businesses are increasingly relying on the Internet to access and
share information. International Data Corporation, or "IDC," estimates that at
the end of 1998, over 97 million people were using the Internet to communicate
with friends and family, participate in discussion forums and obtain
information about goods and services. IDC projects that this user base will
grow to 320 million worldwide by the end of 2002. A rapidly growing number of
businesses utilize the Internet to market and sell their products and
streamline business operations. The Internet's explosive growth creates
tremendous market opportunities for the companies that connect people and
businesses to the Internet, provide applications for these users or distribute
content over the Internet. These companies, which we refer to as service
providers, include traditional telecommunications carriers, Internet service
providers and wholesalers, cable-based Internet access providers, competitive
local exchange carriers, and Internet destination sites or portals. Many of
these service providers have experienced rapid growth as businesses and
consumers increasingly rely on the Internet as a communications and
transactional medium.
Competition in the Service Provider Market
The rapid increase in demand for Internet access has led to intense
competition among service providers to attract and retain subscribers. Service
providers developing large, capital-intensive communications networks require
large subscriber bases in order to leverage their network investments. Other
service providers, such as Internet portals are seeking to attract as many
users as possible in order to establish mass Internet communities for the
purpose of disseminating services and third party advertisements. In addition,
many consumers and businesses are beginning to utilize the Internet, as opposed
to traditional voice networks, for voice and fax transmissions, leading to
further growth in Internet traffic, and increased competition for users among
service providers.
As a result of these trends, service providers are becoming increasingly
focused on providing applications and services that help attract and retain
customers. Internet electronic mail, or Internet email, has proven to be one of
the most popular applications on the Internet and a compelling application for
attracting subscribers. IDC estimates that the number of consumer mailboxes
hosted by service providers in the United States will grow from 18 million in
1996 to 101 million in 2002. Internet email is also a key application for
retaining subscribers, because once a user gives out his or her unique Internet
email address to friends and colleagues, changing to a new service provider
means switching addresses and accounts and reconnecting with these people.
The growth in the use of Internet email has also attracted businesses, as
email becomes a routine method of communicating between employees and with
customers, vendors, and partners. IDC estimates that the number of business
email users will grow from 144 million in 1998 to 293 million worldwide in
2002. Historically, businesses have deployed on-premise, enterprise software
applications for their email systems. As a cost-effective alternative to
deploying and running an on-premise solution, many businesses are increasingly
evaluating outsourced, or "managed," messaging in which a service provider
operates the email system for a business. As service providers seek to
differentiate offerings to attract more business users, service providers are
expanding basic email service to create new and innovative Internet messaging
services, including "fail-
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safe" email and new types of integrated messaging services such as faxmail and
voicemail. Once a business selects an email provider, the costs of switching
are high due to the difficulty of moving the data stored on the service
provider's system.
Challenges Facing Today's Service Providers
To take advantage of opportunities in both consumer and business messaging,
service providers must deploy messaging services capable of meeting the
evolving needs of these groups with assurances that users can always reach
their mailboxes and that their messages will not be lost. Service outages or
the loss of messages can lead to adverse publicity for service providers, and
can result in the loss of substantial numbers of subscribers. In order to
leverage infrastructure investments, service providers must provide systems
that scale to the hundreds of thousands, or even millions, of users and
accommodate a rapidly increasing number of messages being sent by their larger
user bases. IDC estimates that the number of email messages sent in the United
States has grown from an average of 685 million per day in 1996 to 2.1 billion
per day in 1998, and projects that the number will grow to 7.9 billion per day
in 2002.
Most service providers, however, have neither the products and services in
place nor the existing internal technical capabilities to address this enormous
growth. To date, most service providers have built their own basic email
services by making proprietary modifications to a free, public domain email
program called Sendmail. There are limitations, however, to Sendmail's ultimate
capabilities. Sendmail was originally designed to provide email for small
networks and does not readily scale to the levels needed by a service provider
seeking to leverage costs across a broad user base. Further, Sendmail provides
only basic email functions and lacks the essential attributes needed for highly
reliable and available operations, and the feature sets required to provide
business messaging, faxmail, and voicemail applications.
As an alternative to Sendmail, some service providers have deployed messaging
products designed for the enterprise, such as Microsoft Exchange or Lotus
Notes. Enterprise products, while providing rich feature sets, are costly and
face scaling limitations similar to those of Sendmail, typically supporting a
maximum of 2,000 users on a single server. Another alternative for a service
provider is to contract with an email service wholesaler to run its email
service, while the service provider resells email to its individual and
business customers. While this approach helps to address the service providers'
lack of internal technical capabilities in the short term, it represents a loss
in control for the service provider over the quality of the service. This
approach also distances the service provider from the user base it is trying to
retain, as the service provider is forced to rely on the wholesaler for access
to and key information about its subscribers. The issues of scalability,
reliability, availability, and lack of a core competency in offering basic
email service are only exacerbated when a service provider looks to provide
enhanced services, such as managed messaging, or more advanced features, such
as faxmail and voicemail integration and sophisticated Web-based interfaces.
The Software.com Solution
Software.com is a leading developer and provider of scalable, high-
performance Internet messaging applications. Our service provider customers
deploy these applications to deliver advanced messaging services to their
consumer and business subscribers. Our products have been proven to deliver
messaging services in some of the most demanding service provider environments,
including those of @Home Network, AT&T WorldNet Service, Excite Inc., GTE
Internetworking Services, and Telecom Italia Net. To date, we have licensed
over 37 million mailboxes. We combine our software products and services to
create an advanced messaging solution that provides the following benefits to
service providers:
High Scalability
Our products are designed to easily scale and enable a service provider to
offer an increasing array of messaging services to a rapidly-growing number of
subscribers. Our entry-level products support up to several
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hundred thousand mailboxes, and we currently support more than 10 million
mailboxes on our InterMail Mx product. We believe by spreading its operating
costs across a growing user base, a service provider not only expands its
audience and thus its revenue opportunities, but also realizes economies of
scale. Regardless of the size of the subscriber base, we allow service
providers to easily manage their user bases and messaging services. Our unique
architecture enables us to build messaging applications based on flexible and
interchangeable components. As a service provider grows in terms of number of
users, type of users and volume of messaging traffic, our InterMail Kx and
InterMail Mx architecture enables the service provider to add or upgrade
individual components as necessary without changing the other components or
adversely impacting the availability of the services.
High System Availability and Reliability
We design our products to be highly available, meaning that a user can always
access the messaging service, as well as highly reliable, meaning that the user
will not lose messages that are sent or received. As people and businesses
become more demanding with respect to Internet messaging, service providers
must continually meet increasing standards of availability and reliability. Our
component-based, fault-tolerant architecture allows multiple, independent back-
up procedures to be instituted and protects the service provider from the
failure of individual system components. We believe that by using our products
to offer highly available and reliable messaging services, service providers
increase customer satisfaction and reduce subscriber turnover.
Single Platform with Multiple Messaging Applications
Our technology enables service providers to create, manage, and host multiple
offerings on the same messaging platform. A service provider can therefore
easily tailor feature sets to meet the different and evolving needs of
individual segments of its subscriber base. For instance, our messaging
platform allows a service provider to simultaneously host mass-market consumer
messaging services, its own branded premium consumer messaging services, and
managed messaging services for businesses. This same platform is both open and
extensible, meaning that we, as well as customers, partners, integrators, and
others, can provide additional messaging applications based on our core
technology. In addition, the technology that we recently acquired from
Mobility.Net is designed to permit multiple Web-based applications as
extensions of our messaging platform. We intend to make these and other new
services available to service providers as they become available.
Fully-Integrated Service Offerings
In addition to software products, we offer business planning, system design,
capacity planning, on-site operations training, and integrated support services
to help service providers rapidly pilot, launch and scale innovative new
service offerings. Our professional services personnel have designed, deployed,
and maintained messaging applications at some of the largest service provider
sites in the world, bringing substantial experience in real-world
implementations to each customer. By leveraging our experience, we believe that
customers gain significant time-to-market advantages, improve operational
excellence, and, ultimately, increase customer retention. After completion of a
consulting engagement, our professional services staff passes essential, site-
specific knowledge to our support staff to facilitate a smooth transition from
deployment to ongoing customer care. We support our customers' sites on a 24
hour basis and have developed sophisticated tracking and response systems to
provide customers with the highest quality support.
Software.com Strategy
Our goal is to be the leading provider of Internet software applications
designed for service providers. Key elements of our strategy include:
Focus Exclusively on Service Providers. We have organized our products
and our company to exclusively target the service provider market. We
believe that our exclusive focus on service providers enables us to better
identify and offer the feature sets and attributes that are required for
our products to be
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successful in the service provider marketplace. In particular, to address
the rapid growth of a service provider's user base and the importance of
messaging in attracting and retaining subscribers, we have designed our
products to scale to support millions of users while meeting increasing
standards of message availability and reliability. In contrast, we believe
that many of our competitors attempt to address the service provider market
by modifying products originally developed for use in on-premise corporate
networks. We have created a structured development process, including an
innovative, proprietary automated system for testing applications under the
loads experienced by large service providers, as well as a rigorous quality
assurance process. These processes enable us to build, test and release our
products with a high degree of initial reliability. In addition, we have
organized all functions within the company to best serve the service
provider market. For example, our worldwide sales, support and professional
service organizations are specifically designed to address the 24 hour
operations and response times required in the service provider marketplace.
Extend Our Position as a Leading Provider of Internet Messaging Solutions
for Service Providers. We are a leading provider of Internet email
solutions for service providers with over 37 million mailboxes licensed to
date. We offer the first Internet email application specifically designed
to capitalize on the growing trend for service providers to offer managed
messaging services to small, medium and large businesses and other
organizations. In addition, we have begun our first large scale deployment
of an integrated voicemail and faxmail solution with an existing InterMail
customer, marking our entry into the emerging market for Internet
standards-based unified messaging.
Leverage Our Core Platform to Build Additional Service Provider
Applications. We have expended considerable time and financial resources to
create a scalable high performance platform for building messaging and
other data-intensive Internet applications. We believe that the core
elements of this platform will allow us to offer multiple applications
which leverage the base platform. We further believe that our unique
architecture, development processes, and testing methods enable us to more
easily integrate new and innovative service provider applications with our
base platform. For example, we intend to integrate Mobility.Net's Web-based
technology to enhance the performance of our existing Web interface as well
as to ultimately extend our platform through additional Web-based
applications. We may add additional applications as extensions to the
platform through internal development, partnering arrangements or the
acquisition of third party technologies.
Target Large and Well-Known Accounts. Within the service provider
marketplace, we focus our sales efforts on the world's largest service
providers. Included in this group are service providers that have large
existing user bases or whose brand name or Internet presence places them in
a position to attract users rapidly. We believe that this strategy allows
us to capture the broadest possible user base while targeting a limited
number of accounts. We also believe that winning the large, well-known
accounts helps our sales to smaller and medium sized providers by enhancing
our reputation as a leading provider of Internet messaging products in the
service provider market. We expect that the service provider industry will
continue to consolidate and that the largest members of this group will
eventually acquire and assimilate the smaller providers. We believe that
the scalability of our products allows such service providers to expand
their user base through acquisition with minimum disruption to operations
and limited incremental costs. We intend to expand the geographical
coverage of our direct sales force to focus on the largest service
providers around the world.
Leverage the Expertise of our Professional Services Organization. Our
professional services group has completed over 60 projects for some of the
largest service providers worldwide. These projects generally involve
architecting and deploying messaging solutions for these large service
providers. We will continue to use this experience to help customers
design, build, and deploy systems based on our products. In addition, this
"full service" approach allows us to understand our customers' sites so we
can better design, test, market, and deploy new products. By rotating
employees between our professional services and product development groups,
we utilize the information gained about our customers to drive product
development strategy.
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Products and Services
We offer a full range of Internet messaging server applications and services
that enable service providers to support both consumer and business
subscribers. We have developed a scalable, extensible technology platform that
provides the foundation for our Internet messaging services. This platform is
the core technology that underlies our three product packages: InterMail
Post.Office, InterMail Kx, and InterMail Mx. These product packages enable
service providers to support a user base ranging from hundreds to millions of
subscribers. The following table sets forth the target customer and
architecture for these product packages:
<TABLE>
<CAPTION>
InterMail
Post.Office InterMail Kx InterMail Mx
----------- ------------ ------------
<S> <C> <C> <C>
Target Customer 100 to 25,000 users 25,000 to 250,000 250,000 users and
users above
Architecture Single server Multiple servers, Multiple servers,
distributed and distributed and
modular modular
Operating System NT, UNIX UNIX UNIX
Object Store Single multimedia Single, highly- Multiple, highly-
Technology object store parallel multimedia parallel multimedia
object store object stores
</TABLE>
InterMail Post.Office
Designed to meet the messaging needs of small to medium size service
providers, InterMail Post.Office is typically chosen by service providers with
100 to 25,000 users, although it can scale to support up to 250,000 subscribers
on a single UNIX server. Email system administrators, or postmasters, can use
InterMail Post.Office to easily administer their entire email systems, while
allowing end users to manage their individual email accounts. InterMail
Post.Office provides a user-friendly administration interface featuring fill-
in-the-blank forms and pop-up options assisted by Web-based help links.
InterMail Post.Office offers a broad array of security features, including
multiple password protection levels and numerous user restriction settings.
InterMail Post.Office also provides a variety of features for preventing the
sending and receiving of Internet junk mail, or "spam." InterMail Post.Office
operates independently of the host computer system, making it difficult to
compromise the main system security through the email application.
InterMail Kx and InterMail Mx
The InterMail Mx and recently introduced InterMail Kx product packages are
designed to meet the rapidly evolving needs of service providers. InterMail Kx
and InterMail Mx are designed to enable service providers to offer premium
consumer, business, and Web-based messaging services from a single, integrated
solution. InterMail Kx, which we introduced in March 1999, is designed for
fast-growing, medium-sized service providers with a subscriber base of up to
250,000. InterMail Mx, which is designed for the largest service providers,
scales to support millions of subscribers. The InterMail Kx and InterMail Mx
product packages provide postmasters with a suite of powerful system
administration tools, that enable streamlined subscriber account creation and
management. InterMail Kx and InterMail Mx components run on multiple servers,
providing greater scalability, reliability, and performance than a single
server system.
Within the InterMail Kx and InterMail Mx product packages, we have developed
a broad set of customizable messaging applications, which are designated as
different editions: InterMail Web Edition, InterMail Standard Edition, and
InterMail Business Advantage Edition and the recently developed initial version
of the InterMail IP VoiceMail Edition. In addition, we have an InterMail
Consumer Advantage Edition for the InterMail Mx product package. These editions
provide a range of functionality and allow service providers to create and
customize multiple classes of service at varying price points for consumer and
business subscribers. A single InterMail Kx or InterMail Mx installation can
host multiple classes of messaging services, thereby eliminating the expense
associated with running separate systems. These capabilities help service
providers to expand market share, retain subscribers, lower total cost of
ownership, and derive increased profits from their businesses.
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InterMail Web Edition--Designed for mass-market consumer offerings and
portals, InterMail Web Edition lets users read and write emails using a
standard Web browser. With InterMail Web Edition, users can access their
mailboxes from any location where they can access the Internet. Web mail is
typically used as part of mass-market offers where mailboxes are given away for
free or at a nominal cost to attract users, and any associated revenue is
generated from advertisements that are displayed when the user is reading and
composing mail. InterMail Web Edition can be fully personalized and branded by
service providers to promote brand and image. The technology we recently
acquired through our acquisition of Mobility.Net is expected to significantly
enhance the performance of our Web interface and is designed to provide an
extensible, customizable, Java-based platform for other Web applications.
InterMail Standard Edition--Designed for consumer email offerings, InterMail
Standard Edition provides a standard post office protocol or POP3 mailbox, and
interfaces with commonly used desktop email clients such as Microsoft Outlook
and Outlook Express, Netscape Navigator, and QUALCOMM Eudora. InterMail
Standard Edition also includes many of the features of InterMail Web Edition
including the ability to access mailboxes from any location where the Internet
can be accessed. InterMail Standard Edition is typically bundled with dial-up
or cable access as part of an entry level service provider offering. As with
all our InterMail editions, InterMail Standard Edition supports individual
account spam protection.
InterMail Business Advantage Edition--Designed for service providers offering
managed messaging to businesses, InterMail Business Advantage Edition enables
service providers to offer fully-functional business mailboxes. InterMail
Business Advantage Edition provides a full range of advanced features,
including Internet mail access protocol or IMAP4 email, enhanced message
encryption, delegated administration, and customer self-care tools.
InterMail Consumer Advantage Edition for InterMail Mx--Designed for premium
consumer offerings, InterMail Consumer Advantage Edition is a full-featured,
flexible consumer email application that incorporates all the features and
functionality of our InterMail Standard Edition and InterMail Web Edition.
InterMail Consumer Advantage Edition enables service providers to promote
differentiated consumer offerings at a premium price by including value-added
features such as family mailboxes, mailing lists, and address books.
InterMail IP VoiceMail Edition--We recently completed the development of the
initial version of InterMail IP VoiceMail Edition focused on unified messaging
that is designed for call answering (voicemail) and universal mailboxes.
InterMail IP VoiceMail Edition is intended to provide a full function
"universal mailbox" that works with Internet standards-based voicemail and
faxmail network components. Our solution is intended to be a cost-efficient
replacement for traditional call answering, or as a more functional universal
mailbox where email, faxmail and voicemail messages are stored in a single
mailbox accessed either by telephone or computer. We have begun our first large
scale deployment of an InterMail IP VoiceMail Edition with an existing
InterMail customer.
Professional and Support Services
We have designed our professional services offerings to enable our customers
to bring their messaging service offerings to market more quickly by leveraging
our significant expertise in deploying and managing large-scale messaging
solutions. Our professional services offerings include a wide range of
consulting services such as business planning services, system assessment,
system architecture review, system migration, and operations management, as
well as rapid deployment and integration of our InterMail messaging products.
We offer professional services in connection with the initial deployment of our
products, as well as on an ongoing basis to address the continuing needs of our
customers. Our services are designed to ensure on-schedule implementation,
whether the customer is installing a completely new system, migrating from an
old system, or expanding an existing Software.com system. We work with our
customers to ensure that all of the components of their messaging systems are
selected, configured, and integrated to manage subscriber services and growth.
As of March 31, 1999, our professional services staff consisted of 26
employees. In addition, we also supplement our professional services staff with
outside contractors from time to time.
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Our Support Solutions group provides 24 hour global support services to meet
the demanding needs of the largest service providers. For each customer, we
designate a primary support engineer with responsibility for fielding and
addressing all support issues for that customer. We monitor support issues
internally using a variety of integrated processes, including regular customer
interaction sessions. Customers have access to a dedicated Web site where
information on past and outstanding issues is posted, and through which updates
and upgrades can be delivered for ease of implementation. We maintain support
groups in Santa Barbara, California and Lexington, Massachusetts for North
American customers, as well as Windsor, England for European customers, and
Hong Kong for Asian customers. We plan to establish another support center in
Tokyo, Japan. As of March 31, 1999, our Support Solutions group consisted of 13
employees.
Customers
Numerous service providers around the world use our products as the platform
for their Internet messaging applications. As of March 31, 1999, over 1,000
service providers had licensed our InterMail messaging software. Our customers
range from some of the largest service providers in the world, with millions of
users, to local Internet service providers providing Internet connectivity and
services with a hundred or more users. The majority of our customers can be
classified according to the following criteria:
. Traditional Telecommunication Carriers: These customers are comprised of
the Internet service provider organizations within established
telecommunications companies, such as the Regional Bell Operating
Companies (RBOCs) in the United States and national telephone companies
overseas.
. Internet Service Providers (ISPs) and Wholesalers: This group is made up
of companies focused primarily on providing Internet connectivity and
related services enabled by the Internet, such as Web hosting and managed
messaging. Our customers in this group include hundreds of local ISPs in
North America, South America, Europe, and Asia focused on providing
Internet services to local communities.
. Cable-based Internet Access Providers: Our customer base includes a
number of companies focusing on providing Internet services to end users
through broadband access, notably cable modems. Some of these customers
partner with cable companies, and some are wholly owned divisions within
established cable providers.
. Competitive Local Exchange Carriers (CLECs): This group is made up of
companies, other than RBOCs, that offer local phone service. These
companies typically also offer Internet connectivity and services.
. Internet Portals: A number of companies position themselves as Internet
destination sites, or portals, a point of entry to the Internet for a
consumer or business. Many of these portals offer messaging services to
consumers without charge, generating revenues instead by selling
advertising space on the message screens.
Our customers from whom we recognized revenues of over $200,000 in 1998
include:
<TABLE>
<S> <C>
@Home Network PSINet
AT&T Canada RCN/Erols Internet
AT&T WorldNet Service Telecom New Zealand
Ameritech Interactive Media
Services Telecom Italia Net
Bell Atlantic Internet Services Telecom Malaysia
Excite Inc. TeleDanmark
GTE Internetworking Services Telenor Nextel AS
Hongkong Telecom Telepac
KDD Communications Telus
NTL Internet Time Warner/Roadrunner
Pacific Internet
</TABLE>
40
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Strategic Relationships
We have established a number of formal and informal relationships with
companies that provide infrastructure components and software to service
providers. We work with these companies to develop additional products and
services based on our messaging platform. In addition, we believe that these
partners offer opportunities to expand our sales channels. Set forth below are
descriptions of our relationships with several of our partners:
Cisco Systems. We have worked informally on technology development projects
with Cisco Systems since February 1997, when Cisco made the first of its two
investments in our company. For example, we are working with Cisco to develop
technology that will support Internet standards-based voicemail on Cisco's
Internet infrastructure equipment. We believe that this arrangement will assist
us in marketing our software to service providers that use Cisco's equipment.
From time to time we have informally worked together to develop networking
technology.
Hewlett-Packard. Hewlett-Packard recently selected InterMail as its preferred
messaging application for the service provider market. Hewlett-Packard markets
these solutions to rapidly growing service providers that are building the
infrastructure to offer hosted or "managed" messaging services and to those
offering Internet email services to consumers and small businesses. We also
work closely with Hewlett-Packard to customize our messaging software to run on
Hewlett-Packard's HP-UX operating system. In April 1999, Hewlett-Packard
purchased a minority equity interest in Software.com.
We also work closely with many other UNIX vendors to customize our messaging
software to run on their systems. These relationships enable us to sell our
products to service providers that use different hardware platforms. We have
informal relationships with Silicon Graphics (for SGI Irix), Sun Microsystems
(for Solaris), and Compaq/DEC (for Digital UNIX).
In addition, we have relationships with a number of software vendors and
systems integrators that enable us to offer additional product features and
services to our customers, including Internet standards-based voicemail,
managed messaging and enhanced spam prevention. We also work on integration,
sales and marketing projects with other companies that currently sell in the
service provider market, including several billing/provisioning systems
vendors.
Sales
We market and sell our products and services exclusively to service
providers. Our sales strategy focuses on the pursuit of key accounts worldwide
through a direct sales force and additional market segments through a
combination of direct and indirect channels. For the year ended 1998,
approximately 90 percent of our revenue resulted from direct sales efforts,
with the balance coming from sales through resellers, primarily high-end system
integrators who can implement a large hardware and software system. We divide
the service provider market into three segments: Tier One, Tier Two, and Tier
Three. Our sales approach for a given customer depends upon the tier in which
we categorize the customer's account.
Tier One Accounts
Tier One accounts consist of a designated list of the largest and most well-
known service providers in the world, and are targeted by our direct sales
force. Our InterMail Mx product is specifically designed for these Tier One
accounts whose current subscriber base generally exceeds 250,000 users, and
whose projected subscriber base generally exceeds one million users. We have
Tier One direct sales force personnel located in California, Colorado, Texas,
Virginia, Massachusetts, England, Germany, France, Japan, and Hong Kong. The
direct sales force is organized into account teams, consisting of a sales
director and a sales engineer, or "technology evangelist." Each team has
responsibility for a designated number of Tier One accounts in the region. We
generate sales leads for Tier One accounts through a combination of direct and
indirect initiatives, such as seminars, presentations and responses to requests
for proposals. The Tier One sales process typically
41
<PAGE>
involves a large expense commitment from us and the sales cycle in these
accounts lasts from several months to over a year. We intend to increase the
size of our direct sales force in the Americas, Europe, and Asia to further
pursue Tier One account opportunities.
Tier Two Accounts
We characterize Tier Two accounts as those service providers with a current
subscriber base in excess of 25,000 users and a projected subscriber base of up
to 250,000 users. The performance and feature requirements of Tier Two accounts
are closely aligned with those of larger service providers. We currently offer
InterMail Post.Office as well as our recently released InterMail Kx package to
satisfy the requirements for these Tier Two accounts. We target these accounts
through a combination of direct and indirect channels, referred to as the
"territory" channel. We have Tier Two direct sales force personnel located in
California, Massachusetts, England, Singapore, and Japan. The Tier Two direct
sales force is complemented by multiple indirect distribution channel partners,
including resellers, systems integrators, and joint marketing partners, such as
IBM and Hewlett-Packard. The indirect channels are designed to increase
geographic sales coverage for Tier Two service providers and to leverage the
existing sales organizations of key strategic partners. We are in the early
stages of building these distribution channels and intend to significantly
increase our indirect channel for territory sales.
Tier Three Accounts
Tier Three accounts consist of small to medium size service providers that
operate on a single-server architecture and typically have an installed base of
less than 25,000 users. In general, such service providers are best suited for
the InterMail Post.Office product packages. We target these accounts primarily
through indirect channels, including resellers, systems integrators, and joint
marketing partners. However, we also have several Tier Three direct sales force
personnel located in California. We conduct a substantial amount of Tier Three
sales via our external website with direct software downloads to users.
Marketing
We engage in a broad range of marketing activities, including advertising our
products and services in print and electronic media, sponsoring seminars and
events for customers and potential customers, participating in trade shows and
conferences, and providing product information through our Web site. For
example, in September 1998, we hosted the first ever Spam Roundtable, a forum
on spam, or Internet junk mail, attended by over 20 of the largest service
providers in the world to share concerns and ideas regarding the use and
prevention of spam in messaging operations. In March 1999, we joined with
Hewlett-Packard, IBM, Telcordia Technologies (formerly Bellcore), and Amteva
Technology in hosting the first IP Voicemail Conference in Santa Barbara,
attended by over 30 of the largest service providers. In conjunction with the
IP Voicemail Conference, we hosted the second Spam Roundtable.
We also work closely with the marketing departments of our strategic partners
and customers to promote their messaging initiatives that are enabled by our
products. These efforts are augmented with the assistance of several public
relations firms specializing in the technology marketplace in an effort to
further establish and define the market for highly scalable messaging products
for service providers. For the Tier Two and Tier Three market segments, we
periodically undertake direct mail programs designed to promote brand name
awareness and inform existing customers of advances in product features. In
addition, we periodically publish white papers and industry reports to promote
awareness of our technology and advances in industry practices.
Through product planning, market strategy, competitive analysis, and product
program management, we continue to provide marketing and product leadership for
our customers by delivering quality products and services in a timely and
predictable manner. For example, with our annual Product Roadmap Tour, we
travel to customers and prospects worldwide to gather market research,
competitive information, and customer input on product features so that our
future products and services meet the unique needs and requirements of the
service provider market.
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Technology
With our InterMail Mx and InterMail Kx packages, we have developed a
scalable, high performance platform for building messaging and other Internet-
standard, data intensive applications. Our platform is based on a partitioned
cluster architecture, which is described below.
Partitioned Cluster Architecture--Our software partitions or separates
message processing into a series of steps, such as retrieving a message from
the Internet, storing it on disk, and delivering it to the user. The software
for each step is called a component, and a set of partitioned components makes
up a cluster. All components can run on a single computer for a smaller system,
or can be distributed across many computers for a large system. When required,
components can be duplicated to provide even more capacity. The partitioned
cluster architecture increases performance and capacity by doing steps in
parallel on separate computers. Disk intensive operations, such as saving
messages on the disk, are separated from network intensive operations, such as
delivering messages to the Internet. The computer running a disk-intensive
component can be optimized for high-speed disk access, while the network
intensive component can run on a much less expensive computer. Partitioning
increases overall performance and capacity while minimizing hardware costs.
Components are location independent in that they can be freely moved from one
computer to another to reconfigure the cluster. Hardware can be added or
removed from the cluster while it continues to operate. Duplicating individual
partitions enables high-availability or non-stop operation, where the cluster
continues to run even with a particular partition out of service.
The following diagram illustrates the components and key elements of our
partioned cluster architecture:
DIRECTORY
COMPONENTS
[CHART APPEARS HERE]
43
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Distributed Object Protocol--We have developed an innovative distributed
object communications protocol for reliable, efficient communications between
the components. This protocol, called Remote Method Execution, or RME, supports
messaging transactions and journaling to insure that the cluster is reliable. A
transaction is composed of several operations, such as inserting a message into
a user's mailbox. Our transaction software ensures that every operation is
either fully completed or fully reversed so it can be done at a later time. A
list of completed transactions is kept in a separate file, called a journal.
The journal is used to reconstruct the messages in the event that there is a
system failure. In addition, RME has a "versioning" mechanism that allows older
components to properly work with newer ones. This allows upgrading the cluster
to new software while the cluster is running for non-stop operation. RME
provides a high performance programming interface to all components and enables
us and third parties to create new messaging applications.
Multimedia Object Store--The object-level storage component is used to
reliably and efficiently store, organize and retrieve a variety of messaging
media types, including text, graphics, voice, audio, video, and facsimile. In
our storage component, messaging data is accessed via an object-oriented
software layer, which separates, protects, and isolates the data from the
components that use it, so that both the data structures and components can be
independently updated. Our object store is multithreaded, meaning that several
specific tasks within the component are run in parallel. It utilizes a high
degree of caching, where frequently used information is kept in memory, to
increase performance and scalability for data intensive messaging operations.
The object store has an extensible file system layout, so that additional
storage can be added while the system is on-line, supporting high availability
operation.
Replicated, Multi-Master Directory--Each component in a cluster needs to
access common information, such as a user's name and password. This data is
accessed every time a message arrives or a user accesses a mailbox. As a
result, specialized replicated directory technology is needed to support a
large cluster. The cluster has a core database that contains the common
information and a set of high-speed multi-threaded replicas of that
information. By using multiple replicas, the common information can be accessed
a virtually unlimited number of times. The replicas support the industry
standard Lightweight Directory Access Protocol (LDAP) access, so third party
applications can access information in a standard format. The directory is a
"multi-master" system, meaning that applications can access or add information
to any replica and the directory will automatically update the database and
other replicas so that data is consistent across all components. These advanced
replication and updating protocols are unique to our messaging system and are a
key element in providing scalability.
Access and Delivery Components--Our cluster has a set of data access and
delivery servers that implement the standard Internet messaging protocols. The
Message Transport Agent (MTA) implements simple mail transfer protocol or SMTP,
the standard protocol used to send mail from one computer to another on the
Internet. POP3 and IMAP4 data access components implement the protocols used by
desktop email applications, such as Microsoft Outlook or Netscape Navigator.
The Web component provides a complete Web server for access email using
standard browsers. With the acquisition of Mobility.Net we intend to extend the
base functionality of our Web server to permit performance enhancements and
greater flexibility for service providers to customize the Web interface. In
addition, Mobility.Net provides a scalable Java-based platform to build
additional Web-based applications. The number and type of access components can
be optimized to meet the requirements of particular service providers.
The platform technology used for the InterMail Post.Office product package
shares many of the underlying technology components of the InterMail Kx and
InterMail Mx platform. InterMail Post.Office is a single computer package, so
all messaging components are pre-configured to run on the same computer, to
simplify installation and operation. It has a single MTA, POP3, directory and
message store component. We intend to fully integrate the InterMail Post.Office
technology with the InterMail Mx and InterMail Kx technology so that all of the
functionality is available in all three product packages.
We have made substantial investments in research and development. We believe
that our future performance will depend in large part on our ability to
maintain and enhance our current platform and product families, develop new
products that achieve market acceptance, maintain technological competitiveness
and
44
<PAGE>
meet an expanding range of service provider requirements. As of March 31, 1999,
our research, and development staff consisted of 69 employees.
Competition
The market for Internet standards-based messaging products and services is
intensely competitive, and we expect it to become increasingly so in the
future. We compete in our core service provider market with many software
providers. We also compete against messaging solutions based on public domain
software that is developed internally by service providers. We compete to a
more limited extent with providers of messaging applications designed for the
enterprise market. We believe that competition will intensify as our current
competitors increase the sophistication of their offerings and as new market
participants, including providers of "outsourced" e-mail solutions, also known
as wholesalers, enter the market. Many of our current and future competitors
have longer operating histories, larger installed customer bases, greater brand
recognition, and significantly greater financial, marketing and other resources
than we do. In addition, these competitors may benefit from existing strategic
and other relationships with each other or with our current customers. We must
respond quickly and effectively to the new products, services, and enhancements
offered by our competitors in order to succeed.
Our current competitors in the service provider market include Netscape and
Sun Microsystems, which has agreed to acquire many of Netscape's software
operations. We also compete with Microsoft whose current product was developed
for the enterprise market but is sold to some service providers. In addition,
Microsoft and Lucent Technologies, among others, are well-positioned to become
increasingly competitive in our core service provider messaging market. We
believe that Microsoft is currently in the process of developing electronic
messaging software to compete more directly in our core service provider
market. Because of its dominance in other software markets, Microsoft has many
competitive advantages over us. For example, Microsoft could incorporate
electronic messaging technology into its Web browser software, its client
operating system or email interface, or its server software offerings, possibly
at no additional cost to service providers or end users. In addition, Microsoft
may promote technologies and standards that are not compatible with our
technology, or that are less compatible with our technology than competitive
products offered by Microsoft. We believe that Microsoft's increasing presence
in the electronic messaging software industry will dramatically increase
competitive pressure in the market, leading to increased pricing pressure and
longer sales cycles. Such pressures may force us to reduce the prices of our
products, and may also materially reduce our market share. In addition, Lucent
Technologies could be a formidable competitor in the Internet voicemail market
because it owns Octel, a voicemail provider, and because it owns a proprietary
access server for the conversion of voice to data. If we are unable to compete
effectively with Microsoft, Lucent Technologies, or current or other emerging
competitors, our business, financial condition, and operating results will
suffer.
Intellectual Property and Proprietary Rights
Our ability to compete and continue to provide technological innovation is
substantially dependent upon internally developed technology, including the
entire InterMail product line. We rely on a combination of copyright, trade
secret, and trademark law to protect our technology, although we believe that
other factors such as the technological and creative skills of our personnel,
new product developments, frequent product and feature enhancements, and
reliable product support and maintenance are more essential to maintaining a
technology leadership position. We currently do not have any patents issued or
pending.
We generally enter into confidentiality and nondisclosure agreements with our
employees, consultants, prospective customers, licensees, and corporate
partners. In addition, we control access to and distribution of our software,
documentation, and other proprietary information. Except pursuant to certain
limited escrow arrangements, we do not provide third parties with access to the
source code for our products. Despite our efforts to protect our intellectual
property and proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology. Effectively policing the
unauthorized use of our products is time-consuming and costly, and there can be
no assurance that the steps taken by us will prevent
45
<PAGE>
misappropriation of our technology, particularly in foreign countries where in
many instances the local laws or legal systems do not offer the same level of
protection as in the United States.
We attempt to avoid infringing known proprietary rights of third parties in
its product development efforts. However, we do not regularly conduct
comprehensive patent searches to determine whether the technology used in our
products infringes patents held by third parties. In addition, product
development is inherently uncertain in a rapidly evolving technological
environment in which there may be numerous patent applications pending, many of
which are confidential when filed, with regard to similar technologies. If we
were to discover that its products violated or potentially violated third party
proprietary rights, there can be no assurance that it would be able to obtain
licenses to continue offering such products without substantial reengineering
or that any effort to undertake such reengineering would be successful, or that
any licenses would be available on commercially reasonable terms.
Substantial litigation regarding intellectual property rights exists in the
software industry, and we expect that software products may be increasingly
subject to third-party infringement claims as the number of competitors in our
industry segments grows and the functionality of software products in different
industry segments overlaps. Any such claims could be time-consuming to defend,
result in costly litigation, divert management's attention and resources, cause
product and service delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing arrangements, if required, may not be
available on terms acceptable to us, if at all. A successful claim of
infringement against us and our failure or inability to license the infringed
or similar technology could have a material adverse effect on our business,
financial condition, and results of operations.
Employees
As of March 31, 1999, we had 208 full-time employees, 69 of whom were in
research and development, 53 in sales and marketing, 55 in services and support
and documentation, and 31 in general and administrative. None of our employees
is represented by a labor union. We have not experienced any work stoppages,
and we consider our relations with our employees to be good.
Legal Matters
From time to time we have been subject to legal proceedings and claims in the
ordinary course of business. Although we are not currently involved in any
legal proceedings, we expect that we will in the future be subject to legal
disputes, including claims of alleged infringement of third party patents,
trademarks, and other intellectual property rights by us and our licensees.
Such claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources. We are not aware of any legal
proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse effect on our business, financial condition, or
results of operations.
Facilities
Our corporate headquarters are located in Santa Barbara, California where we
have two leases for approximately 30,500 square feet of space in separate
office buildings. Our East Coast headquarters are located in Lexington,
Massachusetts where we have a lease for approximately 22,700 square feet of
space in a single office building. We lease additional space in Bellevue,
Washington for development personnel and in Windsor, England. In addition to
these facilities, we also lease office space for sales personnel in Dallas,
Denver, Reston, Munich, Tokyo, Singapore, and Hong Kong. We believe that these
existing facilities are adequate to meet current foreseeable requirements or
that suitable additional or substitute space will be available on commercially
reasonable terms.
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MANAGEMENT
Executive Officers, Directors and Key Employees
The following table sets forth certain information with respect to the
executive officers, directors and key employees of Software.com as of April 5,
1999.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John L.
MacFarlane........ 32 Chief Executive Officer, Founder and Director
Valdur Koha........ 43 President
John F. Poulack.... 37 Senior Vice President, Operations
Robert R. Martin... 45 Senior Vice President, Strategy
John S. Ingalls.... 49 Senior Vice President, Chief Financial Officer
Thomas S. Cullen... 38 Vice President Sales, Worldwide Service Providers
Arthur R.
Garofalo.......... 55 Vice President Sales, Worldwide Territory/Channel
Trung Mai.......... 33 General Manager, Asia
Adarbad Master..... 35 Chief Technology Officer
Michele R. Nivens.. 41 Vice President, Human Resources
Brian D. Plackis... 31 General Manager, North America
Craig A.
Shelburne......... 30 Vice President, General Counsel and Corporate Secretary
Frank Perna........ 61 Chairman of the Board
Neal Douglas....... 40 Director
Judith Hamilton.... 54 Director
Don Listwin........ 40 Director
Bernard Puckett.... 54 Director
Bernhard Woebker... 49 Director
</TABLE>
Mr. Douglas, Ms. Hamilton, Mr. Listwin and Mr. Woebker comprise our
compensation committee. Ms. Hamilton, Mr. Perna and Mr. Puckett comprise our
audit committee.
John L. MacFarlane has been Chief Executive Officer and a director of
Software.com since its incorporation. From July 1988 to August 1989, Mr.
MacFarlane was with Harris Corporation working in the Defense Communications
division on military communications systems. From November 1989 to July 1991,
Mr. MacFarlane worked for the U.S. Navy, where he worked on optical signal
processing. Mr. MacFarlane received his B.S. in electrical engineering from
Rensselaer Polytechnic Institute and his M.S. in electrical engineering from
the University of California at Santa Barbara.
Valdur Koha has been President of Software.com since May 1996. From August
1994 to May 1996, Mr. Koha was Chief Executive Officer, President and Chairman
of the Board of Directors of Accordance Corporation, which was acquired by
Software.com in May 1996. From January 1991 to August 1994, Mr. Koha was
Director of Development of the Open Systems at Siemens Nixdorf, Inc., in which
position he was responsible for products in the areas of distributed computing,
multimedia, imaging and operating systems. Mr. Koha received his degree in
mathematics and computer science from the University of Bonn.
John F. Poulack has been Senior Vice President, Operations of Software.com
since April 1998. From October 1996 to April 1998, Mr. Poulack held various
positions at Software.com including Engineering Manager, Director of
Engineering and Vice President, Engineering. From August 1994 to September
1996,
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Mr. Poulack was a Software Engineer at Accordance Corporation. From July 1985
to August 1994, Mr. Poulack was a Software Engineer at Nixdorf Computer
Engineering Corporation and Siemens Nixdorf Information Systems Inc.
Robert R. Martin has been Senior Vice President, Strategy of Software.com
since July 1998. From July 1996 to July 1998, Mr. Martin served as our Vice
President, Product Management. From November 1991 to June 1996, Mr. Martin held
a variety of positions with Banyan Systems, Inc. including Vice President,
Business Development. From September 1986 to October 1991, Mr. Martin was Vice
President of Products for Ontos Inc., an object-oriented database company.
Prior to Ontos, Mr. Martin held various sales and technical positions at Intel
Corporation and Hewlett-Packard Company. Mr. Martin received his B.S. in
electrical engineering from Worcester Polytechnic Institute and his M.S. in
electrical engineering from Massachusetts Institute of Technology.
John S. Ingalls has been Chief Financial Officer and Senior Vice President of
Software.com since February 1999. From September 1998 to February 1999, Mr.
Ingalls was Chief Financial Officer and Senior Vice President of Chrystal
Software, Inc., a subsidiary of Xerox Corporation that develops high-end
document management software. From August 1996 to May 1998, Mr. Ingalls was
Vice President of Finance and Chief Financial Officer of Raptor Systems, Inc.,
a publicly-traded network security software manufacturer. From December 1989 to
March 1996, Mr. Ingalls was Vice President, Corporate Finance for Clean
Harbors, Inc., a publicly-traded environmental services company. Prior to 1989,
Mr. Ingalls was a managing director in the Investment Banking Department of the
Bank of Boston, after ten years as a Wall Street lawyer and partner in the
Boston law firm of Palmer & Dodge. Mr. Ingalls received his B.A. in economics
from Amherst College and his J.D. from the University of Virginia School of
Law.
Thomas S. Cullen has been Vice President, Worldwide Service Providers of
Software.com since November 1998. From October 1997 to November 1998, Mr.
Cullen was Vice President, U.S. Service Providers at Software.com. From October
1992 to February 1997, Mr. Cullen was Vice President of Sales for Radish
Communications (now SystemSoft), a voice/data communications software company.
Mr. Cullen has also held sales positions at Tektronix Color Printers, Apple
Computer International and MCI International. Mr. Cullen received his B.S. from
Cornell University.
Arthur R. Garofalo has been Vice President Sales, Worldwide Territory/Channel
of Software.com since June 1998. From January 1997 to June 1998, Mr. Garofalo
held the position of Director of Territory Sales. Prior to joining
Software.com, he worked for Computervision Inc. as Vice President of Worldwide
Channel Sales & Field Marketing from December 1994 until January 1997. Mr.
Garofalo has also held prior sales positions, including Vice President Sales at
Microcom, Vice President of Worldwide Sales at Avatar, and Vice President of
Worldwide Sales and Marketing at Minicomputer Systems. Mr. Garofalo holds a BBE
in electrical engineering from Manhattan College and an MBA in marketing from
Pace University.
Trung Mai has been Director of Nihon Software.com Ltd. and Software.com
Singapore Pte. Ltd. since January 1998 and General Manager, Asia of
Software.com since August 1998. From February 1995 to August 1997, Mr. Mai held
the positions of District Manager and Department Head at AT&T Bell Labs, in
which position he helped launch the AT&T Worldnet service. From June 1992 to
February 1995, Mr. Mai was a Manager at MCI Communications, Inc. Mr. Mai
received his B.S. in electrical engineering from McGill University in Montreal.
Adarbad Master has been Chief Technology Officer of Software.com since April
1999. From March 1997 to April 1999, Mr. Master served as Chief Scientist for
our professional services group. Prior to joining Software.com, Mr. Master
worked with Sun Microsystems as an IT Architect from June 1994 until February
1997. From May 1989 until June 1994, he was employed by Inland Steel Company as
a Project Engineer. Mr. Master holds a B.S. in mechanical engineering from the
Indian Institute of Technology at Madras, India and a M.S. in industrial
engineering from State University of New York, Buffalo.
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Michele R. Nivens has been Vice President, Human Resources since September
1997. From August 1991 to August 1997, Ms. Nivens was Vice President of Human
Resources for the Systems and Technologies Division at BBN Corporation, a
network technology company that was acquired by GTE in June 1997. Ms. Nivens
received her B.S. in management from the University of Massachusetts and
completed the Sloan Greater Boston Executive Program at the Massachusetts
Institute of Technology.
Brian D. Plackis has been General Manager, North America of Software.com
since February 1998. From July 1989 to February 1998, Mr. Plackis held various
positions at MCI Communications, Inc., including Senior Manager, Integrated
Messaging Engineering and Senior Manager, InnerMail Services. From June 1987 to
June 1989, Mr. Plackis was a systems programmer at the NASA Jet Propulsion
Laboratory. Mr. Plackis received his B.S. in engineering from Rensselaer
Polytechnic Institute.
Craig Shelburne has been Vice President, General Counsel and Corporate
Secretary of Software.com since February 1998. From February 1996 to February
1998, Mr. Shelburne was an attorney with Wilson Sonsini Goodrich & Rosati, in
which he specialized in corporate law and served as outside corporate counsel
of Software.com. From September 1994 to February 1996, Mr. Shelburne was an
associate with the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. Mr.
Shelburne received his B.A. in political science and history from Duke
University and his J.D. from the UCLA School of Law.
Frank Perna has been Chairman of the Board of Software.com since July 1997
and has been a director since January 1996. Since December 1998, Mr. Perna has
been Chairman of the Board and Chief Executive Officer of MacNeal-Schwendler
Corporation, a computer-aided engineering software company. From December 1994
to August 1998, Mr. Perna was the Chief Executive Officer and Chairman of the
Board of EOS Corporation, a provider of power supplies for electrical equipment
and notebook computers. From 1984 to 1993, Mr. Perna served as President, Chief
Executive Officer and Director of MagneTek, a publicly held provider of
electrical equipment and services to utilities and industrial customers. Mr.
Perna holds a B.S. in mechanical engineering from Kettering University, an M.S.
in electrical engineering from Wayne State University and an M.S. in management
from the Massachussetts Institute of Technology Sloan School of Management.
Neal Douglas has been a director of Software.com since July 1998. Since
January 1993, Mr. Douglas has been a General Partner of AT&T Ventures, a
venture capital firm. From May 1989 to January 1993, Mr. Douglas was a partner
of New Enterprise Associates, a venture capital firm. Mr. Douglas currently
serves on the boards of directors of Cellnet Data Systems, Inc., a provider of
fixed network wireless information services, FVC.COM, an Internet video
applications company, TUT Systems, a provider of products that enable high
speed data transmissions over copper wires, and several privately held
companies. Mr. Douglas received a B.S. in electrical engineering from Cornell
University, an M.S. in electrical engineering from Stanford University, and an
M.B.A. from the University of California at Los Angeles.
Judith Hamilton has been a director of Software.com since January 1996. Since
January 1999, Ms. Hamilton has been Chief Executive Officer of Classroom
Connect, a company specializing in K-12 Internet resources. From April 1996 to
July 1998, Ms. Hamilton was President and Chief Executive Officer of FirstFloor
Software, an Internet software publisher. From July 1992 to December 1995, Ms.
Hamilton was President and Chief Executive Officer of Dataquest, Inc., an
information technology market research and consulting firm. From 1987 to 1991,
Ms. Hamilton was Partner and National Director of Market Development for Ernst
& Young. Ms. Hamilton currently serves on the boards of directors of R.R.
Donnelley & Sons Company, a commercial printing company, and several privately
held companies. Ms. Hamilton received her B.A. in history/political science
from Indiana University and her certificate in management from the Graduate
School of Business of the University of California at Los Angeles.
Donald J. Listwin has been a director of Software.com since July 1997. Since
May 1998, Mr. Listwin has been an Executive Vice President at Cisco Systems.
Prior to that, he held a variety of positions at Cisco Systems, including from
April 1997 to May 1998, Senior Vice President of Service Provider Line of
Business,
49
<PAGE>
from August 1996 to April 1997, Senior Vice President of IOS Development and
Marketing, from September 1995 to August 1996, Vice President and General
Manager of Cisco's Access Business Unit, and from September 1993 to September
1995, Vice President of Marketing. Mr. Listwin also serves on the board of
directors of TIBCO Software, Inc. and E-Tek Dynamics, Inc. Mr. Listwin holds a
B.S. degree in electrical engineering from the University of Saskatchewan,
Canada.
Bernard Puckett has been a director of Software.com since July 1997. From
January 1994 to January 1996, Mr. Puckett was President and CEO of Mobile
Telecommunications Technologies. From 1967 to 1994, Mr. Puckett was at IBM
Corp., where he held a variety of positions including, Senior Vice President,
Corporate Strategy and Development and Vice President and General Manager,
Applications Software. Mr. Puckett serves on the boards of directors of P-COM,
R.R. Donnelley & Sons Company, Iomega Corporation, IMS Health, and Nielson
Media Research. Mr. Puckett received his B.S. in mathematics from the
University of Mississippi.
Bernhard Woebker has been a director of Software.com since July 1997. Since
August 1995, Mr. Woebker has been Vice President, Europe of Versant
Corporation, a database management company. From April 1992 to July 1994, Mr.
Woebker was Vice President, Europe of NeXT, Inc., a software company that has
been acquired by Apple Computer, Inc. From 1976 until 1991, Mr. Woebker held a
variety of positions in Germany and the United States with Nixdorf Computer AG,
Nixdorf Computer Engineering Corp., and Siemens Nixdorf Information Systems,
including President and CEO of Nixdorf Computer Engineering Corp. from 1986 to
1989. From 1973 to 1976, Mr. Woebker was an Assistant Professor at the
Institute for Computer Science/Technical University Hanover, where he
specialized in compiler theory, artificial intelligence, and graphical data
processing. Mr. Woebker received his B.A. from the Technical University of
Hanover.
Board of Directors
We currently have authorized seven directors. Each director holds office
until the next annual meeting of the stockholders or until his or her successor
is duly elected and qualified. Our amended and restated certificate of
incorporation to be filed upon the closing of this offering will provide for a
classified board of directors. In accordance with the terms of the amended and
restated certificate of incorporation, the board of directors will be divided
into three classes, whose terms will expire at different times. At each annual
meeting of stockholders beginning with the 1999 annual meeting, the successors
to directors whose terms will then expire will be elected to serve from the
time of election and qualification until the third annual meeting following
election and until their successors have been duly elected and qualified. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible,
each class will consist of an equal number of directors.
Committees of the Board of Directors
Our audit committee consists of Ms. Hamilton, Mr. Perna, and Mr. Puckett. The
audit committee reviews our internal accounting procedures of Software.com and
consults with and reviews the services provided by our independent accountants.
Our compensation committee consists of Mr. Douglas, Ms. Hamilton, Mr. Listwin
and Mr. Woebker. The compensation committee reviews and recommends to our board
of directors the compensation and benefits of our employees and directors.
Compensation Committee Interlocks and Insider Participation
No member of our board of directors or our compensation committee has served
as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving as a member of our board of
directors or compensation committee.
In February 1996, we entered into a contract with 525 Anacapa LLC for the
lease of our offices at 525 Anacapa Street, Santa Barbara. Pursuant to the
lease, we agreed to pay 525 Anacapa LLC a flexible amount per month such that
it would recover its costs and expenses in relation to the ownership and
operation
50
<PAGE>
of the property, and a 9% return on the actual cash invested in acquiring and
improving the property, as set forth in the lease. In 1996, 1997, and 1998, we
paid an aggregate of $132,000, $165,000, and $171,000, to 525 Anacapa LLC
pursuant to the lease. Mr. MacFarlane and Mr. Perna are members of 525 Anacapa
LLC.
Director Compensation
Directors do not currently receive any cash compensation for their service as
directors, but are reimbursed for reasonable expenses incurred in attending
meetings. Non-employee directors are eligible to receive options under our 1995
stock option plan and have been granted the following options under such plan:
. On January 18, 1996, Mr. Perna and Ms. Hamilton each received options to
purchase 121,318 shares of our common stock at an exercise price of $1.00
per share, with a vesting period of four years at a rate of 1/48th of the
shares underlying such options vesting each month;
. On July 11, 1997, Messrs. Listwin, Puckett and Woebker each received
options to purchase 30,000 shares of our common stock at an exercise
price of $3.65 per share, with a vesting period of one year at a rate of
1/12th of the shares underlying such options vesting each month; and
. On July 10, 1998, Messrs. Douglas, Listwin, Puckett, and Woebker each
received options to purchase 30,000 shares of our common stock at an
exercise price of $3.65 per share, with a vesting period of one year at a
rate of 1/12th of the shares underlying such options vesting each month.
Executive Compensation
Summary Compensation Table
The following table sets forth the compensation earned for services rendered
to Software.com in all capacities for fiscal 1998, by our Chief Executive
Officer and our four most highly compensated executive officers who earned more
than $100,000 during fiscal 1998. These five individuals are referred to as the
"named executive officers" here and elsewhere in this prospectus.
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
----------------- -----------------
No. of Securities
Underlying All Other
Name and Principal Positions Salary Bonus Options Compensation
- ---------------------------- -------- -------- ----------------- ------------
<S> <C> <C> <C> <C>
John L. MacFarlane............ $140,000 $ -- 1,000,000 $ --
Chief Executive Officer
Valdur Koha................... 135,000 150,000 -- --
President
Robert R. Martin.............. 150,000 -- -- --
Senior Vice President,
Strategy
Thomas S. Cullen.............. 92,400 179,100 180,000 --
Vice President Sales,
Worldwide Service Providers
Arthur R. Garofalo............ 100,000 200,500 140,000 7,086(1)
Vice President Sales,
Worldwide Territory/Channel
</TABLE>
- --------
(1) Represents reimbursements for relocation expenses.
51
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information with respect to stock
options granted to each of the named executive officers in fiscal 1998. The
figures representing percentages of total options granted to employees in the
last fiscal year are based on an aggregate of 3,753,638 options granted by us
during the fiscal year ended December 31, 1998 to our employees and consultants
including the named executive officers.
In accordance with the rules of the Securities and Exchange Commission, also
shown below is the potential realizable value over the term of the option based
on the term of the option at its time of grant, and assuming that the fair
market value of our common stock on the date of grant appreciates at the
indicated annual rate compounded annually for the entire term of the option and
that the option is exercised and sold on the last day of its term for the
appreciated stock price. These amounts are based on certain assumed rates of
appreciation and do not represent our estimate of future stock prices. Actual
gains, if any, on stock option exercises will be dependent on the future
performance of the common stock.
Unless otherwise indicated, the options in this table were granted under the
1995 stock option plan, have 5-year terms and vest over a period of 4 years.
Twenty-five percent of the shares subject to each option will vest on the first
anniversary of the grant date, and 1/48th of the shares subject to each option
will vest each month thereafter. All of the options have exercise prices equal
to the fair market value of our common stock on the date of grant.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rates of
Securities Granted to Stock Appreciation
Underlying Employees Exercise for Option Term
Options In Last Price Expiration ---------------------
Name Granted Fiscal Year (per share) Date 5% 10%
- ---- ---------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John L. MacFarlane...... 250,000(1)(2) 6.7% $3.65 9/25/08 $ 573,866 $1,454,290
750,000(1) 20.0 3.65 11/20/08 1,721,599 4,362,870
Valdur Koha............. -- -- -- -- -- --
Robert R. Martin........ -- -- -- -- -- --
Thomas S. Cullen........ 80,000 2.1 3.65 3/13/03 80,674 178,269
100,000(3) 2.7 3.65 11/20/03 100,843 222,836
Arthur R. Garofalo...... 25,000 0.7 3.65 1/9/03 25,211 55,709
15,000 0.4 3.65 3/13/03 15,126 33,425
40,000 1.1 3.65 5/15/03 40,337 89,134
60,000(3) 1.6 3.65 11/20/03 60,506 133,702
</TABLE>
- ---------------------
(1) Twenty-five percent of the shares subject to such option will vest on the
first anniversary of the grant date, and 1/48th of the shares subject to
such option will vest each month thereafter. Granted outside of the 1995
stock option plan with a 10-year term.
(2) If Software.com meets certain cash flow goals by the end of the third
quarter of 1999, then all shares subject to such option will vest at such
time.
(3) Vest monthly at a rate of 1/48th of the shares subject to the option per
month.
52
<PAGE>
Fiscal Year-End Option Values
The following table sets forth certain information with respect to the named
executive officers concerning unexercised stock options held as of December 31,
1998. The named executive officers did not exercise any options during fiscal
1998. The "value of unexercised in-the-money options at December 31, 1998"
figures in the right-hand columns are based on a value of $3.65 per share, the
fair market value of our stock as of December 31, 1998 as determined by our
board of directors, minus the per share exercise price, multiplied by the
number of shares issued upon exercise of the option.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
December 31, 1998 at December 31, 1998
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John L. MacFarlane.......... -- 1,000,000 $ -- $ --
Valdur Koha................. 386,700 232,021 928,080 556,850
Robert R. Martin............ 145,833 204,167 27,448 20,052
Thomas S. Cullen............ 23,750 236,250 -- --
Arthur R. Garofalo.......... 26,250 173,750 -- --
</TABLE>
Employment Agreements and Change of Control Arrangements
We currently do not have any employment agreements with any of our named
executive officers. We have, however, entered into "change of control"
agreements with each of our named executive officers and other executive
officers. These agreements provide that if an officer's employment is
terminated as a result of an "involuntary termination" during a period
beginning two months before, and ending six months after a change of control,
then one-half of the unvested portion of any stock option held by the officer
will accelerate and become exercisable, subject to certain limitations. For
purposes of the agreement, "involuntary termination" includes a change in the
nature or scope of the officer's duties that is inconsistent with the position
held by the officer immediately before the change of control, a material
reduction of benefits or perquisites, a reduction in base cash salary, a
relocation that is more than 20 miles from the officer's present location, or
any purported termination of the officer by us.
Employee Benefit Plans
1995 Stock Option Plan
Our 1995 stock option plan, as amended and restated, allows us to grant to
employees incentive stock options within the meaning of Section 422 of the
Internal Revenue Code and to grant to employees, directors and consultants
nonstatutory stock options. Unless terminated sooner, the plan will
automatically terminate in 2005. Our board of directors approved the plan in
October 1995 and our stockholders approved the plan in January 1996. A total of
10,500,000 shares of common stock are currently reserved for issuance under the
plan.
Our board of directors or an administrator appointed by our board may
administer our 1995 stock option plan. The plan administrator has the power to
determine the terms and conditions of the options granted, including:
. the exercise price;
. the number of shares of common stock subject to each option;
. the exercisability thereof; and
. the form of consideration payable upon such exercise.
In addition, the plan administrator has the authority to amend, suspend or
terminate our plan, provided that no such action may affect any share of common
stock previously issued and sold or any option previously granted under our
plan.
53
<PAGE>
Options granted under our 1995 stock option plan are not generally
transferable by the optionee. Each option is exercisable during the lifetime of
the optionee only by the optionee. Options granted under our plan must
generally be exercised within three months of the end of optionee's status as
an employee, consultant or director of Software.com, or within twelve months
after such optionee's termination by death or disability. However, an option
may never be exercised later than the expiration of its term.
The exercise price of all incentive stock options granted under the plan is
determined by the administrator, but must be at least equal to 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
our outstanding capital stock, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value on the grant date.
The exercise price of nonstatutory stock options granted under the plan is
determined by the administrator, but must be equal to at least 85% of the fair
market value on the grant date. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of our outstanding
capital stock, the exercise price of any nonstatutory stock option granted must
equal at least 110% of the fair market value on the grant date. The term of all
other options granted under the 1995 stock option plan may not exceed ten
years. However, the term of incentive stock options granted to any participant
who owns stock with more than 10% of the voting power of all classes of our
outstanding capital stock cannot exceed five years.
Our 1995 stock option plan provides that in the event of a merger of
Software.com with or into another corporation, each option shall be assumed or
an equivalent option substituted by the successor corporation. If the
outstanding options are not assumed or substituted as described in the
preceding sentence, the options shall terminate as of the date of the merger.
401(k) Plan
In 1996, we adopted a 401(k) Retirement Savings and Investment Plan covering
our full-time employees located in the United States. The plan is intended to
qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended,
so that (a) contributions to the plan by employees or by us, and the investment
earnings thereon, are not taxable to employees until withdrawn from the plan,
and so that (b) contributions by us, if any, will be deductible by us when
made. Under the plan, eligible employees may elect to make payroll deductions
up to 20% of their compensation, up to the statutorily prescribed annual limit
($10,000 in 1999) and to have the amount of such deduction contributed to the
plan. The plan permits, but does not require, additional matching contributions
by us on behalf of all participants. To date, we have not made any matching
contributions to the plan.
Limitations of Liability and Indemnification
Our certificate of incorporation limits 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 liability for (i) any breach of
their duty of loyalty to the corporation or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases or redemption, or (iv) any transaction from which the
director derived an improper personal benefit. Such limitation of liability
does not apply to liabilities arising under the federal securities laws and
does not affect the availability of equitable remedies such as injunctive
relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions in such capacity,
regardless of whether the bylaws would permit indemnification.
54
<PAGE>
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors
and executive 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 Software.com,
arising out of such person's services as a director or executive officer of
Software.com, any of our subsidiaries or any other company or enterprise to
which the person provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
55
<PAGE>
CERTAIN TRANSACTIONS
Lease of 525 Anacapa. In February 1996, we entered into a contract with 525
Anacapa LLC for the lease of our offices at 525 Anacapa Street, Santa Barbara.
Pursuant to the lease, we agreed to pay 525 Anacapa LLC a flexible amount per
month such that it would recover its costs and expenses in relation to the
ownership and operation of the property, and a 9% return on the actual cash
invested in acquiring and improving the property, as set forth in the lease. In
1996, 1997, and 1998, we paid an aggregate of $132,000, $165,000, and $171,000,
to 525 Anacapa LLC pursuant to the lease. John MacFarlane, Chief Executive
Officer and a director of Software.com, and Frank Perna, a director of
Software.com, are members of 525 Anacapa LLC.
Accordance Merger. In May 1996, in connection with the merger of Accordance
Corporation and Software.com, we issued 3,107,344 shares of our common stock to
Valdur Koha, the former President of Accordance and our current President.
Additionally, we issued 715,219 shares of our common stock to John Poulack, a
former Principal Software Engineer of Accordance and our current Senior Vice
President, Operations.
Common Stock Registration Rights Agreement. Certain holders of our common
stock are entitled to "piggyback" and certain demand registration rights
pursuant to a Registration Rights Agreement dated as of June 1, 1996, as
amended. Some of our directors and executive officers, including Mr.
MacFarlane, Mr. Koha, and Mr. Poulack, are parties to this registration rights
agreement.
Series A Preferred Stock and Warrants. In October 1996, we issued and sold an
aggregate of 1,587,302 shares of Series A preferred stock to entities
affiliated with AT&T Ventures at a per share price of $3.15. Upon the closing
of this offering, the Series A preferred stock will automatically convert into
1,587,302 shares of common stock. Holders of the Series A preferred stock will
be entitled to "piggyback" and certain demand registration rights with respect
to the shares of common stock into which the Series A preferred stock will be
converted.
In connection with the sale of the Series A preferred stock, we issued
warrants to entities affiliated with AT&T Ventures to purchase 529,101 shares
of our common stock at an exercise price of $5.00 per share and 269,841 shares
of our common stock at an exercise price of $7.00 per share. Effective July
1998, in exchange for AT&T Ventures' agreement to extend the redemption date of
certain redemption rights with respect to the Series A preferred stock, we
lowered the exercise price on all outstanding warrants to $4.15 per share.
These warrants are exercisable until October 3, 2001 and are subject to, among
other provisions, net exercise rights. In addition, we received revenues from
companies affiliated with AT&T Corporation of $2,775,000, $2,687,000, and
$3,599,000 in 1996, 1997, and 1998. Mr. Douglas, one of our directors, is a
General Partner of AT&T Ventures.
Series B and Series C Preferred Stock. On February 10, 1997, we issued and
sold an aggregate of 1,789,279 shares of Series B preferred stock to Cisco
Systems, at a per share price of $4.15, and on August 14, 1998, we issued and
sold an aggregate of 1,329,781 shares of Series C preferred stock to Cisco at a
per share price of $5.15. Upon the closing of this offering, the Series B and
Series C preferred stock will automatically convert into 1,789,279 and
1,329,781 shares of our common stock.
Holders of the Series B and Series C preferred stock will be entitled to
"piggyback" and certain demand registration rights with respect to the shares
of common stock into which the Series B and Series C preferred stock will be
converted. Mr. Listwin, one of our directors, is an Executive Vice President of
Cisco Systems.
Change of Control Agreements. We have entered into our standard form
severance agreement in the event of a change of control with all of our
executive officers, except for Mr. Ingalls.
We entered into a severance agreement with Mr. Ingalls, dated March 1, 1999,
which obligates us to provide certain benefits to Mr. Ingalls in connection
with a change of control of Software.com. Upon a change
56
<PAGE>
in control, one-half of the unvested portion of any options held by Mr. Ingalls
will vest and become immediately exercisable. If Mr. Ingalls' employment is
terminated by us for any reason or by Mr. Ingalls as a result of "involuntary
termination" during a period beginning two months prior to, and ending twelve
months after any change in control, then Mr. Ingalls shall be paid a lump sum
equal to his annual base salary and highest possible bonus for the fiscal year
in which the termination occurs plus any "parachute payment" excise tax and the
entire unvested portion of any stock options held by Mr. Ingalls shall vest and
become immediately exercisable.
Our offer letter dated February 9, 1999 to John S. Ingalls, our Senior Vice
President and Chief Financial Officer, obligates us to pay Mr. Ingalls a lump
sum severance payment if we terminate his employment other than for cause. The
amount of the severance payment will equal three months of his then current
annual base salary plus one additional week for each month that he has been
employed by us, up to a maximum of one year. In addition, we agreed to retain
Mr. Ingalls as a consultant for such period of time as is necessary to allow
one-half of the unvested portion of his option to purchase 400,000 shares of
our common stock to vest.
57
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The table on the following page sets forth information known to Software.com
regarding the beneficial ownership of our common stock as of April 5, 1999, and
as adjusted to reflect the sale of common stock offered hereby by:
. each person or entity who is known by us to beneficially own more than 5%
of our common stock;
. each of the named executive officers;
. each of our directors;
. each selling stockholder that beneficially owns more than 1% of our
common stock;
. all directors and executive officers as a group; and
. all other selling stockholders as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person that
are currently exercisable or will become exercisable within 60 days after April
5, 1999 are deemed outstanding, while such shares are not deemed outstanding
for purposes of computing percentage ownership of any other person.
Unless otherwise indicated in the table, the address of each individual
listed in the table is Software.com, Inc., 525 Anacapa St., Santa Barbara, CA
93101.
As of April 5, 1999, there were 35,248,623 shares of our common stock
outstanding. Unless otherwise indicated in the footnotes below, the persons and
entities named in the table have sole voting and investment power with respect
to all shares beneficially owned, subject to community property laws where
applicable.
58
<PAGE>
The numbers shown in the table below assume no exercise of the underwriters'
over-allotment option. If such option is exercised in full, would sell
an additional shares and would then hold shares ( %).
Principal and Selling Stockholders Table
<TABLE>
<CAPTION>
Shares
Shares Beneficially Number of Beneficially
Owned Prior Shares Owned After
To Offering Being Offered Offering
--------------------- ------------- -----------------
Name or Group of
Beneficial Owners Number Percentage Number Number Percentage
- ----------------- ---------- ---------- ------------- ------ ----------
<S> <C> <C> <C> <C> <C>
Cisco Systems, Inc...... 3,119,060 8.8%
170 West Tasman Drive
San Jose, CA 95134
AT&T Ventures(1)........ 2,386,244 6.8
3000 Sand Hill Road
Building 1, Suite 285
Menlo Park, CA 94025
John L. MacFarlane...... 5,037,620 14.3
Valdur Koha(2).......... 3,481,384 9.9
Judith Hamilton(3)...... 101,098 *
Frank Perna, Jr.(4)..... 101,098 *
Robert R. Martin(5)..... 185,417 *
Thomas S. Cullen(6)..... 53,333 *
Arthur R. Garofalo(7)... 55,208 *
Neal Douglas(8)......... 2,431,244 6.9
Don Listwin(9).......... 3,194,060 9.1
Bernard Puckett(10)..... 70,000 *
Bernhard Woebker(11).... 75,000 *
Banyan Systems ......... 1,361,187 3.9
Lawrence S. Barels(12).. 510,547 1.4
Daniel Bathon(13)....... 862,268 2.4
J. Scott Benson......... 644,576 1.8
Michael S. D'Errico..... 1,554,321 4.4
Patricia E. Giencke..... 721,931 2.0
Jonathan Dale Ives...... 804,360 2.3
Eric R. Kanowsky........ 606,480 1.7
Steven E. Karlson(14)... 735,447 2.1
Bryan P. Lockwood(15)... 605,319 1.7
Leopold E. O'Donnell.... 715,219 2.0
Glenn P. Parker(16)..... 694,887 2.0
Arthur J. Rice III...... 773,979 2.2
Richard J.
Rocaberte(17).......... 564,355 1.6
Paul I. Wren and Mary
Leland Wren(18)........ 450,506 1.3
Ben-Liou Yao(19)........ 761,304 2.2
Other selling
stockholders (5
persons, each owning
less than one percent
of our common
stock)(20)............. 797,961 2.3
All directors and
executive officers as a
group
(16 persons)(21)....... 14,967,018 42.5
</TABLE>
- --------
* Indicates ownership of less than 1% of the outstanding shares of our common
stock.
59
<PAGE>
(1) Includes 793,651 shares held by Venture Fund I, LP and 793,651 shares held
by AT&T Venture Fund II, LP. Also includes 399,472 and 399,470 shares
issuable upon exercise of warrants held by Venture Fund I, LP and AT&T
Venture Fund II, LP, respectively.
(2) Includes 464,040 shares subject to options exercisable within 60 days of
April 5, 1999 and 1,000,000 shares held by The Valdur Koha Qualified
Annuity Trust.
(3) Includes 10,110 shares subject to options exercisable within 60 days of
April 5, 1999.
(4) Includes 10,110 shares subject to options exercisable within 60 days of
April 5, 1999.
(5) Includes 185,417 shares subject to options exercisable within 60 days of
April 5, 1999.
(6) Includes 53,333 shares subject to options exercisable within 60 days of
April 5, 1999.
(7) Includes 55,208 shares subject to options exercisable within 60 days of
April 5, 1999.
(8) Includes 25,000 shares subject to options exercisable within 60 days of
April 5, 1999 and includes 793,651 shares held by Venture Fund I, LP and
793,651 shares held by AT&T Venture Fund II, LP. Also includes 399,472 and
399,470 shares issuable upon exercise of warrants held by Venture Fund I,
LP and AT&T Venture Fund II, LP, respectively. Mr. Douglas, one of our
directors, is a General Partner of AT&T Ventures. Mr. Douglas disclaims
beneficial ownership of all shares except to the extent of his pecuniary
interest in the partnerships.
(9) Includes 55,000 shares subject to options exercisable within 60 days of
April 5, 1999 and 3,119,060 shares held by Cisco Systems, Inc. Mr. Listwin,
one of our directors, is an Executive Vice President of Cisco Systems and
disclaims beneficial ownership of all shares held by Cisco Systems.
(10) Includes 55,000 shares subject to options exercisable within 60 days of
April 5, 1999.
(11) Includes 55,000 shares subject to options exercisable within 60 days of
April 5, 1999.
(12) Includes 222,636 shares held by the Barels Family Trust, 163,911 shares
held by Lawrence S. Barels & Wendy L. Barels Charitable Remainder Trust
Account, 10,000 shares held by Orion R. Barels, and 10,000 shares held by
Tiare A. Barels.
(13) Includes 50,000 shares held by Mr. Bathon's spouse, Julie Bathon, and
250,000 shares held by Bathon Investments LLP.
(14) Includes 53,770 shares held by the Karlson Family LLC.
(15) Includes 4,000 shares subject to options exercisable within 60 days of
April 5, 1999.
(16) Includes 51,000 shares subject to options exercisable within 60 days of
April 5, 1999.
(17) Includes 7,375 shares subject to options exercisable within 60 days of
April 5, 1999.
(18) Includes 231,680 shares held by Mary Leland Wren, 182, 080 shares held by
Paul I. Wren III, and 12,500 shares subject to options held by Paul I.
Wren III exercisable within 60 days of April 5, 1999.
(19) Includes 19,200 shares subject to options exercisable within 60 days of
April 5, 1999.
(20) Includes 1,458 shares subject to options exercisable within 60 days of
April 5, 1999.
(21) Includes an aggregate of 1,149,774 shares subject to option exercisable
within 60 days of April 5, 1999, held by directors and executive officers
(16 persons).
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, and subject to stockholder approval, we
will be authorized to issue 150 million shares of common stock, $.001 par
value, and 5,000,000 shares of undesignated preferred stock, $.001 par value.
The following description of our capital stock does not purport to be complete
and is subject to and qualified in its entirety by our certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the provisions of
applicable Delaware law.
Common Stock
As of April 5, 1999, there were 35,248,623 shares of common stock
outstanding, which were held of record by approximately 245 stockholders.
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 of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of Software.com, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. The holders
of common stock have no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable, and the shares of common stock to be issued upon the closing of
this offering will be fully paid and nonassessable.
Preferred Stock
The board of directors has the authority, without action by the stockholders,
to designate and issue preferred stock in one or more series and to designate
the rights, preferences and privileges of each series, any or all of which may
be greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things, restricting dividends on the common stock,
diluting the voting power of the common stock, impairing the liquidation rights
of the common stock and delaying or preventing a change in control of
Software.com without further action by the stockholders. Immediately prior to
the closing no shares of preferred stock will be outstanding, and we have no
present plans to issue any shares of preferred stock.
Warrants
Upon the closing of this offering, we will have outstanding warrants to
purchase 798,942 shares of common stock at an exercise price of $4.15 and
67,961 shares at an exercise price of $5.15. These warrants expire on October
3, 2001 and August 10, 2003.
Registration Rights
Under the terms of an agreement between us and the holders of shares of
common stock, these holders are entitled to certain rights to have us register
these shares under the Securities Act. Under these registration rights, holders
of these "registrable securities" may require that we register their shares for
public resale on Form S-3 or similar short-form registration, provided we are
eligible to use Form S-3 or similar short-form registration and provided
further that the value of the securities to be registered is at least $500,000.
Furthermore, in the event we elect to register any of our shares of common
stock for purposes of effecting a public offering, these holders of registrable
securities are entitled to include their shares of common stock in the
registration, subject however to the right of the managing underwriter to
reduce the number of shares proposed to be registered in view of market
conditions. All expenses in connection with any registration (other than
underwriting discounts and commissions) will be borne by us.
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<PAGE>
The holders of 6,332,378 shares of common stock to be issued upon the
automatic conversion of the Series A, Series B, Series C, or Series D preferred
stock upon the closing of this offering and the holders of 798,942 shares of
common stock to be issued upon the exercise of warrants are entitled to certain
registration rights. Under the terms of an agreement between us and these
shareholders, beginning 180 days following the closing of this offering,
holders of a majority of the then outstanding registrable securities may
require that we register their shares for public resale. We are not obligated
to register these shares at any time after the two-year period following the
effective date of this offering, or after we have effected one such
registration under the agreement. Additionally, if we elect to register any of
our common stock on a form that would be suitable for a registration of the
registrable stock after our initial public offering, we will give the holders
of registrable stock notice of such registration and include any shares of
registrable stock requested for inclusion, subject however to the right of the
underwriter, if any, to reduce the number of shares proposed to be registered
in view of market conditions. Furthermore, a majority of the holders of
registrable stock may require on two separate occasions that we register their
shares for public resale on Form S-3 or similar short-form registration
statement, provided we are eligible to use Form S-3 or similar short-form
registration statement and provided further that the value of the securities to
be registered is at least $500,000. All expenses in connection with any
registration (other than underwriting discounts and commissions) will be borne
by us. All registration rights will terminate at such time as our shares are
publicly traded and the holder is entitled to sell all of its shares in any 90
day period under Rule 144 of the Securities Act and the holders of the
registrable stock hold less that 1% of our outstanding common stock.
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make more difficult the acquisition of Software.com by means of a
tender offer, a proxy contest or otherwise and the removal of incumbent
officers and directors. These provisions, summarized below, are expected to
discourage certain types of coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to acquire control of Software.com to
first negotiate with us. We believe that the benefits of increased protection
of our potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure Software.com outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.
Election and Removal of Directors. Our certificate of incorporation provides
for the division of our board of directors into three classes, as nearly equal
in number as possible, with the directors in each class serving for a three-
term, and one class being elected each year by the our stockholders. This
system of electing and removing directors may tend to discourage a third party
from making a tender offer or otherwise attempting to obtain control of
Software.com and may maintain the incumbency of our board of directors, as it
generally makes it more difficult for stockholders to replace a majority of the
directors.
Stockholder Meetings. Under our bylaws, only our board of directors, the
Chairman of the Board and the Chief Executive Officer may call special meetings
of stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of our board of
directors or a committee thereof.
Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless (with
certain exceptions) the "business combination" or the transaction in which the
person became an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
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with affiliates and associates, owns (or within three years prior to the
determination of interested stockholder status, did own) 15% or more of a
corporation's voting stock. The existence of this provision would be expected
to have an anti-takeover effect with respect to transactions not approved in
advance by our board of directors, including discouraging attempts that might
result in a premium over the market price for the shares of common stock held
by stockholders.
Elimination of Stockholder Action By Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
Elimination of Cumulative Voting. Our certificate of incorporation and bylaws
do not provide for cumulative voting in the election of directors.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for our board of directors to issue preferred stock
with voting or other rights or preferences that could impede the success of any
attempt to change control of Software.com. These and other provisions may have
the effect of deferring hostile takeovers or delaying changes in control or
management of Software.com.
Amendment of Restated Charter. The amendment of any of the above provisions
would require approval by holders of at least 66 2/3% of our outstanding common
stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is .
Nasdaq National Market Listing
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "SWCM."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and we
cannot assure you that a significant public market for our common stock will
develop or be sustained after this offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants, in the public market following this offering could
adversely affect market prices prevailing from time to time and could impair
our ability to raise capital through sale of our equity securities. As
described below, no shares currently outstanding will be available for sale
immediately after this offering because of certain contractual restrictions on
resale. Sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding shares
of common stock, based upon shares outstanding as of March 1, 1999 and assuming
no exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants. Of these shares, the shares sold in
this offering will be freely tradable without restriction under the Securities
Act except for any shares purchased by our "affiliates" as that term is defined
in Rule 144 under the Securities Act. The remaining shares of common
stock held by existing stockholders are "restricted shares" as that term is
defined in Rule 144. All such restricted shares are subject to lock-up
agreements providing that, with certain limited exceptions, the stockholder
will not offer, sell, contract to sell or otherwise dispose of any of our
securities that are substantially similar to the common stock, including but
not limited to any securities that are convertible into or exchangeable for, or
that represent the right to receive, common stock or any such substantially
similar securities other than pursuant to employee stock option plans existing
on, or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of the lock-up agreement, for a period
of 180 days after the date of this prospectus without the prior written consent
of Credit Suisse First Boston Corporation. As a result of these lock-up
agreements, notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, none of these shares will be
resellable until 181 days after the date of this prospectus. Beginning 181 days
after the date of this prospectus, approximately restricted shares
will be eligible for sale in the public market, all of which are subject to
volume limitations under Rule 144, except shares eligible for sale
under Rule 144(k) and shares eligible for sale under Rule 701.
Thereafter, approximately restricted shares will become eligible for
sale between the end of the lock-up period and and the remaining
restricted shares will become eligible for sale one year from the date
of this prospectus. In addition, as of April 5, 1999, there were outstanding
8,572,764 options, some of which may be exercised prior to the closing of this
offering, and 866,903 warrants to purchase common stock. All such options and
warrants are subject to lock-up agreements. Credit Suisse First Boston
Corporation may, in their sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year, including the holding period of any prior owner
except an affiliate, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of: (i) 1% of the number of
shares of common stock then outstanding, which will equal approximately
shares immediately after this offering; or (ii) the average weekly trading
volume of the common stock during the four calendar weeks preceding the filing
of a Form 144 with respect to such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about us. Under Rule 144(k), a
person who is not deemed to have been an affiliate of ours at any time during
the three months preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, including the holding period of any
prior owner except an affiliate, is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation, or
notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any of our
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<PAGE>
employees, officers, directors or consultants who purchased shares pursuant to
a written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements of
Rule 144. Rule 701 further provides that non-affiliates may sell such shares in
reliance on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling such shares. However, all Rule 701 shares are subject
to lock-up agreements and will only become eligible for sale at the earlier of
the expiration of the 180-day lock-up agreements or no sooner than 90 days
after the offering upon obtaining the prior written consent of Credit Suisse
First Boston Corporation.
Within 90 days following the effectiveness of this offering, we will file a
Registration Statement on Form S-8 registering shares of common stock subject
to outstanding options or reserved for future issuance under our stock plans.
As of April 5, 1999, options to purchase a total 10,273,018 shares were
outstanding and 10,273,018 shares were reserved for future issuance under our
stock plan. Common stock issued upon exercise of outstanding vested options,
other than common stock issued to our affiliates is available for immediate
resale in the open market.
Also beginning six months after the date of this offering, holders of
restricted shares and holders of warrants to purchase 866,903 shares
of common stock will be entitled to certain rights with respect to registration
of such shares for sale in the public market. See "Description of Capital
Stock--Registration Rights." Registration of such shares under the Securities
Act would result in such shares becoming freely tradable without restriction
under the Securities Act, except for shares purchased by affiliates,
immediately upon the effectiveness of such registration.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we and the selling stockholders have agreed to
sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and BancBoston
Robertson Stephens Inc. are acting as representatives, the following respective
numbers of shares of common stock:
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
Credit Suisse First Boston Corporation....................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................
BancBoston Robertson Stephens Inc. .......................
-------
Total...................................................
=======
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of nondefaulting underwriters may be increased or the
offering of common stock may be terminated.
Software.com and the selling stockholders have granted to the underwriters a
30-day option to purchase on a pro rata basis up to additional shares
from us and an aggregate of additional outstanding shares from the selling
shareholders at the initial public offering less the underwriting discounts and
commissions. The option may be exercised only to cover over-allotments of
common stock.
The underwriters propose to offer the shares of common stock initially at the
public offering price on the cover page of this prospectus and to selling group
members at that price less a concession of $ per share. The underwriters and
the selling group members may allow a discount of $ per share on sales to
other broker/dealers. After the initial public offering, the public offering
price and concession and discount to dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Total
------------------------
Without Over- With Over-
Per Share allotment allotment
--------- ------------- ----------
<S> <C> <C> <C>
Underwriting discounts and commissions paid
by us..................................... $ $ $
Expenses payable by us..................... $ $ $
Underwriting discounts and commissions paid
by the selling stockholders............... $ $ $
</TABLE>
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<PAGE>
The underwriters have informed us that they do not expect discretionary sales
by the underwriters to exceed 5% of the shares of common stock being offered in
this offering.
We, our officers and directors and several other stockholders have agreed
that we will not offer, sell, contract to sell, announce our intention to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the
Securities Act relating to, any additional shares of our common stock or
securities convertible into or exchangeable or exercisable for any shares of
our common stock without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus,
except in our case issuances pursuant to the exercise of employee stock options
outstanding on the date of this prospectus.
The underwriters have reserved for sale, at the initial offering price up to
shares of common stock for directors, officers, employees and other persons
associated with Software.com. The number of shares of common stock available
for sale to the general public in the offering will be reduced to the extent
these persons purchase these reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
terms as the other shares.
Software.com and the selling shareholders have agreed to indemnify the
underwriters against liabilities under the Securities Act, or to contribute to
payments which the underwriters may be required to make in that respect.
Software.com has applied to list its common stock on The Nasdaq Stock
Market's National Market under the symbol "SWCM."
Prior to this offering, there has been no public market for the common stock.
The initial public offering price will be determined by negotiation between
Software.com and the representatives of the underwriters. The principal factors
to be considered in determining the public offering price include: the
information set forth in this prospectus and otherwise available to the
representatives; the history and the prospects for the industry in which
Software.com will compete; the ability of Software.com's management; the
prospects for future earnings of Software.com; the present state of
Software.com's development and its current financial condition; the general
condition of the securities markets at the time of this offering; and the
recent market prices of, and the demand for, publicly traded common stock of
generally comparable companies.
The representatives, on behalf of the underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed
a specified maximum. Syndicate covering transactions involve purchases of the
securities in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
representatives of the underwriters to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. These stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the securities to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
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NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that Software.com and the
selling stockholders prepare and file a prospectus with the securities
regulatory authorities in each province where trades of common stock are
effected. Accordingly, any resale of the common stock in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase confirmation
will be deemed to represent to Software.com, the selling stockholders and the
dealer from whom such purchase confirmation is received that (1) such purchaser
is entitled under applicable provincial securities laws to purchase such common
stock without the benefit of a prospectus qualified under such securities laws,
(2) where required by law, such purchaser is purchasing as principal and not as
agent, and (3) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers, as well as the experts named
herein and the selling stockholders, may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. Such report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from Software.com. Only one such
report must be filed in respect of common stock acquired on the same date and
under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
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ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.,
a registration statement on Form S-1 under the Securities Act with respect to
the shares of common stock offered hereby. This prospectus does not contain all
the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to us and our common
stock, reference is made to the registration statement and to the exhibits and
schedules filed therewith. Statements contained in this prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference. A copy of the
registration statement may be inspected by anyone without charge at the Public
Reference Section of the Securities and Exchange Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all
or any portion of the registration statement may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of prescribed fees. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Software.com by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. Certain legal matters will be passed upon for the
underwriters by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1997 and 1998, and for each
of the three years in the period ended December 31, 1998, as set forth in their
report. We've included our financial statements and schedule in the prospectus
and elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
Effective July 1997, Ernst & Young LLP was engaged as our independent
auditors and replaced Arthur Andersen LLP who were dismissed as our independent
auditors. The decision to change independent auditors was approved by our board
of directors. In the period from December 1994 to July 1997, Arthur Andersen
LLP issued no audit report which was qualified or modified as to uncertainty,
audit scope or accounting principles, no adverse opinions or disclaimers of
opinion on any of our financial statements, and there were no disagreements
with Arthur Andersen LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures. Arthur
Andersen LLP has not audited or reported on any of the financial statements or
information included in this prospectus. Prior to July 1997, we had not
consulted with Ernst & Young LLP on items which involved our accounting
principles or the form of audit opinion to be issued on our financial
statements.
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SOFTWARE.COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
Software.com, Inc.
We have audited the accompanying consolidated balance sheets of Software.com,
Inc. as of December 31, 1997 and 1998, and the related consolidated statements
of operations, shareholders' equity (deficit), and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Software.com,
Inc. at December 31, 1997 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
Woodland Hills, California
April 12, 1999
F-2
<PAGE>
SOFTWARE.COM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Pro Forma
Shareholders'
December 31 Equity
------------------ at December 31,
1997 1998 1998
-------- -------- ---------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................ $ 6,083 $ 5,447
Short-term investments................... 892 496
Accounts receivable, less allowance of
$114 in 1997 and $481 in 1998........... 2,543 9,091
Prepaid expenses and other assets........ 629 501
-------- --------
Total current assets................... 10,147 15,535
Property and equipment, net................ 3,543 3,275
Deposits and other assets.................. 254 249
-------- --------
$ 13,944 $ 19,059
======== ========
Liabilities and shareholders' equity
(deficit)
Current liabilities:
Accounts payable......................... $ 610 $ 1,129
Accrued payroll and related liabilities.. 532 1,291
Other accrued liabilities................ 1,343 1,848
Deferred revenue......................... 3,565 3,747
Note payable to bank..................... 4,388 7,395
Current portion of long-term debt........ 240 240
-------- --------
Total current liabilities.............. 10,678 15,650
Long-term debt............................. 340 100
Redeemable convertible preferred stock--
Series A, no par value, 1,587,302 shares
authorized, issued and outstanding in 1997
and 1998.................................. 5,440 5,972
Redeemable convertible preferred stock--
Series B, no par value, 1,789,279 shares
authorized, issued and outstanding in 1997
and 1998.................................. 7,398 7,398
Shareholders' equity (deficit):
Convertible preferred stock--Series C, no
par value, 1,329,781 shares authorized,
issued and outstanding in 1998.......... -- 6,848 $ --
Common stock, no par value, authorized--
50,000,000 shares in 1997 and 1998,
issued and outstanding--28,014,975 and
28,632,156 shares in 1997 and 1998,
respectively, and 33,338,518 shares
issued and outstanding pro forma........ 3,718 6,396 26,614
Deferred compensation.................... -- (1,447) (1,447)
Accumulated deficit...................... (13,630) (21,858) (21,858)
-------- -------- --------
Total shareholders' equity (deficit)... (9,912) (10,061) $ 3,309
======== ======== ========
Total liabilities and shareholders'
equity (deficit)...................... $ 13,944 $ 19,059
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
SOFTWARE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31
--------------------------
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
Revenues:
Software licenses............................... $ 6,555 $ 7,859 $17,462
Services........................................ 1,327 2,807 8,157
------- -------- -------
Total revenues................................ 7,882 10,666 25,619
------- -------- -------
Cost of revenues:
Software licenses............................... 218 689 1,568
Services........................................ 767 2,675 7,451
------- -------- -------
Total cost of revenues........................ 985 3,364 9,019
------- -------- -------
Gross profit...................................... 6,897 7,302 16,600
Operating expenses:
Sales and marketing............................. 4,554 8,607 10,769
Research and development........................ 3,457 6,309 8,716
General and administrative...................... 2,136 3,093 4,036
Legal matter.................................... -- 1,000 (400)
------- -------- -------
Total operating expenses...................... 10,147 19,009 23,121
------- -------- -------
Loss from operations.............................. (3,250) (11,707) (6,521)
Other income (expense):
Interest income................................. 87 298 293
Interest expense................................ -- (59) (645)
Other........................................... -- -- (84)
------- -------- -------
Total other income (expense).................. 87 239 (436)
------- -------- -------
Loss before income taxes.......................... (3,163) (11,468) (6,957)
Provision for income taxes........................ -- 1 446
------- -------- -------
Net loss.......................................... (3,163) (11,469) (7,403)
Accretion on redeemable convertible preferred
stock............................................ (180) (730) (825)
------- -------- -------
Net loss applicable to common shareholders........ $(3,343) $(12,199) $(8,228)
======= ======== =======
Basic and diluted net loss per share.............. $ (0.13) $ (0.44) $ (0.29)
======= ======== =======
Weighted-average shares of common stock
outstanding used in computing basic and diluted
net loss per share............................... 25,419 27,814 28,228
======= ======== =======
Pro forma basic and diluted net loss per share
(unaudited)...................................... $ (0.23)
=======
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)........... 32,110
=======
</TABLE>
See accompanying notes.
F-4
<PAGE>
SOFTWARE.COM, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
Preferred Retained
Stock Common Stock Earnings/
------------- ------------- Accumulated Deferred
Shares Amount Shares Amount (Deficit) Compensation Total
------ ------ ------ ------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... -- $ -- 24,506 $ 639 $ 1,912 $ -- $ 2,551
Issuance of common
stock for cash........ -- -- 1,544 2,178 -- -- 2,178
Issuance of common
stock as
compensation.......... -- -- 60 60 -- -- 60
Issuance of warrants... -- -- -- 430 -- -- 430
Issuance of stock
options............... -- -- -- 46 -- -- 46
Accretion of mandatory
redemption value of
preferred stock....... -- -- -- -- (180) -- (180)
Stock option
exercises............. -- -- 53 53 -- -- 53
Net loss............... -- -- -- -- (3,163) -- (3,163)
----- ------ ------ ------ -------- ------- --------
Balance at December 31,
1996................... -- -- 26,163 3,406 (1,431) -- 1,975
Issuance of common
stock................. -- -- 1,579 24 -- -- 24
Accretion of mandatory
redemption value of
preferred stock....... -- -- -- -- (730) -- (730)
Stock option
exercises............. -- -- 273 288 -- -- 288
Net loss............... -- -- -- -- (11,469) -- (11,469)
----- ------ ------ ------ -------- ------- --------
Balance at December 31,
1997................... -- -- 28,015 3,718 (13,630) -- (9,912)
Issuance of preferred
Series C.............. 1,330 6,848 -- -- -- -- 6,848
Repricing of warrants.. -- -- -- 294 -- -- 294
Capital contribution... -- -- -- 36 -- -- 36
Accretion of mandatory
redemption value of
preferred stock....... -- -- -- -- (825) -- (825)
Stock option
exercises............. -- -- 617 759 -- -- 759
Issuance of warrants... -- -- -- 94 -- -- 94
Deferred compensation
related to stock
options............... -- -- -- 1,495 -- (1,495) --
Amortization of
deferred compensation
in connection with
stock options......... -- -- -- -- -- 48 48
Net loss............... -- -- -- -- (7,403) -- (7,403)
----- ------ ------ ------ -------- ------- --------
Balance at December 31,
1998................... 1,330 $6,848 28,632 $6,396 $(21,858) $(1,447) $(10,061)
===== ====== ====== ====== ======== ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
SOFTWARE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31
---------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Operating activities
Net loss......................................... $(3,163) $(11,469) $ (7,403)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization.................. 436 1,204 1,652
Stock issued as compensation................... 60 -- --
Deferred compensation.......................... -- -- 48
Fair value of options issued related to lease
signing....................................... 46 -- --
Contribution of fixed assets from customers.... (317) -- --
Provision for doubtful accounts................ 69 123 554
Changes in operating assets and liabilities:
Accounts receivable.......................... (359) (1,246) (7,102)
Prepaid expenses and other current assets.... (501) (17) 128
Deferred income taxes........................ (216) 258 --
Accounts payable............................. 424 51 519
Accrued payroll and related liabilities...... 79 291 759
Other accrued liabilities.................... (57) 1,249 506
Deferred revenue............................. (672) 3,452 182
Other........................................ -- -- 23
------- -------- --------
Net cash used in operating activities...... (4,171) (6,104) (10,134)
Investing activities
Acquisition of property and equipment............ (2,047) (2,555) (1,385)
Purchases of short-term investments.............. -- (892) (504)
Maturities of short-term investments............. -- -- 900
Increase (decrease) in other assets.............. 8 (197) 77
------- -------- --------
Net cash used in investing activities...... (2,039) (3,644) (912)
Financing activities
Proceeds from long-term debt..................... -- 600 --
Repayments of long-term debt..................... -- (20) (240)
Proceeds from note payable to bank, net.......... -- 4,388 3,007
Issuance of preferred stock...................... 4,960 7,398 6,848
Exercise of stock options........................ 53 288 759
Issuance of common stock......................... 2,178 14 36
------- -------- --------
Net cash provided by financing activities.. 7,191 12,668 10,410
------- -------- --------
Net (decrease) increase in cash and cash
equivalents..................................... 981 2,920 (636)
Cash and cash equivalents at beginning of year... 2,182 3,163 6,083
------- -------- --------
Cash and cash equivalents at end of year......... $ 3,163 $ 6,083 $ 5,447
======= ======== ========
Income taxes paid................................ $ 700 $ 1 $ 383
======= ======== ========
Interest paid.................................... $ -- $ 59 $ 625
======= ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
SOFTWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization and Business
Software.com, Inc. (the Company) develops, markets, sells, and supports a
variety of Internet standards-based messaging software products to service
providers worldwide, including telecommunications companies, Internet Service
Providers, cable-based Internet access providers, Internet Portals, and
Internet service wholesalers. Service providers use these products to provide
advanced messaging offerings, such as Internet mail services, to their consumer
and business customers.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
As further described in Note 11, the Company acquired Mobility.Net
Corporation on April 12, 1999. The acquisition was accounted for as a pooling-
of-interests. Accordingly, the financial information presented reflects the
combined financial position and operations of the Company and Mobility.Net for
all dates and periods presented.
Cash Equivalents and Short-Term Investments
The Company considers all highly liquid debt instruments purchased with
original maturity dates of three months or less and investments in money market
funds to be cash equivalents. Investments with maturities between three to
twelve months are considered to be short-term investments. Short-term
investments consist of corporate commercial paper.
Concentration of Credit Risk, Other Risks and Significant Customers
The Company's business is extremely competitive and is characterized by rapid
technology change, new product development and product obsolescence, and
evolving industry standards.
The Company grants credit terms in the normal course of business to its
customers. The Company does not require collateral; however, it does perform
periodic credit evaluations and analysis of the amounts due from its customers.
Credit losses have been within management's expectations and potential
uncollectible accounts have been provided for in the financial statements.
Revenues from the Company's two largest customers in each of the years ended
December 31, 1996, 1997 and 1998, accounted for 35% and 24%, 17% and 11% and
12% and 10% of total revenues, respectively. At December 31, 1997, and 1998 the
three largest customer receivable balances totaled 50% and 36% of total
accounts receivable, respectively.
Property and Equipment
Property and equipment are stated at cost. Maintenance and repairs are
charged to expense as incurred. Expenditures for additions and major
improvements are capitalized.
Depreciation and leasehold improvements amortization are computed on a
straight-line basis over the following estimated useful lives:
<TABLE>
<S> <C>
Computer equipment and
software............... 3 to 5 years
Furniture and fixtures.. 7 years
Leasehold improvements.. Lesser of estimated useful life or life of lease
</TABLE>
F-7
<PAGE>
SOFTWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
Income taxes are accounted for using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", issued by the Financial Accounting Standards Board (FASB) (see Note 5).
Under this method, deferred tax liabilities and assets are recognized for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
Accounting for Stock Based Compensation
Employee stock options are accounted for under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," which requires the
recognition of expense when the option price is less than the fair value of the
stock at the date of grant.
The Company generally awards options for a fixed number of shares at an
option price equal to the fair value at the date of grant. The Company has
adopted the disclosure-only provisions of FASB's Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123).
Revenue Recognition
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2 (SOP 97-2), which was amended by SOP 98-4 and
SOP 98-9, "Software Revenue Recognition." These statements provide guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. This guidance is effective for the Company's
transactions entered into subsequent to January 1, 1998. The application of
certain provisions were deferred until fiscal years beginning on or after March
15, 1999. Final adoption of these provisions is not expected to have a material
impact on the Company's financial condition or results of operation.
Revenue from Software Licenses. The Company recognizes revenue from sales of
software upon delivery of a license key to the customer, provided that
persuasive evidence of an arrangement exists, the license fee is fixed and
determinable, and collection of the fee is considered probable. If the license
agreement has a multi-year term or the license fees are calculated based on
variable measures, such as the number of mailboxes in use, the Company
recognizes revenue as the customer activates mailboxes on their system. When
the Company enters into revenue sharing arrangements with its customers, the
Company recognizes revenue as earned and reported by the customer. Revenues
from sales to resellers are not recognized until the product is sold through to
the end user and the license key is issued.
Revenue from Services. Support and maintenance contracts generally call for
the company to provide technical support and software updates and upgrades to
customers. Support and maintenance revenue is recognized ratably over the
support or maintenance period. Other services revenue, primarily consulting and
training, is recognized under the percentage of completion method and is billed
monthly on a time and materials basis.
When software and services are billed prior to the time the related revenue
is recognized under the foregoing policy, deferred revenue is recorded. There
were no unbilled accounts receivable at December 31, 1997 or 1998.
Research and Development
Pursuant to Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,"
development costs related to software products are expensed as incurred until
the "technological feasibility" of the product has been established. Because of
the relatively short time period between "technological feasibility" and
product release, and the insignificant amount of costs incurred during such
period, no software development costs have been capitalized.
F-8
<PAGE>
SOFTWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense
totaled $594,000, $528,000 and $296,000 for 1996, 1997 and 1998, respectively.
Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements and is effective for fiscal
years beginning after December 15, 1997. To date, the Company has not had any
transactions that are required to be reported as Comprehensive Income.
Net Loss Per Share
Basic and diluted net loss per common share are presented in conformity with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS
128), for all periods presented.
In accordance with FAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock
outstanding during the period. The Company has excluded all redeemable
convertible preferred stock, convertible preferred stock, warrants and
outstanding stock options from the calculation of diluted loss per share
because all such securities are antidilutive for all periods presented.
Pro Forma Shareholders' Equity and Net Loss Per Share (unaudited)
If the offering contemplated by this Prospectus is consummated, the
outstanding shares of Series A, B and C convertible preferred stock will
automatically be converted into common stock. Pro forma shareholders' equity at
December 31, 1998, as adjusted for the assumed conversion is disclosed on the
balance sheet.
Pro forma basic and diluted net loss per share, as presented in the
statements of operations, has been computed as described above and also gives
effect to the conversion of the convertible preferred stock from the original
date of issuance.
Segment Information
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information" (FAS
131). This statement establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers, presented in Notes 1 and 8. Based on the
provisions of FAS 131 and the manner in which management analyzes its business,
the Company has determined that it does not have separately reportable
operating segments.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash
equivalents, short term investments, accounts receivable and accounts payable
approximate their fair values due to the short term nature of these financial
instruments. The fair values of the note payable to bank and the long term debt
are estimated based on current interest rates available to the Company for debt
instruments with similar terms, degrees of risk and remaining maturities. The
carrying values of the note payable to bank and the long term debt approximates
their fair values.
F-9
<PAGE>
SOFTWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results may differ materially from those estimates.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Software for Internal Use" (SOP 98-1), which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The adoption of SOP 98-1 is not
expected to have a material impact on the Company's financial condition or
results of operations. To date the Company has not incurred significant costs
developing internal-use software which would be capitalizable.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No.133, "Accounting for Derivative Instruments and Hedging Activities" (FAS
133). The Company is required to adopt FAS 133 in its fiscal year ending
December 31, 2000. FAS 133 established methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. To date, the Company has not entered into any
derivative financial instruments or hedging activities.
2. Property and Equipment
The major components of property and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
-------------
1997 1998
------ ------
<S> <C> <C>
Computer equipment and software............................. $3,463 $4,615
Furniture and fixtures...................................... 971 987
Leasehold improvements...................................... 830 1,043
------ ------
5,264 6,645
Less accumulated depreciation and amortization.............. 1,721 3,370
------ ------
$3,543 $3,275
====== ======
</TABLE>
3. Note Payable to Bank and Long-Term Debt
The Company has an arrangement with a financial institution which provides
for a total line of credit not to exceed the lesser of $15,000,000 (of which
the Company may draw down up to $2,500,000 as an equipment acquisition loan),
or an amount based on certain receivables collection criteria. As of December
31, 1998 the Company had borrowings of $7,735,000 and an additional $4,153,000
was available under this financing arrangement.
At December 31, 1997 and 1998, borrowings under the line of credit and the
equipment acquisition loan totaled $4,388,000 and $580,000, and $7,395,000 and
$340,000, respectively. The interest rates for borrowing under the line of
credit and the equipment acquisition loan are prime rate plus 1.5% (9.25% at
December 31, 1998) and prime rate plus 1.75% (9.5% at December 31, 1998),
respectively. The credit facility expires on
F-10
<PAGE>
SOFTWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
August 31, 2000. The equipment acquisition loan is classified as long-term
debt. Maturities on the equipment acquisition loan outstanding at December 31,
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1999................................................................ $240
2000................................................................ 100
----
$340
====
</TABLE>
In connection with a renegotiation of the credit facility in 1998, the
Company issued a warrant to the financial institution to purchase 67,961 shares
of common stock of the Company at an exercise price of $5.15 per share. The
fair value of the warrants was determined to be approximately $94,000, which is
being amortized as interest expense over the term of the credit facility
agreement.
The line of credit is collateralized by receivables, inventory, investment
property, equipment, deposit accounts and certain other assets. The financing
agreement also contains certain compliance covenants and restrictive
provisions, among which are restrictions on borrowings and payments of
dividends.
4. Preferred Stock
In October 1996, the Company issued to AT&T Ventures 1,587,302 shares of
Series A, no par value, redeemable convertible preferred stock (the Preferred
Stock A), for net proceeds of $4,960,000 (the Series A Preferred Stock
Financing Agreement). The Company also issued a warrant to purchase 529,101
shares of common stock of the Company at an exercise price of $5.00 per share
and a warrant to purchase 269,841 shares of common stock at an exercise price
of $7.00 per share (the Common Stock Purchase Warrants). At the option of the
holder, the Preferred Stock A is convertible into shares of common stock at the
conversion ratio of 1:1 subject to anti-dilution protection at any time. The
Preferred Stock A is entitled to voting rights and dividends based on the
number of shares of common stock issuable upon conversion of the Preferred
Stock A. The holders of the Preferred Stock A have liquidation preference at
$3.15 per share plus any declared but unpaid dividends. The warrants are
exercisable for a period of five years from the date of issuance. At issuance,
the fair value of the warrants, approximately $430,000, was recorded as common
stock on the Company's balance sheet. The fair value of the warrants was
determined using the Black-Scholes option pricing model using an expected
volatility factor of 30%, risk free interest rate of 6%, no dividend yield, and
a 5-year life.
In February 1997, the Company issued to Cisco Systems, Inc. 1,789,279 shares
of Series B, no par value, redeemable convertible preferred stock (the
Preferred Stock B), for net proceeds of $7,398,000 (the Series B Preferred
Stock Financing Agreement). At the option of the holder, the Preferred Stock B
is convertible into shares of common stock at the conversion ratio of 1:1
subject to anti-dilution protection at any time. The Preferred Stock B is
entitled to voting rights and dividends based on the number of shares of common
stock issuable upon conversion of the Preferred Stock B. The holders of the
Preferred Stock B have liquidation preference at $4.15 per share plus any
declared but unpaid dividends.
The Preferred Stock A and B will be automatically converted into common stock
at the then applicable conversion rate in the event of an underwritten public
offering of shares of common stock in which the Company receives not less than
$15,000,000 in total proceeds and per share consideration of $5.15 (Qualifying
IPO). Under the terms of the Series A and B Preferred Stock Financing
Agreements, beginning on October 3, 1998 (the Redemption Date), if a Qualifying
IPO had not yet occurred, the holders of a majority of the Preferred Stock A
could request at any time that the Company redeem their shares (Redemption
Request) as described below.
F-11
<PAGE>
SOFTWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In July 1998, the Company executed an agreement with the holders of the
Preferred Stock A (the Waiver of Redemption Rights Agreement) whereby the
holders of such shares agreed to extend the Redemption Date for a period of 15
months to January 3, 2000. In consideration of the Waiver of Redemption Rights
Agreement, the Company executed an amendment to the Common Stock Purchase
Warrants which reduced the exercise price of such warrants to $4.15 per share.
The exercise period of the warrants remained unchanged. As a result of the
change in the exercise price, the fair value of the warrants increased by
approximately $294,000, which was reclassified from redeemable convertible
preferred stock into common stock.
If a Redemption Request is made by the Preferred Stock A shareholders, the
holders of a majority of the Preferred Stock B may then elect whether or not to
join such Redemption Request. The Preferred Stock A redemption price will be
$3.15 per share plus declared and unpaid dividends and a redemption premium of
10% per year compounded annually.
The Preferred Stock B redemption price will be $4.15 per share plus declared
and unpaid dividends.
The initial fair value of the Preferred Stock A is being increased by
periodic accretions, using the interest method, so that the carrying amount
will equal the mandatory redemption amount at the redemption date. For the
years ended December 31, 1996, 1997 and 1998, such periodic accretions totaled
$180,000, $730,000 and $825,000, respectively, and are being effected by
charges against accumulated deficit.
If the holders of a majority of the Preferred Stock B elect to join, the
Company shall redeem one-third of the total shares of each series of Preferred
Stock A and B joining in that and each successive Redemption Request. Each
successive Redemption Request must occur at least one year after the previous
Redemption Request, and no Redemption Request will be permitted after January
3, 2003. If the holders of a majority of the Preferred Stock B elect not to
join the first Redemption Request, the Company shall forthwith redeem all
outstanding shares of Preferred Stock A. Six months after such redemption has
occurred, the holders of a majority of the Preferred Stock B may make their own
redemption request (Series B Redemption Request). Upon that and each successive
Series B Redemption Request, the Company shall redeem one-half of the
outstanding shares of Preferred Stock B. Each successive Series B Redemption
Request must occur at least six months after the previous Series B Redemption
Request, and no Series B Redemption Request will be permitted after January 3,
2003.
On August 14, 1998, the Company issued to Cisco Systems, Inc. 1,329,781
shares of Series C, no par value, convertible preferred stock (the Preferred
Stock C) for net proceeds of $6,848,000. The Preferred Stock C contains voting
and dividend rights, preferences and privileges substantially identical to the
Preferred Stock A and B except that the Preferred Stock C is not entitled to
any redemption rights. In addition, in the event of a liquidation, the
Preferred Stock C is entitled to a non-participating liquidation preference
senior to the Preferred Stock A and B.
The Company has reserved 4,706,362 shares of common stock for the conversion
of the Preferred Stock A, B, and C. In addition, the Company has reserved
866,903 shares of common stock for issuance in the event of exercise of
outstanding warrants.
F-12
<PAGE>
SOFTWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Current:
Federal........................................................ $ -- $ --
State.......................................................... 1 1
Foreign........................................................ -- 445
---- ----
1 446
Deferred:........................................................ -- --
---- ----
Total........................................................ $ 1 $446
==== ====
</TABLE>
The provision for foreign income taxes in 1998 relates to foreign withholding
taxes. A reconciliation of the statutory federal income tax rate to the
effective tax rate, as a percentage of loss before income tax is as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Statutory federal income tax (benefit) rate.................. (34)% (34)%
State income tax benefits.................................... (4) (2)
Foreign income taxes......................................... -- 7
Changes in valuation allowance............................... 41 47
Research and development credits............................. (2) (6)
Nonqualified stock options................................... -- (7)
Other........................................................ (1) 2
--- ---
0% 7%
=== ===
</TABLE>
The components of the Company's deferred tax assets and liabilities as of
December 31, 1997 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Net operating loss carryforwards......................... $ 3,206 $ 5,923
Research and development tax credit carryforwards........ 222 996
Deferred revenue......................................... 1,544 1,232
Accruals and reserves.................................... 276 317
------- -------
Deferred tax assets...................................... 5,248 8,468
Valuation allowance...................................... (5,248) (8,468)
------- -------
Net deferred tax assets.................................. $ -- $ --
======= =======
</TABLE>
Due to the uncertainty surrounding the timing of realizing the benefits of
its favorable tax attributes in future tax returns, the Company has placed a
valuation allowance against its otherwise recognizable deferred tax assets.
At December 31, 1998, the Company had net operating loss carryforwards
available to reduce future federal and state income of $15,914,000 and
$5,797,000 respectively, which expire from 2010 to 2018 for federal and 2001 to
2003 for state.
F-13
<PAGE>
SOFTWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has federal and state research and development credits of
approximately $462,000 and $150,000, respectively, expiring in 2011 to 2013,
which may be used to offset future tax liabilities. The Company also has a
foreign tax credit of approximately $382,000, which will expire in the year
2003.
Under Section 382 of the Internal Revenue Code, the utilization of the net
operating loss and tax credit carryforwards may be limited based on changes in
the percentage of ownership of the Company.
Included in the valuation allowance balance is $541,000 related to the
exercise of stock options which is not reflected as an expense for financial
reporting purposes. Accordingly, any future reduction in the valuation
allowance relating to this amount will be recorded in equity and not reflected
as an income tax benefit in the statement of operations.
6. Commitments and Contingencies
The Company leases its facilities and other equipment under noncancelable
operating leases which expire at various dates through 2001. Approximate
minimum annual lease commitments under operating leases are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1999.............................................................. $1,194
2000.............................................................. 506
2001.............................................................. 422
2002.............................................................. 26
2003.............................................................. --
------
$2,148
======
</TABLE>
Rent expense totaled $285,000, $955,000 and $1,378,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
The Company leases one of its facilities from a related party (see Note 9).
The lease expires in February 2002.
The Company has been involved in a contract dispute with a third party
technology partner under a licensing agreement entered into in 1996. The
dispute relates to a minimum royalty obligation of $1,000,000 purportedly owed
by the Company to the third party under the licensing agreement. In 1997, the
third party asserted a claim to the minimum royalty. Based on an analysis of
the claim asserted, the Company accrued $1,000,000 for its potential exposure
under the claim. In February 1999, the parties entered into an agreement to
settle all outstanding claims. Under the terms of the settlement agreement, the
Company agreed to pay the third party a minimum of $400,000, with a contingent
obligation to pay an additional $200,000 if the Company does not take certain
actions prior to December 31, 1999. As a result of this settlement, and the
reduction in the estimated potential liability, the related accrual has been
reduced to $600,000 at December 31, 1998.
7. Stock Options
In October 1995, the Company adopted a stock option plan (the Plan) which
provides for the issuance of incentive and nonqualified stock options. Options
under the stock option plan are granted for a term of five years at an exercise
price equal to the fair market value of the shares at the date of grant, as
determined by the board of directors. The options generally vest over a period
of four years at 25% per year. The Plan authorizes a total of up to 10,500,000
shares of Common Stock for issuances as either incentive stock or nonqualified
options. At December 31, 1998, 3,046,000 shares remain available for grant
under this plan and 6,511,000 shares are reserved for issuance upon the
exercise of outstanding options.
F-14
<PAGE>
SOFTWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition to the options granted under the Plan, the Company has granted
options outside of the Plan to purchase an aggregate of 1,000,000 shares of
common stock. These options contain the same vesting provisions as those
granted under the Plan except that an option to purchase 250,000 shares is
subject to accelerated vesting in certain circumstances.
A summary of the stock option activity is as follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
Exercise Price
--------------------
Weighted
Shares Low High Average
------ ----- ----- --------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1996................ 5,016 $1.00 $3.35 $1.56
Granted....................................... 2,333 3.50 3.65 3.63
Exercised..................................... (273) 1.00 3.35 1.06
Canceled...................................... (1,567) 1.00 3.65 1.43
------ ----- ----- -----
Outstanding at December 31, 1997................ 5,509 1.00 3.65 2.50
Granted....................................... 3,754 3.65 3.65 3.65
Exercised..................................... (617) 1.00 3.65 1.23
Canceled...................................... (1,135) 1.00 3.65 3.06
------ ----- ----- -----
Outstanding at December 31, 1998................ 7,511 $1.00 $3.65 $3.10
====== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding at Options Exercisable
December 31, 1998 at December 31, 1998
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Exercise Shares Contractual Exercise Shares Exercise
Price Range Outstanding Life Price Exercisable Price
----------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.00--$1.50.......... 1,565 2.22 $1.16 1,014 1.16
$3.00--$3.65.......... 5,946 3.78 $3.61 1,175 3.51
</TABLE>
If the Company recognized employee stock option-related compensation expense
in accordance with FAS 123 and used the minimum value method for determining
the weighted average fair value of options granted during 1996, 1997 and 1998,
its pro forma net loss applicable to common shareholders would have been
$3,524,000, $12,749,000 and $8,999,000 respectively. The pro forma basic and
diluted loss per share would have been $0.14, $0.46 and $0.32 for 1996, 1997
and 1998, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting periods. The pro forma effect on
net loss for 1996, 1997 and 1998 is not representative of the pro forma effect
on net income or loss in future years because compensation expense in future
years will reflect the amortization of a larger number of stock options granted
in several succeeding years.
In computing the pro forma compensation expense under FAS 123, a weighted-
average fair value of $0.31 for 1996 and $0.65 for 1997 and 1998 stock option
grants was estimated at the date of grant using the minimum value option
pricing model with the following assumptions for 1996, 1997 and 1998: risk-free
interest rate of approximately 6%, a weighted-average expected life of the
options of 3.9, 3.4, and 3.3 years, respectively, and no assumed dividend
yield.
As of December 31, 1998, the Company's stock options had a weighted-average
remaining contractual life of 3.5 years.
F-15
<PAGE>
SOFTWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the grant of certain share options to employees during
1998, the Company recorded deferred compensation of approximately $1,495,000
for the aggregate differences between the exercise prices of options at their
dates of grant and the deemed fair value for accounting purposes of the common
shares subject to such options. Such amount is being amortized over the vesting
period of the related options. Amortization expense recognized during 1998
totaled $48,000.
8. Geographic Information
Information regarding revenues and long-lived assets attributable to the
Company's primary geographic operating regions is as follows (in thousands):
<TABLE>
<CAPTION>
Years ended December
31
----------------------
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Revenues:
United States....................................... $6,935 $ 7,403 $13,378
Europe.............................................. 360 1,034 5,130
Asia................................................ 430 1,232 3,884
Canada.............................................. -- 701 2,754
Other............................................... 157 296 473
------ ------- -------
Total revenues.................................... $7,882 $10,666 $25,619
====== ======= =======
</TABLE>
The geographic classification of revenues is based upon the location of the
customer.
<TABLE>
<CAPTION>
December 31
-------------
1997 1998
------ ------
<S> <C> <C>
Long-lived assets:
United States............................................... $3,543 $3,188
Europe...................................................... -- 53
Asia........................................................ -- 34
------ ------
Total long-lived assets................................... $3,543 $3,275
====== ======
</TABLE>
9. Related Party Transactions
The Company leases one of its facilities from a limited liability company,
which includes two members of the board of directors. The aggregate lease
commitments related to this lease totaled $496,000 at December 31, 1998. Rent
expense under this lease totaled $132,000, $165,000, and $171,000 in 1996, 1997
and 1998, respectively.
For 1996, 1997, and 1998, revenues from companies affiliated with AT&T
Corporation, which is considered a related party due to its involvement with
AT&T Ventures, a preferred shareholder, totaled approximately $2,775,000,
$2,687,000, and $3,599,000, respectively. At December 31, 1997 and 1998,
accounts receivable from such companies totaled approximately $948,000 and
$847,000, respectively.
10. Retirement Plan
The Company maintains a defined contribution 401(k) plan under which its
employees are eligible to participate. Participants may make, within certain
limitations, voluntary contributions based upon a percentage of their
compensation. The Company may make voluntary contributions to the Plan.
Participants are fully
F-16
<PAGE>
SOFTWARE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
vested in the Company's contributions after a specified number of years of
service, as defined under the plan. No Company contributions had been made to
date under the plan.
11. Subsequent Events
Series D Preferred Stock
On April 5, 1999, the Company issued to Hewlett-Packard Company 1,626,016
shares of Series D, no par value, convertible preferred stock (the Preferred
Stock D) for aggregate proceeds of $10,000,000. The Preferred Stock D contains
voting and dividend rights, preferences and privileges substantially identical
to the Preferred Stock C (see Note 4). In addition, in the event of a
liquidation, the Preferred Stock D is entitled to a non-participating
liquidation preference on a parity with the Preferred Stock C. In connection
with this issuance, the board of directors approved an increase in the number
of common shares authorized for issuance from 50,000,000 to 60,000,000.
Acquisition of Mobility.Net Corporation
On April 12, 1999, the Company completed its acquisition of Mobility.Net,
incorporated in July 1996, which offers products for Web messaging using a
Java-based technology platform, that complements the Company's product
offerings. The acquisition was accounted for as a pooling-of-interests.
Accordingly, the financial information presented reflects the combined
financial position and operations of the Company and Mobility.Net for all dates
and periods presented. The Company issued 1,579,294 shares of its common stock
in exchange for all of the outstanding shares of Mobility.Net. The Company also
assumed and exchanged all options to purchase Mobility.Net stock for options to
purchase an aggregate of 74,424 shares of the Company's common stock.
Separate results of the combined entities for the years ended December 31,
1997 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
-------- -------
<S> <C> <C>
Revenues:
Software.com............................................... $ 10,666 $25,618
Mobility.Net............................................... -- 1
-------- -------
Combined................................................. $ 10,666 $25,619
======== =======
Net loss:
Software.com............................................... $(11,457) $(7,382)
Mobility.Net............................................... (12) (21)
-------- -------
Combined................................................. $(11,469) $(7,403)
======== =======
</TABLE>
There were no intercompany transactions between the two companies or
significant conforming accounting adjustments.
Initial Public Offering Registration
On April 12, 1999, the board of directors authorized management of the
Company to file a registration statement with the Securities Exchange
Commission covering the proposed sale of shares of its common stock to the
public. Upon completion of this proposed sale, all outstanding shares of the
Company's convertible preferred stock will automatically convert into common
stock (see Note 1 and Note 4).
Reincorporation
On April 12, 1999, the board of directors authorized the reincorporation of
the Company in the state of Delaware subject to shareholder approval.
F-17
<PAGE>
Graphic displaying ovals with center oval titled "Software.com's Messaging
Products" from which arrows point to smaller ovals titled:
"Consumer ISPs (e.g., AT&T WorldNet Service)", with arrows pointing to
smaller ovals titled Integrated fax services, Business networking, Voice mail,
E-mail at home, and Mobile computing;
"Telecom Companies (e.g., Sprint PCS), with arrows pointing to E-mail via
pagers, Wireless phone services and PDA messaging;
"Web Portals (e.g., Excite)", with arrows pointing to E-commerce, E-mail and
Web kiosks;
"Cable Companies (e.g., @Home)", with arrows pointing to Business networking,
E-mail at home and Web-top appliances; and
"Messaging Wholesalers (e.g., PCINET)", with arrows pointing to Wireless
messaging, Voice mail services and Business e-mail.
"The Internet Infrastructure Company."
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Software.com in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $19,182
NASD filing fee................................................... 7,400
Nasdaq National Market listing fee................................ *
Printing and engraving costs...................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue Sky fees and expenses........................................ *
Transfer Agent and Registrar fees................................. *
Miscellaneous expenses............................................ *
-------
Total........................................................... $ *
=======
</TABLE>
- --------
* To be filed by amendment.
ITEM 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article VIII of the Registrant's Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if
such person acted in good faith and in a manner reasonably believed to be in
and not opposed to the best interest of the Registrant, and, with respect to
any criminal action or proceeding, the indemnified party had no reason to
believe his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its directors
and executive officers, in addition to indemnification provided for in the
Registrant's Bylaws, and intends to enter into indemnification agreements with
any new directors and executive officers in the future.
ITEM 15. Recent Sales of Unregistered Securities
During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below.
(a) On December 8, 1994, Software.com sold and issued 6,268,080 shares of our
common stock to 4 purchasers for total consideration valued at $111,930.
(b) On August 1, 1995, we sold 1,672,720 shares of our common stock to 6
purchasers for a total of $29,870 and issued 1,766,240 shares of our common
stock to 2 employees for prior work performed, such work determined to have a
fair value of $31,540.
(c) On October 30, 1995, we issued 2,424,800 shares of our common stock to
eight key employees for prior work performed and such work was determined to
have a fair value of $129,900.
II-1
<PAGE>
(d) On October 3, 1996, we issued and sold an aggregate of 1,587,302 shares
of Series A preferred stock to entities affiliated with AT&T Ventures for an
aggregate purchase price of approximately $5,000,000. In connection with the
sale of the Series A preferred stock, we issued warrants to entities affiliated
with AT&T Ventures to purchase 529,101 shares of our common stock at an
exercise price of $5.00 per share and 269,841 shares of our common stock at an
exercise price of $7.00 per share. Effective July 31, 1998, in exchange for
AT&T Venture's waiver of their redemption rights with respect to the Series A
preferred stock, we lowered the exercise price on all outstanding warrants to
purchase our common stock held by AT&T Ventures (a total of 798,942) to $4.15
per share. These warrants terminate on October 3, 2001.
(e) On February 10, 1997, we issued and sold an aggregate of 1,789,279 shares
of Series B preferred stock to Cisco Systems, Inc. for an aggregate purchase
price of approximately $7,426,000. In connection with the sale of the Series B
preferred stock, we entered into a Development, License and Distribution
Agreement with Cisco for the joint development and distribution of software
products.
(f) On August 10, 1998, we issued a warrant to purchase 67,961 shares of
common stock at an exercise price of $5.15 per share to Coast Business Credit
in connection with the renegotiation of our credit facility.
(g) On August 14, 1998, we issued and sold an aggregate of 1,329,781 shares
of Series C preferred stock to Cisco for an aggregate purchase price of
approximately $6,848,000.
(h) On April 5, 1999, we issued and sold an aggregate of 1,626,016 shares of
Series D preferred stock to Hewlett-Packard Company for an aggregate purchase
price of approximately $10,000,000.
(i) As of April 5, 1999, an aggregate of 1,226,982 shares of common stock had
been issued upon exercise of options under the Registrant's 1995 Stock Option
Plan.
Except as indicated above, none of the foregoing transactions involved any
underwriters, underwriting discounts or commissions, or any public offering,
and the Registrant believes that each transaction was exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof, Regulation D promulgated thereunder or Rule 701 pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under such Rule 701. The recipients in such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof, and appropriate
legends were affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access, through their relationships
with the Registrant, to information about the Registrant.
ITEM 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Form of Amended and Restated Certificate of Incorporation of the
Registrant to be filed promptly after the closing of the offering.
3.3* Bylaws of the Registrant.
3.4* Amended and Restated Bylaws of the Registrant to be in effect after
the closing of the offering.
4.1* Specimen Common Stock Certificate.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
4.2 Registration Rights Agreement dated as of June 1, 1996, as amended, by
and among the Registrant and certain holders of the Registrant's
Common Stock.
4.3 Amended and Restated Registration Rights Agreement, dated February 10,
1997, as amended, by and among the Registrant and the purchasers of
the Series A Preferred, Series B Preferred, the Series C Preferred
and the Series D Preferred.
4.4 Form of Warrant to purchase Common Stock dated October 3, 1996, as
amended, between the Registrant and certain entities affiliated with
AT&T Ventures.
4.5 Warrant to purchase Common Stock dated August 10, 1998 between the
Registrant and Coast Business Credit.
4.6 Share Purchase Agreement between the Registrant, Mobility.Net
Corporation and Michael Machado dated April 3, 1999.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2* 1995 Stock Option Plan, as amended and restated and form of agreements
thereunder.
10.3* 1999 Employee Stock Purchase Plan.
10.4 Mobility.Net Corporation 1999 Stock Option Plan, and form of
agreements thereunder.
10.5 Loan and Security Agreement dated August 29, 1997, as amended, between
the Registrant and Coast Business Credit.
10.6 Form of Severance Agreement in the Event of a Change of Control
entered into between the Registrant and certain executive officers.
10.7 Severance Agreement in the Event of a Change of Control, dated
February 3, 1999 between the Registrant and John S. Ingalls.
10.8 Lease Agreement dated February 21, 1996 between the Registrant and
525 Anacapa LLC.
10.9 Lease Agreement dated November 22, 1996 between the Registrant and
Cito Corporation.
10.10 Lease Agreement dated September 11, 1996 between the Registrant and
91 Hartwell Avenue Trust.
16.1 Letter regarding change in certifying accountant.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
(b) Financial Statement Schedules
Valuation and Qualifying Accounts. See page S-1.
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.
II-3
<PAGE>
Insofar as indemnification by the Registrant for liabilities arising under
the Securities 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 Securities 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 a
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 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 Securities 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 Securities 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 Securities
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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa
Barbara, State of California, on the 14th day of April, 1999.
SOFTWARE.COM, INC.
/s/ John L. MacFarlane
By: _________________________________
John L. MacFarlane,
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John L. MacFarlane and John S. Ingalls and each
of them, his and her attorneys-in-fact and agents, each with the power of
substitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, as amended, and all post-effective amendments thereto,
and to file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that such attorneys-in-
fact and agents or any of them, or his or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ John L. MacFarlane Chief Executive Officer April 14, 1999
____________________________________ and Director (Principal
John L. MacFarlane Executive Officer)
/s/ John S. Ingalls Senior Vice President, April 14, 1999
____________________________________ Chief Financial Officer
John S. Ingalls (Principal Financial
and Accounting Officer)
/s/ Neal Douglas Director April 14, 1999
____________________________________
Neal Douglas
/s/ Judith Hamilton Director April 14, 1999
____________________________________
Judith Hamilton
/s/ Don Listwin Director April 14, 1999
____________________________________
Don Listwin
/s/ Frank Perna Director April 14, 1999
____________________________________
Frank Perna
/s/ Bernard Puckett Director April 14, 1999
____________________________________
Bernard Puckett
/s/ Bernhard Woebker Director April 14, 1999
____________________________________
Bernhard Woebker
</TABLE>
II-5
<PAGE>
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
Additions Deductions
---------- ----------
Balance at Charged to Amount Balance at
Beginning Costs and Charged to End of
of Period Expenses Reserve Period
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
December 31, 1997.................. $ 21,000 $123,000 $ 30,000 $114,000
December 31, 1998.................. 114,000 554,000 187,000 481,000
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Page
------- ----
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Form of Amended and Restated Certificate of Incorporation of
the Registrant to be filed promptly after the closing of the
offering.
3.3* Bylaws of the Registrant.
3.4* Amended and Restated Bylaws of the Registrant to be in effect
after the closing of the offering.
4.1* Specimen Common Stock Certificate.
4.2 Registration Rights Agreement dated as of June 1, 1996, as
amended, by and among the Registrant and certain holders of
the Registrant's Common Stock.
4.3 Amended and Restated Registration Rights Agreement, dated
February 10, 1997, as amended, by and among the Registrant and
the purchasers of the Series A Preferred, Series B Preferred,
the Series C Preferred and the Series D Preferred.
4.4 Form of Warrant to purchase Common Stock dated October 3, 1996,
as amended, between the Registrant and certain entities
affiliated with AT&T Ventures.
4.5 Warrant to purchase Common Stock dated August 10, 1998 between
the Registrant and Coast Business Credit.
4.6 Share Purchase Agreement between the Registrant, Mobility.Net
Corporation and Michael Machado dated April 3, 1999.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1* Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
10.2* 1995 Stock Option Plan, as amended and restated and form of
agreements thereunder.
10.3* 1999 Employee Stock Purchase Plan.
10.4 Mobility.Net Corporation 1999 Stock Option Plan, and form of
agreements thereunder.
10.5 Loan and Security Agreement dated August 29, 1997, as amended,
between the Registrant and Coast Business Credit.
10.6 Form of Severance Agreement in the Event of a Change of Control
entered into between the Registrant and certain executive
officers.
10.7 Severance Agreement in the Event of a Change of Control, dated
February 3, 1999 between the Registrant and John S. Ingalls.
10.8 Lease Agreement dated February 21, 1996 between the Registrant
and 525 Anacapa LLC.
10.9 Lease Agreement dated November 22, 1996 between the Registrant
and Cito Corporation.
10.10 Lease Agreement dated September 11, 1996 between the Registrant
and 91 Hartwell Avenue Trust.
16.1 Letter regarding change in certifying accountant.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "AGREEMENT"), dated as of June 1,
1996, is entered into by and among Software.com, Inc., a California corporation
(the "COMPANY"), and the shareholders of the Company listed on Exhibit A
attached hereto (hereinafter the "HOLDERS").
RECITALS
--------
A. The Company has entered into an Agreement and Plan of Merger dated May
17, 1996 (the "MERGER AGREEMENT"), by and between the Company, Accordance
Corporation, a Massachusetts corporation ("ACCORDANCE"), and Software.com
Acquisition, Inc., a Massachusetts corporation and wholly owned subsidiary of
the Company ("MERGER SUB"), pursuant to which, among other things, Merger Sub
will merge with and into Accordance (the "MERGER") and Accordance shall continue
as a wholly owned subsidiary of the Company.
B. In connection with the transactions contemplated by the Merger
Agreement, the former shareholders of Accordance common and preferred stock will
receive a total of approximately 12,374,390 shares of common stock of the
Company, no par value ("COMPANY COMMON STOCK").
C. The Company has agreed, in connection with the transactions
contemplated by the Merger Agreement, to enter into this Agreement with all of
the shareholders of Company Common Stock, including the former holders of
Accordance common and preferred stock.
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
I. Certain Definitions.
-------------------
As used in this Agreement, the following terms shall have the following
respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"COMPANY COMMON STOCK" shall mean the common stock, no par value, of the
Company.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
The terms "REGISTER", "REGISTERED" and "REGISTRATION" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement.
<PAGE>
"REGISTRABLE SECURITIES" shall mean (i) shares of Company Common Stock
currently held by a Holder and (ii) any securities issued as a dividend or other
distribution with respect to, or in exchange or in replacement of, the
securities referred to in subsection (i).
"REGISTRATION EXPENSES" shall mean all expenses (except for "Selling
Expenses" as defined below) incurred by the Company in complying with Section 2
or 3 of this Agreement, including, without limitation, all registration and
filing fees, printing expenses, reasonable fees, and disbursements of counsel
for the Company and, subject to Section 6, the reasonable fees and disbursements
of one counsel for the selling shareholders.
"REGISTRATION STATEMENT" shall mean a registration statement on Form S-1 or
Form S-3 filed by the Company with the Commission for a public offering and sale
of securities of the Company.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale of Shares, except as provided in Section 6,
and all fees and disbursements of counsel for the selling shareholders not
included in the Registration Expenses.
II. Required Registrations.
----------------------
At such time as the Company shall have qualified for the use of Form S-3
(or any similar form or forms promulgated by the Commission), the Holders of in
the aggregate at least 51% of the Registrable Securities shall have the right to
request one registration on Form S-3 or such similar form, as the case may be
(collectively, "FORM S-3"). The Company shall give prompt written notice of
such proposed registration to all other record Holders of Registrable
Securities. Such Holders shall have the right, by giving written notice to the
Company within 30 days from receipt of the Company's notice, to elect to have
included in such registration such of their Registrable Securities as such
Holders may request in such notice of election. Thereupon, the Company shall,
as expeditiously as practicable, use its best efforts to effect the
registration, on Form S-3, of all shares of Registrable Securities which the
Company has been requested to register; provided, however, that the Company
shall not be obligated to file and cause to become effective (i) more than one
registration under this Section 2(a) or (ii) any Registration Statement on Form
S-3 where the proposed aggregate offering price of the Registrable Securities to
be sold thereunder is less than $500,000.
A. If at the time of any request to register Registrable Shares pursuant
to Section 2(a), the Company is engaged or has fixed plans to engage within
thirty (30) days of the time of the request in a registered public offering as
to which the Holders may include Registrable Shares pursuant to Section 3 or is
engaged in any other activity that, in the good faith determination of the
Company's Board of Directors, would be adversely affected by the requested
registration to the material detriment of the Company, the Company may at its
option direct that such request be delayed for a
2
<PAGE>
period not in excess of six (6) months from the effective date of such offering
or the date of commencement of such other material activity, as the case may be.
III. Incidental Registrations.
------------------------
A. Whenever the Company proposes to file a Registration Statement (other
than pursuant to Section 2) at any time and from time to time, it will, prior to
such filing, give written notice to all Holders of its intention to do so, and,
upon written request of a Holder or Holders given within twenty (20) days after
the Company provides such notice (which request shall state the intended method
of disposition of such Registrable Shares), the Company shall use its best
efforts to cause all Registrable Shares that the Company has been requested by
such Holder or Holders to register to be registered under the Securities Act to
the extent necessary to permit their sale or other disposition in accordance
with the intended methods of distribution specified in the request of such
Holder or Holders.
B. In connection with any offering under this Section 3 involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such offering unless the Holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (provided that such terms must be consistent with this Agreement), and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If, in the opinion of
the managing underwriter, the registration of all, or part of, the Registrable
Shares that the Holders have requested to be included would materially and
adversely affect such public offering, the Company shall be required to include
in the underwriting only that number of Registrable Shares, if any, that the
managing underwriter believes may be sold without causing such adverse effect.
If the number of Registrable Shares to be included in the underwriting in
accordance with the foregoing is less than the total number of shares that the
Holders of Registrable Shares have requested to be included, then the Holders of
Registrable Shares who have requested registration and other holders of shares
of Company Common Stock entitled to include shares of Company Common Stock in
such registration shall participate in the underwriting pro rata based upon
their total ownership of shares of Company Common Stock (giving effect to the
conversion into Company Common Stock of all securities convertible thereinto).
If any Holder would thus be entitled to include more shares than such holder
requested to be registered, the excess shall be allocated among other requesting
Holders pro rata based upon their total ownership of Registrable Shares.
IV. Granting of Additional Registration Rights.
------------------------------------------
If at any time the Company grants registration rights to any shareholders
of the Company, the Holders shall become entitled to registration rights in
addition to those provided in this Agreement on the same terms granted to the
other shareholders.
3
<PAGE>
V. Registration Procedures.
-----------------------
If and whenever the Company is required by the provisions of this Agreement
to use its best efforts to effect the registration of any of the Registrable
Shares under the Securities Act, the Company shall:
file with the Commission a Registration Statement with respect to such
Registrable Shares and use its best efforts to cause that Registration Statement
to become and remain effective;
B. as expeditiously as possible prepare and file with the Commission any
amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective, in the case of a firm commitment underwritten
public offering, until each underwriter has completed the distribution of all
securities purchased by it and, in the case of any other offering, until the
earlier of the sale of all Registrable Shares covered thereby or one hundred
twenty (120) days after the effective date thereof;
C. as expeditiously as possible furnish to each selling Holder such
reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the selling Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Holder; and
D. as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the selling Holders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Holders to consummate the public
sale or other disposition in such states of the Registrable Shares owned by the
selling Holder; provided, however, that the Company shall not be required in
connection with this paragraph (d) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
selling Holders and after having done so the prospectus is amended to comply
with the requirements of the Securities Act, the Company shall promptly notify
the selling Holders and, if requested, the selling Holders shall immediately
cease making offers of Registrable Shares and return all prospectuses to the
Company. The Company shall promptly provide the selling Holders with revised
prospectuses and, following receipt of the revised prospectuses, the selling
Holders shall be free to resume making offers of the Registrable Shares.
VI. Allocation of Expenses.
----------------------
The Company will pay all Registration Expenses of all registrations under
this Agreement; provided, however, that if a registration under Section 2 is
withdrawn at the request of the Holders requesting such registration (other than
as a result of information concerning the business or financial condition of the
Company that is made known to the Holders after the date on which such
4
<PAGE>
registration was requested) and if the requesting Holders elect not to have such
registration counted as a registration requested under Section 2, the requesting
Holders shall pay the Registration Expenses of such registration pro rata in
accordance with the number of their Registrable Shares included in such
registration.
VII. Transfer of Shares.
------------------
In the event of an initial public offering or any subsequent public
offering of Company Common Stock (hereinafter referred to as an "OFFERING"), the
transfer of any shares of Company Common Stock held by a Holder that are not
included in such Offering will be restricted pursuant to a customary "lock-up"
arrangement for a period of time not to exceed six (6) months in the event of an
initial public offering or three (3) months in the event of a subsequent public
offering, unless the underwriters in any such Offering agree to a shorter lock-
up period.
VIII. Information by Holder.
---------------------
Each Holder holding securities included in any registration shall furnish
to the Company such information regarding such Holder as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this
Agreement.
IX. Governing Law.
-------------
This Agreement and the legal relations between the parties arising
hereunder shall be governed by and interpreted in accordance with the laws of
the State of California. The parties hereto agree to submit to the jurisdiction
of the federal and state courts of the State of California with respect to the
breach or interpretation of this Agreement or the enforcement of any and all
rights, duties, liabilities, obligations, powers, and other relations between
the parties arising under this Agreement.
X. Entire Agreement.
----------------
This Agreement constitutes the full and entire understanding and agreement
between the parties regarding rights to registration. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
XI. Notices, Etc.
-------------
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first-class mail, postage prepaid, or
otherwise delivered by hand or by messenger, addressed (a) if to a Holder, at
the address set forth on Exhibit A attached hereto, or at such other address as
---------
the Holder shall have furnished to the other parties hereto in writing, or (b)
if to the
5
<PAGE>
Company, at the address of its principal offices set forth on the signature page
of this Agreement, or at such other address as the Company shall have furnished
to the other parties hereto in writing.
XII. Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
XIII. Amendments.
----------
Any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and the Holders of a majority of the Registrable Securities, and such
amendments shall affect all Holders of the Registrable Securities in
substantially the same manner. Any amendment or waiver effected in accordance
with this paragraph shall be binding upon each Holder of Registrable Securities
and the Company.
XIV. Indemnification.
---------------
The Company agrees to indemnify and hold harmless the Holder against any
and all liability or expense arising out of or based upon any misrepresentation
made by the Company in the Registration Rights Agreement. The Holder agrees to
indemnify and hold harmless the Company against any and all liability or expense
arising out of or based upon any misrepresentation made by the Holder.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
SOFTWARE.COM, INC.
By: /s/ Valdur Koha
-----------------------------------
Name: Valdur Koha
Title: President
Software.com, Inc.
525 Anacapa Street
Santa Barbara, California 93101
7
<PAGE>
SOFTWARE.COM, INC.
REGISTRATION RIGHTS AGREEMENT
EXHIBIT A
Donald M. Arnoudse 3 McKeever Drive
Lexington, MA 02173
Larry S.Barels 525 Anacapa Street
Santa Barbara,CA 93101
Orion R. Barels 525 Anacapa Street
Santa Barbara, CA 93101
Tiare A. Barels 525 Anacapa Street
Santa Barbara,CA 93101
Daniel H. Bathon Jr. 222 Grove Street
Lexington, MA 02173
J. Scott Benson 18 Morse Lane
Hopkinton, MA 01748
Anne N. Cuervo 39 Sommerset Road
Lexington, MA 02173
Robert Gauntt Goldman, Sachs & Company
1000 Lousiana, #550
Houston, TX 77002
Patricia E. Giencke 56 Madison Avenue
Arlington, MA 02174
Bernard J. Haan 23 Anthony Road
Bedford, MA 01730
Eric R. Kanowsky 525 Anacapa Street
Santa Barbara, CA 93101
Steven E. Karlson 24 Deerfield Road
Needham, MA 02192
Valdur Koha 42 Rindge Avenue
Lexington, MA 02173
8
<PAGE>
Bryan P.Lockwood 11 Roxanne Road
Groton, MA 01450
John L. MacFarlane 525 Anacapa Street
Santa Barbara, CA 93101
Greg McPhee 401 East Victoria Street, Apt. #4
Santa Barbara, CA 93101
Leopold E. O'Donnell 125 Coolidge Avenue #504
Watertown, MA 02172
Glenn P. Parker 186 Spring Street
Lexington, MA 02173
John F. Poulack 27 Waterville Drive
Merrimack, NH 03054
Richard J. Rocaberte 1726 de la Vina, Apt. F
Santa Barbara, CA 93101
Robert A. Shaheen 17040 Grand Bay Drive
Boca Raton, FL 33496
Charles N. Stolper 761 Lowell Road
Concord, MA 01742
John D. Thorne 124 S. Cliffwood
Los Angeles, CA 90049
Trent Whitehead 525 Anacapa Street
Santa Barbara, CA 93101
Mary Leland Wren 76 Virginia Lane
Montecito, CA 93108
Paul I.Wren III 76 Virginia Lane
Montecito, CA 93108
Ben-Liou Yao 2 Tallard Road
Westford, MA 01886
9
<PAGE>
SOFTWARE.COM, INC.
------------------
FIRST AMENDMENT TO
------------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS AMENDMENT TO THE REGISTRATION RIGHTS AGREEMENT (the "FIRST AMENDMENT")
is entered into as of the 27th day of June, 1996, by and among SOFTWARE.COM,
INC., a California corporation (the "COMPANY"), and Banyan Systems Incorporated,
a Massachusetts corporation (the "PURCHASER").
RECITALS:
WHEREAS the holders of the Company's Common Stock, possess certain
-------
registration rights pursuant to that certain Registration Rights Agreement dated
as of June 1, 1996, (the "REGISTRATION RIGHTS AGREEMENT"), by and among the
Company and the holders of the Company's Common Stock listed in Exhibit A
attached to the Registration Rights Agreement (the "SHAREHOLDERS");
WHEREAS the Company is issuing an additional 1,361,187 shares of its Common
-------
Stock (the "ADDITIONAL COMMON STOCK") pursuant to the Common Stock Purchase
Agreement (the "AGREEMENT") of June 17, 1996 between the Company and the
Purchaser.
WHEREAS pursuant to the terms of the Agreement, the Company has agreed to
-------
grant registration rights to the Purchaser with respect to the Additional Common
Stock; and
WHEREAS under Section 13 of the Registration Rights Agreement, the Company
-------
and the holders of a majority of the Registerable Securities (as defined in
Section 1 of the Registration Rights Agreement) may amend the Registration
Rights Agreement to extend the registration rights granted under the
Registration Rights Agreement to the Purchasers with respect to the Additional
Common Stock.
NOW THEREFORE, in consideration of the foregoing and of the mutual promises
and covenants contained herein, the parties hereby agree as follows:
<PAGE>
XV. The Additional Common Stock will be considered "REGISTRABLE SECURITIES"
as defined in Section 1 of the Registration Rights Agreement and as that term is
used therein.
XVI. The Purchaser shall be considered a "HOLDER" as used in the Registration
Rights Agreement.
XVII. This First Amendment shall be effective upon its execution by (i) the
Company, (ii) holders of a majority of the Registerable Securities (as defined
in Section 1 of the Registration Rights Agreement), and (iii) the Purchaser.
XVIII. In all other respects the Registration Rights Agreement shall continue
in full force and effect without change.
XIX. This First Amendment may be executed in any number of counterparts, each
of which shall be an original, but all of which together shall constitute one
instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this First Amendment as
of the date set forth above.
SOFTWARE.COM, INC.
By: /s/ Valdur Koha
------------------------------------
Valdur Koha
President
<PAGE>
SOFTWARE.COM, INC.
FIRST AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
PURCHASER'S SIGNATURE PAGE
Banyan Systems Incorporated
/s/ Jeffrey D. Glidden
--------------------------------------
Jeffrey D. Glidden
Senior Vice President
Chief Financial Officer
<PAGE>
SOFTWARE.COM, INC.
FIRST AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
SHAREHOLDERS' SIGNATURE PAGE
______________________________________
(Printed Name of Shareholder)
/s/ Shareholder
--------------------------------------
(Signature)
<PAGE>
SECOND AMENDMENT TO
-------------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (the "SECOND AMENDMENT") is
entered into as of the 27th day of September, 1996, by and among SOFTWARE.COM,
INC., a California corporation (the "COMPANY"), and the shareholders of the
Company signatory hereto (the "SHAREHOLDERS").
RECITALS:
WHEREAS, certain holders of the Company's common stock, no par value (the
-------
"COMMON STOCK") possess specified registration rights pursuant to a Registration
Rights Agreement dated as of June 1, 1996, as amended by First Amendment to
Registration Rights Agreement dated June 27, 1996 (the "REGISTRATION RIGHTS
AGREEMENT"), by and among the Company and the holders of the Company's Common
Stock listed in Exhibit A attached to the Registration Rights Agreement; and
WHEREAS, pursuant to the terms and conditions of that certain Series A
-------
Stock Purchase Agreement (the "PURCHASE AGREEMENT") by and between the Company
and AT&T Ventures ("PURCHASER"), the Company will, among other things, agree to
sell, and Purchaser will agree to purchase a total of 1,587,302 shares of Series
A Preferred Stock of the Company, no par value (the "PREFERRED STOCK"), at a
purchase price of $3.15 per share for an aggregate purchase price of $5,000,000
(the "FINANCING"); and
WHEREAS, pursuant to the terms of the Purchase Agreement, the Company has
-------
agreed to grant certain registration rights to Purchaser with respect to the
shares of Common Stock issuable upon conversion of the Preferred Stock; and
WHEREAS, under Section XIII of the Registration Rights Agreement, the
-------
Company and the holders of a majority of the Registrable Securities (as defined
in Section I of the Registration Rights Agreement) may amend the Registration
Rights Agreement to allow for the grant of additional registration rights to any
shareholder of the Company; and
WHEREAS, the Shareholders constitute a majority of the holders of the
-------
Registrable Securities;
NOW THEREFORE, in consideration of the foregoing and of the mutual promises
and covenants contained herein, the parties hereby agree as follows:
<PAGE>
I. The Shareholders, acting as authorized under Section XIII of the
Registration Rights Agreement, hereby consent to the grant of registration
rights to Purchaser as contemplated by the Purchase Agreement and waive the
restrictions imposed by Section IV of the Registration Rights Agreement with
respect to such grant.
II. Such waiver and consent shall be effective only with respect to the
immediate grant of registration rights to Purchaser as contemplated by the
Purchase Agreement, and the provisions of the Registration Rights Agreement,
including without limitation Section IV thereof, shall otherwise remain in full
force and effect with respect to any proposed future grant of registration
rights by the Company.
I The Second Amendment shall be effective upon its execution by the Company
and the Shareholders.
I. In all other respects the Registration Rights Agreement shall continue in
full force and effect without change.
I. This Second Amendment may be executed in any number of counterparts, each
of which shall be an original, but all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the undersigned have executed this Second Amendment as
of the date set forth above.
SOFTWARE.COM, INC.
By: /s/ Michael S. Bugdanowitz
-----------------------------------
Name: Michael S. Bugdanowitz
Title: Secretary
<PAGE>
SOFTWARE.COM, INC.
SECOND AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
SHAREHOLDERS' SIGNATURE PAGE
______________________________________
(Printed Name of Shareholder)
/s/ Shareholder
--------------------------------------
(Signature)
______________________________________
(Number of Registrable Securities)
<PAGE>
SOFTWARE.COM, INC.
------------------
THIRD AMENDMENT TO
------------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS THIRD AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (the "THIRD
AMENDMENT") is entered into as of February 3, 1997, by and among SOFTWARE.COM,
INC., a California corporation (the "COMPANY"), and the shareholders of the
Company signatory hereto (the "SHAREHOLDERS").
RECITALS:
WHEREAS, certain holders of the Company's common stock, no par value (the
-------
"COMMON STOCK") possess specified registration rights pursuant to a Registration
Rights Agreement dated as of June 1, 1996, as amended by First Amendment to
Registration Rights Agreement dated June 26, 1996 (the "FIRST AMENDMENT") and by
Second Amendment to Registration Rights Agreement dated September 27, 1996 (as
amended, the "REGISTRATION RIGHTS AGREEMENT"), by and among the Company and the
holders of the Common Stock listed in Exhibit A to the Registration Rights
Agreement and the signature page to the First Amendment;
WHEREAS, pursuant to the terms and conditions of that certain Series B
-------
Preferred Stock Purchase Agreement (the "PURCHASE AGREEMENT") by and between the
Company and Cisco Systems, Inc. ("CISCO"), the Company will, among other things,
agree to sell, and Purchaser will agree to purchase a total of 1,789,279 shares
of Series B Preferred Stock of the Company, no par value (the "SERIES B
PREFERRED"), at a purchase price of $4.15 per share for an aggregate purchase
price of $7,425,508 (the "FINANCING");
WHEREAS, pursuant to the terms of the Purchase Agreement, the Company has
-------
agreed to grant certain registration rights to Cisco with respect to the shares
of Common Stock issuable upon conversion of the Series B Preferred;
WHEREAS, under Sections XIII and IV of the Registration Rights Agreement,
-------
the Company and the holders of a majority of the Registrable Securities (as
defined in Section I of the Registration Rights Agreement) may amend the
Registration Rights Agreement to allow for the grant of additional registration
rights to any shareholder of the Company; and
WHEREAS, the Shareholders constitute holders of a majority of the
-------
Registrable Securities;
NOW THEREFORE, in consideration of the foregoing and of the mutual promises
and covenants contained herein, the parties hereby agree as follows:
I. The Shareholders, acting as authorized under Section XIII of the
Registration Rights Agreement, hereby consent to the grant of registration
rights to Cisco as contemplated by the Purchase Agreement and the Amended and
Restated Registration Rights Agreement attached as
<PAGE>
Exhibit B thereto (the "PREFERRED REGISTRATION RIGHTS AGREEMENT") and waive the
restrictions imposed and entitlements granted by Section IV of the Registration
Rights Agreement with respect to such grant.
II. Such waiver and consent shall be effective only with respect to the
immediate grant of registration rights to Purchaser as contemplated by the
Purchase Agreement and the Preferred Registration Rights Agreement, and the
provisions of the Registration Rights Agreement, including without limitation
Section IV thereof, shall otherwise remain in full force and effect with respect
to any proposed future grant of registration rights by the Company.
III This Third Amendment shall be effective upon its execution by the
Company and the Shareholders.
IV. In all other respects the Registration Rights Agreement shall continue
in full force and effect without change.
V. This Third Amendment may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Third Amendment as
of the date set forth above.
SOFTWARE.COM, INC.
By: /s/ John L. MacFarlane
----------------------------
Name: John L. MacFarlane
Title: Chief Executive Officer
<PAGE>
SOFTWARE.COM, INC.
THIRD AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
SHAREHOLDERS' SIGNATURE PAGE
__________________________________________
(Printed Name of Shareholder)
/s/ Shareholder
------------------------------------------
(Signature)
<PAGE>
SOFTWARE. COM, INC.
FOURTH AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT TO THE REGISTRATION RIGHTS AGREEMENT (this "Fourth
Amendment") is entered into as of the __th day of August, 1997, by and among
SOFTWARE.COM, INC., a California corporation (the "Company"), Jonathan D. Ives
("Ives"), Michael S. D'Errico ("D'Errico"), Arthur J. Rice ("Rice," and with
Ives and D'Errico, the "Holders") and the shareholders of the Company signatory
hereto (the "Shareholders").
RECITALS:
WHEREAS in connection with the merger (the "Merger") of Accordance
Corporation, a Massachusetts corporation ("Accordance") with and into
Software.com Acquisition, Inc., a Massachusetts corporation and wholly-owned
subsidiary of the Company ("Merger Sub") pursuant to an Agreement and Plan of
Merger dated as of May 17, 1996 by among the Company, Merger Sub and Accordance,
each holder of the Company's common stock ("Common Stock") was to become a party
to the Registration Rights Agreement dated as of June 1, 1996, as amended by
First Amendment to Registration Rights Agreement dated June 26, 1996, Second
Amendment to Registration Rights Agreement dated September 27, 1996 and Third
Amendment to Registration Rights Agreement dated February 3, 1997 (as amended,
the "Registration Rights Agreement"), by and among the Company and the holders
of Common Stock listed in Exhibit A to the Registration Rights Agreement and the
signature page to the First Amendment;
WHEREAS the Holders were holders of Common Stock at the time of the Merger;
WHEREAS the Holders have agreed to become parties to the Registration
Rights Agreement;
WHEREAS under Section XIII of the Registration Rights Agreement, the
Company and the holders of a majority of the Registerable Securities (as defined
in Section I of the Registration Rights Agreement) may amend the Registration
Rights Agreement to add the Holders as parties; and
WHEREAS the Shareholders constitute holders of a majority of the
Registrable Securities;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties hereby agree as follows:
I. All shares of Common Stock held by the Holders shall be considered
"Registrable Securities" as defined in Section I of the Registration Rights
Agreement and as that term is used therein.
<PAGE>
II. Each of the Holders shall be considered a "Holder" as used in the
Registration Rights Agreement.
III. This Fourth Amendment shall be effective upon its execution by (i) the
Company, (ii) holders of a majority of the Registerable Securities (as defined
in Section I of the Registration Rights Agreement), and (iii) the Holders.
IV. In all other respects the Registration Rights Agreement shall continue
in full force and effect without change.
V. This Fourth Amendment may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Fourth Amendment as
of the date set forth above.
SOFTWARE.COM, INC.
By: /s/ John L. MacFarlane
------------------------------
Name: John L. MacFarlane
Title: Chief Executive Officer
JONATHAN D. IVES
By: /s/ Jonathan D. Ives
------------------------------
Jonathan D. Ives
MICHAEL S. D'ERRICO
By: /s/ Michael S. D'Errico
------------------------------
Michael S. D'Errico
ARTHUR J. RICE
By: /s/ Arthur J. Rice
------------------------------
Arthur J. Rice
<PAGE>
SOFTWARE.COM, INC.
FOURTH AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
SHAREHOLDERS' SIGNATURE PAGE
________________________________________
(Printed Name of Shareholder)
/s/ Shareholder
----------------------------------------
(Signature)
<PAGE>
SOFTWARE.COM, INC.
------------------
FIFTH AMENDMENT TO
------------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS FIFTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this "FIFTH
AMENDMENT") is entered into as of August 4, 1998, by and among SOFTWARE.COM,
INC., a California corporation (the "COMPANY"), and the shareholders of the
Company signatory hereto (the "SHAREHOLDERS").
RECITALS:
WHEREAS, certain holders of the Company's common stock, no par value (the
"COMMON STOCK") possess specified registration rights pursuant to a Registration
Rights Agreement dated as of June 1, 1996, as amended by (i) First Amendment to
Registration Rights Agreement dated June 26, 1996 (the "FIRST AMENDMENT"), (ii)
Second Amendment to Registration Rights Agreement dated September 27, 1996,
(iii) Third Amendment to Registration Rights Agreement dated February 3, 1997
(the "THIRD AMENDMENT") and (iv) Fourth Amendment to Registration Rights
Agreement dated September 12, 1997 (the "FOURTH AMENDMENT") (as amended, the
"REGISTRATION RIGHTS AGREEMENT") by and among the Company and the holders of
Common Stock listed in Exhibit A to the Registration Rights Agreement and the
signature pages to the First Amendment, the Third Amendment and the Fourth
Amendment;
WHEREAS, pursuant to the Series B Preferred Stock Purchase Agreement dated
August ___, 1998 (the "PURCHASE AGREEMENT") by and between the Company and Cisco
Systems, Inc. ("CISCO"), the Company will, among other things, agree to sell,
and Cisco will agree to purchase a total of 1,329,781 shares of Series B
Preferred Stock of the Company, no par value (the "SERIES B PREFERRED"), at a
purchase price of $5.15 per share for an aggregate purchase price of $6,848,370
(the "FINANCING");
WHEREAS, pursuant to the terms of the Purchase Agreement, the Company has
agreed to grant certain registration rights to Cisco with respect to the shares
of Common Stock issuable upon conversion of the Series B Preferred;
WHEREAS, under Sections XIII and IV of the Registration Rights Agreement,
the Company and the holders of a majority of the Registrable Securities (as
defined in Section I of the Registration Rights Agreement) may amend the
Registration Rights Agreement to allow for the grant of additional registration
rights to any shareholder of the Company; and
WHEREAS, the Shareholders constitute holders of a majority of the
Registrable Securities;
NOW THEREFORE, in consideration of the foregoing and of the mutual promises
and covenants contained herein, the parties hereby agree as follows:
1
<PAGE>
I. The Shareholders, acting as authorized under Section XIII of the
Registration Rights Agreement, hereby consent to the grant of additional
registration rights to Cisco as contemplated by the Purchase Agreement and the
First Amendment to Amended and Restated Registration Rights Agreement attached
as Exhibit B thereto (the "PREFERRED REGISTRATION RIGHTS AMENDMENT"), and waive
the restrictions imposed and entitlements granted by Section IV of the
Registration Rights Agreement with respect to such grant.
II. Such waiver and consent shall be effective only with respect to the
immediate grant of registration rights to Cisco as contemplated by the Purchase
Agreement and the Preferred Registration Rights Amendment, and the provisions of
the Registration Rights Agreement, including without limitation Section IV
thereof, shall otherwise remain in full force and effect with respect to any
proposed future grant of registration rights by the Company.
III. This Fifth Amendment shall be effective upon its execution by the
Company and the Shareholders.
IV. In all other respects the Registration Rights Agreement shall continue
in full force and effect without change.
V. This Fifth Amendment may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Fifth Amendment as
of the date set forth above.
SOFTWARE.COM, INC.
By: /s/ John L. MacFarlane
------------------------------
Name: John L. MacFarlane
Title: Chief Executive Officer
2
<PAGE>
SOFTWARE.COM, INC.
FIFTH AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
SHAREHOLDERS' SIGNATURE PAGE
________________________________________
(Printed Name of Shareholder)
/s/ Shareholder
----------------------------------------
(Signature)
3
<PAGE>
SOFTWARE.COM, INC.
SIXTH AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
THIS SIXTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this "SIXTH
AMENDMENT") is entered into as of March 29, 1999, by and among SOFTWARE.COM,
INC., a California corporation (the "COMPANY"), and the shareholders of the
Company signatory hereto (the "SHAREHOLDERS").
RECITALS:
WHEREAS, certain holders of the Company's common stock, no par value (the
"COMMON STOCK") possess specified registration rights pursuant to a Registration
Rights Agreement dated as of June 1, 1996, as amended by (i) First Amendment to
Registration Rights Agreement dated June 26, 1996 (the "FIRST AMENDMENT"), (ii)
Second Amendment to Registration Rights Agreement dated September 27, 1996,
(iii) Third Amendment to Registration Rights Agreement dated February 3, 1997
(the "THIRD AMENDMENT"), (iv) Fourth Amendment to Registration Rights Agreement
dated September 12, 1997 (the "FOURTH AMENDMENT") and (v) Fifth Amendment to
Registration Rights Agreement dated August 4, 1998 (the "FIFTH AMENDMENT") (as
amended, the "REGISTRATION RIGHTS AGREEMENT"), by and among the Company and the
holders of the Common Stock listed in Exhibit A to the Registration Rights
Agreement and the signature pages to the First Amendment, the Third Amendment,
the Fourth Amendment and the Fifth Amendment;
WHEREAS, pursuant to the terms and conditions of the Series D Preferred
Stock Purchase Agreement (the "PURCHASE AGREEMENT") by and between the Company
and Hewlett-Packard Company ("HP"), the Company will, among other things, agree
to sell, and HP will agree to purchase a total of 1,626,016 shares of Series D
Preferred Stock of the Company, no par value (the "SERIES D PREFERRED"), at a
purchase price of $6.15 per share for an aggregate purchase price of
$9,999,998.40 (the "FINANCING");
WHEREAS, pursuant to the terms of the Purchase Agreement, the Company has
agreed to grant certain registration rights to HP with respect to the shares of
Common Stock issuable upon conversion of the Series D Preferred;
WHEREAS, under Sections XIII and IV of the Registration Rights Agreement,
the Company and the holders of a majority of the Registrable Securities (as
defined in Section I of the Registration Rights Agreement) may amend the
Registration Rights Agreement to allow for the grant of additional registration
rights to any shareholder of the Company; and
WHEREAS, the Shareholders hold of a majority of the Registrable Securities;
NOW THEREFORE, in consideration of the foregoing and of the mutual promises
and covenants contained herein, the parties hereby agree as follows:
<PAGE>
I. The Shareholders, acting as authorized under Section XIII of the
Registration Rights Agreement, hereby consent to the grant of registration
rights to HP as contemplated by the Purchase Agreement and the Second Amendment
to Amended and Restated Registration Rights Agreement attached as Exhibit B
thereto (the "PREFERRED REGISTRATION RIGHTS AGREEMENT"), and waive the
restrictions imposed and entitlements granted by Section IV of the Registration
Rights Agreement with respect to such grant.
II. Such waiver and consent shall be effective only with respect to the
immediate grant of registration rights to Purchaser as contemplated by the
Purchase Agreement and the Preferred Registration Rights Agreement, and the
provisions of the Registration Rights Agreement, including without limitation
Section IV thereof, shall otherwise remain in full force and effect with respect
to any proposed future grant of registration rights by the Company.
III This Sixth Amendment shall be effective upon its execution by the
Company and the Shareholders.
IV. In all other respects the Registration Rights Agreement shall continue
in full force and effect without change.
V. This Sixth Amendment may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Sixth Amendment as
of the date set forth above.
SOFTWARE.COM, INC.
By: /s/ John L. MacFarlane
--------------------------------
Name: John L. MacFarlane
Title: Chief Executive Officer
<PAGE>
SOFTWARE.COM, INC.
SIXTH AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
SHAREHOLDERS' SIGNATURE PAGE
________________________________________
(Printed Name of Shareholder)
/s/ Shareholder
----------------------------------------
(Signature)
<PAGE>
EXHIBIT 4.3
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT")
is made as of February 10, 1997, by and between Software.com, Inc., a California
corporation (the "COMPANY"), and the undersigned shareholders of the Company
(collectively, "HOLDERS").
R E C I T A L S
---------------
WHEREAS, the Company and certain Holders (the "SERIES A HOLDERS") entered
into a Series A Preferred Stock Purchase Agreement (the "SERIES A PURCHASE
AGREEMENT") dated as of October 3, 1996, providing, among other things, for the
sale by the Company and purchase by the Series A Holders of shares of the
Company's Series A Preferred Stock (the "SERIES A PREFERRED") and warrants (the
"WARRANTS") to purchase shares of the Company's common stock, no par value
("COMMON STOCK");
WHEREAS, in connection with the sale of the Series A Preferred to the
Series A Holders, the Company and the Series A Holders entered into a
Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT") dated as of
October 3, 1996, providing for the grant of certain registration rights to the
Series A Holders with respect to the shares of Common Stock to be issued upon
conversion of the Series A Preferred and upon exercise of the Warrants;
WHEREAS, the Company and the Holder known as Cisco Systems, Inc. (the
"SERIES B HOLDER") have entered into a Series B Stock Purchase Agreement (the
"SERIES B PURCHASE AGREEMENT") dated as of the date hereof, providing, among
other things, for the sale by the Company and purchase by the Series B Holder of
shares of the Company's Series B Preferred Stock (the "SERIES B PREFERRED");
WHEREAS, in connection with the sale of the Series B Preferred to the
Series B Holder, the Company and Holders desire to provide for certain rights of
registration with respect to the shares of Common Stock to be issued upon
conversion of the Series B Preferred; and
WHEREAS, under Section 14.6 of the Registration Rights Agreement, the
Company and the holders of a majority of the shares of Registrable Stock (as
defined therein) may amend the Registration Rights Agreement to extend the
registration rights granted under the Registration Rights Agreement to the
Series B Holder with respect to the shares of Common Stock to be issued upon
conversion of the Series B Preferred.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
covenants and conditions hereinafter set forth, the parties hereto mutually
agree to amend and restate the Registration Rights Agreement as herein set forth
in full:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
(a) "COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
<PAGE>
(b) "FORM S-3" means such form under the Securities Act as in effect
on the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(c) "INITIAL PUBLIC OFFERING" shall mean an initial public offering
of shares of Common Stock of the Company under a Registration Statement.
(d) The terms "REGISTER", "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (a "REGISTRATION STATEMENT"), and the
declaration or ordering of the effectiveness of such Registration Statement.
(e) The term "REGISTRABLE STOCK" shall mean the shares of Common
Stock to be issued upon (i) conversion of the Series A Preferred, (ii) exercise
of the Warrants and (iii) conversion of the Series B Preferred.
(f) "REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Sections 2, 3 or 4 of this Agreement, including,
without limitation, all federal and state registration, qualification and filing
fees, printing expenses, fees and disbursements of counsel for the Company, blue
sky fees and expenses, and the expense of any special audits incident to or
required by any such registration; provided, however, that fees for special
--------
counsel of Holders in connection with a Registration shall not be included
within the term Registration Expenses and such fees shall not be borne by the
Company in connection with a Registration.
(g) "SEC" means the Securities and Exchange Commission.
(h) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(i) "SELLING EXPENSES" shall mean all stock transfer taxes,
underwriting discounts and selling commissions applicable to the sale of
securities pursuant to this Agreement.
2. Demand Registration.
-------------------
2.1 Request for Registration. Subject to the terms of this Agreement,
------------------------
in the event that the Company shall receive from Holders of a majority of the
shares of Registrable Stock, at any time more than six (6) months after the
effective date of the Company's Initial Public Offering, a written request that
the Company effect a Registration covering the Registrable Stock, the Company
shall as soon as practicable effect Registration of the Registrable Stock
specified in such request. Notwithstanding the foregoing, the Company shall not
be obligated to take any action to effect any such registration pursuant to this
Section 2.1 (i) any time after the two year period following the effective date
of the Company's Initial Public Offering, or (ii) after the Company has effected
one such Registration pursuant to this Section 2.1 and such Registration has
closed.
-2-
<PAGE>
2.2 Right of Deferral of Registration. If the Company shall furnish
---------------------------------
to Holders a certificate signed by the President or Chief Executive Officer of
the Company stating that, in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company for any
Registration to be effected as requested under Section 2.1, the Company shall
have the right, exercisable one time only, to defer the filing of a Registration
Statement with respect to such offering for a period of not more than one
hundred twenty (120) days from delivery of the request of Holders; provided,
--------
however, that the two-year period referred to in Section 2.1(i) above shall be
extended by the period of time for which the filing of a Registration Statement
is deferred pursuant to this Section 2.2.
2.3 Registration of Other Securities in Demand Registration. Any
-------------------------------------------------------
Registration Statement filed pursuant to the request of Holders under this
Section 2 may, subject to the provisions of Section 2.4, include securities of
the Company other than Registrable Stock, such determination to be made in the
sole discretion of the Company.
2.4 Underwriting in Demand Registration.
-----------------------------------
2.4.1 Notice of Underwriting. If Holders intend to distribute
----------------------
the Registrable Stock by means of an underwriting, Holders shall so advise the
Company as a part of their request made pursuant to this Section 2.
2.4.2 Inclusion of Other Holders in Demand Registration. If the
-------------------------------------------------
Company, officers or directors of the Company holding Common Stock other than
Registrable Stock or holders of securities with registration rights other than
Registrable Stock (collectively, the "SECONDARY HOLDERS"), request inclusion in
such Registration, Holders shall offer to any or all of the Secondary Holders
that such securities other than Registrable Stock be included in the
underwriting, and may condition such offer on the acceptance by such Secondary
Holders of the terms of this Section 2.
2.4.3 Selection of Underwriter in Demand Registration. If
-----------------------------------------------
Holders intend to distribute the Registrable Stock by means of an underwriting,
the Company shall (together with Holders and all Secondary Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement with the representative ("UNDERWRITER'S REPRESENTATIVE")
of the underwriter or underwriters of national reputation selected for such
underwriting by the Company, subject to reasonable approval by the Holders.
2.4.4 Marketing Limitation in Demand Registration. In the event
-------------------------------------------
the Underwriter's Representative advises Holders in writing that market factors
(including, without limitation, the aggregate number of shares of Common Stock
requested to be Registered, the general condition of the market, and the status
of the persons proposing to sell securities pursuant to the Registration)
require a limitation of the number of shares to be underwritten, then (i) first
the securities held by Secondary Holders other than the Company, (ii) second the
securities requested to be registered by the Company, and (iii) third the
Registrable Stock, shall be excluded from such Registration to the extent
required by such limitation. No Registrable Stock or other securities excluded
from the underwriting by reason of this Section 2.4.4 shall be included in such
Registration Statement.
-3-
<PAGE>
2.4.5 Right of Withdrawal in Demand Registration. If Holders or
------------------------------------------
any Secondary Holder requesting inclusion in such Registration disapproves of
the terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the underwriter and Holders delivered at least
seven (7) days prior to the effective date of the Registration Statement. The
securities so withdrawn shall also be withdrawn from the Registration Statement.
If Holders elect to withdraw from a Registration initiated upon a request under
Section 2.1, such attempted Registration shall satisfy the Company's
registration obligations as provided in Section 2.1, unless (a) Holders'
withdrawal is based upon material adverse information concerning the Company of
which the Holders were not aware at the time the Holders requested a
registration pursuant to this Section 2, or (b) the Company otherwise consents
to such withdrawal.
2.5 Blue Sky in Demand Registration. In the event of any Registration
-------------------------------
pursuant to Section 2, the Company will Register and qualify the securities
covered by the Registration Statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably appropriate for the
distribution of such securities; provided, however that (i) the Company shall
--------
not be required to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, and (ii) notwithstanding
anything in this Agreement to the contrary, in the event any jurisdiction in
which the securities shall be qualified imposes a non-waivable requirement that
expenses incurred in connection with the qualification of the securities be
borne by selling shareholders, at the election of the Holders, either the
Company shall withdraw qualification of the securities in such jurisdiction or
such expenses shall be payable pro rata by selling shareholders.
3. Piggyback Registration.
----------------------
3.1 Notice of Piggyback Registration and Inclusion of Registrable
-------------------------------------------------------------
Securities. Subject to the terms of this Agreement, in the event the Company
- ----------
decides to Register any of its Common Stock (either for its own account or the
account of a security holder or holders exercising their respective demand
registration rights) after the Company's Initial Public Offering on a form that
would be suitable for a registration involving Registrable Stock, the Company
will: (i) give Holders written notice thereof at least twenty (20) days prior to
the filing of a Registration Statement (which shall include a list of the
jurisdictions in which the Company intends to attempt to qualify such securities
under the applicable Blue Sky or other state securities laws) and (ii) include
in such Registration (and any related qualification under Blue Sky laws or other
compliance), and in any underwriting involved therein, all the Registrable Stock
as specified in a written request delivered to the Company by Holders within
fifteen (15) days after delivery of such written notice from the Company. If the
Holders decide not to include all of their Registrable Stock in any Registration
Statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Stock in any subsequent
such Registration Statement or Registration Statements as may be filed by the
Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
-4-
<PAGE>
3.2 Underwriting in Piggyback Registration.
--------------------------------------
3.2.1 Notice of Underwriting in Piggyback Registration. If the
------------------------------------------------
Registration of which the Company gives notice is for a Registered public
offering involving an underwriting, the Company shall so advise Holders as a
part of the written notice given pursuant to Section 3.1. In such event the
right of Holders to Registration shall be conditioned upon such underwriting and
the inclusion of Holder's Registrable Stock in such underwriting to the extent
provided in this Section 3. Holders, if proposing to distribute Registrable
Stock through such underwriting, shall (together with the Company and any other
security holders distributing their securities through such underwriting) enter
into an underwriting agreement with the Underwriter's Representative for such
offering. Holders shall have no right to participate in the selection of the
underwriters for an offering pursuant to this Section 3.
3.2.2 Marketing Limitation in Piggyback Registration. In the
----------------------------------------------
event the Underwriter's Representative advises Holders in writing that market
factors (including, without limi tation, the aggregate number of shares of
Common Stock requested to be Registered, the general condition of the market,
and the status of the persons proposing to sell securities pursuant to the Regis
tration) require a limitation of the number of shares to be underwritten, the
Underwriter's Representative (subject to the allocation priority set forth in
Section 3.2.3) may exclude some or all Registrable Stock from such registration
and underwriting.
3.2.3 Allocation of Shares in Piggyback Registration. In the
----------------------------------------------
event that the Underwriter's Representative limits the number of shares to be
included in a Registration pursuant to Section 3.2.2, the holders of securities
with registration rights who have requested Registration, including Holders
shall participate in such Registration pro rata based upon such holder's total
ownership of shares of Common Stock (giving effect to the conversion into Common
Stock of all securities convertible there into). No Registrable Stock excluded
from the underwriting by reason of this Section 3.2.3 shall be included in the
Registration Statement.
3.2.4 Withdrawal in Piggyback Registration. If Holder
------------------------------------
disapprove of the terms of any such underwriting, Holders may elect to withdraw
therefrom by written notice to the Company and the underwriter delivered at
least seven (7) days prior to the effective date of the Registration Statement.
Any Registrable Stock excluded or withdrawn from such underwriting shall be
withdrawn from such Registration.
3.3 Blue Sky in Piggyback Registration. In the event of any
----------------------------------
Registration of Registrable Stock pursuant to Section 3, the Company will
Register and qualify the securities covered by the Registration Statement under
such other securities or Blue Sky laws of such jurisdictions (not exceeding 20
unless otherwise agreed to by the Company) as shall be reasonably appropriate
for the distribution of such securities; provided, however, that (i) the Company
--------
shall not be required to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, and (ii) notwithstanding
anything in this Agreement to the contrary, in the event any jurisdiction in
which the securities shall be qualified imposes a non-waivable requirement that
expenses incurred in connection with the qualification of the securities be
borne by selling shareholders, such expenses shall be payable pro rata by
selling shareholders.
-5-
<PAGE>
4. Form S-3 Registration. In case the Company shall receive from Holders
---------------------
of more than a majority of the shares of Registrable Stock a written request
that the Company effect a registration on Form S-3 or any similar short-form
registration statement and any related qualification or compliance with respect
to all or a part of the Registrable Stock owned by Holders, the Company will:
4.1 promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders of Registrable
Stock; and
4.2 as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of Holders'
Registrable Stock as are specified in such request, together with all or such
portion of the Registrable Stock of any other Holder or Holders joining in such
request as are specified in a written request given within fifteen (15) days
after receipt of such written notice from the Company; provided, however, that
the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 4:
(i) if Form S-3 (or any successor or similar form) is not
available for such offering by the Holders, or
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Stock and such other securities (if any) at an aggregate price
to the public of less than $500,000, or
(iii) if the Company has already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section 4, or
(iv) subject to the provisions of Section 9 hereof, at any
time after the five year period following the effective date of the Company's
Initial Public Offering, or
(v) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
4.3 Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Stock and other securities so
requested to be registered as soon as practicable after receipt of the request
or requests of the Holders.
5. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with the one Registration pursuant to Section 2 and any Registrations
pursuant to Sections 3 and 4, shall be borne by the Company. All Registration
Expenses incurred in connection with any other registration, qualification or
compliance shall be apportioned among Holders and other holders of the
securities so registered on the basis of the number of shares so registered.
Notwithstanding the above, the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 2 if the
registration request is subsequently withdrawn at the request of Holders, unless
(a) Holders agree to forfeit their right to demand registration pursuant to
Section 2, or (b) the withdrawal is based upon material adverse information
concerning the Company of which Holders were not aware at the time of
-6-
<PAGE>
such request. All Selling Expenses shall be borne by the holders of the
securities registered pro rata on the basis of the number of shares registered.
6. Registration Procedures. The Company will keep Holders advised as to
-----------------------
the initiation and completion of any registration pursuant to this Agreement in
which any Registrable Stock is included. At its expense the Company will: (a)
use its best efforts to keep such Registration effective for a period of one
hundred twenty (120) days or until Holders have completed the distribution
described in the Registration Statement relating thereto, whichever first
occurs; (b) furnish such number of prospectuses (including preliminary
prospectuses) and other documents as Holders from time to time may reasonably
request , (c) notify the Holders of Registrable Stock covered by such
Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing; and (d) furnish, at the request of Holders, on the date that such
Registrable Stock is delivered to the underwriters for sale, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to Holder, addressed to the
underwriters, if any, and to Holders and (ii) a letter dated as of such date,
from the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering and reasonably satisfactory to
Holder, addressed to the underwriters, if any, and if permitted by applicable
accounting standards, to Holder.
7. Information Furnished by Holders. It shall be a condition precedent
--------------------------------
of the Company's obligations under this Agreement that if Registrable Stock is
included in any Registration, Holders shall furnish to the Company such
information regarding Holders and the distribution proposed by Holders as the
Company may reasonably request.
8. Indemnification.
---------------
8.1 Company's Indemnification of Holders. To the extent permitted by
------------------------------------
law, the Company will indemnify Holders, each of their officers, directors and
constituent partners, legal counsel for Holders, and each person controlling
Holders, and each underwriter, if any, and each person who controls any
underwriter against all claims, losses, damages or liabilities (or actions in
respect thereof) to the extent such claims, losses, damages or liabilities arise
out of or are based upon any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus or other document (including any
related Registration Statement) incident to any Registration, qualification or
compliance of Registrable Stock effected pursuant to this Agreement, or are
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and relating to
action or inaction required of the Company in connection with any such
Registration, qualification or compliance; and the Company will reimburse
Holders, each such underwriter and each person who controls Holders or
underwriter, for any legal and
-7-
<PAGE>
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action; provided, however,
--------
that the indemnity contained in this Section 8.1 shall not apply to amounts paid
in settlement of any such claim, loss, damage, liability or action if settlement
is effected without the consent of the Company (which consent shall not
unreasonably be withheld); provided, further, that the Company will not be
--------
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based upon any untrue statement or
omission which occurs in reliance upon and in strict conformity with written
information furnished to the Company by Holders, underwriter, or controlling
person under an instrument duly executed by such person and stated to be
specifically for use in connection with the offering of securities of the
Company.
8.2 Holder's Indemnification of Company. To the extent permitted by
-----------------------------------
law, Holders will, if shares of Registrable Stock are included in the securities
as to which such Registration, qualification or compliance is being effected
pursuant to this Agreement, indemnify the Company, each of its directors and
officers, each legal counsel and independent accountant of the Company, each
underwriter, if any, of the Company's securities covered by such a Registration
Statement, each person who controls the Company or such underwriter within the
meaning of the Securities Act, and each other security holder whose securities
are included in the securities as to which such Registration, qualification or
compliance is being effected pursuant to this Agreement, each of its officers,
directors and constituent partners and each person controlling such other
security holder, against all claims, damages and liabilities (or actions in
respect thereof) arising out of or based upon any untrue statement (or alleged
untrue statement) of a material fact contained in any such Registration
Statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
Holders of any rule or regulation promulgated under the Securities Act
applicable to Holders and relating to action or inaction required of Holders in
connection with any such Registration, qualification or compliance; and will
reimburse the Company, such other security holders, such directors, officers,
partners, persons, law and accounting firms, underwriters or control persons for
any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
Registration Statement, prospectus, offering circular or other document in
reliance upon and in strict conformity with written information furnished to the
Company by Holders under an instrument duly executed by such person and stated
to be specifically for use in connection with the offering of securities of the
Company; provided, however, that the indemnity agreement contained in this
Section 8.2 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 8.2
exceed the proceeds from the offering received by such Holder.
8.3 Indemnification Procedure. Promptly after receipt by an
-------------------------
indemnified party under this Section 8 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section 8, notify the indemnifying
party in writing of the commencement thereof and generally summarize such
action. The indemnifying party shall have the right to participate in and to
assume the defense of such claim; provided, however, that the indemnifying party
--------
shall be entitled to select counsel for the defense of such claim with the
approval of any parties entitled to indemnification, which approval shall not be
unreasonably withheld;
-8-
<PAGE>
provided further, however, that if either party reasonably determines that there
- --------
may be a conflict between the position of the Company and Holders in conducting
the defense of such action, suit or proceeding by reason of recognized claims
for indemnity under this Section 8, then counsel for such party shall be
entitled to conduct the defense to the extent reasonably determined by such
counsel to be necessary to protect the interest of such party. The failure to
notify an indemnifying party promptly of the commencement of any such action,
if prejudicial to the ability of the indemnifying party to defend such action,
shall relieve such indemnifying party, to the extent so prejudiced, of any
liability to the indemnified party under this Section 8, but the omission so to
notify the indemnifying party will not relieve such party of any liability that
such party may have to any indemnified party otherwise other than under this
Section 8.
8.4 If the indemnification provided for in this Section 8 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the violation(s) that resulted in such loss, claim, damage or
liability, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by a court of law by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided, that in no event shall any contribution by a Holder hereunder exceed
the proceeds from the offering received by such Holder.
9. Termination of Registration Rights. The registration rights granted
----------------------------------
herein shall terminate at such time as all shares of Registrable Stock held by
Holders can be sold within a given three-month period without compliance with
the registration requirements of the Securities Act pursuant to Rule 144
promulgated thereunder, Holders (together with their affiliates, partners and
former partners) hold less than 1% of the Company's outstanding Common Stock
(treating all shares of Preferred Stock on an as converted basis) and the
Company has completed its Initial Public Offering and is subject to the
provisions of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT").
10. Transfer of Rights. The right to cause the Company to Register
------------------
securities granted by the Company to Holders under this Agreement may be
assigned by Holders to a transferee or assignee acquiring at least 250,000
shares of Holder's Registrable Stock (equitably adjusted for any stock splits,
subdivisions, stock dividends, changes, combinations or the like); provided,
--------
however, that (i) the Company must receive written notice prior to the time of
said transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such information and
Registration rights are being assigned, (ii) such transferee or assignee agrees
in writing to be bound by the terms and conditions of this Agreement, and (iii)
the transferee or assignee of such rights must not be a person deemed by the
Board of Directors of the Company, in its reasonable judgment, to be a
competitor or prospective competitor of the Company. Notwithstanding the
foregoing, Holders may freely transfer or assign the rights granted to Holders
under this Agreement to any affiliates or partners of Holders.
-9-
<PAGE>
11. Market Stand-off. Holders hereby agree that, if so requested by the
----------------
Company and/or the Underwriter's Representative (if any), Holders shall not sell
or otherwise transfer any Registrable Stock or other securities of the Company
for a period specified by the Company or the Underwriter's Representative not to
exceed one hundred eighty (180) days following the effective date of a
Registration Statement of the Company filed under the Securities Act; provided
that (a) such agreement shall apply only to the Company's Initial Public
Offering, and (b) all officers and directors of the Company enter into similar
agreements. Holders hereby agree that in connection with such agreement, the
Company may issue stop transfer orders to the transfer agent for the Company
with respect to the shares of Registrable Stock held by Holders for such period.
The Company hereby agrees to use its best efforts to enter into similar lock-up
agreements with any holders of Common Stock not already bound by a lock-up
agreement with respect to their shares of Common Stock.
12. Rule 144 Reporting. With a view to making available to the Holders
------------------
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Stock to the public without registration, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public; and
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act; and
(c) So long as a Holder owns any Registrable Stock, furnish to such
Holder forthwith upon written request: a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of the Securities Exchange Act of 1934, as amended (at any
time after it has become subject to such reporting requirements); a copy of the
most recent annual or quarterly report of the Company; and such other reports
and documents as a Holder may reasonably request in availing itself of any rule
or regulation of the SEC allowing it to sell any such securities without
registration.
13. No-Action Letter or Opinion of Counsel in Lieu of Registration;
------------------------------------------------- -------------
Conversion of Preferred Stock. Notwithstanding anything else in this Agreement,
- -----------------------------
if the Company shall have obtained from the Commission a "no-action" letter in
which the Commission has indicated that it will take no action if, without
Registration under the Securities Act, Holders dispose of Registrable Stock
covered by any request for Registration made under this Section in the specific
manner in which Holders propose to dispose of the Registrable Stock included in
such request (such as, without limitation, inclusion of such Registrable Stock
in an underwriting initiated by either the Company or other security holders),
or if in the opinion of counsel for the Company concurred in by counsel for
Holders, which concurrence shall not be unreasonably withheld, no Registration
under the Securities Act is required in connection with such disposition, the
Registrable Stock included in such request shall not be eligible for
Registration under this Agreement; provided, however, that any Registrable Stock
--------
not so disposed of shall be eligible for Registration in accordance with the
terms of this Agreement with respect to other proposed dispositions to which
this Section 13 does not apply; provided further, that Registrable Stock may
-------- -------
only be excluded from Registration pursuant to this Section 13 if the "no-
action" letter or opinion of counsel for
-10-
<PAGE>
the Company referred to above is delivered to the Holders requesting
Registration of their Registrable Stock within fifteen (15) days of such
request. The Registration rights of Holders set forth in this Agreement are
conditioned upon the conversion of any shares of Preferred Stock with respect to
which registration is sought into Registrable Stock on or prior to the closing
date of such registration.
14. Miscellaneous.
-------------
14.1 Entire Agreement; Successors and Assigns. This Agreement
----------------------------------------
constitutes the entire contract between the Company and Holders relative to the
subject matter hereof. Any previous agreement between the Company and Holders
concerning Registration rights is superseded by this Agreement. Subject to the
exceptions specifically set forth in this Agreement, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successors and assigns of the parties.
14.2 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California applicable to
contracts entered into and wholly to be performed within the State of California
by California residents.
14.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.4 Headings. The headings of the Sections of this Agreement are
--------
for convenience and shall not by themselves determine the interpretation of this
Agreement.
14.5 Notices. Any notice required or permitted hereunder shall be
-------
given in writing and shall be conclusively deemed effectively given upon
personal delivery, or five (5) days after deposit in the United States mail, by
registered or certified mail, postage prepaid, addressed (i) if to the Company,
as set forth below the Company's name on the signature page of this Agreement,
and (ii) if to Holders, at Holder's address set forth below Holder's name on the
signature page of this Agreement, or at such other address as the Company or
Holders may designate by ten (10) days' advance written notice to Holders or the
Company, respectively.
14.6 Amendment of Agreement. Any provision of this Agreement may be
----------------------
amended only by a written instrument signed by the Company and the holders of
more than three-fourths (3/4) of the shares of Registrable Stock.
14.7 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
14.8 Delays or Omissions. Except as expressly provided herein, no
-------------------
delay or omission to exercise any right, power or remedy accruing to Holders,
upon any breach or default of the Company under this Agreement, shall impair any
such right, power or remedy of such holder nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar
-11-
<PAGE>
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
14.9 Attorneys' Fees. In the event that any dispute among the
---------------
parties to this Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
[The remainder of this page is intentionally left blank.]
-12-
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SOFTWARE.COM, INC.
By: /s/ John L. MacFarlane
----------------------
Title: Chief Executive Officer
Address: 525 Anacapa Street
Santa Barbara, California 93101
VENTURE FUND I, LP
By: /s/ Neal Douglas
----------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 235
Menlo Park, CA 94025
Phone: (415) 233-0617
Facsimile: (415) 854-4923
AT&T VENTURE FUND II, LP
By: /s/ Neal Douglas
----------------------
Title: Manager
Address: 3000 Sand Hill Road
Building 4, Suite 235
Menlo Park, CA 94025
Phone: (415) 233-0617
Facsimile: (415) 854-4923
<PAGE>
SIGNATURE PAGE TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
CISCO SYSTEMS, INC.
By: /s/ John Chambers
----------------------
Title:
Address: 255 West Tasman Drive
San Jose, CA 95134
<PAGE>
FIRST AMENDMENT TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
(this "FIRST AMENDMENT") is entered into as of August 14, 1998, by and among
SOFTWARE.COM, INC., a California corporation (the "COMPANY"), and the
undersigned shareholders of the Company (the "SHAREHOLDERS").
WHEREAS, certain holders of the Company's preferred stock ("PREFERRED
STOCK") possess specified registration rights pursuant to an Amended and
Restated Registration Rights Agreement (the "PREFERRED RIGHTS AGREEMENT") dated
as of February 10, 1997 by and among the Company and the holders of Preferred
Stock signatory thereto;
WHEREAS, pursuant to a Series C Preferred Stock Purchase Agreement (the
"PURCHASE AGREEMENT") dated as of the date hereof by and between the Company and
Cisco Systems, Inc. ("CISCO"), the Company will, among other things, agree to
sell, and Cisco will agree to purchase a total of 1,329,781 shares of the
Company's Series C Preferred Stock ("SERIES C STOCK") at a purchase price of
$5.15 per share, for an aggregate purchase price of $6,848,370;
WHEREAS, pursuant to the Purchase Agreement, the Company has agreed to
grant certain registration rights to Cisco with respect to the shares of the
Company's common stock ("COMMON STOCK") issuable upon conversion of the Series C
Stock;
WHEREAS, under Section 14.6 of the Preferred Rights Agreement, the Company
and the holders of more than three-fourths (3/4) of the shares of Registrable
Stock (as defined in Section 1 of the Preferred Rights Agreement) may amend the
Preferred Rights Agreement to allow for the grant of registration rights to
Cisco with respect to the shares Common Stock issuable upon conversion of the
Series C Stock; and
WHEREAS, the Shareholders constitute the holders of more than
three-fourths (3/4) of the shares of Registrable Stock;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties hereby agree as follows:
I. All shares of Common Stock issuable upon conversion of the Series C
Stock to be purchased by Cisco pursuant to the Purchase Agreement shall be
shares of "Registrable Stock" as such term is defined in Section 1 of the
Preferred Rights Agreement.
II. This First Amendment shall be effective upon its execution by (i) the
Company and (ii) the holders of more than three-fourths (3/4) of the shares of
Registrable Stock (as defined in Section 1 of the Preferred Rights Agreement),
including Cisco.
III. In all other respects the Preferred Rights Agreement shall continue
in full force and effect without change.
1
<PAGE>
IV. This First Amendment may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
[Remainder of this page intentionally left blank.]
2
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the day and year first above written.
SOFTWARE.COM, INC.
By: /s/ John L. MacFarlane
---------------------------------------
John L. MacFarlane
Title: Chief Executive Officer
Address: 525 Anacapa Street
Santa Barbara, California 93101
VENTURE FUND I, LP
By: /s/ Neal Douglas
---------------------------------------
Neal Douglas
Title: General Partner
Address: 3000 Sand Hill Road
Building 1, Suite 285
Menlo Park, CA 94025
Phone: (415) 233-0617
Facsimile: (415) 854-4923
AT&T VENTURE FUND II, LP
By: /s/ Neal Douglas
---------------------------------------
Neal Douglas
Title: Manager
Address: 3000 Sand Hill Road
Building 1, Suite 285
Menlo Park, CA 94025
Phone: (415) 233-0617
Facsimile: (415) 854-4923
SIGNATURE PAGE TO FIRST AMENDMENT
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
CISCO SYSTEMS, INC.
By: /s/ Larry Carter
---------------------------------
Title: Senior VP, Finance and
Administration, CFO and Secretary
Address: 255 West Tasman Drive
San Jose, CA 95134
SIGNATURE PAGE TO FIRST AMENDMENT
<PAGE>
SECOND AMENDMENT TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED REGISTRATION RIGHTS
AGREEMENT (this "Second Amendment") is entered into as of the 5th day of April,
1999, by and among SOFTWARE.COM, INC., a California corporation (the "Company"),
and the undersigned shareholders of the Company (the "Shareholders").
WHEREAS, certain holders of the Company's preferred stock ("Preferred
Stock") possess specified registration rights pursuant to an Amended and
Restated Registration Rights Agreement dated as of February 3, 1997, as amended
by the First Amendment to Amended and Restated Registration Rights Agreement
dated as of August 14, 1998 (the "Preferred Rights Agreement") by and among the
Company and the holders of the Company's preferred stock ("Preferred Stock")
signatory thereto;
WHEREAS, pursuant to a Series D Preferred Stock Purchase Agreement (the
"Purchase Agreement") dated as of March 23, 1999 by and between the Company and
Hewlett-Packard Company ("HP"), the Company will, among other things, agree to
sell, and HP will agree to purchase a total of 1,626,016 shares of the Company's
Series D Preferred Stock ("Series D Stock") at a purchase price of $6.15 per
share, or an aggregate of $9,999,998.40;
WHEREAS, pursuant to the Purchase Agreement, the Company has agreed to
grant certain registration rights to HP with respect to the shares of the
Company's common stock ("Common Stock") issuable upon conversion of the Series D
Stock;
WHEREAS, under Section 14.6 of the Preferred Rights Agreement, the Company
and the holders of more than three-fourths (3/4) of the shares of Registrable
Stock (as defined in Section 1 of the Preferred Rights Agreement) may amend the
Preferred Rights Agreement to allow for the grant of registration rights to HP
with respect to the shares Common Stock issuable upon conversion of the Series D
Stock; and
WHEREAS, the Shareholders constitute the holders of more than
three-fourths (3/4) of the shares of Registrable Stock;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties hereby agree as follows:
I. All shares of Common Stock issuable upon conversion of the Series D
Stock to be purchased by HP pursuant to the Purchase Agreement shall be shares
of "Registrable Stock" as such term is defined in Section 1 of the Preferred
Rights Agreement, and HP shall be a "Holder" as such term is defined in the
preamble of the Preferred Rights Agreement.
<PAGE>
II. This Second Amendment shall be effective upon its execution by (i)
the Company, (ii) the holders of more than three-fourths (3/4) of the shares of
Registrable Stock (as defined in Section 1 of the Preferred Rights Agreement),
and (iii) HP.
III. In all other respects the Preferred Rights Agreement shall continue
in full force and effect without change.
IV. This Second Amendment may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
<PAGE>
SIGNATURE PAGE TO SECOND AMENDMENT TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
as of the day and year first above written.
SOFTWARE.COM, INC.
By: /s/ John L. MacFarlane
---------------------------------------
John L. MacFarlane
Title: Chief Executive Officer
Address: 525 Anacapa Street
Santa Barbara, California 93101
VENTURE FUND I, LP
By: /s/ Neal Douglas
---------------------------------------
Title: General Partner
Address: 3000 Sand Hill Road
Building 4, Suite 235
Menlo Park, CA 94025
Phone: (650) 233-061
Facsimile: (650) 854-4923
AT&T VENTURE FUND II, LP
By: /s/ Neal Douglas
---------------------------------------
Title: Manager
Address: 3000 Sand Hill Road
Building 4, Suite 235
Menlo Park, CA 94025
Phone: (650) 233-0617
Facsimile: (650) 854-4923
<PAGE>
SIGNATURE PAGE TO SECOND AMENDMENT TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
CISCO SYSTEMS, INC.
By: /s/ Larry Carter
---------------------------------------
Title: Chief Financial Officer
Address: 255 West Tasman Drive
San Jose, CA 95134
HEWLETT-PACKARD COMPANY
By: /s/ Ann O. Baskins
---------------------------------------
Title: Assistant Secretary
Address: 3000 Hanover Street MS 20BT
Palo Alto, CA 94304
<PAGE>
EXHIBIT 4.4
COMMON STOCK PURCHASE WARRANT
THIS WARRANT HAS BEEN, AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED
PURSUANT TO THE EXERCISE OF THIS WARRANT (THE "SHARES") WILL BE, ACQUIRED SOLELY
FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES (TOGETHER, THE
"SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND
ITS COUNSEL THAT SUCH DISPOSITION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE STATE
SECURITIES LAWS.
NO. C-__
VOID AFTER OCTOBER 3, 2001
SOFTWARE.COM, INC.
WARRANT TO PURCHASE ____ SHARES OF COMMON STOCK
__________
THIS CERTIFIES THAT, for value received, _______________ (the "HOLDER") is
entitled to subscribe for and purchase from Software.com, Inc., a California
corporation (the "COMPANY"), _________ shares (as adjusted pursuant to Section 3
hereof) of the fully paid and nonassessable Common Stock, no par value (the
"SHARES"), of the Company at the price of $____ per share (the "EXERCISE PRICE")
(as adjusted pursuant to Section 3 hereof), subject to the provisions and upon
the terms and conditions hereinafter set forth.
1. Method of Exercise; Payment.
---------------------------
(a) Exercise Period. The purchase rights represented by this Warrant
---------------
may be exercised by the Holder during the term of this Warrant (as set forth in
Section 11 hereof), in whole or in part, at any time after the date of issuance
by the surrender of this Warrant (with the notice of exercise form (the "NOTICE
OF EXERCISE") attached hereto as Exhibit A duly executed) at the principal
---------
office of the Company.
(b) Cash Exercise. This Warrant may be exercised by the payment to
-------------
the Company of an amount equal to the Exercise Price multiplied by the number of
the Shares being purchased, at the election of the Holder, by wire transfer or
certified check payable to the order of the Company. The person or persons in
whose name(s) any certificate(s) representing Shares shall be issuable upon
exercise of this Warrant shall be deemed to have become the holder(s) of record
of, and shall be treated for all purposes as the record holder(s) of, the Shares
represented thereby (and such Shares shall be deemed to have been issued)
immediately prior to the close of business on the date or dates upon which this
Warrant is exercised.
<PAGE>
(c) Net Issue Exercise.
------------------
i) In lieu of exercising this Warrant pursuant to Section 1(b)
above, the Holder may elect to receive a number of Shares equal to the value (as
determined below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company together with
Notice of Exercise in which alternative No. 1 is initialed by the Holder. In
such event, the Company shall issue to the Holder a number of Shares computed
using the following formula:
X = Y (A-B)
-------
A
Where X = the number of Shares to be issued to the Holder.
Y = the number of Shares subject to this Warrant (or the portion
thereof being canceled).
A = the fair market value of one share of the Company's Common Stock.
B = the Exercise Price (as adjusted to the date of such calculation).
(d) Fair Market Value. For purposes of this Section 1, the fair
-----------------
market value of the Company's Common Stock shall mean:
i) The average of the closing bid and asked prices of the
Company's Common Stock quoted in the over-the-counter market summary or the
closing price quoted on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall Street
---------------
Journal for the ten trading days prior to the date of determination of fair
- -------
market value; or
ii) If the Company's Common Stock is not traded over-the-
counter or on an exchange, fair market value of the Common Stock per share shall
be the price per share as determined reasonably and in good faith by the
Company's Board of Directors. Receipt and formal acknowledgment by a duly
authorized representative of the Holder of the Shares issued upon exercise of
this Warrant by the Holder shall be conclusively deemed to be an acknowledgment
and acceptance of any such fair market value determination by the Company's
Board of Directors as the final and binding determination of such value for
purposes of this Warrant.
(e) Stock Certificates. In the event of any exercise of the rights
------------------
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to the Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a new Warrant representing
the shares with respect to which this Warrant shall not have been
2
<PAGE>
exercised shall also be issued to the Holder within such time.
2. Stock Fully Paid; Reservation of Shares. All of the Shares issuable
---------------------------------------
upon the exercise of the rights represented by this Warrant will, upon issuance
and receipt of the Exercise Price therefor, be fully paid and nonassessable, and
free from all preemptive rights, rights of first refusal or first offer, taxes,
liens and charges with respect to the issuance thereof. During the period
within which the rights represented by this Warrant may be exercised, the
Company shall at all times have authorized and reserved for issuance sufficient
shares of its Common Stock to provide for the exercise of the rights represented
by this Warrant.
3. Adjustment of Exercise Price and Number of Shares. Subject to the
-------------------------------------------------
provisions of Section 11 hereof, the number and kind of Shares purchasable upon
the exercise of this Warrant and the Exercise Price therefor shall be subject to
adjustment from time to time upon the occurrence of certain events, as follows:
(a) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification of the Common Stock (other than a change in par value, or as a
result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger with another corporation in which the Company is a
continuing corporation and in which the Company's shareholders immediately
preceding such consolidation or merger own at least 50% of the voting securities
of the Company following such consolidation or merger and which does not result
in any reclassification of the Shares issuable upon exercise of this Warrant),
or in case of any sale of all or substantially all of the assets of the Company,
the Company, or such successor or purchasing corporation as the case may be,
shall execute a new Warrant, providing that the holder of this Warrant shall
have the right to exercise such new Warrant, and procure upon such exercise and
payment of the same aggregate Exercise Price, in lieu of the Shares of Common
Stock theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change, consolidation, sale of all or substantially all of the
Company's assets or merger by a holder of an equivalent number of shares of
Common Stock. Such new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 3. The provisions of this subsection (a), subject to Section 11 hereof,
shall similarly apply to successive reclassifications, consolidations, mergers,
and the sale of all or substantially all of the Company's assets.
(b) Stock Splits, Dividends and Combinations. In the event that the
----------------------------------------
Company shall at any time subdivide the outstanding shares of Common Stock, or
shall issue a stock dividend on its outstanding shares of Common Stock, the
number of Shares issuable upon exercise of this Warrant immediately prior to
such subdivision or to the issuance of such stock dividend shall be
proportionately increased, and the Exercise Price shall be proportionately
decreased, and in the event that the Company shall at any time combine the
outstanding shares of Common Stock, the number of Shares issuable upon exercise
of this Warrant immediately prior to such combination shall be proportionately
decreased, and the Exercise Price shall be proportionately increased, effective
at the close of business on the date of such subdivision, stock dividend or
combination, as the case may be.
(c) Certain Events. If any change in the outstanding Common Stock of
--------------
the
3
<PAGE>
Company or any other event occurs as to which the other provisions of this
Section 3 are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Holder of the Warrant in accordance with such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number and class of shares available under the Warrant, the Exercise
Price or the application of such provisions, so as to protect such purchase
rights as aforesaid. The adjustment shall be such as will give the Holder of
the Warrant upon exercise for the same aggregate Exercise Price the total
number, class and kind of shares as he would have owned had the Warrant been
exercised prior to the event and had he continued to hold such shares until
after the event requiring adjustment.
4. Notices.
-------
(a) Upon any adjustment of the Exercise Price and any increase or
decrease in the number of Shares purchasable upon the exercise of this Warrant
in accordance with Section 3 hereof, then, and in each such case, the Company,
within thirty (30) days thereafter, shall give written notice thereof to the
Holder at the address of such Holder as shown on the books of the Company which
notice shall be signed by the Company's Chief Financial Officer and state the
Exercise Price as adjusted and, if applicable, the increased or decreased number
of Shares purchasable upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation of each and the factors upon which
such calculations are based.
(b) The Company shall send to the Holder not less than thirty (30)
days before the expiration of this Warrant, a written notice of the date on
which this Warrant will expire.
(c) Any written notice by the Company required or permitted hereunder
shall be given by hand delivery or first class mail, postage prepaid, addressed
to the Holder at the address shown on the books of the Company for the Holder.
5. Other Notices. If at any time:
-------------
(a) the Company shall declare any cash dividend upon its Common
Stock;
(b) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock;
(c) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or other rights;
(d) there shall be any capital reorganization or reclassification of
the capital stock of the Company; or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation.
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) there shall be an initial public offering of the Company's
securities;
4
<PAGE>
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least thirty (30) days'
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up or public offering, at least thirty (30) days' prior written notice
of the date when the same shall take place; provided, however, that the Holder
--------
shall make a best efforts attempt to respond to such notice as early as possible
after the receipt thereof; and provided further that the Company shall be
--------
required to give prior written notice at least fifteen (15) days in advance of
any action contemplated by Sections 5 (a) - (c) above. Any notice given in
accordance with the foregoing sentence shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto. Any notice given in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up, conversion or public offering, as the case may be.
6. Transfer of Warrant. This Warrant may only be transferred in
-------------------
compliance with federal and state securities laws and, except as provided below,
may not be transferred except with the prior written consent of the Company,
which shall not be unreasonably withheld or delayed, and any purported transfer
without such prior written consent shall be null and void; provided, however,
--------
that the Company may withhold its consent to transfer or assignment of this
Warrant to any person or entity who is deemed to be a competitor or prospective
competitor of the Company, such determination to be made in the reasonable
judgment of the Board of Directors of the Company. Notwithstanding the
foregoing, Holder may freely transfer this Warrant or portion thereof to (i)
affiliates and partners of Holder, (ii) at any time after the 180 day period
following the closing of an initial firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "INITIAL PUBLIC OFFERING"), or (iii) to an investment bank
or other underwriting institution in connection with an underwritten public
offering.
7. Condition to Exercise of Warrant.
--------------------------------
(a) Unless exercised pursuant to an effective registration statement
under the Securities Act which includes the Shares so exercised, it shall be a
condition to any exercise of this Warrant that the Company shall have received,
at the time of such exercise, a representation in writing from the recipient in
the form attached hereto as Exhibit A-1 that the Shares being issued upon
-----------
exercise are being acquired for investment and not with a view to any sale or
distribution thereof.
(b) Each certificate evidencing the Shares issued upon exercise of
this Warrant shall be stamped or imprinted with a legend substantially in the
following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE
5
<PAGE>
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES
LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE ACT.
8. Fractional Shares. No fractional shares of Common Stock will be
-----------------
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Exercise Price then in effect.
9. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to the Holder as follows:
(a) This Warrant has been duly authorized and executed by the Company
and is a valid and binding obligation of the Company enforceable in accordance
with its terms;
(b) The Shares have been duly authorized and reserved for issuance by
the Company and, when issued in accordance with the terms hereof, will be
validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions granted to
or imposed upon the Shares and the holders thereof are as set forth in the
Company's Articles of Incorporation, a true and complete copy of which has been
delivered to the original Holder of this Warrant; and
(d) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Articles of
Incorporation or Bylaws, as amended.
10. Representations and Warranties by the Holder. The Holder represents
--------------------------------------------
and warrants to the Company as follows:
(a) This Warrant is being acquired for its own account, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act. Upon exercise of this Warrant, the Holder shall, if so requested by the
Company, confirm in writing, in a form reasonably satisfactory to the Company,
that the Shares issuable upon exercise of this Warrant are being acquired for
investment and not with a view toward distribution or resale.
(b) The Holder understands that the Warrant and the Shares have not
been registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act pursuant to Section 4(2) thereof, and that they must be held
by the Holder indefinitely, and that the Holder must therefore bear the economic
risk of such investment indefinitely, unless a subsequent disposition thereof is
registered under the Securities Act or is exempted from such registration. The
Holder further understands that the Shares have not been qualified under the
California Securities Law of 1968 (the "CALIFORNIA LAW") by reason of their
issuance in a transaction exempt from the qualification requirements of the
California
6
<PAGE>
Law pursuant to Section 25102(f) thereof, which exemption depends upon, among
other things, the bona fide nature of the Holder's investment intent expressed
above.
(c) The Holder has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
purchase of this Warrant and the Shares purchasable pursuant to the terms of
this Warrant and of protecting its interests in connection therewith.
(d) The Holder is able to bear the economic risk of the purchase of
the Shares pursuant to the terms of this Warrant.
11. Rights of Shareholders. No holder of this Warrant shall be entitled,
----------------------
as a Warrant holder, to vote or receive dividends or be deemed the holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of stock, reclassification of stock, change of
par value, consolidation, merger, conveyance, or otherwise) or to receive notice
of meetings, or to receive dividends or subscription rights or otherwise until
the Warrant shall have been exercised and the Shares purchasable upon the
exercise hereof shall have become deliverable, as provided herein.
12. Expiration of Warrant. This Warrant shall expire and shall no longer
---------------------
be exercisable as of 5:00 p.m., California local time, on October 3, 2001.
13. Miscellaneous.
-------------
(a) This Warrant is being delivered in the State of California and
shall be construed and enforced in accordance with and governed by the laws of
such State.
(b) The headings in this Warrant are for purposes of reference only,
and shall not limit or otherwise affect any of the terms hereof.
(c) The terms of this Warrant shall be binding upon and shall inure
to the benefit of any successors or assigns of the Company and of the holder or
holders hereof and of the Shares issued or issuable upon the exercise hereof.
(d) This Warrant and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
(e) The Company shall not, by amendment of its Articles of
Incorporation, or through any other means, directly or indirectly, avoid or seek
to avoid the observance or performance of any of the terms of this Warrant and
shall at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect
7
<PAGE>
the rights of the holder of this Warrant against impairment.
(f) Upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant and, in the case
of any such loss, theft or destruction, upon delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of any
such mutilation, upon surrender and cancellation of such Warrant, the Company at
its expense will execute and deliver to the holder of record, in lieu thereof, a
new Warrant of like date and tenor.
(g) This Warrant and any provision hereof may be amended, waived or
terminated only by an instrument in writing signed by the Company and the
Holder.
(h) Receipt of this Warrant by the holder hereof shall constitute
acceptance of and agreement to the foregoing terms and conditions.
[SIGNATURE PAGE FOLLOWS]
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Issued this 3rd day of October, 1996.
SOFTWARE.COM, INC.
By:__________________________________
John L. MacFarlane
Chief Executive Officer
ACKNOWLEDGED AND ACCEPTED:
______________________________
Warrant Holder
Address:
___________________
___________________
___________________
___________________
Telephone:_________
Fax:_______________
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
TO: SOFTWARE.COM, INC.
525 Anacapa St.
Santa Barbara, CA 93101
Attention: General Counsel
1. In lieu of exercising the attached Warrant for cash or check, the
undersigned hereby elects to effect the net issuance provision of Section 1(b)
of this Warrant and receive ___________ (leave blank if you choose Alternative
No. 2 below) shares of Common Stock pursuant to the terms of this Warrant.
(Initial here if the undersigned elects this alternative). ________.
2. The undersigned hereby elects to purchase ______________ (leave blank
if you choose alternative No. 1 above) shares of Common Stock of SOFTWARE.COM,
INC. pursuant to the terms of this Warrant, and tenders herewith payment of the
purchase price of such shares in full.
3. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
_________________________________
(Name)
_________________________________
_________________________________
(Address)
4. [APPLICABLE ONLY IF THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
OF THE WARRANT ARE NOT REGISTERED FOR RESALE UNDER THE SECURITIES ACT OF 1933,
AS AMENDED] The undersigned hereby represents and warrants that the aforesaid
shares of Common Stock are being acquired for the account of the undersigned for
investment and not with a view to, or for resale, in connection with the
distribution thereof, and that the undersigned has no present intention of
distributing or reselling such shares, and that all representations and
warranties of the undersigned set forth in Section 9 of the attached Warrant are
true and correct as of the date hereof. In support thereof, the undersigned
agrees to execute an Investment Representation Statement in a form substantially
similar to the form attached to the Warrant as Exhibit A-1.
-----------
________________________________
(Signature and Date)
Title: _________________________
10
<PAGE>
EXHIBIT A-1
-----------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : _________________________
SELLER : SOFTWARE.COM, INC.
COMPANY : SOFTWARE.COM, INC.
SECURITY : COMMON STOCK ISSUED UPON EXERCISE OF THE COMMON
STOCK PURCHASE WARRANT ISSUED ON _______, 1996
AMOUNT : __________ SHARES
DATE : ____________, 19__
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Seller and to the Company the following:
(a) I am aware of the Company's business affairs and financial condition,
and have acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the Securities. I am purchasing these
Securities for my own account for investment purposes only and not with a view
to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933, as amended (the "Securities Act").
(b) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. In this connection, I understand that, in the view of the
Securities and Exchange Commission (the "SEC"), the statutory basis for such
exemption may be unavailable if my representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that, except as
set forth in that certain Registration Rights Agreement, dated October 2, 1996,
by and among the Company and the undersigned parties thereto, the Company is
under no obligation to register the Securities. In addition, I understand that
the certificate evidencing
11
<PAGE>
the Securities will be imprinted with a legend which prohibits the transfer of
the Securities unless they are registered or such registration is not required
in the reasonable opinion of counsel for the Company.
(d) I am familiar with the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof, in a non-public offering subject to the satisfaction of certain
conditions.
The Securities may be resold in certain limited circumstances subject to
the provisions of Rule 144, which requires among other things: (1) the
availability of certain public information about the Company, (2) the resale
occurring not less than two years after the party has purchased, and made full
payment for, within the meaning of Rule 144, the securities to be sold; and, in
the case of an affiliate, or of a non-affiliate who has held the securities less
than three years, (3) the sale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934) and the amount of
securities being sold during any three month period not exceeding the specified
limitations stated therein, if applicable.
(e) I agree, in connection with the Company's initial underwritten public
offering of the Company's securities, (1) not to sell, make short sale of, loan,
grant any options for the purchase of, or otherwise dispose of any shares of
Common Stock of the Company held by me (other than those shares included in the
registration) without the prior written consent of the Company or the
underwriters managing such initial underwritten public offering of the Company's
securities for a period not to exceed one hundred eighty (180) days from the
effective date of such registration, and (2) I further agree to execute any
agreement reflecting (1) above as may be requested by the underwriters at the
time of the public offering; provided, however that the officers and directors
--------
of the Company who own the stock of the Company also agree to such restrictions.
(f) I further understand that in the event all of the applicable
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will
12
<PAGE>
have a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their own
risk.
_______________________________
(Signature)
By:____________________________
Title:_________________________
Date:________________
13
<PAGE>
- --------------------------------------------------------------------------------
Amendment to Common Stock Purchase Warrant
No.C-__
- --------------------------------------------------------------------------------
This Amendment to Common Stock Purchase Warrant (this "AMENDMENT") is
dated as of July 31, 1998 (the "EFFECTIVE DATE") by and between Software.com,
Inc., a California corporation (the "COMPANY") and AT&T Ventures ("AT&T"). This
Amendment is entered into in connection with that certain Waiver of Redemption
Rights Agreement dated as of July 31, 1998 by and between the Company and AT&T.
In consideration of the transactions contemplated by the Waiver of
Redemption Rights Agreement, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. Amendment to Common Stock Purchase Warrant, No. C-__. The parties agree
---------------------------------------------------
that the Common Stock Purchase Warrant, No. C-__, issued October 3, 1996 (the
"WARRANT") is amended as follows:
The first full paragraph on page 1 of the Warrant (excluding the
securities legend at the top of the page) is hereby amended in its entirety to
read as follows:
"THIS CERTIFIES THAT, for value received, _____________________ (the
"HOLDER") is entitled to subscribe for and purchase from Software.com,
Inc., a California corporation (the "COMPANY"), ________ shares (as
adjusted pursuant to Section 3 hereof) of the fully paid and nonassessable
Common Stock, no par value (the "SHARES"), of the Company at the price of
$4.15 per share (the "EXERCISE PRICE") (as adjusted pursuant to Section 3
hereof), subject to the provisions and upon the terms and conditions
hereinafter set forth."
2. No Further Amendment. In all other respects the Warrant shall continue in
--------------------
full force and effect without change.
3. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
AT&T VENTURES SOFTWARE.COM
By: _____________________________ By: __________________________________
Name: Neal Douglas Name: John L. MacFarlane
Title: Managing Director Title: Chief Executive Officer
SIGNATURE PAGE
<PAGE>
EXHIBIT 4.5
COMMON STOCK PURCHASE WARRANT
THIS WARRANT HAS BEEN, AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED
PURSUANT TO THE EXERCISE OF THIS WARRANT (THE "SHARES") WILL BE, ACQUIRED SOLELY
FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES (TOGETHER, THE
"SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND
ITS COUNSEL THAT SUCH DISPOSITION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE STATE
SECURITIES LAWS.
NO. C-5 VOID AFTER AUGUST 10, 2003
SOFTWARE.COM, INC.
WARRANT TO PURCHASE 67,961 SHARES OF COMMON STOCK
----------
THIS CERTIFIES THAT, for value received, COAST BUSINESS CREDIT(R), a
division of Southern Pacific Thrift & Loan Association (the "HOLDER") is
entitled to subscribe for and purchase from Software.com, Inc., a California
corporation (the "COMPANY"), sixty seven thousand nine hundred sixty one
(67,961) shares (as adjusted pursuant to Section 3 hereof) of the fully paid and
nonassessable Common Stock, no par value (the "SHARES"), of the Company at the
price of $5.15 per share (the "EXERCISE PRICE") (as adjusted pursuant to Section
3 hereof), subject to the provisions and upon the terms and conditions
hereinafter set forth.
1. Method of Exercise; Payment.
---------------------------
(a) Exercise Period. The purchase rights represented by this Warrant
---------------
may be exercised by the Holder during the term of this Warrant (as set forth in
Section 11 hereof), in whole or in part, at any time after the date of issuance
by the surrender of this Warrant (with the notice of exercise form (the "NOTICE
OF EXERCISE") attached hereto as Exhibit A duly executed) at the principal
---------
office of the Company.
(b) Cash Exercise. This Warrant may be exercised by the payment to
-------------
the Company of an amount equal to the Exercise Price multiplied by the number of
the Shares being purchased, at the election of the Holder, by wire transfer or
certified check payable to the order of the Company. The person or persons in
whose name(s) any certificate(s) representing Shares shall be issuable upon
exercise of this Warrant shall be deemed to have become the holder(s) of record
of, and shall be treated for all purposes as the record holder(s) of, the Shares
represented thereby (and such
1
<PAGE>
Shares shall be deemed to have been issued) immediately prior to the close of
business on the date or dates upon which this Warrant is exercised.
(c) Net Issue Exercise.
------------------
i) In lieu of exercising this Warrant pursuant to Section 1(b)
above, the Holder may elect to receive a number of Shares equal to the value (as
determined below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company together with
Notice of Exercise in which alternative No. 1 is initialed by the Holder. In
such event, the Company shall issue to the Holder a number of Shares computed
using the following formula:
X = Y (A-B)
-------
A
Where X = the number of Shares to be issued to the Holder.
Y = the number of Shares subject to this Warrant (or the portion
thereof being canceled).
A = the fair market value of one share of the Company's Common Stock.
B = the Exercise Price (as adjusted to the date of such calculation).
(d) Fair Market Value. For purposes of this Section 1, the fair
-----------------
market value of the Company's Common Stock shall mean:
i) The average of the closing bid and asked prices of the
Company's Common Stock quoted in the over-the-counter market summary or the
closing price quoted on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall Street
Journal for the ten trading days prior to the date of determination of fair
market value; or
ii) If the Company's Common Stock is not traded over-the-counter
or on an exchange, fair market value of the Common Stock per share shall be the
price per share as determined reasonably and in good faith by the Company's
Board of Directors. Receipt and formal acknowledgment by a duly authorized
representative of the Holder of the Shares issued upon exercise of this Warrant
by the Holder shall be conclusively deemed to be an acknowledgment and
acceptance of any such fair market value determination by the Company's Board of
Directors as the final and binding determination of such value for purposes of
this Warrant.
(e) Stock Certificates. In the event of any exercise of the rights
------------------
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to the Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a
2
<PAGE>
new Warrant representing the shares with respect to which this Warrant shall not
have been exercised shall also be issued to the Holder within such time.
2. Stock Fully Paid; Reservation of Shares. All of the Shares issuable
---------------------------------------
upon the exercise of the rights represented by this Warrant will, upon issuance
and receipt of the Exercise Price therefor, be fully paid and nonassessable, and
free from all preemptive rights, rights of first refusal or first offer, taxes,
liens and charges with respect to the issuance thereof. During the period within
which the rights represented by this Warrant may be exercised, the Company shall
at all times have authorized and reserved for issuance sufficient shares of its
Common Stock to provide for the exercise of the rights represented by this
Warrant.
3. Adjustment of Exercise Price and Number of Shares. Subject to the
-------------------------------------------------
provisions of Section 11 hereof, the number and kind of Shares purchasable upon
the exercise of this Warrant and the Exercise Price therefor shall be subject to
adjustment from time to time upon the occurrence of certain events, as follows:
(a) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification of the Common Stock (other than a change in par value, or as a
result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger with another corporation in which the Company is a
continuing corporation and in which the Company's shareholders immediately
preceding such consolidation or merger own at least 50% of the voting securities
of the Company following such consolidation or merger and which does not result
in any reclassification of the Shares issuable upon exercise of this Warrant),
or in case of any sale of all or substantially all of the assets of the Company,
the Company, or such successor or purchasing corporation as the case may be,
shall execute a new Warrant, providing that the holder of this Warrant shall
have the right to exercise such new Warrant, and procure upon such exercise and
payment of the same aggregate Exercise Price, in lieu of the Shares of Common
Stock theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change, consolidation, sale of all or substantially all of the
Company's assets or merger by a holder of an equivalent number of shares of
Common Stock. Such new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 3. The provisions of this subsection (a), subject to Section 11 hereof,
shall similarly apply to successive reclassifications, consolidations, mergers,
and the sale of all or substantially all of the Company's assets.
(b) Stock Splits, Dividends and Combinations. In the event that the
----------------------------------------
Company shall at any time subdivide the outstanding shares of Common Stock, or
shall issue a stock dividend on its outstanding shares of Common Stock, the
number of Shares issuable upon exercise of this Warrant immediately prior to
such subdivision or to the issuance of such stock dividend shall be
proportionately increased, and the Exercise Price shall be proportionately
decreased, and in the event that the Company shall at any time combine the
outstanding shares of Common Stock, the number of Shares issuable upon exercise
of this Warrant immediately prior to such combination shall be proportionately
decreased, and the Exercise Price shall be proportionately increased, effective
at the close of business on the date of such subdivision, stock dividend or
combination, as the case may be.
(c) Certain Events. If any change in the outstanding Common Stock of
--------------
the Company or any other event occurs as to which the other provisions of this
Section 3 are not strictly
3
<PAGE>
applicable or if strictly applicable would not fairly protect the purchase
rights of the Holder of the Warrant in accordance with such provisions, then the
Board of Directors of the Company shall make an adjustment in the number and
class of shares available under the Warrant, the Exercise Price or the
application of such provisions, so as to protect such purchase rights as
aforesaid. The adjustment shall be such as will give the Holder of the Warrant
upon exercise for the same aggregate Exercise Price the total number, class and
kind of shares as he would have owned had the Warrant been exercised prior to
the event and had he continued to hold such shares until after the event
requiring adjustment.
4. Notices.
-------
(a) Upon any adjustment of the Exercise Price and any increase or
decrease in the number of Shares purchasable upon the exercise of this Warrant
in accordance with Section 3 hereof, then, and in each such case, the Company,
within thirty (30) days thereafter, shall give written notice thereof to the
Holder at the address of such Holder as shown on the books of the Company which
notice shall be signed by the Company's Chief Financial Officer and state the
Exercise Price as adjusted and, if applicable, the increased or decreased number
of Shares purchasable upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation of each and the factors upon which
such calculations are based.
(b) The Company shall send to the Holder not less than thirty (30)
days before the expiration of this Warrant, a written notice of the date on
which this Warrant will expire.
(c) Any written notice by the Company required or permitted hereunder
shall be given by hand delivery or first class mail, postage prepaid, addressed
to the Holder at the address shown on the books of the Company for the Holder.
5. Other Notices. If at any time:
-------------
(a) the Company shall declare any cash dividend upon its Common
Stock;
(b) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock;
(c) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or other rights;
(d) there shall be any capital reorganization or reclassification of
the capital stock of the Company; or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation.
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) there shall be an initial public offering of the Company's
securities;
4
<PAGE>
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least thirty (30) days'
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up or public offering, at least thirty (30) days' prior written notice
of the date when the same shall take place; provided, however, that the Holder
shall make a best efforts attempt to respond to such notice as early as possible
after the receipt thereof; and provided further that the Company shall be
required to give prior written notice at least fifteen (15) days in advance of
any action contemplated by Sections 5 (a) - (c) above. Any notice given in
accordance with the foregoing sentence shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto. Any notice given in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up, conversion or public offering, as the case may be.
6. Transfer of Warrant. This Warrant may only be transferred in
-------------------
compliance with federal and state securities laws and, except as provided below,
may not be transferred except with the prior written consent of the Company,
which shall not be unreasonably withheld or delayed, and any purported transfer
without such prior written consent shall be null and void; provided, however,
that the Company may withhold its consent to transfer or assignment of this
Warrant to any person or entity who is deemed to be a competitor or prospective
competitor of the Company, such determination to be made in the reasonable
judgment of the Board of Directors of the Company. Notwithstanding the
foregoing, Holder may freely transfer this Warrant or portion thereof to (i)
affiliates and partners of Holder, (ii) at any time after the 180 day period
following the closing of an initial firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Initial Public Offering"), or (iii) to an investment bank
or other underwriting institution in connection with an underwritten public
offering.
7. Condition to Exercise of Warrant.
--------------------------------
(a) Unless exercised pursuant to an effective registration statement
under the Securities Act which includes the Shares so exercised, it shall be a
condition to any exercise of this Warrant that the Company shall have received,
at the time of such exercise, a representation in writing from the recipient in
the form attached hereto as Exhibit A-1 that the Shares being issued upon
exercise are being acquired for investment and not with a view to any sale or
distribution thereof.
(b) Each certificate evidencing the Shares issued upon exercise of
this Warrant shall be stamped or imprinted with a legend substantially in the
following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES
5
<PAGE>
LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE ACT.
8. Fractional Shares. No fractional shares of Common Stock will be issued
-----------------
in connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
9. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to the Holder as follows:
(a) This Warrant has been duly authorized and executed by the Company
and is a valid and binding obligation of the Company enforceable in accordance
with its terms;
(b) The Shares have been duly authorized and reserved for issuance by
the Company and, when issued in accordance with the terms hereof, will be
validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions granted to
or imposed upon the Shares and the holders thereof are as set forth in the
Company's Articles of Incorporation, a true and complete copy of which has been
delivered to the original Holder of this Warrant; and
(d) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Articles of
Incorporation or Bylaws, as amended.
10. Representations and Warranties by the Holder. The Holder represents
--------------------------------------------
and warrants to the Company as follows:
(a) This Warrant is being acquired for its own account, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act. Upon exercise of this Warrant, the Holder shall, if so requested by the
Company, confirm in writing, in a form reasonably satisfactory to the Company,
that the Shares issuable upon exercise of this Warrant are being acquired for
investment and not with a view toward distribution or resale.
(b) The Holder understands that the Warrant and the Shares have not
been registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act pursuant to Section 4(2) thereof, and that they must be held
by the Holder indefinitely, and that the Holder must therefore bear the economic
risk of such investment indefinitely, unless a subsequent disposition thereof is
registered under the Securities Act or is exempted from such registration. The
Holder further understands that the Shares have not been qualified under the
California Securities Law of 1968 (the "CALIFORNIA LAW") by reason of their
issuance in a transaction exempt from the qualification requirements of the
California Law pursuant to Section 25102(f) thereof, which exemption depends
upon, among other things, the bona fide nature of the Holder's investment intent
expressed above.
6
<PAGE>
(c) The Holder has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
purchase of this Warrant and the Shares purchasable pursuant to the terms of
this Warrant and of protecting its interests in connection therewith.
(d) The Holder is able to bear the economic risk of the purchase of
the Shares pursuant to the terms of this Warrant.
11. Rights of Shareholders. No holder of this Warrant shall be entitled,
----------------------
as a Warrant holder, to vote or receive dividends or be deemed the holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issuance of stock, reclassification of stock, change of
par value, consolidation, merger, conveyance, or otherwise) or to receive notice
of meetings, or to receive dividends or subscription rights or otherwise until
the Warrant shall have been exercised and the Shares purchasable upon the
exercise hereof shall have become deliverable, as provided herein.
12. Expiration of Warrant. This Warrant shall expire and shall no longer
---------------------
be exercisable as of 5:00 p.m., California local time, on August 10, 2003.
13. Miscellaneous.
-------------
(a) This Warrant is being delivered in the State of California and
shall be construed and enforced in accordance with and governed by the laws of
such State.
(b) The headings in this Warrant are for purposes of reference only,
and shall not limit or otherwise affect any of the terms hereof.
(c) The terms of this Warrant shall be binding upon and shall inure
to the benefit of any successors or assigns of the Company and of the holder or
holders hereof and of the Shares issued or issuable upon the exercise hereof.
(d) This Warrant and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
(e) The Company shall not, by amendment of its Articles of
Incorporation, or through any other means, directly or indirectly, avoid or seek
to avoid the observance or performance of any of the terms of this Warrant and
shall at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the holder of this Warrant against impairment.
7
<PAGE>
(f) Upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant and, in the case
of any such loss, theft or destruction, upon delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of any
such mutilation, upon surrender and cancellation of such Warrant, the Company at
its expense will execute and deliver to the holder of record, in lieu thereof, a
new Warrant of like date and tenor.
(g) This Warrant and any provision hereof may be amended, waived or
terminated only by an instrument in writing signed by the Company and the
Holder.
(h) Receipt of this Warrant by the holder hereof shall constitute
acceptance of and agreement to the foregoing terms and conditions.
[SIGNATURE PAGE FOLLOWS]
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Issued this 10/th/ day of August, 1998.
SOFTWARE.COM, INC.
By: /s/ John L. MacFarlane
----------------------
John L. MacFarlane
Chief Executive Officer
ACKNOWLEDGED AND ACCEPTED:
__________________________________
Warrant Holder
Address:
Telephone: _______________________
Fax: _____________________________
9
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
TO: SOFTWARE.COM, INC.
525 Anacapa St.
Santa Barbara, CA 93101
Attention: General Counsel
1. In lieu of exercising the attached Warrant for cash or check, the
undersigned hereby elects to effect the net issuance provision of Section 1(b)
of this Warrant and receive ____________ (leave blank if you choose Alternative
No. 2 below) shares of Common Stock pursuant to the terms of this Warrant.
(Initial here if the undersigned elects this alternative). ____________.
2. The undersigned hereby elects to purchase ____________ (leave blank if
you choose alternative No. 1 above) shares of Common Stock of SOFTWARE.COM, INC.
pursuant to the terms of this Warrant, and tenders herewith payment of the
purchase price of such shares in full.
3. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
_________________________________
(Name)
_________________________________
_________________________________
(Address)
4. [APPLICABLE ONLY IF THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
OF THE WARRANT ARE NOT REGISTERED FOR RESALE UNDER THE SECURITIES ACT OF 1933,
AS AMENDED] The undersigned hereby represents and warrants that the aforesaid
shares of Common Stock are being acquired for the account of the undersigned for
investment and not with a view to, or for resale, in connection with the
distribution thereof, and that the undersigned has no present intention of
distributing or reselling such shares, and that all representations and
warranties of the undersigned set forth in Section 9 of the attached Warrant are
true and correct as of the date hereof. In support thereof, the undersigned
agrees to execute an Investment Representation Statement in a form substantially
similar to the form attached to the Warrant as Exhibit A-1.
-----------
______________________________________
(Signature and Date)
Title: _______________________________
10
<PAGE>
EXHIBIT A-1
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : _________________________
SELLER : SOFTWARE.COM, INC.
COMPANY : SOFTWARE.COM, INC.
SECURITY : COMMON STOCK ISSUED UPON EXERCISE OF THE COMMON STOCK
PURCHASE WARRANT ISSUED ON AUGUST 10, 1998
AMOUNT : __________ SHARES
DATE : ______________
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Seller and to the Company the following:
(a) I am aware of the Company's business affairs and financial condition,
and have acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the Securities. I am purchasing these
Securities for my own account for investment purposes only and not with a view
to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933, as amended (the "Securities Act").
(b) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. In this connection, I understand that, in the view of the
Securities and Exchange Commission (the "SEC"), the statutory basis for such
exemption may be unavailable if my representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities. In addition, I
understand that the certificate evidencing the Securities will be imprinted with
a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the reasonable opinion of
counsel for the Company.
(d) I am familiar with the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or
11
<PAGE>
indirectly, from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions.
The Securities may be resold in certain limited circumstances subject to
the provisions of Rule 144, which requires among other things: (1) the
availability of certain public information about the Company, (2) the resale
occurring not less than one year after the party has purchased, and made full
payment for, within the meaning of Rule 144, the securities to be sold; and, in
the case of an affiliate, or of a non-affiliate who has held the securities less
than two years, (3) the sale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934) and the amount of
securities being sold during any three month period not exceeding the specified
limitations stated therein, if applicable.
(e) I agree, in connection with the Company's initial underwritten public
offering of the Company's securities, (1) not to sell, make short sale of, loan,
grant any options for the purchase of, or otherwise dispose of any shares of
Common Stock of the Company held by me (other than those shares included in the
registration) without the prior written consent of the Company or the
underwriters managing such initial underwritten public offering of the Company's
securities for a period not to exceed one hundred eighty (180) days from the
effective date of such registration, and (2) I further agree to execute any
agreement reflecting (1) above as may be requested by the underwriters at the
time of the public offering; provided, however that the officers and directors
of the Company who own the stock of the Company also agree to such restrictions.
(f) I further understand that in the event all of the applicable
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
______________________________________
(Signature)
By:___________________________________
Title:________________________________
Date:_________________________________
12
<PAGE>
EXHIBIT 4.6
SHARE PURCHASE AGREEMENT
by and among
Software.com, Inc.,
Mobility.Net Corporation
and
Michael Machado
Dated as of April 2, 1999
<PAGE>
SHARE PURCHASE AGREEMENT
This SHARE PURCHASE AGREEMENT (the "Agreement") is made and entered into
---------
as of April 2, 1999 (the "Effective Date") by and among Software.com, Inc.
--------------
("Software.com"), a California corporation, Mobility.Net Corporation (the
------------
"Company"), a California corporation, and Michael Machado, the sole shareholder
-------
of the Company ("Shareholder").
-----------
RECITALS
WHEREAS, Shareholder owns all of the issued shares of capital stock of the
Company.
WHEREAS, Software.com desires to acquire from Shareholder, and Shareholder
desires to sell to Software.com, the Company Shares (as hereinafter defined)
owned by Shareholder in exchange for the consideration specified herein and
subject to the terms and conditions hereof (such transaction hereinafter
referred to as the "Share Exchange").
--------------
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
---------
PURCHASE AND SALE OF COMPANY SHARES AND RIGHTS
----------------------------------------------
1.1. Purchase and Sale. Subject to the terms and conditions set forth in
-----------------
this Agreement, at the Share Exchange Software.com shall purchase from
Shareholder, and Shareholder shall sell, assign, transfer and deliver to
Software.com, or cause to be sold, assigned transferred and delivered, the
Company Shares owned by Shareholder free and clear of any pledge, lien, security
interest, encumbrance, claim or other equitable or third-party interest
(collectively, "Liens").
1.2. Acquisition Consideration; Exchange Ratio.
-----------------------------------------
(a) In reliance on the representations, warranties and covenants of
Shareholder and the Company contained herein, and in consideration of the
aforesaid sale, assignment, transfer and delivery of the Company Shares and
Company Rights, Software.com shall (i) issue to Shareholder in exchange for all
Company Shares and the agreements of Shareholder and the Company made in
connection with the transactions contemplated hereby, 1,579,294 shares of
Software.com Common Stock (as hereinafter defined), and (ii) reserve 74,424
shares of Software.com Common Stock for issuance upon exercise of all of the
Company Rights to be assumed by Software.com pursuant to Section 1.5 hereof (all
such shares of Software.com Common Stock referred to collectively the
"Acquisition Consideration"). The shares of Software.com Common Stock to be
-------------------------
issued to Shareholder are hereinafter referred to as the "Shareholder Common
------------------
Stock" and the shares to be reserved for issuance for the Company Rights shall
- -----
be referred to as the "Options Common Stock."
--------------------
-1-
<PAGE>
(b) For purposes of this Agreement: (i) "Software.com Common Stock"
-------------------------
shall mean shares of common stock of Software.com, no par value; (ii) "Company
-------
Shares" shall mean shares of common stock of the Company, no par value; (iii)
- ------
"Company Rights" shall mean any options or warrants or other agreements or
--------------
commitments to purchase Company Shares or any securities convertible into or
exchangeable for Company Shares; and (iv) "Exchange Ratio" shall mean the
--------------
quotient obtained by dividing (x) the Acquisition Consideration by (y) the sum
of (A) the Company Shares outstanding as of the Exchange Date, and (B) the total
number of Company Shares of the Company reserved for issuance or otherwise
issuable upon exercise or conversion of the Company Rights outstanding as of the
Exchange Date.
1.3. Share Exchange. The Share Exchange shall occur at the offices of
--------------
Wilson Sonsini Goodrich & Rosati located at 650 Page Mill Road, Palo Alto,
California 94304, at 8:00 a.m., local time, on the next business day following
the date all of the conditions set forth in Section 6 have been satisfied, or on
such other date as the parties hereto shall agree. The Share Exchange shall be
effected with the delivery of the Company Certificates (as hereinafter defined)
by Shareholder in accordance with Section 1.5(a) and the payment of the
Acquisition Consideration by Software.com in accordance with Section 1.5(b). The
date on which the Share Exchange shall occur is referred to herein as the
"Exchange Date."
-------------
1.4. Surrender of Company Certificates; Payment of Acquisition
---------------------------------------------------------
Consideration.
- -------------
(a) At the Share Exchange, Shareholder and the Company shall deliver
or cause to be delivered to Software.com a certificate or certificates and/or
any other instrument (the "Company Certificates") representing all Company
--------------------
Shares owned by Shareholder, together with all necessary endorsements, transfers
or assignments required for the valid delivery thereof.
(b) Concurrent with the delivery of the Company Certificates by
Shareholder, Software.com shall deliver to Shareholder as payment of the
applicable portion of the Acquisition Consideration in accordance with this
Article I, the Shareholder Common Stock in the name of Shareholder issued in
accordance with the Articles of Incorporation of Software.com; provided,
however, that Software.com and Shareholder shall forthwith deposit ten percent
(10%) of the Shareholder Common Stock (the "Escrow Amount") into an escrow
-------------
account pursuant to Section 7.3 below.
(c) If any share of Software.com Common Stock is to be issued in a
name other than that in which the Company Certificate surrendered in exchange
therefor is registered, it will be a condition of the issuance thereof that the
Company Certificate so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to Software.com or any agent designated by it any transfer or other taxes
required by reason of the issuance of a share of Software.com Common Stock in
any name other than that of the registered holder of the Company Certificate
surrendered, or established to the satisfaction of Software.com or any agent
designated by it that such tax has been paid or is not payable.
1.5. Assumption of Company Rights.
----------------------------
-2-
<PAGE>
(a) Stock Options. On the Exchange Date, all Company Rights then
-------------
outstanding under the Company's 1999 Stock Option Plan (the "Option Plan"), or
-----------
otherwise, shall be assumed by Software.com in accordance with following
provisions. Each Company Right so assumed by Software.com under this Agreement
shall continue to have, and be subject to, the same terms and conditions set
forth in the Option Plan and/or as provided in the respective option agreements
governing such Company Right immediately prior to the Exchange Date, except that
(A) such Company Right shall be exercisable for that number of whole shares of
Software.com Common Stock equal to the product of the number of Company Shares
that were issuable upon exercise of such Company Right immediately prior to the
Exchange Date multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of Software.com Common Stock and (B) the per share
exercise price for the shares of Software.com Common Stock issuable upon
exercise of such assumed Company Right shall be equal to the quotient determined
by dividing the exercise price per Company Share at which such Company Right was
exercisable immediately prior to the Exchange Date by the Exchange Ratio,
rounded up to the nearest whole cent.
(b) It is the intention of the parties that the Company Rights
assumed by Software.com qualify following the Exchange Date as incentive stock
options as defined in Section 422 of the Internal Revenue Code of 1986 to the
extent the Company Rights qualified as incentive stock options immediately prior
to the Exchange Date. Promptly following the Exchange Date, Software.com will
issue to each holder of an outstanding Company Right a document evidencing the
foregoing assumption of such Company Right by Software.com.
1.6. No Further Ownership Rights in Company Shares. All shares of
---------------------------------------------
Software.com Common Stock issued in exchange for Company Shares in accordance
with the terms of this Agreement (including any cash paid in respect thereof)
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Company Shares.
1.7. Lost, Stolen or Destroyed Company Certificates. In the event any
----------------------------------------------
Company Certificates evidencing Company Shares shall have been lost, stolen or
destroyed, Software.com shall make payment, in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, of such shares of Software.com Common Stock (subject to the
Escrow Amount) as may be required pursuant to Section 1.2; provided, however,
that Software.com may, in its sole discretion and as a condition precedent to
the issuance thereof, require the owner of any such lost, stolen or destroyed
Company Certificates to deliver a bond in such sum as Software.com may
reasonably direct as indemnity against any claim that may be made against
Software.com with respect to the Company Certificates alleged to have been lost,
stolen or destroyed.
1.8. Taking of Necessary Action; Further Action. If, at any time after
------------------------------------------
the Share Exchange, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest Software.com with full right, title
and possession to all assets, property, rights, privileges, powers and
franchises of the Company, the officers and directors of Software.com and the
Company are hereby fully authorized in the names of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
-3-
<PAGE>
ARTICLE II
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REPRESENTATIONS AND WARRANTIES
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OF SHAREHOLDER AND THE COMPANY
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Except as set forth in the Company Disclosure Schedule, Shareholder and
the Company hereby represent and warrant to Software.com as follows:
2.1 Organization. The Company is a corporation duly incorporated and
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organized, and is validly existing and in good standing under the laws of the
state of California. The Company has the corporate power to own its properties
and to carry on its business as now being conducted. The Company is duly
registered, licensed or qualified as a foreign corporation and is in good
standing, under the laws of each jurisdiction in which the failure to be so
qualified could have a material adverse effect on the business, assets,
financial condition, results of operations or prospects of the Company (with
reference to either the Company or Software.com, as applicable, hereinafter
referred to as a "Material Adverse Effect"). The Company has delivered a true
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and correct officially certified copy of its Articles of Incorporation and
Bylaws, (together, the "Charter"), to Software.com.
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2.2 Capital Structure. The authorized stated capital of the Company
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consists of 10,000,000 Company Shares, of which 1,000,000 shares are issued and
outstanding. All issued and outstanding Company Shares have been duly authorized
and validly issued and are fully paid and nonassessable, and were not issued in
violation of or subject to any preemptive right, or other rights to subscribe
for or purchase shares, and are owned by Shareholder free and clear of any
Liens. Other than Company Shares owned by Shareholder, there are no other
outstanding interests, existing or contingent or direct or indirect, in Company
Shares. Immediately following the Share Exchange as provided in this Agreement,
the Company will be a wholly owned subsidiary of Software.com. Except as set
forth in Section 2.2 of the Company Disclosure Schedule, there are no Company
Rights of any character, written or oral, to which the Company or any
shareholder of the Company is a party or by which any of them is bound,
obligating the Company or any of its shareholders to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any Company Shares or obligating the Company or any of its
shareholders to grant, extend, accelerate the vesting of, change the price of,
otherwise amend or enter into any such Company Rights, including without
limitation in favor of employees of the Company.
2.3 Subsidiaries. The Company does not have and has never had any
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subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares in the capital of or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 Authority. The Company has all requisite corporate power and authority
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to enter into this Agreement and any Related Agreements (as hereinafter defined)
to which it is a party and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and any Related
Agreements to which the Company is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate
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action on the part of the Company, and no further action is required on the part
of the Company to authorize the Share Exchange, the Agreement, any Related
Agreements to which it is a party and the transactions contemplated hereby and
thereby. This Agreement and any Related Agreements to which the Company is a
party have been duly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
constitute the valid and binding obligation of the Company, enforceable in
accordance with their respective terms, subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and to
rules of law governing specific performance, injunctive relief or other
equitable remedies. The "Related Agreements" shall mean all such ancillary
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agreements required in this Agreement to be executed and delivered in connection
with the transactions contemplated hereby, including the Employment Agreement
(as defined in Section 5.8 herein), the Escrow Agreement (as defined in Section
7.3) and the affiliate agreements required by Section 5.11.
2.5 No Conflict. The execution and delivery of this Agreement and any
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Related Agreements to which the Company is a party by the Company do not, and,
the consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation, modification or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (i) any provision of the Charter,
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(ii) any mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise or license to which the Company is subject, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets, other than any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which would not have a Material Adverse Effect on the ability of the Company to
consummate the transactions contemplated hereby and thereby.
2.6 Consents. No consent, waiver, approval, order or authorization of, or
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registration, declaration or filing with, any court, administrative agency or
commission or other U.S. federal, state, province, county, local or other
foreign governmental authority, instrumentality, agency or commission
("Governmental Entity") or any third party, including a party to any agreement
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with the Company (so as not to trigger any Conflict), is required by or with
respect to the Company in connection with the execution and delivery of this
Agreement and any Related Agreements to which the Company is a party or the
consummation of the transactions contemplated hereby and thereby, except for
such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings (i) as may be required under applicable securities
laws, (ii) as are set forth in Section 2.6 of the Company Disclosure Schedule,
and (iii) such other consents, authorizations, filings, approvals and
registrations which if not obtained or made would not have a Material Adverse
Effect on the ability of the Company to consummate the transactions contemplated
hereby and thereby.
2.7 Company Financial Statements.
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(a) Section 2.7(a) of the Company Disclosure Schedule includes the
Company's unaudited financial statements (balance sheets, income statements and
statements of cash flows) as of and for the fiscal years ending December 31,
1996, 1997 and 1998. Such financial statements are referred to collectively as
the "Financial Statements." The Financial Statements are complete and correct
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and have been or will be, as applicable, prepared in accordance with generally
accepted
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accounting principles in the United States ("GAAP"), applied on a basis
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consistent throughout the periods indicated. The Financial Statements present
fairly the financial condition and operating results of the Company as of the
dates and during the periods indicated therein. The balance sheet of the Company
as of December 31, 1998 is hereinafter referred to as the "December Balance
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Sheet." December 31, 1998 is hereinafter referred to as the "Balance Sheet
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Date." The balance sheet of the Company as of March 31, 1999 is hereinafter
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referred to as the "Closing Balance Sheet." There shall be no capitalized
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software development costs recorded in the Financial Statements, or the Closing
Balance Sheet. The December Balance Sheet does not, and the Closing Balance
Sheet will not, include any reserves, write-offs or non-recurring charges in an
amount that is not consistent with the Company's past practices. Shareholder
and/or the Company will deliver, or cause to be delivered, the Closing Balance
Sheet to Software.com on or prior to the Exchange Date.
2.8 No Undisclosed Liabilities. Except as reflected or reserved against in
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the December Balance Sheet, as of the Balance Sheet Date, the Company did not
have any liability, indebtedness, obligation, expense, claim, deficiency,
guaranty or endorsement of any type, whether accrued, absolute, contingent,
matured, unmatured or other (whether or not required to be reflected in
financial statements in accordance with GAAP), which in the aggregate exceeded
$10,000, nor has the Company incurred any such liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement since the
Balance Sheet Date, except for liabilities incurred in the ordinary course of
business that, in the aggregate, do not exceed $10,000.
2.9 No Changes. Since the Balance Sheet Date, except as set forth in
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Section 2.9 of the Company Disclosure Schedule, there has not been, occurred or
arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date;
(b) capital expenditure or commitment for capital expenditure by the
Company, either individually or in the aggregate, exceeding $10,000;
(c) destruction of, damage to or loss of any material assets of the
Company (whether or not covered by insurance) or loss of any business or
customers of the Company that (i) accounted for $50,000 or more of the Company's
revenues for fiscal year 1998 or (ii) is projected to account for $100,000 or
more of the Company's projected revenue for fiscal year 1999;
(d) labor trouble or claim of wrongful discharge of which the
Company has received written notice or of which Shareholder is aware or other
unlawful labor practice or action;
(e) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company;
(f) revaluation by the Company of any of its assets, other than
depreciation as required by GAAP and reflected on the Closing Balance Sheet;
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(g) declaration, setting aside or payment of any dividends on or any
other distribution (whether in cash, stock or property) in respect of any
Company Shares or profits, or any split, combination or reclassification of
Company Shares or the issuance or authorization of the issuance of any of the
securities in respect of, in lieu of or in substitution for any share in the
stated capital of the Company, or the repurchase, redemption or other
acquisition, directly or indirectly, of any Company Shares (or options, warrants
or other rights exercisable therefor);
(h) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company of a bonus or other additional salary or
compensation to any such person, except as made in the ordinary course of
business;
(i) sale, lease, license or other disposition of any of the assets
or properties of the Company, except sales of inventory in the ordinary course
of business;
(j) amendment or termination or violation of any distribution
agreement or any material contract, agreement or license to which the Company is
a party or by which it is bound, other than termination by the Company pursuant
to the terms thereof in the ordinary course of business;
(k) loan by the Company to any person or entity, other than advances
to its employees for travel and business expenses in the ordinary course of
business and consistent with past practices, or incurrence by the Company of any
indebtedness other than trade debt in the ordinary course of business consistent
with past practices, guaranty of the Company of any indebtedness, issuance or
sale of any debt securities of the Company or guaranteeing of any debt
securities of others;
(l) waiver or release of any material right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company, exceeding $1,000 in the aggregate;
(m) commencement or notice, or to the knowledge of Shareholder or
the Company, threat of commencement, of any lawsuit or proceeding against or
investigation of the Company or its affairs;
(n) claim of ownership by a third party of any Intellectual Property
Right (as defined in Section 2.13 below) or, to the knowledge of Shareholder or
the Company, infringement by the Company of any third party's intellectual
property rights;
(o) issuance or sale by the Company of any Company Shares or Company
Rights or of any other securities of the Company;
(p) change in pricing or royalties set or charged by the Company
other than in the ordinary course of business;
(q) any event or condition of any character, that has or could be
reasonably expected to have a Material Adverse Effect on the Company; or
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(r) negotiation or agreement by the Company or any officer or
employees of the Company to do any of the things described in the preceding
clauses (a) through (q) (other than negotiations with Software.com and its
representatives regarding the transactions contemplated by this Agreement and
acts otherwise permitted by such clauses (a) through (q)).
2.10 Tax Matters.
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(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
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or, collectively, "Taxes," means (i) any and all federal, state, province, local
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and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, goods and services, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts; and (ii) any
liability for the payment of any amounts of the type described in clause (i) as
a result of any express or implied obligation to indemnify any other person or
as a result of any obligations under any agreements or arrangements with any
other person with respect to such amounts and including any liability for taxes
of a predecessor entity.
(b) Tax Returns and Audits.
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(i) The Company as of the Exchange Date will have prepared and
timely filed or made a timely request for extension for all required federal,
state, province, local and foreign returns, estimates, information statements
and reports ("Returns") relating to any and all Taxes concerning or attributable
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to the Company or its operations and such Returns are true and correct and have
been completed in accordance with applicable law.
(ii) The Company is, and at all times since July 30, 1996 has
been, an S Corporation under and within the meaning of Section 1361 of the Code,
and under all applicable state Tax laws and regulations.
(iii) Shareholder as of the Exchange Date will have prepared
and timely filed or made a timely request for extension for all required Returns
relating to any and all Taxes concerning or attributable to Shareholder and such
Returns are true and correct and have been completed in accordance with
applicable law.
(iv) The Company and Shareholder as of the Exchange Date (A)
will have paid or accrued all Taxes it or he is required to pay or accrue as
shown on the Returns and (B) will have withheld and timely remitted all income
taxes and other Taxes required to be withheld and remitted.
(v) Neither the Company nor Shareholder has been delinquent in
the payment of any Tax nor is there any Tax deficiency or reassessment
outstanding, assessed, notified or, to the knowledge of Shareholder or the
Company, proposed against the Company or Shareholder, nor has the Company or
Shareholder executed any waiver of any statute of limitations on or extending
the period for the assessment or collection of any Tax.
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(vi) No audit or other examination of any Return of the
Company or Shareholder is presently in progress, nor has the Company or
Shareholder been notified of any request for such an audit or other examination.
(vii) The Company does not have any liabilities for unpaid
federal, state, province, local and foreign Taxes which have not been accrued or
reserved against in accordance with GAAP on the December Balance Sheet, whether
asserted or unasserted, contingent or otherwise.
(iiiii) The Company has made available to Software.com or its
legal counsel, copies of all foreign, federal, state and province income and
sales and use Tax Returns (for both the Company and Shareholder) filed for all
years as to which any applicable statute of limitations has not expired.
(ix) There are no Liens of any sort on the assets of the
Company or Shareholder relating to or attributable to Taxes other than Liens for
taxes not yet due and payable.
(x) Neither Shareholder nor the Company has knowledge of any
basis for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on any material assets of the
Company or Shareholder.
(xi) As of the Exchange Date, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company,
individually or collectively, which could give rise to the payment of any amount
that would not be deductible by the Company as an expense under applicable tax
law.
(xii) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal and
provincial income tax deductions is accurately reflected on the Company's tax
books and records.
2.11 Restrictions on Business Activities. There is no agreement (noncompete
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or otherwise), commitment, judgment, injunction, order or decree to which
Shareholder, the Company or any of its employees is a party or otherwise binding
upon Shareholder, the Company or any of its employees that has or reasonably
could be expected to have the effect of prohibiting or impairing any business
practice of the Company or any employee of the Company, any acquisition of
property (tangible or intangible) by the Company, the conduct of business by the
Company or the conduct of any business activities by Shareholder or any employee
of the Company.
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
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Equipment.
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(a) Section 2.12(a) of the Company Disclosure Schedule sets forth a
list of all real property currently owned or leased by the Company and, in the
case of leased property, the name of the lessor, the date of the lease and each
amendment thereto and the aggregate annual rental and/or other fees payable
under any such lease. All such leases are in full force and effect, are valid
and effective
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in accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets other than real property used or held for use in its
business, free and clear of any Liens, except as reflected in the Financial
Statements and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
(c) The equipment and other tangible personal property owned or
leased by the Company (i) is adequate for the conduct of its business as
currently conducted, (ii) is in good operating condition, subject to normal wear
and tear, and (iii) has been reasonably maintained.
(d) The Company owns or has valid and continuing rights to use all
of the properties and assets (including without limitation all Intellectual
Property Rights) necessary to conduct its business as currently conducted in all
material respects.
2.13 Intellectual Property.
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(a) Intellectual Property Assets. As used herein, the term
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"Intellectual Property Assets" includes any rights, licenses, liens, security
interests, charges, encumbrances, equities, and other claims that the Company
may have to claim ownership, authorship or invention, to use, to object to or
prevent the modification of, to withdraw from circulation or control the
publication or distribution of any of the following worldwide:
(i) the name "Mobility.Net", the domain name "Mobility.Net",
all fictitious business names, trading names, corporate names, registered and
unregistered trademarks, service marks, and applications (collectively,
"Marks");
(ii) all patents, patent applications and business methods,
inventions and discoveries that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished
works (collectively, "Copyrights"); and
(iv) all know-how, trade secrets, confidential information,
customer lists, software (source code and object code), technical information,
data, process technology, plans, drawings, and blue prints (collectively, "Trade
Secrets").
(b) Agreements. Section 2.13(b) of the Company Disclosure Schedule
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contains a complete and accurate list of all material contracts relating to the
Intellectual Property Assets to which the Company is a party or by which the
Company is bound, except for any license for commonly available software
programs with a value of less than $10,000 under which the Company
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is the licensee. There is no outstanding and, to the knowledge of Shareholder or
the Company, no threatened disputes or disagreements with respect to any such
agreement.
(c) Software. Section 2.13(c) of the Company Disclosure Schedule
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contains a complete and accurate list of all computer software developed by or
for the Company (collectively referred to as the "Software"). All Software is
owned by the Company free and clear of any Liens and no contractor, consultant
or other third party has any claim of ownership in or to the Software.
Shareholder represents that that any and all rights to the Software shall be
acquired by Software.com at the Share Exchange.
(d) Originators, Programmers and Developers. Section 2.13(d) of the
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Company Disclosure Schedule contains a complete and accurate list of all
originators, developers or programmers, whether employees, contractors or
agents, who have written any portion of or contributed to any development of the
Software (collectively referred to as the "Developers").
(e) Toolkits, Reused Code and Third-Party Software. Section 2.13(e)
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of the Company Disclosure Schedule contains a complete and accurate list of all
code incorporated into the Software that was not specifically written or
developed for use in the Software (the "Preexisting Code"). This list includes
code from a toolkit, from preexisting code written by the Developers and/or from
third-party software that Developers utilized to write or otherwise contribute
to the development of any of the Software. Upon consummation of the Share
Exchange, Software.com shall have at least a non-exclusive right to use any such
Preexisting Code and there are no third-party rights to such Preexisting Code
that will materially interfere with Software.com's ownership and use. Company
and Shareholder further warrant that they will obtain written agreements from
each Developer to assign all rights to the Preexisting Code written by such
Developer, or at least grant a non-exclusive right to use all of the Preexisting
Code written by such Developer to Software.com and to assure Software.com that
there are no third-party claims to the Preexisting Code written by such
Developer.
(f) Know-How Necessary for the Business
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(i) The Intellectual Property Assets are all those necessary
for the operation of the Company's businesses as currently conducted and as
expected to be conducted in the future. The Company is the owner of all right,
title, and interest in and to each of the Intellectual Property Assets, free and
clear of all liens, security interests, charges, encumbrances, equities, and
other adverse claims, and has the right to use without payment to a third party
all of the Intellectual Property Assets.
(ii) Except as set forth in Section 2.13(f) of the Company
Disclosure Schedule, all former and current employees of the Company have
executed written agreements with the Company that assign to the Company all
rights to any inventions, improvements, discoveries or information relating to
the business of the Company. No employee of the Company has entered into any
agreement that restricts or limits in any way the scope or type of work in which
the employee may be engaged or requires the employee to transfer, assign, or
disclose information concerning his work to anyone other than the Company.
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(g) Patents
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(i) Section 2.13(g) of the Company Disclosure Schedule
contains a complete and accurate list and summary description of all Patents.
The Company is the owner of all right, title, and interest in and to each of the
Patents, free and clear of all liens, security interests, charges, encumbrances,
entities, and other adverse claims.
(ii) None of the products manufactured and sold, nor any
process or know-how used, by the Company infringes or is alleged to infringe any
patent issued prior to the Effective Date or other proprietary right of any
third party. As of the Effective Date, there is no issued patent of any third
party that interferes or would be likely to interfere with the Company's use of
any Intellectual Property Asset.
(h) Trademarks
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(i) Section 2.13(h) of the Company Disclosure Schedule
contains a complete and accurate list and summary description of all Marks. The
Company is the owner of all right, title, and interest in and to each of the
Marks, free and clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims.
(ii) All Marks that have been registered with the United
States Patent and Trademark Office or with a corresponding state office are
currently in compliance with all formal legal requirements (including the timely
post-registration filing of affidavits of use and incontestability and renewal
applications), are valid and enforceable, and are not subject to any maintenance
fees or taxes or actions falling due within ninety days after the Exchange Date.
(iii) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and, to the knowledge of Shareholder or the
Company, no such action is threatened with the respect to any of the Marks.
(iv) To knowledge of Shareholder or the Company, there is no
potentially interfering trademark or trademark application of any third party.
(v) No Mark is infringed or, to knowledge of Shareholder or
the Company, has been challenged or threatened in any way. None of the Marks
used by the Company infringes or is alleged to infringe any trade name,
trademark, or service mark of any third party.
(vi) All products and materials containing a Mark bear the
proper legal notice where permitted by law.
(i) Copyrights
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(i) Section 2.13(i) of the Company Disclosure Schedule
contains a complete and accurate list and summary description of all Copyrights.
The Company is the owner of all right,
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title, and interest in and to each of the Copyrights, free and clear of all
liens, security interests, charges, encumbrances, equities, and other adverse
claims.
(ii) All the Copyrights that have been registered are
currently in compliance with formal legal requirements, are valid and
enforceable, and are not subject to any maintenance fees or taxes or actions
falling due within ninety days after the Exchange Date.
(iii) No Copyright is infringed or, to knowledge of
Shareholder or the Company, has been challenged or threatened in any way. None
of the subject matter of any of the Copyrights infringes or is alleged to
infringe any copyright of any third party or is a derivative work based on the
work of a third party.
(iv) All works encompassed by the Copyrights have been marked
with the proper copyright notice.
(j) Trade Secrets
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(i) Shareholder and the Company have taken all reasonable
precautions to protect the secrecy, confidentiality and value of the Trade
Secrets.
(ii) The Company has good title and an absolute (but not
necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are not
part of the public knowledge or literature, and, to knowledge of Shareholder or
the Company, have not been used, divulged, or appropriated either for the
benefit of any third party or to the detriment of the Company. No Trade Secret
is subject to any adverse claim or has been challenged or threatened in any way.
2.14 Agreements, Contracts and Commitments.
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(a) Except as set forth in Section 2.14(a) of the Company
Disclosure Schedule, the Company does not have any continuing obligations under,
is not a party to or is not bound by:
(i) any collective bargaining agreements, or any contract
with or commitment to any trade unions, employee bargaining agent or affiliated
bargaining agent (collectively, "labor representatives") and the Company has not
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conducted any negotiations with respect to any such future contracts or
commitments,
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations or is otherwise
required by statute or case law to provide any of the foregoing,
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements,
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(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization,
(v) any agreement or plan, including, without limitation,
any stock option plan, share appreciation rights plan or share purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement, except as provided herein,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having annual lease
payments individually in excess of $ 2,000,
(viii) any agreement of indemnification or guaranty, other
than intellectual property indemnification to customers in the ordinary course
of business,
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person,
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $2,000,
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of material assets or any interest in any business
enterprise outside the ordinary course of the Company's business,
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof,
(xiii) any purchase order or contract for the purchase of raw
materials, other than purchase orders made in the ordinary course of business
and involving not more than $2,000
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development
agreement,
(xvi) any agreement, contract or commitment with any customer
which accounted for, or is expected to account during the Company's current
fiscal year, for more than 5% of the Company's revenue, or
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(xvii) any other agreement, contract or commitment that
involves $2,000 or more or is not cancelable without penalty within thirty (30)
days.
(b) Except as noted in Section 2.14(b) of the Company Disclosure
Schedule, the Company has not breached, violated or defaulted under, or received
notice that it has breached, violated or defaulted under, any of the material
terms or conditions of (i) any agreement, contract or commitment required to be
set forth in Section 2.14(a) of the Company Disclosure Schedule, or (ii) any
other material agreement, contract or commitment to which it is a party or by
which it is bound (any such agreement, contract or commitment referenced in the
preceding clauses (i) and (ii), a "Contract"), nor is either Shareholder or the
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Company aware of any event that would constitute such a breach, violation or
default with the lapse of time, giving of notice or both. Each Contract is in
full force and effect and, except as otherwise disclosed in Section 2.14(b) of
the Company Disclosure Schedule, is not subject to any default thereunder, of
which Shareholder or the Company is aware, by any party obligated to the Company
pursuant thereto. The Company has obtained, or will obtain prior to the Exchange
Date, all necessary consents, waivers and approvals of parties to any Contract
as are required thereunder in connection with the Share Exchange or to remain in
effect without modification after the Share Exchange.
2.15 Interested Party Transactions. No officer, director, employee or
-----------------------------
holder of Company Shares (or any spouse or member of the immediate family of any
of such persons, or any trust, partnership or corporation in which any of such
persons has or has had a material interest), has or has had directly or
indirectly, (i) an interest in any entity which furnished or sold, or furnishes
or sells, services or products that the Company furnishes or sells, or proposes
to furnish or sell, or (ii) any interest in any entity that purchases from or
sells or furnishes to, the Company, any goods or services or (iii) a beneficial
interest in any contract or agreement set forth in Section 2.14 of the Company
Disclosure Schedule; provided, that passive ownership of no more than five
percent (5%) of the outstanding stock of a corporation shall not be deemed an
"interest in any entity" for purposes of this Section 2.15.
2.16 Governmental Authorization. Section 2.16 of the Company Disclosure
--------------------------
Schedule accurately lists each material consent, license, permit, grant or other
authorization issued to the Company by a Governmental Entity (a) pursuant to
which the Company currently operates or holds any interest in any of its
properties or (b) which is required for the operation of its business or the
holding of any such interest (herein collectively called "Authorizations"). All
--------------
Authorizations are in full force and effect and constitute all Authorizations
required to permit the Company to operate or conduct its business or hold any
interest in its properties or assets.
2.17 Litigation. There is no action, suit, claim, proceeding or
----------
arbitration of any nature pending or, to the knowledge of Shareholder or the
Company, threatened against the Company or any of its properties or any of its
officers, directors or shareholders in respect of the Company. There is no
investigation pending or, to the knowledge of Shareholder or the Company,
threatened against the Company, its properties or any of its officers, directors
or shareholders in respect of the Company by or before any Governmental Entity.
No Governmental Entity has at any time challenged or questioned the legal right
of the Company to manufacture, offer or sell any of its products in the present
manner or style thereof.
-15-
<PAGE>
2.18 Accounts Receivable; Inventory.
------------------------------
(a) Set forth in Section 2.18(a) of the Company Disclosure Schedule
is a list of all accounts receivable of the Company reflected on the December
Balance Sheet ("Accounts Receivable") along with a range of days elapsed since
-------------------
invoice as of the date of the December Balance Sheet. All Accounts Receivable of
the Company (i) arose in the ordinary course of business, (ii) represent bona
----
fide indebtedness incurred by the applicable account debtors in the amounts
- ----
invoiced by the Company and stated on its books and records, subject to
collection, (iii) are carried at values determined in accordance with GAAP,
consistently applied, and (iv) are not subject to any defenses, counterclaims or
claims for set off. The reserves against the Accounts Receivable have been
established in accordance with GAAP, and based upon a review of such Accounts
Receivable, Shareholder and the Company reasonably believe such reserves to be
adequate. No person has any Lien on any of such Accounts Receivable and no
request or agreement for deduction or discount has been made with respect to any
of such Accounts Receivable. Neither Shareholder or the Company has any
knowledge that any of such Accounts Receivable is owed by a person or entity
that has sought the protection of any bankruptcy or insolvency law or is the
subject of any dispute as to payment.
(b) All of the inventories of the Company reflected on the December
Balance Sheet and the Company's books and records on the date hereof were
purchased, acquired or produced in the ordinary and regular course of business
and in a manner consistent with the Company's regular inventory practices and
are set forth on the Company's books and records in accordance with the
practices and principles of the Company. The reserves against such inventory
have been established in accordance with GAAP. The presentation of inventory on
the December Balance Sheet conforms to GAAP.
2.19 Minute Books. The minute books of the Company made available to
------------
Software.com or counsel for Software.com are the only minute books of the
Company and contain an accurate summary of all meetings of directors (and
committees thereof) and shareholders or actions by written consent since the
formation of the Company.
2.20 Brokers' and Finders' Fees. The Company has not incurred, nor will
--------------------------
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
2.21 Employees; Employee Benefit Plans and Compensation.
--------------------------------------------------
(a) For purposes of this Section 2.21, the following terms shall
have the meanings set forth below:
(i) "Employee Plan" shall refer to any plan, program, policy,
-------------
practice, contract, agreement or other arrangement providing for bonuses,
severance, termination pay, performance awards, stock or stock-related awards,
fringe benefits or other employee benefits of any kind, whether formal or
informal, funded or unfunded and whether or not legally binding, including
without limitation, any plan which is or has been maintained, contributed to, or
required to be
-16-
<PAGE>
contributed to, by the Company for the benefit of any "Employee" (as defined
below), and pursuant to which the Company has or may have any material
liability, contingent or otherwise;
(ii) "Employee" shall mean any current, former, or retired
--------
employee, consultant, independent contractor, sales representative, officer, or
director of the Company;
(iii) "Employee Agreement" shall refer to each employment,
------------------
severance, consulting or similar agreement or contract, whether written or oral,
between the Company and any Employee;
(b) Section 2.21(b) of the Company Disclosure Schedule contains an
accurate and complete list of each Employee Plan and each Employee Agreement.
The Company does not have any plan or commitment, whether legally binding or
not, to establish any new Employee Plan or Employee Agreement, to modify any
Employee Plan or Employee Agreement (except to the extent required by law or to
conform any such Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Software.com in writing,
or as required by this Agreement), or to enter into any Employee Plan or
Employee Agreement, nor does it have any intention or commitment to do any of
the foregoing.
(c) The Company has provided to Software.com (i) correct and
complete copies of all documents embodying each Employee Plan and each Employee
Agreement including all amendments thereto and copies of all forms of agreement
and enrollment used therewith; (ii) the most recent annual actuarial valuations,
if any, prepared for each Employee Plan; (iii) if an Employee Plan is funded,
the most recent annual and periodic accounting of such Employee Plan assets; and
(iv) all communications material to any Employee or Employees relating to any
Employee Plan and any proposed Employee Plans, in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would result
in any material liability to the Company.
(d) The Company has performed all obligations required to be
performed by it under each Employee Plan and each Employee Plan has been
established and maintained in accordance with its terms and in compliance with
all applicable laws, statutes, orders, rules and regulations; (ii) there are no
actions, suits or claims pending, or, to the knowledge of Shareholder or the
Company, threatened (other than routine claims for benefits) against any
Employee Plan or against the assets of any Employee Plan; and (iii) each
Employee Plan can be amended, terminated or otherwise discontinued after the
Exchange Date in accordance with its terms, without liability to the Company or
Software.com (other than ordinary administration expenses typically incurred in
a termination event).
(e) No Employee Plan provides, or has any liability to provide,
life insurance, medical or other employee benefits to any Employee upon his or
her retirement or termination of employment for any reason, except as may be
required by statute, and the Company has not represented, promised or contracted
(whether in oral or written form) to any Employee (either individually or to
Employees as a group) that such Employee(s) would be provided with life
insurance, medical or other employee welfare benefits upon their retirement or
termination of employment, except to the extent required by statute.
-17-
<PAGE>
(f) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Employee
Plan, Employee Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(g) The Company (i) is in compliance in all material respects with
all applicable laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not liable
for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits for Employees (other than routine payments to
be made in the normal course of business and consistent with past practice).
(h) No work stoppage or labor strike against the Company is pending
or, to the knowledge of Shareholder or the Company, threatened. The Company is
not involved in or threatened with any labor dispute, grievance or litigation
relating to labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in liability to the Company. The Company has not
engaged in any unfair labor practices which could, individually or in the
aggregate, directly or indirectly result in a liability to the Company. The
Company is not presently, nor has it been in the past, a party to, or bound by,
any collective bargaining agreement, contract with or commitment to any labor
representatives (as defined in Section 2.14(a)(i)) and the Company has not
conducted negotiations with respect to any such future contracts or commitments;
no labor representatives hold bargaining rights with respect to any employees of
the Company; and there are no current or, to the knowledge of Shareholder or the
Company, threatened attempts to organize or establish any trade union or
employee association with respect to the Company.
(i) Section 2.21 (i) of the Company Disclosure Schedule sets forth
each Employee, such Employee's date of hire and such Employee's compensation for
the past three fiscal years, to the extent applicable.
2.22 Insurance. Section 2.22 of the Company Disclosure Schedule lists all
---------
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. Such
insurance policies are customary for similarly situated companies and reasonably
satisfactory to ensure the Company against the risks associated with its
business. There is no claim by the Company pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Company is otherwise in material
compliance with the terms of such policies and bonds (or other policies and
bonds providing
-18-
<PAGE>
substantially similar insurance coverage). Neither Shareholder nor the Company
has any knowledge of any threatened termination of, or material premium increase
with respect to, any of such policies.
2.23 Environmental and Safety Laws. Neither Shareholder nor the Company
-----------------------------
has any knowledge that the Company is in violation of any applicable statute,
law or regulation relating to the environment or occupational health and safety,
or that the Company is or will be required to make any material expenditure in
order to comply with any such existing statute, law or regulation.
2.24 Compliance with Laws. The Company has complied in all material
---------------------
respects with, is not in violation in any material respect of, and has not
received any notices of violation with respect to, any foreign, federal, state,
province or local statute, law or regulation with respect to the conduct of its
business, or the ownership or operation of its business, assets or properties.
2.25 Complete Copies of Materials. The Company has delivered to
----------------------------
Software.com true and complete copies of each agreement, contract, commitment or
other document (or summaries of same) that is referred to in the Company
Disclosure Schedule or that has been requested by Software.com or its counsel.
2.26 Agreement.
---------
(a) Each of this Agreement and the Related Agreements has been duly
and validly executed and delivered by Shareholder and, assuming due
authorization, execution and delivery by the other parties hereto and thereto,
constitutes a valid and binding obligation of Shareholder, enforceable against
Shareholder in accordance with its terms.
(b) Neither the execution and delivery of each of this Agreement and
the Related Agreements nor the performance by Shareholder of his obligations
hereunder and thereunder, violate, conflict with, or constitute a default under
any agreement or commitment to which Shareholder is a party, or violate any
statute or law or any judgment, decree, order, regulation or rule of any court
or other Governmental Entity applicable to Shareholder that would preclude
Shareholder from entering into this Agreement and any Related Agreement, or
consummating the transactions contemplated hereby and thereby.
(c) No consent, waiver, approval, order or authorization of, or
declaration, filing or registration with, any Governmental Entity or any third
party is required to be made or obtained by Shareholder in connection with the
execution and delivery by Shareholder of each of this Agreement and the Related
Agreements or the performance by Shareholder of any of their respective
obligations hereunder and thereunder or the consummation by Shareholder of the
transactions contemplated herein or therein.
(d) Shareholder has the sole right to transfer Company Shares owned
by him to Software.com. Upon delivery of the Company Certificates representing
such Company Shares to Software.com, together with a duly executed transfer
instrument, Software.com will receive good title to such Company Shares, free
and clear of all Liens.
-19-
<PAGE>
(e) Shareholder has had an opportunity to review with his tax
advisors the tax consequences to Shareholder of the Share Exchange and the
transactions contemplated by this Agreement or the Related Agreements.
Shareholder understands that he must rely solely on his advisors and not on any
statements or representations by Software.com, the Company or any of their
agents. Shareholder understands that he (and not Software.com or the Company)
shall be responsible for his own tax liability that may arise as a result of the
Share Exchange or any other transactions contemplated by this Agreement or the
Related Agreements.
(f) Shareholder will have sufficient assets, after sale of the
Company Shares owned by Shareholder as contemplated hereby, to satisfy all of
Shareholder's obligations to his creditors, as the same become due and payable.
2.27 Securities Exemption Representations.
------------------------------------
(a) Shareholder has substantial knowledge and experience in
financial and business matters so that he is capable of evaluating the merits
and risks of his investment in Software.com, has the capacity to protect his own
interests, and either is an accredited investor within the meaning of Rule 501
of Regulation D under the Securities Act of 1933, as amended (the "Securities
----------
Act") or has a pre-existing business or close personal relationship with
- ---
Software.com or any of its officers, directors or controlling persons.
Shareholder has had an opportunity to discuss Software.com's management,
business and financial condition with Software.com's management.
(b) Shareholder is acquiring the shares of Software.com Common Stock
for investment for his own account, and not as a nominee or agent, and not with
the view to, or for resale in connection with, any distribution thereof.
Shareholder understands that the shares of Software.com Common Stock have not
been, and will not be, registered under the Securities Act by reason of a
specific exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Shareholder's representations as
expressed herein.
(c) Shareholder acknowledges that the Shareholder Common Stock must
be held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from such registration is available. Shareholder is aware of
the provisions of Rule 144 promulgated under the Securities Act which permit
limited resale of securities purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the existence
of a public market for the securities, the availability of certain current
public information about Software.com, the resale occurring not less than one
year after a party has acquired and given full consideration for the security to
be acquired, the sale being effected through a "broker's transaction" or in
transactions directly with a "market maker" and the number of securities being
sold during any three-month period not exceeding specified limitations.
(d) Shareholder acknowledges that the securities of Software.com
offered hereby have not been registered under the Securities Act and may only be
offered, sold, pledged or otherwise transferred pursuant to an effective
registration statement as to the securities under the Securities Act
-20-
<PAGE>
or an opinion of counsel satisfactory to Software.com that registration under
the Securities Act is not required.
2.28 Representations Complete. None of the representations or warranties
------------------------
made in this Article II (as modified by the Company Disclosure Schedule), nor
any statement made in any schedule or certificate furnished by the Company or
Shareholder pursuant to this Agreement contains, as of the date hereof, any
untrue statement of a material fact, or omits, as of the date hereof, to state
any material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
There is no event, fact or condition that materially and adversely affects the
business, assets, financial condition or results of operations of the Company,
or that reasonably could be expected to do so, that has not been set forth in
this Agreement or in the Company Disclosure Schedule.
For purposes of this Agreement, "Company Disclosure Schedule" shall mean
---------------------------
the disclosure schedule attached hereto as Schedule 1 supplied by Shareholder
----------
and the Company to Software.com and certified by Shareholder and the Company.
Shareholder shall have the opportunity to update the Company Disclosure Schedule
prior to the Exchange Date, provided that any such updates shall not modify or
restrict Software.com's rights under Section 6.2(l).
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF SOFTWARE.COM
----------------------------------------------
Except as disclosed in the Software.com Disclosure Schedule attached
hereto as Schedule 2, Software.com represents and warrants to Shareholder and
the Company as follows:
3.1 Organization and Standing; Articles of Incorporation and Bylaws.
---------------------------------------------------------------
Software.com is a corporation duly organized and validly existing under, and by
virtue of, the laws of the State of California and is in good standing under
such laws. Software.com has the requisite corporate power and authority to own
and operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted. Software.com is qualified to do
business and is in good standing as a foreign corporation in all jurisdictions
where the failure to be so qualified would have a Material Adverse Effect on the
business, assets (including intangible assets), financial condition, results of
operations or prospects of Software.com. Software.com has furnished to
Shareholder or the Company or its counsel upon request copies of its Articles of
Incorporation, as amended, and Bylaws, as amended. Said copies are true, correct
and complete and contain all amendments through the Effective Date.
3.2 Corporate Power. Software.com has obtained or will have obtained at
---------------
the Exchange Date all requisite legal and corporate power and authority to
execute and deliver the Agreements, to sell and issue the Common Shares
hereunder, and to carry out and perform its obligations under the terms of this
Agreement and the Related Agreements.
-21-
<PAGE>
3.3 Subsidiaries. Except as set forth on the Software.com Disclosure
------------
Schedule, Software.com has no subsidiaries or affiliated companies and does not
otherwise own or control, directly or indirectly, any equity interest in any
corporation, association or business entity. Software.com is not a participant
in any joint venture, partnership or similar arrangement.
3.4 Capitalization. As of the Exchange Date, the authorized capital stock
--------------
of Software.com will consist of (i) 60,000,000 shares of common stock, of which
27,203,026 shares are now issued and outstanding, and (ii) 6,332,378 shares of
preferred stock, of which 1,587,302 have been designated as Series A Preferred
and are now issued and outstanding, of which 1,789,279 shares have been
designated as Series B Preferred and are now issued and outstanding, of which
1,329,781 shares have been designated as Series C Preferred and are now issued
and outstanding and of which 1,626,016 shares will be designated as Series D
Preferred and may be issued. All such shares will as of the Exchange Date have
been duly authorized, and all such issued and outstanding shares have been
validly issued, are fully paid and nonassessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof, and were issued in compliance with all applicable state and
federal laws concerning the issuance of securities. Software.com has also
reserved 10,500,000 shares of Software.com Common Stock for issuance to
employees, directors and consultants pursuant to Software.com's 1995 Stock
Option Plan, as amended and restated, of which options covering 7,515,649 shares
of Software.com Common Stock (the "Options") are outstanding as of the Effective
-------
Date. Except for the Options, an additional option to purchase 1,000,000 shares
of Software.com Common Stock and warrants to purchase (i) 798,942 shares of
Software.com Common Stock at an exercise price of $4.15 per share and (ii)
67,961 shares of Software.com Common Stock at an exercise price of $5.15 per
share, and as set forth on the Software.com Disclosure Schedule, there are no
other options, warrants, calls, rights (including conversion or preemptive
rights or rights of first refusal), commitments or agreements of any character
to which Software.com is a party or by which it is bound obligating Software.com
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of Software.com
or obligating Software.com to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement.
3.5 Authorization. All corporate action on the part of Software.com, its
-------------
directors and shareholders necessary for the authorization, execution, delivery
and performance of the Agreements by Software.com, the authorization, sale,
issuance and delivery of the Shareholder Common Stock and the performance of all
of Software.com's obligations hereunder and thereunder has been taken or will be
taken prior to the Exchange Date. This Agreement and the Related Agreements,
when executed and delivered by Software.com, shall constitute valid and binding
obligations of Software.com, enforceable in accordance with their terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies. The Shareholder Common Stock, when issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable and will be free of any liens or encumbrances, other than
any liens or encumbrances created by or imposed upon Shareholder or the Company
through no action of Software.com; provided, however, that the Shareholder
Common Stock may be subject to restrictions on transfer under state and/or
federal securities laws. The Shareholder Common Stock,
-22-
<PAGE>
will not upon issuance be subject to any preemptive rights or rights of first
refusal.
3.6 Financial Statements. Software.com has delivered to Shareholder or the
--------------------
Company Software.com's audited financial statements as of and for the period
from inception (October 3, 1994) to September 30, 1995 (prior to merger with
Accordance Corporation), its audited financial statements for the years ended
December 31, 1996 and 1997, and its unaudited financial statements for the year
ended December 31, 1998 (collectively referred to as the "Financial
Statements"), which are complete and correct in all material respects and were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis. The Financial Statements accurately set out and describe the
financial condition and operating results of Software.com as of the respective
dates and for the respective periods indicated.
3.7 Employees. To the best of Software.com's knowledge, no employee of
---------
Software.com nor any consultant with whom Software.com has contracted is in
violation of any term of any employment contract, patent disclosure agreement or
any other contract or agreement relating to the relationship of such employee or
consultant with Software.com or any other party because of the nature of the
business conducted or to be conducted by Software.com. Each employee of
Software.com with access to confidential or proprietary information has executed
Software.com's standard form of Employee Confidential Information Agreement.
Software.com is not aware that any officer or key employee, or that any group of
key employees, intends to terminate their employment with Software.com, nor does
Software.com have a present intention to terminate the employment of any
officer, key employee or group of key employees.
3.8 Governmental Consent, etc. No consent, approval or authorization of or
-------------------------
designation, declaration or filing with any governmental authority on the part
of Software.com is required in connection with the valid execution and delivery
of the Agreements, the offer, sale or issuance of the Shareholder Common Stock
or the consummation of any other transaction contemplated hereby or thereby,
except the qualification (or taking such action as may be necessary to secure an
exemption from qualification, if available) of the offer and sale of the
Shareholder Common Stock under applicable Blue Sky laws, which qualifications,
if required, will be accomplished in a timely manner.
3.9 Changes. Since December 31, 1998, there has not been:
-------
(a) Any change in the assets, liabilities, financial condition or
operation of Software.com from that reflected in the Financial Statements, other
than changes in the ordinary course of business, none of which individually or
in the aggregate has had or is expected to have a Material Adverse Effect on
Software.com;
(b) Any material change, except in the ordinary course of business,
in the contingent obligations of Software.com by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(c) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of Software.com;
-23-
<PAGE>
(d) Any waiver by Software.com of a valuable right or of a material
debt owed to it;
(e) Any debt, obligation or liability incurred, assumed or
guaranteed by Software.com, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(f) Any change in any material agreement to which Software.com is a
party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects of
Software.com, including compensation agreements with Software.com's employees;
or
(g) Any other event or condition of any character that, either
individually or cumulatively, has had a Material Adverse Effect on Software.com.
3.10 Brokers or Finders; Other Offers. Software.com has not incurred, and
--------------------------------
will not incur, directly or indirectly, as a result of any action taken by
Software.com, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement.
3.11 No Material Liabilities. Software.com does not have any material
-----------------------
liabilities or obligations, other than: (a) liabilities and obligations
disclosed in the Financial Statements; (b) liabilities incurred after December
31, 1998 in the ordinary course of business; (c) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which are not in any case material to the financial condition or
operating results of Software.com; and (d) leases for the operating headquarters
and branches of Software.com.
3.12 Registration Rights. Except as provided in (i) the Amended and
-------------------
Restated Registration Rights Agreement dated as of February 10, 1997, as amended
by the First Amendment thereto dated as of August 14, 1998 and by the Second
Amendment thereto to be entered into by and among Software.com and the holders
of the Series A, Series B, Series C and Series D Preferred Stock of
Software.com; and (ii) the Registration Rights Agreement dated as of June 1,
1996 by and among Software.com and certain holders of Common Stock, as amended
by (a) First Amendment to Registration Rights Agreement dated June 26, 1996, (b)
Second Amendment to Registration Rights Agreement dated September 27, 1996, (c)
Third Amendment to Registration Rights Agreement dated February 3, 1997, (d)
Fourth Amendment to Registration Rights Agreement dated September 12, 1997 (e)
Fifth Amendment to Registration Rights Agreement dated August 4, 1998 and (f)
Sixth Amendment to Registration Rights Agreement dated March 29, 1999 (the
"Common Registration Rights Agreement"), Software.com is not obligated to
------------------------------------
register under the Securities Act of 1933, as amended (the "Securities Act"),
--------------
any of its presently outstanding securities or any of its securities that may
subsequently be issued.
3.13 No Conflict with Other Instruments. The execution, delivery and
----------------------------------
performance of this Agreement and the Related Agreements and the issuance of the
Shareholder Common Stock will not result in any violation of, be in conflict
with, or constitute a default under, with or without
-24-
<PAGE>
the passage of time or the giving of notice: (i) any provision of Software.com's
Articles of Incorporation, as amended, or Software.com's Bylaws, as amended;
(ii) any material provision of any judgment, decree or order to which
Software.com is a party or by which it is bound; (iii) any material contract,
obligation or commitment to which Software.com is a party or by which it is
bound; or (iv) to Software.com's knowledge, any material statute, rule or
governmental regulation applicable to Software.com.
3.14 Litigation. There are no actions, suits or proceedings pending or to
----------
Software.com's knowledge threatened, or any verdicts or judgments entered into,
against Software.com, or any investigations of Software.com pending before any
court or governmental agency. There is no action, suit, proceeding or
investigation by Software.com currently pending or which Software.com intends to
initiate.
3.15 Title to Properties; Liens and Encumbrances. Software.com has good
-------------------------------------------
and marketable title to all of its properties (both real and personal) and
assets, and has good title to all its leasehold interests, in each case subject
to no mortgage, pledge, lien, security interest, conditional sale agreement,
encumbrance or charge.
3.16 Franchises, Permits and Licenses to Conduct Business. Software.com
----------------------------------------------------
has all franchises, permits, licenses and other similar authority necessary for
the conduct of its business, the lack of which would have a Material Adverse
Effect, and it is not in default in any material respect under any of such
franchises, permits, liens or other similar authority.
3.17 Patents and Other Proprietary Rights. To the best of Software.com's
------------------------------------
knowledge, Software.com possesses all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, trade secrets,
including knowhow and other proprietary rights ("Proprietary Information")
-----------------------
necessary to conduct its business as now being conducted and as proposed to be
conducted without conflict with or infringement upon any valid rights of others
and the lack of which would have a Material Adverse Effect on Software.com, and
Software.com has not received any notice of infringement upon or conflict with
the asserted rights of others. Except as disclosed in the Software.com
Disclosure Schedule, there are no material outstanding options, licenses or
agreements of any kind relating to Software.com's Proprietary Information, nor
is Software.com bound by or a party to any material options, licenses or
agreements with respect to the Proprietary Information of any other person or
entity other than licenses or agreements arising from the purchase of "off the
shelf" or standard products. Software.com is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with their duties to
Software.com or that would conflict with Software.com's business as proposed to
be conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of Software.com's business by the employees of Software.com, nor the
conduct of Software.com's business as proposed, will, to Software.com's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any employee is now obligated. Software.com does not
believe it is or will be necessary for Software.com to utilize any Proprietary
Information of any of its employees made prior to their employment by
Software.com, except for
-25-
<PAGE>
Proprietary Information that has been assigned to Software.com.
3.18 Taxes. All federal, state, local and foreign tax returns required by
-----
law to be filed by Software.com have been filed, or if such returns have not yet
been filed Software.com has been granted extensions of the filing dates which
have not expired, and all taxes, assessments, fees and other governmental
charges upon Software.com, or upon any of its properties, income or franchises,
shown in such returns and on assessments received by Software.com to be due and
payable have been paid, or adequate reserves therefor have been set up; or if
any of such tax returns have not been filed or if any such taxes have not been
paid or so reserved for, the failure so to file or to pay would not in the
aggregate constitute a Material Adverse Effect on Software.com. Software.com
knows of no proposed additional tax assessment that is not adequately provided
for in the Financial Statements. Software.com has not been advised (i) that any
of its returns, federal, state or other, have been or are being audited as of
the date hereof, or (ii) of any deficiency in assessment or any proposed
judgment relating to its federal, state or other taxes.
3.19 No Defaults, Violations or Conflicts. Software.com is not in
------------------------------------
violation of any term or provision of its charter or bylaws, or any material
term or provision of any indebtedness, mortgage, indenture, contract, agreement,
judgment, or to Software.com's knowledge, any material decree, order, statute,
rule or regulation.
3.20 Insurance. Software.com has in effect insurance covering risks
---------
associated with its business in such amounts as are customary in its industry.
3.21 Distributions. There has been no declaration or payment by
-------------
Software.com of any dividend, nor any distribution by Software.com of any assets
of any kind, to any of its shareholders in redemption or as the purchase price
of any of Software.com's securities.
3.22 Employee Compensation Plans. Except as set forth on the Software.com
---------------------------
Disclosure Schedule, Software.com is not a party to or bound by any currently
effective employment contracts, deferred compensation agreements, bonus plans,
incentive plans, profit sharing plans, retirement agreements or other employee
compensation agreements. Subject to applicable law and except as set forth on
the Software.com Disclosure Schedule, the employment of each officer and
employee of Software.com is terminable at the will of Software.com.
3.23 Material Contracts. All material contracts, agreements and
------------------
instruments to which Software.com is a party are valid, binding, and in full
force and effect in all material respects, and, to Software.com's knowledge, are
enforceable by Software.com in accordance with their respective terms, subject
to (i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors and (ii) rules of law governing specific performance,
injunctive relief or other equitable remedies. Each such contract, agreement and
instrument has been listed on the Software.com Disclosure Schedule. True and
complete copies of such contracts, agreements, and instruments have been made
available for inspection by Shareholder or the Company upon request.
3.24 Environmental and Safety Laws. To its knowledge, Software.com is not
-----------------------------
in violation of any applicable statute, law or regulation relating to the
environment or occupational health and
-26-
<PAGE>
safety, and to its knowledge, no material expenditures are or will be required
in order to comply with any such existing statute, law or regulation.
3.25 Agreements with Affiliates. Except for agreements explicitly
--------------------------
contemplated hereby and agreements between Software.com and its employees with
respect to the sale of Software.com's Common Stock, and except as set forth on
the Software.com Disclosure Schedule, there are no agreements, understandings or
proposed transactions between Software.com and any of its officers, directors,
affiliates or any affiliate thereof.
3.26 Offering Valid. Assuming the accuracy of the representations and
--------------
warranties of Shareholder and the Company contained in Article II hereof, the
offer, sale and issuance of the Common Shares will be exempt from the
registration requirements of the Securities Act and will when issued have been
registered or qualified (or will be exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws. Neither Software.com nor any agent on its behalf has
solicited or will solicit any offers to sell or has offered to sell or will
offer to sell all or any part of the Shares to any person so as to bring the
sale of such Shares by Software.com within the registration provisions of the
Securities Act.
ARTICLE IV
----------
CONDUCT PRIOR TO THE EXCHANGE DATE
----------------------------------
4.1 Conduct of Business of the Company. During the period from the date
----------------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Exchange Date, the Company and Shareholder agree (except to the
extent that Software.com shall otherwise consent in writing) to carry on the
Company's business in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted, to pay its debts and Taxes when due, to
pay or perform other obligations when due, and, to the extent consistent with
such business, to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Exchange Date. Shareholder
shall promptly notify Software.com of any event or occurrence not in the
ordinary course of business of the Company, and any event which could reasonably
be expected to have a Material Adverse Effect on the Company. Without limiting
the generality of the foregoing and except as expressly contemplated by this
Agreement or disclosed in Section 4.1 of the Company Disclosure Schedule, the
Company and Shareholder shall not, without the prior written consent of
Software.com:
(a) Enter into any commitment or transaction not in the ordinary
course of business;
(b) Transfer to any person or entity any rights to Intellectual
Property Rights (other than pursuant to end-user licenses in the ordinary course
of business);
-27-
<PAGE>
(c) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Company Disclosure Schedule;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for Company Shares, or repurchase, redeem or otherwise acquire,
directly or indirectly, any shares of its capital stock (or options, warrants or
other rights exercisable therefor);
(g) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(h) Cause or permit any amendments to its Charter;
(i) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or guarantee
any debt securities of others;
(l) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof;
(m) Adopt or amend any employee benefit plan, or enter into any
employment contract, extend employment offers, pay or agree to pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates of its employees, except as consistent with the ordinary
course of the Company consistent with past practice (provided that the price per
share of any equity participation in the Company shall be agreed in advance by
Software.com);
(n) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
-28-
<PAGE>
(o) Pay, discharge or satisfy, in an amount in excess of $2,500 (in
any one case) or $10,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the December Balance Sheet or that
arose in the ordinary course of business subsequent to the Balance Sheet Date or
expenses consistent with the provisions of this Agreement incurred in connection
with any transaction contemplated hereby;
(p) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes; or
(q) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (p) above, or any other action that
would prevent Shareholder or the Company from performing or cause Shareholder or
the Company not to perform its covenants hereunder.
4.2 No Solicitation. Until the earlier of the date of termination of
---------------
this Agreement pursuant to the provisions of Section 8.1 hereof or June 13,
1999, neither Shareholder nor the Company will (nor will Shareholder or the
Company permit any of the Company's officers, directors, agents, representatives
or affiliates to) directly or indirectly, take any of the following actions with
any party other than Software.com and its designees:
(a) Solicit, conduct discussions with or engage in negotiations with
any corporation, partnership, limited liability company, individual or other
third party business entity (any such entity referred to as a "Person"),
relating to the possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its capital stock or assets;
(b) Provide information with respect to the Company to any Person,
other than Software.com, relating to the possible acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its capital stock or assets;
(c) Enter into an agreement with any Person, other than
Software.com, providing for the acquisition of the Company (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its capital stock or assets; or
(d) Make or authorize any statement, recommendation or solicitation
in support of any possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its capital stock or assets by any Person, other than by
Software.com.
In addition to the foregoing, if the Company or Shareholder receives
prior to the Exchange Date or the termination of this Agreement any offer or
proposal relating to any of the above, the Company or Shareholder, as the case
may be, shall promptly notify Software.com thereof, including
-29-
<PAGE>
information as to the identity of the offeror or the party making any such offer
or proposal and the specific terms of such offer or proposal, as the case may
be, and such other information related thereto as Software.com may reasonably
request.
Notwithstanding the foregoing, on prior written notice to
Software.com and after April 15, 1999, Shareholder may engage in discussions
with third party venture capital investors with respect to a potential minority
investment in the Company.
ARTICLE V
---------
ADDITIONAL AGREEMENTS
---------------------
5.1 Access to Information. The Company shall afford Software.com and its
---------------------
accountants, counsel and other representatives (collectively, the
"Representatives") reasonable access during normal business hours upon
---------------
reasonable notice during the period prior to the Exchange Date to all of the
properties, books, contracts, commitments, records and all other information
concerning the business, properties and personnel (subject to restrictions
imposed by applicable law) of the Company as Software.com may reasonably
request, including without limitation access upon reasonable request to
employees, customers and vendors of the Company for due diligence inquiry. The
Company shall provide to Software.com and its Representatives copies of internal
financial statements, business plans and projections promptly upon request. No
information or knowledge obtained in any investigation pursuant to this Section
5.1 shall affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
transactions contemplated hereby.
5.2 Expenses. All fees and expenses incurred in connection with the Share
--------
Exchange, including all legal, accounting, financial advisory, consulting and
all other fees and expenses of third parties incurred by a party in connection
with the negotiation of the terms and conditions of this Agreement and the
consummation of the transactions contemplated hereby ("Third Party Expenses"),
--------------------
shall be the obligation of the respective party incurring such fees and
expenses. Notwithstanding the foregoing, Software.com agrees that after the
Share Exchange it will pay or cause the Company to pay legal and accounting
Third Party Expenses of the Company and Shareholder up to an aggregate amount of
$20,000; provided, however, that if such expenses exceed $20,000 the excess
shall be borne by Shareholder.
5.3 Public Disclosure. Upon execution and delivery of this Agreement by
-----------------
the parties hereto, if not already publicly announced and if Software.com so
elects, Software.com and the Company shall release a jointly prepared
announcement describing the Share Exchange. Except as aforesaid, prior to the
Exchange Date no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Software.com prior to release.
5.4 Consents and Approvals. Software.com and the Company shall promptly
----------------------
apply for or otherwise seek, and use their respective best efforts to obtain,
all consents and approvals required to be obtained by it for the consummation of
the Share Exchange, and the Company shall use its best efforts
-30-
<PAGE>
to obtain all consents, waivers and approvals under any of the Company's
agreements, contracts, licenses or leases in order to preserve its rights and
benefits thereunder.
5.5 Legal Requirements. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use its reasonable best efforts
to take promptly, or cause to be taken, all reasonable actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to (i) consummate and make effective the
transactions contemplated hereby, (ii) to obtain all necessary waivers, consents
and approvals and to effect all necessary registrations and filings and, (iii)
to remove any injunctions or other impediments or delays, legal or otherwise, in
order to consummate and make effective the transactions contemplated by this
Agreement for the purpose of securing to the parties hereto the benefits
contemplated by this Agreement; provided that Software.com shall not be required
to agree to any divestiture by Software.com or the Company or any of
Software.com's subsidiaries or affiliates of shares of capital stock or of any
business, assets or property of Software.com or its subsidiaries or affiliates
or the Company or its affiliates, or the imposition of any material limitation
on the ability of any of them to conduct their businesses or to own or exercise
control of such assets, properties and stock.
5.6 Notification of Certain Matters. The Company and Shareholder shall
-------------------------------
give prompt notice to Software.com, and Software.com shall give prompt notice to
the Company and Shareholder, of (i) the occurrence or non-occurrence of any
event, the occurrence or non-occurrence of which may cause any representation or
warranty of Shareholder, the Company or Software.com, respectively, contained in
this Agreement to be untrue or inaccurate at the Exchange Date and (ii) any
failure of Software.com, the Company and Shareholder, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it or them hereunder; provided, however, that the delivery of
any notice pursuant to this Section 5.6 shall not limit or otherwise affect any
remedies available to the party receiving such notice.
5.7 Additional Documents and Further Assurances. Each party hereto, at
-------------------------------------------
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
5.8 Employment Agreement. On or prior to the Exchange Date, Software.com,
--------------------
the Company and Shareholder, shall enter into an employment agreement (the
"Employment Agreement") in substantially the form attached hereto as Exhibit
-------------------- -------
5.8. Shareholder agrees to use his best reasonable efforts to cause such other
- ---
employees of the Company as Software.com may designate to enter into similar
employment arrangements.
5.9 Accounting Matters. Each of the parties shall conduct themselves so
------------------
that the Share Exchange may be accounted for as a "pooling of interests"
pursuant to Accounting Principles Board ("APB") Opinion No. 16.
5.10 Officers and Directors. Shareholder hereby acknowledges and agrees
----------------------
that in consideration of the agreements set forth in this Agreement and to
induce Software.com to consummate the transactions contemplated hereby,
Shareholder will have resigned from his position as an officer
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<PAGE>
and director of the Company on or prior to the Exchange Date, and any employment
contract or arrangement, whether written or oral, between Shareholder and the
Company, and any notice or severance payment or any other benefit due thereunder
or required by any law, shall be terminated and waived, as the case may be.
5.11 Affiliates.
----------
(a) Prior to the Exchange Date, Shareholder shall cause to be
delivered to Software.com a certificate of an officer of the Company on behalf
of the Company identifying all persons who are "affiliates" (as that term is
used in paragraphs (c) and (d) of Rule 145 under the Securities Act) of the
Company (collectively, the "Company Affiliates"). Prior to the Exchange Date,
------------------
Software.com shall cause to be delivered to the Company a certificate of an
officer of Software.com on behalf of Software.com identifying all persons who
were, in Software.com's view, immediately prior to the Exchange Date,
"affiliates" (as that term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act) of Software.com (the "Software.com Affiliates" and, together
-----------------------
with the Company Affiliates, the "Affiliates").
----------
(b) Prior to the Exchange Date, Shareholder and the Company shall
cause each Company Affiliate to execute and deliver a written agreement in the
form attached as Exhibit 5.11A, that he or she will not sell, offer to sell, or
-------------
otherwise dispose of any of the Common Shares issued to him or her pursuant to
the Share Exchange, except in compliance with Rule 144 or another exemption for
the registration requirements of the Securities Act. Prior to the Exchange Date,
the Company and Software.com shall cause each Affiliate to execute and deliver a
written agreement, in the form attached as Exhibit 5.11A and Exhibit 5.11B,
------------- -------------
respectively, that he or she will not thereafter sell or in any other way reduce
his or her risk relative to any Common Shares owned by him or her until such
time as financial results (including combined sales and net income) covering at
least thirty days of post-Exchange Date operations have been published, except
as permitted by Staff Accounting Bulletin No. 76 issued by the SEC and as
approved by Software.com. As soon as is reasonably practicable, but in no event
later than thirty (30) days after the end of the first fiscal quarter of
Software.com ending at least thirty (30) days after the Exchange Date (or no
later than ninety (90) days after the end of the first fiscal quarter of
Software.com ending at least thirty (30) days after the Exchange Date, if such
fiscal quarter is the fourth fiscal quarter of a fiscal year), Software.com will
publish results including at least thirty (30) days of combined operations of
Software.com and the Company as referred to in the written agreements provided
for by this Section 5.11.
5.12 Proprietary Information Agreement. Shareholder and the Company shall
---------------------------------
cause each Employee to execute and deliver Software.com's standard form
proprietary information and confidentiality agreement (the "Software.com
------------
Proprietary Agreement") on or prior to the Exchange Date.
- ---------------------
5.13 Lock-Up Agreement. Shareholder hereby agrees that if so requested by
-----------------
Software.com and/or the representative for any underwriter's selected by
Software.com, Shareholder shall not sell or otherwise transfer any Shareholder
Common Stock or other securities of Software.com for a period specified by the
Company or the underwriter's representative not to exceed one hundred eighty
(180) days following the effective date of a Registration Statement of
Software.com filed under the Securities
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<PAGE>
Act; provided that (a) such agreement shall apply only to Software.com's initial
public offering and the next underwritten registration, and (b) all officers and
directors of Software.com shall have entered into similar agreements.
Shareholder hereby agrees that in connection with such agreement, Software.com
may issue stop transfer orders to the transfer agent for Software.com with
respect to the shares held by Shareholder for such period. Notwithstanding the
foregoing, Shareholder acknowledges and agrees that any shares of Shareholder
Common Stock constituting all or a portion of the Escrow Amount shall not be
eligible for sale or transfer until such shares have been released to
Shareholder under the terms of the Escrow Agreement.
5.14 Tax Matters. Software.com shall cause the Company to prepare and file
-----------
all income Tax Returns of the Company required to be filed after the Exchange
Date and Shareholder shall be responsible for the payment of all Taxes of the
Company for any taxable period ending on or prior to the Exchange Date, whenever
incurred or assessed. Such Tax Returns shall be made available to Shareholder no
less than 21 calendar days prior to the filing thereof for review by
Shareholder. From and after the date hereof, the Company and Shareholder shall
make available to Software.com, as reasonably requested, all information,
records or documents relating to the Tax liabilities of the Company for all
periods ending on or prior to the date hereof, and will preserve such
information, records or documents until the expiration of any applicable statute
of limitations or extensions thereof.
ARTICLE VI
----------
CONDITIONS TO THE SHARE EXCHANGE
--------------------------------
6.1. Conditions to Obligations of Shareholder. The obligations of the
----------------------------------------
Company and Shareholder to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Exchange Date of each of the following conditions, any of which may
be waived, in writing, by Shareholder:
(a) The representations and warranties of Software.com in this
Agreement shall be true and correct in all material respects (except for
representations and warranties already subject to a materiality qualifier which
shall be true and correct in all respects) on and as of the Exchange Date as
though such representations and warranties were made on and as of such time;
Software.com shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be performed
and complied with by it as of the Exchange Date; and Shareholder shall have been
provided with a certificate, dated the Exchange Date and executed on behalf of
Software.com by its Chief Executive Officer or any Vice President to such
effect.
(b) There shall not be in effect any order of a court of competent
jurisdiction preventing consummation of the Share Exchange, nor shall there have
been taken any action, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Share Exchange by a
Governmental Entity that makes consummation of the Share Exchange illegal.
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<PAGE>
(c) The form, scope and substance of all legal matters contemplated
hereby and all closing documents and other papers delivered hereunder shall be
reasonably acceptable to the counsel for Shareholder.
(d) The issuance of the Acquisition Consideration in connection with
the Share Exchange shall be exempt from registration under Section 4(2) of the
Securities Act.
(e) Software.com shall have delivered the Acquisition Consideration
subject to, and in accordance with, the terms of this Agreement.
(f) Software.com and Shareholder shall have entered into the
Employment Agreement.
6.2. Conditions to the Obligations of Software.com. The obligations of
---------------------------------------------
Software.com to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Exchange Date of each of the following conditions, any of which may be waived,
in writing, by Software.com:
(a) The representations and warranties of Shareholder and the
Company in this Agreement shall be true and correct in all material respects
(except for representations and warranties already subject to a materiality
qualifier which shall be true and correct in all respects) on and as of the
Exchange Date as though such representations and warranties were made on and as
of such time; the Company and Shareholder shall have performed and complied in
all material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the Exchange
Date; and Software.com shall have been provided with a certificate, dated the
Exchange Date and executed on behalf of the Company by its President and by
Shareholder to such effect.
(b) All consents, waivers, and approvals listed on the Company
Disclosure Schedule or as otherwise may be required to be obtained in order to
enable the Company to continue to enjoy all of its material rights and benefits
following consummation of the Share Exchange shall have been obtained.
(c) Software.com shall have received the legal opinion of Fenwick &
West, counsel to the Company and Shareholder, in substantially the form attached
hereto as Exhibit 6.2(c).
--------------
(d) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or prohibition challenging the Share Exchange or
the other transactions contemplated by the terms of this Agreement or limiting
or restricting Software.com's conduct or operation of the business of the
Company (or its own business) following the Share Exchange shall be in effect,
nor shall any proceeding brought by any Governmental Entity seeking any of the
foregoing be pending.
(e) No action, suit, claim or proceeding of any nature shall be
pending or threatened against the Company, its properties or any of its officers
or directors, arising out of, in any way
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<PAGE>
connected with, or seeking to prevent the Share Exchange or the other
transactions contemplated by the terms of this Agreement.
(f) From the date hereof through the Exchange Date, there shall not
have occurred any Material Adverse Effect to the Company.
(g) Software.com and Shareholder shall have entered into Employment
Agreement.
(h) The Escrow Agreement shall have been duly executed and delivered
by parties thereto and shall be in full force and effect.
(i) Software.com shall have received a letter, dated as of the
Exchange Date, from Ernst & Young, in form and substance satisfactory to
Software.com, regarding the appropriateness of pooling of interest accounting
treatment for the Share Exchange under APB Opinion No. 16 if closed and
consummated in accordance with this Agreement.
(j) Shareholder shall have transferred and delivered to Software.com
the Company Certificates representing all issued and outstanding Company Shares.
(k) All key contracts of the Company shall have been assigned to
Software.com, if and to the extent required in judgment of Software.com's
counsel. All employment contracts or arrangements between the Company and each
of its executive officers shall have been terminated in accordance with all
applicable notice provisions and legal requirements.
(l) On or prior to the Exchange Date, Software.com shall be
satisfied in the course of its due diligence investigation that the business and
financial condition (including without limitation ownership and sufficiency of
Intellectual Property Assets) of the Company are acceptable and satisfactory to
Software.com.
(m) All regulatory approvals which are, in Software.com's judgment,
necessary or desirable shall have been obtained to Software.com's satisfaction.
(n) The form, scope and substance of all legal matters contemplated
hereby and all closing documents and other papers delivered hereunder shall be
reasonably acceptable to the counsel of Software.com.
ARTICLE VII
-----------
SURVIVAL OF REPRESENTATIONS AND
-------------------------------
WARRANTIES; INDEMNITY; ESCROW
-----------------------------
7.1. Survival of Representations and Warranties. All of Shareholder's
------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Company Disclosure Schedule)
shall survive the Exchange Date and continue until
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<PAGE>
5:00 p.m., California time, on (i) with respect to the representations set forth
in Section 2.7, the date which is the date of the auditor's report for the first
audit of Software.com financial statements commenced after the Exchange Date and
(ii) with respect to all other representations and warranties, the date which is
one year following the Exchange Date. The representations and warranties of the
Company and Software.com shall terminate in all respects as of the Exchange
Date. For purposes of this Agreement, the "Expiration Date" shall mean the date
---------------
which is one year following the Exchange Date.
7.2. Agreement to Indemnify. Shareholder agrees to indemnify and hold
----------------------
Software.com and its affiliates, officers, directors, employees and shareholders
(collectively, the "Software.com Indemnitees") harmless against any losses,
------------------------
claims, damages, costs, expenses or other liabilities (including reasonable
attorneys' fees and expenses) (collectively, "Damages") resulting from (i) any
-------
breach of or inaccuracy in any representations and warranties of Shareholder set
forth in this Agreement, (ii) any breach or default by Shareholder of any
covenant, obligation or other agreement of Shareholder under this Agreement or
under the Related Agreements, or (iii) any breach or default by the Company of
any covenant, obligation or other agreement of the Company to be performed on or
prior to the Exchange Date under this Agreement or under the Related Agreements
(each, a "Software.com Indemnifiable Claim"). This indemnification shall survive
--------------------------------
the Share Exchange for a period ending on the date one (1) year from the
Exchange Date (the "Indemnity Termination Date").
--------------------------
7.3. Escrow Arrangements; Limits of Liability. As partial security for the
----------------------------------------
obligations of Shareholder pursuant to this Article VII, the Escrow Amount shall
be deposited with an escrow agent and shall be controlled pursuant to the terms
of the escrow agreement (the "Escrow Agreement") in substantially the form
----------------
attached hereto as Exhibit 7.3. The liability of Shareholder for Damages
-----------
pursuant to this Article VII shall not be limited to or by the Escrow Amount,
but shall be limited to seventy-five percent (75%) of the shares of Shareholder
Common Stock received by Shareholder pursuant to the Share Exchange; provided,
however that Software.com and Shareholder agree that with respect to any Damages
resulting from a breach of the representations and warranties of Shareholder set
forth in Section 2.13(g), Shareholder shall only be liable for forty percent
(40%) of such Damages.
7.4. Survival of Indemnity; Indemnification Procedures; Time Limits. The
--------------------------------------------------------------
indemnification obligations of Shareholder pursuant to Section 7.2 shall apply
only to those claims for indemnification as to which Software.com has given
written notice thereof pursuant to the terms of the Escrow Agreement on or prior
to the Indemnity Termination Date; provided that the foregoing shall not limit
the liability of Shareholder for Damages resulting from a Software.com
Indemnifiable Claim incurred by Software.com Indemnitees after the Indemnity
Termination Date as long as Software.com Indemnitees have made claims prior to
the Indemnity Termination Date in respect of such Damages. Software.com and
Shareholder and agree that the indemnification procedures set forth in the
Escrow Agreement shall apply to all claims for Damages resulting from a
Software.com Indemnifiable Claim.
ARTICLE VIII
------------
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
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<PAGE>
8.1. Termination. This Agreement may be terminated at any time prior to
-----------
the Exchange Date:
(a) by mutual consent of all the parties hereto; or
(b) by any party hereto if the Share Exchange has not occurred by
April 30, 1999 other than due to the failure of the party seeking to terminate
this Agreement to perform its obligations under this Agreement which are
required to be performed at or prior to the Exchange Date; or
(c) by Software.com if there shall be an order of a court of
competent jurisdiction in effect preventing consummation of the Share Exchange;
or there shall be any action taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Share Exchange by any
Governmental Entity which would (i) make the consummation of the Share Exchange
illegal; (ii) prohibit ownership or operation by Software.com or the Company of
all or a material portion of the business of the Company; or (iii) compel
Software.com or the Company to dispose of all or a material portion of the
business or assets of Software.com or the Company as a result of the Share
Exchange; or
(d) by Software.com if it is not in material breach of its
obligations under this Agreement and there has been a breach of any material
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company or Shareholder, as the case may be, provided that, if
such breach is curable by the Company or Shareholder, as the case may be, within
fifteen (15) days through the exercise of its reasonable best efforts, then for
so long as the Company or Shareholder, as the case may be, continues to exercise
such reasonable best efforts Software.com may not terminate this Agreement under
this Section 8.1(e) unless such breach is not cured within such fifteen (15) day
period; or
(e) by the Company or Shareholder, as the case may be, if it is not
in breach of its obligations under this Agreement and there has been a breach of
any material representation, warranty, covenant or agreement contained in this
Agreement on the part of Software.com, provided that, if such breach is curable
by Software.com within fifteen (15) days through the exercise of its reasonable
best efforts, then for so long as Software.com continues to exercise such
reasonable best efforts the Company or Shareholder, as the case may be, may not
terminate this Agreement under this Section 8.1(f) unless such breach is not
cured within such fifteen (15) day period.
8.2. Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Software.com, the Company or
Shareholder or their respective officers, directors or shareholders; provided,
however, that each party shall remain liable for any breaches of this Agreement
prior to its termination; and provided further that the provisions of Sections
5.2 and 5.3 and Articles VIII and IX of this Agreement shall remain in full
force and effect and survive any termination of this Agreement.
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<PAGE>
8.3. Break-Up Fees. In the event of termination of this Agreement by
-------------
Shareholder or the Company as provided in Section 8.1(b) or 8.1(e), Software.com
shall make a loan to Shareholder for $100,000 to be repaid over 2 years.
8.4. Amendment. This Agreement may be amended by the parties hereto at any
---------
time by execution of an instrument in writing signed by or on behalf of each of
the parties hereto.
8.5. Extension; Waiver. At any time prior to the Exchange Date,
-----------------
Software.com, on the one hand, and Shareholder, on behalf of himself and the
Company, on the other, may, to the extent legally allowed, (a) extend the time
for the performance of any of the obligations of the other party hereto, (b)
waive any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto, and (c) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE IX
----------
GENERAL PROVISIONS
------------------
9.1. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be delivered by hand or delivered by
overnight courier, freight prepaid, or sent via facsimile (with acknowledgment
of complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Software.com, to: 525 Anacapa Street
Santa Barbara, CA 93101
Attention: Chief Financial Officer
Facsimile No.: (805) 882-2473
with a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Elizabeth R. Flint, Esq.
Facsimile No.: (650) 493-6811
if to the Company, to: Mobility.Net Corporation
1346 32nd Ave
San Francisco, CA 94122
Attention: Michael Machado
Facsimile No.: (415) 704-3313
-38-
<PAGE>
with a copy to: Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Matthew P. Quilter, Esq.
Facsimile No.: (650) 494-1417
if to Shareholder, to: Michael Machado
1346 32nd Ave
San Francisco, CA 94122
Facsimile No.: (415) 704-3313
with a copy to: Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Matthew P. Quilter, Esq.
Facsimile No.: (650) 494-1417
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective when received, and shall in any event be
deemed to have been received (i) when delivered, if delivered personally or sent
by telecopy and confirmed in writing or (ii) two (2) business days after the
business day of deposit with overnight courier, addressed and shipped as
aforesaid.
9.2. Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When a reference is made in this Agreement to
Exhibits, such reference shall be an Exhibit to this Agreement unless otherwise
indicated. As used in this Agreement, the phrase "to the best of [a party's]
knowledge," "to [a party's] knowledge," "[a party] is not aware," and similar
phrases shall mean the knowledge of such party, or of the officers and directors
of such party, after careful consideration of the matters set forth in the
representation that is so qualified and a reasonably diligent review of all
files, documents, agreements and other materials in such person's possession or
subject to his or her control. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.3. Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
-39-
<PAGE>
9.4. Entire Agreement; Assignment. This Agreement, the schedules and
----------------------------
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned, by
operation of law or otherwise, except as otherwise specifically provided and
except that Software.com may assign its rights and delegate its obligations
hereunder to any wholly owned subsidiary, directly or indirectly, of
Software.com, and to any party that acquires the Company or all or substantially
all of its assets from Software.com or its subsidiaries. Without limiting the
generality of clause (b) of this Section 9.4, the transactions contemplated by
this Agreement shall not be deemed to constitute the purchase of all or
substantially all of the assets or any assumption of liabilities of the Company
or Shareholder and Software.com shall not be liable to any creditor of the
Company or Shareholder by reason of the consummation of the Share Exchange or
any other transaction contemplated hereby.
9.5. Severability. In the event that any provision of this Agreement or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6. Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with,
and not exclusive of, any other remedy conferred hereby or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7. Specific Performance. The parties hereto acknowledge that damages
--------------------
would be an inadequate remedy for any breach of the provisions of this Agreement
and agree that the obligations of the parties hereunder shall be specifically
enforceable.
9.8. Arbitration. Except if any dispute arises with respect to this
-----------
Agreement, then any party (the "Demanding Party") may demand, by written notice
---------------
to each other party to the dispute (collectively, the "Responding Party"), that
----------------
such issue shall be settled by binding arbitration to be held in San Francisco,
California (an "Arbitration Demand"). All claims shall be settled by three
------------------
arbitrators in accordance with the Commercial Arbitration Rules then in effect
of the American Arbitration Association (the "Arbitration Rules"). The Demanding
-----------------
Party and the Responding Party shall each designate one (1) arbitrator within
fifteen (15) calendar days after the delivery of the Arbitration Demand. Such
designated arbitrators shall mutually agree upon and shall designate a third
arbitrator (the "third arbitrator"). The final decision of a majority of the
----------------
arbitrators shall be furnished to Demanding Party and the Responding Party in
writing and shall constitute a conclusive determination of the issue in
question, binding upon all parties and shall not be contested by any of them.
The non-prevailing party shall bear all costs and expenses associated with such
arbitration, including all arbitrators' fees and attorneys' fees.
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<PAGE>
9.9. Governing Law; Jurisdiction; Venue. This Agreement shall be governed
----------------------------------
by and construed in accordance with the laws of the State of California, without
regard to applicable principles of conflicts of laws thereof.
9.10. Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
[Remainder of this page left blank intentionally.]
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<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Share Purchase
Agreement to be duly executed on its behalf, all as of the date first written
above.
SOFTWARE.COM, INC.
By: __________________________________
Name: John L. MacFarlane
Title: Chief Executive Officer
MOBILITY.NET CORPORATION
By: __________________________________
Name: Michael Machado
Title: President
MICHAEL MACHADO
By: __________________________________
Name: Michael Machado
[Signature Page to Share Purchase Agreement]
<PAGE>
EXHIBIT 10.4
MOBILITY.NET CORPORATION
1999 STOCK OPTION PLAN
AS ADOPTED ON FEBRUARY 16, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to attract,
-------
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent and Subsidiaries, by
offering them an opportunity to participate in the Company's future performance
through awards of Options. Capitalized terms not defined in the text are
defined in Section 21. This Plan is intended to be a written compensatory
benefit plan within the meaning of Rule 701 promulgated under the Securities
Act.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 16, the
--------------------------
total number of Shares reserved and available for grant and issuance pursuant to
this Plan will be 47,125 Shares or such lesser number of Shares as permitted
under Section 260.140.45 of Title 10 of the California Code of Regulations.
Subject to Sections 2.2, 5.10 and 16, Shares subject to Options previously
granted will again be available for grant and issuance in connection with future
Options under this Plan to the extent such Shares: (i) cease to be subject to
issuance upon exercise of an Option, other than due to the exercise of such
Option; or (ii) are issued upon exercise of an Option but are forfeited or
repurchased by the Company at the original exercise price. At all times the
Company will reserve and keep available a sufficient number of Shares as will be
required to satisfy the requirements of all Options granted and outstanding
under this Plan.
2.2 Adjustment of Shares. In the event that the number of
--------------------
outstanding shares of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then (i) the number of Shares reserved for issuance under
this Plan and (ii) the Exercise Prices of and number of Shares subject to
outstanding Options will be proportionately adjusted, subject to any required
action by the Board or the shareholders of the Company and compliance with
applicable securities laws; provided, however, that fractions of a Share will
not be issued but will either be paid in cash at the Fair Market Value of such
fraction of a Share or will be rounded down to the nearest whole Share, as
determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted only
-----------
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. NQSO's (as defined in
Section 5 hereof) may be granted to employees, officers, directors and
consultants of the Company or any Parent or Subsidiary of the Company; provided
such consultants render bona fide services not in connection with the
1
<PAGE>
offer and sale of securities in a capital-raising transaction. A person may be
granted more than one Option under this Plan.
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or the Board if no Committee is created by the Board. Subject to the
general purposes, terms and conditions of this Plan, and to the direction of the
Board, the Committee will have full power to implement and carry out this Plan.
Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Stock Option Agreement
(as defined in Section 5 hereof) and any other agreement or
document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating
to this Plan;
(c) approve persons to receive Options;
(d) determine the form and terms of Options;
(e) determine the number of Shares or other consideration
subject to Options;
(f) determine whether Options will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Options under this Plan or options
under any other incentive or compensation plan of the
Company or any Parent or Subsidiary of the Company;
(g) grant waivers of any conditions of this Plan or any Option;
(h) determine the terms of vesting and exercisability of
Options;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Option, any Stock Option
Agreement or any Exercise Agreement (as defined in Section 5
hereof);
(j) determine whether an Option has been earned;
(k) make all other determinations necessary or advisable for the
administration of this Plan; and
(l) extend the vesting period beyond a Participant's Termination
Date.
2
<PAGE>
4.2 Committee Discretion. Unless in contravention of any express
--------------------
terms of this Plan or Option, any determination made by the Committee with
respect to any Option will be made in its sole discretion either (i) at the time
of grant of the Option, or (ii) subject to Section 5.9 hereof, at any later
time. Any such determination will be final and binding on the Company and on
all persons having an interest in any Option under this Plan. The Committee may
delegate to one or more officers of the Company the authority to grant Options
under this Plan, provided such officer or officers are members of the Board.
5. OPTIONS. The Committee may grant Options to eligible persons described
-------
in Section 3 hereof and will determine whether such Options will be Incentive
Stock Options within the meaning of the Code (the "ISOS") or Nonqualified Stock
Options (the "NQSOS"), the number of Shares subject to the Option, the Exercise
Price of the Option, the period during which the Option may be exercised, and
all other terms and conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
--------------------
be evidenced by an Agreement which will expressly identify the Option as an ISO
or an NQSO (the "STOCK OPTION AGREEMENT"), and will be in such form and contain
such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date
-------------
on which the Committee makes the determination to grant such Option, unless a
later date is otherwise specified by the Committee. The Stock Option Agreement
and a copy of this Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.
5.3 Exercise Period. Options may be exercisable immediately but
---------------
subject to repurchase pursuant to Section 10 hereof or may be exercisable within
the times or upon the events determined by the Committee as set forth in the
Stock Option Agreement governing such Option; provided, however, that no Option
will be exercisable after the expiration of ten (10) years from the date the
Option is granted; and provided further that no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company (the "TEN PERCENT SHAREHOLDER") will be exercisable
after the expiration of five (5) years from the date the ISO is granted. The
Committee also may provide for Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number of Shares or percentage
of Shares as the Committee determines. Subject to earlier termination of the
Option as provided herein, each Participant who is not an officer, director or
consultant of the Company or of a Parent or Subsidiary of the Company shall have
the right to exercise an Option granted hereunder at the rate of no less than
twenty percent (20%) per year over five (5) years from the date such Option is
granted.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may not be less than
eighty-five percent (85%) of the Fair Market Value of the Shares on the date of
grant; provided that (i) the Exercise Price of an
3
<PAGE>
ISO will not be less than one hundred percent (100%) of the Fair Market Value of
the Shares on the date of grant and (ii) the Exercise Price of any Option
granted to a Ten Percent Shareholder will not be less than one hundred ten
percent (110%) of the Fair Market Value of the Shares on the date of grant.
Payment for the Shares purchased must be made in accordance with Section 6
hereof.
5.5 Method of Exercise. Options may be exercised only by delivery to
------------------
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant). The Exercise Agreement will state (i) the number of Shares
being purchased, (ii) the restrictions imposed on the Shares purchased under
such Exercise Agreement, if any, and (iii) such representations and agreements
regarding Participant's investment intent and access to information and other
matters, if any, as may be required or desirable by the Company to comply with
applicable securities laws. Participant shall execute and deliver to the
Company the Exercise Agreement together with payment in full of the Exercise
Price, and any applicable taxes, for the number of Shares being purchased.
5.6 Termination. Subject to earlier termination pursuant to Sections
-----------
16 or 17 hereof and notwithstanding the exercise periods set forth in the Stock
Option Agreement, exercise of an Option will always be subject to the following:
(a) If the Participant is Terminated for any reason other than
death, Disability or for Cause, then the Participant may
exercise such Participant's Options only to the extent that
such Options are exercisable upon the Termination Date or as
otherwise determined by the Committee. Such Options must be
exercised by the Participant, if at all, as to all or some
of the Vested Shares calculated as of the Termination Date
or such other date determined by the Committee, within three
(3) months after the Termination Date (or within such
shorter time period, not less than thirty (30) days, or
within such longer time period, not exceeding five (5) years
after the Termination Date as may be determined by the
Committee, with any exercise beyond three (3) months after
the Termination Date deemed to be an NQSO) but in any event,
no later than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three
(3) months after a Participant's Termination other than for
Cause), then Participant's Options may be exercised, only to
the extent that such Options are exercisable by Participant
on the Termination Date or as otherwise determined by the
Committee. Such Options must be exercised by Participant
(or Participant's legal representative or authorized
assignee), if at all, as to all or some of the Vested Shares
calculated as of the Termination Date or such other date
determined by
4
<PAGE>
the Committee, within twelve (12) months after the
Termination Date (or within such shorter time period, not
less than six (6) months, or within such longer time period
not exceeding five (5) years after the Termination Date as
may be determined by the Committee, with any exercise beyond
(i) three (3) months after the Termination Date when the
Termination is for any reason other than the Participant's
death or disability, within the meaning of Section 22(e)(3)
of the Code, or (ii) twelve (12) months after the
Termination Date when the Termination is for Participant's
disability, within the meaning of Section 22(e)(3) of the
Code, deemed to be an NQSO) but in any event no later than
the expiration date of the Options.
(c) If the Participant is terminated for Cause, then
Participant's Options shall expire on such Participant's
Termination Date, or at such later time and on such
conditions as are determined by the Committee.
5.7 Limitations on Exercise. The Committee may specify a reasonable
-----------------------
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value (determined
-------------------
as of the date of grant) of Shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company or any Parent or
Subsidiary of the Company) will not exceed One Hundred Thousand Dollars
($100,000). If the Fair Market Value of Shares on the date of grant with
respect to which ISOs are exercisable for the first time by a Participant during
any calendar year exceeds One Hundred Thousand Dollars ($100,000), then the
Options for the first One Hundred Thousand Dollars ($100,000) worth of Shares to
become exercisable in such calendar year will be ISOs and the Options for the
amount in excess of One Hundred Thousand Dollars ($100,000) that become
exercisable in that calendar year will be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date (as
defined in Section 17 hereof) to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISOs, then such different
limit will be automatically incorporated herein and will apply to any Options
granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
----------------------------------
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. Subject to Section 5.10 hereof, the Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants by a
written notice to them;
5
<PAGE>
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 hereof for Options
granted on the date the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
-------------------
this Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant, to disqualify any Participant's ISO
under Section 422 of the Code. In no event shall the total number of Shares
issued (counting each reissuance of a Share that was previously issued and then
forfeited or repurchased by the Company as a separate issuance) under the Plan
upon exercise of ISOs exceed One Million Shares (adjusted in proportion to any
adjustments under Section 2.2. hereof) over the term of the Plan.
6. PAYMENT FOR SHARE PURCHASES.
---------------------------
6.1 Payment. Payment for Shares purchased pursuant to this Plan may
-------
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company owed to the
Participant;
(b) by surrender of shares that: (i) either (A) have been owned
by Participant for more than six (6) months and have been
paid for within the meaning of SEC Rule 144 (and, if such
shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect
to such shares) or (B) were obtained by Participant in the
public market and (ii) are clear of all liens, claims,
encumbrances or security interests;
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code; provided, however,
that Participants who are not employees or directors of the
Company will not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by
collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant
from the Company for services rendered;
(e) provided that a public market for the Company's stock
exists:
(i) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of the
National
6
<PAGE>
Association of Securities Dealers (an "NASD DEALER")
whereby the Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares so
purchased sufficient to pay the total Exercise Price,
and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the total Exercise
Price directly to the Company; or
(ii) through a "margin" commitment from the Participant and
an NASD Dealer whereby the Participant irrevocably
elects to exercise the Option and to pledge the Shares
so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount
of the total Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of such Shares
to forward the total Exercise Price directly to the
Company; or
(f) by any combination of the foregoing.
6.2 Loan Guarantees. The Committee may, in its sole discretion,
---------------
elect to assist the Participant in paying for Shares purchased under this Plan
by authorizing a guarantee by the Company of a third-party loan to the
Participant.
7. WITHHOLDING TAXES.
-----------------
7.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Options granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Options are to be made in cash by the Company, such
payment will be net of an amount sufficient to satisfy federal, state, and local
withholding tax requirements.
7.2 Stock Withholding. When, under applicable tax laws, a
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Option that is subject to tax withholding and the Participant is obligated
to pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee for such elections and be in writing in a form
acceptable to the Committee.
7
<PAGE>
8. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
8.1 Voting and Dividends. No Participant will have any of the
--------------------
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a shareholder and have all the rights of a shareholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that the
Participant will have no right to retain such stock dividends or stock
distributions with respect to Unvested Shares that are repurchased pursuant to
Section 10 hereof. The Company will comply with Section 260.140.1 of Title 10 of
the California Code of Regulations with respect to the voting rights of Common
Stock.
8.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant annually during the period such Participant has
Options outstanding, or as otherwise required under Section 260.140.46 of Title
10 of the California Code of Regulations. Notwithstanding the foregoing, the
Company will not be required to provide such financial statements to
Participants when issuance is limited to key employees whose services in
connection with the Company assure them access to equivalent information.
9. TRANSFERABILITY. Options granted under this Plan, and any interest
---------------
therein, will not be transferable or assignable by Participant, other than by
will or by the laws of descent and distribution and may not be made subject to
execution, attachment or similar process. During the lifetime of the
Participant an Option will be exercisable only by the Participant or
Participant's legal representative and any elections with respect to an Option
may be made only by the Participant or Participant's legal representative.
10. RESTRICTIONS ON SHARES.
----------------------
10.1 Right of First Refusal. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Stock Option
Agreement a right of first refusal to purchase all Shares that a Participant (or
a subsequent transferee) may propose to transfer to a third party, unless
otherwise not permitted by Section 25102(o) of the California Corporations Code,
provided, that such right of first refusal terminates upon the Company's initial
public offering of Common Stock pursuant to an effective registration statement
filed under the Securities Act.
10.2 Right of Repurchase. At the discretion of the Committee, the
-------------------
Company may reserve to itself and/or its assignee(s) in the Stock Option
Agreement a right to repurchase Unvested Shares held by a Participant for cash
and/or cancellation of purchase money indebtedness owed to the Company by the
Participant following such Participant's Termination at any time within the
later of ninety (90) days after Participant's Termination Date and the date
Participant purchases Shares upon exercise of an Option at the Participant's
Exercise Price, provided, that to the extent the Participant is not an officer,
director or consultant of the Company or of a Parent or Subsidiary of the
Company, such right of repurchase lapses at the rate of no less than twenty
percent (20%) per year over five (5) years from the date of grant of the Option.
8
<PAGE>
11. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
12. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares set forth in Section 10 hereof, the Committee may require
the Participant to deposit all certificates representing Shares, together with
stock powers or other instruments of transfer approved by the Committee,
appropriately endorsed in blank, with the Company or an agent designated by the
Company to hold in escrow until such restrictions have lapsed or terminated.
The Committee may cause a legend or legends referencing such restrictions to be
placed on the certificates. Any Participant who is permitted to execute a
promissory note as partial or full consideration for the purchase of Shares
under this Plan will be required to pledge and deposit with the Company all or
part of the Shares so purchased as collateral to secure the payment of
Participant's obligation to the Company under the promissory note; provided,
however, that the Committee may require or accept other or additional forms of
collateral to secure the payment of such obligation and, in any event, the
Company will have full recourse against the Participant under the promissory
note notwithstanding any pledge of the Participant's Shares or other collateral.
In connection with any pledge of the Shares, Participant will be required to
execute and deliver a written pledge agreement in such form as the Committee
will from time to time approve.
13. EXCHANGE AND BUYOUT OF OPTIONS. The Committee may, at any time or
------------------------------
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Options in exchange for the surrender and
cancellation of any or all outstanding Options. The Committee may at any time
buy from a Participant an Option previously granted with payment in cash, shares
of Common Stock of the Company or other consideration, based on such terms and
conditions as the Committee and the Participant may agree.
14. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is intended
----------------------------------------------
to comply with Section 25102(o) of the California Corporations Code. Any
provision of this Plan which is inconsistent with Section 25102(o) shall,
without further act or amendment by the Company or the Board, be reformed to
comply with the requirements of Section 25102(o). An Option will not be
effective unless such Option is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Option and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to
(i) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable, and/or (ii) compliance with any
exemption, completion of any registration or other qualification of such Shares
under any state or federal law or ruling of any governmental body that the
Company determines to be necessary or advisable. The Company
9
<PAGE>
will be under no obligation to register the Shares with the SEC or to effect
compliance with the exemption, registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
15. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
-----------------------
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
Cause.
16. CORPORATE TRANSACTIONS.
----------------------
16.1 Assumption or Replacement of Options by Successor or Acquiring
--------------------------------------------------------------
Company. In the event of (i) a dissolution or liquidation of the Company, (ii)
- -------
a merger or consolidation in which the Company is not the surviving corporation
(other than a merger or consolidation with a wholly-owned subsidiary, a
reincorporation of the Company in a different jurisdiction, or other transaction
in which there is no substantial change in the shareholders of the Company or
their relative stock holdings and the Options granted under this Plan are
assumed, converted or replaced by the successor or acquiring corporation, which
assumption, conversion or replacement will be binding on all Participants),
(iii) a merger in which the Company is the surviving corporation but after which
the shareholders of the Company immediately prior to such merger (other than any
shareholder which merges with the Company in such merger, or which owns or
controls another corporation which merges with the Company in such merger) cease
to own their shares or other equity interests in the Company, or (iv) the sale
of all or substantially all of the assets of the Company, any or all outstanding
Options may be assumed, converted or replaced by the successor or acquiring
corporation (if any), which assumption, conversion or replacement will be
binding on all Participants. In the alternative, the successor or acquiring
corporation may substitute equivalent Options or provide substantially similar
consideration to Participants as was provided to shareholders (after taking into
account the existing provisions of the Options). The successor or acquiring
corporation may also substitute by issuing, in place of outstanding Shares of
the Company held by the Participant, substantially similar shares or other
property subject to repurchase restrictions and other provisions no less
favorable to the Participant than those which applied to such outstanding Shares
immediately prior to such transaction described in this Section 16.1. In the
event such successor or acquiring corporation (if any) does not assume, convert,
replace or substitute Options, as provided above, pursuant to a transaction
described in this Section 16.1, then notwithstanding any other provision in this
Plan to the contrary, the vesting of such Options will accelerate and the
Options will become exercisable in full prior to the consummation of such event
at such times and on such conditions as the Committee determines, and if such
Options are not exercised prior to the consummation of the corporate
transaction, they shall terminate in accordance with the provisions of this
Plan.
16.2 Other Treatment of Options. Subject to any greater rights
--------------------------
granted to Participants under the foregoing provisions of this Section 16
hereof, in the event of the
10
<PAGE>
occurrence of any transaction described in Section 16.1 hereof, any outstanding
Options will be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation or sale of assets.
16.3 Assumption of Options by the Company. The Company, from time to
------------------------------------
time, also may substitute or assume outstanding options granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (i) granting an Option under this Plan in substitution of
such other company's option, or (ii) assuming such option as if it had been
granted under this Plan if the terms of such assumed option could be applied to
an Option granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed option would have been
eligible to be granted an Option under this Plan if the other company had
applied the rules of this Plan to such grant. In the event the Company assumes
an option granted by another company, the terms and conditions of such option
will remain unchanged (except that the exercise price and the number and nature
------
of shares issuable upon exercise of any such option will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the event the Company
elects to grant a new Option rather than assuming an existing option, such new
Option may be granted with a similarly adjusted Exercise Price.
17. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective on
---------------------------------
the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan will
be approved by the shareholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve (12) months before
or after the Effective Date. Upon the Effective Date, the Board may grant
Options pursuant to this Plan; provided, however, that: (i) no Option may be
exercised prior to initial shareholder approval of this Plan; (ii) no Option
granted pursuant to an increase in the number of Shares approved by the Board
shall be exercised prior to the time such increase has been approved by the
shareholders of the Company; (iii) in the event that initial shareholder
approval is not obtained within the time period provided herein, all Options
granted hereunder shall be canceled, any Shares issued pursuant to any exercised
Option shall be canceled and rescinded; and (iv) Options granted pursuant to an
increase in the number of Shares approved by the Board which increase is not
timely approved by shareholders shall be canceled.
18. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the Effective Date or, if
earlier, the date of shareholder approval. This Plan and all agreements
hereunder shall be governed by and construed in accordance with the laws of the
State of California.
19. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9 hereof, the
--------------------------------
Board may at any time terminate or amend this Plan in any respect, including
without limitation amendment of any form of Stock Option Agreement or instrument
to be executed pursuant to this Plan; provided, however, that the Board will
not, without the approval of the shareholders of the Company, amend this Plan in
any manner that requires such shareholder approval pursuant to Section 25102(o)
of the California Corporations Code or the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.
11
<PAGE>
20. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
--------------------------
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and other equity awards otherwise than under this
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
21. DEFINITIONS. As used in this Plan, the following terms will have the
-----------
following meanings:
"BOARD" means the Board of Directors of the Company.
"CAUSE" means Termination because of (i) any willful, material
violation by the Participant of any law or regulation applicable to the business
of the Company or a Parent or Subsidiary of the Company, the Participant's
conviction for, or guilty plea to, a felony or a crime involving moral
turpitude, or any willful perpetration by the Participant of a common law fraud,
(ii) the Participant's commission of an act of personal dishonesty which
involves personal profit in connection with the Company or any other entity
having a business relationship with the Company, (iii) any material breach by
the Participant of any provision of any agreement or understanding between the
Company or a Parent or Subsidiary of the Company and the Participant regarding
the terms of the Participant's service as an employee, officer, director or
consultant to the Company or a Parent or Subsidiary of the Company, including
without limitation, the willful and continued failure or refusal of the
Participant to perform the material duties required of such Participant as an
employee, officer, director or consultant of the Company or a Parent or
Subsidiary of the Company, other than as a result of having a Disability, or a
breach of any applicable invention assignment and confidentiality agreement or
similar agreement between the Company or a Parent or Subsidiary of the Company
and the Participant, (iv) Participant's disregard of the policies of the Company
or any Parent or Subsidiary of the Company so as to cause loss, damage or injury
to the property, reputation or employees of the Company or a Parent or
Subsidiary of the Company, or (v) any other misconduct by the Participant which
is materially injurious to the financial condition or business reputation of, or
is otherwise materially injurious to, the Company or a Parent or Subsidiary of
the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee created and appointed by the Board to
administer this Plan, or if no committee is created and appointed, the Board.
"COMPANY" means Mobility.Net Corporation or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
12
<PAGE>
"FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on
the date of determination as reported in The Wall Street
---------------
Journal;
-------
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the
date of determination on the principal national securities
exchange on which the Common Stock is listed or admitted to
trading as reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading
on a national securities exchange, the average of the
closing bid and asked prices on the date of determination as
reported by The Wall Street Journal (or, if not so reported,
-----------------------
as otherwise reported by any newspaper or other source as
the Board may determine); or
(d) if none of the foregoing is applicable, by the Committee in
good faith.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock representing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Option under this Plan.
"PLAN" means this Mobility.Net Corporation 1999 Stock Option Plan, as
amended from time to time.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 16 hereof, and
any successor security.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
representing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
13
<PAGE>
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director or consultant to the Company
or a Parent or Subsidiary of the Company. A Participant will not be deemed to
have ceased to provide services in the case of (i) sick leave, (ii) military
leave, or (iii) any other leave of absence approved by the Committee, provided
that such leave is for a period of not more than ninety (90) days (a) unless
reinstatement (or, in the case of an employee with an ISO, reemployment) upon
the expiration of such leave is guaranteed by contract or statute, or (b) unless
provided otherwise pursuant to formal policy adopted from time to time by the
Company's Board and issued and promulgated in writing. In the case of any
Participant on (i) sick leave, (ii) military leave or (iii) an approved leave of
absence, the Committee may make such provisions respecting suspension of vesting
of the Option while on leave from the Company or a Parent or Subsidiary of the
Company as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Stock Option
Agreement. The Committee will have sole discretion to determine whether a
Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Stock
Option Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Stock Option
Agreement.
14
<PAGE>
-----------------------------------------------------------
EXHIBIT 10.5
COAST
LOAN AND SECURITY AGREEMENT
BORROWER: SOFTWARE.COM, INC.
ADDRESS: 525 ANACAPA STREET
SANTA BARBARA, CA 93101
DATE: AUGUST 29, 1997
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT(R), a division of Southern Pacific Thrift & Loan Association
("Coast"), a California corporation, with offices at 12121 Wilshire Boulevard,
Suite 1111, Los Angeles, California 90025, and the borrower(s) named above
(jointly and severally, the "Borrower"), whose chief executive office is located
at the above address ("Borrower's Address"). The Schedule to this Agreement (the
"Schedule") shall for all purposes be deemed to be a part of this Agreement, and
the same is an integral part of this Agreement. (Definitions of certain terms
used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 LOANS. Coast will make loans to Borrower (the "Loans"), in amounts
determined by Coast in its reasonable judgment, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Coast's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans. Regardless of the amount of Obligations that may be outstanding
from time to time, Borrower shall pay Coast minimum monthly interest during the
term of this Agreement with respect to the Collection Loans in the amount set
forth on the Schedule (the "Minimum Monthly Interest").
1.3 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Coast and are not
refundable. Such fees shall be fully earned upon the initial funding of this
credit facility.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Coast a security interest in all
of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located: All Receivables, Inventory, Investment Property,
Equipment, and General Intangibles, including, without limitation, all of
Borrower's Deposit Accounts, and all money, and all property now or at any time
in the future in Coast's possession (including claims and credit balances), and
all proceeds of any of the foregoing (including proceeds of any insurance
policies, proceeds of proceeds, and claims against third parties), all products
of any of the foregoing, and all books and records related to any of the
foregoing (all of the foregoing, together with all other property in which Coast
may now or in the future be granted a lien or security interest, is referred to
herein, collectively, as the "Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
Borrower represents and warrants to Coast as follows, and Borrower
covenants that the following representations will continue to be true, and that
Borrower will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will continue
to be qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a material adverse effect on Borrower.
The execution, delivery and performance by Borrower of
-1-
<PAGE>
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
this Agreement, and all other documents contemplated hereby (i) have been duly
and validly authorized, (ii) are enforceable against Borrower in accordance with
their terms (except as enforcement may be limited by equitable principles and by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
creditors' rights generally), and (iii) do not violate Borrower's articles or
certificate of incorporation, or Borrower's by-laws, or any law or any material
agreement or instrument which is binding upon Borrower or its property, and (iv)
do not constitute grounds for acceleration of any material indebtedness or
obligation under any material agreement or instrument which is binding upon
Borrower or its property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast 30 days' prior written notice before changing its name
or doing business under any other name. Borrower has complied, and will in the
future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Coast at least 30 days prior
written notice before changing its chief executive office, or moving any
material amounts of the Collateral to a location other than Borrower's Address
or one of the locations set forth on the Schedule. Further, Borrower shall
provide Coast with a quarterly report of all locations where it does business.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower or Equipment sold in the normal course
of business. The Collateral now is and will remain free and clear of any and all
liens, charges, security interests, encumbrances and adverse claims, except for
Permitted Liens. Coast now has, and will continue to have, a first-priority
perfected and enforceable security interest in all of the Collateral, subject
only to the Permitted Liens, and Borrower will at all times defend Coast and the
Collateral against all claims of others as to the Collateral. None of the
Collateral now is or will be affixed to any real property in such a manner, or
with such intent, as to become a fixture. Borrower is not and will not become a
lessee under any real property lease pursuant to which the lessor may obtain
any rights in any of the Collateral and no such lease now prohibits, restrains,
impairs or will prohibit, restrain or impair Borrower's right to remove any
Collateral from the leased premises. Whenever any Collateral is located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever
requested by Coast, use its best efforts to cause such third party to execute
and deliver to Coast, in form acceptable to Coast, such waivers and
subordinations as Coast shall specify, so as to ensure that Coast's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any of the Collateral now or
in the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to Coast have been, and will be to the best
knowledge of the Borrower, prepared in conformity with generally accepted
accounting principles (except, in the case of unaudited financial statements,
for the absence of footnotes and subject to normal year-end adjustments) and now
and in the future will fairly reflect the financial condition of Borrower, at
the times and for the periods therein stated. Between the last date covered by
any such statement provided to Coast and the date hereof, there has been no
material adverse change in the financial condition or business of Borrower.
Borrower is now and will continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and
-2-
<PAGE>
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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diligently instituted and conducted, (ii) notifies Coast in writing of the
commencement of, and any material development in, the proceedings, and (iii)
posts bonds or takes any other steps required to keep the contested taxes from
becoming a lien upon any of the Collateral. As of the date hereof, Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower currently utilizes the services of an outside payroll service providing
for the automatic deposit of all payroll taxes payable by Borrower and shall not
change said service without the prior written consent of Coast, such consent
shall not be unreasonably withheld.
3.9 COMPLIANCE WITH LAW. Borrower to the best of its knowledge has
complied, and will comply, in all material respects, with all provisions of all
material foreign, federal, state and local laws and regulations relating to
Borrower, including, but not limited to, those relating to Borrower's ownership
of real or personal property, the conduct and licensing of Borrower's business,
and environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Coast in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation G of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Coast as follows: Each Receivable which represents Collateral for
the Loans requested by Borrower shall, represent an undisputed bona fide
existing unconditional obligation of the Account Debtor created by the sale,
delivery, and acceptance of goods or the rendition of services in the ordinary
course of Borrower's business.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Coast as follows: To the best of Borrower's
knowledge, all statements made and all unpaid balances appearing in all
invoices, instruments and other documents evidencing the Receivables are and
shall be true and correct and all such invoices, instruments and other documents
and all of Borrower's books and records are and shall be genuine and in all
respects what they purport to be. All sales and other transactions underlying or
giving rise to each Receivable shall fully comply with all applicable laws and
governmental rules and regulations. All signatures and endorsements on all
documents, instruments, and agreements relating to all Receivables are and shall
be genuine, and all such documents, instruments and agreements are and shall be
legally enforceable in accordance with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Coast transaction reports and loan requests, schedules of
Receivables, and schedules of collections, all on Coast's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit Coast's security interest and other rights in all of
Borrower's Receivables, nor shall Coast's failure to advance or lend against a
specific Receivable which may be included in Eligible Collections affect or
limit Coast's security interest and other rights therein. Loan requests received
after 10:30 AM will not be considered by Coast until the next Business Day.
Together with each such schedule, or later if requested by Coast, Borrower shall
furnish Coast with copies (or, at Coast's request, originals) of all contracts,
orders, invoices, and other similar documents, and all original shipping
instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Receivables and or Collections, and Borrower warrants the genuineness of all of
the foregoing. Borrower shall also
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furnish to Coast an aged accounts receivable trial balance in such form and at
such intervals as Coast shall request. In addition, upon Coast's reasonable
request, Borrower shall deliver to Coast the originals of all instruments,
chattel paper, security agreements, guarantees and other documents and property
evidencing or securing any Receivables, upon receipt thereof and in the same
form as received, with all necessary endorsements, all of which shall be with
recourse. Borrower shall also provide Coast with copies of all credit memos as
and when reasonably requested by Coast.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect
all Receivables, unless and until an Event of Default has occurred. Borrower
shall hold all payments on, and proceeds of, Receivables in trust for Coast, and
Borrower shall deliver all such payments and proceeds to Coast within one
Business Day after receipt by Borrower, in their original form, duly endorsed to
Coast, to be applied to the Obligations in such order as Coast shall determine.
Coast may, in its discretion, require that all proceeds of Collateral be
deposited by Borrower into a lockbox account, or such other "blocked account" as
Coast may specify, pursuant to a blocked account agreement in such form as Coast
may specify. Coast or its designee may, at any time, notify Account Debtors that
Coast has been granted a security interest in the Receivables.
4.5. REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of
any Collateral shall be delivered to Coast within one Business Day after receipt
by Borrower, in their original form, duly endorsed to Coast, to be applied to
the Obligations in such order as Coast shall determine. Borrower agrees that it
will not commingle proceeds of Collateral with any of Borrower's other funds or
property, but will hold such proceeds separate and apart from such other funds
and property and in an express trust for Coast. Nothing in this Section limits
the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.
4.6 DISPUTES. Borrower shall notify Coast promptly of all material
disputes or claims relating to Receivables (for purposes of this paragraph,
"material" shall refer to Receivables exceeding $100,000). Borrower shall not
forgive (completely or partially), compromise or settle any Receivable for less
than payment in full, or agree to do any of the foregoing, except that Borrower
may do so, provided that: (i) Borrower does so in good faith, in a commercially
reasonable manner, in the ordinary course of business, and in arm's length
transactions, which are reported to Coast on the regular reports provided to
Coast; (ii) no Default or Event of Default has occurred and is continuing; and
(iii) taking into account all such discounts settlements and forgiveness, the
total outstanding Loans will not result in an over advance of the Credit Limit.
Coast may, at any time after the occurrence of an Event of Default, settle or
adjust disputes or claims directly with Account Debtors for amounts and upon
terms which Coast considers advisable in its reasonable credit judgment and, in
all cases, Coast shall credit Borrower's Loan account with only the net amounts
received by Coast in payment of any Receivables.
4.7 RETURNS. Provided no Event of Default has occurred and is continuing,
if any Account Debtor returns any Inventory to Borrower in the ordinary course
of its business, Borrower shall promptly determine the reason for such return
and promptly issue a credit memorandum to the Account Debtor in the appropriate
amount. In the event any attempted return occurs after the occurrence of any
Event of Default, Borrower shall (i) hold the returned Inventory in trust for
Coast, (ii)segregate all returned Inventory from all of Borrower's other
property, (iii) conspicuously label the returned Inventory as subject to Coast's
security interest, and (iv)immediately notify Coast of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on Coast's request deliver such returned Inventory
to Coast.
4.8 VERIFICATION. Coast may, using reasonable commercial judgment, from
time to time, verify directly with the respective Account Debtors the validity,
amount and other matters relating to the Receivables, by means of mail,
telephone or otherwise, either in the name of Borrower or Coast or such other
name as Coast may choose.
4.9 NO LIABILITY. Coast shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Coast be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Coast from liability for its
own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with
the financial and other
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covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast may
reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect. All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lenders loss payee endorsement in form reasonably acceptable to Coast.
Upon receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrower insurance proceeds with
respect to Equipment totaling less than $50,000, which shall be utilized by
Borrower for the replacement of the Equipment with respect to which the
insurance proceeds were paid. Coast may require reasonable assurance that the
insurance proceeds so released will be so used. If Borrower fails to provide or
pay for any insurance, Coast may, but is not obligated to, obtain the same at
Borrower's expense. Borrower shall promptly deliver to Coast copies of all
material reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Coast with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Coast shall from time to time reasonably
specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on
one Business Day's notice, Coast, or its agents, shall have the right to
inspect, audit and copy Borrower's books and records and the Collateral (the
"Audits"). Coast shall use its best efforts to keep confidential all
confidential information obtained in any Audit, but Coast shall have the right
to disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The Audits shall
be conducted every ninety (90) days at Borrower's expense and the charge for the
Audits shall be $750 per Person per day (or such higher amount as shall
represent Coast's then current standard charge for the same), plus reasonable
out of pocket expenses. Borrower will not enter into any agreement with any
accounting firm, service bureau or third party to store Borrower's books or
records at any location other than Borrower's Address, without first notifying
Coast of the same and obtaining the written agreement from such accounting firm,
service bureau or other third party to give Coast the same rights with respect
to access to books and records and related rights as Coast has under this Loan
Agreement.
5.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior written
consent, which consent shall not be unreasonably withheld or delayed, do any of
the following:
(i) merge or consolidate with another corporation or entity, except in a
transaction in which (A) the shareholders of the Borrower hold at least 50% of
the common stock and all other capital stock of the surviving corporation
immediately after such merger or consolidation and the Borrower is the surviving
corporation or (B) Borrower has at the time of the merger or consolidation a
Tangible Net Worth in excess of $7,000,000;
(ii) initiate changes in the record or beneficial ownership of an aggregate
of more than 20% of the outstanding shares of stock of Borrower, in one or more
transactions, compared to the ownership of outstanding shares of stock of
Borrower in effect on the date hereof, without the prior written consent of
Coast, except where Borrower has at date of said change of ownership a Tangible
Net Worth in excess of $7,000,000;
(iii) acquire any assets, except (A) in the ordinary course of business
which shall include but is not to be limited to the purchase of technology, or
(B) in a transaction or a series of transactions not involving the payment of an
aggregate amount in excess of $100,000;
(iv) enter into any other transaction outside the ordinary course of
business;
(v) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the
sale of obsolete or unneeded Equipment in the ordinary course of business;
(vi) store any Inventory or other Collateral exceeding $100,000 with any
warehouseman or other third party;
(vii) sell any Inventory, exceeding $100,000 in the aggregate on a
sale-or-return, guaranteed sale, consignment, or other contingent basis;
(viii) make any loans of any money or other assets, except (A) advances to
customers or suppliers in the ordinary course of business, (B) travel advances,
employee relocation loans and other employee loans and advances in the ordinary
course of business, and (C) loans to employees, officers and directors for the
purpose of purchasing equity securities of the Borrower;
(ix) incur any debts, outside the ordinary course of business, which would
have a material, adverse effect on
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Borrower or on the prospect of repayment of the Obligations;
(x) guarantee or otherwise become liable with respect to the obligations
of another party or entity;
(xi) pay or declare any dividends on Borrower's stock (except for dividends
payable solely in stock of Borrower);
(xii) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's stock, except that Borrower may repurchase stock
owned by employees, directors and consultants of Borrower pursuant to terms of
employment, consulting or other stock restriction agreements at such time as any
such employee, director or consultant terminates his or her affiliation with the
Borrower, for an aggregate purchase price not to exceed $250,000 in any fiscal
year;
(xiii) make any change in Borrower's capital structure which would have a
material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or
(xiv) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default would occur as a result of such
transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
5.7 INDEMNITY. Borrower hereby agrees to indemnify Coast and hold Coast
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, reasonable costs and expenses
(including reasonable attorneys' fees), of every nature, character and
description, which Coast may sustain or incur based upon or arising out of any
of the Obligations, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Coast and Borrower, any actual or alleged failure of Coast
to comply with any writ of attachment or other legal process relating to
Borrower or any of its property, or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Coast relating to Borrower or
the Obligations. Notwithstanding any provision in this Agreement to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination of this Agreement and shall for all purposes continue in full force
and effect.
5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Coast, to execute all documents and take all actions, as Coast, may reasonably
deem necessary or useful in order to perfect and maintain Coast's perfected
security interest in the Collateral, and in order to fully consummate the
transactions contemplated by this Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that the
Maturity Date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each, unless one party gives written notice to the other, not less than one
hundred twenty days prior to the next Maturity Date, that such party elects to
terminate this Agreement effective on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three Business Days after
written notice of termination is given to Coast; or (ii) by Coast at any time
after the occurrence of an Event of Default , effective immediately, subject to
specific notice provisions as set forth in 7.1 of this Agreement. If this
Agreement is terminated by Borrower or by Coast under this Section 6.2, Borrower
shall pay to Coast a termination fee (the "Early Termination Fee") in the amount
shown on the Schedule. The Early Termination Fee shall be due and payable on the
effective date of termination and thereafter shall bear interest at a rate equal
to the rate applicable to the Collection Loans.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, or on
any earlier effective date of termination, there are any outstanding Letters of
Credit issued by Coast or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Coast,
then on such date Borrower shall provide to Coast cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Coast's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of
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Coast's security interests in all of the Collateral and all of the terms and
provisions of this Agreement shall continue in full force and effect until all
Obligations have been paid and performed in full; provided that, without
limiting the fact that Loans are subject to the reasonable judgment of Coast,
Coast may, in its sole discretion, refuse to make any further Loans after
termination. No termination shall in any way affect or impair any right or
remedy of either party nor shall any such termination relieve Borrower of any
Obligation to Coast, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Coast shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate Coast's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Coast immediate written notice thereof: (a) Any material warranty,
representation, statement, report or certificate made or delivered to Coast by
Borrower or any of Borrower's officers, employees or agents, now or in the
future, shall be untrue or misleading in a material respect; or (b) Borrower
shall fail to pay when due any Loan or any interest thereon or any other
monetary Obligation and such failure shall continue for a period of five (5)
days after written notice by Coast to Borrower; or (c) the total Loans and other
Obligations outstanding at any time shall exceed the Credit Limit and such
excess shall not be paid to Coast within five (5) days after written notice by
Coast to Borrower; or (d) Borrower shall fail to deliver the proceeds of
Accounts to Coast as provided in Section 4.5 above, or shall fail to give Coast
access to its books and records or Collateral as provided in Section 5.4 above,
or shall breach any negative covenant set forth in Section 5.5 above; or (e)
Borrower shall fail to comply with the financial covenants (if any) set forth in
the Schedule or shall fail to perform any other non-monetary Obligation which by
its nature cannot be cured; or (f) Borrower shall fail to perform any other
non-monetary Obligation, which failure is not cured within the later of 30
Business Days after the date due or within five (5) days after written notice by
Coast to Borrower; or (g) Any levy, assessment, attachment, seizure, lien or
encumbrance (other than a Permitted Lien) is made on all or any part of the
Collateral which is not cured within 10 days after the occurrence of the same;
or (h) any default or event of default occurs under any obligation secured by a
Permitted Lien, which is not cured within any applicable cure period or waived
in writing by the holder of the Permitted Lien and such holder has accelerated
the maturity of such obligation; or (i) Borrower breaches any material contract
or obligation, which has or may reasonably be expected to have a material
adverse effect on Borrower's business or financial condition; or (j)
Dissolution, termination of existence, insolvency or business failure of
Borrower; or appointment of a receiver, trustee or custodian, for all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding by Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; or (k) the
commencement of any proceeding against Borrower or any guarantor of any of the
Obligations under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 60 days after the date commenced; or (1) revocation or
termination of, or limitation or denial of liability upon, any guaranty of the
Obligations or any attempt to do any of the foregoing, or commencement of
proceedings by any guarantor of any of the Obligations under any bankruptcy or
insolvency law; or (m) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or (n) Borrower makes any payment on account of any indebtedness
or obligation which has been subordinated to the Obligations, other than as
permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits
his subordination agreement; or (o) Borrower shall generally not pay its debts
as they become due, or Borrower shall conceal, remove or transfer any part of
its property, with intent to hinder, delay or defraud its creditors, or make or
suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or (p) there shall be a
material adverse change in Borrower's business or financial condition Coast may
cease making any Loans hereunder during any of the above cure periods, and
thereafter if an Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence, and during the continuance, of any
Event of Default, Coast, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower as may be permitted by
law), may do any one or more of the following: (a) Cease making Loans or
otherwise
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extending credit to Borrower under this Agreement or any other document or
agreement; (b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation; (c) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Borrower hereby authorizes Coast without judicial
process to enter onto any of Borrower's premises without interference to search
for, take possession of, keep, store, or remove any of the Collateral, and
remain on the premises or cause a custodian to remain on the premises in
exclusive control thereof, without charge for so long as Coast deems it
reasonably necessary in order to complete the enforcement of its rights under
this Agreement or any other agreement; provided, however, that should Coast seek
to take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives as may be permitted by law: (i) any bond and any surety or
security relating thereto required by any statute, court rule or otherwise as an
incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii) any
requirement that Coast retain possession of, and not dispose of, any such
Collateral until after trial or final judgment; (d) Require Borrower to assemble
any or all of the Collateral and make it available to Coast at places designated
by Coast which are reasonably convenient to Coast and Borrower, and to remove
the Collateral to such locations as Coast may deem advisable; (e) Complete the
processing, manufacturing or repair of any Collateral prior to a disposition
thereof and, for such purpose and for the purpose of removal, Coast shall have
the right to use Borrower's premises, vehicles, hoists, lifts, cranes, equipment
and all other property without charge; (f) Sell, lease or otherwise dispose of
any of the Collateral, in its condition at the time Coast obtains possession of
it or after further manufacturing, processing or repair, at one or more public
and/or private sales, in lots or in bulk, for cash, exchange or other property,
or on credit, and to adjourn any such sale from time to time without notice
other than oral announcement at the time scheduled for sale (Coast shall have
the right to conduct such disposition on Borrower's premises without charge, for
such time or times as Coast deems reasonable, or on Coast's premises, or
elsewhere and the Collateral need not be located at the place of disposition;
further, Coast may directly or through any affiliated company purchase or lease
any Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and sale or other disposition of
Collateral shall not relieve Borrower of any liability Borrower may have if any
Collateral is defective as to title or physical condition or otherwise at the
time of sale); (g) Demand payment of, and collect any Receivables and General
Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast as may be permitted by law to endorse or sign
Borrower's name on all collections, receipts, instruments and other documents,
to take possession of and open mail addressed to Borrower and remove therefrom
payments made with respect to any item of the Collateral or proceeds thereof,
and, in Coast's sole discretion, to grant extensions of time to pay, compromise
claims and settle Receivables and the like for less than face value; (h) Offset
against any sums in any of Borrower's general, special or other Deposit Accounts
with Coast; and (i) Demand and receive possession of any of Borrower's federal
and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto. All reasonable attorneys' fees,
expenses, costs, liabilities and obligations incurred by Coast with respect to
the foregoing shall be due from the Borrower to Coast on demand. Coast may
charge the same to Borrower's loan account, and the same shall thereafter bear
interest at the same rate as is applicable to the Receivable Loans, however, in
no event shall Coast be entitled to recover more than the Obligations owed by
Borrower. Without limiting any of Coast's rights and remedies, from and after
the occurrence of any Event of Default, the interest rate applicable to the
Obligations shall be increased by an additional three percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by Coast,
with or without the Collateral being present; (iv) The sale commences at any
time between 8:00 a.m. and 6:00 p.m.; (v) Payment of the purchase price in cash
or by cashier's check or wire transfer is required; (vi) With respect to any
sale of any of the Collateral, Coast may (but is not obligated to) direct any
prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. Coast shall be free to employ other methods of
noticing and selling the Collateral, in its discretion, if they are commercially
reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence, and during the continuance, of
any Event of Default,
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without limiting Coast's other rights and remedies, Borrower grants to Coast an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Coast (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to
Borrower, and at Borrower's expense, to do any or all of the following, in
Borrower's name or otherwise, but Coast agrees to exercise the following powers
in a commercially reasonable manner: (a) Execute on behalf of Borrower any
documents that Coast may, in its sole discretion, deem advisable in order to
perfect and maintain Coast's security interest in the Collateral, or in order to
exercise a right of Borrower or Coast, or in order to fully consummate all the
transactions contemplated under this Agreement, and all other present and future
agreements; (b) Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or to lease (as lessor or lessee) any real or personal property which is part of
Coast's Collateral or in which Coast has an interest; (c) Execute on behalf of
Borrower, any invoices relating to any Receivable, any draft against any Account
Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy,
any Notice of Lien, claim of mechanic's, materialman's or other lien, or
assignment or satisfaction of mechanic's, materialman's or other lien; (d) Take
control in any manner of any cash or non-cash items of payment or proceeds of
Collateral; endorse the name of Borrower upon any instruments, or documents,
evidence of payment or Collateral that may come into Coast's possession; (e)
Endorse all checks and other forms of remittances received by Coast; (f) Pay,
contest or settle any lien, charge, encumbrance, security interest and adverse
claim in or to any of the Collateral, or any judgment based thereon, or
otherwise take any action to terminate or discharge the same; (g) Grant
extensions of time to pay, compromise claims and settle Receivables and General
Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give Coast the same rights of access and other rights with respect
thereto as Coast has under this Agreement; and (k) Take any action or pay any
sum required of Borrower pursuant to this Agreement and any other present or
future agreements. Any and all reasonable sums paid and any and all reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by Coast
with respect to the foregoing shall be added to and become part of the
Obligations, and shall be payable on demand. Coast may charge the foregoing to
Borrower's loan account and the foregoing shall thereafter bear interest at the
same rate applicable to the Receivable Loans. In no event shall Coast's rights
under the foregoing power of attorney or any of Coast's other rights under this
Agreement be deemed to indicate that Coast is in control of the business,
management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale of the Collateral shall be applied by Coast first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by Coast in the
exercise of its rights under this Agreement, second to the interest due upon any
of the Obligations, and third to the principal of the Obligations, in such order
as Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other Persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth
in this Agreement, Coast shall have all the other rights and remedies accorded a
secured party under the Code and under all other applicable laws, and under any
other instrument or agreement now or in the future entered into between Coast
and Borrower, and all of such rights and remedies are cumulative and none is
exclusive. Exercise or partial exercise by Coast of one or more of its rights or
remedies shall not be deemed an election, nor bar Coast from subsequent exercise
or partial exercise of any other rights or remedies. The failure or delay of
Coast to exercise any rights or remedies shall not operate as a waiver thereof,
but all rights and remedies shall continue in full force and effect until all of
the Obligations have been fully paid and performed.
8. Definitions. AS USED IN THIS AGREEMENT, THE FOLLOWING TERMS HAVE THE
FOLLOWING MEANINGS:
"Account Debtor" means the obligor on a Receivable.
--------------
"Affiliate" means, with respect to any Person, a relative, partner,
---------
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
-9-
<PAGE>
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
"Business Day" means a day on which Coast is open for business.
------------
"Code" means the Uniform Commercial Code as adopted and in effect in the
----
State of California from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
----------
"Collections" means collections generated by the sales of services,
-----------
programs or licensing of any such service or program and any other services
furnished under a contract of service, in the ordinary course of business
including collections generated by support and maintenance services and
prepaids.
"Default" means any event which with notice or passage of time or both,
-------
would constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
---------------
"Eligible Collections" means Collections arising in the ordinary course
--------------------
of Borrower's business from the sale of goods or rendition of services, which
Coast, in its good faith business judgment, shall deem eligible for borrowing,
based on such considerations as Coast may from time to time deem appropriate.
"Equipment" means all of Borrower's present and hereafter acquired
---------
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dies, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"Event of Default" means any of the events set forth in Section 7.1 of
----------------
this Agreement.
"General Intangibles" means all general intangibles of Borrower, whether
-------------------
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Coast, rights to purchase or sell real
or personal property, rights as a licensor or licensee of any kind, royalties,
telephone numbers, proprietary information, purchase-orders, and all insurance
policies and claims(including without limitation life insurance, key man
insurance, credit insurance, liability insurance, property insurance and other
insurance), tax refunds and claims, computer programs, discs, tapes and tape
files, claims under guaranties, security interests or other security held by or
granted to Borrower, all rights to indemmfication and all other intangible
property of every kind and nature (other than Receivables).
"Inventory" means all of Borrower's now owned and hereafter acquired
---------
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease (including without
limitation all raw materials, work in process, finished goods and goods in
transit,), and all materials and supplies of every kind, nature and description
which are or might be used or consumed in Borrower's business or used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of such goods, merchandise or other personal property, and all
warehouse receipts, documents of title and other documents representing any of
the foregoing.
"Maximum Dollar Amount" has the meaning set forth in Section 1 of the
-----------------------
Schedule.
"Obligations" means all present and future Loans, advances, debts,
-----------
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest
charges and any other sums chargeable to Borrower under this Agreement or under
any other present or future instrument or agreement between Borrower and Coast.
"Permitted Liens" means the following: (i) purchase money security
---------------
interests in specific items of Equipment; (ii) leases of specific items of
Equipment; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens consented to in writing by Coast, which consent shall not be
unreasonably withheld; (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii)liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or
-10-
<PAGE>
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
replacement lien is limited to the property encumbered by the existing lien and
the principal amount of the indebtedness being extended, renewed or refinanced
does not increase; (viii) liens in favor of customs and revenue authorities
which secure payment of customs duties in connection with the importation of
goods. Coast will have the right to require, as a condition to its consent under
subparagraph (iv) above, that the holder of the additional security interest or
lien sign an intercreditor agreement on Coast's then standard form, acknowledge
that the security interest is subordinate to the security interest in favor of
Coast, and agree not to take any action to enforce its subordinate security
interest so long as any Obligations remain outstanding, and that Borrower agree
that any uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Receivables" means all of Borrower's now owned and hereafter acquired
-----------
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
"Tangible Net Worth" means Borrowers' shareholders' equity plus debt
------------------
subordinated to Coast less goodwill, patents, trademarks, copyrights,
franchises, formulas, leaseholds, non-compete agreements, engineering plans,
deferred tax benefits, organization costs, start-up costs and any other
intangibles as defined by generally accepted accounting principles, all stated
on a consolidated basis.
Other Terms. All accounting terms used in this Agreement, unless otherwise
-----------
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Coast (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Coast on account of the Obligations three (3) Business Days after
receipt by Coast of immediately available funds, and, for purposes of the
foregoing, any such funds received after 10:30 AM on any day shall be deemed
received on the next Business Day. Coast shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Coast in its sole discretion, and Coast may charge Borrower's
loan account for the amount of any item of payment which is returned to Coast
unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations
may be applied, and in Coast's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Coast shall determine in its sole
discretion.
9.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to Borrower's
Loan account, in which event they will bear interest at the same rate applicable
to the Loans. Coast may also, in its discretion, charge any monetary Obligations
to Borrower's Deposit Accounts maintained with Coast.
9.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty days after each account
is rendered, describing the nature of any alleged errors or omissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Coast or Borrower at the addresses shown in the heading
to this Agreement, or at any other address designated in writing by one party to
the other party. Notices to Coast shall be directed to the Commercial Finance
Division, to the attention of the Division Manager or the Division Credit
Manager. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction
-11-
<PAGE>
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
to be void or unenforceable, such defect shall not affect the remainder of this
Agreement, which shall continue in full force and effect.
9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. There are
--------
no oral understandings, representations or agreements between the parties which
- -------------------------------------------------------------------------------
are not set forth in this Agreement or in other written agreements signed by the
- --------------------------------------------------------------------------------
parties in connection herewith.
- ------------------------------
9.8 WAIVERS. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.
9.9 LIMITATION OF LIABILITY. Neither Coast, nor any of its directors,
officers, employees, agents, attorneys or any other Person affiliated with or
representing Coast shall be liable for any claims, demands, losses or damages,
of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any
other party through the acts of Coast, or any of its directors, officers,
employees, agents, attorneys or any other Person affiliated with or representing
Coast, but nothing herein shall relieve Coast from liability for its own gross
negligence or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower and Coast of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast for
all reasonable attorneys' fees and all filing, recording, search, title
insurance, appraisal, audit, and other reasonable costs incurred by Coast,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonable
attorneys' fees and costs Coast incurs in order to do the following: prepare and
negotiate this Agreement and the documents relating to this Agreement; obtain
legal advice in connection with this Agreement or Borrower; enforce, or seek to
enforce, any of its rights; prosecute actions against, or defend actions by,
Account Debtors; commence, intervene in, or defend any action or proceeding;
initiate any complaint to be relieved of the automatic stay in bankruptcy; file
or prosecute any probate claim, bankruptcy claim, third-party claim, or other
claim; examine, audit, copy, and inspect any of the Collateral or any of
Borrower's books and records; protect, obtain possession of, lease, dispose of,
or otherwise enforce Coast's security interest in, the Collateral; and otherwise
represent Coast in any litigation relating to Borrower. If either Coast or
Borrower files any lawsuit against the other predicated on a breach of this
Agreement, the prevailing party in such action shall be entitled to recover its
reasonable costs and attorneys' fees, including (but not limited to) reasonable
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. Borrower shall also pay Coast's
standard charges for returned checks and for wire transfers, in effect from time
to time. All attorneys' fees, costs and charges to which Coast may be entitled
pursuant to this Paragraph may be charged by Coast to Borrower's loan account
and shall thereafter bear interest at the same rate as the Receivable Loans.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Coast, and any prohibited
assignment shall be void. No consent by Coast to any assignment shall release
Borrower from its liability for the Obligations.
-12-
<PAGE>
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
9.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue
appropriate press releases with prior approval of Borrower and to cause a
tombstone to be published announcing the consummation of this transaction and
the aggregate amount thereof.
9.15 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.16 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against Coast, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other present or future document or agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by Coast, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by Borrower by the commencement of an
action or proceeding in a court of competent jurisdiction by the filing of a
complaint within two years after the first act, occurrence or omission upon
which such claim or cause of action, or any part thereof, is based, and the
service of a summons and complaint on an officer of Coast, or on any other
person authorized to accept service on behalf of Coast, within thirty (30) days
thereafter. Borrower agrees that such two-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The two-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Coast in its sole discretion. This
provision shall survive any termination of this Agreement or any other present
or future agreement.
9.17 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Coast acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. The term "including",
whenever used in this Agreement, shall mean "including (but not limited to)".
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Coast or Borrower under any rule of construction or
otherwise.
9.18 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Coast to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Coast's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Los Angeles County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.19 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
Borrower:
SOFTWARE.COM, INC.
By: /s/ Valdur Koha
----------------------------------
Valdur Koha
Title: President and
Chief Operating Officer
Coast:
COAST BUSINESS CREDIT(R), a division of
Southern Pacific Thrift & Loan Association
By /s/ Robert D. Peters
----------------------------------
Robert D. Peters
Title: Vice President
-13-
<PAGE>
COAST BUSINESS CREDIT(R)
- --------------------------------------------------------------------------------
SOFTWARE.COM, INC.
1. Loan & Security Agreement
2. Schedule to the Loan & Security Agreement
3. UCC-1
a. CA b. MA
c. NJ d. WA
4. Certified Resolution and Incumbency Certificate
5. Secured Promissory Note (Equipment Acquisition)
6. Landlord Waivers
a. 525 Anacapa Street, Santa Barbara, CA 93101
b. 91 Hartwell Avenue, Lexington, MA 02173
7. Attorney Opinion Letter
a. Wilson, Sonsini, Goodrich & Rosati
b. Software.com, Inc.
8. Registration of Copyrights
9. Copyright Security Agreement
10. Notice of Security Interest to Future Solutions, Inc.
1l. Certificate of Insurance
12. Permitted Lien Schedule
13. Representations and Warranties
14. UCC Questionnaire
15. Agreement as to Lockbox Service
16. Product Description Wholesale Lockbox
17. Search to Reflect
a. CA b. MA
c. NJ d. WA
18. Articles of Organization, Statement by Domestic and Certificate of
Status of Domestic and Certificate of Good Standing
a. CA
b. MA
19. Search re: Tax Liens, Judgments, UCC Filings, Notice of Bulk
Transfer, Lis Pendens, Fictitious Business Name, Litigation, &
Bankruptcy
a. CA
b. MA
20. Reserved for Post Closing UCC Search
<PAGE>
- --------------------------------------------------------------------------------
COAST
SCHEDULE
TO
LOAN AND SECURITY AGREEMENT
BORROWER: SOFTWARE.COM, INC.
ADDRESS: 525 ANACAPA STREET
SANTA BARBARA, CA 93101
DATE: AUGUST 29, 1997
This Schedule forms an integral part of the Loan and Security Agreement between
Coast Business Credit(R), a division of Southern Pacific Thrift & Loan
Association, and the above-borrower of even date.
================================================================================
1. CREDIT LIMIT
(Section 1.1): Loans in a total amount at any time
outstanding not to exceed the lesser of a
total of $5,000,000 at any one time
outstanding (the "Maximum Dollar Amount"),
or the sum of (a) and (b) below:
(a) Loans (the "Collection Loans") in an
amount not to exceed at any time six (6)
times the average monthly collections of
Eligible Collections (as defined in
Section 8 above), less deposits, refunds
and the sale of Equipment, by Borrower
for the immediate preceding twelve (12)
months, plus
(b) Loans (the "Equipment Acquisition
Loans") in an amount not to exceed
S2,500,000 in minimum incremental
drawdowns of $200,000, based on 80% of
the purchase price of new equipment less
taxes and installation charges or
appraised liquidation value of used
equipment,
1
<PAGE>
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
including, equipment purchased within
120 days prior to drawdowns less taxes
and installment charges with repayment
based on a thirty-six (36) month
amortization on new and used equipment,
which Equipment Acquisition Loans shall
be evidenced by a Secured Promissory
Note.
================================================================================
2. INTEREST.
INTEREST RATE
(Section 1.2): A rate equal to the "Prime Rate" plus 1.50%
per annum, for the Collection Loan, and
"Prime Rate" plus 1.75% per annum for the
Equipment Acquisition Loan, calculated on
the basis of a 360-day year for the actual
number of days elapsed. The interest rate
applicable to all Loans shall be adjusted
monthly as of the first day of each month,
and the interest to be charged for each
month shall be based on the highest "Prime
Rate" in effect during said month, but in no
event shall the rate of interest charged on
any Loans in any month be less than 9% per
annum. "Prime Rate" means the actual
"Reference Rate" or the substitute therefor
of the Bank of America NT & SA whether or
not that rate is the lowest interest rate
charged by said bank. If the Prime Rate, as
defined, is unavailable, "Prime Rate" shall
mean the highest of the prime rates
published in the Wall Street Journal on the
first business day of the month, as the base
rate on corporate loans at large U.S. money
center commercial banks.
MINIMUM MONTHLY
INTEREST (Section 1.2): An amount not less than the interest payable
based upon a minimum daily borrowings of
$500,000.
================================================================================
3. FEES (Section 1.3):
ORIGINATION FEE: 0.75%, payable concurrently herewith, which
includes a referral fee for Imperial Bank
(Beverly Hills).
2
<PAGE>
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
RENEWAL FEE: 1/2% of the Maximum Dollar Amount
commencing with any renewal after two
years from the date of this Agreement.
================================================================================
4. MATURITY DATE
(Section 6.1): August 31, 1999, subject to automatic
renewal as provided in Section 6.1 above,
and early termination as provided in
Section 6.2 above.
EARLY TERMINATION
FEE (Section 6.2): $7,500 per month times the number of
months remaining to Maturity Date and in
no event shall the fee be less than
$45,000.
================================================================================
5. REPORTING.
(Section 5.3): Borrower shall provide Coast with the
following:
1. Monthly Receivable agings, aged by
invoice date, within twenty-one days
after the end of each month.
2. Monthly accounts payable agings, aged by
invoice date, and outstanding or held
check registers within twenty-one days
after the end of each month.
3. Monthly internally prepared financial
statements, as soon as available, and in
any event within thirty days after the
end of each month.
4. Internally prepared year to date
financial statements for the last month
of each quarter, as soon as available,
and in any event within forty-five days
after the end of each fiscal quarter of
Borrower.
5. Quarterly customer lists, including
customer name, address, and phone number.
6. Annual Certified Public Accountant
audited financial statements, as soon as
available, and in any event drafts within
90 days following the end of Borrower's
fiscal year and final audited financial
statements within 120 days following end
of Borrower's fiscal year, certified by
independent certified public accountants
acceptable to Coast after funding.
3
<PAGE>
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
7. Monthly collections report and copy of
bank statements plus availability
calculation within ten days after the end
of each month.
================================================================================
6. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): None
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): Accordance Corporation;
Software Now
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): None
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): 525 Anacapa Street
Santa Barbara, CA 93101
91 Hartwell Avenue
Lexington, MA 02173
530 Montecito Street, Suite 106
Santa Barbara, CA 93103
100 Davidson Avenue, Suite 309
Somerset, NJ 08873
Skyline Towers
10900 NE 4th Street, Suite 1030
Bellevue, WA 98004
453 East Mesa Vista Lane
Mesa, AR 85203-2512
Royal Albert House
Sheet Street Windsor
Berkshire
SL4 1BE England
2050 Center Avenue, #200
4
<PAGE>
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Fort Lee, NJ 07024
418 Royal Collonade
Arlington, TX 76011
Franklin Rooseveltlaan 348/R
B-9000 Gent- Belgium
283 N. Lake Blvd., #111
Altamonte Springs, FL 32701
1523 Summit Shores West
Burnsville, MN 55306
MATERIAL ADVERSE
LITIGATION (Section 3.10): None
================================================================================
7. OTHER PROVISIONS
(Section 5.1):
(1) Minimum loan availability of $250,000
after funding;
(2) No accounts payable over 90 days past
due at date of funding;
(3) All applicable taxes to be paid and
current at date of funding;
(4) An ongoing minimum Tangible Net Worth
of $7,000,000;
(5) Prior to funding, perfected first
security interest on all company
assets including accounts receivable,
inventory, machinery, and equipment
and all other tangible and intangible
assets including patents, copyrights
and trademarks (Copyrights for Post
Office and InterMail major releases
must be registered);
(6) Borrower shall give Coast notice of
any intent to register new or updated
copyrights, including
5
<PAGE>
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
modification or reformatting of any
existing copyrights and shall execute
all documents reasonably necessary to
perfect a security interest in said
copyrights;
(7) Borrower shall establish a Blocked
Account, Lockbox, or Transbox system
acceptable to Coast;
(8) Review of customer contracts
satisfactory to Coast and its legal
counsel;
(9) Background checks of Company officers
acceptable to Coast; and
(10) Landlord Waivers in a form acceptable
to Coast at funding.
BORROWER: COAST:
SOFTWARE.COM, INC. COAST BUSINESS CREDIT(R), A DIVISION OF
SOUTHERN PACIFIC THRIFT & LOAN
By /s/ Valdur Koha By /s/ Robert D. Peters
---------------------------- --------------------------------
Valdur Koha Robert D. Peters
Title: President and Chief Title: Vice President
Operating Officer
6
<PAGE>
- --------------------------------------------------------------------------------
COAST
SECURED PROMISSORY NOTE
(EQUIPMENT ACQUISITION LOAN)
Los Angeles, California
$2,500,000.00 AUGUST 29, 1997
- -------------
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to the
order of COAST BUSINESS CREDIT(R), a DIVISION OF SOUTHERN PACIFIC THRIFT AND
LOAN ASSOCIATION ("Coast") at 12121 Wilshire Boulevard, Suite 1111, Los Angeles,
California, 90025 or at such other address as the holder of this Note shall
direct, the principal sum of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS
($2,500,000.00) or so much thereof as shall have been from time to time
advanced, (in sums not less than Two Hundred Thousand Dollars ($200,000.00),
together with interest thereon from the date thereof due the first of each month
until paid), amortized over a thirty-six (36) month period with principal
beginning the first of the month following the date of funding and continuing on
the same date of succeeding months. The entire remaining unpaid principal
balance of this Note, plus any and all accrued and unpaid interest, shall be due
and payable on the earlier of (i) thirty-six (36) months after August 31, 1997
or (ii) the date that the Loan and Security Agreement between borrower and Coast
of even date terminates by its terms or is terminated by either party in
accordance with its terms.
This Note shall bear interest on the unpaid balance hereof from time to
time outstanding at a rate equal to the "Prime Rate" (as hereinafter defined)
plus 1.75% per annum, but in no event shall the interest rate in any month be
less than 8.0% per annum. Interest shall be calculated on the basis of a 360-day
year for the actual number of days elapsed. As used herein, the term "Prime
Rate" shall mean the actual "Reference Rate" or the substitute therefor of the
Bank of America NT & SA whether or not that rate is the lowest interest rate
charged by said bank. The interest rate applicable to this Note shall be
adjusted monthly, as of the first day of each month, and the interest rate
charged during each month shall be based on the highest Prime Rate in effect
during said month. If the Prime Rate is unavailable, "Prime Rate" shall mean the
highest of the prime rates published in the Wall Street Journal on the first
business day of the month, as the base rate of corporate loans at large U.S.
money center banks. Accrued interest shall be payable monthly, in addition to
principal payments provided above.
Principal of, and interest on, this Note shall be payable in lawful money
of the United States of America. If a payment hereunder becomes due and payable
on a Saturday, Sunday, or legal holiday, the due date thereof shall be extended
to the next succeeding business day, and interest shall be payable thereon
during such extension.
<PAGE>
COAST BUSINESS CREDIT SECURED PROMISSORY NOTE
- --------------------------------------------------------------------------------
In the event any payment of principal or interest on this Note is not paid
in full when due, or if any other default or event of default occurs under the
Loan and Security Agreement and after notice as provided in said Agreement, or
any other present or future instrument, document, or agreement between Borrower
or Coast, Coast may, at its option, at any time thereafter, declare the entire
unpaid principal balance of this Note plus all accrued interest to be
immediately due and payable, without notice or demand. Without limiting the
foregoing, and without limiting Coast's other rights and remedies, in the event
any installment of principal or interest is not paid in full on or before the
date due, Borrower agrees that it would be impracticable or extremely difficult
to fix the actual damages resulting therefrom to Coast, and therefore the
Borrower agrees immediately to pay Coast an amount equal to 5% of the
installment (or portion thereof) not paid, as liquidated damages, to compensate
Coast for the internal administrative expenses in administering the default. The
acceptance of any installment of principal or interest by Coast after the time
when it becomes due, as herein specified, shall not be held to establish a
custom, or to waive any rights of Coast to enforce payment when due of any
further installments or any other rights, nor shall any failure or delay to
exercise any rights be held to waive the same.
All payments hereunder are to be applied first to costs and fees referred
to hereunder, second to the payment of accrued interest and the remaining
balance to the payment of principal. Any principal prepayment hereunder shall be
applied against principal payments in the inverse order of maturity. Coast shall
have the continuing and exclusive right to apply or reverse and reapply any and
all payments hereunder in its sole discretion.
Borrower agrees to pay all costs and expenses (including without
limitation attorneys' fees) incurred by Coast in connection with or related to
this Note, or its enforcement, whether or not suit be brought. Borrower hereby
further waives presentment, demand for payment, notice of dishonor, notice of
nonpayment, protest, notice of protest, and any and all other notices and
demands in connection with the delivery, acceptance, performance, default, or
enforcement of this Note.
This Note is secured by the Loan and Security Agreement and all other
present and future security agreements between Borrower and Coast. Nothing
herein shall be deemed to limit any of the terms or provisions of the Loan and
Security Agreement or any other present or future document, instrument or
agreement, between Borrower and Coast, and all of Coast's rights and remedies
hereunder and thereunder are cumulative.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
No waiver or modification of any of the terms or provisions of this Note
shall be valid or binding unless set forth in a writing signed by a duly
authorized officer of Coast, and then only to the extent therein specifically
set forth. If more than one person executes this Note, their obligations
hereunder shall be joint and several.
-2-
<PAGE>
COAST BUSINESS CREDIT SECURED PROMISSORY NOTE
- --------------------------------------------------------------------------------
COAST AND BORROWER EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (i)
THIS NOTE; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
COAST AND BORROWER; OR (iii) ANY CONDUCT, ACTS OR OMISSIONS OF COAST OR BORROWER
OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER
PERSONS AFFILIATED WITH COAST OR BORROWER.
THIS NOTE is payable in, and shall be governed by the laws of the State of
California.
SOFTWARE.COM, INC.
BY: /s/ Valdur Koha
-------------------------------------
Valdur Koha
Title: President and Chief Operating Officer
-3-
<PAGE>
COPY
AMENDMENT TO LOAN AND SECURITY AGREEMENT
DATED AUGUST 29, 1997
This amendment is entered into as of October 15, 1997 by and between COAST
BUSINESS CREDIT(R), a division of Southern Pacific Bank, formerly Southern
Pacific Thrift & Loan Association ("Coast") and SOFTWARE.COM, INC. a corporation
organized under the laws of the State of California, (referred to as the
"Borrowers").
RECITALS
--------
This amendment is entered into in reference to the following:
a. Coast and Borrower entered into a Loan and Security Agreement dated
August 29, 1997 ("Agreement"); and
b. Coast and Borrower desire to amend the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
AMENDMENTS
----------
1. Section 7. Other Provisions, Item (1). Credit Limit is changed to:
Loans in a total amount at any time outstanding not to exceed the
lesser of a total of $5,000,000 at any one time outstanding (the
"Maximum Dollar Amount"), or the sum of (a), (b) and (c) below:
(a) Loans (the "Collection Loans") in an amount not to exceed at
any time six (6) times the average monthly collections of Eligible
collections (as defined in Section 8 above), less deposits, refunds
and the sale of Equipment, by borrower for the immediate
preceding twelve (12) months, plus
(b) Loans (the "Equipment Acquisition Loans") in an amount not to
exceed $2,500,000 in minimum incremental drawdowns of $200,000 based
on 80% of the purchase price of new equipment less taxes and
installation charges or appraised liquidation value of used
equipment, including, equipment purchased within 120 days prior to
drawdowns less taxes and installment charges with repayment based on
a thirty-six (36) month amortization on new and used equipment,
which Equipment Acquisition Loans shall be evidenced by a Secured
Promissory Note, plus
(c) Loans (the "Interim Facility") in an amount not to exceed
$500,000 secured by Borrower's Collateral and shall be all due and
payable the earlier of 45 days or upon the funding of the Collection
Loans and Equipment Acquisition Loans when Coast has a first
perfected interest in the copyrights of Borrower.
<PAGE>
2. Section 7. Other Provisions, Item (5) requiring an ongoing,
minimum Tangible Net Worth of $7,000,000 shall be changed to: A
Minimum Tangible Net Worth starting at $4,500,000 at time of
funding: and shall be increased quarterly by 80% of net income,
starting with the results of first quarter 1998, and continuing
during the Term of this Agreement until the Tangible Net Worth
reaches $7,000,000 and shall continue thereafter.
3. Section 8. Definitions of the Loan and Security Agreement is amended
so that "Tangible Net Worth" means consolidated Owner's equity plus
subordinated debt otherwise permitted hereunder, less goodwill,
patents, trademarks, copyrights, franchises, formulas, leasehold
interests, leasehold improvements, non-compete agreements,
engineering plans, deferred tax benefits, organization costs,
prepaid items, and any other intangible assets of Borrower that
would be treated as intangible assets on Borrower's balance sheet
prepared in accordance with generally accepted accounting
principles.
All other terms and conditions of the Agreement shall remain the same.
SOFTWARE.COM, INC. COAST BUSINESS CREDIT(R), a division of
Southern Pacific Bank, formerly Southern
Pacific Thrift & Loan Association
By: /s/ Thomas D. Pickett By: /s/ John Statner
------------------------------- --------------------------------
Thomas D. Pickett John Statner
Title: Chief Financial Officer Title: Vice President
<PAGE>
COAST
- --------------------------------------------------------------------------------
SECOND AMENDMENT TO THE
LOAN AND SECURITY AGREEMENT AND SCHEDULE
BORROWER: SOFTWARE.COM, INC.
ADDRESS: 525 ANACAPA STREET
SANTA BARBARA, CA 93101
DATE: AUGUST 10, 1998
This Second Amendment to the Loan and Security Agreement and Schedule dated
August 29, 1997 and as amended October 15, 1997 ("Agreement") between Coast
Business Credit(R), a division of Southern Pacific Bank formerly Southern
Pacific Thrift & Loan Association ("Coast") and the above Borrower is entered
into the date setforth above. Coast and Borrower desire to Amend the Agreement
as set forth herein. All other terms and conditions of the Agreement shall
remain the same.
================================================================================
LOAN AND SECURITY AGREEMENT
8. DEFINITIONS. "Tangible Net Worth" means consolidated Owner's equity
------------------
plus subordinated debt otherwise permitted hereunder,
less goodwill, patents, trademarks, copyrights,
----
franchises, formulas, leasehold interests, leasehold
improvements, non-compete agreements, engineering plans,
deferred tax benefits, organization costs, and any other
intangible assets of Borrower that would be treated as
intangible assets on Borrower's balance sheet prepared
in accordance with generally accepted accounting
principles.
"Warrant" means warrant to purchase 67961 Common Shares
-------
of Borrower at a price of $5.15 per share prior to
August 10, 2003, which represents 5% of the incremental
increases of not less than $1,000,000 in the Credit
Limit above $8,000,000.
================================================================================
SCHEDULE TO THE LOAN AND SECURITY AGREEMENT
1. CREDIT LIMIT
(Section 1.1): Loans in a total amount at any time outstanding not to
exceed the lesser of a total of Eight Million Dollars
($8,000,000) with an increase up to Fifteen Million
<PAGE>
SECOND AMENDMENT TO THE LOAN AND
COAST BUSINESS CREDIT SECURITY AGREEMENT AND SCHEDULE
- --------------------------------------------------------------------------------
Dollars ($15,000,000), (subject to Coast receiving
Warrant), at any one time outstanding (the "Maximum
Dollar Amount"), or the sum of (a) and (b) below:
(a) Loans (the "Collection Loans") in an amount not to
exceed at any time six (6) times the average monthly
collections of Eligible Collections (as defined in
Section 8 above) (less deposits, refunds and the sale of
----
Equipment) by Borrower for the immediate preceding
twelve (12) months: and with an increase in an amount
not to exceed at any time eight (8) times the average
monthly collections of Eligible Collections (less
----
deposits, refunds and the sale of Equipment) by Borrower
for the immediate preceding twelve (12) months, such
increase to take effect upon the earlier of the funding
of a Five Million Dollar ($5,000,000) or greater equity
infusion or an enterprise value appraisal acceptable to
Coast supporting the increase, plus
(b) Loans (the "Equipment Acquisition Loans") in an
amount not to exceed $2,500,000 in minimum incremental
drawdowns of $200,000 based on 80% of the purchase price
of new equipment less taxes and installation charges or
appraised liquidation value of used equipment,
including, equipment purchased within 120 days prior to
drawdowns less taxes and installment charges with
repayment based on a thirty-six (36) month amortization
on new and used equipment, which Equipment Acquisition
Loans shall be evidenced by a Secured Promissory Note.
================================================================================
3. FEES (Section 1.3):
FACILITY FEE: $1,000 per calendar quarter, payable on the Closing Date
(prorated for any partial quarter at the beginning of
the term of this Agreement) and continuing each quarter
thereafter.
LOAN DOCUMENTATION
MODIFICATION FEE: 1% for each incremental increase in the Credit Limit
over $5,000,000 (in increments of not less than
$1,000,000) fully earned and payable at the time of each
incremental increase.
================================================================================
4. MATURITY DATE
(Section 6.1): August 31, 2000, subject to automatic renewal as
provided in Section 6.1 above, and early termination as
provided in Section 6.2.
2
<PAGE>
SECOND AMENDMENT TO THE LOAN AND
COAST BUSINESS CREDIT SECURITY AGREEMENT AND SCHEDULE
- --------------------------------------------------------------------------------
EARLY TERMINATION
FEE (Section 6.2): $7,500 per month times the number of months remaining to
Maturity Date; and in no event shall the fee be less
than $67,500.
================================================================================
7. OTHER PROVISIONS
(Section 5.1): 4. A Minimum Tangible Net Worth of $2,500,000
(effective the earlier of new equity infusion or
December 31, 1998) through March 30, 1999; increased
to $3,000,000 beginning March 31, 1999 through June
29, 1999; increased to $3,500,000 beginning June 30,
1999 through September 29, 1999; increased to
$4,000,000 beginning September 30, 1999 through
December 31, 1999; and increased thereafter to a
minimum of $4,500,000, subject to additional
increases according to Borrower's projections, as
determined by Coast in its reasonable business
judgment, and continuing thereafter throughout the
term of this Agreement.
11. Prior to an increase in the Credit Limit, Borrower
shall obtain an extension of the stock redemption
option from AT&T for one year through October 31,
1999 in a form reasonably acceptable to Coast.
12. As consideration for, and as a condition to, the
increase in the Credit Limit. Coast shall receive,
concurrent with the execution of this Agreement, the
Warrant.
BORROWER: COAST:
SOFTWARE.COM, INC. COAST BUSINESS CREDIT(R), A DIVISION OF
SOUTHERN BANK
By /s/ John MacFarlane By
------------------------------- -----------------------------------
John MacFarlane Kim Siegrist
Title: Chief Executive Officer Title: Vice President
By /s/ Craig A. Shelburne
-------------------------------
Craig A. Shelburne
Title: Vice President & General Counsel
3
<PAGE>
EXHIBIT 10.6
SEVERANCE AGREEMENT
-------------------
IN THE EVENT OF A CHANGE IN CONTROL
-----------------------------------
This Severance Agreement (the "Agreement") is made and entered into
effective as of _________________, by and between ________________ (the
"Employee") and Software.com, Inc., a California corporation (the "Company").
R E C I T A L S
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. The Board has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company and
its shareholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its shareholders.
C. The Board believes that it is imperative to provide the Employee with
certain benefits under certain circumstances upon termination of the Employee's
employment in connection with a Change of Control, which benefits are intended
to provide the Employee with financial security and provide sufficient incentive
and encouragement to the Employee to remain with the Company notwithstanding the
possibility of a Change of Control.
D. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Employee, to agree
to the terms provided herein.
E. Certain capitalized terms used in the Agreement are defined in Section
3 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. At-Will Employment. The Company and the Employee acknowledge that the
------------------
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
policies or other agreements with the Employee at the time of termination. The
terms of this Agreement shall terminate upon the earlier of (i) the date that
all obligations of the parties hereunder have been satisfied, or (ii) six (6)
months after a Change of Control. A termination of the terms of this Agreement
pursuant to the preceding
-1-
<PAGE>
sentence shall be effective for all purposes, except that such termination shall
not affect the payment or provision of compensation or benefits on account of a
termination of employment occurring prior to the termination of the terms of
this Agreement.
2. Severance Benefits.
------------------
(a) Termination Following A Change of Control. Subject to Section 4,
-----------------------------------------
if the Employee's employment terminates as a result of Involuntary Termination
at any time during a period beginning two (2) months prior to, and ending six
(6) months after a Change in Control, then one-half of the unvested portion of
any stock option held by the Employee under the Company's stock option plans
shall automatically be accelerated and the Employee or the Employee's
representative, as the case may be, shall have the right to exercise all or any
portion of such previously unvested stock options, provided however that in no
condition shall Employee be entitled to exercise such previously unvested
options to the extent that the Dollar Value (as defined below) exceeds ten (10)
times the Employee's salary plus target bonus. Dollar Value of the options shall
mean the fair market value price per share less the exercise price per share
multiplied by the number of shares exercised under previously unvested options.
Notwithstanding the foregoing, Employee shall continue to be entitled to
exercise options that were vested prior to the Change in Control as provided
under the Employee's stock option agreement. In all other respects, the
Employee's option shall remain subject to the Board's discretionary authority in
the event of a Change of Control as provided under the Company's stock option
plans.
(b) Certain Business Combinations. In the event that it is determined
-----------------------------
by the Board of Directors, upon receipt of a written opinion of the Company's
independent public accountants, that the enforcement of Section 2(a) hereof
would preclude accounting for any proposed business combination of the Company
involving a Change of Control as a pooling of interests, and the Board otherwise
desires to approve a proposed business transaction which requires as a condition
to the closing of such transaction that it be accounted for as a pooling of
interests, such paragraph of this Agreement shall be null and void, but only if
the absence of enforcement of such paragraph hereof would preserve the pooling
treatment. For purposes of this Section 2(b), the Board's determination shall
require the unanimous approval of the disinterested members of the Board.
3. Definition of Terms. The following terms referred to in this Agreement
-------------------
shall have the following meanings:
(a) Change of Control. "Change of Control" shall mean:
-----------------
(i) the acquisition by any "person" or "group" of persons, as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act of the
"beneficial ownership" (as defined in Rule 13-d3 under the Exchange Act),
directly or indirectly, of securities of the Company representing more than
fifty percent (50%) of the combined voting power of the Company's then
outstanding securities entitled to vote generally in the election of directors;
provided that "person" shall not include the Company, a subsidiary or a Company
employee benefit plan (including any trustee of such plan acting as trustee), or
any person (or any person acting as a group) which, as of the date of this
Agreement, is the "beneficial owner" of securities of the Company representing
more than fifty percent (50%) of the
-2-
<PAGE>
combined voting power of the Company's outstanding securities entitled to vote
generally in the election of directors;
(ii) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; or
(iii) the approval by the shareholders of the Company of an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets.
(b) Involuntary Termination. "Involuntary Termination" shall mean
(i) without the Employee's express written consent, the assignment to the
Employee of any duties, or the removal from or reduction or limitation of the
Employee's duties or responsibilities which in either case is inconsistent with
the Employee's position, organization level, duties, responsibilities,
compensation and status with the Company immediately prior to a Change in
Control; (ii) without the Employee's express written consent, a substantial
reduction of the facilities and perquisites (including office space and
location) available to the Employee immediately prior to such reduction; (iii) a
reduction by the Company in the base cash salary of the Employee as in effect
immediately prior to such reduction; (iv) a material reduction by the Company in
the kind or level of employee benefits to which the Employee is entitled
immediately prior to such reduction with the result that the Employee's overall
benefits package is significantly reduced; (v) the relocation of the Employee to
a facility or a location more than twenty (20) miles from the Employee's then
present location, without the Employee's express written consent; (vi) any
purported termination of the Employee by the Company; or (vii) the failure of
the Company to obtain the assumption of this agreement by any successors as
required by Section 5 below.
4. Limitation on Payments.
----------------------
(a) To the extent that any payments or benefits provided for in this
Agreement or otherwise payable to the Employee constitutes "parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") and, but for this section, would be subject to the excise
tax imposed by Section 4999 of the Code, the aggregate amount of such payments
and benefits shall be reduced such that the present value thereof (as determined
under the Code and the applicable regulations), is equal to 2.99 times the
Employee's "base amount" as defined in Section 280G(b)(3) of the Code).
(b) Within sixty (60) days after the later of Involuntary
Termination or the related Change of Control, the Company shall notify the
Employee in writing if it believes that any reduction in the payments and
benefits that would otherwise be paid or provided to the Employee under the
terms of this Agreement is required to comply with the provisions of Subsection
4(a). If the Company determines that any such reduction is required, it will
provide the Employee with copies of the information used and calculations made
by the Company to determine the amount of such
-3-
<PAGE>
reduction.
(c) Within thirty (30) days after the Employee's receipt of the
Company's notice pursuant to Subsection 4(b), the Employee shall notify the
Company in writing if the Employee disagrees with the amount of reduction
determined by the Company. As part of such notice, the Employee shall also
advise the Company of the amount of reduction, if any, that the Employee has, in
good faith, determined to be necessary to comply with the provisions of
Subsection 4(a). Failure by the Employee to provide this notice within the time
allowed will be treated as acceptance by the Employee of the amount of reduction
determined by the Company. If any differences regarding the amount of the
reduction have not been resolved by mutual agreement within sixty (60) days
after the Employee's receipt of the Company's notice pursuant to Subsection
4(b), the amount of reduction determined by the Employee will be conclusive and
binding on both parties unless, prior to the expiration of such sixty (60) day
period, the Company notifies the Employee in writing of the Company's intention
to have the matter submitted to arbitration for resolutions and proceeds to do
so promptly. If the Company gives no notice to the Employee of a required
reduction as provided in Subsection 4(b), the Employee may unilaterally
determine the amount of reduction required, if any, and, upon written notice to
the Company, that amount will be conclusive and binding on both parties.
5. Successors.
-----------
(a) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and assets shall assume the obligations under this Agreement and agree expressly
to perform the obligations under this Agreement in the same manner and to the
same extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and assets which
executes and delivers the assumption agreement described in this subsection (a)
or which becomes bound by the terms of this Agreement by operation of law.
(b) Employee's Successors. The terms of this Agreement and all
----------------------
rights of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, devisees and legatees.
6. Notice. Notices and all other communications contemplated by this
------
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to him at the home address from which he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary. Any termination of
employment by the Company of the Employee as a result of an Involuntary
Termination shall be communicated by a notice of termination given in accordance
with this section. Such notice shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination and shall specify
the termination date (which shall be not more than 15 days after the giving of
such notice).
-4-
<PAGE>
7. Miscellaneous Provisions.
------------------------
(a) Waiver. No provision of this Agreement shall be modified, waived
------
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(b) Whole Agreement. This agreement is intended to supplement and
---------------
not replace any existing agreement between the Employee and the Company.
However, no agreements, representations or understandings (whether oral or
written and whether express or implied) which are not expressly set forth in
this Agreement have been made or entered into by either party with respect to
the subject matter hereof.
(c) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California.
(d) Severability. The invalidity or unenforceability of any
------------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(e) Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
Santa Barbara, California, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Punitive damages shall not
be awarded.
(f) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
-5-
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
SOFTWARE.COM, INC.
By: _____________________________
Title:___________________________
Date: ___________________________
EMPLOYEE:
______________________________
DATE: _______________
-6-
<PAGE>
EXHIBIT 10.7
SEVERANCE AGREEMENT
IN THE EVENT OF A CHANGE OF CONTROL
This Severance Agreement (the "Agreement") is made and entered into
effective as of February 3, 1999 by and between John S. Ingalls (the "Employee")
and Software.com, Inc., a California corporation (the "Company").
R E C I T A L S
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. The Board has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company and its
shareholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its shareholders.
C. The Board believes that it is imperative to provide the Employee with
certain benefits under certain circumstances upon termination of the Employee's
employment in connection with a Change of Control, which benefits are intended
to provide the Employee with financial security and provide sufficient incentive
and encouragement to the Employee to remain with the Company notwithstanding the
possibility of a Change of Control.
D. To accomplish the foregoing objectives, the Board has directed the Company,
upon execution of this Agreement by the Employee, to agree to the terms provided
herein.
E. Certain capitalized terms used in the Agreement are defined in Section 3.
F. In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. At-Will Employment. The Company and the Employee acknowledge that the
------------------
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as
<PAGE>
provided by this Agreement, or as may otherwise be available in accordance with
the Company's established employee plans and policies or other agreements with
the Employee at the time of termination (including, without limitation, the
offer letter dated February 3, 1999 from the Company to the Employee). This
Agreement shall terminate on the fourth anniversary of the date hereof,
provided, however, that commencing on the first anniversary of the date hereof
- -------- -------
and on each subsequent anniversary, the term of this Agreement shall
automatically be extended for one additional year unless, not later than
September 30 of the preceding year, the Company or the Employee shall have given
notice not to extend the term, and further provided, however, that if a Change
------- -------- -------
of Control occurs during the term of this Agreement, this Agreement shall
terminate no earlier than the second anniversary of such Change of Control (or
if Section 2(d) applies, the second anniversary of the date through which the
Company must continue to employ or retain the Employee pursuant thereto).
2. Change of Control Benefits.
--------------------------
(a) Partial Vesting of Stock Options. If a Change of Control (other than
--------------------------------
as defined in Section 3(a)(iv)) occurs, then, except as otherwise provided in
Section 2(d), effective as of the date of such Change of Control one-half of the
unvested portion of any stock option held by the Employee under the Company's
stock option plans shall vest and become immediately exercisable. Vesting
pursuant to this Section 2(a) shall occur pro rata with respect to each portion
--------
of the stock option which would otherwise vest according to the regular vesting
schedule of each such stock option.
(b) Severance. If the Employee's employment is terminated (i) by the
---------
Company for any reason or (ii) by the Employee as a result of Involuntary
Termination, in each case, at any time during a period beginning two (2) months
prior to, and ending twelve (12) months after, a Change of Control, then, (x)
the Company shall pay to the Employee a lump sum severance payment, in cash,
equal to the Employee's annual base salary and highest possible bonus for the
fiscal year in which the termination occurs and (y) except as otherwise provided
in Section 2(c) or 2(d), the entire unvested portion of any stock option held by
the Employee under the Company's stock option plans shall vest and become
immediately exercisable.
(c) Cash-Out in Lieu of Vesting. If (i) a Change of Control which would
---------------------------
otherwise result in the vesting of any stock option pursuant to Section 2(b)
occurs prior to the Company having consummated a Qualifying IPO and (ii) upon
the exercise of any stock option held by the Employee under the Company's stock
option plans after such Change of Control, the Employee would receive something
other than Publicly Traded Securities (as defined below) which the Employee
would be free to sell without restriction (including, without limitation, any
restriction on the timing or manner of sale) simultaneously with such exercise,
then, except as otherwise provided in Section 2(d), in lieu of such vesting, the
Company shall pay the
<PAGE>
Employee with respect to each stock option held by the Employee under the
Company's stock option plans an amount in cash equal to the product of (x) the
amount by which the Change of Control Price exceeds the exercise price of such
stock option times (y) the number of shares subject to such stock option. Upon
the Employee's receipt of such payment, such stock option shall be cancelled
with respect to such number of shares.
(d) Continued Service in Lieu of Vesting. If (i) prior to entering into
------------------------------------
any agreement providing for any Change of Control which would result in the
vesting of any stock option pursuant to Section 2(a) or (b) the Company receives
(and delivers to the Employee) a written opinion from the Company's independent
auditors to the effect that, but for the vesting of such stock option pursuant
to Section 2(a) or (b) (or the cash-out of such option pursuant to Section
2(c)), such Change of Control could be accounted for as a "pooling of interests"
business combination and (ii) thereafter such Change of Control is consummated
as a "pooling of interests" business combination, then, in lieu of such vesting
(or cash-out in lieu of such vesting pursuant to Section 2(c)), the Company
shall, (A) in lieu of the application of Section 2(a), continue to employ the
Employee as an employee (with compensation and benefits during such period no
less favorable than those provided prior to the Change of Control), and (B) in
lieu of the application of Section 2(b) (and Section 2(c) if applicable), retain
the employee as a consultant (at a consulting fee of not less than $5,000 per
month), in each case, continuously through the date on which all stock options
held by the Employee under the Company's stock option plans fully vest in
accordance with their terms.
3. Definition of Terms. The following terms referred to in this Agreement
-------------------
shall have the following meanings:
(a) Change of Control. "Change of Control" shall mean:
-----------------
(i) the acquisition by any "person" or "group" of persons (as such terms
are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), of the "beneficial ownership" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than fifty percent (50%) of the combined voting power
of the Company's then outstanding securities entitled to vote generally in the
election of directors; provided that "person" shall not include the Company, a
subsidiary or a Company employee benefit plan (including any trustee of such
plan acting as trustee);
(ii) a merger or consolidation of the Company with any corporation or
other entity, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of
<PAGE>
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;
(iii) the approval by the shareholders of the Company of an agreement for
the sale or disposition by the Company of all or substantially all the Company's
assets; or
(iv) John L. MacFarlane ceasing to serve as Chief Executive Officer of
the Company.
(b) Change of Control Price "Change of Control Price" shall mean (i) in
-----------------------
the case of a Change of Control as defined in Section 3(a)(i), an amount equal
to the highest consideration paid for a share of Common Stock by the "person" or
"group" in acquiring securities of the Company representing more than fifty
percent (50%) of the combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of directors, (ii) in the
case of a Change of Control as defined in Section 3(a)(ii), an amount equal to
the highest consideration paid per share of Common Stock in connection with such
merger or consolidation, (iii) in the case of a Change of Control as defined in
Section 3(a)(iii), an amount equal to the highest consideration paid or
distributed on a share of Common Stock in connection with such sale or
disposition or (iv) in the case of Change of Control as defined in Section
3(a)(iv), an amount equal to the highest consideration paid to the Company for a
share of Common Stock in the twelve (12) month period preceding the date John L.
MacFarlane ceases to be Chief Executive Officer of the Company. The value of any
consideration other than cash paid for or paid or distributed on a share of
Common Stock shall be determined in good faith by the Board, whose determination
shall be set forth in writing and delivered to the Employee and shall be
conclusive for all purposes.
(c) Common Stock "Common Stock" means the common stock, no par value, of
------------
the Company.
(d) Involuntary Termination. "Involuntary Termination" shall mean (i)
-----------------------
without the Employee's express written consent, the assignment to the Employee
of any duties, or the removal from or reduction or limitation of the Employee's
duties or responsibilities which in either case is inconsistent with the
Employee's position, organization level, duties, responsibilities, compensation
and status with the Company immediately prior to a Change of Control (or if such
reduction or limitation occurs prior to a Change of Control, prior to such
reduction or limitation); (ii) without the Employee's express written consent, a
substantial reduction of the facilities and perquisites (including office space
and location) available to the Employee immediately prior to a Change of Control
(or if such reduction occurs prior to a Change of Control, prior to such
reduction); (iii) a reduction by the Company in the base salary of
<PAGE>
the Employee as in effect immediately prior to a Change of Control (or if such
reduction occurs prior to a Change of Control, prior to such reduction); (iv) a
material reduction by the Company in the kind or level of employee benefits to
which the Employee is entitled immediately prior to a Change in Control (or if
such reduction occurs prior to a Change of Control, prior to such reduction)
with the result that the Employee's overall benefits package is significantly
reduced; (v) the relocation of the Employee to a facility or a location more
than twenty (20) miles from the Employee's then present location, without the
Employee's express written consent; (vi) any purported termination of the
Employee by the Company; or (vii) the failure of the Company to obtain the
assumption of this agreement by any successors as required by Section 5 below.
(e) Publicly Traded Securities. "Publicly Traded Securities" shall mean
--------------------------
securities (i) with respect to which the sale to the Employee and, if necessary,
the resale by the Employee has been registered under the Securities Act of 1933,
as amended, and (ii) which are admitted to trading on the New York Stock
Exchange or another national securities exchange or quoted by the Nasdaq
National Market.
(f) Qualifying IPO. "Qualifying IPO" shall mean the closing of a firm
--------------
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock to the public involving an aggregate offering price to the
public of not less than $15,000,000 at a per share price for the Common Stock
not less than $4.15 per share (subject to adjustment for any subdivisions,
combinations or consolidations of the Common Stock from time to time) for the
account of the Company.
4. Certain Additional Payments.
---------------------------
(a) Whether or not the Employee becomes entitled to the Severance Benefits
described in Section 2 hereof, if any of the payments or benefits received or to
be received by the Employee (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any Person (as
defined below) whose actions result in a Change of Control or any Person
affiliated with the Company or such Person) (all such payments and benefits,
excluding the Gross-Up Payment (as defined below), being hereinafter referred to
as the "Total Payments") are subject to an excise tax (the "Excise Tax") imposed
under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company shall pay to the Employee an additional amount (the
"Gross-Up Payment") such that the net amount retained by the Employee, after
deduction of any Excise Tax on the Total Payments and any federal, state and
local income and employment taxes and Excise Tax upon the Gross-Up Payment,
shall be equal to the Total Payments.
(b) For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) all of the
Total
<PAGE>
Payments shall be treated as "parachute payments" (within the meaning of Section
280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel")
reasonably acceptable to the Employee and selected by the accounting firm which
was, immediately prior to the Change of Control, the Company's independent
auditor (the "Auditor"), such payments or benefits (in whole or in part) do not
constitute parachute payments, including by reason of Section 280G(b)(4)(A) of
the Code, (ii) all "excess parachute payments" within the meaning of Section
280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in
the opinion of Tax Counsel, such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered (within the
meaning of Section 280G(b)(4)(B) of the Code) in excess of the Base Amount (as
defined in 280G(b)(3) of the Code) allocable to such reasonable compensation, or
are otherwise not subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Employee
shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is to
be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Employee's residence on the date of
the termination of employment with the Company (or if the Employee remains
employed by the Company, then the date on which the Gross-Up Payment is
calculated for purposes of this Section 4), net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
(c) In the event that the Excise Tax is finally determined to be less than
the amount taken into account hereunder in calculating the Gross-Up Payment, the
Employee shall repay to the Company, within five (5) business days following the
time that the amount of such reduction in the Excise Tax is finally determined,
the portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income and employment taxes imposed on the Gross-Up Payment
being repaid by the Employee, to the extent that such repayment results in a
reduction in the Excise Tax and a dollar-for-dollar reduction in the Employee's
taxable income and wages for purposes of federal, state and local income and
employment taxes, plus interest on the amount of such repayment at 120% of the
rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise
Tax is determined to exceed the amount taken into account hereunder in
calculating the Gross-Up Payment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest, penalties or additions payable by the Employee
with respect to such excess) within five (5) business days following the time
that the amount of such excess is finally determined. The Employee and the
Company shall each reasonably cooperate with the other in connection with any
ad-
<PAGE>
ministrative or judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total Payments.
(d) For purposes of this Section 4, "Person" shall have the meaning given
in Section 3(a)(9) of the Securities Exchange Act of 1934, as modified and used
in Sections 13(d) and 14(d) thereof.
5. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether direct or
--------------------
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and assets
shall assume the Company's obligations under this Agreement and agree expressly
to perform the Company's obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and assets which
executes and delivers the assumption agreement described in this subsection (a)
or which becomes bound by the terms of this Agreement by operation of law.
(b) Employee's Successors. The terms of this Agreement and all rights of
---------------------
the Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, devisees and legatees.
6. Notice. Notices and all other communications contemplated by this
------
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to him at the home address from which he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary. Any termination of
employment by the Company or the Employee shall be communicated by a notice of
termination given in accordance with this section. Such notice shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination and shall specify the termination date (which shall be not more than
15 days after the giving of such notice).
7. Miscellaneous Provisions.
------------------------
(a) Waiver. No provision of this Agreement shall be modified, waived or
------
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of compliance
with, any
<PAGE>
condition or provision of this Agreement by the other party shall be considered
a waiver of any other condition or provision or of the same condition or
provision at another time.
(b) Whole Agreement. This agreement is intended to supplement and not
---------------
replace any existing agreement between the Employee and the Company. However, no
agreements, representations or understandings (whether oral or written and
whether express or implied) which are not expressly set forth in this Agreement
have been made or entered into by either party with respect to the subject
matter hereof.
(c) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California.
(d) Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
(e) Arbitration. Any dispute or controversy arising under or in connection
-----------
with this Agreement shall be settled exclusively by arbitration in Santa
Barbara, California, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. Punitive damages shall not be awarded.
(f) Reimbursement of Expenses. The Company shall reimburse the Employee
-------------------------
for all legal fees and expenses incurred by the Employee in seeking in good
faith to obtain or enforce any benefit or right provided by this Agreement or in
connection with any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Code to any payment or benefit provided
hereunder. Such reimbursement shall be made within five (5) business days after
delivery of the Employee's written request for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
(g) Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together will constitute one
and the same instrument.
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
EMPLOYEE: /s/ John S. Ingalls SOFTWARE.COM, INC.
-----------------------
By: _________________________
DATE: March 1, 1999 Title:_______________________
Date: March 1, 1999
<PAGE>
EXHIBIT 10.8
COMMERCIAL LEASE AGREEMENT
THIS COMMERCIAL LEASE AGREEMENT ("Lease"), dated February 21, 1996, for
reference purposes only, is made and entered into by and between LAWRENCE S.
BARELS ("LESSOR") and SOFTWARE.COM, INC., a California corporation ("LESSEE"),
(sometimes, collectively the "PARTIES," or individually a "PARTY").
1. BASIC LEASE PROVISIONS ("BASIC PROVISIONS")
1.1 INTENTIONS OF THE PARTIES: Lessor is the owner of that certain real
property described in Paragraph 1.2 below, which Lessee desires to lease from
Lessor and which Lessor agrees to lease to Lessee pursuant to the terms of this
Lease.
1.2 PREMISES: That certain real property, including all improvements
thereon, commonly known as 525 Anacapa Street, Santa Barbara, California, and
more particularly described in attached Exhibit "A" ("PREMISES"). The Premises
is improved with a first class, multi-use building ("BUILDING"), which the
Parties agree has a total of Ten Thousand Nine Hundred and Fifty (10,950) square
feet of space on two levels. (See Paragraph 2 for further provisions.)
1.3 TERM: Three (3) years ("ORIGINAL TERM") commencing on March 1, 1996
("COMMENCEMENT DATE"), and ending on February 28, 1999 ("EXPIRATION DATE"),
unless terminated earlier pursuant to the provisions of this Lease. (See
Paragraph 3 for further provisions.)
1.4 EARLY TERMINATION: Lessee may elect to terminate this Lease after
eighteen (18) months ("EARLY TERMINATION") provided notice is timely given
("EARLY TERMINATION NOTICE") and Lessee pays to Lessor the fee called for under
this Lease ("EARLY TERMINATION FEE"). (See Paragraph 3.4 for further
provisions.)
1.5 BASE RENT: A flexible amount consisting of the combined total of the
following two components: (i) Lessor's costs and expenses in relation to the
ownership and operation of the Premises as set forth in this Lease, including
Lessor's financing costs and expenses, and (ii) a Nine Percent (9%) return on
Lessor's actual cash invested in acquiring and improving the Premises in
accordance with the provisions of this Lease ("BASE RENT"). The Base Rent shall
be payable on the first day of each month, commencing on March 1, 1996. Until
the actual Base Rent is calculated, Lessee agrees to pay Thirteen Thousand One
Hundred and Fifty Dollars ($13,150) per month ("ESTIMATED BASE RENT"). This
Lease contains provisions for the Base Rent to be adjusted. (See Paragraph 4.2
for further provisions.)
1.6 BASE RENT PAID UPON EXECUTION: To facilitate Lessor's acquisition of
the Premises, Lessee has advanced Twenty Five Thousand Dollars ($25,000) into a
purchase escrow at Chicago Title Company for the benefit of Lessor. Accordingly,
Lessor agrees that Lessee shall be entitled to a credit against its Estimated
Base Rent obligation of Thirteen Thousand One Hundred and Fifty Dollars
($13,150) per month for the period from March 1, 1996, until such credit is
exhausted.
1.7 SECURITY DEPOSIT: Thirteen Thousand One Hundred and Fifty Dollars
($13,150) ("SECURITY DEPOSIT"). (See Paragraph 5 for further provisions.)
1
<PAGE>
1.8 PERMITTED USE: The Premises shall be used for research and
development, light manufacturing and general office purposes. (See Paragraph 6
for further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise stated
herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: There are no real estate brokers, real estate
licensees or others entitled to a brokerage commission or "finders' fee"
involved in this transaction, and the Parties agree to indemnify and hold one
another harmless should there be a claim for a brokerage commission or finders'
fee arising from the actions of the other Party. (See Paragraph 15.)
1.11 LESSEE IMPROVEMENTS. Lessor shall provide Lessee with an allowance
pertaining to the construction of certain tenant improvements ("TENANT
IMPROVEMENTS") in the Building for the use and benefit of Lessee. (See Paragraph
2.5 for further provisions.)
1.12 OPTION TO EXTEND. Lessee shall have one (1) option ("OPTION") to
extend the Original Term of this Lease for three (3) years. (See Paragraph 39
for further provisions.)
2. PREMISES
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. The statement of square
footage set forth in Paragraph 1.2 above, which was used in calculating the
Estimated Base Rent, is an approximation which Lessor and Lessee agree is
reasonable. The Base Rent shall be calculated in accordance with Paragraph 4.2
following completion of the Tenant Improvements when Lessor's total actual total
cash investment in acquiring and improving the Premises is known.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
elevator, plumbing, fire sprinkler system, lighting, air conditioning, heating,
and loading doors in the Premises, shall be in good operating condition on the
Commencement Date. If a noncompliance with said warranty exists as of the
Commencement Date, Lessor shall promptly after receipt of written notice from
Lessee setting forth with specificity the nature and extent of such
noncompliance, rectify same at Lessor's expense. If Lessee does not give Lessor
written notice of a noncompliance with this warranty within ninety (90) days
after the Commencement Date, correction of that noncompliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
(a) IDENTIFIED CONSTRUCTION DEFECTS. Lessor has disclosed to Lessee
that the Building suffers from certain, identified construction defects which
allow water to penetrate interior spaces in the vicinity of the three (3) second
floor balconies and the roof mounted heating, ventilation and air conditioning
system. Lessor agrees to correct the identified defects concurrently with the
construction of the Tenant Improvements. Lessor shall be responsible for all
costs and expenses associated with such corrections, which costs and expenses
shall be in addition to the Tenant Improvement cost and expense allowance.
2.3 COMPLIANCE WITH BUILDING CODES. Lessor warrants to Lessee that the
improvements on the Premises comply with all applicable building codes,
regulations and ordinances in effect on the Commencement Date as those codes,
regulations and ordinances apply to the Building which was constructed in 1988.
Said warranty does not apply to the use to which Lessee will put the Premises or
2
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to any Alterations or Utility Installations (as defined in Paragraph 7.3(a))
made or to be made by Lessee. If the Premises do not comply with said warranty,
Lessor shall promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such noncompliance, rectify the same
at Lessor's expense. If Lessee does not give Lessor written notice of a
noncompliance within six (6) months following the Commencement Date, correction
of that noncompliance shall be the obligation of Lessee at Lessee's sole cost
and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by Lessor to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 CONSTRUCTION OF TENANT IMPROVEMENTS FOR THE BENEFIT OF LESSEE. Lessee
has had architectural plans prepared by Tom Bollay, an architect and civil
engineer selected by Lessee, pertaining to the Tenant Improvements desired by
Lessee. Lessor has reviewed and approved the conceptual plans and budget for the
Tenant Improvements and has agreed to permit construction of the same, for the
use and benefit of Lessee, at Lessor's cost and expense not to exceed a total,
actual cost of Four Hundred Thousand Dollars ($400,000). Lessor's financial
responsibility for services rendered by Lessee's design professionals
(architects, engineers and designers) relating to the Tenant Improvements shall
be limited to Five Percent (5%) of the total, actual cost of the Tenant
Improvements or Twenty Thousand Dollar ($20,000), whichever is less. This sum
is to be included with the Four Hundred Thousand Dollars ($400,000) Tenant
Improvement allowance amount. To the extent the total, actual costs and expenses
associated with designing, engineering, permitting and constructing the Tenant
Improvements are in excess of Four Hundred Thousand Dollars ($400,000), Lessee
agrees to contribute all additional sums.
(a) LESSEE'S SELECTION AND SUPERVISION OF GENERAL CONTRACTOR.
Construction of the Tenant Improvements shall begin on or before the
Commencement Date, and shall be undertaken by a licensed general contractor
selected by Lessee and approved by Lessor, whose approval shall not be
unreasonably withheld. Lessee's contractor shall maintain comprehensive general
liability insurance in an amount of not less than One Million Dollars
($1,000,000) for each accident and Two Million Dollars ($2,000,000) aggregate
which shall name Lessor as an additional insured and protect against any
liability that the general contractor, it employees and/or subcontractors may
incur on account of bodily injury, death, property damage or consequential
damages. In addition, Lessee's general contractor shall maintain workers'
compensation insurance in statutory form and employer's liability insurance
covering the contractor's liability to the extent of not less than One Million
Dollars ($1,0O0,000) for damages or injury on account of bodily injury or death.
The Tenant Improvements shall be constructed in accordance with the approved
plans and in compliance with applicable building codes, regulations and
ordinances in effect on the Commencement Date.
(b) OWNERSHIP OF TENANT IMPROVEMENTS. The Tenant Improvements,
including all prefabricated or modular wall structures attached to the
Building's fixed walls as depicted on the approved plans, shall belong to Lessor
at all times during the term of this Lease and any renewal thereof. Lessee shall
not be entitled to remove the Tenant Improvements or any portion thereof,
including the prefabricated or modular wall structures attached to the
Building's fixed walls, upon the Expiration Date or an earlier termination of
this Lease.
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(c) LESSOR'S PAYMENT OF INVOICES. Lessee shall submit monthly
invoices to Lessor for payment of the Tenant Improvements as the work
progresses. Lessor shall be entitled to request and receive supporting invoices
and lien releases from any of the general contractor's subcontractors or
suppliers that might have the right to assert a claim of mechanic's lien. Lessor
shall make payment to Lessee for all duly invoiced work in accordance with this
Paragraph 2.5, up to the Four Hundred Thousand Dollar ($400,000) allowance
amount, within ten (10) days after receipt of the invoices.
(d) LESSOR'S ACCEPTANCE OF THE COMPLETED WORK. Lessor shall inspect
and accept the Tenant Improvements constructed by Lessee within ninety (90) days
after the date of completion ("Completion Date" as evidenced by a duly executed
and recorded notice of completion), and notify Lessee in writing of any defects
or noncompliant conditions. If any defect or noncompliance exists with respect
to the Tenant Improvements, Lessee shall, promptly after receipt of written
notice from Lessor setting forth with specificity the nature and extent of such
defect or noncompliance, rectify the same at Lessee's sole cost and expense.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Commencement Date,
Lessor shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease, or the obligations of Lessee hereunder, or
extend the term hereof, but in such case, Lessee shall not, except as otherwise
provided herein, be obligated to pay rent or perform any other obligation of
Lessee under the terms of this Lease until Lessor delivers possession of the
Premises to Lessee. Construction of the Tenant Improvements during the initial
ninety (90) days of the Original Term shall not be deemed a delay in possession
and Lessee shall be obligated to pay the Estimated Base Rent and all other rent
or charges under this Lease during construction of the Tenant Improvements.
3.4 EARLY TERMINATION. Lessee may elect to terminate this Lease, at any
time during the Original Term or any renewal term, after expiration of the
eighteenth (18th) full month of the Original Term. The then operative Lease Term
shall terminate six (6) months after Lessee provides Lessor with a written Early
Termination Notice. Additionally, Lessee's final monthly installment of Base
Rent pursuant to this Lease shall include an Early Termination Fee equivalent to
Two Thousand Six Hundred and Fifty Dollars ($2,650) multiplied by the number of
months for which Base Rent would otherwise be payable by Lessee during the
remaining balance of the then operative Lease Term.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base
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Rent and all other rent and charges for any period during the term hereof which
is for less than one (1) full calendar month shall be prorated based upon the
actual number of days of the calendar month involved. Payment of Base Rent and
other charges shall be made to Lessor at its address stated herein or to such
other persons or at such other addresses as Lessor may from time to time
designate in writing to Lessee.
4.2 ADJUSTMENTS IN BASE RENT. Lessee understands and agrees that the Base
Rent under this Lease shall be determined by calculating the sum of the
following: (i) Lessor's costs and expenses in relation to the ownership and
operation of the Premises as set forth in this Lease, (ii) the actual payments
(principal and interest) Lessor is obligated to pay on the promissory note and
deed of trust assumed by Lessor upon its acquisition of the Premises ("LESSOR'S
SECURED OBLIGATION"), and (iii) a Nine Percent (9%) return on Lessor's total
actual cash invested in acquiring and improving the premises ("LESSOR'S CASH
INVESTMENT"). The interest rate on Lessor's Secured Obligation is variable. On
the Commencement Date it was 7.619% per annum. Lessor's Cash Investment is
estimated at Six Hundred Thousand Dollars ($600,000). The Base Rent component
comprising the return on Lessor's Cash Investment shall be calculated at the
monthly rate of 72/100 of One Percent (.72%) per month, which is equivalent to
Nine Percent (9%) per year compounded monthly. During the term of this Lease, to
the extent the payments on Lessor's Secured Obligation change due to interest
rate adjustments, the Base Rent shall be contemporaneously adjusted by a like
amount following written notice by Lessor. Lessee also understands and agrees
that Lessor's Secured Obligation may be refinanced during the term of this Lease
and that Lessor may obtain new financing on the Premises. At such time, and at
all times thereafter, the Base Rent under this Lease shall be adjusted at the
times and by the amounts, if any, that the payments are adjusted under the new
financing. Lessor agrees not to refinance the Premises for eighteen (18) months
from the Commencement Date, and thereafter only at a commercially reasonable
rate pursuant to a loan having a principal balance approximately equivalent to
the remaining principal balance on Lessor's Secured Obligation (i.e.
approximately One Million Dollars ($1,000,000). Additionally, should Lessor
incur reasonable transaction costs and expenses associated with the one-time
required refinancing of Lessor's Secured Obligation, the Base Rent shall be
increased for the Lease Term by the amount equivalent to that amount necessary
to amortize such costs and expenses over the balance of the Lease Term and
provide Lessor with a Nine Percent (9%) per annum return on the principal
amount.
4.3 POTENTIAL APPRECIATION IN VALUE REBATE TO LESSEE. Lessee and Lessor
acknowledge and agree that there may be a reduction in the principal balance on
Lessor's Secured Obligation during the Original Term of the Lease and any
renewal thereof. Because the Base Rent is adjusted to, in part, to cover all of
Lessors payments under Lessor's Secured Obligation, which payments may result in
a reduction of the principal balance, it is possible that the calculated return
on Lessor's Cash Investment at the Expiration Date or earlier termination of
this Lease could be in excess of Nine Percent (9%) if the Premises appreciates
substantially in value. While acknowledging the substantial risk taken by Lessor
that the Premises may depreciate in value, if the Lessor's total calculated
return on Lessor's Cash Investment at the Expiration Date or earlier termination
of this Lease is in excess of the Nine Percent (9%), the Parties agree that
provided Lessee is not in Default or Breach of this Lease (as those terms are
defined in Paragraphs 13.1), Lessee shall be entitled to a rebate of a portion
of the rent paid during the Lease term. The maximum potential rebate due Lessee
shall be Fifty Percent (50%) of the total amount by which Lessee's payments of
Base Rent have caused the principal balance of Lessor's Secured Obligation to be
reduced. If Lessee believes it is entitled to a rebate under this Paragraph 4.3,
it shall within ten (10) days after vacating the Premises: (i) make a written
request to Lessor, and (ii) deposit with Lessor the estimated cost to have an
appraisal of the Premises prepared by an MAI appraiser. Lessor shall within
ninety (90) days select and retain an appraiser and have the appraisal
completed. Lessee shall be entitled to a rebate if the appraisal establishes
that the fair market value of
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the Premises at the time of Lessee's vacation (after deducting anticipated costs
of sale which are agreed as being six percent (6%) of the fair market value) is
in excess of the sum total of: (i) Lessor's Secured Obligation on the
Commencement Date ($979,494.70), and (ii) Lessor's Cash Investment
("APPRECIATION IN VALUE"). The amount of the rebate shall be Fifty Percent (50%)
of the Appreciation in Value up to a maximum of Fifty Percent (50%) of the total
amount by which Lessee's payments of Base Rent have caused the principal balance
on Lessor's Secured Obligation to be reduced. Lessor shall be obligated to
rebate any amount owing to Lessee under this Paragraph 4.3 within ninety (90)
days after the appraisal is complete.
4.4 LESSOR'S RESERVE ACCOUNT. Lessor shall be entitled to maintain a
reserve account in an amount not in excess of Fifty Thousand Dollars ($50,000)
("RESERVE ACCOUNT") to be used for purposes of satisfying Lessor's repair and
maintenance obligations with respect to the Premises. Provided the Reserve
Account is maintained in a conservative, commercially reasonable
interest-bearing account, Lessee agrees to pay Lessor annually, the difference
between the actual interest earned on such funds and the amount which would have
been earned had such funds earned interest at the rate of Nine Percent (9%) per
annum. The Lessee's payment obligations under this Paragraph 4.4 shall commence
on March 1, 1996, with the first payment being due on March 1, 1997, and
continuing annually thereafter on each subsequent anniversary of this Lease
during the Lease Term and any renewal thereof.
4.5 LESSOR'S ANNUAL ADMINISTRATIVE FEE. In addition to the Base Rent and
all other rent or charges due under this Lease, Lessee agrees to pay Lessor an
annual administrative fee ("ANNUAL ADMINISTRATIVE FEE") to cover administrative,
legal, accounting and other professional services relating to the Premises in
the amount of Lessor's actual costs and expenses for such services or Three
Thousand Dollars ($3,000) per year, whichever is less. Lessee's payment
obligations under this Paragraph 4.5 shall commence on March 1, 1996, with the
first payment being due on March 1, 1997, and continuing annually thereafter on
each subsequent anniversary of this Lease during the Lease term and any renewal
thereof.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions. Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any moneys to
be paid by Lessee under this Lease.
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6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance. Lessor hereby agrees to not
unreasonably withhold or delay its consent to any written request by Lessee to
modify the permitted purpose for which the Premises may be used or occupied, so
long as the same will not impair the structural integrity of the Building, the
mechanical or electrical systems therein, is not significantly more burdensome
to the Premises and the Building, and is otherwise permissible pursuant to this
Paragraph 6.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "REPORTABLE USE" shall mean (i) the installation, or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by Lessor, Lessee shall immediately give written
notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy
of any statement, report, notice, registration, application, permit, business
plan, license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering
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or occupying the Premises, concerning the presence, spill, release, discharge
of, or exposure to, any Hazardous Substance or contamination in, on, or about
the Premises, including but not limited to all such documents as may be
involved in any Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and the Premises, harmless from and
against any and all loss of rents and/or damages, liabilities, judgments, costs,
claims, liens, expenses, penalties, permits and attorney's and consultant's fees
arising out of or involving any Hazardous Substance or storage tank brought onto
the Premises by or for Lessee or under Lessee's control. Lessee's obligations
under this Paragraph 6 shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation (including consultant's and
attorney's fees and testing), removal, remediation, restoration and/or abatement
thereof, or of any contamination therein involved, and shall survive the
expiration or earlier termination of this Lease. No termination, cancellation,
or release agreement entered into by Lessor and Lessee shall release Lessee from
its obligations under this Lease with respect to Hazardous Substances or storage
tanks, unless specifically so agreed by Lessor in writing at the time of such
agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "APPLICABLE LAW," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or
not reflecting a change in policy from any previously existing policy Lessee
shall, within five (5) days after receipt of Lessor's written request, provide
Lessor with copies of all documents and information, including, but not limited
to, permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
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7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2, 2.3 (Lessor's
warranty as to compliance with building codes), 7.2 (Lessor's obligations to
repair), 9 (damage and destruction), and 14 (condemnation), and except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole cost and
expense and at all times, keep the Premises and every nonstructural part thereof
in good order, condition and repair, (whether or not such portion of the
Premises requiring repairs, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements the age of such
portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
elevators, fire sprinkler and/or standpipe and hose or other automatic fire
extinguishing system, including fire alarm and/or smoke detection systems and
equipment, fire hydrants, fixtures, interior walls, ceilings, windows, doors,
plate glass, skylights and signs located in, on, about, or adjacent to the
Premises. With respect to the Tenant Improvements which constitute modifications
of the Premises, Lessee shall be fully responsible for all costs and expenses
required to keep such improvements in good order, condition and repair. Lessee
shall not cause or permit any Hazardous Substance to be spilled or released in,
on, under or about the Premises (including through the plumbing or sanitary
sewer system) and shall promptly, at Lessee's expense, take all investigatory
and/or remedial action reasonably recommended, whether or not formally ordered
or required, for the cleanup of any contamination of, and for the maintenance,
security and/or monitoring of the Premises, the elements surrounding same, or
neighboring properties, that was caused or materially contributed to by Lessee,
or pertaining to or involving any Hazardous Substance brought onto the Premises
by or for Lessee. Lessee, in keeping the Premises in good order, condition and
repair, shall exercise and perform good maintenance practices. Lessee's
obligations shall include restorations, replacements or renewals when necessary
to keep the Premises and all improvements thereon or a part thereof in good
order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) fire sprinkler and/or standpipe and hose or other automatic fire
extinguishing systems, including fire alarm and/or smoke detection, and (iii)
elevator maintenance.
7.2 LESSOR'S OBLIGATIONS. Lessor shall, at Lessor's sole cost and expense
and at all times keep the foundation, exterior walls, floors and roof of the
Premises in good order, condition and repair. Except for the items set forth
above in this Paragraph 7.2 and the warranties and agreements of Lessor
contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to Compliance with building code), 9 (relating to destruction of the
Premises) and 14 (relating to condemnation of the Premises), it is intended by
the Parties hereto that Lessor have no obligation, in any manner whatsoever, to
repair and maintain the Premises, the improvements located thereon, or the
equipment therein, all of which obligations are intended to be that of the
Lessee under Paragraph 7.1 hereof. It is the intention of the Parties that the
terms of this Lease govern the respective obligations of the Parties as to
maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of any needed repairs.
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7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations"
is used in this Lease to refers to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment and plumbing on or about the Premises. The term "Trade
Fixtures" shall mean Lessee's machinery and equipment that can be removed
without doing material damage to the Premises. The term "Alterations" shall mean
any modification of the improvements on the Premises from that which are
provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make nonstructural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof,
any balconies or any existing walls, and the cumulative cost thereof during the
term of this Lease as extended does not exceed Twenty Five Thousand Dollars
($25,000).
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions or said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefore. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs Ten Thousand Dollars ($10,000) or more upon
Lessee's providing Lessor with a lien and completion bond in an amount equal to
one and one-half times the estimated cost of such Alteration or Utility
Installation and/or upon Lessee's posting an additional Security Deposit with
Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of nonresponsibility in or on the Premises as provided by
law. If Lessee shall, in good faith, contest the validity of any such lien,
claim or demand, then Lessee shall, at its sole expense defend and protect
itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises. if Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal
to one and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. in addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
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7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris and
in good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, and the removal, replacement, or remediation of any soil,
material or groundwater contaminated by Lessee, all as may then be required by
Applicable Law and/or good service practice. Lessee's Trade Fixtures shall
remain the property of Lessee and shall be removed by Lessee subject to its
obligation to repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessor is the Insuring Party under this
[ILLEGIBLE] shall pay for all insurance required under this Paragraph 8 except
to the extent [ILLEGIBLE] to liability insurance carried by Lessor in excess of
$2,000,000 per occurrence. Pr [ILLEGIBLE] riods commencing prior to or extending
beyond the Lease term shall be prorated to [ILLEGIBLE] ease term. Payment shall
be made by Lessee to Lessor within ten (10) days following [ILLEGIBLE] invoice
for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $2,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an
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"insured contract" for the performance of Lessee's indemnity obligations under
this Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor may also elect to maintain liability
insurance described in Paragraph 8.2(a), above, in addition to, and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
less payable to Lessor and to the holders of any mortgages or deeds of trust on
the Premises ("Lender(s)"), insuring against loss or damage to the Premises. The
amount of such insurance shall be equal to the full replacement cost of the
Premises, as the same shall exist from time to time; or the amount required by
Lenders, but in no event more than the commercially reasonable. However, Lessee
Owned Alterations and Utility Installations shall be insured by Lessee under
Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
Los Angeles Urban Area. If such insurance coverage has a deductible clause, the
deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be
liable for such deductible amount in the event of an Insured Loss, as defined in
Paragraph 9.1 (c).
(b) RENTAL VALUE. Lessor shall, in addition, obtain and [ILLEGIBLE]
the term of this Lease a policy or policies in the name of Lessor, with loss
[ILLEGIBLE] ???(s), insuring the loss of the full rental and other charges
payable by Lessee [ILLEGIBLE] or one (1) year (including all Real Estate Taxes,
insurance costs, and any sch [ILLEGIBLE] aid insurance shall provide that in the
event the Lease is terminated by the [ILLEGIBLE] the period of indemnity for
such coverage shall be extended beyond t [ILLEGIBLE] of repairs or replacement
of the Premises, to provide for one full year's los [ILLEGIBLE] e date of any
such loss. Said insurance shall contain an agreed valuation ??? [ILLEGIBLE] ance
clause and the amount of coverage shall be adjusted annually to refl [ILLEGIBLE]
ental income, property taxes, insurance premium costs and other expenses, if
any, otherwise payable by Lessee, for the next twelve (12) month period. Lessee
shall be liable for any deductible amount in the event of such loss.
(c) TENANT'S IMPROVEMENTS. Lessor shall not be required to insure
Lessee Owned Alterations and Utility Installations unless the item in question
has become the property of Lessor under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements in Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried,
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maintain insurance coverage on all of Lessee's personal property, Lessee Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor under Paragraph 8.3. Such insurance shall be
full replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B +, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. If Lessee is the
Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of
policies of such insurance or certificates evidencing the existence and amounts
of such insurance with the insureds and loss payable clauses as required by this
Lease. No such policy shall be cancelable or subject to modification except
after thirty (30) days prior written notice to Lessor. Lessee shall at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fail to procure and maintain the insurance required to be carried by the
Insuring Party under this Paragraph 8, the other Party may, but shall not be
required to, procure and maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property
arising out of or incident to the perils required to be insured against under
Paragraph 8. The effect of such releases and waivers of the right to recover
damages shall not be limited by the amount of insurance carried or required, or
by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its members and Lenders, from and against any and all
claims, loss of rents and/or damages, costs, liens, judgments, penalties,
permits, attorney's and consultant's fees, expenses and/or liabilities arising
out of, involving, or in dealing with, the occupancy of the Premises by Lessee,
the conduct of Lessee's business, any act, omission or neglect of Lessee, its
agents, contractors, employees or invitees, and out of any Default or Breach by
Lessee in the performance in a timely manner of any obligation on Lessee's part
to be performed under this Lease. The foregoing shall include, but not be
limited to, the defense or pursuit of any claim or any action or proceeding
involved therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment, and whether well founded or not. In case
any action or proceeding be brought against Lessor by reason of any of the
foregoing matters, Lessee upon notice from Lessor shall defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any such
claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, electricity, gas, water or rain, or from the breakage,
leakage, obstruction
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or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether the said
injury or damage results from conditions arising upon the Premises, or from
other sources or places, and regardless of whether the cause of such damage or
injury or the means of repairing the same is accessible or not. Notwithstanding
Lessor's negligence or breach of this Lease, Lessor shall under no circumstances
be liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than Fifty Percent (50%) of the then Replacement Cost of the Premises
immediately prior to such damage or destruction, excluding from such calculation
the value of the land and Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts, or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is Ten Thousand Dollars ($10,000) or less, and, in such event, Lessor
shall make the insurance proceeds available to Lessee on a reasonable basis for
that purpose. Notwithstanding the foregoing, if the required insurance was not
in force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds (except as to
the deductible which is Lessee's responsibility) as and when required to
complete said repairs. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3
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rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease, then Lessee may preserve this Lease by, within twenty (20)
days following the occurrence of the damage, or before the expiration of the
time provided in such option for its exercise, whichever is earlier ("Exercise
Period"), (i) exercising such option and (ii) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the
repairs. If Lessee duly exercises such option during said Exercise Period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's expense repair such damage as
soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option and provide such funds or
assurance during said Exercise Period, then Lessor may at Lessor's option
terminate this Lease as of the expiration of said sixty (60) day period
following the occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within ten (10) days after the expiration of the
Exercise Period, notwithstanding any term or provision in the grant of option to
the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which
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such damage, its repair or the restoration continues (not to exceed the period
for which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either: (i)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return Lessee so much of Lessee's Security Deposit as has not been,
or is not then required to be, used by Lessor under the terms of this Lease.
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9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (A) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1 (b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand.
(B) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1 (a), at the option of Lessor, be treated as an additional
Security Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
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10.3 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause its Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in Paragraph
10.1 (b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessor's decision to acquire the Premises and the establishment
of the Base Rent was premised upon Lessor's existing relationship with Lessee.
The mutual intent of the Parties was to provide Lessee with operational space
within which to conduct and expand Lessee's business. The Parties intend that
Lessee shall occupy at least Fifty Percent (50%) of the space within the
Premises at all times during the Lease Term and any renewal thereof.
Accordingly, Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of fifty
percent (50%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented in writing to Lessor at the time of
the execution by Lessor of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
established under generally accepted accounting principles consistently applied.
Lessee shall provide to Lessor an unaudited balance sheet as of the date of the
most recent quarter prior to the Commencement Date, at the time of the execution
of this Lease.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1 (c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed
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by Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any
overpayment credited against the next installment(s) of Base Rent coming due,
and any underpayment for the period retroactively to the effective date of the
adjustment being due and payable immediately upon the determination thereof.
Further, in the event of such Breach and market value adjustment, (i) any index-
oriented rental or price adjustment formulas contained in this Lease shall be
adjusted to require that the base index be determined with reference to the
index applicable to the time of such adjustment, and (ii) any fixed rental
adjustments scheduled during the remainder of the Lease term shall be increased
in the same ratio as the new market rental bears to the Base Rent in effect
immediately prior to the market value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, or any one else
responsible for the performance of the Lessee's obligations under this Lease,
including the sublessee, without first exhausting Lessor's remedies against any
other person or entity responsible therefor to Lessor, or any security held by
Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
nonrefundable deposit of $1,000 or ten percent (10%) of the current monthly Base
Rent, whichever is greater, as reasonable consideration for Lessor's considering
and processing the request for consent. Lessee agrees to provide Lessor with
such other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and
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agreed to conform and comply with each and every term, covenant, condition and
obligation herein to be observed or performed by Lessee during the term of said
assignment or sublease.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "DEFAULT" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "BREACH"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder,
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whether to Lessor or to a third party, as and when due, the failure by Lessee to
provide Lessor with reasonable evidence of insurance or surety bond required
under this Lease, or the failure of Lessee to fulfill any obligation under this
Lease which endangers or threatens life or property, where such failure
continues for a period of three (3) days following written notice thereof by or
on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of: (i) compliance with Applicable Law
per Paragraph 6.3, (ii) the inspection, maintenance and service contracts
required under Paragraph 7.1 (b), (iii) the rescission of an unauthorized
assignment or subletting per Paragraph 12.1 (b), (iv) the subordination or
non-subordination of this Lease per Paragraph 30, (v) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease that are to be observed, complied with or performed by
Lessee, other than those described in subparagraphs (a), (b) or (c), above,
where such Default continues for a period of thirty (30) days after written
notice thereof by or on behalf of Lessor to Lessee; provided, however, that if
the nature of Lessee's Default is such that more than thirty (30) days are
reasonably required for its cure, then it shall not be deemed to be a Breach of
this Lease by Lessee if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. (S)101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee was materially false.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
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(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve therein the right to recover all or
any part thereof in a separate suit for such rent and/or damages. If a notice
and grace period required under subparagraphs 13.1 (b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1 (b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1 (b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
after Lessee's Breach and abandonment and recover the rent as it becomes due
under California Civil Code Section 1951.4. See Paragraphs 12 and 36 for the
limitations on assignment and subletting which limitations Lessee and Lessor
agree are reasonable. Acts of maintenance or preservation, efforts to relet the
Premises, or the appointment of a receiver to protect the Lessor's interest
under the Lease, shall not constitute a termination of the Lessee's right to
possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 RECAPTURE IN EVENT OF BREACH. Lessor's agreement to fund the
construction of the Tenant Improvements described in Paragraph 2.5 was
conditioned upon Lessee's full and faithful performance of all of the terms,
covenants and conditions of this Lease to be performed or observed by Lessee
during the term hereof as the same may be extended. Upon the occurrence of a
Breach of this Lease by Lessee, as defined in Paragraph 13.1, Lessor shall be
entitled to recover from Lessee, the difference
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between the fair market value of the Premises at the time of the Breach, and the
sum total of Lessor's actual costs and expenses associated with acquiring the
Premises and constructing the Tenant Improvements. The fair market value of the
Premises shall be determined by a real estate appraiser mutually selected by
Lessor and Lessee.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within five (5) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to six percent (6%) of such overdue amount. The Parties hereby
agree that such late charge represents a fair and reasonable estimate of the
costs Lessor will incur by reason of late payment by Lessee. Acceptance of such
late charge by Lessor shall in no event constitute a waiver of Lessee's Default
or Breach with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any
other provision of this Lease to the contrary, Base Rent shall, at Lessor's
option, become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any mortgage or deed of trust covering the Premises whose
name and address shall have been furnished Lessee in writing for such purpose,
of written notice specifying wherein such obligation of Lessor has not been
performed; provided, however, that if the nature of Lessor's obligation is such
that more than thirty (30) days after such notice are reasonably required for
its performance, then Lessor shall not be in breach of this Lease if performance
is commenced within such thirty (30) day period and thereafter diligently
pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation,
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Lessor shall to the extent of its net severance damages received, over and above
the legal and other expenses incurred by Lessor in the condemnation matter,
repair any damage to the Premises caused by such condemnation, except to the
extent that Lessee has been reimbursed therefor by the condemning authority.
Lessee shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. BROKER'S FEE. There have been no real estate brokers involved in the
negotiation of this Lease. Lessee and Lessor each represent and warrant to the
other that it has had no dealings with any person, firm, broker or finder in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and that no broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction. Lessee and Lessor do each hereby agree to indemnify, protect,
defend and hold the other harmless from and against liability for compensation
or charges which may be claimed by any such unnamed broker, finder or other
similar party by reason of any dealings or actions of the indemnifying party,
including any costs, expenses, attorneys' fees reasonably incurred with respect
thereto.
16. LESSEE'S CONTINUING COOPERATION. If Lessor desires to finance, refinance, or
sell the Premises, Lessee shall deliver to any potential lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser, including but not limited to Lessee's
financial statements for the past three (3) years. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner at
the time in question of the fee title to the Premises. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment,
Lessee understands and agrees in advance that Lessor shall be entitled to
transfer or assign all of Lessor's right, title and interest in this Lease to
525 ANACAPA, LLC, a California limited liability company, of which Lessor is the
managing member. Upon such transfer or assignment and delivery of the Security
Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with
respect to the obligations and/or covenants under this Lease thereafter to be
performed by the Lessor. Subject to the foregoing, the obligations and/or
covenants in this Lease to be performed by the Lessor shall be binding only upon
the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of Twelve Percent (12%) per
annum, but not exceeding the maximum rate allowed by law, in addition to the
late charge provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
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22. NO PRIOR OR OTHER AGREEMENTS. This Lease contains all agreements between the
Parties with respect to any matter mentioned herein, and no other prior or
contemporaneous agreement or understanding shall be effective unless evidenced
by a writing. Lessee represents and warrants to Lessor that it has made, and is
relying solely upon, its own investigation as to the nature, quality, and
character of the Premises and Building.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
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27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by
California law. Any litigation between the Parties hereto concerning this Lease
shall be initiated in Santa Barbara County.
30. SUBORDINATION; ATTORNMENT; NONDISTURBANCE.
30.1 SUBORDINATION. This Lease and the Option granted hereby shall be
subject and subordinate to any mortgage, deed of trust, or other hypothecation
or security device (collectively, "Security Device"), now or hereafter placed by
Lessor upon the Premises, to any and all advances made on the security thereof,
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Lessee agrees that the Lenders holding any such Security Device shall
have no duty, liability or obligation to perform any of the obligations of
Lessor under this Lease, but that in the event of Lessor's default with respect
to any such obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or the Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the nondisturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NONDISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "nondisturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or nonsubordination, attornment and/or nondisturbance agreement as
is provided for herein.
31. ATTORNEY'S FEES. If any Party brings an action or proceeding to enforce the
terms hereof or declare rights hereunder, the Prevailing Party (as hereafter
defined) in any such proceeding, action, or appeal thereon, shall be entitled to
reasonable attorney's fees. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is
pursued to decision or
26
<PAGE>
judgment. The term, "PREVAILING PARTY" shall include, without limitation, a
Party who substantially obtains or defeats the relief sought, as the case may
be, whether by compromise, settlement, judgment, or the abandonment by the other
Party of its claim or defense. The attorney's fees award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorney's fees reasonably incurred. Lessor shall be entitled to
attorney's fees, costs and expenses incurred in the preparation and service of
notices of Default and consultations in connection therewith, whether or not a
legal action is subsequently commenced in connection with such Default or
resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises, as Lessor may reasonably
deem necessary. Lessor may at any time place on or about the Premises or
building any ordinary "For Sale" signs and Lessor may at any time during the
last (120) days of the term hereof place on or about the Premises any ordinary
"For Lease" signs. All such activities of Lessor shall be without abatement of
rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install such signs as are reasonably
required to advertise Lessee's own business. The installation of any sign on the
Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual costs and expenses (including but not limited to
architects', attorneys', engineers' or other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent
pertaining to this Lease or the Premises, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. Subject to Paragraph 12.2(e)
(applicable to assignment or subletting), Lessor may, as a condition to
considering any such request by Lessee, require that Lessee deposit with Lessor
an amount of money (in addition to the Security Deposit held under Paragraph 5)
reasonably calculated by Lessor to represent the cost Lessor will incur in
considering and responding to Lessee's request. Except as otherwise provided,
any unused portion of said deposit shall be refunded to Lessee without
27
<PAGE>
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. EXHIBITS AND ATTACHMENTS. All exhibits and attachments to this Lease shall
be incorporated by reference as though set forth in full.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "Option" means the
right to extend the term of this Lease or to renew this Lease pursuant to
Paragraph 1.12.
39.2 OPTION PERSONAL TO ORIGINAL LESSEE. The Option granted to Lessee in
this Lease is personal to the Lessee and cannot be voluntarily or involuntarily
assigned or exercised by any person or entity other than Lessee. The Option
herein granted to Lessee is not assignable, either as a part of an assignment of
this Lease or separately or apart therefrom, and the Option may not be separated
from this Lease in any manner, by reservation or otherwise.
39.3 EXERCISE OF OPTION. Lessee's renewal Option must be exercised, if at
all, by written notice from Lessee to Lessor no earlier than 365 days prior to
and no later than 180 days prior to the expiration of the Original Term as set
forth in Paragraph 1.3. The three year renewal term ("RENEWAL TERM") shall be on
the same terms and conditions as the Original Term, including the Base Rent
adjustment. If Lessee fails to exercise the Option in a timely manner as
provided above, the Option shall be void.
39.4 EFFECT OF DEFAULT ON OPTION.
(a) Lessee shall have no right to exercise the Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not
the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which the Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
the Option because of the provisions of Paragraph 39.4(a).
28
<PAGE>
(c) All rights of Lessee under the provisions of the Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. GENERAL INTERPRETATION. The terms of this Lease have been negotiated by the
Parties and the language used in this Lease shall be deemed to be the language
chosen by the Parties to express their mutual intent. This Lease shall be
construed without regard to any presumption or rule requiring construction
against the Party causing the Lease or any portion of it to be drafted, or in
favor of the Party receiving a particular benefit under the Lease. No rule of
strict construction will be applied against any person.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rent to Lessor
hereunder does not include the cost of any security measures, and that Lessor
shall have no obligation whatsoever to provide same. Lessee assumes all
responsibility for the protection of the Premises, Lessee, its agents, employees
and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. Each individual executing this Lease represents and warrants that
it has been duly and validly authorized, executed and delivered and that no
other action is requisite to the execution and delivery of this Agreement by the
executing Party.
45. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties. The Parties shall amend this Lease from time to time to reflect any
adjustments that are made to the Base Rent or other rent payable under this
Lease. As long as they do not materially change Lessee's obligations hereunder,
Lessee agrees to make such reasonable nonmonetary modifications to this Lease as
may be reasonably required by an institutional, insurance company, pension plan
or private lender in connection with the obtaining of normal financing or
refinancing of the Premises.
29
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at: Santa Barbara, California Executed at: Santa Barbara, California
on February 22, 1996 on February 22, 1996
by LESSOR: by LESSEE:
LAWRENCE S. BARELS SOFTWARE.COM, INC., a California
corporation
By: /s/ Lawrence S. Barels By: /s/ R. Michael Crill
---------------------------------- ----------------------------------
Lawrence S. Barels R. Michael Crill
Title: Chief Financial Officer
Address for Notices: Address for Notices:
2407 Foothill Lane 525 Anacapa Street
Santa Barbara, CA 93105 Santa Barbara, CA 93101
Tel. No. (805) 966-9075 Tel. No. (805) 882-2470
Fax No. (805) 965-6406 Fax No. (805) 882-2743
30
<PAGE>
CHICAGO TITLE 96-012635 Rec Fee 35.00
AU2 2.00
RECORDING REQUESTED BY Check 37.00
AND WHEN RECORDED MAIL TO: Recorded
Official Records
525 ANACAPA, LLC County of
C/o Christopher A. Jacobs Santa Barbara
HATCH & PARENT Kenneth A. Pettit
21 East Carrillo Street Recorder
Santa Barbara, CA 93101 12:00pm 29-Feb-96 PUBL MB 11
THIS SPACE RESERVED FOR RECORDER ONLY
[Gov. Code ss. 27361.6]
- --------------------------------------------------------------------------------
ASSUMPTION AND ASSIGNMENT AGREEMENT
- --------------------------------------------------------------------------------
THIS ASSUMPTION AND ASSIGNMENT AGREEMENT ("Agreement"), dated
February 21, 1996, for reference purposes only, is entered into by and between
LAWRENCE S. BARELS, a married man, as his sole and separate property
("Assignor"), and 525 ANACAPA, LLC, a California limited liability company
("Assignee").
A. Assignor is presently the owner of that certain real property
commonly known as 525 Anacapa Street, Santa Barbara, California, which property
is more particularly described in attached Exhibit A ("Property").
B. Assignor's fee title interest in the Property is subject the
encumbrance of a loan from SOUTHERN CALIFORNIA FEDERAL SAVINGS AND LOAN
ASSOCIATION, a federally chartered savings and loan association ("SoCal"), to
TAB ENTERPRISES, a California general partnership ("TAB"), evidenced by a
promissory note ("Promissory Note") dated August 24, 1988, in the principal
amount of One Million, and Fifty Thousand Dollars (S1,050,000), which Promissory
Note is secured by a deed of trust, assignment of rents, and fixture filing
dated August 24, 1988, and recorded on August 26, 1988, as Instrument No.
88-053715 of the Official Records of Santa Barbara County, California
(collectively, "Deed of Trust"). As of the date of this Agreement, the unpaid
principal balance of the Promissory Note is Nine Hundred Seventy Nine Thousand
Four Hundred and Ninety Four Dollars and Seventy Cents ($979,494.70).
C. Assignor, as "Lessor," and' SOFTWARE. COM INC., a California
corporation, as "Lessee," executed a Commercial Lease Agreement dated as of
February 21, 1996 ("Lease"), pursuant to which Assignor leased to Lessee and
Lessee leased from Assignor, the Property for a term of three (3) years,
commencing on March 1, 1996, and ending on February 28, 1999, unless terminated
earlier. The Lease contains one (1) option
<PAGE>
to extend the term for three (3) years. A Memorandum of the Lease is recorded
concurrently herewith and is incorporated herein by this reference.
D. Assignor desires to assign all of his right, title and interest
in the Property and Lease to Assignee, and Assignee desires to accept the
assignment of the Property and Lease from Assignor, and assume all of Assignor's
obligations under the Promissory Note, Deed of Trust, related loan documents and
Lease pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and
adequacy of which are hereby acknowledged, Assignor and Assignee agree as
follows:
1. TRANSFER AND ASSIGNMENT. Assignor hereby transfers and assigns to
-----------------------
Assignee all of Assignor's right, title and interest in the Property and Lease,
and Assignee hereby accepts from Assignor all of Assignor's right, title and
interest therein, subject to the terms and conditions set forth in this
Agreement.
2. ASSUMPTION OF LOAN OBLIGATIONS. Assignee assumes and agrees to
------------------------------
perform and fulfill at all times, the terms, covenants, conditions and
obligations relating to the Promissory Note, Deed of Trust and related loan
documents required to be performed and fulfilled by Assignor under that certain
Assumption and Modification Agreement dated February 6, 1996 ("Assumption
Agreement"), by and among TAB, as the "Original Borrower", Assignor, as the
"Borrower", and SoCal as the "Lender", including the making of all payments due
or to be payable to Lender on behalf of the Borrower under the terms of the
Assumption Agreement, a memorandum of which is recorded concurrently herewith.
3. ASSUMPTION OF LEASE OBLIGATIONS. Assignee hereby assumes and
-------------------------------
agrees to perform and fulfill all the terms, covenants, conditions, and
obligations required to be performed and fulfilled by Assignor as Lessor under
the Lease, including the making of all payments due to or payable on behalf of
Lessee under the Lease as they become due and payable.
4. ASSIGNOR'S COVENANTS.
--------------------
(a) Assignor covenants, that to the best of Assignor's knowledge,
there are no defaults under the Promissory Note and Deed of Trust, and that
SoCal, without in any way releasing Assignor from any of its indebtedness,
liabilities or obligations to SoCal, has consented to the transfers and
assignments contemplated by this Agreement.
(b) Assignor further covenants that the Memorandum of Lease
recorded concurrently herewith is an accurate summary of the terms and
conditions of the
-2-
<PAGE>
Lease as currently in effect and that no other agreement affecting Lessee's
tenancy under the Lease exists.
(c) Assignor further covenants that the Lease is in full force
and effect in accordance with its terms and conditions and that no defaults
exist under the Lease, nor have any acts or events occurred which, with the
passage of time or the giving of notice or both, could become defaults.
5. ATTORNEYS' FEES. If any action at law or equity, including an
---------------
action for declaratory relief, is brought to enforce the provisions of this
Agreement, the prevailing party shall be entitled to recover actual attorneys'
fees incurred in bringing such action and/or enforcing any judgment granted
therein, all of which shall be deemed to have accrued upon the commencement of
the action and shall be paid whether or not such action is prosecuted to
judgment. The attorneys' fees to be awarded the prevailing party may be
determined by the court in the same action or in a separate action brought for
that purpose. Any judgment or order entered in such action shall contain a
specific provision providing for the recovery of actual attorneys' fees and
costs incurred in enforcing such judgment. The award of attorneys' fees shall
not be computed in accordance with any court schedule, but shall be made so as
to fully reimburse the prevailing party for all attorneys' fees, paralegal fees,
costs and expenses, it being the intention of the parties to fully compensate
the prevailing party for all attorneys' fees, paralegal fees, costs and expenses
paid or incurred in good faith. For purposes of this section, attorneys' fees
shall include, without limitation, attorneys' fees, paralegal fees, costs and
expenses incurred in relation to any of the following: post-judgment motions,
contempt proceedings, garnishment, levy and debtor or third-party examinations,
discovery, and bankruptcy litigation.
6. INDEMNIFICATION. Assignee hereby agrees to indemnify Assignor
---------------
from and against any loss, cost or expense, including attorneys' fees and court
costs, relating to any failure to fulfill Assignor's obligations under the
Promissory Note, Deed of Trust, Assumption Agreement and/or related loan
documents at all times after the date of this Agreement. Assignee hereby agrees
to indemnify Assignor from and against any loss, cost, or expense, including
attorneys' fees and court costs relating to the failure of Assignor to fulfill
Assignor's obligations under the Lease at all times after the date of this
Agreement. Assignee hereby indemnifies Assignor from and against any loss, cost,
or expense, including attorneys' fees and court costs relating to the failure of
Assignee to fulfill obligations under the Lease at all times after the date of
this Agreement. The indemnification obligations of this Section 6 shall survive
expiration of the Lease and/or reconveyance of the Deed of Trust.
7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on and
----------------------
inure to the benefit of the parties to this Agreement, their heirs, executors,
administrators, successors in interest, and assigns.
-3-
<PAGE>
8. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with California law, with venue for any legal action being in
Santa Barbara County, California.
9. CAPTIONS, HEADINGS AND EXHIBITS. The captions and headings of
-------------------------------
this Agreement are for convenience only and have no force and effect in the
interpretation or construction of this Agreement. All exhibits attached hereto
are by this reference incorporated herein as though fully set forth in this
Agreement.
10. RECITALS. The recitals set forth at the beginning of this
--------
Agreement of any matters or facts shall be conclusive proof of the truthfulness
thereof and the terms and conditions set forth in the recitals, if any, shall be
deemed a part of the Agreement.
11. SIGNATURES - COUNTERPARTS. This Agreement may be executed in two
-------------------------
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Agreement
shall not be effective until the execution and delivery between each of the
parties of at least one set of counterparts. The parties authorize each other to
detach and combine original signature pages and consolidate them into a single
identical original. Any of such completely executed counterparts shall be
sufficient proof of this instrument.
12. ENTIRE AGREEMENT. In conjunction with the matters considered
----------------
herein, this Agreement contains the entire understanding and agreement of the
parties and there have been no promises, representations, agreements, warranties
or undertakings by any of the parties, either oral or written, of any character
or nature hereafter binding except as set forth herein. This Agreement may be
altered, amended or modified only by an instrument in writing, executed by the
parties to this Agreement and by no other means. Each party waives their right
to claim, contest or assert that this Agreement was modified, canceled,
superseded or changed by any oral agreement, course of conduct, waiver or
estoppel.
13. DATE AND DELIVERY OF AGREEMENT. Notwithstanding anything to the
------------------------------
contrary contained in this Agreement, the parties intend that this Agreement
shall be deemed effective, executed and delivered for all purposes under this
Agreement, as of the date set forth below.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
February 23, 1996.
ASSIGNOR ASSIGNEE
LAWRENCE S. BARELS 525 ANACAPA, LLC, a California
limited liability company
/s/ Lawrence S. Barels Lawrence S. Barels and/or Wendy L.
- ----------------------------- Barels U/D/T Dated January 2, 1996
Lawrence S. Barels F/B/O/ the Barels Family Trust
/s/ Lawrence S. Barels Trustee
-----------------------------------
Lawrence S. Barels, Trustee
/s/ Wendy L. Barels Trustee
-----------------------------------
Wendy L. Barels, Trustee
John and Patricia MacFarlane, as
Joint Tenants with Right of
Survivorship
/s/ John MacFarlane
-----------------------------------
John MacFarlane
/s/ Patricia MacFarlane
-----------------------------------
Patricia MacFarlane
Dennis J. Cagan, Individually and
on behalf of the Dennis J. Cagan
IRA at City National Bank
/s/ Dennis J. Cagan
-----------------------------------
By: Dennis J. Cagan
National Financial Associates,
Inc., a California limited
partnership
-----------------------------------
By: Frank Perna, Jr.
Its: President
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of February
____, 1996.
ASSIGNOR ASSIGNEE
LAWRENCE S. BARELS 525 ANACAPA, LLC, a California
limited liability company
/s/ Lawrence S. Barels Lawrence S. Barels and/or Wendy L.
- ----------------------------- Barels U/D/T Dated January 2, 1996
Lawrence S. Barels F/B/O/ the Barels Family Trust
/s/ Lawrence S. Barels Trustee
-----------------------------------
Lawrence S. Barels, Trustee
/s/ Wendy L. Barels Trustee
-----------------------------------
Wendy L. Barels, Trustee
John and Patricia MacFarlane, as
Joint Tenants with Right of
Survivorship
-----------------------------------
John MacFarlane
-----------------------------------
Patricia MacFarlane
Dennis J. Cagan, Individually and
on behalf of the Dennis J. Cagan
IRA at City National Bank
-----------------------------------
By: Dennis J. Cagan
National Financial Associates,
Inc., a California limited
partnership
/s/ Frank Perna, Jr.
-----------------------------------
By: Frank Perna, Jr.
Its: President
-5-
<PAGE>
EXHIBIT "A"
-----------
THE REAL PROPERTY REFERRED TO HEREIN IS ALL THAT CERTAIN REAL PROPERTY LOCATED
IN THE CITY OF SANTA BARBARA, COUNTY OF SANTA BARBARA, STATE OF CALIFORNIA,
DESCRIBED AS FOLLOWS:
THAT PORTION OF BLOCK 229 IN THE CITY OF SANTA BARBARA, COUNTY OF SANTA BARBARA,
STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL SURVEY THEREOF, DESCRIBED AS
FOLLOWS:
PARCEL ONE:
- ----------
BEGINNING AT A POINT ON THE SOUTHWESTERLY LINE OF ANACAPA STREET, DISTANT
THEREON 100 FEET SOUTHEASTERLY FROM THE MOST NORTHERLY CORNER OF SAID BLOCK;
THENCE SOUTHWESTERLY AND AT RIGHT ANGLES TO SAID LINE OF ANACAPA STREET 106.5
FEET; THENCE AT RIGHT ANGLES SOUTHEASTERLY 50 FEET; THENCE AT RIGHT ANGLES
NORTHEASTERLY 20 FEET; THENCE AT RIGHT ANGLES SOUTHEASTERLY 13 FEET; THENCE AT
RIGHT ANGLES NORTHEASTERLY 86.5 FEET TO A POINT ON SAID SOUTHWESTERLY LINE OF
ANACAPA STREET; THENCE AT RIGHT ANGLES NORTHWESTERLY ALONG SAID LAST MENTIONED
STREET LINE 63 FEET TO THE POINT OF BEGINNING.
EXCEPT THAT PORTION GRANTED TO THE CITY OF SANTA BARBARA IN DEED RECORDED JULY
29, 1987 AS INSTRUMENT NO. 87-057275 OF OFFICIAL RECORDS.
PARCEL TWO:
- ----------
AN EASEMENT FOR ACCESS, LIGHT AND AIR PURPOSES, OVER A STRIP OF LAND 5 FEET IN
WIDTH, IN THE CITY OF SANTA BARBARA, COUNTY OF SANTA BARBARA, STATE OF
CALIFORNIA, LYING SOUTHWESTERLY OF AND MEASURED AT RIGHT ANGLES TO THE FOLLOWING
DESCRIBED LINE:
BEGINNING AT A POINT ON THE SOUTHWESTERLY LINE OF ANACAPA STREET, DISTANT
THEREON 100 FEET SOUTHEASTERLY FROM THE MOST NORTHERLY CORNER OF SAID BLOCK;
THENCE SOUTHWESTERLY AT RIGHT ANGLES TO SAID LINE OF ANACAPA STREET 106.5 FEET
TO THE TRUE POINT OF BEGINNING; THENCE AT RIGHT ANGLES SOUTHWESTERLY 50 FEET.
ASSESSOR'S PARCEL NO.: 037-173-45.
<PAGE>
EXHIBIT 10.9
SUITES 105 & 106
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 Parties: This Lease ("LEASE"), dated for reference purposes only,
November 22, 1996, is made by and between Cito Corporation ("Lessor") and
- ----------- -- ----------------
Software.com ("Lessee"), (collectively the "Parties," or individually a
- ------------
"Party").
1.2(a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 530 E. Montecito Street, Suites 105 &
-------------------------------------
106, located in the City of Santa Barbara, County of Santa Barbara, State of
- --- ------------- -------------
California, with zip code 93103, as outlined on Exhibit A attached hereto
- ---------- ----- -
("Premises"). The "Building" is that certain building containing the Premises
and generally described as (describe briefly the nature of the Building): that
----
certain portion of building "C" of the Santa Barbara Business Center. (See
- ------------------------------------------------------------------------------
Addendum)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the Building or to any
other buildings in the Industrial Center. The Premises, the Building, the Common
Areas, the land upon which they are located, along with all other buildings and
improvements thereon, are herein collectively referred to as the "Industrial
Center." (Also see Paragraph 2.)
1.2(b) Parking: See Addendum, reserved vehicle parking spaces ("Reserved
------------
Parking Spaces"). (Also see Paragraph 2.6.)
1.3 Term: Three (3) years and zero (0) months ("Original Term")
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commencing December 1, 1996 ("Commencement Date") and ending November 31, 1999
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("Expiration Date"). (Also see Paragraph 3.)
1.4 Early Possession: Not applicable ("Early Possession Date"). (Also
--------------
see Paragraphs 3.2 and 3.3.)
1.5 Base Rent: $ See Addendum per month ("Base Rent"), payable on the
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__________ day of each month commencing ___________________ (Also see
Paragraph 4.)
[_] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum ___________________, attached hereto.
1.6(a) Base Rent Paid Upon Execution: $18,908.10 as Base Rent for the
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period September 1997.
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1.6(b) Lessee's Share of Common Area Operating Expenses: See Addendum
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percent ( %) ("Lessee's Share") as determined by [x] prorata square footage of
the Premises as compared to the total square footage of the Building or [ ]
other criteria as described in Addendum ________________.
1.7 Security Deposit: $18,908.10 ("Security Deposit"). (Also see
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Paragraph 5.)
1.8 Permitted Use: General office use, research and development of
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software and hardware products other related legal uses.
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("Permitted Use") (Also see Paragraph 8.)
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph
8.)
1.10(a) Real Estate Brokers. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[x] Pacifica Commercial Realty--Gregory Bartholmew represents Lessor
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exclusively ("Lessor's Broker");
[x] Pacifica Commercial Realty--Mark Mattingly represents Lessee exclusively
------------------------------------------
("Lessee's Broker"); or
[x] Pacifica Commercial Realty represents both Lessor and Lessee ("Dual
--------------------------
Agency"). (Also see Paragraph 15.)
1.10(b) Payment to Brokers. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $ per
---
separate agreement for brokerage services rendered by said Broker(s) in
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connection with this transaction.
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by Not applicable
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("Guarantor"). (Also see Paragraph 37.)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 1 through 8, and Exhibits A through A, all of which
- - - -
constitute a part of this Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises, in
such event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
Initials: [ILLEGIBLE]
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<PAGE>
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide
the parking facilities required by Applicable Law.
2.7 Common Areas--Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas--Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 Common Areas--Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas--Changes. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to be
paid by Lessor for the Building and the Common Areas under Paragraph 10 hereof.
(vi) The cost of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such over-
Initials: [ILLEGIBLE]
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-2-
<PAGE>
payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements use, any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including but
not limited to all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) Indemnification. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating, systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke
Initials: [ILLEGIBLE]
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detection systems and equipment, fire hydrants, parking lots, walkways,
parkways, driveways, landscaping, fences, signs and utility systems serving the
Common Areas and all parts thereof, as well as providing the services for which
there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall
not be obligated to paint the exterior or interior surfaces of exterior walls
nor shall Lessor be obligated to maintain, repair or replace windows, doors or
plate glass of the Premises. Lessee expressly waives the benefit of any statute
now or hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) Lien Protection. Lessee shall pay when due all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. Insurance; Indemnity.
8.1 Payment of Premiums. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement Date or Expiration
Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000.000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "Insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any additional
costs resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Building required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered loss, but not including plate glass insurance. Said
policy or policies shall also contain an agreed valuation provision in lieu of
any co-insurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and keep in force during
the term of this Lease a policy or policies in the name of Lessor, with loss
payable to Lessor and any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the Insuring Party,
Lessor shall not be required to Insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Liability Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in
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<PAGE>
this Paragraph 8, Lessee shall cause to be delivered to Lessor, within seven (7)
days after the earlier of the Early Possession Date or the Commencement Date,
certified copies of, or certificates evidencing the existence and amounts of,
the insurance required under Paragraph 8.2(a) and 8.4. No such policy shall be
cancelable or subject to modification except after thirty (30) days' prior
written notice to Lessor. Lessee shall at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Premises Partial Damage--Insured Loss. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage--Uninsured Loss. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty {30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
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to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 Termination--Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2. applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 Real Property Tax Definition. As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the industrial Center by any
authority having the direct or indirect power to tax, including any city, state
or federal government, or any school, agricultural, sanitary, fire, street
drainage, or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Industrial Center or any portion thereof,
Lessor's right to rent or other income therefrom, and/or Lessor's business of
leasing the Premises. The term "Real Property Taxes" shall also include any tax,
fee, levy, assessment or charge, or any increase therein, imposed by reason of
events occurring, or changes in Applicable Law taking effect, during the term of
this Lease, including but not limited to a change in the ownership of the
Industrial Center or in the improvements thereon, the execution of this Lease,
or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties. In calculating Real Property Taxes for any calendar
year, the Real Property Taxes for any real estate tax year shall be included in
the calculation of Real Property Taxes for such calendar year based upon the
number of days which such calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said properly shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent not to be unreasonably withheld given
under and subject to the terms of Paragraph 36.
(b) A change in the control of Lessee shall not constitute an
assignment requiring Lessor's consent.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("Lessor's Notice"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, {ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
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(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
reasonably determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
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(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
connected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the Portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the Portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise agreed
in writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined
in Paragraph 39.1) granted under this Lease or any Option subsequently granted,
or (b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease.
15.3 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day
Initials: [ILLEGIBLE]
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delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone or facsimile confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail. If
notice is received on a Saturday or a Sunday or a legal holiday, it shall be
deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this lease. Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents: provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. Lessor's consent to any act,
assignment of this Lease or subletting of the Premises by Lessee shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 Additional Obligation of Guarantor. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
Initials: [ILLEGIBLE]
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39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property
of Lessor; (b) the right of first-refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal
to purchase the Premises, or the right of first offer to purchase the Premises,
or the right to purchase other property of Lessor, or the right of first refusal
to purchase other property of Lessor, or the right of first offer to purchase
other property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessor has given to Lessee three (3) or more notices of separate Defaults
under Paragraph 13.1 during the twelve (12) month period immediately preceding
the exercise of the Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises. Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
Initials: [ILLEGIBLE]
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED
TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE
OF ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO
WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF
THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: 1033 Anacapa Street Executed at: 525 Anacapa Street
------------------- -----------------------
on: November 26, 1996 on: November 26, 1996
---------------------------- --------------------------------
By LESSOR: By LESSEE:
CITO CORP Software.com, Inc.
- -------------------------------- ---------------------------------------
- -------------------------------- ---------------------------------------
By: /s/ J. Beaver By: /s/ John L. MacFarlane
---------------------------- -----------------------------------
Name Printed: J.W. Beaver Name Printed: John L. MacFarlane
------------------ -------------------------
Title: President Title: CEO
------------------------- --------------------------------
By: By: /s/ Larry Barels
---------------------------- -----------------------------------
Name Printed: Name Printed: Larry Barels
------------------ -------------------------
Title: Title: Chairman of the Board
------------------------- --------------------------------
Address: 1033 Anacapa Street Address: 525 Anacapa Street
----------------------- ------------------------------
Santa Barbara, CA 93101 Santa Barbara, CA 93101
- -------------------------------- ---------------------------------------
Telephone: (805) 899-2400 Telephone: (805) 882-2470
--------------------- ----------------------------
Facsimile: (805) 899-2424 Facsimile: ( )
--------------------- ----------------------------
BROKER: BROKER:
Executed at: 1033 Anacapa Street Executed at:
------------------- --------------------------
on: November 26, 1996 on:
---------------------------- -----------------------------------
By: /s/ Greg Bartholomew By: /s/ Mark Mattingly
---------------------------- -----------------------------------
Name Printed: Greg Bartholomew Name Printed: Mark Mattingly
------------------ -------------------------
Title: Agent Associate Title: Exec. V.P.
------------------------- --------------------------------
Address: 1033 Anacapa Street Address: c/o Pacifica Commercial Realty
------------------------ ------------------------------
Santa Barbara, CA 93101
- --------------------------------- ---------------------------------------
Telephone: ( ) Telephone: ( )
---------------------- ----------------------------
Facsimile: ( ) Facsimile: ( )
---------------------- ----------------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345
So. Figueroa St., M-1, Los Angeles, CA 90071. (213) 687-8777.
Initials: [ILLEGIBLE]
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Addendum to Standard
Industrial / Commercial Multi-Tenant Lease -- Modified Net
between City Corporation as Lessor and
Software.com as Lessee
Dated November 22, 1996
In the event of any conflict between the provisions of this Addendum and the
printed Standard Industrial / Commercial Multi-Tenant Lease -- Modified Net, the
provisions of this Addendum shall be controlling.
1. PREMISES: Suite 105-C containing approximately 8,246 square feet and Suite
106-C containing approximately 5,760 square feet in the building commonly known
by the street address of 530 E. Montecito Street, Santa Barbara, California.
2. TERM: Thirty-six (36) months commencing December 1, 1996 and ending November
30, 1999.
3. BASE RENT:
A. Suite 105-C. Suite 105-C is currently occupied by Alias / Wavefront and will
be vacated on or about April 1, 1997. Commencing on or about April 1, 1997
Lessee will undertake various interior improvements to the Premises. It is
anticipated such work will be completed in thirty (30) to sixty (60) days.
Commencing upon the completion of the interior improvements, but in no event
later than June 1, 1997, Lessee shall pay Lessor Base Rent of $11,132.10 per
month, payable on the first day of each month. In addition, Lessee shall pay its
pro rata share of Common Area Expenses which the parties agree is 9.4%
(8,246 / 87,292 = 9.4%).
If Lessor is unable to deliver possession to Lessee by April 1, 1997, the June
1, 1997 rent commencement date described above shall be extended by one day for
each day beyond April 1, 1997 Lessor is unable to deliver possession.
B. Suite 106-C. For the period December 1, 1996 through May 31, 1997 Lessee
shall pay Lessor Base Rent of $2,880 per month, payable on the first day of each
month.
Commencing on or about June 1, 1997 Lessee will undertake various interior
improvements to the Premises. It is anticipated such work will be completed in
sixty (60) to ninety (90) days. Lessee shall pay no Base Rent or Common Area
Operating Expenses during the period such improvements are being made to the
Premises.
Commencing upon the completion of the interior improvements, but in no event
later than September 1, 1997, Lessee shall pay Lessor Base Rent of $7,776 per
month, payable on the first day of each month. In addition, Lessee shall pay its
pro rata share of Common Area Operating Expenses which the parties agree is 6.6%
(5,760 / 87,292 = 6.6%).
4. RENTAL ADJUSTMENT: On December 1, 1997 and on each anniversary of that date
annually throughout the term of this Lease and any option periods, the Base Rent
for both Suite 105-C (i.e., $11,132.10) and Suite 106-C (i.e., $7,776.00) shall
be adjusted as follows:
The base for computing the adjustment is the Consumer Price Index for All Urban
Consumers (1982-1984= 100) for the Los Angeles Anaheim Riverside area,
published by the United States Department of Labor, Bureau of Labor Statistics
("Index"), which is in effect for December, 1996 ("Beginning Index"). The Index
published most immediately preceding the adjustment date in question ("Extension
Index") is to be used in determining the amount of the adjustment. If the
Extension Index has increased over the Beginning Index, the Base Rent for the
following year shall be set by multiplying the Base Rent by a fraction, the
numerator of which is the Extension Index and the denominator of which is the
Beginning Index.
In no case shall the Base Rent be less than the Base Rent in effect immediately
prior to the adjustment date then occurring.
Initials: [ILLEGIBLE]
------------
------------
<PAGE>
If the Index is changed so that the base year differs from that in effect when
the term commences, the Index shall be converted in accordance with the
conversion factor published by the United States Department of Labor, Bureau of
Labor Statistics. If the Index is discontinued or revised during the term, such
other government index or computation with which it is replaced shall be used in
order to obtain substantially the same result as would be obtained if the Index
had not been discontinued or revised.
5. BASE RENT PAID ON EXECUTION: Upon execution hereof, Lessee shall pay Lessor
$18,908.10, as Base Rent for the first month of occupancy after completion of
interior improvements, which is anticipated to be September, 1997.
6. LESSEE'S IMPROVEMENTS:
A. Lessee will design and build leasehold improvements in substantial conformity
to plans and specifications submitted to Lessor for approval. No work shall
commence unless and until Lessor has approved said plans and specifications,
which approval will not be unreasonably delayed or withheld. Lessee will
contract with architects, engineers and contractors for performance of the work.
Lessee will keep the Premises lien free. Lessor shall be entitled to post a
Notice of Non Responsibility on the Premises prior to commencement of the work.
B. With respect to Suite 105-C, Lessor agrees to contribute $82,460 ($10.00 per
square foot x 8,246 square feet) toward the cost of the improvements, to be
disbursed by Lessor upon the written request of Lessee, accompanied by copies of
itemized bills from contractors or materialmen, together with either partial or
complete lien releases, as appropriate.
C. With respect to Suite 106-C, Lessor agrees to contribute $144,000 ($25.00 per
square foot x 5,760 square feet) toward the cost of the improvements, to be
disbursed by Lessor upon the written request of Lessee, accompanied by copies of
itemized bills from contractors or materialmen, together with either partial or
complete lien releases, as appropriate.
7. OPTIONS:
A. Lessor hereby grants to Lessee, on the terms and conditions set forth below,
two (2) successive three year options to renew this Lease. Each renewal term
shall be subject to the provisions of this Lease. The failure of Lessee to
exercise its renewal option for any renewal term shall nullify the option of
Lessee for any succeeding renewal period.
B. The right of Lessee to exercise its renewal options is subject to the
following conditions precedent:
i. The Lease shall be in effect at the time notice of exercise is given
and on the last day of the existing Lease term;
ii. Lessee shall not be in default under any provision of this Lease at the
time notice of exercise is given, or on the last day of the existing
Lease term;
iii. Neither Lessor nor Lessee has exercised any right to terminate this
Lease due to damage or destruction of the Premises;
iv. At least six (6) months before the last day of the existing Lease term
or option period, Lessee shall have given Lessor written notice of
exercise of option, which notice, once given, shall be irrevocable and
binding on the parties hereto.
8. PARKING: Lessee shall have parking allocated in common with other tenants on
a ratio of 2.7 parking spaces per 1,000 square feet of leased space.
LESSEE: LESSOR:
Software.com CITO Corp.
By: /s/ John L. MacFarlane By: /s/ J. Beaver
------------------------ --------------------------------
Date: 11/26/96 Date: 11-26-96
---------------------- ------------------------------
<PAGE>
SECOND AMENDMENT TO
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -
MODIFIED NET
between CITO CORPORATION as LESSOR and
Software.com as LESSEE
Dated November 22, 1996
That certain Lease Agreement is hereby amended as follows:
1. The parties acknowledge that the Premises shall be expanded to include 530
E. Montecito Street, Suite 101 consisting of approximately 5,561 square
feet effective July 1, 1997. Lessor shall grant Lessee early occupancy of
the Premises on or about June 10, 1997.
2. The base rent for Suite 101 shall be $7,785.40 per month with rent
increases as called for in the original Lease.
3. The security deposit in the original Lease shall be increased from
$18,908.10 to $26,408.10.
4. Lessor agrees to contribute $27,805 ($5.00 per square foot x 5,561 square
feet) toward the cost of Lessee's improvements, to be disbursed by Lessor
upon the written request of Lessee, accompanied by copies of itemized
bills from contractors or materialmen, together with either partial or
complete lien releases, as appropriate.
In all other respects the Lease is hereby ratified and affirmed, and all terms
and conditions thereof shall remain unchanged except as specifically amended by
this Amendment.
LESSEE: Software.com LESSOR: CITO CORP.
By: /s/ John L. MacFarlane By:
------------------------------- --------------------------------
Name Printed: John L. MacFarlane Name Printed:
--------------------- -----------------------
Title: CEO Title:
---------------------------- ------------------------------
Date: 2/7/97 Date:
----------------------------- -------------------------------
By: /s/ Larry S. Barels
-------------------------------
Name Printed: Larry S. Barels
---------------------
Title: Chairman of the Board
----------------------------
Date: 2/10/97
-----------------------------
<PAGE>
EXHIBIT 10.10
91 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS
LEASE DATED SEPTEMBER 11, 1996
THIS INSTRUMENT IS AN INDENTURE OF LEASE in which the Landlord and the
Tenant are the parties hereinafter named, and which relates to space in a
certain building (the "Building") known as, and with an address at, 91 Hartwell
Avenue, Lexington, Massachusetts.
The parties to this Indenture of Lease hereby agree with each other as
follows:
ARTICLE I
---------
REFERENCE DATA
--------------
1.1 Subjects Referred To:
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this Article:
LANDLORD: Mortimer B. Zuckerman and Edward H.
Linde, Trustees of 91 Hartwell Avenue
Trust under Declaration of Trust dated
September 28, 1981 filed with the
Middlesex South Registry District as
Document No. 616455 as amended by
instruments dated December 10, 1984 and
April 17, 1991 respectively filed with
said Registry District as Document Nos.
675674 and 844541 but not individually.
LANDLORD'S ORIGINAL c/o Boston Properties, Inc.
ADDRESS: 8 Arlington Street
Boston, Massachusetts 02116
LANDLORD'S CONSTRUCTION Stacey A. Baker
REPRESENTATIVE:
TENANT: Software.com, Inc. a California
corporation
<PAGE>
TENANT'S ORIGINAL 525 Anacapa Street
ADDRESS: Santa Barbara, California 93101
TENANT'S CONSTRUCTION Eric R. Kanowsky
REPRESENTATIVE:
SPECIAL ALLOWANCE: As defined in Section 3.1.1
SCHEDULED TERM December 1, 1996
COMMENCEMENT DATE:
COMMENCEMENT DATE: As defined in Sections 2.4 and 3.2
OUTSIDE COMPLETION DATE: December 15, 1996
ORIGINAL TERM: Sixty (60) calendar months (plus the
partial month, if any, immediately
following the Commencement Date),
unless extended or sooner terminated as
provided in this Lease.
EXTENSION OPTION: Two (2) periods of three (3) years
each, as provided and on the terms set
forth in Section 2.4.1.
TERM OR LEASE TERM: All references in this Lease to the
Term or Lease Term shall mean the
Original Term and if extended pursuant
to Section 2.4.1, the Original Term as
extended by the exercise of the
applicable extension options unless
otherwise specifically provided in this
Lease.
THE SITE: That certain parcel of land known as
and numbered 91 Hartwell Avenue,
Lexington, Middlesex County,
Massachusetts, being more particularly
described in Exhibit A attached hereto.
THE BUILDING: The Building known as and numbered 91
Hartwell Avenue, Lexington,
Massachusetts. The Building is
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<PAGE>
appropriately labeled on Exhibit A-1
attached hereto and hereby made a part
hereof.
THE COMPLEX: The Building together with all surface
parking areas, the Site and all
improvements (including landscaping)
thereon and thereto.
TENANT'S SPACE: A portion of the first floor of the
Building in accordance with the floor
plan attached hereto as Exhibit D and
incorporated herein by reference.
NUMBER OF PARKING SPACES: 38 spaces.
ANNUAL FIXED RENT: During the Term of this Lease at the
annual rate of $247,975.00 (being the
product of (i) $22.75 and (ii) the
"Rentable Floor Area of Tenant's Space"
(hereinafter defined in this Section
1.1).
OPERATING EXPENSES: As provided in Section 2.6 hereof.
REAL ESTATE TAXES: As provided in Section 2.7 hereof.
TENANT ELECTRICITY: Initially as provided in Section 2.5
subject to adjustment as provided in
Section 2.8 hereof.
ADDITIONAL RENT: All charges and other sums payable by
Tenant as set forth in this Lease, in
addition to Annual Fixed Rent.
RENTABLE FLOOR AREA 10,900 square feet.
OF TENANT'S SPACE
(SOMETIMES ALSO
CALLED RENTABLE FLOOR
AREA OF THE PREMISES):
TOTAL RENTABLE FLOOR 122,328 square feet.
AREA OF THE BUILDING:
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<PAGE>
PERMITTED USES: General office purposes.
INITIAL MINIMUM $2,000,000.00 combined single limit
LIMITS OF TENANT'S per occurrence on a per location
COMMERCIAL GENERAL basis.
LIABILITY INSURANCE:
RECOGNIZED BROKERS: Spaulding & Slye
125 High Street
Boston, Massachusetts 02110
And
Leggat McCall/Grubb & Ellis
One International Place
Boston, Massachusetts 02110
SECURITY DEPOSIT: $150,000.00
1.2 Exhibits. There are incorporated as part of this Lease:
EXHIBIT A Description of Site
EXHIBIT A-1 Site Plan
EXHIBIT B Intentionally Omitted
EXHIBIT C Landlord's Services
EXHIBIT D Floor Plan
EXHIBIT E Form of Commencement Date
Agreement
1.3 Table of Articles and Sections
ARTICLE I-REFERNCE DATA
1.1 Subjects Referred to
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<PAGE>
1.2 Exhibits
1.3 Table of Articles and Sections
ARTICLE II-THE BUILDINGS, PREMISES, TERM AND RENT
2.1 The Premises
2.2 Rights To Use Common Facilities
2.2.1 Tenant's Parking
2.3 Landlord's Reservations
2.4 Original Term
2.4.1 Extension Options
2.5 Monthly Fixed Rent Payments
2.6 Adjustment for Operating Expenses
2.7 Adjustment for Real Estate Taxes
2.8 Adjustment for Tenant Electricity
ARTICLE III-CONSTRUCTION
3.1 Tenant's Plans and Tenant Plan Excess Costs
3.1.1 Special Allowance
3.2 Landlord's and Tenant's Work; Delays
3.3 Alterations and Additions
3.4 General Provisions Applicable to Construction
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<PAGE>
ARTICLE IV-LANDLORD'S COVENANTS; INTERRUPTIONS AND DELAYS
4.1 Landlord's Covenants
4.1.1 Services Furnished by Landlord
4.1.2 Additional Services Available to Tenant
4.1.3 Roof, Exterior Wall, Floor Slab and Common Facility Repairs
4.1.4 Door Signs
4.2 Interruptions and Delays in Services and Repairs, etc.
ARTICLE V-TENANT'S COVENANTS
5.1 Payments
5.2 Repair and Yield Up
5.3 Use
5.4 Obstructions; Items Visible From Exterior; Rules and Regulations
5.5 Safety Appliances; Licenses
5.6 Assignment; Sublease
5.7 Indemnity; Insurance
5.8 Personal Property at Tenant's Risk
5.9 Right of Entry
5.10 Floor Load; Prevention of Vibration and Noise
5.11 Personal Property Taxes
5.12 Compliance with Laws
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<PAGE>
5.13 Payment of Litigation Expenses
ARTICLE VI-CASUALTY AND TAKING
6.1 Fire and Casualty-Termination or Restoration; Rent Adjustment
6.2 Uninsured Casualty
6.3 Eminent Domain-Termination or Restoration
6.4 Eminent Domain Damages Reserved
ARTICLE VII-DEFAULT
7.1 Tenant's Default
7.2 Landlord's Default
ARTICLE VIII-MISCELLANEOUS PROVISIONS
8.1 Extra Hazardous Use
8.2 Waiver
8.3 Cumulative Remedies
8.4 Quiet Enjoyment
8.5 Notice To Mortgagee and Ground Lessor
8.6 Assignment of Rents
8.7 Surrender
8.8 Brokerage
8.9 Invalidity of Particular Provisions
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<PAGE>
8.10 Provisions Binding, Etc.
8.11 Recording
8.12 Notices
8.13 When Lease Becomes Binding
8.14 Section Headings
8.15 Rights of Mortgagee
8.16 Status Report and Financial Statements
8.17 Self-Help
8.18 Holding Over
8.19 Non-Subrogation
8.20 Security Deposit
8.21 Late Payment
8.22 Tenant's Termination Right
8.23 Governing Law
ARTICLE II
----------
BUILDING, PREMISES, TERM AND RENT
---------------------------------
2.1 Landlord hereby demises and leases to Tenant, and Tenant hereby hires and
accepts from Landlord, Tenant's Space in the Building excluding exterior
faces of exterior walls, the common stairways and stairwells, elevators and
elevator wells, fan rooms, electric and telephone closets, janitor closets,
and pipes, ducts, conduits, wires and appurtenant fixtures serving
exclusively, or in common, other parts of the Building, and if Tenant's
Space includes less than the entire rentable area of any floor, excluding
the common corridors, elevator lobbies and toilets located on such floor.
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<PAGE>
Tenant's Space with such exclusions is hereinafter referred to as the
"Premises". The term "Building" means the Building identified on the first
page, and which is the subject of this Lease; the term "Site" means all,
and also any part of the Land described in Exhibit A, plus any additions
or reductions thereto resulting from the change of any abutting street
line and all parking areas and structures. The term "Property" means the
Building and the Site.
2.2 Tenant shall have, as appurtenant to the Premises, the non-exclusive right
to use in common with others, subject to reasonable rules of general
applicability to tenants of the Building from time to time made by
Landlord of which Tenant is given notice (a) the common lobbies,
corridors, stairways, elevators and loading area of the Building, and the
pipes, ducts, conduits, wires and appurtenant meters and equipment serving
the Premises in common with others, (b) common walkways and driveways
necessary for access to the Building, and (c) if the Premises include less
than the entire rentable floor area of any floor, the common toilets,
corridors and elevator lobby of such floor.
2.2.1 In addition, Tenant shall have the right to use the Number of Parking
Spaces (referred to in Section 1.1) of the parking area, in common with
use by other tenants from time to time of the Complex; provided, however,
Landlord shall not be obligated to furnish stalls or spaces in any parking
area specifically designated for Tenant's use. Tenant covenants and agrees
that it and all persons claiming by, through and under it, shall at all
times abide by all reasonable rules and regulations promulgated by
Landlord with respect to the use of the parking areas on the Site. The
parking privileges granted herein are non-transferrable except to a
permitted assignee or subtenant as provided in Section 5.6 through Section
5.6.6. Further, Landlord assumes no responsibility whatsoever for loss or
damage due to fire, theft or otherwise to any automobile(s) parked on the
Site or to any personal property therein, however caused, and Tenant
covenants and agrees, upon request from Landlord from time to time, to
notify its officers, employees, agents and invitees of such limitation of
liability. Tenant acknowledges and agrees that a license only is hereby
granted, and no bailment is intended or shall be created.
2.3 Landlord reserves the right from time to time, without unreasonable
interference with Tenant's use: (a) to install, use, maintain, repair,
replace and relocate for service to the Premises and other parts of the
Building, or either, pipes, ducts, conduits, wires and appurtenant
fixtures, wherever located in the Premises or Building, and (b) to alter
or relocate any other common facility, provided that substitutions are
substantially equivalent or better. Installations, replacements and
relocations referred to in clause (a) above shall be located so far as
practicable in the central core area of the Building, above ceiling
surfaces, below floor surfaces or within perimeter walls of the Premises.
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<PAGE>
2.4 Tenant shall have and hold the Premises for a period commencing on the
earlier of (a) that date on which the Premises are ready for occupancy as
in Section 3.2 provided, or (b) that date on which Tenant commences
occupancy of any portion of the Premises for the Permitted Uses, and
continuing for the Term unless sooner terminated as provided in Article VI
or Article VII or unless extended as provided in Section 2.4.1.
As soon as may be convenient after the date has been determined on which
the Term commences as aforesaid, Landlord and Tenant agree to join with
each other in the execution of a written Declaration, in the form of
Exhibit E, in which the date on which the Term commences as aforesaid and
the Term of this Lease shall be stated. If Tenant shall fail to execute
such Declaration, the Commencement Date and Lease Term shall be as
reasonably determined by Landlord in accordance with the terms of this
Lease.
2.4.1 (A) Provided that at the time of exercise of the applicable option to
extend and at the commencement date of the applicable extension option
period (i) there exists no event of default (defined in Section 7.1), (ii)
this Lease is still in full force and effect, and (iii) Tenant has neither
assigned this Lease nor sublet the Premises (except for an assignment or
subletting permitted under Section 5.6.1 hereof), Tenant shall have the
right to extend the Term hereof upon all the same terms, conditions,
covenants and agreements herein contained (except for the Annual Fixed
Rent which shall be adjusted during the option periods as hereinbelow set
forth) for two (2) successive periods of three (3) years each as
hereinafter set forth. Each option period is sometimes herein referred to
as an "Extended Term".
(B) If Tenant desires to exercise the applicable option to extend the
Term, then Tenant shall give notice to Landlord, not earlier than twelve
(12) months nor later than nine (9) months prior to the expiration of the
then current Term of Tenant's request for Landlord's quotation of the
annual fair market rent for the Premises as of the commencement date of
the applicable extension period, such quotation to be based on the use of
the Premises as first class office space utilizing properties of a similar
character within the Boston West Suburban market (hereinafter called the
"Annual Market Rent"). Within thirty (30) days after Landlord's receipt of
Tenant's notice requesting such a quotation, Landlord shall notify Tenant
of Landlord's quotation of the Annual Market Rent. Within fifteen (15)
days after receipt by Tenant of Landlord's quotation of the Annual Market
Rent, Tenant shall have the right to extend the Term by written notice to
Landlord within said last mentioned 15-day period upon all of the same
terms, conditions, covenants and agreements contained in this Lease,
except that the annual fixed rent for the applicable option period shall
be equal to the Annual Market Rent per square foot as quoted by Landlord
for the applicable option period multiplied by the Rentable Floor Area of
the Premises; provided, however, that in no event shall the annual fixed
rent payable during the applicable option period be less than the annual
fixed rent for the last year of the
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<PAGE>
Term of this Lease as it may have been extended and further that the only
extension options shall be those set forth in this Section 2.4.1. Upon the
giving of such notice, this Lease and the Term hereof shall be extended
for the applicable option period, without the necessity for the execution
of any additional documents (except that Landlord and Tenant agree to
enter into an instrument in writing setting forth the fixed rent); and in
such event all references herein to the Term or the term of this Lease
shall be construed as referring to the Term, as so extended, unless the
context clearly otherwise requires. Notwithstanding anything herein
contained to the contrary, in no event shall Tenant have the right to
exercise more than one extension option at a time and, further, Tenant
shall not have the right to exercise its second extension option unless it
has duly exercised its first extension option and in no event shall the
Lease Term hereof be extended for more than six (6) years after the
expiration of the Original Term hereof.
2.5 Tenant agrees to pay to Landlord, or as directed by Landlord, at
Landlord's Original Address specified in Section 1.1 hereof, or at such
other place as Landlord shall from time to time designate by notice, (1)
on the Commencement Date (defined in Section 1.1 hereof) and thereafter
monthly, in advance, on the first day of each and every calendar month
during the Original Term, a sum equal to one twelfth (1/12th) of the
applicable Annual Fixed Rent (sometimes hereinafter referred to as "fixed
rent") and (2) on the Commencement Date and thereafter monthly, in
advance, on the first day of each and every calendar month during the
Original Term, a sum equal to one twelfth (1/12th) of $0.85 per annum for
each square foot of Rentable Floor Area of Tenant's Space for tenant
electricity subject to escalation as provided in Section 2.8. Until notice
of some other designation is given, fixed rent and all other charges for
which provision is herein made shall be paid by remittance to or for the
order of Boston Properties, Inc., Agents, at 8 Arlington Street, Boston,
Massachusetts 02116, and all remittances received by Boston Properties,
Inc., as Agents as aforesaid, or by any subsequently designated recipient,
shall be treated as payment to Landlord.
Annual Fixed Rent for any partial month shall be paid by Tenant to
Landlord at such rate on a pro rata basis, and, if the Commencement Date
is a day other than the first day of a calendar month, the first payment
which Tenant shall make to Landlord shall be a payment equal to a
proportionate part of such monthly Annual Fixed Rent for the partial month
from the Commencement Date to the first day of the succeeding calendar
month.
Other charges payable by Tenant on a monthly basis, as hereinafter
provided, likewise shall be prorated, and the first payment on account
thereof shall be determined in similar fashion but shall commence on the
Commencement Date; and other provisions of this
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<PAGE>
Lease calling for monthly payments shall be read as incorporating this
undertaking by Tenant.
The Annual Fixed Rent and all other charges for which provision is herein
made shall be paid by Tenant to Landlord, without offset, deduction or
abatement except as otherwise specifically set forth in this Lease.
2.6 "Landlord's Operating Expenses" means the cost of operation of the
Building and the Site which shall exclude costs of special services
rendered to tenants (including Tenant) for which a separate charge is
made, but shall include, without limitation, the following: premiums for
insurance carried with respect to the Building and the Site (including,
without limitation, liability insurance, insurance against loss in case of
fire or casualty and insurance of monthly installments of fixed rent and
any Additional Rent which may be due under this Lease and other leases of
space in the Building for not more than 12 months in the case of both
fixed rent and Additional Rent and if there be any first mortgage of the
Property, including such insurance as may be required by the holder of
such first mortgage); compensation and all fringe benefits, workmen's
compensation insurance premiums and payroll taxes paid to, for or with
respect to all persons engaged in the operating, maintaining or cleaning
of the Building or Site, water, sewer, electric, gas, oil and telephone
charges (excluding utility charges separately chargeable to tenants for
additional or special services); cost of building and cleaning supplies
and equipment; cost of maintenance, cleaning and repairs (other than
repairs not properly chargeable against income or reimbursed from
contractors under guarantees); cost of snow removal and care of
landscaping; payments under service contracts with independent
contractors; management fees at reasonable rates consistent with the type
of occupancy and the service rendered; and all other reasonable and
necessary expenses paid in connection with the operation, cleaning and
maintenance of the Building and the Site and properly chargeable against
income, provided, however, there shall be included (a) depreciation for
capital expenditures made by Landlord (i) to reduce operating expenses if
Landlord shall have reasonably determined that the annual reduction in
operating expenses shall exceed depreciation therefor or (ii) to comply
with applicable laws, rules, regulations, requirements, statutes,
ordinances, by-laws and court decisions of all public authorities which
are now or hereafter in force (herein collectively called "Legal
Requirements"); plus (b) in the case of both (i) and (ii) an interest
factor, reasonably determined by Landlord, as being the interest rate then
charged for long term mortgages by institutional lenders on like
properties within the locality in which the Building is located;
depreciation in the case of both (i) and (ii) shall be determined by
dividing the original cost of such capital expenditure by the number of
years of useful life of the capital item acquired and the useful life
shall be reasonably determined by Landlord in accordance with generally
accepted accounting principles and practices in effect at the time of
acquisition of the capital item.
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<PAGE>
"Operating Expenses Allocable to the Premises" shall mean the same
proportion of Landlord's Operating Expenses for and pertaining to the
Building and the Site as the Rentable Floor Area of Tenant's Space bears
to the Total Rentable Floor Area of the Building.
"Base Operating Expenses" shall mean Landlord's Operating Expenses for the
Property for the twelve (12) month period commencing on the Commencement
Date of this Lease and expiring on the day immediately preceding the first
annual anniversary of the Commencement Date (herein sometimes called the
"Base Period") subject, however, to the following provisions of this
Section 2.6.
"Base Operating Expenses Allocable to the Premises" shall mean the same
proportion of Base Operating Expenses as the Rentable Floor Area of
Tenant's Space bears to the Total Rentable Floor Area of the Building.
In the event that on the average less than ninety-five percent (95%) of
the Rentable Floor Area of the Building is leased during any calendar year
during the Lease Term (or during the Base Period for purposes of
calculating Base Operating Expenses), Landlord's Operating Expenses for
such calendar year or Base Period, as the case may be, shall be determined
by Landlord to be an amount equal to the Landlord's Operating Expenses
which would normally be expected to have been charged or incurred had
ninety-five percent (95%) of the Rentable Floor Area of the Building been
leased during such calendar year or Base Period, as the case may be.
If with respect to any calendar year falling within the Term, or fraction
of a calendar year falling within the Term at the beginning or end
thereof, the Operating Expenses Allocable to the Premises for a full
calendar year exceed Base Operating Expenses Allocable to the Premises or
for any such fraction of a calendar year exceed the corresponding fraction
of Base Operating Expenses Allocable to the Premises (such amount being
hereinafter sometimes referred to as the "Operating Cost Excess") then
Tenant shall pay to Landlord, as Additional Rent, the mount of such
excess. Such payments shall be made at the times and in the manner
hereinafter provided in this Section 2.6. (The Base Operating Expenses
Allocable to the Premises do not include the $0.85 for tenant electricity
to be paid by Tenant together with Annual Fixed Rent and for which
provision is made in Section 2.5 hereof, separate provision being made in
Section 2.8 of this Lease for Tenant's share of increases in electricity
costs.)
Not later than ninety (90) days after the end of the first calendar year
or fraction thereof ending December 31 and of each succeeding calendar
year during the Term or fraction thereof at the end of the Term, Landlord
shall render Tenant a statement in reasonable detail and according to
usual accounting practices certified by a representative of Landlord,
showing for the preceding calendar year or fraction thereof, as the case
may be,
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<PAGE>
Base Operating Expenses, Landlord's Operating Expenses and Operating
Expenses Allocable to the Premises. Said statement to be rendered to
Tenant shall also show for the preceding year or fraction thereof as the
case may be the amounts of operating expenses already paid by Tenant as
Additional Rent on account of the operating expenses and the amount of the
Operating Cost Excess remaining due from, or overpaid by, Tenant for the
year or other period covered by the statement. Within thirty (30) days
after the date of delivery of such statement, Tenant shall pay to Landlord
the balance of the amounts, if any, required to be paid pursuant to the
above provisions of this Section 2.6 with respect to the preceding year or
fraction thereof, or Landlord shall credit any amounts overpaid by Tenant
against (i) monthly installments of fixed rent next thereafter coming due
or (ii) any sums then due from Tenant to Landlord under this Lease (or
refund such portion of the overpayment as aforesaid if the Term has ended
and Tenant has no further obligation to Landlord).
In addition, Tenant shall make payments monthly on account of Tenant's
share of increases in operating expenses anticipated for the then current
year at the time and in the fashion herein provided for the payment of
fixed rent. The amount to be paid to Landlord shall be an amount
reasonably estimated annually by Landlord to be sufficient to cover, in
the aggregate, a sum equal to the Operating Cost Excess for each calendar
year during the Term.
Notwithstanding the foregoing provisions, no decrease in Landlord's
Operating Expenses shall result in a reduction of the amount otherwise
payable by Tenant if and to the extent said decrease is attributable to
vacancies in the Building rather than to any other causes.
2.7 If with respect to any full Tax Year or fraction of a Tax Year falling
within the Term, Landlord's Tax Expenses Allocable to the Premises (as
hereinafter defined) for a full Tax Year exceed Base Taxes Allocable to
the Premises or for any such fraction of a Tax Year exceed the
corresponding fraction of Base Taxes Allocable to the Premises (such
amount being hereinafter sometimes referred to as the "Tax Excess") then,
on or before the thirtieth (30th) day following receipt by Tenant of the
certified statement referred to below in this Section 2.7, Tenant shall
pay to Landlord, as Additional Rent, the amount of the Tax Excess. In
addition, payments by Tenant on account of the Tax Excess anticipated for
the then current year shall be made monthly at the time and in the fashion
herein provided for the payment of fixed rent. The amount so to be paid to
Landlord shall be an amount reasonably estimated by Landlord to be
sufficient to provide Landlord, in the aggregate, a sum equal to the Tax
Excess at least ten (10) days before the day on which such payments by
Landlord would become delinquent. Not later than ninety (90) days after
Landlord's Tax Expenses Allocable to the Premises are determined for the
first such Tax Year or fraction thereof and for each succeeding Tax Year
or fraction thereof during the Term, Landlord shall render Tenant a
statement in reasonable detail certified
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by a representative of Landlord showing for the preceding year or fraction
thereof, as the case may be, real estate taxes on the Building and the
Site and abatements and refunds of any taxes and assessments. Expenditures
for legal fees and for other expenses incurred in obtaining the tax refund
or abatement may be charged against the tax refund or abatement before the
adjustments are made for the Tax Year.
To the extent that real estate taxes shall be payable to the taxing
authority in installments with respect to periods less than a Tax Year,
the foregoing statement shall be rendered and payments made on account of
such installments. Notwithstanding the foregoing provisions, no decrease
in Landlord's Tax Expenses with respect to any Tax Year shall result in a
reduction of the amount otherwise payable by Tenant if and to the extent
said decrease is attributable to vacancies in the Building or partial
completion of the Building rather than to any other causes.
Terms used herein are defined as follows:
(i) "Tax Year" means the twelve-month period beginning July 1 each
year during the Term or if the appropriate governmental tax
fiscal period shall begin on any date other than July 1, such
other date.
(ii) "Landlord's Tax Expenses Allocable to the Premises" shall mean
the same proportion of Landlord's Tax Expenses for and
pertaining to the Building and the Site as the Rentable Floor
Area of Tenant's Space bears to 95% of the Total Rentable Floor
Area of the Building.
(iii) "Landlord's Tax Expenses" with respect to any Tax Year means the
aggregate real estate taxes on the Building and Site with
respect to that Tax Year, reduced by any abatement receipts with
respect to that Tax Year.
(iv) "Base Taxes" means Landlord's Tax Expenses (hereinbefore
defined) for fiscal tax year 1997 (that is, the period beginning
July 1, 1996 and ending June 30, 1997).
(v) "Base Taxes Allocable to the Premises" means the same proportion
of Base Taxes as the Rentable Floor Area of Tenant's Space bears
to 95% of the Total Rentable Floor Area of the Building.
(vi) "Real estate taxes" means all taxes and special assessments of
every kind and nature assessed by any governmental authority on
the Building or Site which the Landlord shall become obligated
to pay because of or in
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connection with the ownership, leasing and operation of the Site,
the Building and the Property (including, without limitation, if
applicable the excise prescribed by Mass Gen Laws Chapter 121A,
Section 10 and amounts in excess thereof paid to the Town of
Lexington pursuant to agreement between Landlord and the Town) and
reasonable expenses of any proceedings for abatement of taxes. The
amount of special taxes or special assessments to be included shall
be limited to the amount of the installment (plus any interest,
other than penalty interest, payable thereon) of such special tax or
special assessment required to be paid during the year in respect of
which such taxes are being determined. There shall be excluded from
such taxes all income, estate, succession, inheritance and transfer
taxes; provided, however, that if at any time during the Term the
present system of ad valorem taxation of real property, shall be
changed so that in lieu of, or in addition to, the whole or any part
of the ad valorem tax on real property there shall be assessed on
Landlord a capital levy or other tax on the gross rents received
with respect to the Site or Building or Property, or a federal,
state, county, municipal, or other local income, franchise, excise
or similar tax, assessment, levy or charge (distinct from any now in
effect in the jurisdiction in which the Property is located)
measured by or based, in whole or in part, upon any such gross
rents, then any and all of such taxes, assessments, levies or
charges, to the extent so measured or based, shall be deemed to be
included within the term "real estate taxes" but only to the extent
that the same would be payable if the Site and Building were the
only property of Landlord.
2.8 If with respect to any calendar year falling within the Term or fraction
of a calendar year falling within the Term at the beginning or end
thereof, the cost of furnishing electricity to the Building and the Site,
including common areas and facilities and space occupied by tenants, (but
expressly excluding utility charges separately chargeable to tenants for
additional or special services) for a full calendar year exceeds $0.85 per
square foot of Rentable Floor Area of the Building, or for any such
fraction of a calendar year exceeds the corresponding fraction of $0.85
per square foot of Rentable Floor Area of the Building, then Tenant shall
pay to Landlord, as Additional Rent, on or before the thirtieth (30th) day
following receipt by Tenant of the statement referred to below in this
Section 2.8, its proportionate share of the amount of such excess (i.e.
the same proportion of such excess as the Rentable Floor Area of Tenant's
Space bears to the Total Rentable Floor Area of the Building). Payments by
Tenant on account of such excess shall be made monthly at the time and in
the fashion herein provided for the payment of Annual Fixed Rent. The
amount so to be paid to Landlord shall be an amount from time to time
reasonably estimated by Landlord to be sufficient to cover, in the
aggregate, a sum equal to such excess for each calendar year during the
Term.
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Not later than ninety (90) days after the end of the first calendar year
or fraction thereof ending December 31 and of each succeeding calendar
year during the Term or fraction thereof at the end of the Term, Landlord
shall render Tenant a reasonably detailed accounting certified by a
representative of Landlord showing for the preceding calendar year, or
fraction thereof, as the case may be, the costs of furnishing electricity
to the Building. Said statement to be rendered to Tenant also shall show
for the preceding year or fraction thereof, as the case may be, the amount
already paid by Tenant on account of electricity, and the amount remaining
due from, or overpaid by, Tenant for the year or other period covered by
the statement. Within thirty (30) days after the date of the delivery of
such statement, Tenant shall pay to Landlord the balance of the amounts,
if any required to be paid pursuant to the above provisions of this
Section 2.8 with respect to the preceding year, or fraction thereof, or
Landlord shall credit any amounts due from it to Tenant pursuant to the
above provisions of this Section 2.8 against monthly installments of
Annual Fixed Rent or Additional Rent next thereafter coming due unless the
Lease Term has expired and Tenant has no other or further obligations to
Landlord, in which case Landlord shall promptly refund such amount to
Tenant.
ARTICLE III
-----------
CONSTRUCTION
------------
3.1 Landlord shall perform the work shown on the construction plans for
Tenant's Space which plans are in the process of being completed (the
"Tenant Construction Plans"). Both Landlord and Tenant acting reasonably
and promptly shall have the right to approve the Tenant Construction
Plans. However, Landlord shall have no responsibility, for the
installation or connection of Tenant's computer, telephone or other
communications equipment, systems or wiring.
3.1.1 Landlord shall provide Tenant with a special allowance in the amount of
$130,800.00 to be applied towards the cost of the work to be performed by
Landlord shown on the Tenant Construction Plans. Tenant shall pay
Landlord, as Additional Rent, any cost of performing the work shown on the
Tenant Construction Plans in excess of said special allowance within
thirty (30) days after being billed therefor. In the event that the cost
of the work shown on the Tenant Construction Plans is less than the
special allowance, such excess shall be applied against Annual Fixed Rent
or Additional Rent next due pursuant to this Lease.
3.2 Landlord agrees to use due diligence to complete the work described in
Section 3.1 on or before the Scheduled Term Commencement Date. Landlord
shall not be required to install any improvements which are not in
conformity with the plans and specifications
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for the Building or which are not approved by Landlord's architect. In
case of delays due to governmental regulation, unusual scarcity of or
inability to obtain labor or materials, labor difficulties, casualty or
other causes reasonably beyond Landlord's control (collectively,
"Landlord's Force Majeure"), the Scheduled Term Commencement Date shall be
extended for the period of such delays. The Premises shall be deemed ready
for occupancy on the date on which the work described in Section 3.1,
together with common facilities for access and service to the Premises,
has been substantially completed except for (i) items of work and
adjustment of equipment and fixtures which can be completed after
occupancy thereof has been taken without causing substantial interference
with Tenant's use of the Premises (i.e. so-called "punch list" items) and
items of work for which there is a long lead time in obtaining the
materials therefor or which are specially or specifically manufactured,
produced or milled for the work in or to the Premises and require
additional time for receipt or installation ("long lead" items). Landlord
shall complete as soon as conditions practically permit the punch list
items and the long lead items and Tenant shall not use the Premises in
such manner as will increase the cost of completion. Landlord shall permit
Tenant access for installing furnishings in portions of the Premises when
it can be done without material interference with remaining work. If,
however, Landlord shall have failed to substantially complete the work to
be performed by Landlord in accordance with Section 3.1 (excluding punch
list items and long lead items) on or before the Outside Completion Date
(which date shall be extended automatically for such periods of time as
Landlord is prevented from proceeding with or completing the same by
reason of Landlord's Force Majeure or any act or failure to act of Tenant
which interferes with Landlord's construction of the Premises, without
limiting Landlord's other rights on account thereof), Tenant shall have
the right to terminate this Lease by giving notice to Landlord of Tenant's
desire to do so within the time period from the Outside Completion Date
(as so extended) until the date which is thirty (30) days subsequent to
the Outside Completion Date (as so extended); and, upon the giving of such
notice, the Term of this Lease shall cease and come to an end without
further liability or obligation on the part of either party unless, within
thirty (30) days after Landlord's receipt of Tenant's notice Landlord
substantially completes the work to be performed by Landlord under Section
3.1 (except for punch list items and long lead items) and such fight of
termination shall be Tenant's sole and exclusive remedy at law or in
equity or otherwise for Landlord's failure so to complete such work within
such time.
Tenant agrees that no delay by it, or anyone employed by it, in performing
work to prepare the Premises for occupancy (including, without limitation,
the work in installing telephones and other communications equipment or
systems) shall delay commencement of the Term or the obligation to pay
rent, regardless of the reason for such delay or whether or not it is
within the control of Tenant or any such employee.
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3.3 This Section 3.3 shall apply before and during the Term. Tenant shall not
make alterations and additions to Tenant's space except in accordance with
plans and specifications therefor first approved by Landlord, which
approval shall not be unreasonably withheld. Landlord shall not be deemed
unreasonable for withholding approval of any alterations or additions
which (a) involve or might affect any structural or exterior element of
the Building, any area or element outside of the Premises, or any facility
serving any area of the Building outside of the Premises, or (b) will
delay completion of the Premises or Building, or (c) will require unusual
expense to readapt the Premises to normal office use on Lease termination
or increase the cost of construction or of insurance or taxes on the
Building or of the services called for by Section 4.1 unless Tenant first
gives assurance acceptable to Landlord for payment of such increased cost
and that such readaptation will be made prior to such termination without
expense to Landlord. Landlord's review and approval of any such plans and
specifications and consent to perform work described therein shall not be
deemed an agreement by Landlord that such plans, specifications and work
conform with applicable Legal Requirements and requirements of insurers of
the Building (herein called "Insurance Requirements") nor deemed a waiver
of Tenant's obligations under this Lease with respect to applicable Legal
Requirements and Insurance Requirements nor impose any liability, or
obligation upon Landlord with respect to the completeness, design
sufficiency or compliance of such plans, specifications and work with
applicable Legal Requirements and Insurance Requirements. All alterations
and additions shall be part of the Building unless and until Landlord
shall specify the same for removal pursuant to Section 5.2. All of
Tenant's alterations and additions and installation of furnishings shall
be coordinated with any work being performed by Landlord and in such
manner as to maintain harmonious labor relations and not to damage the
Building or Site or interfere with construction or operation of the
Building and other improvements to the Site and, except for installation
of furnishings, shall be performed by Landlord's general contractor or by
contractors or workmen first approved by Landlord. Except for work by
Landlord's general contractor, Tenant, before its work is started, shall
secure all licenses and permits necessary therefor; deliver to Landlord a
statement of the names of all its contractors and subcontractors and the
estimated cost of all labor and material to be furnished by them and
security satisfactory to Landlord protecting Landlord against liens
arising out of the furnishing of such labor and material; and cause each
contractor to carry Workmen's compensation insurance in statutory amounts
coveting all the contractor's and subcontractor's employees and commercial
general liability insurance or comprehensive general liability insurance
with a broad form comprehensive liability endorsement with such limits as
Landlord may reasonably require, but in no event less than $2,000,000.00
combined single limit per occurrence on a per location basis (all such
insurance to be written in companies approved by Landlord and naming and
insuring Landlord and Landlord's managing agent as additional insureds and
insuring Tenant as well as the contractors), and to deliver to Landlord
certificates of all such insurance. Tenant agrees to pay
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promptly when due the entire cost of any work done on the Premises by
Tenant, its agents, employees, or independent contractors, and not to
cause or permit any liens for labor or materials performed or furnished in
connection therewith to attach to the Premises or the Building or the Site
and immediately to discharge any such liens which may so attach. Tenant
shall pay, as Additional Rent, 100% of any real estate taxes on the
Complex which shall, at any time after commencement of the Term, result
from any alteration, addition or improvement to the Premises made by
Tenant.
3.4 All construction work required or permitted by this Lease shall be done in
a good and workmanlike manner and in compliance with all applicable Legal
Requirements and Insurance Requirements now or hereafter in force. Each
party may inspect the work of the other at reasonable times and shall
promptly give notice of observed defects. Each party authorizes the other
to rely in connection with design and construction upon approval and other
actions on the party's behalf by any Construction Representative of the
party named in Article I or any person hereafter designated in
substitution or addition by notice to the party relying. Except as
otherwise provided in Article IV, the work required of Landlord pursuant
to this Article III shall be deemed approved by Tenant when Tenant
commences occupancy of the Premises for the Permitted Uses, except for
items which are then uncompleted (including punch list items and long lead
items) and as to which Tenant shall have given notice to Landlord prior to
such date.
ARTICLE IV
----------
LANDLORD'S COVENANTS; INTERRUPTIONS AND DELAYS
----------------------------------------------
4.1 Landlord covenants:
4.1.1 To furnish services, utilities, facilities and supplies set forth in
Exhibit C equal to those customarily provided by landlords in high quality
buildings in the Boston West Suburban Market subject to escalation
reimbursement in accordance with Section 2.6.
4.1.2 To furnish, at Tenant's expense, reasonable additional Building operation
services which are usual and customary in similar office buildings in the
Boston West Suburban Market upon reasonable advance request of Tenant at
reasonable and equitable rates from time to time established by Landlord.
4.1.3 Subject to the escalation provisions of Section 2.6 and except as
otherwise provided in Article VI, (i) to make such repairs to the roof,
exterior walls, floor slabs and common areas and facilities as may be
necessary to keep them in serviceable condition and (ii) to maintain the
Building (exclusive of Tenant's responsibilities under this Lease) in a
first
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class manner comparable to the maintenance of similar properties in the
Boston West Suburban Market.
4.1.4 To provide and install, at Landlord's expense, letters or numerals on the
entrance doors to the Premises to identify Tenant's official name and
Building address; all such letters and numerals shall be in the building
standard graphics and no others shall be used or permitted on the
Premises.
4.2 Landlord shall not be liable to Tenant for any compensation or reduction
of rent by reason of inconvenience or annoyance or for loss of business
arising from the necessity of Landlord or its agents entering the
Premises for any of the purposes in this Lease authorized, or for
repairing the Premises or any portion of the Building however the
necessity may occur. In case Landlord is prevented or delayed from making
any repairs, alterations or improvements, or furnishing any services or
performing any other covenant or duty to be performed on Landlord's part,
by reason of any cause reasonably beyond Landlord's control, including
without limitation the causes set forth in Section 3.2 hereof as being
reasonably beyond Landlord's control, Landlord shall not be liable to
Tenant therefor, nor, except as expressly otherwise provided in Article
VI, shall Tenant be entitled to any abatement or reduction of rent by
reason thereof, nor shall the same give rise to a claim in Tenant's favor
that such failure constitutes actual or constructive, total or partial,
eviction from the Premises.
Landlord reserves the right to stop any service or utility system, when
necessary by reason of accident or emergency, or until necessary repairs
have been completed; provided, however, that in each instance of stoppage,
Landlord shall exercise reasonable diligence to eliminate the cause
thereof. Except in case of emergency repairs, Landlord will give Tenant
reasonable advance notice of any contemplated stoppage and will use
reasonable efforts to avoid unnecessary inconvenience to Tenant by reason
thereof.
ARTICLE V
---------
TENANT'S COVENANTS
------------------
Tenant covenants during the term and such further time as Tenant occupies
any part of the Premises:
5.1 To pay when due all fixed rent and Additional Rent and all charges for
utility services rendered to the Premises (except as otherwise provided in
Exhibit C) and, further, as Additional Rent, all charges for additional
services rendered pursuant to Section 4.1.2.
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5.2 Except as otherwise provided in Article VI and Section 4.1.3, to keep the
Premises in good order, repair and condition, reasonable wear and tear
only excepted, and all glass in windows (except glass in exterior walls
unless the damage thereto is attributable to Tenant's negligence or
misuse) and doors of the Premises whole and in good condition with glass
of the same type and quality as that injured or broken, damage by fire or
taking under the power of eminent domain only excepted. At the expiration
or termination of this Lease Tenant shall peaceably yield up the Premises
and all construction, work, improvements, alterations and additions
thereto in good order, repair and condition, reasonable wear and tear only
excepted, first removing all goods and effects of Tenant and, to the
extent specified by Landlord by notice to Tenant given at least ten (10)
days before such expiration or termination, all alterations and additions
made by Tenant and all partitions, and repairing any damage caused by such
removal and restoring the Premises and leaving them clean and neat. Tenant
shall not permit or commit any waste, and Tenant shall be responsible for
the cost of repairs which may be made necessary by reason of damage to
common areas in the Building or to the Site caused by Tenant, Tenant's
independent contractors, Tenant's employees or Tenant's invitees.
5.3 Continuously from the commencement of the Term, to use and occupy the
Premises for the Permitted Uses only, and not to injure or deface the
Premises, Building, the Site or any other part of the Complex nor to
permit in the Premises or on the Site any auction sale, or inflammable
fluids or chemicals, or nuisance, or the emission from the Premises of any
objectionable noise or odor, nor to use or devote the Premises or any part
thereof for any purpose other than the Permitted Uses, nor for any use
thereof which is inconsistent with maintaining the Building as a first
class office building in the quality of its maintenance, use and
occupancy, or which is improper, offensive, contrary to law or ordinance
or liable to render necessary any alteration or addition to the Building.
Further, (i) Tenant shall not, nor shall Tenant permit its employees,
invitees, agents, independent contractors, contractors, assignees or
subtenants to, keep, maintain, store or dispose of (into the sewage or
waste disposal system or otherwise) or engage in any activity which might
produce or generate any substance which is or may hereafter be classified
as a hazardous material, waste or substance (collectively "Hazardous
Materials"), under federal, state or local laws, rules and regulations,
including, without limitation, 42 U.S.C. Section 6901 et seq., 42 U.S.C.
Section 9601 et seq., 42 U.S.C. Section 2601 et seq., 49 U.S.C. Section
1802 et seq. and Massachusetts General Laws, Chapter 21E and the rules and
regulations promulgated under any of the foregoing, as such laws, rules
and regulations may be amended from time to time (collectively "Hazardous
Materials Laws"), (ii) Tenant shall immediately notify Landlord of any
incident in, on or about the Premises, the Building or the Site that would
require the filing of a notice under any Hazardous Materials Laws, (iii)
Tenant shall comply and shall cause its employees, invitees, agents,
independent contractors, contractors, assignees and subtenants to comply
with each of the foregoing and (iv) Landlord shall have the right to make
such
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inspections (including testing) as Landlord shall elect from time to time
to determine that Tenant is complying with the foregoing.
5.4 Not to obstruct in any manner any portion of the Building not hereby
leased or any portion thereof or of the Site used by Tenant in common with
others; not without prior consent of Landlord to permit the painting or
placing of any signs, curtains, blinds, shades, awnings, aerials or
flagpoles, or the like, visible from outside the Premises; and to comply
with all reasonable Rules and Regulations now or hereafter made by
Landlord, of which Tenant has been given notice, for the care and use of
the Building and Site and their facilities and approaches; Landlord shall
not be liable to Tenant for the failure of other occupants of the Building
to conform to such Rules and Regulations.
5.5 To keep the Premises equipped with all safety appliances required by any
public authority because of any use made by Tenant other than normal
office use, and to procure all licenses and permits so required because of
such use and, if requested by Landlord, to do any work so required because
of such use, it being understood that the foregoing provisions shall not
be construed to broaden in any way Tenant's Permitted Uses.
5.6 Except as otherwise expressly provided herein, Tenant covenants and agrees
that it shall not assign, mortgage, pledge, hypothecate or otherwise
transfer this Lease and/or Tenant's interest in this Lease or sublet
(which term, without limitation, shall include granting of concessions,
licenses or the like) the whole or any part of the Premises. Any
assignment, mortgage, pledge, hypothecation, transfer or subletting not
expressly permitted in or consented to by Landlord under Sections
5.6.1-5.6.6 shall be void, ab initio; shall be of no force and effect; and
shall confer no rights on or in favor of third parties. In addition,
Landlord shall be entitled to seek specific performance of or other
equitable relief with respect to the provisions hereof.
5.6.1 Notwithstanding the provisions of Section 5.6 above and the provisions of
Section 5.6.2, 5.6.3 and 5.6.5 below, Tenant shall have the right to
assign this Lease or to sublet the Premises (in whole or in part) to any
parent or subsidiary corporation of Tenant or to any corporation into
which Tenant may be converted or with which it may merge, provided that
the entity to which this Lease is so assigned or which so sublets the
Premises has a credit worthiness (e.g. assets on a pro forma basis using
generally accepted accounting principles consistently applied and using
the most recent financial statements) which is the same or better than the
Tenant as of the date of this Lease. Any such assignment or subletting
shall be subject to the provisions of Section 5.6.4 and Section 5.6.6
below.
5.6.2 Notwithstanding the provisions of Section 5.6 above, in the event Tenant
desires to assign this Lease or to sublet the Premises in whole but not in
part (no partial subletting being permitted other than as provided in
Section 5.6.1), Tenant shall notify Landlord thereof in
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writing and Landlord shall have the right at its sole option, to be
exercised within thirty (30) days after receipt of Tenant's notice, to
terminate this Lease as of a date specified in a notice to Tenant, which
date shall not be earlier than sixty (60) days nor later than one hundred
and twenty (120) days after Landlord's notice to Tenant; provided,
however, that upon the termination date as set forth in Landlord's notice,
all obligations relating to the period after such termination date (but
not those relating to the period before such termination date) shall cease
and promptly upon being billed therefor by Landlord, Tenant shall make
final payment of all rent and Additional Rent due from Tenant through the
termination date.
In the event that Landlord shall not exercise its termination rights as
aforesaid, or shall fail to give any or timely notice, the provisions of
Sections 5.6.3-5.6.6 shall be applicable. This Section 5.6.2 shall not be
applicable to an assignment or sublease pursuant to Section 5.6.1.
5.6.3 Notwithstanding the provisions of Section 5.6 above, but subject to the
---
provisions of this Section 5.6.3 and the provisions of Sections 5.6.4,
5.6.5 and 5.6.6 below, in the event that Landlord shall not have exercised
the termination right as set forth in Section 5.6.2, then for a period of
one hundred twenty (120) days after the receipt of Tenant's notice
referred to in Section 5.6.2, Tenant shall have the right to assign this
Lease or sublet the whole (but not part) of the Premises in accordance
with Tenant's notice to Landlord given as provided in Section 5.6.4
provided that, in each instance, Tenant first obtains the express prior
written consent of Landlord, which consent shall not be unreasonably
withheld or delayed. Landlord shall not be deemed to be unreasonably
withholding its consent to such a proposed assignment or subleasing if:
(a) the proposed assignee or subtenant is not of a character
consistent with the operation of a first class office building
(by way of example Landlord shall not be deemed to be
unreasonably withholding its consent to an assignment or
subleasing to any governmental agency), or
(b) the proposed assignee or subtenant is not of good character
and reputation, or
(c) the proposed assignee or subtenant does not possess adequate
financial capability to perform the Tenant obligations as and
when due or required, or
(d) the assignee or subtenant proposes to use the Premises (or
part thereof) for a purpose other than the purpose for which
the Premises may be used as stated in Section 1.1 hereof, or
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(e) the character of the business to be conducted or the proposed
use of the Premises by the proposed subtenant or assignee
shall (i) be likely to increase Landlord's Operating Expenses
beyond that which Landlord now incurs for use by Tenant; (ii)
be likely to increase the burden on elevators or other
Building systems or equipment over the burden prior to such
proposed subletting or assignment; or (iii) violate or be
likely to violate any provisions or restrictions contained
herein relating to the use or occupancy of the Premises, or
(f) there shall be existing an Event of Default (defined in
Section 7.1).
5.6.4 Tenant shall give Landlord notice of any proposed sublease or assignment,
and said notice shall specify the provisions of the proposed assignment
or subletting, including (a) the name and address of the proposed assignee
or subtenant, (b) in the case of a proposed assignment or subletting
pursuant to Section 5.6.2, such information as to the proposed assignee's
or proposed subtenant's net worth and financial capability and standing as
may reasonably be required for Landlord to make the determination referred
to in Section 5.6.3 above (provided, however, that Landlord shall hold
such information confidential having the right to release same to its
officers, accountants, attorneys and mortgage lenders on a confidential
basis), (c) all of the terms and provisions upon which the proposed
assignment or subletting is to be made, (d) in the case of a proposed
assignment or subletting pursuant to Section 5.6.2, all other information
necessary to make the determination referred to in Section 5.6.3 above and
(e) in the case of a proposed assignment or subletting pursuant to Section
5.6.1 above, such information as may be reasonably required by Landlord to
determine that such proposed assignment or subletting complies with the
requirements of said Section 5.6.1. No partial subletting shall be
permitted except as provided in Section 5.6.1.
If Landlord shall consent to the proposed assignment or subletting, as the
case may be, then, in such event, Tenant may thereafter sublease (the
whole but not part of the Premises) or assign pursuant to Tenant's notice,
as given hereunder; provided, however, that if such assignment or sublease
shall not be executed and delivered to Landlord within ninety (90) days
after the date of Landlord's consent, the consent shall be deemed null and
void and the provisions of Section 5.6.2 shall be applicable.
5.6.5 In addition, in the case of any assignment or subleasing as to which
Landlord may consent (other than an assignment or subletting permitted
under Section 5.6.1 hereof) such consent shall be upon the express and
further condition, covenant and agreement, and Tenant hereby covenants and
agrees that, in addition to the Annual Fixed Rent, Additional Rent and
other charges to be paid pursuant to this Lease, fifty percent (50%)
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of the "Assignment/Sublease Profits" (hereinafter defined), if any, shall
be paid to Landlord.
The "Assignment/Sublease Profits" shall be the excess, if any, of (a) the
"Assignment/Sublease Net Revenues" as hereinafter defined over (b) the
Annual Fixed Rent and Additional Rent and other charges provided in this
Lease. The "Assignment/Sublease Net Revenues" shall be the fixed rent,
Additional Rent and all other charges and sums payable either initially or
over the term of the sublease or assignment plus all other profits and
----
increases to be derived by Tenant as a result of such subletting or
assignment, less the reasonable costs of Tenant incurred in such
subleasing or assignment (the definition of which shall include but not
necessarily be limited to rent concessions, brokerage commissions and
alteration allowances) amortized over the term of the sublease or
assignment.
All payments of the Assignment/Sublease Profits due Landlord shall be made
within ten (10) days of receipt of same by Tenant.
5.6.6 (A) It shall be a condition of the validity of any assignment or
subletting of right under Section 5.6.1 above, or consented to under
Section 5.6.3 above, that the assignee or sublessee agrees directly with
Landlord, in form reasonably satisfactory to Landlord, to be bound by all
the obligations of the Tenant hereunder, including, without limitation,
the obligation to pay the rent and other amounts provided for under this
Lease (but in the case of a partial subletting pursuant to Section 5.6.1,
such subtenant shall agree on a pro rata basis to be so bound) including
the provisions of Sections 5.6 through 5.6.6 hereof, but such assignment
or subletting shall not relieve the Tenant named herein of any of the
obligations of the Tenant hereunder, Tenant shall remain fully and
primarily liable therefor and the liability of Tenant and such assignee
(or subtenant, as the case may be) shall be joint and several. Further,
and notwithstanding the foregoing, the provisions hereof shall not
constitute a recognition of the assignment or the assignee thereunder or
the sublease or the subtenant thereunder, as the case may be, and at
Landlord's option, upon the termination of the Lease, the assignment or
sublease shall be terminated.
(B) As Additional Rent, Tenant shall reimburse Landlord promptly for
reasonable out of pocket legal and other expenses incurred by Landlord in
connection with any request by Tenant for consent to assignment or
subletting.
(C) If this Lease be assigned, or if the Premises or any part thereof be
sublet or occupied by anyone other than Tenant, Landlord may upon prior
notice to Tenant, at any time and from time to time, collect rent and
other charges from the assignee, sublessee or occupant and apply the net
amount collected to the rent and other charges herein reserved, but no
such assignment, subletting, occupancy or collection shall be deemed a
waiver of
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this covenant, or a waiver of the provisions of Sections 5.6 through 5.6.6
hereof, or the acceptance of the assignee, sublessee or occupant as a
tenant or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained, the Tenant herein named
to remain primarily liable under this Lease.
(D) The consent by Landlord to an assignment or subletting under any of
the provisions of Sections 5.6.1 or 5.6.3 shall in no way be construed to
relieve Tenant from obtaining the express consent in writing to Landlord
to any further assignment or subletting.
5.7 To defend with counsel first approved by Landlord (which approval shall
not be unreasonably withheld or delayed), save harmless, and indemnify
Landlord from any liability for injury, loss, accident or damage to any
person or property, and from any claims, actions, proceedings and expenses
and costs in connection therewith (including without limitation reasonable
counsel fees) (i) arising from or claimed to have arisen from (a) the
omission, fault, willful act, negligence or other misconduct of Tenant or
Tenant's contractors, licensees, invitees, agents, servants, independent
contractors or employees or (b) any use made or thing done or occurring on
the Premises not due to the omission, fault, willful act, negligence or
other misconduct of Landlord, or (ii) resulting from the failure of Tenant
to perform and discharge its covenants and obligations under this Lease;
to maintain commercial general liability insurance or comprehensive
general liability insurance written on an occurrence basis with a broad
form comprehensive liability endorsement covering the Premises insuring
Landlord and Landlord's managing agent (and such persons as are in privity
of estate with Landlord and Landlord's managing agent as may be set out in
notice from time to time) as additional insureds as well as Tenant with
limits which shall, at the commencement of the Term, be at least equal to
those stated in Section 1.1 and from time to time during the Term shall be
for such higher limits, if any, as are customarily carried in Greater
Boston with respect to similar properties or which may reasonably be
required by Landlord, and workmen's compensation insurance with statutory
limits covering all of Tenant's employees working in the Premises, and to
deposit with Landlord on or before the Commencement Date and concurrent
with all renewals thereof, certificates for such insurance bearing the
endorsement that the policies will not be canceled until after thirty (30)
days written notice to Landlord. All insurance required to be maintained
by Tenant pursuant to this Lease shall be maintained with responsible
companies qualified to do business, and in good standing, in the
Commonwealth of Massachusetts and which have a rating of at least "A-" and
are within a financial size category of not less than "Class VIII" in the
most current Best's Key Rating Guide or such similar rating as may be
reasonably selected by Landlord if such Guide is no longer published.
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5.8 That all of the furnishings, fixtures, equipment, effects and property of
every kind, nature and description of Tenant and of all persons claiming
by, through or under Tenant which, during the continuance of this Lease or
any occupancy of the Premises by Tenant or anyone claiming under Tenant,
may be on the Premises or elsewhere in the Building or on the Site, shall
be at the sole risk and hazard of Tenant, and if the whole or any part
thereof shall be destroyed or damaged by fire, water or otherwise, or by
the leakage or bursting of water pipes, or other pipes, by theft or from
any other cause, no part of said loss or damage is to be charged to or be
borne by Landlord, except that Landlord shall in no event be indemnified
or held harmless or exonerated from any liability to Tenant or to any
other person, for any injury, loss, damage or liability to the extent such
indemnity, hold harmless or exoneration is prohibited by law. Further,
Tenant, at Tenant's expense, shall maintain at all times during the Term
of this Lease insurance against loss or damage covered by the so-called
"all risk" type insurance coverage with respect to Tenant's fixtures,
equipment, goods, wares and merchandise, tenant improvements made by or
paid for by Tenant, and other property of Tenant (collectively "Tenant's
Property"). Such insurance shall be in an amount at least equal to the
full replacement cost of Tenant's Property.
5.9 To permit Landlord and its agents to examine the Premises at reasonable
times and, if Landlord shall so elect, to make any repairs or replacements
Landlord may deem necessary; to remove, at Tenant's expense, any
alterations, addition, signs, curtains, blinds, shades, awnings, aerials,
flagpoles, or the like not consented to in writing; and to show the
Premises to prospective tenants during the nine (9) months preceding
expiration of the Term and to prospective purchasers and mortgagees at all
reasonable times.
5.10 Not to place a load upon the Premises exceeding an average rate of 100
pounds of live load per square foot of floor area (partitions shall be
considered as part of the live load); and not to move any safe, vault or
other heavy equipment in, about or out of the Premises except in such
manner and at such time as Landlord shall in each instance authorize;
Tenant's business machines and mechanical equipment which cause vibration
or noise that may be transmitted to the Building structure or to any other
space in the Building shall be so installed, maintained and used by Tenant
so as to eliminate such vibration or noise.
5.11 To pay promptly when due all taxes which may be imposed upon Tenant's
Property in the Premises to whomever assessed.
5.12 To comply with all applicable Legal Requirements now or hereafter in force
which shall impose a duty on Landlord or Tenant relating to or as a result
of the use or occupancy of the Premises; provided that Tenant shall not be
required to make any alterations or additions to the structure, roof,
exterior and load bearing walls, foundation, structural
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floor slabs and other structural elements of the Building unless the same
are required by such Legal Requirements as a result of or in connection
with Tenant's use or occupancy of the Premises beyond normal use of space
of this kind. Tenant shall promptly pay all fines, penalties and damages
that may arise out of or be imposed because of its failure to comply with
the provisions of this Section 5.12.
5.13 To pay as Additional Rent all reasonable costs, counsel and other fees
incurred by Landlord in connection with the successful enforcement by
Landlord of any obligations of Tenant under this Lease.
ARTICLE VI
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CASUALTY AND TAKING
-------------------
6.1 In case during the Lease Term the Building or the Site are damaged by fire
or other casualty and such fire or casualty damage cannot, in the ordinary
course, reasonably be expected to be repaired within one hundred fifty
(150) days from the time that repair work would commence, Landlord may, at
its election, terminate this Lease by notice given to Tenant within sixty
(60) days after the date of such fire or other casualty, specifying the
effective date of termination. The effective date of termination specified
by Landlord shall not be less than thirty (30) days nor more than
forty-five (45) days after the date of notice of such termination.
In case during the last year of the Lease Term, the Premises are damaged
by fire or other casualty and such fire or casualty damage cannot, in the
ordinary course, reasonably be expected to be repaired within one hundred
fifty (150) days (and/or as to special work or work which requires long
lead time then if such work cannot reasonably be expected to be repaired
within such additional time as is reasonable under the circumstances given
the nature of the work) from the time that repair work would commence,
Tenant may, at its election, terminate this Lease by notice given to
Landlord within sixty (60) days after the date of such fire or other
casualty, specifying the effective date of termination. The effective date
of termination specified by Tenant shall be not less than thirty (30) days
nor more than forty-five (45) days after the date of notice of such
termination.
Unless terminated pursuant to the foregoing provisions, this Lease shall
remain in full force and effect following any such damage subject,
however, to the following provisions.
If the Building or the Site or any part thereof are damaged by fire or
other casualty and this Lease is not so terminated, or Landlord or Tenant
have no right to terminate this
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Lease, and in any such case the holder of any mortgage which includes the
Building as a part of the mortgaged premises or any ground lessor of any
ground lease which includes the Site as part of the demised premises
allows the net insurance proceeds to be applied to the restoration of the
Building (and/or the Site), Landlord shall, promptly after such damage and
the determination of the net amount of insurance proceeds available, use
due diligence to restore the Premises and the Building in the event of
damage thereto (excluding Tenant's Property) into proper condition for use
and occupation and a just proportion of the Annual Fixed Rent, Tenant's
share of Operating Costs and Tenant's share of real estate taxes shall be
abated according to the nature and extent of the injury to the Premises,
until the Premises shall have been restored by Landlord substantially into
such condition except for punch list items and long lead items.
Notwithstanding anything herein contained to the contrary, Landlord shall
not be obligated to expend for such repair and restoration any amount in
excess of the net insurance proceeds.
If such restoration is not completed within one (1) year from the date of
the fire or casualty, such period to be subject, however, to extension
where the delay in completion of such work is due to causes beyond
Landlord's reasonable control (but in no event beyond eighteen (18) months
from the date of the fire or casualty), Tenant shall have the right to
terminate this Lease at any time after the expiration of such one-year
period (as extended), which right shall continue until the restoration is
substantially completed. Such termination shall be effective as of the
thirtieth (30th) day after the date of receipt by Landlord of Tenant's
notice, with the same force and effect as if such date were the date
originally established as the expiration date hereof unless, within thirty
(30) days after Landlord's receipt of Tenant's notice, such restoration is
substantially completed, in which case Tenant's notice of termination
shall be of no force and effect and this Lease and the Lease Term shall
continue in full force and effect.
6.2 Notwithstanding anything to the contrary contained in this Lease, if the
Building or the Premises shall be substantially damaged by fire or
casualty as the result of a risk not covered by the forms of casualty
insurance at the time maintained by Landlord and such fire or casualty
damage cannot, in the ordinary course, reasonably be expected to be
repaired within ninety (90) days from the time that repair work would
commence, Landlord may, at its election, terminate the Term of this Lease
by notice to the Tenant given within thirty (30) days after such loss. If
Landlord shall give such notice, then this Lease shall terminate as of the
date of such notice with the same force and effect as if such date were
the date originally established as the expiration date hereof.
6.3 If the entire Building, or such portion of the Premises as to render the
balance (if reconstructed to the maximum extent practicable in the
circumstances) unsuitable for Tenant's purposes, shall be taken by
condemnation or right of eminent domain, Landlord or Tenant shall have the
right to terminate this Lease by notice to the other of its desire to
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do so, provided that such notice is given not later than thirty (30) days
after Tenant has been deprived of possession. If either party shall give
such notice, then this Lease shall terminate as of the date of such notice
with the same force and effect as if such date were the date originally
established as the expiration date hereof.
Further, if so much of the Building shall be so taken that continued
operation of the Building would be uneconomic as a result of the taking,
Landlord shall have the right to terminate this Lease by giving notice to
Tenant of Landlord's desire to do so not later than thirty (30) days after
Tenant has been deprived of possession of the Premises (or such portion
thereof, as may be taken). If Landlord shall give such notice, then this
Lease shall terminate as of the date of such notice with the same force and
effect as if such date were the date originally established as the
expiration date hereof.
Should any part of the Premises be so taken or condemned during the Lease
Term hereof, and should this Lease not be terminated in accordance with the
foregoing provisions, and the holder of any mortgage which includes the
Premises as part of the mortgaged premises or any ground lessor of any
ground lease which includes the Site as part of the demised premises allows
the net condemnation proceeds to be applied to the restoration of the
Building, Landlord agrees, after the determination of the net amount of
condemnation proceeds available to Landlord, to use due diligence to put
what may remain of the Premises into proper condition for use and
occupation as nearly like the condition of the Premises prior to such
taking as shall be practicable (excluding Tenant's Property).
Notwithstanding the foregoing, Landlord shall not be obligated to expend
for such repair and restoration any amount in excess of the net
condemnation proceeds.
If the Premises shall be affected by any exercise of the power of eminent
domain, then the Annual Fixed Rent, Tenant's share of operating costs and
Tenant's share of real estate taxes shall be justly and equitably abated
and reduced according to the nature and extent of the loss of use thereof
suffered by Tenant; and in case of a taking which permanently reduces the
Rentable Floor Area of the Premises, a just proportion of the Annual Fixed
Rent, Tenant's share of operating costs and Tenant's share of real estate
taxes shall be abated for the remainder of the Lease Term.
6.4 Landlord shall have and hereby reserves to itself any and all rights to
receive awards made for damages to the Premises, the Building, the Complex
and the Site and the leasehold hereby created, or any one or more of them,
accruing by reason of exercise of eminent domain or by reason of anything
lawfully done in pursuance of public or other authority. Tenant hereby
grants, releases and assigns to Landlord all Tenant's rights to such
awards, and covenants to execute and deliver such further assignments and
assurances thereof as Landlord may from time to time request, and if Tenant
shall fail to execute and deliver the same within fifteen (15) days after
notice from Landlord, Tenant
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hereby covenants and agrees that Landlord shall be irrevocably designated
and appointed as its attorney-in-fact to execute and deliver in Tenant's
name and behalf all such further assignments thereof which conform with the
provisions hereof.
Nothing contained herein shall be construed to prevent Tenant from
prosecuting in any condemnation proceeding a claim for the value of any of
Tenant's usual trade fixtures installed in the Premises by Tenant at
Tenant's expense and for relocation and moving expenses, provided that such
action and any resulting award shall not affect or diminish the amount of
compensation otherwise recoverable by Landlord from the taking authority.
ARTICLE VII
-----------
DEFAULT
-------
7.1 (a) If at any time subsequent to the date of this Lease any one or more of
the following events (herein sometimes called an "Event of Default") shall
occur:
(i) Tenant shall fail to pay the fixed rent, Additional Rent or
other charges for which provision is made herein on or before
the date on which the same become due and payable, and the same
continues for five (5) days after notice from Landlord thereof,
or
(ii) Landlord having rightfully given the notice specified in
subdivision (a) above twice in any calendar year, Tenant shall
thereafter in the same calendar year fail to pay the fixed rent,
Additional Rent or other charges on or before the date on which
the same become due and payable, or,
(iii) Tenant shall neglect or fail to perform or observe any other
covenant herein contained on Tenant's part to be performed or
observed and Tenant shall fail to remedy the same within thirty
(30) days after notice to Tenant specifying such neglect or
failure, or if such failure is of such a nature that Tenant
cannot reasonably remedy the same within such thirty (30) day
period, Tenant shall fail to commence promptly to remedy the
same and to prosecute such remedy to completion with diligence
and continuity; or
(iv) Tenant's leasehold interest in the Premises shall be taken on
execution or by other process of law directed against Tenant; or
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(v) Tenant shall make an assignment for the benefit of creditors or
shall file a voluntary petition in bankruptcy or shall be
adjudicated bankrupt or insolvent, or shall file any petition or
answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for
itself under any present or future Federal, State or other
statute, law or regulation for the relief of debtors, or shall
seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of Tenant or of all or any
substantial part of its properties, or shall admit in writing
its inability to pay its debts generally as they become due; or
(vi) A petition shall be filed against Tenant in bankruptcy or under
any other law seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar
relief under any present or future Federal, State or other
statute, law or regulation and shall remain undismissed or
unstayed for an aggregate of sixty (60) days (whether or not
consecutive), or if any debtor in possession (whether or not
Tenant) trustee, receiver or liquidator of Tenant or of all or
any substantial part of its properties or of the Premises shall
be appointed without the consent or acquiescence of Tenant and
such appointment shall remain unvacated or unstayed for an
aggregate of sixty (60) days (whether or not consecutive)--
then, and in any of said cases (notwithstanding any license of a former
breach of covenant or waiver of the benefit hereof or consent in a former
instance), Landlord lawfully may, immediately or at any time thereafter,
and without demand or further notice terminate this Lease by notice to
Tenant, specifying a date not less than ten (10) days after the giving of
such notice on which this Lease shall terminate, and this Lease shall come
to an end on the date specified therein as fully and completely as if such
date were the date herein originally fixed for the expiration of the Lease
Term (Tenant hereby waiving any rights of redemption), and Tenant will then
quit and surrender the Premises to Landlord, but Tenant shall remain liable
as hereinafter provided.
(b) If This Lease shall have been terminated as provided in this Article,
then Landlord may, without notice, re- enter the Premises, either by force,
summary proceedings, ejectment or otherwise, and remove and dispossess
Tenant and all other persons and any and all property from the same, as if
this Lease had not been made, and Tenant hereby waives the service of
notice of intention to re-enter or to institute legal proceedings to that
end.
(c) In the event that this Lease is terminated under any of the provisions
contained in Section 7.1 (a) or shall be otherwise terminated by breach of
any obligation of Tenant, Tenant covenants and agrees forthwith to pay and
be liable for, on the days originally
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fixed herein for the payment thereof, amounts equal to the several
installments of rent and other charges reserved as they would, under the
terms of this Lease, become due if this Lease had not been terminated or if
Landlord had not entered or re-entered, as aforesaid, and whether the
Premises be relet or remain vacant, in whole or in part, or relet for a
period less than the remainder of the Term, and for the whole thereof, but
in the event the Premises be relet by Landlord, Tenant shall be entitled to
a credit in the net amount of rent and other charges received by Landlord
in reletting, after deduction of all expenses incurred in reletting the
Premises (including, without limitation, remodeling costs, brokerage fees
and the like), and in collecting the rent in connection therewith, in the
following manner:
Amounts received by Landlord after reletting shall first be applied against
such Landlord's expenses, until the same are recovered, and until such
recovery, Tenant shall pay, as of each day when a payment would fall due
under this Lease, the amount which Tenant is obligated to pay under the
terms of this Lease (Tenant's liability, prior to any such reletting and
such recovery not in any way to be diminished as a result of the fact that
such reletting might be for a rent higher than the rent provided for in
this Lease); when and if such expenses have been completely recovered, the
amounts received from reletting by Landlord as have not previously been
applied shall be credited against Tenant's obligations as of each day when
a payment would fall due under this Lease, and only the net amount thereof
shall be payable by Tenant. Further, amounts received by Landlord from such
reletting for any period shall be credited only against obligations of
Tenant allocable to such period, and shall not be credited against
obligations of Tenant hereunder accruing subsequent or prior to such
period; nor shall any credit of any kind be due for any period after the
date when the term of this Lease is scheduled to expire according to its
terms.
(d)(i) At any time after such termination and whether or not Landlord shall
have collected any damages as aforesaid, Tenant shall pay to Landlord as
liquidated final damages and in lieu of all other damages beyond the date
of notice from Landlord to Tenant, at Landlord's election, such a sum as at
the time of the giving of such notice represents the mount of the excess,
if any, of the total rent and other benefits which would have accrued to
Landlord under this Lease from the date of such notice for what would be
the then unexpired Lease Term if the Lease terms had been fully complied
with by Tenant over and above the then cash rental value (in advance) of
the Premises for the balance of the Lease Term.
(d)(ii) For the purposes of this Article, if Landlord elects to require
Tenant to pay damages in accordance with the immediately preceding
paragraph, the total rent shall be computed by assuming that Tenant's share
of excess taxes, Tenant's share of excess operating costs and Tenant's
share of excess electrical costs would be, for the balance of
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the unexpired Term from the date of such notice, the amount thereof (if
any) for the immediately preceding annual period payable by Tenant to
Landlord.
(e) In case of any Event of Default, re-entry, dispossession by summary
proceedings or otherwise, Landlord may (i) re-let the Premises or any part
or parts thereof, either in the name of Landlord or otherwise, for a term
or terms which may at Landlord's option be equal to or less than or exceed
the period which would otherwise have constituted the balance of the Term
of this Lease and may grant concessions or free rent to the extent that
Landlord considers advisable or necessary to re-let the same and (ii) may
make such alterations, repairs and decorations in the Premises as Landlord
in its sole judgment considers advisable or necessary for the purpose of
reletting the Premises; and the making of such alterations, repairs and
decorations shall not operate or be construed to release Tenant from
liability hereunder as aforesaid. Landlord shall in no event be liable in
any way whatsoever for failure to re-let the Premises, or, in the event
that the Premises are re-let, for failure to collect the rent under re-
letting. Tenant hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of Tenant being
evicted or dispossessed, or in the event of Landlord obtaining possession
of the Premises, by reason of the violation by Tenant of any of the
covenants and conditions of this Lease.
(f) The specified remedies to which Landlord may resort hereunder are not
intended to be exclusive of any remedies or means of redress to which
Landlord may at any time be entitled lawfully, and Landlord may invoke any
remedy (including the remedy of specific performance) allowed at law or in
equity as if specific remedies were not herein provided for. Further,
nothing contained in this Lease shall limit or prejudice the right of
Landlord to prove and obtain in proceedings for bankruptcy or insolvency by
reason of the termination of this Lease, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether
or not the amount be greater, equal to, or less than the amount of the loss
or damages referred to above.
7.2 Landlord shall in no event be in default in the performance of any of
Landlord's obligations hereunder unless and until Landlord shall have
failed to perform such obligations within thirty (30) days, or such
additional time as is reasonably required to correct any such default,
after notice by Tenant to Landlord properly specifying wherein Landlord has
failed to perform any such obligation.
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ARTICLE VIII
------------
8.1 Tenant covenants and agrees that Tenant will not do or permit anything to
be done in or upon the Premises, or bring in anything or keep anything
therein, which shall invalidate or increase the rate of insurance on the
Premises or on the Building above the standard rate applicable to premises
being occupied for the use to which Tenant has agreed to devote the
Premises; and Tenant further agrees that, in the event that Tenant shall do
any of the foregoing, Tenant will promptly pay to Landlord, on demand, any
such increase resulting therefrom, which shall be due and payable as
Additional Rent thereunder.
8.2 Failure on the part of Landlord or Tenant to complain of any action or non-
action on the part of the other, no matter how long the same may continue,
shall never be a waiver by Tenant or Landlord, respectively, of any of its
rights hereunder. Further, no waiver at any time of any of the provisions
hereof by Landlord or Tenant shall be construed as a waiver of any of the
other provisions hereof, and a waiver at any time of any of the provisions
hereof shall not be construed as a waiver at any subsequent time of the
same provisions. The consent or approval of Landlord or Tenant to or of any
action by the other requiring such consent or approval shall not be
construed to waive or render unnecessary Landlord's or Tenant's consent or
approval to or of subsequent similar act by the other.
No payment by Tenant, or acceptance by Landlord, of a lesser amount than
shall be due from Tenant to Landlord shall be treated otherwise than as a
payment on account. The acceptance by Landlord of a check for a lesser
amount with an endorsement or statement thereon, or upon any letter
accompanying such check, that such lesser amount is payment in full, shall
be given no effect, and Landlord may accept such check without prejudice to
any other rights or remedies which Landlord may have against Tenant.
8.3 The specific remedies to which Landlord may resort under the terms of this
Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which such party may be lawfully entitled
in case of any breach or threatened breach by Tenant of any provisions of
this Lease. In addition to the other remedies provided in this Lease,
Landlord shall be entitled to the restraint by injunction of the violation
or attempted or threatened violation of any of the covenants, conditions or
provisions of this Lease or to a decree compelling specific performance of
any such covenants, conditions or provisions.
8.4 Tenant, subject to the terms and provisions of this Lease on payment of the
rent and observing, keeping and performing all of the terms and provisions
of this Lease on Tenant's part to be observed, kept and performed, shall
lawfully, peaceably and quietly have, hold, occupy and enjoy the Premises
during the Term, without hindrance or ejection by any persons lawfully
claiming under Landlord to have title to the Premises superior to
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Tenant; the foregoing covenant of quiet enjoyment is in lieu of any other
covenant, express or implied; and it is understood and agreed that this
covenant and any and all other covenants of Landlord contained in this
Lease shall be binding upon Landlord and Landlord's successors only with
respect to breaches occurring during Landlord's or Landlord's successors'
respective ownership of Landlord's interest hereunder, as the case may be.
Further, Tenant specifically agrees to look solely to Landlord's then
equity interest in the Building at the time owned, or in which Landlord
holds an interest as ground lessee, for recovery of any judgment from
Landlord; it being specifically agreed that neither Landlord (original or
successor), nor any partner in or of Landlord, nor any beneficiary of any
Trust of which any person holding Landlord's interest is Trustee, shall
ever be personally liable for any such judgment, or for the payment of any
monetary obligation to Tenant. The provision contained in the foregoing
sentence is not intended to, and shall not, limit any right that Tenant
might otherwise have to obtain injunctive relief against Landlord or
Landlord's successors in interest, or any action not involving the personal
liability, of Landlord (original or successor), any partner in or of
Landlord, any successor Trustee to the persons named herein as Landlord, or
any beneficiary, of any Trust of which any person holding Landlord's
interest is Trustee, to respond in monetary damages from Landlord's assets
other than Landlord's equity interest aforesaid in the Building. In no
event shall Landlord ever be liable to Tenant for any indirect or
consequential damages suffered by Tenant from whatever cause.
8.5 After receiving notice from any person, firm or other entity that it holds
a mortgage which includes the Premises as part of the mortgaged premises,
or that it is the ground lessor under a lease with Landlord, as ground
lessee, which includes the Premises as a part of the demised premises, no
notice from Tenant to Landlord shall be effective unless and until a copy
of the same is given to such holder or ground lessor, and the curing of any
of Landlord's defaults by such holder or ground lessor within a reasonable
time thereafter (including a reasonable time to obtain possession of the
premises if the mortgagee or ground lessor elects to do so) shall be
treated as performance by Landlord. For the purposes of this Section 8.5 or
Section 8.15, the term "mortgage" includes a mortgage on a leasehold
interest of Landlord (but not one on Tenant's leasehold interest).
8.6 With reference to any assignment by Landlord or Landlord's interest in this
Lease, or the rents payable hereunder, conditional in nature or otherwise,
which assignment is made to the holder of a mortgage or ground lease on
property which includes the Premises, Tenant agrees:
(a) That the execution thereof by Landlord, and the acceptance
thereof by the holder of such mortgage or the ground lessor,
shall never be treated as an
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assumption by such holder or ground lessor of any of the
obligations of Landlord hereunder, unless such holder, or ground
lessor, shall, by notice sent to Tenant, specifically otherwise
elect; and
(b) That, except as aforesaid, such holder or ground lessor shall be
treated as having assumed Landlord's obligations hereunder only
upon foreclosure of such holder's mortgage and the taking of
possession of the Premises, or, in the case of a ground lessor,
the assumption of Landlord's position hereunder by such ground
lessor.
In no event shall the acquisition of title to the Building and
the land on which the same is located by a purchaser which,
simultaneously therewith, leases the entire Building or such land
back to the seller thereof be treated as an assumption by such
purchaser-lessor, by operation of law or otherwise, of Landlord's
obligations hereunder, but Tenant shall look solely to such
seller-lessee, and its successors from time to time in title, for
performance of Landlord's obligations hereunder subject to the
provisions of Section 8.4 hereof. In any such event, this Lease
shall be subject and subordinate to the lease to such purchaser
provided that such purchaser agrees to recognize the right of
Tenant to use and occupy the Premises upon the payment of rent
and other charges payable by Tenant under this Lease and the
performance by Tenant of Tenant's obligations under this Lease
and provided that Tenant agrees to attorn to such purchaser. For
all purposes, such seller-lessee, and its successors in title,
shall be the landlord hereunder unless and until Landlord's
position shall have been assumed by such purchaser-lessor.
8.7 No act or thing done by Landlord during the Lease Term shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept such
surrender shall be valid, unless in writing signed by Landlord. No employee
of Landlord or of Landlord's agents shall have any power to accept the keys
of the Premises prior to the termination of this Lease. The delivery of
keys to any employee of Landlord or of Landlord's agents shall not operate
as a termination of the Lease or a surrender of the Premises.
8.8 (A) Tenant warrants and represents that Tenant has not dealt with any
broker, finder or other agent in connection with the consummation of this
Lease other than the Recognized Brokers, if any, designated in Section 1.1
hereof; and in the event any claim is made against the Landlord relative to
dealings by Tenant with brokers, finders or other agents other than the
Recognized Brokers, if any, designated in Section 1.1 hereof, Tenant shall
defend the claim against Landlord with counsel of Tenant's selection first
approved by Landlord (which approval will not be unreasonably withheld) and
save
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harmless and indemnify Landlord on account of loss, cost or damage which
may arise by reason of such claim.
(B) Landlord warrants and represents that Landlord has not dealt with any
broker, finder or other agent in connection with the consummation of this
Lease other than the Recognized Brokers, if any, designated in Section 1.1
hereof; and in the event any claim is made against the Tenant relative to
dealings by Landlord with brokers, finders or other agents other than the
Recognized Brokers, if any, designated in Section 1.1 hereof, Landlord
shall defend the claim against Tenant with counsel of Landlord's selection
and save harmless and indemnify Tenant on account of loss, cost or damage
which may arise by reason of such claim. Landlord agrees that it shall be
solely responsible for the payment of brokerage commissions to the
Recognized Brokers, if any, designated in Section 1.1 hereof.
8.9 If any term or provision of this Lease, or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term or provision
to persons or circumstances other than those as to which it is held invalid
or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law.
8.10 The obligations of this Lease shall run with the land, and except as herein
otherwise provided, the terms hereof shall be binding upon and shall inure
to the benefit of the successors and assigns, respectively, of Landlord and
Tenant and, if Tenant shall be an individual, upon and to his heirs,
executors, administrators, successors and assigns. Each term and each
provision of this Lease to be performed by Tenant shall be construed to be
both a covenant and a condition. The reference contained to successors and
assigns of Tenant is not intended to constitute a consent to subletting or
assignment by Tenant.
8.11 Tenant agrees not to record the within Lease, but each party hereto agrees,
on the request of the other, to execute a so-called Notice of Lease or
short form lease in form recordable and complying with applicable law and
reasonably satisfactory to both Landlord's and Tenant's attorneys. In no
event shall such document set forth rent or other charges payable by Tenant
under this Lease; and any such document shall expressly state that it is
executed pursuant to the provisions contained in this Lease, and is not
intended to vary the terms and conditions of this Lease.
8.12 Whenever, by the terms of this Lease, notice shall or may be given either
to Landlord or to Tenant, such notice shall be in writing and shall be sent
by registered or certified mail postage prepaid:
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If intended for Landlord, addressed to Landlord at the address set
forth on the first page of this Lease (or to such other address or
addresses as may from time to time hereafter be designated by Landlord
by like notice) with a copy to Landlord, Attention: General Counsel.
If intended for Tenant, addressed to Tenant at the address set forth
on the second page of this Lease except that from and after the
Commencement Date the address of Tenant shall be the Premises (or to
such other address or addresses as may from time to time hereafter be
designated by Tenant by like notice).
Except as otherwise provided herein, all such notices shall be effective
when received; provided, that (i) if receipt is refused, notice shall be
effective upon the first occasion that such receipt is refused or (ii) if
the notice is unable to be delivered due to a change of address of which no
notice was given, notice shall be effective upon the date such delivery was
attempted.
Where provision is made for the attention of an individual or department,
the notice shall be effective only if the wrapper in which such notice is
sent is addressed to the attention of such individual or department.
Time is of the essence with respect to any and all notices and periods for
giving notice or taking any action thereto under this Lease.
8.13 Employees or agents of Landlord have no authority to make or agree to make
a lease or any other agreement or undertaking in connection herewith. The
submission of this document for examination and negotiation does not
constitute an offer to lease, or a reservation of, or option for, the
Premises, and this document shall become effective and binding only upon
the execution and delivery hereof by both Landlord and Tenant. All
negotiations, considerations, representations and understandings between
Landlord and Tenant are incorporated herein and may be modified or altered
only by written agreement between Landlord and Tenant, and no act or
omission of any employee or agent of Landlord shall alter, change or modify
any of the provisions hereof.
8.14 The titles of the Articles throughout this Lease are for convenience and
reference only, and the words contained therein shall in no way be held to
explain, modify, amplify or aid in the interpretation, construction or
meaning of the provisions of this Lease.
8.15 This Lease shall be subject and subordinate to any mortgage now or
hereafter on the Site or the Building, or both, and to each advance made or
hereafter to be made under any mortgage, and to all renewals,
modifications, consolidations, replacements and extensions thereof and all
substitutions therefor provided that the holder of such mortgage agrees to
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recognize the rights of Tenant under this Lease (including the right to use
and occupy the Premises) upon the payment of rent and other charges payable
by Tenant under this Lease and the performance by Tenant of Tenant's
obligations hereunder in which event Tenant shall agree to attorn to such
holder and its successors as landlord. In confirmation of such
subordination and recognition, Tenant shall execute and deliver promptly
such instruments of subordination and recognition as such mortgagee may
reasonably request. Tenant hereby appoints such mortgagee (from time to
time) as Tenant's attorney-in-fact to execute such subordination upon
default of Tenant in complying with such mortgagee's (from time to time)
request. In the event that any mortgagee or its respective successor in
title shall succeed to the interest of Landlord, then, this Lease shall
nevertheless continue in full force and effect and Tenant shall and does
hereby agree to attorn to such mortgagee or successor and to recognize such
mortgagee or successor as its landlord. If any holder of a mortgage which
includes the Premises, executed and recorded prior to the date of this
Lease, shall so elect, this Lease and the rights of Tenant hereunder, shall
be superior in right to the rights of such holder, with the same force and
effect as if this Lease had been executed, delivered and recorded, or a
statutory Notice hereof recorded, prior to the execution, delivery, and
recording of any such mortgage. The election of any such holder shall
become effective upon either notice from such holder to Tenant in the same
fashion as notices from Landlord to Tenant are to be given hereunder or by
the recording in the appropriate registry or recorder's office of an
instrument in which such holder subordinates its rights under such mortgage
to this Lease.
If in connection with obtaining financing for the Building or Complex, a
bank, insurance company, pension trust or other institutional lender shall
request reasonable modifications in this Lease as a condition to such
financing, Tenant will not unreasonably withhold, delay or condition its
consent thereto, provided that such modifications do not increase the
monetary obligations of Tenant hereunder or materially adversely affect the
leasehold interest hereby created.
8.16 Recognizing that Landlord may find it necessary to establish to third
parties, such as accountants, banks, potential or existing mortgagees,
potential purchasers or the like, the then current status of performance
hereunder, Tenant, on the request of Landlord made from time to time, will
promptly furnish to Landlord, or any existing or potential holder of any
mortgage encumbering the Premises, the Building, the Site and/or the
Complex or any potential purchaser of the Premises, the Building, the Site
and/or the Complex, (each an "Interested Party"), a statement of the status
of any matter pertaining to this Lease, including, without limitation,
acknowledgments that (or the extent to which) each party is in compliance
with its obligations under the terms of this Lease. In addition, Tenant
shall deliver to Landlord, or any Interested Party designated by Landlord,
financial statements of Tenant and any guarantor of Tenant's obligations
under this Lease, as reasonably requested by Landlord, including, but not
limited to financial statements for the past three
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(3) years. Any such status statement or financial statement delivered by
Tenant pursuant to this Section 8.16 may be relied upon by any Interested
Party.
8.17 If Tenant shall at any time default in the performance of any obligation
under this Lease, Landlord shall have the right, but shall not be
obligated, to enter upon the Premises and to perform such obligation
notwithstanding the fact that no specific provision for such substituted
performance by Landlord is made in this Lease with respect to such default.
In performing such obligation, Landlord may make any payment of money or
perform any other act. All sums so paid by Landlord (together with interest
at the rate of one and one-half percentage points over the then prevailing
prime rate in Boston as set by The First National Bank of Boston) and all
costs and expenses in connection with the performance of any such act by
Landlord, shall be deemed to be Additional Rent under this Lease and shall
be payable to Landlord immediately on demand. Landlord may exercise the
foregoing rights without waiving any other of its rights or releasing
Tenant from any of its obligations under this Lease.
8.18 Any holding over by Tenant after the expiration of the term of this Lease
shall be treated as a tenancy at sufferance at double the rents and other
charges herein (prorated on a daily basis) and shall otherwise be on the
terms and conditions set forth in this Lease as far as applicable;
provided, however, that neither the foregoing nor any other term or
provision of this Lease shall be deemed to permit Tenant to retain
possession of the Premises or hold over in the Premises after the
expiration or earlier termination of the Lease Term.
8.19 Any insurance carried by either party with respect to the Premises or
property therein or occurrences thereon shall, if it can be so written
without additional premium or with an additional premium which the other
party agrees to pay, include a clause or endorsement denying to the
insurer rights of subrogation against the other party to the extent rights
have been waived by the insured prior to occurrence of injury or loss. Each
party, notwithstanding any provisions of this Lease to the contrary, hereby
waives any rights of recovery against the other for injury or loss due to
hazards covered by such insurance to the extent of the indemnification
received thereunder.
8.20 (A) Tenant agrees that the security deposit specified in Section 1.1 shall
be paid to Landlord upon execution and delivery of this Lease, and that
Landlord shall hold the same throughout the term of this Lease (including
the Extended Term) subject to returning such deposit to Tenant as provided
in this Section 8.20, as security for the performance by Tenant of all
obligations on the part of Tenant to be kept and performed. The security
deposit shall be in the form of an unconditional irrevocable letter of
credit (the "Letter of Credit") drawn on a bank satisfactory to Landlord
and otherwise upon terms satisfactory to Landlord, which Letter of Credit
shall permit one or more draws thereunder to be made by Landlord. The
Letter of Credit shall be for a term of two (2)
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years (or for one (1) year if the issuer thereof regularly and customarily
only issues letters of credit for a maximum term of one (1) year) and shall
in either case be renewed by Tenant each year thereafter and each renewal
shall be delivered to and received by Landlord not later than thirty (30)
days before the expiration of the then current Letter of Credit (herein
called a "Renewal Presentation Date"). In the event of a failure to so
deliver such renewal Letter of Credit on or before the applicable Renewal
Presentation Date, Landlord shall be entitled to present the then existing
Letter of Credit for payment and to receive the proceeds thereof, which
proceeds shall be held by Landlord as Tenant's security deposit, subject to
the terms of this Section 8.20. Landlord shall have the right from time to
time without prejudice to any other remedy Landlord may have on account
thereof, to draw upon such Letter of Credit and apply the proceeds thereof
to Landlord's damages arising from any default on the part of Tenant
resulting from Tenant's failure to pay Annual Fixed Rent or Additional Rent
or from Tenant's failure to leave the Premises in the condition required in
the Lease upon the expiration or earlier termination of this Lease. If
Landlord so applies all or any portion of such deposit, Tenant shall within
seven (7) days after notice from Landlord deliver cash to Landlord in an
amount sufficient to restore such deposit to the full amount being held
immediately prior to such draw and/or application by Landlord. If Landlord
conveys Landlord's interest under this Lease, at Landlord's direction, the
deposit, or any part thereof not previously applied, may be turned over by
Landlord to Landlord's grantee, and, if so turned over, Tenant agrees to
look solely to such grantee for proper application of the deposit in
accordance with the terms of this Section 8.20, and the return thereof in
accordance herewith.
Neither the holder of any mortgage nor the lessor in any ground lease on
property which includes the Premises shall ever be responsible to Tenant
for the return or application of any such deposit, whether or not it
succeeds to the position of Landlord hereunder, unless such deposit shall
have been received in hand by such holder or ground lessor.
(B) (i) Subsequent to November 1, 1997 Landlord shall exchange the Letter
of Credit for a Letter of Credit delivered by Tenant which reduces the
amount secured by the Letter of Credit by Twenty Eight Thousand
Dollars ($28,000.00) so that the remaining amount of the Letter of
Credit shall be One Hundred Twenty Two Thousand Dollars ($122,000.00)
provided that as of such date (x) no Event of Default is then existing
or has ever existed, and (y) Landlord has not applied such deposit or
any portion thereof to Landlord's damages arising from any default on
the part of Tenant, whether or not Tenant has restored the amount so
applied by Landlord.
(ii) Subsequent to November 1, 1998 Landlord shall exchange the Letter
of Credit for a Letter of Credit delivered by Tenant which reduces the
amount secured by the Letter of Credit by Twenty Eight Thousand
Dollars ($28,000.00) so that the remaining amount of the Letter of
Credit shall be Ninety Four Thousand Dollars ($94,000.00) provided
that as of such date (x) no Event of
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Default is then existing or has ever existed, (y) Landlord has not
applied such deposit or any portion thereof to Landlord's damages
arising from any default on the part of Tenant, whether or not Tenant
has restored the amount so applied by Landlord, and (z) Landlord has
previously returned to Tenant a portion of such deposit as provided in
Section (i) above.
(iii) Subsequent to November 1, 1999 Landlord shall exchange the
Letter of Credit for a Letter of Credit delivered by Tenant which
reduces the amount secured by the Letter of Credit by Twenty Eight
Thousand Dollars ($28,000.00) so that the remaining amount of the
Letter of Credit shall be Sixty Six Thousand Dollars ($66,000.00)
provided that as of such date (x) no Event of Default is then existing
or has ever existed, (y) Landlord has not applied such deposit or any
portion thereof to Landlord's damages arising from any default on the
part of Tenant, whether or not Tenant has restored the amount so
applied by Landlord, and (z) Landlord has previously returned to
Tenant portions of such deposit as provided in Sections (i) and (ii)
above.
(iv) Subsequent to November 1, 2000 Landlord shall exchange the Letter
of Credit for cash in the amount of Thirty Eight Thousand Dollars
($38,000.00) provided that as of such date (x) no Event of Default is
then existing or has ever existed, (y) Landlord has not applied such
deposit or any portion thereof to Landlord's damages arising from any
default on the part of Tenant, whether or not Tenant has restored the
amount so applied by Landlord and (z) Landlord has previously returned
to Tenant portions of such deposit as provided in Sections (i), (ii)
and (iii) above.
(v) The remaining Thirty Eight Thousand Dollars ($38,000.00) plus all
interest earned thereon, (the "Remaining Deposit") shall continue to
be held by Landlord throughout the term of this Lease (including any
Extended Term) as security for performance by Tenant of all
obligations on the part of Tenant to be kept and performed as provided
in this Section 8.20.
(C) Tenant not then being in default and having performed all of its
obligations under this Lease, including, but not limited to, the payment of
all Annual Fixed Rent, Additional Rent and all other sums due under this
Lease, Landlord shall return the Deposit then being held by Landlord
(including all interest earned thereon), or so much thereof as shall not
have been applied or returned in accordance with the terms of this Section
8.20 to Tenant on the expiration or earlier termination of the term of this
Lease (including any termination by tenant pursuant to Section 3.2 or
Section 8.22 of this Lease) and surrender possession of the Premises by
Tenant to Landlord at such time. In no event shall the terms of this
Section 8.20 ever require Landlord to pay to Tenant (or return the Letter
of Credit to Tenant) any amount in excess of the deposit which Landlord is
then entitled to hold pursuant to this Section 8.20.
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8.21 If Landlord shall not have received any payment or installment of rent on
or before the date (the "Due Date") on which the same first becomes payable
under this Lease, the amount of such payment or installment shall bear
interest from the Due Date through and including the date such payment or
installment is received by Landlord, at a rate equal to the lesser of (i)
the rate announced by The First National Bank of Boston from time to time
as its prime or base rate (or if such rate is no longer available, a
comparable rate reasonably selected by Landlord), plus two percent (2%), or
(ii) the maximum applicable legal rate, if any. Such interest shall be
deemed Additional Rent and shall be paid by Tenant to Landlord upon demand.
8.22 (A) Provided and on the condition precedent that at any time on or prior to
the "Termination Date" (hereinafter set forth), there shall not have ever
occurred an "Event of Default" (defined in Section 7.1 (a) hereof) and
subject to the terms and conditions of Section 8.22(B) hereof, by written
notice ("Tenant's Termination Notice") given by Tenant to Landlord at any
time on or before that date which is one hundred eighty (180) days prior to
the third (3rd) annual anniversary of the Commencement Date but not later
than such date (time being of the essence) Tenant may elect to cancel and
terminate this Lease effective on the day immediately preceding the third
(3rd) annual anniversary of the Commencement Date (the "Early Termination
Date") but not before or after said date: provided, however, that as a
condition precedent to the effectiveness of such termination, Tenant shall
pay to Landlord, the sum of $102,729.50 (the "Termination Payment"). Tenant
shall pay the entire Termination Payment to Landlord in good funds not
later than thirty (30) days prior to the Early Termination Date (the
"Termination Payment Date), time being of the essence. Tenant acknowledges
and agrees that the Termination Payment constitutes consideration and
compensation to Landlord for the right of Tenant to terminate this Lease
prior to the scheduled expiration of the Lease Term and does not constitute
a penalty. If Tenant shall not give to Landlord Tenant's Termination Notice
as provided in this Section 8.22(A) (time being of the essence) or if
Tenant shall timely give to Landlord Tenant's Termination Notice but shall
fail to pay the Termination Payment in full not later than the Termination
Payment Date (time being of the essence), or if any time prior to the
Termination Date there shall have occurred an Event of Default, then in any
such case the provisions of this Section 8.22(A) shall be deemed null and
void.
(B) Notwithstanding any such termination provided in Section 8.22(A)
hereinabove and as a further condition precedent thereto, (i) Tenant shall
pay to Landlord on a timely basis all Annual Fixed Rent, Tenant's share of
operating costs, taxes and electricity, and all other Additional Rent and
other amounts due from Tenant (including, but not limited to, all past due
amounts thereof) through the Early Termination Date (it being acknowledged
and agreed that the Termination Payment is in addition to such amounts and
no credit shall be given towards the payment of any such amounts on account
of the payment of the applicable Termination Payment) and (ii) on the Early
Termination Date Tenant shall quit and vacate the Premises and surrender
the same in the condition required by the applicable provisions of this
Lease. In the event that Tenant's share of
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such operating costs, taxes and electricity, and such other Additional Rent
and other amounts due through the Early Termination Date is (or are) not
finally determined as of the giving of Termination Notice, Tenant shall
make payment on account as reasonable estimated by Landlord if so requested
by Landlord and in any event Tenant shall make final payment of all amounts
due through the Early Termination Date within thirty (30) days after final
billing therefor by Landlord.
(C) The obligations of Tenant set forth in this Section 8.20 shall survive
the termination of this Lease hereunder.
8.23 This Lease shall be governed exclusively by the provisions hereof and by
the law of the Commonwealth of Massachusetts, as the same may from time to
time exist.
EXECUTED as a sealed instrument in two or more counterparts each of which
shall be deemed to be an original.
LANDLORD:
WITNESS: By /s/ Edward H. Linde
-------------------------------------
/s/ [SIGNATURE ILLEGIBLE]^^ EDWARD H. LINDE, AS TRUSTEE OF
- --------------------------- 91 HARTWELL AVENUE TRUST FOR HIMSELF
AND CO-TRUSTEE BUT NOT INDIVIDUALLY
TENANT:
SOFTWARE.com, INC.
By /s/ Valdur Koha
-------------------------------------
Name Valdur Koha
-----------------------------------
Title PRESIDENT (OR VICE PRESIDENT)
HERETO DULY AUTHORIZED
[SIGNATURE ILLEGIBLE]^^
ATTEST:
/s/ M.S. Bugdanowitz
- -------------------------------
Name M.S. BUGDANOWITZ By
-------------------------- -------------------------------------
Title Secretary Name: Larry Barels
------------------------- ----------------------------------
(Assistant Secretary) Title Chairman
----------------------------------
(OR ASSISTANT TREASURER)
----------------------------------
HERETO DULY AUTHORIZED
(CORPORATE SEAL)
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EXHIBIT A
---------
That certain parcel of land situate in Lexington in the County of Middlesex
and Commonwealth of Massachusetts, described as follows:
SOUTHEASTERLY by Hartwell Avenue, two hundred thirty-seven and
47/100 feet;
SOUTHEASTERLY by a curving line forming the junction of said
Hartwell Avenue and Hartwell Place, as shown on plan
hereinafter mentioned, thirty-nine and 27/100 feet;
SOUTHWESTERLY five hundred thirty-two and 23/100 feet, and
SOUTHWESTERLY, SOUTHERLY and SOUTHEASTERLY one hundred ninety and
25/100 feet, by said Hartwell Place;
SOUTHERLY by lot 9 on said plan, three hundred seventy-four
and 57/100 feet;
SOUTHWESTERLY three hundred sixty-seven and 65/100 feet;
NORTHWESTERLY thirty-one and 12/100 feet, and
NORTHWESTERLY again, eight hundred ninety and 63/100 feet, by land
now or formerly of The United States of America;
NORTHEASTERLY by said United States of America land and by land
now or formerly of John W. O'Connor et al, nine
hundred thirty-three and 87/100 feet.
Said parcel is shown as lot 10 on said plan, (Plan No.31330/D/).
All of said boundaries are determined by the Court to be located as shown
on a subdivision plan, as approved by the Court, filed in the Land Registration
Office, a copy of which is filed in the Registry of Deeds for the South Registry
District of Middlesex County in Registration Book 835, Page 146, with
Certificate 141096.
The above described land is subject to and has the benefit of the ditches
as approximately shown on said plan at date of original decree, (May 17, 1963).
<PAGE>
So much of the above described land as is included within the area marked
"Tennessee Gas Transmission Company Easement 30' wide" is subject to the
easements set forth in a taking by the Northeastern Gas Transmission Company,
dated July 13, 1951 and duly recorded in Book 7772, Page 162.
The above described land is subject to an Avigation Easement set forth in a
Declaration of Taking by the United States of America dated February 12, 1954
recorded with the Middlesex South District Registry of Deeds in Book 8219, Page
421 and more particularly shown as "Avigation Easement A-130E-1" on Plan No.
31330-D (referred to above).
The above described land is subject to an Order by the Town of Lexington
for construction of water main in Hartwell Avenue, Document No. 461902 as
affected by Certificate for Dissolving Betterments filed as Document No. 499500.
The above described land is subject to a Grant of Easement from Wilbur C.
Nylander et al Trs. to the Town of Lexington to construct and maintain sewer in
Hartwell Place, Document No. 508567.
The above described land is subject to a grant of Easement over 20 feet
wide drain easement (i) for the benefit of lot 9 in common with others entitled
thereto, set forth in Document 511666 and (ii) set forth in Document No. 479843
for the benefit of lot 7 shown on plan recorded with said Document No. 479843.
The above described land is subject to a Taking of easement by the Town of
Lexington in Hartwell Place, Document No. 544200.
The above described land is subject to and has the benefit of a Grant of
Easement and Reservation from Wilbur C. Nylander et al Trs. to the Town of
Lexington for conservation purposes, Document No. 616453.
The above described land is subject to and has the benefit of the
following:
A. Order of Conditions issued by the Town of Lexington Conservation
Commission filed as Document No. 616456 as extended by Extension
Permits issued by said Conservation Commission filed as Document
Nos. 627154, 635069, 655552 and 669180.
B. Decision of the Town of Lexington Board of Appeals filed as
Document No. 616457.
-2-
<PAGE>
C. Decision of the Town of Lexington Board of Appeals filed as
Document No. 616458.
D. Decision of the Town of Lexington Board of Appeals filed as
Document No. 616459.
E. Decision of the Town of Lexington Board of Appeals filed as
Document No. 634489.
F. Decision of the Town of Lexington Board of Appeals filed as
Document No. 646344.
G. Decision of the Town of Lexington Board of Appeals filed as
Document No. 646345.
H. Decision of the Town of Lexington Board of Appeals filed as
Document No. 646346.
The above described land is subject to an Easement granted to Boston Edison
Company filed as Document No. 672152.
The above described land is subject to such other easements, agreements and
matters of record, if any, insofar as in force and applicable.
-3-
<PAGE>
EXHIBIT A-1
-----------
Site Plan
[SITE PLAN APPEARS HERE]
<PAGE>
EXHIBIT C
LANDLORD SERVICES
I. CLEANING:
--------
Cleaning and janitor services as provided below:
A. OFFICE AREAS:
------------
DAILY: (Monday through Friday, inclusive, holidays excepted).
-----
1. Empty all waste receptacles and ashtrays and remove waste
material from the Premises; wash receptacles as necessary.
2. Sweep and dust mop all uncarpeted areas using a dust-treated mop.
3. Vacuum all rugs and carpeted areas.
4. Hand dust and wipe clean with treated cloths all horizontal
surfaces, including furniture, office equipment, window sills,
door ledges, chair rails, and convector tops, within normal
reach.
5. Wash clean all water fountains and sanitize.
6. Move and dust under all desk equipment and telephones and replace
same (but not computer terminals, specialized equipment or other
materials).
7. Wipe clean all chrome and other bright work.
8. Hand dust grill work within normal reach.
9. Main doors to premises shall be locked and lights shut off upon
completion of cleaning.
WEEKLY:
------
1. Dust coat racks and the like.
2. Spot clean entrance doors, light switches and doorways.
<PAGE>
QUARTERLY:
---------
1. Render high dusting not reached in daily cleaning to include:
a) dusting all pictures, frames, charts, graphs and similar
wall hangings.
b) dusting of all vertical surfaces, such as walls, partitions,
doors and door frames, etc.
c) dusting all pipes, ducts and moldings.
d) dusting of all vertical blinds.
e) dust all ventilating, air conditioning, louvers and grills.
2. Spray buff all resilient floors.
B. LAVATORIES:
----------
DAILY: (Monday through Friday, inclusive, holidays excepted).
-----
1. Sweep and damp mop.
2. Clean all mirrors, powder shelves, dispensers and receptacles,
bright work, flushometers, piping and toilet seat hinges.
3. Wash both sides of all toilet seats.
4. Wash all basins, bowls and urinals.
5. Dust and clean all powder room fixtures.
6. Empty and clean paper towel and sanitary disposal receptacles.
7. Remove waste paper and refuse.
8. Refill tissue holders, soap dispensers, towel dispensers,
sanitary dispensers; materials to be furnished by Landlord.
2
<PAGE>
MONTHLY:
-------
1. Machine scrub lavatory floors.
2. Wash all partitions and tile walls in lavatories.
3. Dust all lighting fixtures and grills in lavatories.
C. MAIN LOBBIES, ELEVATORS, STAIRWELLS AND COMMON CORRIDORS:
--------------------------------------------------------
Daily: (Monday through Friday, inclusive, holidays excepted).
-----
1. Sweep and damp mop all floors, empty and clean waste receptacles,
dispose of waste.
2. Clean elevators, wash or vacuum floors, wipe down walls and
doors.
3. Spot clean any metal work inside lobbies.
4. Spot clean any metal work surrounding building entrance doors.
5. Sweep all stairwells and dust handrails.
MONTHLY:
-------
1. All resilient tile floors in public areas to be spray buffed.
D. WINDOW CLEANING:
---------------
All exterior windows shall be washed on the inside and outside
surfaces no less than three (3) times per year.
II. HVAC:
----
A. Heating, ventilating and air conditioning equipment will be provided
with sufficient capacity to accommodate a maximum population density
of one (1) person per one hundred fifty (150) square feet of useable
floor area served, and a combined lighting and standard electrical
load of 3.0 watts per square foot of useable floor area. In the event
Tenant introduces into the Premises personnel or equipment which
overloads the system's ability to adequately
3
<PAGE>
perform its proper functions, Landlord shall so notify Tenant in
writing and supplementary system(s) may be required and installed by
Landlord at Tenant's expense, if within fifteen (15) days Tenant has
not modified its use so as not to cause such overload.
Operating criteria of the basic system are in accordance with the
Massachusetts Energy Code and shall not be less than the following:
i) Cooling season indoor conditions of not in excess of 78 degrees
Fahrenheit when outdoor conditions are 91 degrees Fahrenheit
drybulb and 73 degrees Fahrenheit wetbulb.
ii) Heating season minimum room temperature of 72 degrees Fahrenheit
when outdoor conditions are 6 degrees Fahrenheit drybulb.
B. Landlord shall provide heating, ventilating and air conditioning as
normal seasonal charges may require during Normal Building Operating
Hours (8:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m. to
1:00 p.m. on Saturdays, legal holidays in all cases excepted).
If Tenant shall require air conditioning (during the air conditioning
season) or heating or ventilating during any season outside Normal
Building Operating Hours, Landlord shall use landlord's best efforts
to furnish such services for the area or areas specified by written
request of Tenant delivered to the Building Superintendent or the
Landlord before 3:00 p.m. of the business day preceding the extra
usage. For such services, Tenant shall pay Landlord, as additional
rent, upon receipt of billing, a sum equal to the cost incurred by
Landlord.
III. ELECTRICAL SERVICES:
-------------------
A. Landlord shall provide electric power for a combined load of 3.0 watts
per square foot of useable area for lighting and for office machines
through standard receptacles for the typical office space.
B. Landlord, at its option, may require separate metering and direct
billing to Tenant for the electric power required for any special
equipment (such as computers and reproduction equipment) that requires
either 3-phase electric power or any voltage other than 120, or for
any other usage in excess of 3.0 watts per square foot.
4
<PAGE>
C. Landlord will furnish and install, at Tenant's expense, all
replacement lighting tubes, lamps and ballasts required by Tenant.
Landlord will clean lighting fixtures on a regularly scheduled basis
at Tenant's expense.
IV. ELEVATORS:
---------
Provide passenger elevator service.
V. WATER:
-----
Provide hot water for lavatory purposes and cold water for drinking,
lavatory and toilet purposes.
VI. CARD ACCESS SYSTEM:
------------------
Landlord will provide a card access system at one entry door of the
building.
5
<PAGE>
91 HARTWELL AVENUE
LEXINGTON, MA
SOFTWARE. COM, INC.
EXHIBIT D
FLOOR PLAN
10,900 R.S.F.
FIRST FLOOR
[FLOOR PLAN APPEARS HERE]
First Floor Plan
<PAGE>
EXHIBIT E
---------
DECLARATION AFFIXING THE COMMENCEMENT DATE OF LEASE
---------------------------------------------------
THIS AGREEMENT made this __ day of ____, 1996, by and between MORTIMER B.
ZUCKERMAN AND EDWARD H. LINDE, TRUSTEES OF 91 HARTWELL AVENUE TRUST under
Declaration of Trust dated September 28, 1981 filed the Middlesex South Registry
District of the Land Court as Document No. 616455 as amended by instruments
dated December 10, 1984 and April 17, 1991 respectively filed with said Registry
District as Document Nos. 675674 and 844541 but not individually (hereinafter
"Landlord") and SOFTWARE.com, INC. (hereinafter "Tenant").
W I T N E S S E T H T H A T :
- - - - - - - - - - - - - -
1. This Agreement is made pursuant to Section 2.4 of that certain Lease
dated __, 1996 between the parties aforenamed as Landlord and Tenant (the
"Lease").
2. It is hereby stipulated that the Lease Term commenced on _____ __, ____,
(being the "Commencement Date" under the Lease), and shall end and expire on
_____ __, ____, unless sooner terminated or extended, as provided for in the
Lease.
3. Tenant hereby acknowledges and agrees with Landlord that on the
Commencement Date the Premises complied with all of the requirements of Article
III of the Lease and that the Landlord satisfied all of its obligations under
said Article III.
WITNESS the execution hereof under seal by persons hereunto duly
authorized, the date first above written.
WITNESS: LANDLORD:
__________________________ ____________________________________________
EDWARD H. LINDE, AS TRUSTEE OF
91 HARTWELL AVENUE TRUST FOR HIMSELF AND
CO-TRUSTEE, BUT NOT INDIVIDUALLY
Signatures continued on next page
<PAGE>
TENANT:
SOFTWARE.com, INC.
ATTEST:
By:___________________________________
___________________________ Name:_________________________________
Name:______________________ Title:________________________________
HEREUNTO DULY AUTHORIZED
Title:_____________________
(CORPORATE SEAL)
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK ___________ ___, 1996
Then personally appeared before me the above-named Edward H. Linde, Trustee
as aforesaid, and made oath that the foregoing instrument is his free act and
deed.
______________________________________
NOTARY PUBLIC
My Commission Expires:
_____________________
-2-
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF _______________ ___________ ___, 1996
Then personally appeared before me the above-named ____________________,
the _______________, of SOFTWARE.com, INC. and acknowledged the foregoing
instrument to be the free act and deed of said corporation.
______________________________________
NOTARY PUBLIC
My Commission Expires:
_____________________
-3-
<PAGE>
ARTHUR ANDERSEN LLP
EXHIBIT 16.1
April 12, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have read the section entitled "Change in Accountants" in the
Registration Statement on Form S-1 of Software.com to be filed with the
Securities and Exchange Commission and are in agreement with the statements
contained therein.
Very truly yours,
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
<PAGE>
Exhibit 21.1
------------
The Company has the following subsidiaries:
Software.com Ltd. (UK);
Nihon Software.com Ltd (Japan);
Software.com Pte. Ltd. (Singapore);
Software.com Italia S.r.l.;
Software.com Deutschland Gmbh;
Software.com Hong Kong Limited; and
Mobility.Net Corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated April
12, 1999, in the Registration Statement on Form S-1 and related Prospectus of
Software.com, Inc. dated April 14, 1999.
Our audits also included the financial statement schedule of Software.com, Inc.
listed in Item 16(b). The schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the schedule based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Woodland Hills, California
April 13, 1999
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