EDGAR description of inside front and back cover of prospectus of Thinking
Tools, Inc.
The inside front cover of the prospectus contains three color digitized
images.
The image in the upper left corner of the inside cover is a screen from
the Company's TeleSim product which contains graphics showing a market area of
buildings and other structures and prompts and icons of various choices to be
made with the product.
The image in the middle of the inside cover is a screen from the
Company's Project Challenge product which contains a project manager figure and
various charts in connection with a model information systems project.
The image on the bottom left corner of the inside cover is the title
screen for the Company's SimHealth product which is the beginning screen
containing the tile SimHealth and some illustrative healthcare scenes.
The image on the back inside cover, which covers nearly the entire
page, is a screen from the Company's SimHealth product showing a city area with
buildings and other structures and an accident near a hospital.
<PAGE>
As filed with the Securities and Exchange Commission on October 11, 1996
Registration No. 333-11321
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
THINKING TOOLS, INC.
(Name of small business issuer in its charter)
Delaware 7372 77-0436410
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
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<CAPTION>
<S> <C>
Thinking Tools, Inc. John Hiles, President
One Lower Ragsdale Drive, 1-250 Thinking Tools, Inc.
Monterey, California 93940 One Lower Ragsdale Drive, 1-250
(Address of principal executive offices and principal place Monterey, California 93940
of business) (408) 373-8688/(408) 373-7020 (Fax)
(Name, address, and telephone number of agent
for service)
</TABLE>
---------------
Copies to:
Stephen H. Kay, Esq. Thomas E. Constance, Esq.
Squadron, Ellenoff, Plesent & Sheinfeld, LLP Shari K. Krouner, Esq.
551 Fifth Avenue Kramer, Levin, Naftalis & Frankel
New York, New York 10176 919 Third Avenue
Telephone: (212) 661-6500 New York, New York 10022
Telecopier: (212) 697-6686 Telephone: (212) 715-9100
Telecopier: (212) 715-8000
---------------
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, please
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 delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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, check the following box. [X]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Location or Caption
Item Number of Form SB-2 in Prospectus
------------------------------------------------ -------------------------------------------------
<S> <C> <C>
1. Front of the Registration Statement and
Outside Front Cover of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Prospectus Summary; Use of Proceeds; Business
5. Determination of Offering Price Outside Front Cover Page; Underwriting
6. Dilution Risk Factors--Dilution; Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Outside Front Cover Page; Underwriting
9. Legal Proceedings Risk Factors; Business
10. Directors, Executive Officers, Promoters and
Control Persons Management
11. Security Ownership of Certain Beneficial Owners
and Management Principal Stockholders; Management
12. Description of Securities Outside Front Cover Page; Description of
Securities
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Part II
15. Organization Within Last Five Years Management's Discussion and Analysis of Financial
Condition and Results of Operations
16. Description of Business Business
17. Management's Discussion and Analysis or Plan Management's Discussion and Analysis of Financial
of Operation Condition and Results of Operations
18. Description of Property Business--Property
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Equity and Related Risk Factors--No Dividends; Dividend Policy;
Stockholder Matters Description of Securities
21. Executive Compensation Management--Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure Not Applicable
24. Indemnification of Directors and Officers Part II
25. Other Expenses of Issuance and Distribution Part II
26. Recent Sales of Unregistered Securities Part II
27. Exhibits Part II; Exhibits
28. Undertakings Part II
</TABLE>
ii
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) 1,400,000
shares of Common Stock to be offered by the Company, plus 210,000 shares
issuable upon exercise of the Over-Allotment Option (the "Offering"), (ii)
456,250 shares of Common Stock (the "Bridge Warrant Shares") issuable upon
exercise of warrants (the "Bridge Warrants") issued by the Company in August
1996, (iii) Options (the "Underwriter's Options") to purchase 140,000 shares
of Common Stock to be issued by the Company to the Underwriter in connection
with this Offering, and (iv) 140,000 shares of Common Stock purchasable upon
exercise of the Underwriter's Options (the "Underwriter's Option Shares").
The Bridge Warrant Shares, the Underwriter's Options and the Underwriter's
Option Shares are offered by certain holders of such securities (the "Selling
Securityholders") and not for the account of the Company. Following the
Prospectus included in this Registration Statement are certain pages of the
Prospectus relating to the securities being offered by the Selling
Securityholders, including alternate front and back cover pages, an alternate
"The Offering" section of the "Prospectus Summary," and sections entitled
"Concurrent Sales By Company" and "Selling Stockholders." All other sections
of the Prospectus for this Offering, other than "Underwriting," are to be
used in the Prospectus relating to the Selling Securityholders. All
references in this Prospectus to this "Offering" will be changed to the
"Company Offering" in the Prospectus relating to the Selling Securityholders.
In addition, cross-references in this Prospectus shall be adjusted in the
Prospectus for Selling Securityholders to refer to the appropriate alternate
Prospectus pages.
iii
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the Securities laws of
any such State.
PROSPECTUS
- ----------
SUBJECT TO COMPLETION, DATED OCTOBER 11, 1996
THINKING TOOLS, INC.
1,400,000 Shares
Common Stock
---------------
Thinking Tools, Inc. (the "Company") hereby offers 1,400,000 shares (the
"Shares") of common stock, par value $.001 per share (the "Common Stock") of
the Company.
Prior to this Offering, there has been no public market for the Common
Stock. The Common Stock of the Company has been approved for quotation,
subject to official notice of issuance, on the Nasdaq SmallCap Market
("NASDAQ") under the symbol "TSIM". It is currently anticipated that the
initial public offering price will be between $6.00 and $8.00 per share. The
initial public offering price of the Common Stock has been determined by
negotiations between the Company and Barington Capital Group, L.P. (the
"Underwriter"). See "Underwriting" for information relating to the factors
considered in determining the initial public offering price.
---------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" ON PAGES 8
THROUGH 13 AND "DILUTION" ON PAGES 15 AND 16.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company (2)
Per Share $ $ $
Total(3) $ $ $
================================================================================
(1) Does not reflect additional compensation to be received by the
Underwriter including (a) a non-accountable expense allowance equal to 3%
of the gross proceeds of this Offering (of which $35,000 has been paid),
(b) options entitling the Underwriter to purchase from the Company, for a
period of five years from the date of this Prospectus, up to 140,000
shares of Common Stock at an exercise price equal to 120% of the initial
public offering price (the "Underwriter's Options"), (c) a right of first
refusal with respect to certain future offerings and (d) a two- year
consulting agreement pursuant to which the Underwriter will render
non-exclusive advisory services to the Company in consideration of the
payment of a fee upon the closing of certain transactions. The Company
has also agreed to indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses payable by the Company (including the
Underwriter's non-accountable expense allowance) estimated at $794,000
($838,100, if the Over-Allotment Option (as defined below) is exercised
in full).
(3) The Company has granted an option to the Underwriter, exercisable within
45 days after the date of this Prospectus, to purchase up to an
additional 210,000 shares of Common Stock, on the same terms and
conditions set forth above, solely to cover over-allotments (the "Over-
Allotment Option"). If the Over-Allotment Option is exercised in full,
the Price to Public, Underwriting Discount and Proceeds to Company will
be $ , $ , and $ , respectively. See
"Underwriting."
---------------
The Shares offered hereby are offered, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter, and subject to approval
of certain legal matters by its counsel and to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify this Offering
and to reject any order in whole or in part. It is expected that delivery of
the certificates representing the Common Stock will be made at the offices of
Barington Capital Group, L.P., 888 Seventh Avenue, New York, New York 10019
on or about October , 1996.
---------------
Barington Capital Group, L.P.
The date of this Prospectus is , 1996.
<PAGE>
(photo of screen from TeleSim)
A screen from the Company's TeleSim product, which is a simulation of a local
exchange telephone market.
(photo of screen from Project Challenge)
A screen from the Company's Project Challenge product, which is a simulation
of project management of information systems projects.
(photo of screen from SimHealth)
The title screen from the Company's SimHealth product, which is a simulation
of the impact of various proposed reforms on the United States health care
system.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET, IN THE
OVER-THE-COUNTER MARKET, ON THE BOSTON STOCK EXCHANGE, ON THE PACIFIC STOCK
EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by independent accountants, and such other
periodic reports as the Company may deem appropriate or as may be required by
law.
SimCity(tm) is a trademark of Maxis, Inc.
<PAGE>
All references to "Thinking Tools" or the "Company" contained in this
Prospectus refer to Thinking Tools, Inc., a Delaware corporation, and its
predecessor. Unless otherwise stated, all information contained in this
Prospectus assumes that the Over-Allotment Option has not been exercised.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in "Risk
Factors." The Shares offered hereby involve a high degree of risk. Investors
should carefully consider the information set forth under "Risk Factors."
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus and, accordingly, should be read in
conjunction with such information, financial statements and notes. Each
prospective investor is urged to read this Prospectus in its entirety.
THE COMPANY
Thinking Tools develops powerful and flexible PC-based business simulation
software programs that enable users to simulate real life business
situations, explore complex operational problems and improve functional and
problem solving skills. The Company believes that its agent-based, adaptive
simulation software has a broad range of potential business applications,
including strategic planning, sales and marketing, training, competitive
positioning, product marketing, operational planning, logistics and supply
and demand forecasting. The Company believes that its products are unique
because they combine user- friendly interactive interfaces used in
sophisticated computer games with its proprietary agent-based programming to
produce interactive adaptive business simulations. Agent-based, adaptive
simulations can be used to model competitive situations, simulate consumer
behavior, demonstrate the impact of management actions, seek system
vulnerabilities and explore complex operational systems. The Company's
user-friendly interfaces enable persons with no technical training to
comfortably interact with complex systems.
The Company's agent-based programming enables autonomous agents in the
simulation to respond to user behaviors in unpredictable and realistic ways.
In contrast to other modelling and simulation tools in use and known to the
Company, which are generally built around a limited number of agents acting
according to pre-programmed, deterministic algorithms, the Company believes
that the multiplicity of autonomous agents and the results of their
interactions with each other and the user give the Company's simulations a
complexity that mirrors human behavior found in the real world.
The Company's operations to date have primarily involved developing
complex business simulation software programs for specific customers. These
projects have helped to fund the Company's research and development efforts,
led to the validation of the Company's core technology by major U.S.
companies and demonstrated the potential market for business simulation
software of the type developed by the Company.
The Company's goal is to develop and own the rights to a variety of
simulations in divergent business areas. The Company believes that it is
well-positioned to expand its business by leveraging its existing products
and technology platform to become a product-oriented, sales-driven company.
As part of its growth strategy, the Company intends to begin self-funded
development of new simulations and adaptation of previously developed
simulations for wider distribution or application to new fields. The Company
also plans, upon request, to customize these packages for specific customers.
The Company is currently developing software to simulate disaster recovery
scenarios, logistics simulation software for planning and training in the
United States Army and United States Air Force and software that could
provide access to simulations being developed by the Company for use on the
internet. The Company intends to market its
3
<PAGE>
products through existing channels of its strategic partners as well as
directly to customers by establishing an in-house sales force and through
value added resellers.
Some of the Company's products developed to date include SimRefinery,
SimHealth, TeleSim and Project Challenge. SimRefinery, a demonstration
program released in late 1992, which was developed for Chevron, Inc.,
simulates the effects of users' decisions made in the running of a refinery.
SimHealth, a simulation of the impact of various proposed reforms on the
United States health care system, simulates both the supply and demand sides
of the health care industry and the impact of choices and values on the
financial health of the system and its usage and demand. TeleSim, a
simulation of a local exchange telephone market, was developed by the Company
for Coopers & Lybrand L.L.P ("Coopers"). Since its initial development in
1994, versions of TeleSim have been produced and sold through Coopers to
Sprint Corp., NYNEX Corporation, Pacific Telecom, Inc. and AT&T Corp. Project
Challenge, the development of which was funded by SHL SystemHouse Inc., a
division of MCI Communications Corp. ("SystemHouse"), focuses on project
management for information systems projects. Project Challenge users create a
model of their projects, then simulate management of the projects under
benign, realistic or hostile conditions. Other customers of the Company have
included Xerox Corp., Andersen Consulting L.L.P., Texas Instruments
Corporation, Harcourt Brace College Publishers, a division of Harcourt
General, Inc., Steelcase Inc. and System Engineering Solutions Inc. (a prime
contractor for work in logistics for the U.S. Army and U.S. Air Force).
The Company's capabilities in developing highly sophisticated simulations
are built upon experience gained from developing computer games, its skill in
programming autonomous and adaptive agents and its large and growing library
of reusable simulation objects. The Company's creative control is based on
its proprietary development environment, WHITEBOARD, which supports interface
building, object creation, simulation management, object management and
application frameworks. WHITEBOARD simplifies and supports the construction
of agent-based simulations and is the core of the development of each of the
Company's simulations.
The Company was formed to purchase, on December 30, 1993, certain assets
of the Business Simulation Division (the "Division") of Maxis, Inc.
("Maxis"), a leading computer game company and creator of the simulation game
SimCity(tm). Through the purchase agreement with Maxis, the Company acquired
the Division's equipment, staff, work-in-progress, customers, licenses,
prospects, software tools, libraries and processes (the "Acquisition").
The Company's predecessor was incorporated in California on December 30,
1993. The Company was re-incorporated in Delaware on August 8, 1996, and its
principal place of business is located at One Lower Ragsdale Drive, 1-250,
Monterey, California 93940, at (408) 373-8688.
4
<PAGE>
The Offering
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered by the Company 1,400,000 shares
Common Stock Outstanding Immediately Prior
to this Offering(1) 3,031,758 shares
Common Stock to be Outstanding
Following this Offering(1)(2) 4,431,758 shares
Risk Factors The shares of Common Stock offered hereby involve a high
degree of risk and substantial dilution and should be
purchased only by persons who can afford to sustain the loss
of their investment. See "Risk Factors" and "Dilution."
Use of Proceeds The net proceeds of this Offering will be used (i) to fund
the Company's sales and marketing efforts, (ii) to fund the
Company's product development efforts, (iii) to fund the
retirement of the Bridge Notes and (iv) for working capital
and general corporate purposes.
NASDAQ Trading Symbol (3) "TSIM"
</TABLE>
- ---------------
(1) Does not include (i) 456,250 shares of Common Stock issuable upon
exercise of warrants (the "Bridge Warrants") to purchase Common Stock, at
an exercise price equal to the lesser of $4.20 or 60% of the initial
public offering price per share in this Offering, issued by the Company
to purchasers of its 10% Senior Secured Promissory Notes (the "Bridge
Notes") in connection with a debt financing consummated prior to this
Offering (the "Bridge Financing"); (ii) 468,242 shares of Common Stock
issuable upon exercise of warrants to purchase Common Stock at an
exercise price of $1.07 per share issued to Thinking Technologies, L.P.
("Technologies"), a principal stockholder of the Company (the
"Technologies Warrants"); (iii) 376,000 shares of Common Stock reserved
for issuance under the Company's 1996 Stock Option Plan (the "Plan"),
options to purchase 145,036 of which have been granted under the Plan,
including options to purchase 52,000 shares exercisable at $.79 per share
and options to purchase 52,000 shares exercisable at $5.00 per share
granted to certain of the Company's employees, and options to purchase
41,036 shares of Common Stock exercisable at $1.00 per share granted to
certain members of the Company's board of directors; (iv) 58,964 shares
of Common Stock issuable upon exercise of options granted outside of the
Plan to certain members of the Company's board of directors at an
exercise price of $0.79 per share and (v) 15,000 shares of Common Stock
issuable upon exercise of options granted outside of the Plan to a
non-affiliate of the Company at an exercise price of $1.00 per share. See
"Management--1996 Stock Option Plan", "Certain Transactions", and
"Description of Securities."
(2) Does not include (i) up to 210,000 shares of Common Stock issuable upon
exercise of the Over- Allotment Option and (ii) 140,000 shares of Common
Stock issuable upon exercise of the Underwriter's Options.
(3) There is currently no market for the Common Stock and there can be no
assurance that a market for the Common Stock will develop after this
Offering. The Common Stock of the Company has been approved for
quotation, subject to official notice of issuance, on the NASDAQ,
however, there can be no assurance that such application for listing, if
approved, will be maintained. See "Risk Factors-- Absence of Public
Market; Negotiated Offering Price."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial data for the Company set forth below under the
caption "Selected Statement of Operations Data" for the years ended December
31, 1994 and 1995, and under the caption "Selected Balance Sheet Data" at
December 31, 1995, are derived from the financial statements of the Company,
audited by KPMG Peat Marwick LLP, independent certified public accountants,
included elsewhere in this Prospectus. The statement of operations data for
the six months ended June 30, 1995 and 1996, and the balance sheet data at
June 30, 1996, are derived from unaudited financial statements included
elsewhere in this Prospectus, and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary for
the fair presentation of the Company's financial position and results of
operations at the end of and for such periods. Operating results for the six
months ended June 30, 1996 are not necessarily indicative of results that may
be expected for the full year. The summary financial data should be read in
conjunction with the Financial Statements and notes thereto included
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Six Months Years Ended
Ended June 30, December 31,
------------------------- -------------------------
(In thousands, except per share data)
1996 1995 1995 1994
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Selected Statement of Operations Data:
Revenues $634 $676 $1,329 $846
Cost of revenues 354 374 708 736
Operating expenses 592 531 1,079 784
Net income (loss) (347) (280) (589) (731)
Net income (loss) per share $(0.11) $(0.09) $(0.19) $(0.23)
Shares used in computing net income (loss) per
share 3,141,000 3,141,000 3,141,000 3,141,000
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1996
-----------------------------------------------
Pro Forma
Actual(1) Pro Forma(2) As Adjusted (3)
--------- ------------ ---------------
At December 31,
1995 (Unaudited)
--------------- -----------------------------------------------
<S> <C> <C> <C> <C>
(In thousands)
Selected Balance Sheet Data:
Cash $ 152 $ 7 $1,100 $7,271
Working capital (deficit) (298) (617) (417) 7,029
Current assets 319 239 1,332 7,503
Total assets 432 350 1,443 7,614
Total current liabilities 617 856 1,749 474
Total long term liabilities 1,373 1,399 19 19
Stockholders' equity (deficit) (1,558) (1,905) (325) 7,121
</TABLE>
- ---------------
(1) Gives effect to the merger of Thinking Tools, Inc., a California
corporation ("TTC"), with and into its wholly-owned subsidiary Thinking
Tools, Inc., a Delaware corporation (the "Merger"), including the
exchange of each share of common stock of TTC outstanding prior to the
Merger for .7462 shares of Common Stock pursuant to the Merger. See "Note
1" to "Notes to Financial Statements."
(2) Pro forma to give effect to (i) additional loan advances to the Company
from Technologies in the aggregate principal amount of $150,691 received
in July 1996; (ii) the accrual of $381,845 of interest on the Company's
indebtedness to Technologies through August 27, 1996 (including non-cash
interest expense of $350,000 resulting from the issuance of the
Technologies Warrants); (iii) the conversion by
6
<PAGE>
the Company of debt in the principal amount of approximately $1,320,000
into an aggregate of 263,158 shares of Common Stock (the "Conversion" and
collectively with the Merger, the "Recapitalization"), with the remaining
$60,000 of note payable reclassified as accrued expenses; (iv) non-cash
compensation expense of $200,000 resulting from the difference between
the grant price and the deemed fair value of the Common Stock underlying
vested options granted in July and August, 1996 and (v) the issuance of
$1,825,000 aggregate principal amount of Bridge Notes in the Bridge
Financing (with related expenses of approximately $258,000), of which
$625,000 was purchased by Technologies, the application of the estimated
net proceeds therefrom, and $550,000 of debt discount resulting from the
issuance of the Bridge Warrants, a portion of which was utilized to repay
$625,000 of outstanding indebtedness to Technologies. See "Certain
Transactions" and "Note 10" and "Note 13" to "Notes to Financial
Statements."
(3) Adjusted to give effect to (i) the sale by the Company of the 1,400,000
shares of Common Stock offered hereby at the assumed initial public
offering price of $7.00 per share and the application of the estimated
net proceeds therefrom and (ii) interest expense of $579,000 (including
non-cash interest expense of $550,000 resulting from the issuance of the
Bridge Warrants). See "Use of Proceeds" and "Note 10" and "Note 13" to
"Notes to Financial Statements."
7
<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE SUBSTANTIAL RISKS AND SHOULD BE PURCHASED
ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN THE LOSS OF THEIR INVESTMENT. THE
FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION AND FINANCIAL
DATA SET FORTH ELSEWHERE IN THIS PROSPECTUS, SHOULD BE CONSIDERED CAREFULLY
IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE MAKING AN INVESTMENT IN THE
SHARES. THE RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS ARE NOT
INTENDED TO BE AN EXHAUSTIVE LIST OF THE GENERAL OR SPECIFIC RISKS INVOLVED,
BUT MERELY IDENTIFY CERTAIN RISKS THAT ARE NOW FORESEEN BY THE COMPANY. IT
MUST BE RECOGNIZED THAT OTHER RISKS, NOT NOW FORESEEN, MIGHT BECOME
SIGNIFICANT IN THE FUTURE AND THAT THE RISKS WHICH ARE NOW FORESEEN MIGHT
AFFECT THE COMPANY TO A GREATER EXTENT THAN IS NOW FORESEEN OR IN A MANNER
NOT NOW CONTEMPLATED. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER ALL
INFORMATION CONTAINED IN THIS PROSPECTUS AND SHOULD GIVE PARTICULAR
CONSIDERATION TO THE FOLLOWING RISK FACTORS BEFORE DECIDING TO PURCHASE THE
COMMON STOCK OFFERED HEREBY.
Limited Operating History; History of Losses; Uncertain Future Profitability.
The Company commenced operations in January 1994 and is still in the early
stage of developing products. Since its inception, the Company has
experienced cumulative losses of $1,650,000 and $1,997,000 as of December 31,
1995 and June 30, 1996, respectively, and has not experienced any quarter of
profitable operations. Consequently, its operations are subject to numerous
risks associated with the development of a new business. The Company expects
to continue to incur operating losses for the foreseeable future, principally
as a result of expenses associated with the Company's product development
efforts and anticipated sales, marketing and general and administrative
expenses. The Company's long-term viability and growth will depend on the
successful development, commercialization and marketing of its proposed
products. There can be no assurance that the Company will be able to develop
adequate revenue sources to successfully complete the development,
commercializing and marketing of its proposed products or that if it is
successful in doing so it will be able to achieve and maintain profitability.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Dependence on Emerging Market for Business Simulation Software.
The markets for business simulation software in general, and agent-based,
adaptive simulation software in particular, are still emerging, making it
difficult to predict with any assurance the future size of the markets. There
can be no assurance that such software will achieve broad-based market
acceptance, that markets for such software will continue to grow or that
increased sales of the Company's products will occur or continue as a result
of any such growth. There can be no assurance that alternatives to the
Company's agent-based, adaptive simulation software, such as object-oriented
tools, authoring tools or game methods will not achieve greater market
acceptance than the Company's agent-based, adaptive simulation software. Even
if agent-based, adaptive simulation achieves market acceptance and that
market grows, there can be no assurance that the Company will obtain a
significant share of that market. See "Business--Growth Strategy" and
"--Competition."
Uncertainties Related to Development of Additional Products.
Significant additional efforts will be required for the Company to develop
additional agent-based, adaptive simulation products. Any such future efforts
are subject to certain risks including, but not limited to, the risk that new
simulations will be difficult to develop into commercially viable products
free of
8
<PAGE>
competitive challenges and that any such products may fail to achieve and
sustain market acceptance. There can be no assurance that the Company's
product development efforts will be successful. See "Business -- Growth
Strategy" and "--Products."
Limited Marketing Experience; Need for Additional Personnel.
The Company has very limited marketing resources and limited experience in
marketing and selling its products and services. The Company will have to
further develop its marketing and sales force or rely principally on
value-added resellers, collaborators, licensees or others to provide for the
marketing and sales of its products and services. There can be no assurance
that the Company will be able to establish adequate marketing and sales
capabilities or make arrangements with value-added resellers, collaborators,
licensees or others to perform such activities. Achieving market penetration
will require significant efforts by the Company to create awareness of, and
demand for, its proposed products. Accordingly, the Company's ability to
expand its customer base will depend upon its marketing efforts, including
its ability to establish an effective internal sales organization or
establish strategic marketing arrangements with others. The failure by the
Company to successfully develop its marketing capabilities, internally or
through others, would have a material adverse effect on the Company's
business, financial condition and results of operations. Further, there can
be no assurance that the development of such marketing capabilities will lead
to sales of the Company's proposed products. See "Business--Personnel."
The success of the Company will also depend upon its ability to hire and
retain additional qualified management, marketing and financial personnel,
including a chief executive officer and a chief financial officer, as to
which there can be no assurance. The Company will compete with other
companies with greater financial and other resources for such personnel. See
"Management."
Risks Associated with Growth Strategy.
The Company's growth strategy is expected to place a significant strain on
its management, administrative, operational, financial and other resources.
The Company's success will be dependent upon its ability to hire additional
highly qualified personnel to support the Company's product development and
marketing efforts, including monitoring operations, controlling costs and
maintaining effective management, inventory and credit controls. The Company
has limited experience in effectuating rapid expansion and managing a broad
range of products and services and significant operations. There can be no
assurance that the Company will be able to continue to manage its operations
or that any inability to do so will not adversely affect its business,
financial condition or results of operations. See "Business--Growth
Strategy."
Anticipated Non-Cash Charges.
As a result of the issuance of warrants in connection with borrowings from
Technologies and pursuant to the Bridge Financing, the Company anticipates
that it will record approximately $900,000 of non-cash interest expenses.
These expenses are anticipated to be incurred in the third and fourth quarter
of 1996. The Company also expects to incur approximately $200,000 of non-cash
compensation expense related to the difference between the exercise price and
deemed fair value of the Common Stock underlying vested options granted in
July and August 1996. See "Note 10" and "Note 13" to "Notes to Financial
Statements."
Fluctuations in Operating Results; Substantial Revenues Derived from Limited
Customers.
The Company's operating results may vary significantly from quarter to
quarter or year to year, depending on factors such as the timing of product
development, the timing of increased research and development and sales and
marketing expenses, the timing and size of orders and the introduction of new
products by the Company. The Company's current and planned expense levels are
based in part on its expectations as to future revenue. Consequently, revenue
or profit may vary significantly from quarter to
9
<PAGE>
quarter or year to year and revenue or profit in any period will not
necessarily be predictive of results in subsequent periods. Historically, a
significant portion of the Company's revenues have been derived from a
limited number of relatively large development projects contracted for by a
small number of customers. Sales to three customers during the six months
ended June 30, 1996 accounted for 33%, 32% and 18%, respectively, of the
Company's sales for such period. Sales to three customers during the fiscal
year ended December 31, 1995 accounted for 27%, 14% and 13%, respectively, of
the Company's sales for such period. Sales to two customers during the fiscal
year ended December 31, 1994 accounted for 59% and 17%, respectively, of the
Company's sales for such period. These contracts have been fully or
substantially completed as of September 30, 1996. The Company historically
has not had and at September 30, 1996 did not have any substantial firm order
backlog. To the extent that the Company's business continues to be derived
from a limited number of large customer orders, any inability by the Company
as it completes such orders to obtain new orders could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company is currently working on a limited number of customer
orders. There can be no assurance that the Company will obtain additional
sources of revenue prior to completing such projects. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Technological Change; Risk of Obsolescence; Industry Standards.
The software industry is characterized by rapid technological change,
frequent introductions of new products, changes in customer demands and
evolving industry standards. The introduction of products embodying new
technology or the adaption of products to the market and the emergence of new
industry standards often render existing products obsolete and unmarketable.
The Company believes that its success will depend on its ability to enhance
its existing products and otherwise respond and keep pace with technological
developments and emerging industry standards. There can be no assurance that
the Company will be successful in developing enhanced or new products that
respond to technological changes or evolving industry standards in a timely
manner, or at all. Additionally, there can be no assurance that technological
changes or evolving industry standards will not render the Company's products
and technologies obsolete. See "Business--Intellectual Property."
Uncertainties Regarding Intellectual Property.
The Company does not have any patents and has not filed patent
applications on its products. The Company regards the software that it owns
or licenses as proprietary and relies primarily on a combination of trade
secret laws, nondisclosure agreements and other technical copy protection
methods (such as embedded coding) to protect its rights to its products and
proprietary rights. It is the Company's policy that all employees and
third-party developers sign nondisclosure agreements; however, this may not
afford the Company sufficient protection for its know-how and its proprietary
products. Other parties may develop similar know-how and products, duplicate
the Company's know-how and products or develop patents that would materially
and adversely affect the Company's business, financial condition and results
of operations. Third parties may assert infringement claims against the
Company, and such claims may result in the Company being required to enter
into royalty arrangements, pay damages or defend litigation, any of which
could materially and adversely affect the Company's business, financial
condition and results of operations. See "Business--Intellectual Property."
Competition.
There can be no assurance that other companies will not develop programs
such as those offered by the Company or alternative software applications
which meet the same needs of customers or that potential customers will not
choose to meet their needs through in-house development rather than by
purchasing the Company's products. The Company expects to be subject to
competition from companies with substantially greater resources. There can be
no assurance that the Company will be able to respond to competitive
pressures, or that the effect of competitive pressures will not change the
demand for, or pricing of, the
10
<PAGE>
Company's products and services. To the extent that competitors achieve
performance, price or other selling advantages, the Company could be
adversely affected. There can be no assurance that the Company will have the
resources required to respond effectively to market or technological changes
or to otherwise compete successfully in the future. See
"Business--Competition."
Dependence on Key Personnel.
The Company is dependent upon the continued efforts and abilities of its
senior management, particularly those of Mr. John Hiles, the Company's
President. The Company has entered into an Employment Agreement with Mr.
Hiles which is subject to automatic annual renewals unless terminated by the
Company or Mr. Hiles upon ninety days' prior written notice. The loss or
unavailability of Mr. Hiles for any significant period could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company maintains a $5,000,000 key-man life insurance policy
on Mr. Hiles. The Company's operations are also dependent upon its ability to
attract and retain qualified programmers and software engineers. There can be
no assurance that the Company will be able to attract and retain such skilled
personnel, and failure to do so could have a material adverse effect on the
business, financial condition and results of operations of the Company. All
employees of the Company are at-will employees. See "Management."
Control by Existing Stockholders.
Upon the closing of this Offering, the Company's existing stockholders
will beneficially own approximately 72.8% of the outstanding shares of Common
Stock. As a result of such ownership, the existing stockholders of the
Company will, therefore, have the ability to control the election of the
directors of the Company and the outcome of all issues submitted to a vote of
the stockholders of the Company. See "Principal Stockholders."
Broad Discretion as to Use of Proceeds.
Approximately 20.8% of the net proceeds of this Offering has been
allocated to working capital and general corporate purposes and will be used
for such specific purposes as management may determine. Accordingly,
management will have broad discretion with respect to the expenditure of that
portion of the net proceeds of this Offering. In addition, the Company's
estimate of its allocation of the use of proceeds of this Offering is subject
to a reapportionment of proceeds among the categories set forth herein or to
new categories. Approximately 23.1% of the net proceeds will be used to repay
the principal amount of the Bridge Notes, along with estimated accrued
interest thereon through the estimated closing date of this Offering. The
amount and timing of expenditures will vary depending upon a number of
factors, including the progress of the Company's product development and
marketing efforts, changing competitive conditions and general economic
conditions. See "Use of Proceeds."
Need For Additional Financing.
The Company anticipates that the net proceeds of this Offering together
with its existing resources, will be adequate to satisfy its operating and
capital requirements through at least the next 18 months, based on the
Company's current business plan. Such belief is based upon certain
assumptions, and there can be no assurance that such assumptions are correct.
However, the Company does not expect that it will be able to continue its
operations beyond this time without additional financing. There can be no
assurance that such additional financing will be available when needed on
terms acceptable to the Company or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Absence of Public Market; Negotiated Offering Price.
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that any trading market therefor will
develop or, if any such market develops, that it will be sustained.
Accordingly, purchasers of the Shares may experience difficulty selling or
otherwise disposing of 4their Shares. The public offering price of the Shares
has been established by negotiation between the Company and the Underwriter
and does not bear any relationship to the Company's book value, assets, past
operating results, financial condition or other established criteria of
value.
11
<PAGE>
NASDAQ Delisting; Low Stock Price.
The trading of the Company's Securities on NASDAQ will be conditioned upon
the Company meeting certain asset, capital and surplus earnings and stock
price tests set forth by such exchanges. To maintain eligibility for trading
on NASDAQ, the Company will be required to maintain total assets in excess of
$2,000,000, capital and surplus in excess of $1,000,000 and (subject to
certain exceptions) a bid price of $1.00 per share. Upon completion of this
Offering and the receipt of the proceeds therefrom, the Company believes that
it will meet the respective asset, capital and surplus earnings tests set
forth by such exchanges. If the Company fails any of the tests, the Common
Stock may be delisted from trading on such exchanges. The effects of
delisting include the limited release of the market prices of the Company's
securities and limited news coverage of the Company. Delisting may restrict
investors' interest in the Company's securities and materially adversely
affect the trading market and prices for such securities and the Company's
ability to issue additional securities or to secure additional financing. In
addition to the risk of volatile stock prices and possible delisting, low
price stocks are subject to the additional risks of federal and state
regulatory requirements and the potential loss of effective trading markets.
In particular, if the Common Stock were delisted from trading on such
exchanges and the trading price of the Common Stock was less than $5 per
share, the Common Stock could be subject to Rule 15g-9 under the Securities
Exchange Act of 1934, as amended, which, among other things, requires that
broker/dealers satisfy special sales practice requirements, including making
individualized written suitability determinations and receiving purchasers'
written consent, prior to any transaction. If the Company's securities could
also be deemed penny stocks under the Securities Enforcement and Penny Stock
Reform Act of 1990, this would require additional disclosure in connection
with trades in the Company's securities, including the delivery of a
disclosure schedule explaining the nature and risks of the penny stock
market. Such requirements could severely limit the liquidity of the Company's
securities and the ability of purchasers in this Offering to sell their
securities in the secondary market.
Future Sales of Restricted Securities.
Upon the completion of this Offering, the Company will have 4,431,758
shares of Common Stock outstanding (4,641,758, if the Over-Allotment Option
is exercised in full). Of these shares, all of the 1,400,000 shares of Common
Stock sold in this Offering (1,610,000, if the Over-Allotment Option is
exercised in full) generally will be freely transferable by persons other
than affiliates of the Company, without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"). The
remaining 3,031,758 shares of Common Stock (the "Restricted Shares")
outstanding were sold by the Company in reliance on exemptions from the
registration requirements of the Securities Act and are "restricted
securities" as defined in Rule 144 under the Securities Act. The sale of a
substantial number of shares of Common Stock or the availability of Common
Stock for sale could adversely affect the market price of the Common Stock
prevailing from time to time. The Company, its officers, directors and
existing stockholders have entered into agreements with the Underwriter which
prohibit them from selling stock in the Company for certain periods of time
following this Offering without the prior written consent of the Underwriter.
See "Principal Stockholders," "Shares Eligible for Future Sale" and
"Underwriting."
Effect of Previously Issued Options, Warrants and Underwriter's Options on
Stock Price.
The Company has reserved from the authorized, but unissued, Common Stock,
376,000 shares of Common Stock for issuance to key employees, officers,
directors, and consultants pursuant to the Plan, has reserved 456,250 shares
of Common Stock for issuance upon exercise of the Bridge Warrants and 468,242
shares of Common Stock issuable upon exercise of the Technologies Warrants.
The Company will also sell to the Underwriter, in connection with this
Offering, for nominal consideration, the Underwriter's Options to purchase an
aggregate of 140,000 shares of Common Stock at a price per share equal to
120% of the initial public offering price per share, subject to adjustment as
provided therein. The existence of the Bridge Warrants, the Technologies
Warrants, the Underwriter's Options, any outstanding options issued
12
<PAGE>
under the Plan, and other options or warrants may prove to be a hindrance to
future financings, since the holders of such warrants and options may be
expected to exercise them at a time when the Company would otherwise be able
to obtain additional equity capital on terms more favorable to the Company.
In addition, the holders of such securities have certain registration rights,
and the sale of the shares issuable upon exercise of such securities or the
availability of such shares for sale could adversely affect the market price
of the Common Stock. Additionally, if the holders of the Underwriter's
Options were to exercise their registration rights to effect a distribution
of the Underwriter's Options or underlying securities, the Underwriter, prior
to and during such distribution, would be unable to make a market in the
Company's securities and would be required to comply with other limitations
on trading set forth in Rules 10b-2, 10b-6 and 10b-7 promulgated under the
Securities Exchange Act of 1934, as amended. Such rules restrict the
solicitation of purchasers of a security when a person is interested in the
distribution of such security and also limit market making activities by an
interested person until the completion of the distribution. If the
Underwriter were required to cease making a market, the market and market
price for such securities may be adversely affected and holders of such
securities may be unable to sell such securities. See "Description of
Securities" and "Underwriting."
Share Prices May Be Highly Volatile.
The market prices of equity securities of computer technology and software
companies have experienced extreme price volatility in recent years for
reasons not necessarily related to the individual performance of specific
companies. Accordingly, the market price of the Common Stock following this
Offering may be highly volatile. Factors such as announcements by the Company
or its competitors concerning products, patents, technology, governmental
regulatory actions, other events affecting computer technology and software
companies generally as well as general market conditions may have a
significant impact on the market price of the Common Stock and could cause it
to fluctuate substantially.
Dilution.
The assumed initial public offering price per Share exceeds the book value
per share of the Common Stock. Investors in this Offering will therefore
incur immediate and substantial dilution of $5.39, or 77% per share from the
initial public offering price. See "Dilution."
Lack of Dividends.
The Company has not paid any dividends on the Common Stock since its
inception and does not intend to pay any dividends to its stockholders in the
foreseeable future. The Company currently intends to reinvest earnings, if
any, in the development and expansion of its business. See "Dividend Policy"
and "Description of Securities--Common Stock."
Anti-Takeover Effects of Certain Provisions of Certificate of Incorporation
and Delaware Law.
The Company's Certificate of Incorporation authorized the issuance of
3,000,000 shares of undesignated Preferred Stock with such designations,
rights and preferences as may be determined from time to time by the board of
directors. Accordingly, the board of directors is empowered, without
obtaining stockholder approval, to issue such Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect
the voting power or other rights of the holders of the Common Stock. In the
event of issuance, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change
in the control of the Company. Certain provisions of Delaware law may also
discourage third party attempts to acquire control of the Company. See
"Description of Securities--Preferred Stock."
13
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby, at an
assumed initial offering price of $7.00 per share, and after deducting
underwriting discounts and commissions and other expenses of this Offering,
estimated to be, in the aggregate, $1,774,000, are estimated to be $8,026,000
($9,304,900 if the Over-Allotment Option is exercised in full).
The Company intends to use the net proceeds of this Offering (i) to fund
the Company's sales and marketing efforts, (ii) to fund the Company's product
development efforts, (iii) to fund the retirement of the Bridge Notes and
(iv) for working capital and general corporate purposes, approximately as
follows:
Approximate Percentage of
Use Amount Net Proceeds
--- --------------- --------------
Sales and marketing $3,000,000 37.4%
Product development 1,500,000 18.7%
Repayment of debt 1,855,000 23.1%
General corporate and working capital purposes 1,671,000 20.8%
--------------- --------------
$8,026,000 100.0%
=============== ==============
The Company intends to use approximately $3,000,000 of the net proceeds to
fund expansion of its sales and marketing activities, including hiring a
senior sales and marketing executive, sales representatives and other sales
and marketing personnel. See "Business--Marketing and Sales Strategy."
The Company intends to use approximately $1,500,000 of the net proceeds
for research and product development, including support of existing research
and development activities and the development of new products. See
"Business--Product Development."
Approximately $1,855,000 of the net proceeds will be used to repay the
principal amount of the Bridge Notes, along with estimated accrued interest
thereon through the estimated closing date of this Offering. The Bridge Notes
bear interest at a rate of 10% per annum, compounded annually, and are due
upon the closing of this Offering. The Bridge Notes were sold as units along
with the Bridge Warrants in the Bridge Financing. The Company utilized a
portion of the net proceeds from the Bridge Financing (with related expenses
of approximately $258,000) to repay $625,000 of outstanding indebtedness to
Technologies, which amount was immediately utilized by Technologies for the
purchase of $625,000 aggregate principal amount of Bridge Notes in the Bridge
Financing. As a result, the Company realized approximately $942,000 of net
proceeds from the Bridge Financing, which funds are being used to finance the
Company's short term working capital needs and to fund expenses of the
Company in connection with this Offering. See "Certain Transactions."
The balance of the net proceeds of this Offering are intended to be used
for general corporate and working capital purposes. Any net proceeds received
by the Company from the exercise of the Over- Allotment Option or the
Underwriter's Options will be added to working capital.
The foregoing represents the Company's best estimate of its allocation of
the estimated net proceeds of this Offering and is subject to a
reapportionment of proceeds among the categories listed above or to new
categories in response to, among other things, changes in its plans,
regulations, industry conditions, and future revenues and expenditures. The
amount and timing of expenditures will vary depending on a number of factors,
including changes in the Company's contemplated operations or business plan
and changes in economic and industry conditions.
Until used, the Company intends to invest the net proceeds of this
Offering in short term, interest bearing, investment grade, debt securities,
money market accounts, certificates of deposit or direct or guaranteed
obligations of the United States government.
14
<PAGE>
DIVIDEND POLICY
The Company expects that it will retain all earnings, if any, generated by
its operations for the development and growth of its business and does not
anticipate paying any cash dividends to its stockholders in the foreseeable
future. Any future determination as to dividend policy will be made by the
board of directors of the Company in its discretion, and will depend on a
number of factors, including the future earnings, if any, capital
requirements, financial condition and business prospects of the Company and
such other factors as the board of directors may deem relevant. See "Risk
Factors--Lack of Dividends."
DILUTION
As of June 30, 1996, the Company had a pro forma net tangible book value
(deficit) of approximately ($325,000), or ($0.11) per share of Common Stock.
Without taking into account any other changes in the pro forma net tangible
book value of the Company after June 30, 1996, other than to give effect to
the sale by the Company of the Shares offered hereby at an assumed initial
offering price of $7.00 per share and the receipt and application of the
estimated net proceeds therefrom (including repayment of the Bridge Notes and
accrued cash interest thereon), the pro forma net tangible book value would
have been approximately $7,121,000, or $1.61 per share, which represents an
immediate increase in the pro forma net tangible book value of $1.72 per
share to present stockholders and an immediate dilution of $5.39 or 77% per
share to new investors. The following table illustrates this dilution:
<TABLE>
<CAPTION>
Per Share of
Common Stock
------------
<S> <C> <C>
Assumed initial public offering price per Share (1) $7.00
Pro forma net tangible book value (deficit) before
this Offering $(0.11)
Increase attributable to purchase of Shares by
new investors 1.72
------------
Pro forma net tangible book value per share after this
Offering 1.61
------------
Dilution of net tangible book value to investors in this
Offering $5.39
============
</TABLE>
- ---------------
(1) Represents the initial public offering price per Share, before deducting
underwriting discounts and offering expenses payable by the Company.
15
<PAGE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the differences between existing stockholders and investors in this Offering
with respect to the number and percentage of shares of Common Stock purchased
from the Company, the amount and percentage of consideration paid and the
average price paid per Share, before deduction of offering expenses and
underwriting discounts:
<TABLE>
<CAPTION>
Shares Owned Consideration Average Price
-------------------------------- ------------------------------- Per Share
Number Percentage Amount Percentage
--------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders 3,031,758 68.4% $ 1,413,000 12.6% $ .47
New Investors 1,400,000 31.6% $ 9,800,000 87.4% $ 7.00
--------------- --------------- --------------- --------------- ----------------
Total 4,431,758 100.0% $11,213,000 100.0%
=============== =============== =============== ===============
</TABLE>
The foregoing table does not include (i) 456,250 shares of Common Stock
issuable upon the exercise of the Bridge Warrants at an exercise price equal
to the lesser of $4.20 or 60% of the initial public offering price per share;
(ii) 468,242 shares of Common Stock issuable upon exercise of the
Technologies Warrants, at an exercise price of $1.07 per share; (iii) 376,000
shares of Common Stock reserved for issuance under the Plan, options to
purchase 145,036 of which have been granted under the Plan, including options
to purchase 52,000 shares exercisable at $.79 per share and options to
purchase 52,000 shares exercisable at $5.00 per share granted to certain of
the Company's employees, and options to purchase 41,036 shares of Common
Stock at an exercise price of $1.00 per share granted to certain members of
the Company's board of directors; (iv) 58,964 shares of Common Stock reserved
and issuable upon exercise of options granted outside the Plan to certain
members of the Company's board of directors at an exercise price of $0.79 per
share and (v) 15,000 shares of Common Stock issuable upon exercise of options
granted outside the Plan to a non-affiliate of the Company at an exercise
price of $1.00 per share. The exercise of any of such options and warrants
will have a dilutive effect upon investors in this Offering. See
"Management--1996 Stock Option Plan," "Certain Transactions," and
"Description of Securities."
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1996, (ii) as of June 30, 1996 on a pro forma basis assuming the
issuance of $1,825,000 aggregate principal amount of Bridge Notes and the
Conversion and (iii) on a pro forma as adjusted basis to reflect the sale of
1,400,000 shares of Common Stock by the Company offered hereby at an assumed
initial public offering price of $7.00 per share and the application of the
estimated net proceeds therefrom. See "Use of Proceeds." This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements of the
Company and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1996
---------------------------------------------
Pro Forma
Actual(1) Pro Forma(2) As Adjusted(3)
------------ -------------------------------
(In thousands, except share data)
<S> <C> <C> <C>
Short Term Debt, including Capital Lease Obligations $ 449 $ 1,373 $ 98
============ ============ =============
Long Term Notes Payable
and Capital Lease Obligations 1,399 19 19
Preferred Stock, $.001 par value, 3,000,000
shares authorized; no shares issued and
outstanding actual, pro forma and as adjusted -- -- --
Common Stock, $.001 par value, 20,000,000
shares authorized; 2,768,600 shares issued and
outstanding actual; 3,031,758 shares issued and
outstanding, pro forma; and 4,431,758 shares
issued and outstanding, as adjusted(4) 3 3 4
Additional Paid-in Capital 89 2,510 10,535
Accumulated Deficit (1,997) (2,838) (3,418)
Total Stockholders' Equity (Deficit) (1,905) (325) 7,121
------------ ------------- -------------
Total Capitalization $ (506) $ (306) $ 7,140
============ ============= =============
</TABLE>
- ---------------
(1) Gives effect to the Merger. See "Note 1" to "Notes to Financial
Statements."
(2) Pro forma to give effect to (i) additional loan advances to the Company
from Technologies in the aggregate principal amount of $150,691 received
in July, 1996; (ii) the accrual of $381,845 of interest on the Company's
indebtedness to Technologies through August 27, 1996 (including non-cash
interest expense of $350,000 resulting from the issuance of the
Technologies Warrants); (iii) the conversion by the Company of debt in
the principal amount of approximately $1,320,000 into an aggregate of
263,158 shares of Common Stock pursuant to the Conversion, with the
remaining $60,000 of note payable reclassified to accrued expenses ; (iv)
non-cash compensation expense of $200,000 resulting from the difference
between the grant price and the deemed fair value of the Common Stock
underlying vested options granted in July and August, 1996 and (v) the
issuance of $1,825,000 aggregate principal amount of Bridge Notes (with
related expenses of approximately $258,000) of which $625,000 was
purchased by Technologies, the application of the estimated net proceeds
therefrom, and $550,000 of debt discount resulting from the issuance of
the Bridge Warrants, a portion of which was utilized to repay $625,000 of
outstanding indebtedness to Technologies. See "Certain Transactions" and
"Note 10" and "Note 13" to "Notes to Financial Statements."
(3) Adjusted to give effect to (i) the sale by the Company of the 1,400,000
shares of Common Stock offered hereby at an assumed initial public
offering price of $7.00 per share and the application of the estimated
net proceeds therefrom and (ii) interest expense of $579,000 (including
non-cash interest expense of $550,000 resulting from the issuance of the
Bridge Warrants). See "Use of Proceeds" and "Note 10" and "Note 13" to
"Notes to Financial Statements."
17
<PAGE>
(4) Does not include (i) 456,250 shares of Common Stock issuable upon
exercise of the Bridge Warrants at an exercise price equal to the lesser
of $4.20 or 60% of the initial public offering price per share in this
Offering; (ii) 468,242 shares of Common Stock issuable upon exercise of
the Technologies Warrants, at an exercise price of $1.07 per share; (iii)
376,000 shares of Common Stock reserved for issuance under the Plan,
options to purchase 145,036 of which have been granted under the Plan,
including options to purchase 52,000 shares exercisable at $.79 per share
and options to purchase 52,000 shares exercisable at $5.00 per share
granted to certain of the Company's employees, and options to purchase
41,036 shares of Common Stock at an exercise price of $1.00 per share
granted to certain members of the Company's board of directors; (iv)
58,964 shares of Common Stock reserved and issuable upon exercise of
options granted outside the Plan to certain members of the Company's
board of directors at an exercise price of $0.79 per share and (v) 15,000
shares of Common Stock issuable upon exercise of options granted outside
the Plan to a non-affiliate of the Company at an exercise price of $1.00
per share. See "Management--Stock Option Plan," "Certain Transactions,"
and "Description of Securities."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying financial statements and notes thereto appearing elsewhere in
this Prospectus.
Overview
Thinking Tools commenced operations in December 1993 to develop and market
business simulation software. Since its inception, the Company has been
engaged in research and development activities and organizational efforts,
including the development of its initial products, recruiting personnel,
establishing marketing and manufacturing capabilities and raising capital.
Thinking Tools commenced commercial activities in January 1994, but to
date has not generated substantial revenues from the sale of its products.
Revenues generated to date have been primarily derived from software
development projects completed under contracts with customers. Historically,
a significant portion of such revenues have been derived from a limited
number of relatively large development projects contracted for by a small
number of customers. Sales to three customers during the six months ended
June 30, 1996 accounted for 33%, 32% and 18%, respectively, of the Company's
sales for such period. Sales to three customers during the fiscal year ended
December 31, 1995 accounted for 27%, 14% and 13%, respectively, of the
Company's sales for such period. Sales to two customers during the fiscal
year ended December 31, 1994 accounted for 59% and 17%, respectively, of the
Company's sales for such period. These contracts have been fully or
substantially completed as of September 30, 1996. The Company historically
has not had and at September 30, 1996 did not have any substantial firm order
backlog. To the extent that the Company's business continues to be derived
from a limited number of large customer orders, any inability by the Company
as it completes such orders to obtain new orders could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company is currently working on a limited number of customer
orders. There can be no assurance that the Company will obtain additional
sources of revenue prior to completing such projects. The Company's current
strategy is to change its focus from custom projects to self-funded
development of simulations for broader markets by leveraging its existing
products and technology platform to become a product-oriented, sales-driven
company. See "Business--Growth Strategy" and "Risk Factors--Fluctuations in
Operating Results; Substantial Revenues Derived from Limited Customers."
As of June 30, 1996, the Company had experienced cumulative losses of
$1,997,000 and had not experienced any quarter of profitable operations. The
Company expects to incur additional operating losses for the foreseeable
future. The Company's operations to date have been funded primarily through
private sales of debt and equity securities.
Thinking Tools expects to incur substantial operating expenses in the
future to support its development costs, expand its sales and marketing
capabilities and organization, expand its work force and for other general
and administrative expenses. The Company's results of operations may vary
significantly from quarter to quarter during this period of development.
Results of Operations
Comparison of six months ended June 30, 1996 and June 30, 1995
Revenues. Revenues for the six months ended June 30, 1996 decreased by
$42,000, or 6%, to $634,000, from $676,000, for the six months ended June 30,
1995. During each of such periods the Company's revenues were derived
primarily from a relatively small number of development contracts. See
"Business--Customers."
Gross Margin. Gross margin for the six months ended June 30, 1996 were 44%
of revenues as compared with 45% of revenues for the six months ended June
30, 1995.
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Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $175,000, or 49%, for the six months
ended June 30, 1996 to $532,000, or 84% of revenues, from $357,000, or 53% of
revenues, for the six months ended June 30, 1995. Selling expenses included
costs of preparing project proposals and software demonstrations. General and
administrative expenses consisted primarily of labor costs and consulting
expenses. The increase in selling, general and administrative expenses was
primarily due to increased consulting expenses, travel expenses, new
insurance policy premiums, recruiting fees and increased involvement by the
Company's technical development team in the preparation of Company's
proposals and presentations.
Upon completion of this Offering, the Company intends to hire additional
personnel to expand the Company's marketing and sales capabilities. See
"Business--Marketing and Sales Strategy." Additionally, the Company expects
general and administrative expenses to increase in future periods as the
Company incurs additional costs related to being a public company and expands
its staff and facilities.
Research and Development. Research and development expenses for the six
months ended June 30, 1996 decreased by $114,000, or 66%, to $60,000, or 9%
of revenues, from $174,000, or 26% of revenues, for the six months ended June
30, 1995. This decrease was primarily due to the shifting of development
efforts from initial internal software development to customer software
development contracts.
As the Company's business strategy shifts from custom development projects
to product sales, the Company expects that research and development expenses
will increase. See "Business--Growth Strategy" and "Risk Factors--Risks
Associated with Growth Strategy."
Interest Expense. Interest expense for the six months ended June 30, 1996
increased by $17,000, or 28%, to $77,000, or 12% of revenues from $60,000, or
9% of revenues, for the six months ended June 30, 1995. This increase was
primarily due to the conversion of $180,000 of accrued interest due to
Technologies into debt, borrowings of $52,100 under a bank line of credit and
an additional loan from Technologies in the amount of $352,000, which loans
bear interest at rates of 10%, prime plus 5% and prime plus 7%, respectively.
Other Income. Other income for the six months ended June 30, 1996
increased by $33,000, or 330% to $43,000, or 7% of revenues from $10,000, or
1% of revenues, for the six months ended June 30, 1995. This increase was
primarily due to an increase in fees received for assisting customers with
product presentations and demonstrations in connection with the resale by
such customers of the Company's products.
Net Loss. As a result of the foregoing, net loss for the six months ended
June 30, 1996 increased by $66,000, or 24%, to $346,000 from $280,000 for the
six months ended June 30, 1995.
Comparison of years ended December 31, 1995 and 1994
Revenues. Revenues for the year ended December 31, 1995 ("Fiscal 1995"),
increased by $483,000, or 57%, to $1,329,000 from $846,000 for the year ended
December 31, 1994 ("Fiscal 1994"). This increase was primarily due to an
increase during Fiscal 1995 in the number of contract projects. See
"Business--Customers."
Gross Margin. Gross margin for Fiscal 1995 increased to 47% of revenues
from 13% of revenues for Fiscal 1994. This increase was partially due to
improved control of project costs in Fiscal 1995 as well as more skillful
pricing and contract negotiating. Overruns on two projects in 1994 (both
incurring losses) reflected the unanticipated high level of costs involved in
developing the Company's complex agent-based simulation software.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for Fiscal 1995 increased by $356,000, or 90%, to
$751,000, or 57% of revenues, from $395,000, or 47% of revenues, for Fiscal
1994. This increase was primarily attributable to increased labor costs and
consulting
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expenses in connection with the Company's efforts to establish a management
team and increases in travel expenses and insurance policy premiums.
Research and Development. Research and development expenses for Fiscal
1995 decreased by $61,000, or 16%, to $328,000, or 25% of revenues, from
$389,000, or 46% of revenues, for Fiscal 1994. This decrease reflected the
increased maturity of the Company's agent-based simulation development tools
and techniques.
Interest Expense. Interest expense for Fiscal 1995 increased by $84,000,
or 150%, to $140,000, or 11% of revenues, from $56,000, or 7% of revenues,
for Fiscal 1994. This increase was primarily due to the borrowing from
Technologies of $1,200,000 in September 1994 and, during the second half of
Fiscal 1995 borrowings under a bank line of credit with an outstanding
balance as of December 31, 1995 of $79,000 and from Technologies with an
outstanding balance as of December 31, 1995 of $122,000, which loans bear
interest at rates of 10%, prime plus 5% and prime plus 7%, respectively.
Other Income. Other income for Fiscal 1995 increased to $10,000 from none
in Fiscal 1994, which increase resulted from an insurance payment on property
losses.
Net Loss. As a result of the foregoing, net loss for Fiscal 1995 decreased
by $142,000 or 19%, to $589,000 from $731,000 for Fiscal 1994.
Liquidity and Capital Resources
Since its inception and through December 31, 1995 and June 30, 1996, the
Company has incurred cumulative losses aggregating approximately $1,650,000
and $1,997,000, respectively, and has not experienced any quarter of
profitable operations. The Company expects to continue to incur operating
losses for the foreseeable future, principally as a result of expenses
associated with the Company's product development efforts and anticipated
sales, marketing and general and administrative expenses. During the past two
fiscal years, the Company has satisfied its cash requirements principally
from advances from stockholders and private sales of equity securities and,
to a limited extent, from cash flows from operations. The primary uses of
cash have been to fund research and development and for sales, general and
administrative expenses.
At June 30, 1996, the Company had cash of approximately $7,000 and a
working capital deficit of approximately $617,000. As of the date hereof, the
Company's total debt obligations (exclusive of trade credit) consist
primarily of $1,825,000 principal amount payable to the holders of the Bridge
Notes. See "Certain Relationships and Related Transactions" and "Description
of Securities-Bridge Notes." The Bridge Notes will be repaid using net
proceeds of this Offering. See "Use of Proceeds."
Net cash used in operating activities for Fiscal 1994, Fiscal 1995 and the
six months ended June 30, 1996 totalled approximately $490,000, $297,000 and
$549,000, respectively. Net cash provided by financing activities for Fiscal
1994, Fiscal 1995 and the six months ended June 30, 1996 totalled
approximately $790,000, $195,000 and $405,000, respectively, reflecting the
proceeds from borrowings from stockholders, offset by principal repayments of
$500,000 and $27,000 in Fiscal 1994 and the six months ended June 30, 1996,
respectively.
Based on the Company's operating plan, the Company believes that the net
proceeds of this Offering, together with revenues from continuing operations,
will be sufficient to satisfy its capital requirements and finance its
operations for at least the next 18 months. Such belief is based upon certain
assumptions, and there can be no assurance that such assumptions are correct.
The Company may be required to raise substantial additional capital in the
future in order to carry out its business plan. In addition, contingencies
may arise which may require the Company to obtain additional capital.
Accordingly, there can be no assurance that such resources will be sufficient
to satisfy the Company's capital requirements for such period. The Company
anticipates that any additional financing required to meet its current plans
for
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expansion may take the form of the issuance of common or preferred stock or
debt securities, or may involve other debt financing. Such financing may
involve secured or unsecured debt financing. To the extent that the Company
elects to obtain debt financing, the lender may impose certain restrictive
covenants on the Company and upon any default by the Company on such debt
financing, and a liquidation of the Company, the rights of such lender would
be superior to the rights of the holders of Common Stock, including
purchasers in this Offering. There can be no assurance that the Company will
be able to obtain such additional capital on a timely basis, on favorable
terms, or at all. In any of such events, the Company may be unable to
implement its business plan.
Inflation
The impact of general inflation on the Company's business has been
insignificant to date and the Company believes that it will continue to be
insignificant for the foreseeable future.
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BUSINESS
The Company
Thinking Tools develops powerful and flexible PC-based business simulation
software programs that enable users to simulate real life business
situations, explore complex operational problems and improve functional and
problem solving skills. The Company's agent-based, adaptive simulation
software has a broad range of potential business applications, including
strategic planning, sales and marketing, training, competitive positioning,
product marketing, operational planning, logistics and supply and demand
forecasting. The Company believes that its products are unique because they
combine user-friendly interactive interfaces used in sophisticated computer
games with its proprietary agent-based programming to produce interactive
adaptive business simulations. Agent-based, adaptive simulations can be used
to model competitive situations, simulate consumer behavior, demonstrate the
impact of management actions, seek system vulnerabilities and explore complex
operational systems. The Company's user-friendly interfaces enable persons
with no technical training to comfortably interact with complex systems.
The Company's agent-based programming enables autonomous agents in the
simulation to respond to user behaviors in unpredictable and realistic ways.
In contrast to other modelling and simulation tools in use and known to the
Company, which are generally built around a limited number of agents acting
according to pre-programmed, deterministic algorithms, the multiplicity of
autonomous agents and the results of their interactions with each other and
the user give the Company's simulations a complexity that mirrors human
behavior found in the real world.
The Company's capabilities in developing highly sophisticated simulations
are built upon experience gained from developing computer games, its skill in
programming autonomous and adaptive agents and its large and growing library
of reusable simulation objects. The Company's creative control is based on
its proprietary development environment, WHITEBOARD, which supports interface
building, object creation, simulation management, object management and
application frameworks. WHITEBOARD simplifies and supports the construction
of agent-based simulations and is the core of the development of each of the
Company's simulations.
The Company was formed to purchase, on December 30, 1993, certain assets
of the Division of Maxis, a leading computer game company and creator of the
simulation game SimCity(tm). Through the purchase agreement with Maxis, the
Company acquired the Division's equipment, staff, work-in-progress,
customers, prospects, software tools, libraries and processes.
Industry Overview
Simulations were among the earliest computer applications. Since the first
days of digital computers, simulations using equations have been applied to
scientific and engineering problems. Business simulations first began to
appear shortly thereafter. Companies have attempted to simulate complex
adaptive systems with models that were either fixed (deterministic) or
stochastic (probability-based). Alternatively, they have developed their own
custom systems based on executive information system (EIS) software packages.
In all cases, the models lacked the adapting and evolving characteristics of
real world systems; particularly because the most interesting business
systems are made up of elements (e.g., customers, competitors and markets)
that adapt their behaviors to each other. The elements in these systems
modify their external behavior and internal structure in order to make more
efficient use of their environments. Models based on formulae alone cannot
effectively recreate these complex, adaptive systems.
In order to imitate these systems, models must themselves be adaptive.
Some definitions will help to explain how this is accomplished:
(bullet) Object. A capsule of data and logic that are thematically
related.
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(bullet) Agent. An object that can act on its environment.
(bullet) Autonomous Agent. An agent that selects its behavior with the
goal of achieving a better fit to the requirements of its
environment.
(bullet) Adaptive Agent. An agent that creates new behaviors in a
non-random way with the goal of achieving a progressively better
fit to the requirements of its environment.
A fusion of techniques from biology (natural selection, evolution and
genetics) and from computer science (cellular automata) led to early results
in development of adaptive agents during the 1970's and up to the late
1980's. The use of adaptive agents customizes the learning experience for
each user by allowing the simulation to discern user vulnerabilities and
confront the user with simulated events that focus on those weaknesses. This
hostile environment introduces the challenges that a particular user needs
most to understand. Simulation-based training using adaptive agents
emphasizes diagnosis, planning and problem solving skills rather than rote
learning or routine/automatic responses.
The Company believes that adaptive simulation methods are most effective
in the following applications:
(bullet) Training. Adaptive simulation-based training focusing on real
time diagnosis, planning and problem solving.
(bullet) Rehearsal. Individual and group rehearsal of responses to
simulated contingencies used to evaluate the users' ability to
handle various emergencies.
(bullet) Shared Awareness. Simulation of proposed uses of critical
knowledge. Where does each department or employee fit; what does
the business look like; what changes are necessary and why; what
is the plan?
(bullet) Hypothesis Testing and Rule Finding. Simulations that apply rules
that govern the behavior of a critical system. What are the rules
that govern the behavior of individual elements (e.g., customers
within a market segment); and how do elements interact with each
other?
(bullet) Leverage Finding. Simulations that apply the present
understanding of the system's condition and the rules for its
elements. Where are the critical leverage points for creating big
swings with economic application of force? How will the system
amplify applications of force?
The adaptive business simulation software industry is in its infancy. When
computing power was prohibitively expensive, only the largest companies could
hope to gain the benefit of sophisticated business simulation. But, as
computing power has dropped in price, even small companies have come to
possess hardware capable of supporting adaptive simulations, provided that
the software is available. The market for adaptive simulation software is
expected by the Company to continue to grow dramatically as the fixed cost of
supporting hardware continues to drop.
The Company believes that the use of simulation models in the business
world will continue to increase as a result of the following:
(bullet) Increasing use of computers to assist decision-makers with
complex strategic issues, including operational support software
for problem management and resolution.
(bullet) Increasing corporate demand for more sophisticated forecasting
tools than are provided by executive information systems and
on-line analytical processing software.
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(bullet) Increasing recognition of models and simulations as
cost-effective alternatives to specialized personnel in the areas
of marketing and sales.
(bullet) Increasing use of multi-media software to support collaboration
among geographically separated workgroups.
(bullet) Increasing PC performance allowing the use of advanced graphics
and multi-media to represent business situations.
(bullet) Increasing importance of competitive product positioning and
shortening the development time for products.
The Thinking Tools Solution
The Company's approach to simulation is known as agent-based, adaptive
simulation (as distinct from equation-based simulation). Agent-based methods
involve software environments filled with many agents. As the agents interact
they individually select behavior rules that guide their actions. These
actions in turn influence the rule selections made by other agents. The
behavior that results from the application of all of these individual
behavior rules is called emergent behavior.
One example of emergent behavior is temperature. Although individual
molecules in the atmosphere of a room have a location and velocity, they do
not have temperature. Temperature results from the interactions of all of the
molecules in the room's atmosphere. Temperature is a measure of emergent
behavior. Emergent behavior is typically far more complex than the behavior
of an individual agent particularly where the agents are adaptive. Emergent
behavior simulation developed by the Company allows the behavior of a
business process, organization or market to be simulated.
The Company has combined its experience in developing agent-based
simulations with experience derived from the development of computer games
and their human interface style. Most software presents the user with an
information surface: users put information onto the surface and the software
processes it, or the software puts information onto the surface and users
make use of it. The human interface used in many computer games is an
artificial environment created by software and reflected in a multi-media
format. Users perceive and sometimes shape or manage the systems present in
those places. This style is much more closely related to film or theater than
to interfaces found in other types of software. In most of its projects to
date, the Company has combined the use of agent-based methods and computer
game interface techniques. The Company produces software products that are
accessible and adaptive. These tools make it easy for users to become
involved and assume a role in the system that they are exploring.
The Company's business process simulations treat complex management tasks
which require almost continuous use of judgment, insight and problem solving
skills, focusing on assisting users to develop these skills. The simulations
also provide operational support that helps users as they plan and solve
problems. These simulations promote the user's thinking about the complex
systems upon which their operations depend. The Company believes that the
principle competitive advantages of its products over other business process
simulations are the adaptive nature of its simulations and its proprietary
development interface, WHITEBOARD. WHITEBOARD supports interface building,
object creation, simulation management, object management and application
frameworks.
Growth Strategy
The Company devoted its initial efforts to demonstrating the feasibility
of the use of adaptive simulation for business applications by developing
customized software programs for large clients pursuant to strategic
distribution arrangements. The Company also assembled a highly-skilled
technical team, established a growing library of reusable objects and
enhanced its WHITEBOARD technology.
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The Company's success in completing major projects for industry leaders
who have validated the concept underlying the Company's technology, has
positioned it to expand the scope of its operations to include the
development of internally-funded software products and the direct marketing
of the Company's products, in addition to continuing to selectively accepting
projects funded by third parties.
The Company's goal is to develop a variety of simulations in divergent
business areas. As a part of this strategy, the Company intends to undertake
self-funded development of new simulations with broader market appeal and to
adapt certain previously developed simulations, rights to which were retained
by the Company, for sale as turnkey packages to new vertical markets. The
Company will also, upon request, customize these packages on a project basis.
The Company plans to continue to expand its custom business selectively,
while moving to invest in specific horizontal and vertical products and
distribution channels aimed at the high end corporate and professional
service markets. The Company intends to focus its custom business on projects
that either allow for further development of an important technology on a
paid basis, or facilitate the development of relationships with distribution
partners which could provide benefits to the Company beyond the custom
project. Custom projects will not be limited exclusively to the corporate
sector, but may include the military and intelligence communities, because of
their interest in leading edge technology. An important feature of the
Company's "custom" strategy is to reduce the required amount of custom
development for each product, and therefore its cost. The Company will seek
to accomplish this goal by increasing its use of semi-custom designs (design
families) and through improved development of object library creation
techniques.
In the future, the Company may occasionally agree to work with a customer
to produce a retail, shrink-wrapped product. In such cases, it is expected
the customer would pay the entire cost of development and the Company would
receive an ongoing royalty on all retail sales. The Company believes that
only in such cases would its products be brought to market through a retail
channel.
The Company intends to build management depth and breadth and expand the
Company's marketing and sales capabilities. The Company intends to hire a
chief executive officer and chief financial officer. The Company also intends
to hire a senior marketing and sales executive to further develop the product
strategy and implement and expand the Company's distribution strategy. The
Company plans to establish a small direct sales force to focus on key
products and markets and to solicit custom business. The Company intends to
utilize a substantial portion of the net proceeds of this Offering for
implementing this growth strategy. See "Risk Factors--Limited Marketing
Experience; Need for Additional Personnel," "-- Risks Associated with Growth
Strategy" and "Use of Proceeds."
Products
The Company's products are fully-graphical, interactive and provide
constant graphical feedback with a wide variety of responses to the user's
actions. To date, the Company's technology has been used to develop a variety
of such products.
SimRefinery is a demonstration program which was released by the Division
in late 1992 and purchased by the Company along with certain assets of the
Division. SimRefinery serves as the Company's model demonstration program.
The program shows how supply and demand conditions interact, the impact on
the financial performance of the refinery of changes in supply and demand
conditions and of changes in marketplace objectives. The user learns about
refineries through taking an active role in the simulation as the plant
manager of the refinery.
SimHealth is a simulation of the impact of various proposed reforms on the
United States health care system and has some 5,000 objects. It simulates
both the supply and demand sides of health care, shows the
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impact of choices and values on the financial health of the system and of its
usage and demand. The program was developed for the Markle Foundation in 1994
under a contract negotiated by the Division, and assumed and completed by the
Company.
TeleSim is a simulation of the local exchange telephone market for a
particular region and competitors in that region. The package simulates the
world of a telephone company, including the particular user's sales and
service regions and its market opportunities and vulnerabilities. The user
can actively explore the impact on the financial performance of the
corporation and the impact on its competitive environment of changes in the
conditions of supply and demand or emphasis of different corporate
objectives. Competing companies are driven by adaptive agents that base their
strategies in part on the actions taken by the user. TeleSim has some 12,000
objects. Since its initial development under a contract with Coopers in 1994,
subsequent versions of TeleSim have been produced and sold through Coopers to
Sprint Corp. and AT&T Corp.
Project Challenge, is a simulation for project management of information
systems projects. Project Challenge users create a model of their projects,
then operate the projects under benign, realistic or hostile environments. A
variety of novel displays keep the user informed about project conditions,
including scheduling, budget and human resources. This simulation program can
assist in both training and operational roles. Project Challenge is highly
sophisticated, incorporating over 15,000 objects. The development of the
simulation was funded by SystemHouse; however, the Company retained the
rights to create variations of this specific simulation for other kinds of
project management, such as construction projects, and is currently working
on other business simulation projects. The Company anticipates that Project
Challenge will also serve as a foundation for training or performance support
applications in other occupational fields.
Product Development
The Company believes that its programming technology, resources and
experience will allow it to move beyond the current generation of simulation
products. Several advanced capabilities developed and cultivated by the
Company since its inception play a critical role in its product development
work.
(bullet) The Company has developed a process for investigating, describing
and modeling complex adaptive systems. Conceptual and detailed
design steps in this process make it possible to translate an
understanding of the complex adaptive system into specifications
required by programmers to build the final product. The Company
has developed and refined its ability to program adaptive agents
to produce new behaviors at run time, while remaining within a
range of realistic behavior.
(bullet) The Company continues to introduce and apply newer, more powerful
techniques for programming its agents, often incorporating
methods based on biological processes.
(bullet) The Company has succeeded in creating a class of "bad agents,"
known as Malion, to explore vulnerabilities in systems, networks
or practices so that the user can then repair them.
The following markets are ones in which the Company is either already
pursuing, or plans to pursue, product applications. See "Risk
Factors--Dependence on Emerging Market for Business Simulation Software" and
"--Uncertainties Related to Development of Additional Products."
Business Management, Sales and Training. In these simulations, the Company
intends to focus on markets that lend themselves specifically to the
strengths of simulation, namely markets requiring simulations mirroring
circumstances involving multiple central variables amongst which tradeoffs
continually need to be made, with outcomes that are not always intuitively
obvious. An example of a business process simulation is Project Challenge,
which trains corporate employees in the art of project
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management. The Company has begun development of its second product in this
category which will focus on the sales process and the interpersonal skills
critical to the sales process. Products in the business process category
generally will be designed to support easy field-modification by the training
department or student, but will not require custom programming by the
Company.
Contingency and Security. These proposed simulations will provide
emergency response service providers with a means of training, rehearsing and
planning their disaster recovery procedures. The Company believes that this
field is particularly appropriate for simulation since all parts of an
organization must be involved, the actual event being prepared for happens
rarely, if at all, and the consequences of the event can be disastrous if not
handled properly. The first proposed product will treat information
technology recovery for corporations, but related products may be developed
for other forms of emergency response.
Internet and Intranet Simulations as Marketing Tools. Simulations of a
host's business would reside on its home page or intranet and combine the key
properties of adaptive and interactive simulators with the accessibility of
wide area networks. Because these proposed simulations will emulate games,
the Company believes that internet users will view them as compelling and
engaging ways to spend time. While protecting the individual consumers'
identity, the site would track and provide to the host valuable marketing
information relating to the way consumers learn, think and decide about the
hosts' products, and depending on design perhaps, competitive products as
well. In this way the host could collect valuable marketing information.
Adaptive Supply and Distribution. The Company has completed a proof of
concept simulation in the area of self-ordering distribution that the Company
believes could change the way companies think about and plan their supply,
distribution, replenishment and logistics capabilities. The Company believes
that a simulation of this type would be of substantial interest in corporate,
military and other government circles.
Thought and Decision Processes. The Company is working on a simulation
that ascribes motives, goals, thoughts and strategies to other people or
groups in order to make sense of their past behavior and to anticipate their
future behavior. The simulation provides users with a means of building and
updating models of the thought and decision processes of other individuals or
groups including, for example, the competition or other departments within an
organization. The product is intended to create a picture of this dynamic and
often very complex process that helps the user to explore what she knows or
assumes about the process. This simulation will be used to clarify
communication with others and to further understand the thought process under
examination. The first application in development is in the area of complex
strategic decision-making. Future commercial applications will be designed to
help corporate customers as they collect, organize and apply this complex and
subtle knowledge about their business decisions, or those of their
competitors and customers.
Customers
Historically, the Company has sold its products to a number of large
companies, as well as governmental agencies, foundations, text book and
traditional publishers and consulting firms. The following list identifies
certain of the Company's customers:
Coopers & Lybrand L.L.P. Systems Engineering Solutions, Inc.
SHL SystemHouse, Inc. Xerox Corp.
Andersen Consulting L.L.P. Harcourt General, Inc.
Some of the Company's customers have contracted for the Company's
development of specific simulations in order to resell such simulations as a
value added component of their consulting or other services. The following
list identifies certain end-users who have purchased the Company's products
directly from customers of the Company:
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AT&T Corp. Sprint Corp.
NYNEX Corporation Pacific Telecom, Inc.
U.S. Army U.S. Air Force
Sales to three customers for the six months ended June 30, 1996 accounted
for 33%, 32% and 18%, respectively, of the Company's sales for such period.
Sales to three customers in Fiscal 1995 accounted for 27%, 14% and 13%,
respectively, of the Company's sales for such period. Sales to two customers
in Fiscal 1994 accounted for 59% and 17%, respectively, of the Company's
sales for such period.
Marketing and Sales Strategy
To date, the Company has not devoted significant financial resources to
marketing, and customers have come through word-of-mouth or following
referrals from Maxis and others. The Company has also generated inquiries by
presentations at industry and academic forums with high level corporate
audiences. John Hiles, the founder of Thinking Tools, is a highly sought
after speaker at such events.
The Company intends to distribute its product through existing channels of
its strategic partners as well as by initiating direct sales to customers
through its proposed sales force, and through distributors and value added
resellers ("VARs"). The Company entered into a Vertical Market Software
Development/ Licensing Agreement, dated October 12, 1994, with Coopers
pursuant to which the Company receives a royalty from Coopers in exchange for
the grant to Coopers of a worldwide, perpetual license to use and reproduce
TeleSim subject to the following: (i) for a period equal to the greater of
five years from Coopers' final acceptance of TeleSim or any period of one
year of non-use by Coopers of TeleSim, the Company may not license or sell
TeleSim worldwide without Coopers' written approval and (ii) the Company may
use TeleSim in any product for use outside the telecommunications industry,
and for any non-competitive product, including other products for the
telecommunications industry, provided that the Company shall not use Coopers'
confidential information or trademarks. The Company also entered into a
Development Agreement, dated June 30, 1995, with SystemHouse, pursuant to
which the Company receives a royalty from SystemHouse in exchange for the
grant to SystemHouse of a worldwide, exclusive right to use, market, sell,
distribute and license Project Challenge for systems integration. The Company
is also in discussion with additional prospective VARs. As the Company moves
into new specific product areas, it intends to seek strategic alliances in
such areas. The Company plans to continue making presentations and
appearances at academic forums and corporate-sponsored events.
Proceeds from this Offering will be used to implement the Company's
marketing and sales efforts. The Company expects to hire a direct sales force
following this Offering. A senior marketing and sales executive is expected
to be hired to further develop the product strategy and implement and expand
the Company's distribution strategy. See "Risk Factors--Limited Marketing
Experience; Need for Additional Personnel" and "Use of Proceeds."
Intellectual Property
The Company does not have any patents and has not filed patent
applications on its products because patents are often insufficient to
protect software. The Company regards the software that it owns or licenses
as proprietary and relies primarily on a combination of trade secret laws,
nondisclosure agreements and other protection methods to protect its rights
to its products and proprietary rights.
It is the Company's policy that all employees and third-party developers
sign nondisclosure agreements. This may not afford the Company sufficient
protection for its know-how and its proprietary products, and other parties
may develop similar know-how and products, duplicate the Company's know- how
and products or develop patents that would materially and adversely affect
the Company's business. See "Risk Factors--Uncertainties Regarding
Intellectual Property."
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<PAGE>
The Company believes that its products and services do not infringe the
rights of third parties. However, there can be no assurance that third
parties may not assert infringement claims against the Company, with such
claims resulting in the Company being required to enter into royalty
arrangements, pay other damages or defend against litigation, any of which
could materially and adversely affect the Company's business.
The Core Technology Asset-WHITEBOARD
WHITEBOARD is a collection of technologies that allows the software
developer to build a business simulation for any type of company or industry.
WHITEBOARD incorporates in the simulations all major variables for situations
defined by the programmer. The Company's simulation development process
allows the programmer to change variables and to see the effect of any other
combination of variables. WHITEBOARD is comprised of four main components:
(bullet) An object-oriented database engine to manage and access thousands
of objects while a simulation is running.
(bullet) A library of predefined business simulation objects and tools to
enable the developer to edit these objects and to build
customized objects.
(bullet) An object integration component to allow users to import and use
objects from other technical environments, including other
Company simulations.
(bullet) The technical capability to add multi-media effects and
approaches.
WHITEBOARD is a powerful tool for building simulations of complex adaptive
systems critical for simulating business environments. WHITEBOARD was
developed to provide programmers with a tool for easily building realistic
business simulations with a capacity for adaptive behavior, realistic
duplication of crisis or chaos situations and animation and graphical
displays. While incorporating advanced object- oriented concepts, it also
focuses on the graphics area and is designed for visual analysis. WHITEBOARD
allows developers to add full multi-media effects including sound, graphics
and digital video. This permits the designer to approach simulations in the
most realistic way possible. WHITEBOARD runs on an IBM PC on Windows. It is
written in the widely used language C and it runs with Novell software in a
workgroup environment. It is unique in its ability to run in the PC
environment.
The object-oriented database allows developers to build complex
applications by importing existing objects from other of the Company's
applications--both finished products and work-in-progress. The developer can
also edit existing simulation objects or add new types of simulation objects
to simulate new types of situations. In effect, the engine is a specialized
tool for rapidly building business simulations. For example, a family of
performance support or training applications for related occupations could be
developed substantially faster than Project Challenge--the foundation upon
which they could be based.
The Company plans to enhance WHITEBOARD to include tools that will allow
the developer to build customized simulation objects based on library objects
or other objects. The library of objects built into WHITEBOARD can be further
extended so that generic situations and processes can be highly customized to
the precise application required by the developer.
The WHITEBOARD technology has been validated through use in the
development of the Company's products. Developers have been able to carry out
design, simulation and testing that would have otherwise been inordinately
time consuming and expensive, at a fraction of the cost and the time spent.
Use of WHITEBOARD has reduced the time required for prototyping the
simulation and testing the marketing and launch of a product to a few months.
The ability of WHITEBOARD to contribute to reductions in cycle time and to
model strategic choices provides a significant competitive factor to the
Company.
30
<PAGE>
Competition
The market for business simulation software is highly competitive, subject
to rapid technological change and emerging industry standards. The Company
believes that the principal competitive factors in its markets are product
performance, product maintenance, support and price. The software industry in
general is highly competitive and most established companies in the business
software field are substantially larger and have greater financial resources
than the Company. See "Risk Factors--Technological Change; Risk of
Obsolescence; Industry Standards" and "--Competition"
Presently, internal development of business simulations by companies
seeking simulation capability represents the main source of competition to
the Company's products and services. However, because it generally is not
economical for a business to develop and continually upgrade such a product
for its own needs alone, the Company believes that internal development
produces a less cost effective solution to the developer's needs.
Internal developers are currently limited to using equation-based
simulation tools for their simulation program development. Equation-based
models will not duplicate the adaptive or chaotic behavior of systems
available from the Company. No generally available sources of tools will help
corporate technical staff to design models of complex adaptive systems
competitive with those of the Company. Even with programming tools for
agent-based simulations, design know-how like that refined and practiced at
the Company would still be required to create rich and effective tools and
are unlikely to be available in an in-house setting.
Authoring tools such as MacroMedia's Director and Asymmetrix' Toolbook can
be used to develop parts of the user interface for simulations. Authoring
tools are developing a rich suite of multimedia effects and are optimal for
building interesting graphic user interfaces and interactive applications.
However, these tools cannot match the extensive customized and specialized
agent-based, adaptive simulation objects possessed by the Company.
The Company believes that the following companies constitute the principal
participants in the business simulation software market at this time:
Aspen Technologies, Inc. ("Aspen") supplies computer-aided chemical
engineering software products to the process manufacturing industries.
Aspen's software allows chemical engineers to create mathematical models of
manufacturing processes and to predict the performance of such procedures
under varying equipment configurations and conditions.
GSE Systems, Inc. ("GSE") designs, develops and supplies high fidelity,
real time simulation software, systems and services for the energy and
manufacturing industries. GSE develops simulation products for nuclear power
plants, fossil fuel plants, petroleum refineries, chemical processing plants
and other industrial manufacturing plants.
Integrated Systems, Inc. provides software development tools in several
industries. Its products help manufacturers develop and simulate dynamic
systems.
IntelliCorp, Inc. ("IntelliCorp.") develops and markets computer software
that helps in creating knowledge-based computer systems, solving difficult
problems and distributing information. IntelliCorp.'s software is aimed at
the mainstream business market.
Legacy Software, Inc. develops entertainment and education software
products for homes and schools.
Meta-Software, Inc. develops, markets and supports simulation and library
generation software products for use in integrated circuit design.
MPSI Systems, Inc. ("MPSI") develops and markets proprietary computer
application software and related databases used by multi-outlet retailers.
MPSI's product constructs a mathematical model of a retail market, allowing
clients to simulate various market changes.
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<PAGE>
PRI Automation, Inc. manufactures factory automation systems used in the
fabrication of integrated circuits by semi-conductor manufacturers.
Games developers may also choose to enter the business simulation software
market in the future and become competitors of the Company.
The Company believes that its combination of computer game interfaces,
agent-based programming and design of complex adaptive system models
differentiates its products from those of its competitors.
Government Regulation
The Company is subject to regulation under various federal and state laws
regarding, among other things, occupational safety, environmental protection,
hazardous substance control and product advertising and promotion. The
Company believes that it has complied with these laws and regulations in all
material respects and it has not been required to take any action to correct
any material noncompliance. The Company does not currently anticipate that
any material capital expenditures will be required in order to comply with
federal, state and local laws or that compliance with such laws will have a
material effect on the financial condition or competitive position of the
Company.
Personnel
As of October 1, 1996, the Company had a total of 15 full-time employees,
including Mr. John Hiles, Mr. Bruce Skidmore, seven software engineers, two
designers, two artists and two administrative personnel. None of the
Company's employees is represented by a labor union and the Company has not
experienced any work stoppages. The Company considers its relations with its
employees to be good.
The market for qualified personnel, especially that for software engineers
and programmers, is highly competitive. The Company believes that its future
success will depend, in part, on its continued ability to hire, assimilate
and retain qualified personnel including management, sales and marketing,
executive and direct sales force personnel. See "Business--Marketing and
Sales Strategy."
Facilities
The Company's principal offices are located at One Lower Ragsdale Drive,
1-250, Monterey, California 93940. The Company leases approximately 3,776
square feet of office space at this location pursuant to a lease with KI
Monterey Research, Inc. dated August 19, 1994. Annual lease payments are
expected to be $104,716.14 in the year ended December 31, 1996.
Legal Proceedings
The Company is not a party to any legal proceedings.
32
<PAGE>
MANAGEMENT
Officers, Directors, Key Employees and Consultants
The executive officers, directors, key employees and consultants of the
Company are as follows:
Name Age Position
- ---------------------- ------------- ---------------------------------------
Mr. John Hiles 50 Founder, President, Secretary, Director
Mr. Fred Knoll 41 Chairman of the Board, Director
Ms. Esther Dyson 45 Director
Mr. Frederick Gluck 61 Director
Dr. Ted Prince 49 Director
Mr. Fran Saldutti 48 Director
Mr. Bruce Skidmore 37 Vice President of Engineering
Mr. Greg Rossi 40 Architect, WHITEBOARD
Mr. Rick Rosenbaum 49 Senior Applications Engineer
Mr. Mort Meyerson 57 Advisory Committee Member
John Hiles is the founder and has been President and Secretary of the Company
and a member of its board of directors, since its inception. Mr. Hiles'
career spans 24 years in the software industry. From 1992 to 1993, he served
in various positions with Maxis Business Simulations, including that of
General Manager. While with Maxis, Mr. Hiles directed the development of
SimHealth and developed a means of transferring the key human interface
properties of entertainment games to business and government simulations.
From 1986 to 1992, Mr. Hiles was President and co-founder of Delta Logic,
Inc. From 1984 to 1986, Mr. Hiles served as Senior Vice President of product
development at Digital Research. From 1976 to 1983, Mr. Hiles was employed by
Amdahl where he lead the development of software products. In 1984, Mr. Hiles
was in charge of leading software development at Mead Data Central. Two of
the many products that have been produced by organizations that he directed
were GEM, one of the first graphical user interfaces for the PC, and UTS,
Amdahl's highly successful mainframe-compatible UNIX operating system which
foreshadowed the open systems movement by several years. Mr. Hiles holds an
A.B. from the University of California at Santa Barbara and took several
additional undergraduate and graduate courses in Computer Science at the
University of California at Los Angeles and the University of California at
Irvine.
Fred Knoll has been Chairman of the Board and a member of the board of
directors since September 1994. From 1987 to the present, Mr. Knoll has been
the principal of Knoll Capital Management, L.P., a venture capital firm
specializing in the information technology industry. From 1985 to 1987, Mr.
Knoll was an investment manager for General American Investors, responsible
for the technology portfolio, and served as the United States representative
on investments in leveraged buy-outs and venture capital for Murray
Johnstone, Ltd. of Glasgow, Scotland. From 1983 to 1985, Mr. Knoll served as
manager of venture investments for Robert Fleming, Inc., a U.K. merchant bank
in New York and was responsible for managing a venture capital fund as well
as managing a team whose responsibility was to identify public investment
opportunities. Mr. Knoll also held investment positions with the Capital
Group (Capital Research/Capital Guardian) from 1982 to 1983 and General
American Investors. During the 1970's, Mr. Knoll worked in sales and
marketing management for Data General and Wang Laboratories, Inc. Mr. Knoll
is a director of numerous companies including Spradling Holdings, a plastics
distributor, US Envirosystems a co-generation energy company, and Lamar
Signal Processing, Ltd., a digital processing company, and is a principal of
Valor Capital Management, L.P., a private investment limited partnership. Mr.
Knoll holds a B.S. in Computer Science from M.I.T. and an M.B.A. from
Columbia University in Finance and International Business.
Esther Dyson has been a member of the board of directors since October 1994.
Since 1983, Ms. Dyson has served as president of EDventure Holdings, a
diversified company focusing on emerging information
33
<PAGE>
technology worldwide, and on the emerging computer markets of Central and
Eastern Europe. Since 1994, Ms. Dyson has been chairman of the Electronic
Frontier Foundation and has been a member of the US Nation Information
Infrastructure Advisory Council, where she co-chairs the Information Privacy
and Intellectual Property Subcommittee. Ms. Dyson is a member of the board of
directors of the Global Business Network, ComputerLand Poland and Cygnus
Support, and she is a member of the advisory board of Perot Systems. She is a
limited partner in the Maryland Software Fund. Ms. Dyson has also written
articles on industry topics for the Harvard Business Review, The New York
Times, The New York Times Magazine, WIRED Magazine and Forbes Magazine, among
others.
Frederick W. Gluck has been a member of the board of directors since October
1994. Mr. Gluck has also served as vice-chairman and a director of Bechtel
Group, Inc. since 1995 and as a member of the Board of Directors of Bechtel
Enterprises, Inc. He also serves as a member of both companies' executive
committees. Prior to joining Bechtel, Mr. Gluck spent more than 25 years with
McKinsey & Company, and was ultimately the managing director of the Company.
Mr. Gluck serves on the Harvard Business School board of directors of the
Associates, the Management Education Council of the Wharton School, the U.S./
Hong Kong Economic Cooperation Committee, the Council on Foreign Relations
and the Board of the International Executive Service Corps.
Ted Prince has been a member of the board of directors since October 1994.
Since 1995, Dr. Prince has been the Chairman and CEO of INSCI Corporation.
Since 1992, Dr. Prince has been the President and founder of Perth Ventures,
Inc., an investment banking and public relations firm which specializes in
the emerging information technology area. Dr. Prince is also an author,
publisher and speaker in the area of emerging information technologies and
market trends. He is the author and publisher of The Technology
Fundamentalist, a national newsletter focusing on emerging computer
technologies and market trends. Dr. Prince has started up several information
technology companies including CP International, a company specializing in
text retrieval software, and Harwell Computer Power, a startup in the same
field. From 1984 to 1992, he served as President and CEO of several
companies, including the national computer services company, Computer Power
Group. From 1979 to 1984, Dr. Prince was the Chief Information Officer of the
Australian Social Security Agency where he was responsible for designing the
new national social welfare system.
Fran Saldutti has been a member of the board of directors since October 1994.
Mr. Saldutti has been, since 1995, a managing general partner of Ardent
Research Partners, L.P., a limited partnership founded in 1992 to invest
exclusively in the information technology markets. From 1990 through February
1995, Mr. Saldutti served as senior technology analyst for Amerindo
Investment Advisers. From 1984 through 1986 he served as Senior Vice
President and Director of Research for Gartner Securities and from 1986 to
1988 as Director of Technology Research for L.F. Rothschild. Mr. Saldutti
moved to the buy side in 1989 as senior technology analyst with Merrill Lynch
Asset Management's Sci/Tech Fund. From 1975 to 1989 Mr. Saldutti either
produced, sold or directed technology research for several leading technology
brokerage firms. Mr. Saldutti maintains board directorships in other
technology companies, including Kraft Kennedy, Lesser, a LAN industry systems
integrator and Meta Group, a market research firm specializing in information
technology. He is a member of the Software and Services Splinter Group of the
New York Society of Securities Analysts.
Bruce Skidmore has been Vice President of Engineering of the Company since
1993. Mr. Skidmore has 14 years of experience in the software development
industry as, among other things, a Project Manager, Engineering Manager and
Director of Engineering. His technical experience is in the areas of
operating system development and design, networks and application
architectures. From 1992 to 1993 he worked for Maxis as Director of Product
Development. From 1986 through 1992, he worked for Poquet and Delta Logic as
Manager of Communications and Systems Software. From 1981 to 1986, he worked
for Digital Research as a Network Project Manager. Mr. Skidmore holds a B.S.
in Computer Science from California Polytechnic State University, San Luis
Obispo.
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<PAGE>
Greg Rossi is the architect of WHITEBOARD and has been employed by the
Company as a programmer since 1994. Mr. Rossi has 12 years of experience in
the software industry focusing on object data bases and graphic user
interfaces. From 1992 to 1993 he worked for Maxis as Senior Member of the
Technical Staff. From 1986 to 1992 he worked for Poquet and Delta Logic as
principal programmer. From 1985 to 1988 he worked for Digital Research as a
senior software engineer and from 1982 to 1984 for Dialogic Systems as
programmer. Mr. Rossi has a B.A. in Chemistry and Computer Science from the
University of California at Santa Cruz.
Rick Rosenbaum has served as the Company's Senior Applications Engineer since
its inception. Mr. Rosenbaum has 25 years of experience in the software
industry specializing in computer languages and simulation applications.
Prior to working at the Company, from 1992 to 1993, he served as Senior
Member of the Technical Staff of Maxis and, in 1986, as Manager of the Core
Languages Group of Sun Microsystems, and from 1987 to 1992 as Project Manager
of Digital Research and Bank of America. Mr. Rosenbaum holds a B.S. in
Electrical Engineering and an M.S. in computer science from the Georgia
Institute of Technology.
The Company has agreed for the five-year period commencing upon consummation
of this Offering, to nominate and use its best efforts (including the
solicitation of proxies) to elect one designee of the Underwriter to the
board of directors of the Company. No designee has been chosen as of the date
hereof. See "Underwriting."
Advisory Committee
The board of directors of the Company has formed an advisory committee to
provide it with industry and technology advice. The advisory committee
currently consists of one member.
Mort Meyerson has been Chairman and CEO of Perot Systems since 1992. From
1979 to 1986 he was President and Chief Executive Officer of EDS Information
Systems. Mr. Meyerson has had extensive experience in the software industry,
in running large technology companies and in investing in, growing and
capitalizing emerging technology companies.
Arrangements with Directors and Executive Officers
John Hiles, President of the Company, is employed by the Company under an
employment agreement (the "Employment Agreement") that is subject to
automatic annual renewals unless terminated by the Company or Mr. Hiles upon
90 days' prior written notice. Pursuant to the Employment Agreement, Mr.
Hiles receives a salary of $132,000 per year, which salary may be increased
at the discretion of the board of directors, and may be supplemented by
certain bonuses at the discretion of the board of directors of the Company.
The Company believes the terms of the arrangement are no less favorable to
the Company than the terms that it could have obtained from an unaffiliated
third party.
Fred Knoll, the Chairman of the Board of the Company, has provided, and
continues to provide certain executive and related consulting services to the
Company as requested by the Company including serving as Chairman of the
Board, consulting on various aspects of the Company's business and
negotiating certain contractual and employment arrangements. To date, Mr.
Knoll has not been compensated for such services, however, Mr. Knoll may, in
the future, be compensated for such services at the discretion of the board
of directors in an amount which is not anticipated to be in excess of
$150,000 per annum. Mr. Knoll is also entitled to reimbursement of any
expenses which he incurs in connection with providing services to the
Company. To date, Mr. Knoll has incurred unreimbursed expenses of
approximately $70,000, which expenses are expected to be reimbursed from the
proceeds of this Offering. Mr. Knoll, through certain affiliates, controls
Thinking Technologies, L.P.
All directors are elected for a term of one year and hold office until the
earlier of their resignation, removal from office or the next annual meeting
of stockholders and until their successors have been elected and qualified.
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<PAGE>
Executive Compensation
The following table sets forth the annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended December
31, 1995 and 1994, of Mr. Hiles, the President of the Company. Mr. Hiles (the
"Named Executive Officer") was the only executive officer of the Company who
received over $100,000 in compensation in the form of salary and bonus for
the fiscal years ended December 31, 1995 and 1994.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
---------------------------------
Long-
Term
Other Restricted Incentive
Annual Stock Options Plan All Other
Name and Principal Position Year Salary Bonus Compensation Award(s) SARs Payout Compensation
- --------------------------- ---- -------- ----- ------------ ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Hiles, 1995 $132,000 -- -- -- -- -- --
President 1994 $132,000 -- -- -- -- -- --
</TABLE>
1996 Stock Option Plan
The Thinking Tools, Inc. 1996 Stock Option Plan (the "Plan") was adopted
by the board of directors and approved by the Company's stockholders in
August 1996.
The purpose of the Plan is to attract and retain key personnel. The Plan
provides for the grant of options to acquire a maximum of 376,000 shares of
Common Stock of which options to purchase 145,036 shares have been granted
under the Plan, including (i) options to purchase 41,036 shares of Common
Stock granted to certain members of the Company's board of directors under
the Plan, at an exercise price of $1.00 per share, (ii) options to purchase
52,000 shares of Common Stock granted to certain of the Company's employees
at an exercise price of $.79 per share and (iii) options to purchase 52,000
shares of Common Stock granted to certain of the Company's employees at an
exercise price of $5.00 per share. The Plan permits the granting of incentive
stock options ("ISOs") or non-qualified stock options ("NSOs") at the
discretion of the administrator of the Plan (the "Plan Administrator"). The
board of directors acts as the Plan Administrator. Subject to the terms of
the Plan, the Plan Administrator determines the terms and conditions of
options granted under the Plan. Options granted under the Plan are evidenced
by written agreements which contain such terms, conditions, limitations and
restrictions as the Plan Administrator deems advisable and which are not
inconsistent with the Plan. ISOs may be granted to individuals who, at the
time of grant, are employees of the Company or its affiliates. NSOs may be
granted to directors, employees, consultants and other agents of the Company
or its affiliates. The Plan provides that the Plan Administrator must
establish an exercise price for ISOs that is not less than the fair market
value per share of the Common Stock at the date of grant. Each ISO must
expire within ten years of the date of grant. However, if ISOs are granted to
a person owning more than 10% of the voting stock of the Company, the Plan
provides that the exercise price may not be less than 110% of the fair market
value per share at the date of grant and that the term of such ISOs may not
exceed five years. The Plan Administrator has the authority to establish
vesting periods for options granted under the Plan, or to grant options which
are fully vested at the time.
An optionee whose relationship with the Company or any related corporation
ceases for any reason (other than termination for cause, death or total
disability, as such terms are defined in the Plan) may exercise options in
the three-month period following such cessation (unless such options
terminate or expire sooner by their terms), or in such longer period
determined by the Plan Administrator in the case of NSOs. Unexercised options
granted under the Plan terminate upon a merger (other than a stock merger),
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<PAGE>
reorganization or liquidation of the Company; however, immediately prior to
such a transaction, optionees may exercise such options without regard to
whether the vesting requirements have been satisfied.
Options granted under the Plan convert into options to purchase shares of
another corporation involved in a stock merger with the Company, unless the
Company and such other corporation, in their sole discretion, determine that
such options terminate. Such converted options become fully vested without
regard to whether the vesting requirements in the option agreement for such
options have been satisfied, unless the board of directors determines
otherwise.
The option exercise price may be paid in full at the time the notice of
exercise of the option is delivered to the Company and must be paid in cash,
by bank certified or cashier's check or by personal check. Options are
nontransferable with certain exceptions. The board of directors has certain
rights to suspend, amend or terminate the Plan provided stockholder approval
is obtained.
Options Granted Outside the Plan
In addition to the ISOs and NSOs which may be granted under the Plan, as
at June 30, 1996 the Company has granted options to purchase an aggregate of
(i) 58,964 shares of Common Stock outside of the Plan at an exercise price of
$.79 per share, to certain of its directors in connection with the directors
joining the Company's board of directors and (ii) 15,000 shares of Common
Stock outside of the Plan at an exercise price of $1.00 per share, to a
non-affiliate of the Company.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's voting securities as of
the date of this Prospectus, and as adjusted to reflect the sale of shares
offered hereby by (i) each person who is known by the Company to own of
record or beneficially more than 5% of the outstanding Common Stock, (ii)
each of the Company's directors and the Named Executive Officer, and (iii)
all directors and executive officers of the Company as a group. Except as
otherwise indicated, the stockholders listed in the table have sole voting
and investment powers with respect to the shares indicated.
<TABLE>
<CAPTION>
Percentage of Class(1)
------------------------------
Name and Address Number of Shares
of Beneficial Owner Beneficially Owned Before Offering After Offering
- ------------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Thinking Technologies, L.P.(2) 2,579,573 70.6% 51.0%
Mr. Fred Knoll(2)(3) 2,579,573 70.6% 51.0%
Mr. John Hiles(4) 1,076,677 35.5% 24.3%
Ms. Esther Dyson(5)(6) 25,000 * *
Mr. Frederick Gluck(6)(7) 25,000 * *
Dr. Ted Prince(6)(8) 25,000 * *
Mr. Fran Saldutti(6)(9) 25,000 * *
All directors and executive officers
as a group (6 persons)(2)(3)(4)(5)(6) 3,756,250 100.0% 72.8%
</TABLE>
- ---------------
* Less than one percent.
(1) Percentage of ownership before this Offering is based on 3,031,758 shares
of Common Stock outstanding as of the date of this Prospectus. For each
beneficial owner, shares of Common Stock subject to convertible
securities exercisable within 60 days of the date of this Prospectus are
deemed outstanding for computing the percentage of such beneficial owner.
(2) Includes 468,242 shares of Common Stock issuable upon exercise of the
Technologies Warrants and 156,250 shares of Common Stock issuable upon
exercise of Bridge Warrants issued as part of the Bridge Units purchased
by Technologies. Does not include 75,454 shares of Common Stock which may
be purchased by Technologies from John Hiles upon the exercise of an
outstanding option, for $5.00 per share. See "Certain Transactions" and
"Description of Securities." The address of Thinking Technologies, L.P.
is 200 Park Avenue, Suite 3900, New York, New York 10166.
(3) Includes shares beneficially owned by Thinking Technologies, L.P., a
limited partnership indirectly controlled by Mr. Knoll. The address of
Mr. Knoll is c/o Knoll Capital Management, 200 Park Avenue, Suite 3900,
New York, NY 10166.
(4) Includes 75,454 shares of Common Stock which may be purchased by
Technologies from John Hiles upon the exercise of an outstanding option
for $5.00 per share. The address of Mr. Hiles is c/o Thinking Tools,
Inc., One Lower Ragsdale Drive, I-250, Monterey, California 93940.
(5) The address of Ms. Dyson is c/o EDventure Holdings, Inc., 104 Fifth
Avenue, 20th Floor, New York, NY 10011-6987.
(6) Includes an aggregate of 25,000 shares of Common Stock issuable to each
non-affiliated director of the Company upon exercise of outstanding
options. See "Management--1996 Stock Option Plan" and "-- Options Granted
Outside the Plan."
(7) The address of Mr. Gluck is c/o Bechtel, Inc., 50 Beal Street, San
Francisco, CA 94105.
(8) The address of Dr. Prince is c/o Perth Ventures, 342 Madison Avenue,
#716, New York, NY 10173.
(9) The address of Mr. Saldutti is c/o Ardert Research Partners, 200 Park
Avenue, 39th floor, New York, NY 10166.
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CERTAIN TRANSACTIONS
In connection with its purchase of certain assets from Maxis, and in order
to fund its continuing operations, the Company entered into a stock purchase
and loan agreement, dated September 28, 1994 by and between Technologies and
the Company (the "Technologies Agreement"). Technologies was formed by Knoll
Capital Management, L.P. in order to purchase Common Stock of the Company and
to advance the funds provided for under the Technologies Agreement. The
general partner of Technologies is Knoll Capital Management, L.P., an
affiliate of Mr. Fred Knoll, the Company's Chairman of the Board. Mr. Mort
Meyerson, a member of the advisory committee of the Company, is a limited
partner in Technologies.
Pursuant to the Technologies Agreement, Technologies purchased 61.11% of
the Company's authorized and issued Common Stock, for the purchase price of
$100,000 and loaned to the Company $1,200,000 (the "Loan"). The Loan was
evidenced by a promissory note (the "Technologies Note") due and payable on
September 27, 1999. The Technologies Note provides for the semi-annual
payment of interest at ten percent (10%) per annum beginning when and if the
Company realized $2,000,000 in gross income during any fiscal year. No
interest has been paid on the Loan. In connection with the Technologies
Agreement, Mr. Hiles executed an irrevocable proxy authorizing Knoll Capital
Management, L.P. to vote his shares of Common Stock, which proxy is effective
until the Company (i) is acquired through a merger or acquisition; or (ii)
effects an initial public offering in the aggregate amount of $2,500,000. On
and before July 29, 1996, Technologies made additional loans to the Company
in an aggregate principal amount of $502,000, with interest at a rate of 10%
per annum, which loans were due and payable on December 31, 1996 (the
"Additional Loan"), but were repaid in connection with the Bridge Financing.
In connection with the Additional Loan, Technologies received warrants to
purchase 468,242 shares of Company Common Stock at an exercise price of $1.07
per share. See "Description of Securities--Technologies Warrants."
Pursuant to the Technologies Agreement, as long as Technologies owns 20%
of the Company's Common Stock, the Company may not take certain actions
without the approval of the Company's board of directors. Technologies has
entered into a Consent, Waiver and Amendment dated as of August 28, 1996 (the
"Consent & Waiver") with the Company in connection with the Bridge Financing
providing that these covenants shall terminate upon consummation of this
Offering.
In connection with the Technologies Agreement, the Company and Mr. Hiles
agreed to certain co-sale rights and registration rights. Pursuant to the
Consent and Waiver, these rights will terminate upon consummation of this
Offering.
In addition, in connection with the Bridge Financing, pursuant to the
Consent and Waiver, the following transactions were consummated:
Thinking Tools, Inc., a California corporation ("TTI"), was merged with
and into its wholly-owned subsidiary Thinking Tools, Inc., a Delaware
corporation. Pursuant to the Merger, each share of common stock of TTI
outstanding prior to the Merger was exchanged for .7462 shares of Common
Stock.
Pursuant to a plan of recapitalization adopted by the Company's board of
directors, Technologies converted $1,200,000 aggregate principal amount of
outstanding indebtedness and $120,310 of accrued interest into an aggregate
of 263,158 shares of Common Stock issued to Technologies.
Technologies purchased $625,000 aggregate principal amount of Bridge Notes
in the Bridge Financing immediately following repayment by the Company of
$502,000 aggregate principal amount of outstanding indebtedness and $123,000
of accrued interest due to Technologies from the proceeds of the Bridge
Financing.
The Company has no present intention to acquire or merge with a business
or company in which the Company's management or their affiliates or
associates directly or indirectly have an ownership interest. All future
transactions with officers, directors, affiliates and/or controlling
stockholders of the Company will be on terms no less favorable than could be
obtained from unaffiliated parties, and shall be approved by a majority of
the directors of the Company, including a majority of the independent
disinterested directors of the Company.
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DESCRIPTION OF SECURITIES
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Certificate of
Incorporation. The following summary description of the securities of the
Company is qualified in its entirety by reference to the Certificate of
Incorporation, the Technologies Warrants, the Bridge Notes and the Bridge
Warrants, forms of which have been filed as exhibits to the Registration
Statement on Form SB-2 of which this Prospectus forms a part.
Common Stock
The Company is authorized to issue up to 20,000,000 shares of Common
Stock, par value $.001 per share, of which 3,031,758 shares are outstanding
as of the date hereof. Holders of Common Stock are entitled to one vote for
each share held of record on each matter submitted to a vote of stockholders.
There is no cumulative voting for election of directors. Subject to the prior
rights of any series of preferred stock which may from time to time be
outstanding, holders of Common Stock are entitled to receive ratably,
dividends when, as, and if declared by the board of directors out of funds
legally available therefor and, upon the liquidation, dissolution, or winding
up of the Company, are entitled to share ratably in all assets remaining
after payment of liabilities and payment of accrued dividends and liquidation
preferences on any preferred stock. See "Risk Factors--Lack of Dividends" and
"Dividend Policy." Holders of Common Stock have no preemptive rights and have
no rights to convert their Common Stock into any other securities. The
outstanding Common Stock is validly authorized and issued, fully paid, and
nonassessable.
Preferred Stock
The Company is authorized to issue up to 3,000,000 shares of preferred
stock, par value $.001 per share, of which no shares are outstanding as of
the date hereof. The preferred stock may be issued in one or more series, the
terms of which may be determined at the time of issuance by the board of
directors, without further action by stockholders, and may include voting
rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion rights, redemption
rights, and sinking fund provisions. The issuance of any such preferred stock
could adversely affect the rights of the holders of Common Stock and,
therefore, reduce the value of the Common Stock. The ability of the board of
directors to issue preferred stock could discourage, delay, or prevent a
takeover of the Company. See "Risk Factors--Anti-Takeover Effects of Certain
Provisions of Certificate of Incorporation and Delaware Law."
Technologies Warrants
The Company currently has outstanding Technologies Warrants to purchase up
to 468,242 shares of Common Stock at an exercise price of $1.07 per share at
any time until December 31, 2006. The Technologies Warrants contain
anti-dilution provisions providing for adjustment of the exercise price and
the number of shares of Common Stock underlying the Technologies Warrants
upon the occurrence of certain events, including stock dividends, stock
splits and recapitalizations. Technologies has agreed that it will not sell
the Technologies Warrants or the shares underlying the Technologies Warrants
for a period of two years from the effective date of the Registration
Statement, of which this Prospectus forms a part. The Technologies Warrants
also entitle the holders to certain "piggyback" registration rights with
respect to the shares issuable upon exercise thereof at any time that the
Company files a registration statement other than one relating solely to the
sale of securities to participants in a Company employee benefit plan, one
not including substantially the same information as would be required to be
included in a registration statement covering the sale of such Common Stock,
or one only registering Common Stock issuable upon conversion of convertible
debt securities which are also being registered.
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Bridge Units
The Bridge Units consist of the Bridge Notes and the Bridge Warrants. Each
Bridge Unit consists of a Bridge Note issued by the Company in the principal
amount of $100,000 and a Bridge Warrant to purchase up to 25,000 shares of
Common Stock at an exercise price equal to the lesser of $4.20 per share or
60% of the initial public offering price per share in this Offering. The
Bridge Notes and the Bridge Warrants are separately transferable, subject to
certain restrictions upon transferability.
Bridge Notes
The Bridge Notes bear interest at the rate of 10% per annum with interest
to accrue from the date of issuance and payable in four quarterly
installments on the first day of each December, March, June and September
commencing on December 1, 1996 and at maturity. Principal of, and any accrued
and unpaid interest on the Bridge Notes will be due and payable in full on
the earlier of (i) the consummation of this Offering, (ii) one year from the
date on which the Bridge Notes were issued, and (iii) the date of the closing
of a sale (or the closing of the last of a series of sales) of securities by
the Company or any subsidiary or affiliate thereof (other than the Bridge
Notes and Bridge Warrants), the gross proceeds of which, in the aggregate,
equal or exceed $1,825,000. The principal balance of the Bridge Notes, and
accrued interest thereon, will be repaid with the net proceeds of this
Offering. See "Use of Proceeds."
The Company has the right, at its option, to extend the maturity date of
the Bridge Notes for up to one year. In the event that (A) the Company elects
to extend such maturity date for six months, then the number of shares
issuable upon the exercise of each Bridge Warrant shall automatically
increase by an additional 5% for each month that the Bridge Notes continue to
remain outstanding during such initial six-month period; and (B) the Company
elects to extend the maturity date for an additional six months thereafter,
then (i) the number of shares issuable upon the exercise of each Bridge
Warrant shall automatically increase by an additional 10% for each month that
the Bridge Notes continue to remain outstanding during such additional
six-month period; and (ii) the Underwriter shall have the right to designate
a number of directors constituting a majority of the board of directors until
such time as the Bridge Notes and any accrued interest thereon are paid in
full.
The Bridge Notes rank senior in right of payment to all Junior Debt of the
Company, which is defined as all existing and future indebtedness other than
(i) the indebtedness represented by the Bridge Notes; (ii) capital lease
obligations; and (iii) certain other indebtedness which was repaid by the
Company out of the proceeds of the Bridge Financing. See "Certain
Transactions." The Bridge Notes are secured by a lien on certain assets of
the Company.
Bridge Warrants
The Bridge Warrants entitle the holders thereof to purchase, in the
aggregate, up to 456,250 shares of Common Stock at an exercise price equal to
the lesser of $4.20 per share or 60% of the aggregate initial public offering
price per share of Common Stock in this Offering, subject to adjustment. The
Bridge Warrants may be exercised at any time after issuance and expire on
August 28, 2001. The shares underlying the Bridge Warrants are being
registered in this Offering, and shall be subject to a two-year lock-up with
the Underwriter. The Underwriter has agreed that it will not consent to the
release of any holders of the Bridge Warrants from such lock-up for a period
of one year from the effective date of the Registration Statement, of which
this Prospectus forms a part. In addition, the holders of the Bridge Warrants
are entitled to certain "piggyback" registration rights with respect to such
shares except in connection with the registration of securities issuable
under an employee benefit plan or in connection with certain other
registration statements filed by the Company.
The number of shares issuable upon exercise of the Bridge Warrants and the
exercise price thereof may be adjusted in the event of the occurrence of
certain events, including stock dividends, stock splits,
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combinations or reclassifications involving or in respect of the Common Stock
of the Company, or an extension by the Company of the maturity date of the
Bridge Notes. If the Company extends the maturity date of the Bridge Notes
for a period of six months, the exercise price per share shall be decreased
to the lesser of $3.50 per share or 50% of the initial public offering price
per share.
Stockholder Reports
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as
the Company may deem appropriate or as may be required by law.
Transfer Agent and Registrar
The Company has appointed Continental Stock Transfer & Trust Company as
transfer agent for the Common Stock.
Directors' Limitation of Liability and Indemnification
The Company's Certificate of Incorporation includes provisions which (a)
eliminate the personal liability of directors for monetary damages resulting
from breaches of their fiduciary duty (except for liability for breaches of
the duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, violations under
Section 174 of the Delaware General Corporation Law ("DGCL"), or for any
transaction from which the director derived an improper personal benefit) and
(b) indemnify the directors and officers to the fullest extent permitted by
the DGCL, including under circumstances under which indemnification is
otherwise discretionary. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
Section 145 of the Delaware General Corporation Law permits
indemnification by a corporation of certain officers, directors, employees
and agents. Consistent therewith, the Company's Certificate of incorporation
requires that the Company indemnify all persons who it may indemnify pursuant
thereto to the fullest extent permitted by Section 145.
The Company's Certificate of Incorporation and Bylaws provide that the
Company will indemnify each of its directors and officers to the fullest
extent permitted by law with respect to all liability and loss suffered and
expenses incurred by such person in any action, suit or proceeding in which
such person was or is made or threatened to be made a party or is otherwise
involved by reason of the fact that such person is or was a director or
officer of the Company. The Company is also obligated to pay the expenses of
the directors and officers incurred in defending such proceedings, subject to
reimbursement if it is subsequently determined that such person is not
entitled to indemnification.
In addition, the Company's Certificate of Incorporation provides that the
Company's directors shall not be liable to the Company or its stockholders
for monetary damages for breaches of their fiduciary duties to the Company
and its stockholders except to the extent such exemption from liability or
limitation thereof is not permitted under the DGCL. This provision in the
Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctive or other
forms of non- monetary relief will remain available under the DGCL. In
addition, each director will continue to be subject to liability for monetary
damages for misappropriation of any corporate opportunity in violation of the
director's duties, for acts or omissions involving intentional misconduct,
for knowing violations of law, for actions leading to improper personal
benefit to the director, and for distributions (including payment of
dividends or stock repurchases or redemptions) that are unlawful under the
DGCL. The provision does not affect a director's responsibilities under any
other law, such as the federal securities laws. The Certificate of
Incorporation further provides that if the DGCL is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors then the liability of a director of the Company shall be eliminated
or limited to the fullest extent permitted by the DGCL as amended or
supplemented.
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The Company maintains a policy of insurance under which the directors and
officers of the Company will be insured, subject to the limits of the policy,
against certain losses arising from claims made against such directors and
officers by reason of any acts or omissions covered under such policy in
their respective capacities as directors or officers, including liabilities
under the Securities Act. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Delaware Anti-Takeover Law
The Company is subject to Section 203 of the DGCL ("Section 203") which,
subject to certain exceptions and limitations, prohibits a Delaware
corporation from engaging in any "business combination" with any "interested
stockholder" for a period of three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (for the
purposes of determining the number of shares outstanding at the time the
transaction commenced (for the purposes of determining the number of shares
outstanding under the DGCL, those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer are
excluded from the calculation); or (iii) on or subsequent to such date, the
business combination is approved by the board of directors and authorized at
an annual or special meeting of stockholders, and not by written consent, by
the affirmative vote of at least 66-2/3% of the outstanding voting stock
which is not owned by the interested stockholder.
For purposes of Section 203, "a business combination" includes (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or
more of the assets of the corporation involving the interested stockholder;
(iii) subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder; (iv) any transaction involving the corporation
which has the effect of increasing the proportionate share of the stock of
any class or series of the corporation beneficially owned by the interested
stockholder; or (v) the receipt by the interested stockholder of the benefit
of any loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation. Section 203 defines an "interested
stockholder" as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 4,431,758 shares
of Common Stock outstanding (4,641,758 shares of Common Stock outstanding if
the Over-Allotment Option is exercised in full). Of these shares, the
1,400,000 Shares offered hereby (1,610,000 shares if the Over-Allotment
Option is exercised in full) will be freely tradeable without further
registration under the Securities Act. With respect to the remainder of such
shares, all officers and directors of the Company and current stockholders
have agreed not to publicly sell, or otherwise dispose of any securities of
the Company for a period of 12 months from the date of this Prospectus
without the Underwriter's prior written consent except (i) shares issued
pursuant to the Over-Allotment Option, (ii) the Underwriter's Options and the
Common Stock underlying such options, (iii) the issuance of Common Stock
underlying warrants and options outstanding
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prior to this Offering, (iv) the issuance of shares of Common Stock
underlying the Bridge Warrants, (v) the issuance of shares of Common Stock or
options to purchase shares of Common Stock under the Plan and the issuance of
shares of Common Stock upon exercise of such options, and (vi) the issuance
of any securities in connection with any acquisition which is approved by a
majority of the independent directors of the Company. Notwithstanding the
foregoing, up to 30% of the shares of Common Stock of each stockholder may be
sold by such stockholders at any time commencing six months from the date of
this Prospectus without the Underwriter's consent in the event that the last
sales price for the Common Stock on its principal exchange has been at least
200% of the initial public offering price for a period of 20 consecutive
trading days ending within five days of the date of such sale, and such sale
is completed at a price in excess of 200% of the initial public offering
price. See "Underwriting."
All of the presently outstanding 3,031,758 shares of Common Stock are, and
the 456,250 shares of Common Stock issuable upon exercise of the Bridge
Warrants and the 468,242 shares issuable upon exercise of the Technologies
Warrants will be, "restricted securities" within the meaning of Rule 144 and,
if held for at least two years, would be eligible for sale in the public
market in reliance upon, and in accordance with, the provisions of Rule 144
following the expiration of such two-year period. In general, under Rule 144
as currently in effect, a person or persons whose shares are aggregated,
including a person who may be deemed to be an "affiliate" of the Company as
that term is defined under the Securities Act, would be entitled to sell
within any three-month period a number of shares beneficially owned for at
least two years that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock, or (ii) the average weekly trading volume
in the Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the manner of
sale, notice and the availability of current public information about the
Company. However, a person who is not deemed to have been an affiliate of the
Company during the 90 days preceding a sale by such person and who has
beneficially owned shares of Common Stock for at least three years may sell
such shares without regard to the volume, manner of sale, or notice
requirements of Rule 144. Beginning 90 days after the date of this
Prospectus, approximately 2,768,600 shares will be available for sale in
reliance upon Rule 144.
Prior to this Offering, there has been no public market for the Company's
securities. Following this Offering, the Company cannot predict the effect,
if any, that sales of shares of Common Stock pursuant to Rule 144 or
otherwise, or the availability of such shares for sale, will have on the
market price prevailing from time to time. In addition, sales by the current
stockholders of a substantial number of shares of Common Stock in the public
market could materially adversely affect prevailing market prices for the
Common Stock. The availability for sale of a substantial number of shares of
Common Stock acquired through the exercise of the Underwriter's Options, the
Warrants or any options under the Plan could also materially adversely affect
prevailing market prices for the Common Stock. See "Risk Factors--Future
Sales of Restricted Securities."
Up to 140,000 additional shares of Common Stock may be purchased by the
Underwriter through the exercise of the Underwriter's Options during the
period commencing on the date of the closing of this Offering and terminating
on the fifth anniversary of such date. The Holders of the Underwriter's
Options have certain demand and "piggyback" registration rights as to such
options and the underlying shares of Common Stock. Such options and any and
all shares of Common Stock purchased upon the exercise of the Underwriter's
Options may be freely tradeable, provided that the Company satisfies certain
securities registration and qualification requirements in accordance with the
terms of the Underwriter's Options. See "Underwriting."
Up to 456,250 shares of Common Stock may be purchased by the holders of
the Bridge Warrants. Such holders have certain "piggyback" registration
rights as to such shares commencing two years after the date of this
Offering. Such shares will be freely tradeable upon such registration.
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UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement (the form of which has been filed as an exhibit to the
Registration Statement), to purchase from the Company all of the Shares
offered. The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the
Underwriter shall be obligated to purchase all of the Shares if any are
purchased by the Underwriter.
The Underwriter has advised the Company that the Underwriter proposes to
offer the Shares offered hereby to the public at the offering price set forth
on the cover page of this Prospectus and that the Underwriter may allow to
certain dealers, who are members of the National Association of Securities
Dealers (the "NASD"), concessions of not in excess of $ per Share, of
which not in excess of $ may be reallowed to other dealers who are
members of the NASD. After the commencement of this Offering, the public
offering price, the concessions and the reallowance may be changed.
The Company has granted an option to the Underwriter, exercisable during
the 45-day period after the effective date of this Prospectus, to purchase up
to an aggregate of 210,000 additional Shares at the public offering price,
less the underwriting discounts and commissions. The Underwriter may exercise
such option only for the purpose of covering Over-Allotments made in
connection with the sale of the Common Stock offered hereby.
The Company has agreed to indemnify the Underwriter against certain
liabilities in connection with the Registration Statement, including
liabilities under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to the
Underwriter, the Underwriter has been advised that, in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore unenforceable.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of the aggregate offering price of the Shares offered hereby
(including any Shares purchased pursuant to the Over- Allotment Option), of
which $35,000 has been paid to date.
The Company has also agreed to sell to the Underwriter, or its designees,
Underwriter's Options to purchase 140,000 shares at a price of $.001 per
option. The Underwriter's Options will be exercisable for a period of five
years, commencing on the date of this Prospectus, at an initial per share
exercise price equal to 120% of the initial public offering price per share.
The Underwriter's Options cannot be transferred, assigned or hypothecated for
one year from the date of their issuance, except that they may be assigned,
in whole or in part, to any successor, officer or partner of the Underwriter
or its partners or members of the underwriting group. The Underwriter's
Options may be exercised as to all or a lesser number of shares and will
contain certain registration rights and antidilution provisions providing for
appropriate adjustment of the exercise price and number of shares which may
be purchased upon exercise, upon the occurrence of certain events. See "Risk
Factors--Effect of Previously Issued Options, Warrants and Underwriter's
Options on Stock Price."
The Company has agreed that it will, on any two occasions, register the
securities underlying the Underwriter's Options, the first time at the
Company's expense. The Company has also agreed, during the seven year period
commencing on the date of the closing of this Offering, to register on a
"piggyback" basis, on an unlimited number of occasions, the securities
underlying the Underwriter's Options whenever the Company files a
registration statement. Notwithstanding these registration rights, the
Company will not be required to register the securities underlying the
Underwriter's Options if it delivers to the holders of the Underwriter's
Options an opinion of counsel from counsel reasonably acceptable to such
holders in form and substance reasonably acceptable to such holders that such
securities are freely transferable without registration.
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The Company has granted to the Underwriter a right of first refusal with
respect to any sale of securities to be made by the Company, its
subsidiaries, affiliates or successors or any of the Company's stockholders
owning at least 4% of the Company's capital stock outstanding as of the date
of this Offering, within three years after the effective date of this
Offering, which may be satisfied by payment to the Underwriter of $250,000
upon the closing of any sale of securities to which such right would
otherwise have applied. In addition, the Underwriter will provide financial
advisory services with respect to possible future financings or acquisitions
by the Company and related matters. The Company has also agreed to pay the
Underwriter a fee with respect to any merger, acquisition, joint venture,
sale of securities or other business transaction, with certain exceptions, to
which the Company is a party during such two-year period. Such fee will be
equal to a percentage of the consideration paid or received by the Company in
connection with such transaction.
The Company has also agreed for the five-year period commencing upon
consummation of this Offering, to nominate and use its best efforts
(including the solicitation of proxies) to elect one designee of the
Underwriter to the board of directors of the Company. No designee has been
chosen as of the date hereof.
The foregoing discussion of the material terms and provisions of the
Underwriting Agreement is qualified in its entirety by reference to the
detailed provisions of the Underwriting Agreement, the form of which has been
filed as an exhibit to the Registration Statement on Form SB-2, of which this
Prospectus forms a part.
The Underwriter acted as placement agent in connection with the Bridge
Financing. In connection therewith, the Underwriter received sales
commissions of $182,500 in the aggregate, was reimbursed a total of $34,000
for certain expenses (including attorneys' fees) and was issued a total of
45,625 warrants which are identical to the Bridge Warrants (the "Placement
Agent's Warrants"). The Underwriter has agreed to relinquish the Placement
Agent's Warrants upon the consummation of this Offering.
The Company and its directors, officers and the holders of all of the
Company's outstanding Common Stock have agreed with the Underwriter not to
sell, contract to sell or otherwise dispose of any of the Company's
securities held by them for a period of 12 months following the date of this
Prospectus without the prior written consent of the Underwriter, except for
certain exceptions and under certain circumstances. See "Shares Eligible For
Future Sale."
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the public Offering price of the Shares has been
determined by arms-length negotiation between the Company and the Underwriter
and does not necessarily bear any relationship to the Company's book value,
assets, past operating results, financial condition, or other established
criteria of value. Factors considered in determining such price included an
assessment of the Company's recent financial results and current financial
condition, future prospects of the Company, the qualifications of the
Company's management, and other relevant factors.
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LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, New York, New York. Certain legal matters in connection with
the Offering will be passed upon for the Underwriter by Kramer, Levin,
Naftalis & Frankel, New York, New York. Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, has, from time to time, rendered legal advisory services to
the Underwriter.
EXPERTS
The financial statements of Thinking Tools, Inc. as of December 31, 1995
and for each of the fiscal years ended December 31, 1994 and December 31,
1995, have been included herein and in the Registration Statement of which
this Prospectus forms a part in reliance on the report of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein,
given on the authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington D.C. 20549, a registration
statement on Form SB-2 (the "Registration Statement") under the Securities
Act with respect to the securities offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and
the exhibits thereto, as permitted by the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement and to the exhibits filed therewith. Statements contained in this
Prospectus as to the contents of any contract or other document which has
been filed as an exhibit to the Registration Statement are qualified in their
entirety by reference to such exhibits for a complete statement of their
terms and conditions. The Registration Statement and the exhibits thereto may
be inspected without charge at the offices of the Commission and copies of
all or any part thereof may be obtained from the Commission's Public
Reference Section at 450 Fifth Street, N.W., Washington D.C. 20549 or at
certain of the regional offices of the Commission located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, upon payment of the fees prescribed by
the Commission. The Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. In addition, following approval of the
Common Stock for quotation on the NASDAQ, reports and other information
concerning the Company may be inspected at the offices of the NASD, 1735 K
Street, N.W., Washington D.C. 20006.
47
<PAGE>
THINKING TOOLS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report ............................. F-2
Balance Sheets ........................................... F-3
Statements of Operations ................................. F-4
Statements of Stockholders' Deficit ...................... F-5
Statements of Cash Flows ................................. F-6
Notes to Financial Statements ............................ F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Thinking Tools, Inc.:
We have audited the accompanying balance sheet of Thinking Tools, Inc.
(the Company) as of December 31, 1995, and the related statements of
operations, stockholders' deficit, and cash flows for each of the years in
the two-year period ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial position of Thinking Tools, Inc. as
of December 31, 1995, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are described in Note 13. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
KPMG Peat Marwick LLP
San Jose, California
August 16, 1996, except as to
Note 13, which is as of
August 28, 1996
F-2
<PAGE>
THINKING TOOLS, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, 1996
--------------------------
December 31, Pro forma
1995 Historical (Note 13)
------------ ---------- ----------
(Unaudited)
ASSETS
<S> <C> <C> <C>
(Principally Pledged)
Current assets:
Cash $ 152 $ 7 $ 1,100
Accounts receivable 146 165 165
Costs in excess of billings on uncompleted contracts 11 24 24
Prepaid expenses and other current assets 10 43 43
------- ------- -------
Total current assets 319 239 1,332
Property and equipment, net 102 101 101
Other assets 11 10 10
------- ------- -------
Total assets $ 432 $ 350 $ 1,443
======= ======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 5 $ 47 $ 47
Due to related party 34 42 42
Accrued expenses 124 247 216
Billings in excess of costs on uncompleted contracts 210 71 71
Deferred revenue 30 -- --
Notes payable 201 431 80
Current portion of capital lease obligations 13 18 18
Bridge notes payable -- -- 1,275
------- ------- -------
Total current liabilities 617 856 1,749
Long-term liabilities:
Note payable 1,200 1,380 --
Interest payable 155 -- --
Long-term portion of capital lease obligations 18 19 19
------- ------- -------
Total liabilities 1,990 2,255 1,768
------- ------- -------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.001 par value; 3,000,000 shares
authorized; no shares issued and outstanding -- -- --
Common stock, $.001 par value; 20,000,000
shares authorized; 2,768,600 shares issued and outstanding,
actual; 3,031,758 shares issued and outstanding, pro forma 3 3 3
Additional paid-in capital 89 89 2,510
Accumulated deficit (1,650) (1,997) (2,838)
------- ------- -------
Total stockholders' deficit (1,558) (1,905) (325)
------- ------- -------
Total liabilities and stockholders' deficit $ 432 $ 350 $ 1,443
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
THINKING TOOLS, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31, Six months ended June 30,
-------------------------- ---------------------------
1994 1995 1995 1996
------------ ------------ ---------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
Contract revenues $ 846 $1,329 $ 676 $ 634
Contract costs 736 708 374 354
------------ ------------ ----------- -----------
Gross profit 110 621 302 280
------------ ------------ ----------- -----------
Operating expense:
Selling, general, and administrative 395 751 357 532
Research and development 389 328 174 60
------------ ------------ ----------- -----------
784 1,079 531 592
------------ ------------ ----------- -----------
Operating loss (674) (458) (229) (312)
------------ ------------ ----------- -----------
Interest expense (56) (140) (60) (77)
Other income, net -- 10 10 43
------------ ------------ ----------- -----------
Total other expenses (56) (130) (50) (34)
------------ ------------ ----------- -----------
Loss before income taxes (730) (588) (279) (346)
Income tax expense 1 1 1 1
------------ ------------ ----------- -----------
Net loss $ (731) $ (589) $ (280) $ (347)
============ ============ =========== ===========
Net loss per share $(0.23) $(0.19) $(0.09) $(0.11)
============ ============ =========== ===========
Shares used in calculating per share data 3,141 3,141 3,141 3,141
============ ============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
THINKING TOOLS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
(In thousands)
<TABLE>
<CAPTION>
Common stock
--------------- Additional
paid-In Accumulated Total stockholders'
Shares Amount capital deficit deficit
----------- ----------- --------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1993 -- $-- $-- $ (330) $ (330)
Issuance of common stock 2,769 3 89 -- 92
Net loss -- -- -- (731) (731)
----------- ----------- --------------- ---------------- -------------------
Balances as of December 31, 1994 2,769 3 89 (1,061) (969)
Net loss -- -- -- (589) (589)
----------- ----------- --------------- ---------------- -------------------
Balances as of December 31, 1995 2,769 3 89 (1,650) (1,558)
Net loss (unaudited) -- -- -- (347) (347)
----------- ----------- --------------- ---------------- -------------------
Balances as of June 30, 1996 (unaudited) 2,769 $ 3 $89 $(1,997) $(1,905)
=========== =========== =============== ================ ===================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
THINKING TOOLS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended Six months
December 31, ended June 30,
---------------------------- --------------------------------
1994 1995 1995 1996
----------- --------------- -------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (731) $(589) $(280) $(347)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 9 20 10 13
Loss on disposal of assets 4 -- -- --
Changes in operating assets and liabilities:
Accounts receivable (104) (43) 5 (19)
Prepaid expenses and other current assets (16) 7 (1) (33)
Costs in excess of billings on
uncompleted contracts 79 25 (3) (13)
Other assets (5) -- -- 1
Due to related party 1 34 18 8
Accounts payable 11 (6) 53 42
Accrued expenses 98 179 35 (32)
Billings in excess of costs on uncompleted
contracts and deferred revenue 164 76 (124) (169)
----------- --------------- -------------- --------------
Net cash used in operating activities (490) (297) (287) (549)
----------- --------------- -------------- --------------
Cash flows from investing activities:
Purchase of equipment (26) (14) (14) --
Organizational costs (6) -- -- --
----------- --------------- -------------- --------------
Net cash used in investing activities (32) (14) (14) --
----------- --------------- -------------- --------------
Cash flows from financing activities:
Proceeds from issuance of short-term notes payable -- 201 50 257
Principal payments on capital leases (2) (6) (1) (6)
Proceeds from issuance of long-term debt 1,200 -- -- 180
Proceeds from issuance of common stock 92 -- -- --
Principal payment on short-term notes payable (500) -- -- (27)
----------- --------------- -------------- -------------
Net cash provided by financing activities 790 195 49 404
----------- --------------- -------------- -------------
Net increase (decrease) in cash 268 (116) (252) (145)
Cash at beginning of year -- 268 268 152
----------- --------------- -------------- -------------
Cash at end of year $ 268 $ 152 $ 16 $ 7
=========== =============== ============== =============
Supplemental disclosures of cash flow information:
Cash paid during the year:
Income taxes $ 1 $ 1 $ 1 $ 1
=========== =============== ============== =============
Interest $ 26 $ 16 $ 1 $ 196
=========== =============== ============== =============
Noncash investing and financing activities:
Equipment acquired under capital leases $ 11 $ 28 $ 10 $ 12
=========== =============== ============== =============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of June 30, 1996 and for the six months
ended June 30, 1995 and 1996 is unaudited)
(1) Summary of Significant Accounting Policies
Thinking Tools, Inc. (the Company) was incorporated in California in
December 1993 to purchase certain asssets of the business simulations
division of Maxis, Inc. On December 30, 1993, the Company purchased
intangible assets, a contract in process, and property and equipment from
Maxis in exchange for a note payable of $500,000 which was repaid in 1994.
The acquisition was accounted for using the purchase method. The purchase
price was allocated to the assets acquired, based on relative fair values, as
follows:
Contracts in process $115,000
Acquired in-process research and development 330,000
Property, equipment, and other assets 55,000
--------------
$500,000
==============
The Company develops agent-based, adaptive PC-based business simulation
software that has a broad range of potential applications. A majority of the
Company's outstanding common stock is held by Thinking Technologies, L.P.
In June 1996, the Board of Directors authorized a 4.1225-for-1 stock split
for all outstanding shares of the Company's common stock.
In August 1996, the Company reincorporated in the state of Delaware by
merging with and into a wholly-owned subsidiary which was incorporated in
Delaware in August 1996, with authorized capital consisting of 20,000,000
shares of $0.001 par value common stock and 3,000,000 shares of $0.001 par
value preferred stock. Pursuant to such merger each outstanding share of the
Company's common stock was exchanged for .7462 shares of common stock.
The accompanying financial statements and notes have been restated to give
effect to the stock splits and reincorporation.
Basis of Presentation
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations and has a net capital deficiency that raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 13.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Significant
estimates made by management include the stage of completion and the amount
of costs yet to be incurred on contracts in process.
Revenue and Cost Recognition
Revenues from fixed-price contracts are recognized using the
percentage-of-completion method, measured by input measures. Contract costs
include primarily direct labor and other direct costs. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Changes in job performance, job conditions, and
estimated profitability may result in revisions to costs and revenues and are
recognized in the period in which the revisions are determined. Revenues from
time and materials contracts are recognized as costs are incurred.
F-7
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the six months
ended June 30, 1995 and 1996 is unaudited)
(1) Summary of Significant Accounting Policies--(Continued)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is provided using the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are
amortized over the shorter of the estimated useful lives or the underlying
lease term.
Research and Development
Research and development costs are charged to expense as incurred. The
Company capitalizes software development costs incurred subsequent to the
establishment of technological feasibility (generally the working model).
Amounts capitalized to date, net of related valuation allowances, have not
been material.
Net Loss Per Share
Net loss per share is computed based on the weighted average number of
shares of common stock outstanding, dilutive common equivalent shares from
stock options and warrants using the treasury stock method and convertible
debt using the if-converted method. In accordance with certain Securities and
Exchange Commission (SEC) Staff Accounting Bulletins, such computations
include all common equivalent shares (using the treasury stock method) issued
within one year of filing of the Company's initial public offering (IPO) as
if they were outstanding for all periods presented using the anticipated IPO
price.
Unaudited Interim Results
The accompanying unaudited financial statements as of June 30, 1996, and
for the six months ended June 30, 1995 and 1996 have been prepared on
substantially the same basis as the audited financial statements and, in the
opinion of the Company's management, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial information set forth therein.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 will be effective for fiscal years beginning after
December 15, 1995, and will require that the Company either recognize in its
financial statements costs related to its employee stock-based compensation
plans, such as stock option and stock purchase plans, or make pro forma
disclosures of such costs in a footnote to the financial statements.
The Company expects to continue to use the intrinsic value method of
Accounting Principles Board Opinion No. 25, as allowed under SFAS No. 123, to
account for all of its employee stock-based compensation plans. Therefore, in
its financial statements for fiscal 1996, the Company will make the required
pro forma disclosures in a footnote. SFAS No. 123 is not expected to have a
material effect on the Company's results of operations or financial position.
F-8
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the six months
ended June 30, 1995 and 1996 is unaudited)
(2) Accounts Receivable
A summary of accounts receivable follows (in thousands):
December 31, June 30,
1995 1996
------------- --------------
(Unaudited)
Completed contract billings $ 28 $ 18
Contracts in progress billings 118 92
Other receivables -- 55
------------- --------------
Total $146 $165
============= ==============
(3) Property and Equipment
A summary of property and equipment follows (in thousands):
December 31, June 30,
1995 1996
-------------- -----------
(Unaudited)
Leased equipment $ 39 $ 51
Equipment 79 79
Furniture and fixtures 7 7
Leasehold improvements 6 6
-------------- -----------
131 143
Less accumulated depreciation and amortization 29 42
-------------- -----------
Total $102 $101
============== ===========
(4) Accrued Expenses
A summary of accrued expenses follows (in thousands):
December 31, June 30,
1995 1996
--------------- -----------
(Unaudited)
Payroll and employee benefits $ 72 $ 94
Legal 31 36
Interest -- 35
Other 21 82
--------------- -----------
Total $124 $247
=============== ===========
F-9
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the six months
ended June 30, 1995 and 1996 is unaudited)
(5) Uncompleted Contracts
Costs, estimated earnings, and billings on uncompleted fixed fee contracts
are summarized as follows (in thousands):
December 31, 1995 June 30, 1996
----------------- ---------------
(Unaudited)
Costs incurred on uncompleted contracts $ 249 $231
Estimated earnings 309 208
----------------- ---------------
558 439
Less billings to date 757 486
----------------- ---------------
Total $(199) $(47)
================= ===============
They are included in the accompanying balance sheets under the following
captions (in thousands):
<TABLE>
<CAPTION>
December 31,
1995 June 30, 1996
----------------- ---------------
(Unaudited)
<S> <C> <C>
Costs in excess of billings on uncompleted contracts $ 11 $ 24
Billings in excess of costs on uncompleted contracts (210) (71)
----------------- ---------------
Total $(199) $(47)
================= ===============
</TABLE>
(6) Leases
The Company leases office space in Monterey, California, under a
noncancelable operating lease expiring in 1998, which was assumed from
SimBusiness, Inc. dba Maxis. Total rent expense under operating leases was
approximately $13,000, $91,000, $43,000, and $52,000, for the years ended
December 31, 1994 and 1995, and the six months ended June 30, 1995 and 1996,
respectively.
The Company leases certain office equipment under noncancelable leases
expiring in 2000, which were assumed from SimBusiness, Inc. dba Maxis. The
leases are accounted for as capital leases.
The following is a summary of future minimum lease payments as of December
31, 1995 (in thousands):
<TABLE>
<CAPTION>
Year ending Capital
December 31, leases Operating lease
------------- ------------ ---------------
<S> <C> <C>
1996 $14 $ 95
1997 14 98
1998 7 25
1999 1 --
2000 1 --
------------ ---------------
Future minimum lease payments 37 $218
===============
Less amounts representing interest 6
------------
Present value of future minimum lease payments 31
Less current installments under capital lease obligation 13
------------
Long-term portion of capital lease obligations $18
============
</TABLE>
F-10
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the six months
ended June 30, 1995 and 1996 is unaudited)
(7) Income Taxes
The components of income tax expense for each of the years ended December
31, 1994 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Current Deferred Total
-------------- --------------- -------------
<S> <C> <C> <C>
Federal $-- $-- $--
State 1 -- 1
-------------- --------------- -------------
$1 $-- $1
============== =============== =============
</TABLE>
The provision for income taxes differs from the amount obtained by
applying the statutory federal income tax rate to income before taxes as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1995
----------------- ------------------
<S> <C> <C>
Computed "expected" tax benefit $(248) $(200)
State franchise tax, net of federal income benefit 1 1
Losses not utilized 248 200
----------------- ------------------
$ 1 $ 1
----------------- ------------------
</TABLE>
Significant components of deferred tax assets and liabilities as of
December 31, 1994 and December 31, 1995 are as follows (in thousands):(7)
Income Taxes--(Continued)
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1995
---------------- -------------------
<S> <C> <C>
Deferred tax asset:
Federal and state net operating loss carryforwards $ 130 $ 369
Acquired intangible assets 160 149
Various accruals and reserves -- 8
--------------- --------------------
Total gross deferred tax assets 290 526
Less valuation allowance (286) (515)
=============== ====================
Net deferred tax assets 4 11
Total gross deferred tax liabilities (4) (11)
--------------- --------------------
Net tax assets and liabilities $ -- $ --
=============== ====================
</TABLE>
As of December 31, 1995, the Company has net operating loss carryforwards
of $920,000 which expire for federal and state tax purposes in 2010 and 2000,
respectively. Federal and California tax laws impose significant restrictions
on the utilization of net operating loss carryforwards in the event of a
shift in the ownership of the Company, which constitutes an "ownership
change" as defined by the Internal Revenue Code, Section 382. The Company
does not believe an ownership change has occurred.
F-11
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the six months
ended June 30, 1995 and 1996 is unaudited)
(8) Line of Credit
On November 1, 1995, the Company entered into an agreement with a bank to
borrow up to $500,000 under a revolving line of credit secured by the
Company's accounts receivable. Advances on this line accrued interest at the
bank's prime rate plus 1.75% (8.75% as of December 31, 1995), until April
1996, when the rate was increased to the bank's prime rate plus 5% following
a default by the Company. Amounts outstanding as of December 31, 1995 and
June 30, 1996 were approximately $79,000 and $52,000, respectively. The bank
agreement requires the Company, among other things, to maintain minimum
levels of earnings, tangible net worth, and certain minimum financial ratios.
The agreement expires September 30, 1996.
As of July 31, 1996, the Company was in default of certain provisions of
the credit agreement. The bank has agreed to waive the exercise of its rights
under the agreement in return for the Company's commitment to repay the
entire principal balance by August 31, 1996. No future borrowings will be
available under the agreement. The amounts outstanding under the agreement
were repaid as of the closing of the bridge financing. (See Note 13).
(9) Long-Term Debt
The Company has a note payable to Thinking Technologies, L.P., a related
party, with a balance of $1,200,000 and $1,380,000 as of December 31, 1995
and June 30, 1996, respectively. The note bears interest at 10% annually, due
on September 27, 1999, collateralized by all company assets and the Company's
common stock owned by its President. Interest is payable semiannually if
specified gross profit levels are realized; otherwise, interest accrues for
18 months and is added to principal if not paid within 30 days as of March
30, 1996. Interest payable of $180,000 was converted to note payable in March
1996. The note provides for payment if specified debt or equity financing is
obtained prior to maturity; fair value is not practicable to estimate because
of the uncertainty of the ultimate results of the terms of the note and the
lack of available similar financing. Approximately $1,320,000 of the note
balance was converted into an aggregate of 263,158 shares of Common Stock in
July 1996. The remaining balance was reclassified to accrued expenses. (See
Note 13).
(10) Stockholder's Options
As of June 30, 1996, the Company has granted options, outside of the stock
option plan (See Note 13), to purchase 58,964 shares of common stock at an
exercise price of $0.79 per share to certain of its directors. In August
1996, the Company issued to a nonaffiliate options to purchase 15,000 shares
of the common stock at an exercise price of $1.00 per share. The options
vested immediately.
(11) Concentrations of Credit Risk
The Company's business is dependent on a few customers, the loss of which
could have a material effect on the Company. The following schedule
summarizes past distribution of sales by major customer:
<TABLE>
<CAPTION>
Years ended December 31, Six months ended June 30,
------------------------ -------------------------
1994 1995 1995 1996
----------- ----------- -----------------------
(Unaudited)
<S> <C> <C> <C> <C>
Customer A 17% 14% 25% 0%
Customer B 59 6 6 0
Customer C 0 27 15 32
Customer D 9 13 15 18
Customer E 4 5 10 0
Customer F 0 3 0 33
</TABLE>
F-12
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the six months
ended June 30, 1995 and 1996 is unaudited)
(12) Related Party Transactions
The Company had a note payable outstanding with Thinking Technologies,
L.P., a related party, of approximately $122,000 and $352,000 as of December
31, 1995 and June 30, 1996, respectively. The note bears interest at 7%
annually, collateralized by the Company's accounts receivable. The original
due date was December 31, 1995. The note was paid in full in August 1996 in
the bridge financing (Note 13).
(13) Subsequent Events and Pro Forma Financial Information
On July 1, 1996, in connection with a series of short-term loans from
Thinking Technologies, L.P. (the Technologies Advances), the Company issued
warrants to Thinking Technologies, L.P. to purchase 468,242 shares of common
stock at an exercise price of $1.07 per share, expiring on December 31, 2006.
The Company expects to record a non-cash interest expense of approximately
$350,000 in the quarter ending September 30, 1996, in connection with the
issuance of these warrants.
Under the Company's 1996 Stock Option Plan (the Plan), options to purchase
up to an aggregate of 376,000 shares of common stock may be granted to
officers, directors, employees or consultants. The Plan provides for issuing
both incentive stock options, which must be granted at fair market value at
the date of grant, as determined by the Plan Administrator, and nonqualified
stock options. Options granted under the Plan are generally immediately
exercisable, vest over a period determined at the time of grant by the Plan
Administrator, and must be exercised within 10 years.(13) Subsequent Events
and Pro Forma Financial Information--(Continued)
In August 1996, the Company granted options to purchase 52,000 shares of
common stock to employees at $.79 per share which vested immediately. The
Company also granted options to purchase 52,000 shares of common stock at
$5.00 per share which vest over two years. In addition, the Company granted
options to purchase 41,036 shares of common stock to members of the Company's
board of directors at an exercise price of $1.00 per share which vested
immediately. The Company has recorded non-cash compensation expenses of
approximately $200,000 in July and August 1996 related to the difference
between the deemed fair value of the common stock and the exercise price of
the options at the grant date.
On August 28, 1996, the Company closed a bridge financing which provided
gross proceeds of $1,825,000 to the Company from the issuance of promissory
notes and warrants to purchase 456,250 shares of common stock. The Company
repaid $502,000 plus $123,000 of accrued interest related to loans from
Thinking Technologies, L.P. from a portion of such proceeds. Thinking
Technologies, L.P. purchased $625,000 aggregate principal amount of such
notes, which remain outstanding.
The warrants to purchase 456,250 shares of the Company's common stock are
exercisable at a price equal to the lesser of $4.20 per share or 60% of the
initial public offering price per share, expiring August 2001. In addition,
the Company issued warrants to purchase 45,625 shares of common stock to the
Placement Agent at an exercise price equal to the lesser of $4.20 per share
or 60% of the initial public offering price per share.
The Company expects to record a non-cash interest expense of approximately
$550,000 in connection with the issuance of the warrants issued in the bridge
financing which will be amortized over the term of the loan, which is
expected to be repaid out of the proceeds of the proposed public offering.
F-13
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the six months
ended June 30, 1995 and 1996 is unaudited)
(13) Subsequent Events and Pro Forma Financial Information-(Continued)
Pursuant to a plan of reorganization, in August 1996, Thinking
Technologies, L.P. converted $1,200,000 aggregate principal amount of
outstanding indebtedness, plus an aggregate of approximately $120,000 of
accrued interest (see Note 9), into an aggregate of 263,158 shares of common
stock.
The effect of the above transactions has been reflected in the
accompanying pro forma balance sheet as of June 30, 1996. (See below).
On August 28, 1996, the Company's Board of Directors approved the filing
of a registration statement with the SEC for the proposed public offering of
1,400,000 shares of the Company's common stock. A portion of the proceeds of
the proposed public offering will be used to repay amounts outstanding under
the bridge financing. In connection with the proposed public offering, the
Company has agreed to sell, to its underwriter, options to purchase 140,000
common shares for $.001 per option. The options are exercisable for a period
of five years, at an exercise price equal to 120% of the initial public
offering price.
The following table reflects the unaudited pro forma adjustments in the
accompanying balance sheet (in thousands):
<TABLE>
<CAPTION>
June 30, 1996
-------------------------------------------------------------
Historical Adjustments Pro forma
------------------- --------------------- ------------------
(Unaudited)
------------------- --------------------- ------------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash $ 7 $ 1,093(a,c) $ 1,100
Other current assets 232 232
------------------ ---------------------- ------------------
Total current assets 239 1,332
Other non-current assets 111 111
------------------ ---------------------- ------------------
Total assets $ 350 $ 1,443
================== ====================== ==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 431 (351)(a,c) $ 80
Bridge notes payable -- 1,275 (c) 1,275
Other current liabilities 425 (31)(a,b,c) 394
------------------ ---------------------- ------------------
Total current liabilities 856 1,749
Long-term liabilities:
Note payable 1,380 (1,380)(b) --
Other long-term liabiliites 19 19
------------------ ---------------------- ------------------
Total liabilities 2,255 1,768
------------------ ---------------------- ------------------
Stockholders' deficit:
Common stock 3 3
Additional paid-in capital 89 2,421(b,c,d) 2,510
Accumulated deficit (1,997) (841)(a,c,d) (2,838)
------------------ ---------------------- ------------------
Total stockholders' deficit (1,905) (325)
------------------ ---------------------- ------------------
Total liabilities and stockholders' deficit $ 350 $ 1,443
================== ====================== ==================
</TABLE>
F-14
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the six months
ended June 30, 1995 and 1996 is unaudited)
(13) Subsequent Events and Pro Forma Financial Information-(Continued)
(a) Gives effect to additional advances from Technologies of $151,000 and
additional accrued interest of $32,000.
(b) Gives effect to the conversion by the Company of debt in the principal
amount of approximately $1,320,000 into an aggregate of 263,158 shares of
common stock with the remaining $60,000 of note payable reclassified to
accrued expenses.
(c) Gives effect to the application of the estimated net proceeds from the
private placement of $1,825,000 less $258,000 of related expenses and
$550,000 related to the value attributable to the warrants (which will be
amortized to interest expense over the period that the debt is
outstanding), and the repayment of $123,000 and $502,000 of accrued
expenses and notes payable, respectively.
(d) Represents a non-cash compensation expense of $200,000 resulting from the
difference between the exercise price and the deemed fair value of common
stock underlying vested options granted in July and August, and a
non-cash interest expense of $350,000 resulting from the issuance of
warrants on the Technologies Advances.
F-15
<PAGE>
[PHOTOGRAPH]
A screen from the Company's SimHealth product, which simulates the impact of
choices and values on the financial health of the health care system and its
usage and demand.
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the Offering made hereby, and, if given or
made, such information or representations must not be relied upon as having
been authorized by the Company or the Underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such an offer or solicitation in such jurisdiction. Neither
the delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information
contained herein is correct as of any time subsequent to the dates as of
such such information is furnished.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary 3
Risk Factors 8
Use of Proceeds 14
Dividend Policy 15
Dilution 15
Capitalization 17
Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Business 23
Management 33
Principal Stockholders 38
Certain Transactions 39
Description of Securities 40
Shares Eligible for Future Sale 43
Underwriting 45
Legal Matters 47
Experts 47
Available Information 47
Index to Financial Statements F-1
</TABLE>
Until , 1996 (25 days after the date hereof), all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as Underwriter and
with respect to their unsold allotments of subscriptions.
================================================================================
1,400,000 Shares
THINKING TOOLS, INC.
Common Stock
-----------
PROSPECTUS
-----------
BARINGTON CAPITAL
GROUP, L.P.
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors.
Article Ninth of the Certificate of Incorporation of Thinking Tools, Inc.
(the "Registrant") eliminates the personal liability of directors to the
Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such elimination of the personal liability
of a director of the Registrant does not apply to (a) any breach of the
director's duty of loyalty to the Registrant or its stockholders, (b) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) actions prohibited under Section 174 of the
Delaware General Corporation Law, or (d) any transaction from which the
director derived an improper personal benefit.
Item. 25 Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses which will be paid by
the Registrant in connection with the issuance and distribution of the
securities being registered. With the exception of the registration fee, all
amounts shown are estimates.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee $ 5,565.66
NASD Registration Fee 2,114.04
Blue Sky Fee 25,000.00
Printing and Engraving 75,000.00
Legal fees and expenses 150,000.00
Accounting fees and expenses 150,000.00
Transfer Agent fees and expenses 5,000.00
Listing and NASDAQ SmallCap Market fees 25,000.00
Underwriter's Non-Accountable Expense Allowance 294,000.00
Miscellaneous expenses 62,320.30
Total $794,000.00
================
</TABLE>
- ---------------
(1) Assuming an initial public offering price of $7.00 per Share.
(2) If the Over-Allotment Option is exercised in full, the Underwriter's
Non-Accountable Expense Allowance and the Total would be $338,100 and
$838,100, respectively.
Item 26. Recent Sales of Unregistered Securities.
In the past three years, the Registrant has made the following sales of
unregistered securities, all of which sales were exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof or as
otherwise indicated herein.
In August 1996, the Company, through Barington Capital Group, L.P., acting
as placement agent, issued and sold 18.25 Units of its securities, each
consisting of one $100,000 principal amount 10% Senior Note and a 5-year
Warrant to purchase 25,000 shares of Common Stock at an exercise price equal
to the lesser of $4.20 per share or 60% of the initial public offering price
per share, at $100,000 per Unit ($1,825,000, total) solely to accredited
investors. The Company believes that each issuance and sale of such
securities was exempt from registration pursuant to Section 4(2) of the
Securities Act and/or Rule 506 promulgated thereunder. Barington Capital
Group, L.P. received, for its services, a placement fee of 10% of the gross
proceeds from the sale of the Units and reimbursement of certain other
expenses. The names of the purchasers of such Units are as follows:
II-1
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership After
Prior to Offering Number of Offering
----------------------------- Shares -----------------------------
Shares Percentage Being Sold Shares Percentage
------------ --------------- --------------- ---------- ----------------
<S> <C> <C>
B&B Trading Retirement Plan 6,250 *
Alexander Mitchell 6,250 *
Gerald Benjamin 6,250 *
Steven A. Endquist 12,500 *
Michael Stoyka, M.D. 6,250 *
Peter Horrigan 6,250 *
Lyonshare Venture Capital 56,250 *
Steve Yavers 6,250 *
Wayne Saker 12,500 *
Paul Matusow 6,250 *
Floyd M. Smith 6,250 *
Dr. Harvey Kaplan 6,250 *
David Mitchell 18,750 *
Oliver Mitchell 6,250 *
Alladin Depot Partnership 6,250 *
C.M. Solomon 6,250 *
Philip Schonfeld 6,250 *
Eric & Suzanne Partch 6,250 *
Dr. Gershon Stern 12,500 *
Marvin Barish 6,250 *
CLFS Equities, Ltd. 6,250 *
Robert Jacobs IRA R/O 6,250 *
John Bykowsky 6,250 *
Robert Spitzer 6,250 *
David Kohane 6,250 *
Donald Heimstaedt 6,250 *
James Levi 6,250 *
Jerry Politzer 6,250 *
Paul and Linda Salsgiver 12,500 *
Guy Montanari 6,250 *
Woodland Partners 25,000 *
Thinking Technologies, L.P. 156,250 *
</TABLE>
- ----------------
* less than 1%
In August 1996, the Company issued an aggregate of 145,036 options under
its Stock Option Plan including (i) options to purchase 10,259 shares of
Common Stock at an exercise price of $1.00 per share to each of Ted Prince,
Fred Gluck, Esther Dyson and Fran Saldutti, directors of the Company, (ii)
52,000 options at an exercise price of $0.794 per share to each of:
Bruce Skidmore 14,000
Rick Rosenbaum 11,000
Greg Rossi 5,000
Mike Bailey 3,000
Debra Lavoy 3,000
Riddle Kaufman 3,000
Wendy Wibbens 3,000
Bernadette Smith 2,000
Randy Jones 2,000
Bill Wiltshko 2,000
Nancy Keleher 2,000
Kelly McFadden 1,000
Marianne Marinovich 1,000
II-2
<PAGE>
and (iii) 52,000 options at an exercise price of $5.00 per share to each of:
<TABLE>
<CAPTION>
<S> <C>
Bruce Skidmore 10,000
Rick Rosenbaum 8,000
Greg Rossi 8,000
Mike Baily 3,000
Debra Lavoy 3,000
Riddle Kaufman 3,000
Wendy Wibbens 3,000
Bernadette Smith 2,000
Randy Jones 2,000
Bil Wiltshko 2,000
Nancy Keleher 2,000
Kelly McFadden 1,000
Marianne Marinovich 1,000
</TABLE>
The Company believes that the issuance of these options was exempt from
registration pursuant to Sections 3(b) and 4(2) of the Securities Act and
Rule 701 promulgated thereunder.
In September 1994, pursuant to the Technologies Agreement, Technologies
purchased 61.11% of the Company's authorized and issued Common Stock for the
purchase price of $100,000, and loaned to the Company $1,200,000. In August
1996, such loan, including accrued interest thereon, was converted to 263,158
shares of Common Stock. In July 1996, Technologies made additional loans to
the Company in an aggregate principal amount of $502,000 and received the
Technologies Warrants to purchase 468,242 shares of Common Stock. In August
1996, upon the repayment by the Company of such loan, including accrued
interest thereon, Technologies purchased 6.25 units in the Bridge Financing.
The Company believes that each such transaction was exempt from registration
pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated
thereunder.
The Company has granted options to purchase an aggregate of 73,964 shares
of Common Stock to certain members of the Company's board of directors and to
employees, including options to purchase 14,741 shares of common stock at an
exercise price of $.79 per share to each of Ted Prince, Fred Gluck, Esther
Dyson and Fran Saldutti, directors of the Company and options to purchase
15,000 shares of common stock at an exercise price of $1.00 per share to
James Houston, Esq. The Company believes that the issuance of such options
was exempt from registration pursuant to Sections 3(b) and 4(2) of the
Securities Act.
II-3
<PAGE>
Item 27. Exhibits
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit No.
- ------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of Thinking Tools, Inc.
3.2* By-Laws of Thinking Tools, Inc.
4.1* Form of Underwriter's Option Agreement
4.2* 1996 Stock Option Plan
4.3 Form of Stock Certificate
4.4* Form of Private Placement Investors' Warrant
4.5 Technologies Warrant
4.6* Form of Private Placement Note
4.7 Form of Lock-up Agreement
5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP
10.1 Employment Agreement between the Company and John Hiles
10.2* Form of Consulting Agreement
10.3 Development Agreement between the Company and SystemHouse dated June 30, 1995
10.4 Services Agreement between the Company and SystemHouse dated March 8, 1995
10.5 Vertical Market Software Development/Licensing Agreement between the Company and Coopers
dated October 12, 1994
10.6 Technologies Agreement between the Company and Technologies dated September 26, 1994
10.7 Consent, Waiver and Amendment between the Company and Technologies dated August 31, 1996
10.8 Lease between the Company and KI Monterey Research, Inc. dated August 19, 1994, as amended
11.1* Computation of Net Loss Per Share
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (contained in the Opinion filed as
Exhibit 5.1).
24.1* Power of Attorney (Included on page II-5)
</TABLE>
- ------------------
* Previously filed.
Item 28. Undertakings
(a) The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
II-4
<PAGE>
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum Offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in the volume and price represent no more
than a 20% change in the maximum aggregate Offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement.
(iii) Include any additional or changed material information on the plan
of distribution;
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the Offering of the securities at that time to be the initial
bona fide Offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the Offering.
(b) The Registrant hereby undertakes to provide the Underwriter at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, 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 such director, officer or
controlling person in connection with the securities being registered, 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.
(d) The Registrant hereby undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A under the Securities
Act and contained in a form of prospectus filed by the Registrant under
Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this
registration statement as of the time the Securities and Exchange
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement relating to the securities offered in the
registration statement, and that Offering of the securities at that time
as the initial bona fide Offering of those securities.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in The
City of Monterey, California on October 11, 1996.
THINKING TOOLS, INC.
By: /s/ John Hiles
----------------------
John Hiles
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------- --------------------------------- ----------------
<S> <C> <C>
/s/ John Hiles President (Principal Executive, October 11, 1996
- ----------------------- Accounting and Financial
John Hiles Officer) and Director
/s/ Fred Knoll* Chairman of the Board and October 11, 1996
- ----------------------- Director
Fred Knoll
/s/ Esther Dyson* Director October 11, 1996
- -----------------------
Esther Dyson
/s/ Frederick Gluck* Director October 11, 1996
- -----------------------
Frederick Gluck
/s/ Ted Prince* Director October 11, 1996
- -----------------------
Ted Prince
/s/ Fran Saldutti* Director October 11, 1996
- -----------------------
Fran Saldutti
*By: /s/ John Hiles John
- -----------------------
Hiles, Attorney-in-Fact
</TABLE>
II-6
<PAGE>
The Offering
PROSPECTUS
- ----------
SUBJECT TO COMPLETION DATE , 199
THINKING TECHNOLOGIES, INC.
This Prospectus relates to the Offering (the "Offering") by certain
selling stockholders (the "Selling Stockholders") of 596,250 shares (the
"Shares") of Common Stock, par value $.001 per share which may be sold from
time to time by the Selling Stockholders, or by transferees, on or after the
date of this Prospectus, subject to contractual restrictions which provide
that such securities may not be sold for a period of 12 months after the
closing of the Company Offering (defined below) without the prior written
consent of Barington Capital Group, L.P., the underwriter of the Company
Offering (the "Underwriter"). See "Certain Transactions," "Risk Factors--
Shares Eligible for Future Sale; Registration Rights--and Potential Adverse
Effects from Sales of Selling Stockholder Securities", "Description of
Securities," "Selling Stockholders" and "Concurrent Sales By Selling
Stockholders."
No underwriting arrangements have been entered into by the Selling
Stockholders. The distribution of the Shares by the Selling Stockholders may
be effected from time to time in transactions on the Nasdaq SmallCap Market
in negotiated transactions, through the writing of options on the Shares, or
a combination of such methods of sale, at fixed prices that may be changed,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. The Selling Stockholders
may effect such transactions by the sale of the Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Selling Stockholders and/or
the purchasers of the Shares for whom such broker-dealers may act as agent or
to whom they may sell as principal, or both. Usual and customary or
specifically negotiated brokerage fees or commission may be paid by the
Selling Stockholders in connection with sales of the Shares. No underwriting
arrangements have been entered into by the Selling Stockholders.
The Selling Stockholders and intermediaries through whom the Shares are
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Act"), with respect to the securities offered and any
profits realized or commissions received may be deemed underwriting
compensation.
The Company will not receive any proceeds from sales of the Shares. See
"Selling Stockholders."
A registration statement under the Act has been filed with the Securities
and Exchange Commission with respect to an underwritten public offering on
behalf of the Company of 1,400,000 shares of Common Stock, plus up to 210,000
shares which may be offered pursuant to the exercise of the Underwriter's
over-allotment option (the "Company Offering"). See "Concurrent Sales By
Company."
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED CAREFULLY
AND ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE
"RISK FACTORS" BEGINNING ON PAGE 8 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Alt-1
<PAGE>
The Offering
<TABLE>
<CAPTION>
<S> <C>
Securities Offered 596,250 shares of Common Stock, $.001 par value per share.
See "Description of Securities." See "Certain Transaction"
"Risk Factors--Shares Available for Future Sale and
Potential Adverse Effects from Sales of Selling Stockholder
Securities" and "Description of Securities." No
underwriting arrangements have been entered into by the
Selling Stockholders. See "Selling Stockholders."
Common Stock Outstanding after the
Company Offering(1)(2) 4,431,758
Shares of Common Stock to be Outstanding
After this Offering(1)(2) 5,058,008
Use of Proceeds The Company will not receive any proceeds from the sale of
the Shares.
Risk Factors An investment in the securities offered hereby involves
certain risks and immediate substantial dilution.
Prospective investors should consider carefully the factors
set forth under "Risk Factors."
Trading Symbol The Common Stock is traded on the Nasdaq SmallCap Market
under the symbol TSIM.
</TABLE>
- ---------------
(1) Does not include (i) 456,250 shares of Common Stock issuable upon
exercise of warrants (the "Bridge Warrants") to purchase Common Stock at
an exercise price equal to the lesser of $4.20 or 60% of the initial
public offering price per share in the Company Offering issued by the
Company to purchasers of its 10% Senior Secured Promissory Notes (the
"Bridge Notes") in connection with a debt financing consummated prior to
the Company Offering (the "Bridge Financing"); (ii) 468,242 shares of
Common Stock issuable upon exercise of warrants to purchase Common Stock
at an exercise price of $1.07 per share issued to Thinking Technologies,
L.P. ("Technologies"), a principal stockholder of the Company (the
"Technologies Warrants"); (iii) 376,000 shares of Common Stock reserved
for issuance under the Company's 1996 Stock Option Plan (the "Plan"),
options to purchase 145,036 of which have been granted under the Plan,
including options to purchase 52,000 shares exercisable at $.79 per share
and options to purchase 52,000 shares exercisable at $5.00 per share
granted to certain of the Company's employees, and options to purchase
41,036 shares of Common Stock at an exercise price of $1.00 per share
granted to certain members of the Company's board of directors; (iv)
58,964 shares of Common Stock issuable upon exercise of outstanding
options granted to certain members of the Company's board of directors
outside of the Plan at an exercise price of $0.79 per share; and (v)
15,000 shares of Common Stock issuable upon exercise of options granted
outside of the Plan to a non-affiliate of the Company at an exercise
price of $1.00 per share. See "Management--1996 Stock Option Plan",
"Certain Transactions", and "Description of Securities."
(2) Does not include (i) up to 210,000 shares of Common Stock issuable upon
exercise of the Over- Allotment Option and (ii) 140,000 shares of Common
Stock issuable upon exercise of the Underwriter's Options.
Alt-2
<PAGE>
CONCURRENT SALES BY COMPANY
A registration statement under the Securities Act of 1933 (the "Act") has
been filed by the Company with the Securities and Exchange Commission with
respect to an underwritten public offering by the Company of 1,400,000 shares
of Common Stock, plus 210,000 shares which may be offered pursuant to
exercise of the Underwriter's over-allotment option.
Concurrent sales of securities by both the Company and by the Selling
Stockholders would likely have an adverse effect on the market price of the
Common Stock. The Shares are subject to contractual restrictions upon resale
with the Underwriter. See "Selling Stockholders--Lock-Up Arrangements", "Risk
Factors--Shares Eligible for Future Sale; Registration Rights--and Potential
Adverse Effects from Sales of Selling Stockholder Securities" and
"Description of Securities."
Alt-3
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the name of each person who is a Selling
Stockholder, the number of Selling Stockholder Securities owned by each
person's account, the percentage or outstanding shares of Common Stock of the
Company owned by such person prior to this Offering, the number of shares
being sold by such person, the number of shares of Common Stock such person
will own after the completion of this Offering, and the percentage of
outstanding shares of Common Stock of the Company owned by such person after
the completion of this Offering.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership After
Prior to Offering Number of Offering
----------------------------- Shares -----------------------------
Shares Percentage Being Sold Shares Percentage
------------ --------------- --------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
B&B Trading Retirement Plan 6,250 *
Alexander Mitchell 6,250 *
Gerald Benjamin 6,250 *
Steven A. Endquist 12,500 *
Michael Stoyka, M.D. 6,250 *
Peter Horrigan 6,250 *
Lyonshare Venture Capital 56,250 *
Steve Yavers 6,250 *
Wayne Saker 12,500 *
Paul Matusow 6,250 *
Floyd M. Smith 6,250 *
Dr. Harvey Kaplan 6,250 *
David Mitchell 18,750 *
Oliver Mitchell 6,250 *
Alladin Depot Partnership 6,250 *
C.M. Solomon 6,250 *
Philip Schonfeld 6,250 *
Eric & Suzanne Partch 6,250 *
Dr. Gershon Stern 12,500 *
Marvin Barish 6,250 *
CLFS Equities, Ltd. 6,250 *
Robert Jacobs IRA R/O 6,250 *
John Bykowsky 6,250 *
Robert Spitzer 6,250 *
David Kohane 6,250 *
Donald Heimstaedt 6,250 *
James Levi 6,250 *
Jerry Politzer 6,250 *
Paul and Linda Salsgiver 12,500 *
Guy Montanari 6,250 *
Woodland Partners 25,000 *
Thinking Technologies, L.P. 156,250 *
</TABLE>
- -----------
* less than 1%
Lock-Up Arrangements
The Selling Stockholders have agreed prior to the closing of the Company
Offering that they will not publicly sell, offer to sell, contract to offer
to sell, transfer, assign or pledge any of the Shares which are being
registered on their behalf by the Registration Statement of which this
Prospectus forms a part, for a period of 12 months from the closing of the
Company Offering without the prior written consent of the Underwriter. The
Underwriter has agreed that it will not consent to the release of any holders
of the Bridge Warrants from such lock-up for a period of one year from the
effective date of the Company Offering. See "Risk Factors--Shares Available
for Future Sale and Potential Adverse Effects from Sales of Selling
Stockholder Securities", "Description of Securities", and "Certain
Relationships and Related Transactions."
Alt-4
<PAGE>
Plan of Distribution
The distribution of the Shares by the Selling Stockholders may be effected
from time to time in transactions on the Nasdaq in negotiated transactions,
through the writing of options on the Shares, or a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of the sale, at prices related to such prevailing
market prices or at negotiated prices. The Selling Stockholders may effect
such transactions by the sale of the Shares to or through broker-dealers, and
such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agent or to
whom they may sell as principal, or both. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the Selling
Stockholders in connection with sales of the Shares. No underwriting
arrangements have been entered into by the Selling Stockholders.
The Selling Stockholders and intermediaries through whom the Shares are
sold may be deemed "underwriters" without the meaning of the Act with respect
to the securities offered and any profits realized or commissions received
may be deemed underwriting compensation. The Company has agreed to indemnify
the Selling Stockholders against certain liabilities, including liabilities
under the Act.
Alt-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
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<S> <C>
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of Thinking Tools, Inc.
3.2* By-Laws of Thinking Tools, Inc.
4.1* Form of Underwriter's Option Agreement
4.2* 1996 Stock Option Plan
4.3 Form of Stock Certificate
4.4* Form of Private Placement Investors' Warrant
4.5 Technologies Warrant
4.6* Form of Private Placement Note
4.7 Form of Lock-up Agreement
5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP
10.1 Employment Agreement between the Company and John Hiles
10.2* Form of Consulting Agreement
10.3 Development Agreement between the Company and SystemHouse dated June 30, 1995
10.4 Services Agreement between the Company and SystemHouse dated March 8, 1995
10.5 Vertical Market Software Development/Licensing Agreement between the Company and Coopers
dated October 12, 1994
10.6 Technologies Agreement between the Company and Technologies dated September 26, 1994
10.7 Consent, Waiver and Amendment between the Company and Technologies dated August 31, 1996
10.8 Lease between the Company and KI Monterey Research, Inc. dated August 19, 1994, as amended
11.1* Computation of Net Loss Per Share
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (contained in the Opinion filed as
Exhibit 5.1).
24.1* Power of Attorney (Included on page II-5)
</TABLE>
- ------------------
* Previously filed.
Item 28. Undertakings
(a) The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
COMMON STOCK COMMON STOCK
NUMBER SHARES
USFS
THINKING TOOLS, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE CUSIP 884098 10 4
This Certifies that
is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
$.001 PAR VALUE PER SHARE, OF
THINKING TOOLS, INC.
("the Corporation"), subject to the provisions of the Certificate of
Incorporation and By-Laws of the Corporation and transferable only on the books
of the Corporation by the holder thereof, in person or by attorney upon
surrender of this Certificate properly endorsed.
The Corporation will furnish without charge to each shareholder who so
requests a full statement of the designations, relative rights, preferences and
limitations of the shares of each class of stock which the Corporation is
authorized to issue, of the designations, relative rights, preferences and
limitations of each series of preferred stock which the Corporation is
authorized to issue so far as such terms have been fixed, and of the authority
of the Board of Directors of the Corporation to designate and fix the relative
rights, preferences and limitations of any series of preferred stock which the
Corporation is authorized to issue.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile Seal of the Corporation and the facsimile signatures
of its authorized officers.
Dated:
THINKING TOOLS, INC..
CORPORATE
SEAL
1996
DELAWARE
*
PRESIDENT TREASURER
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY:
AUTHORIZED SIGNATURE
<PAGE>
The Corporation is authorized to issue more than one class of series of
stock. Upon written request the Corporation will furnish without charge to each
stockholder a copy of the powers, designations, preferences, and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. Any such request may be made to the Corporation or
the Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT-- __________ Custodian ________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _______________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
| |
| |
--------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
________________________________________________________________________ shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint_____________________________________________
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated __________________________________
-------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- -----------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE WARRANT UNDER SAID ACT OR THE
AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION.
Warrant No. TTLP-1 For the Purchase of 627,500 Shares (as adjusted pursuant to
the provisions hereof)
THINKING TOOLS, INC.
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Thinking Technologies, L.P.
(the "Investor"), or its successors or assigns (collectively, the "Warrant
Holder"), is entitled to subscribe for and purchase from Thinking Tools, Inc., a
California corporation (the "Company"), 627,500 shares of the Company's Common
Stock (as defined in Section 12(a) hereof) (the "Warrant Shares") at a price of
$0.80 (eighty cents) per share (the "Exercise Price"), as the number of Warrant
Shares and the Exercise Price shall be adjusted and readjusted from time to time
in accordance with Section 4 hereof.
1. Exercise of Warrant.
The rights represented by this Warrant may be exercised, at any time prior to
December 31, 2006, by the Warrant Holder, in whole or in part, by delivery of
(a) a duly executed notice of exercise in the form of Annex A hereto, and (b) a
check payable to (or wire transfer to the account of) the Company in an amount
equal to the produce of (x) the Exercise Price times (y) and the number of
Warrant Shares as to which this Warrant is being exercised, and (c) in the case
of any Warrant Holder other than the Investor by the surrender of this Warrant.
This Warrant shall be deemed to have been exercised immediately.prior to the
close of business on the date of delivery of a duly executed notice of exercise
and the amount payable upon exercise of this Warrant, and in the case of any
Warrant Holder other than the Investor, surrender of this Warrant (or, if the
Company shall have failed to discharge its obligations under Section 5 hereof
before such date, on the date on which such obligations are fully discharged),
and, as of such moment, (i) the rights of the Warrant Holder with respect to the
number of Warrant Shares as to which this Warrant is being exercised shall
cease, except for any continuing registration and indemnification rights
provided under Section 5, and (ii) such Warrant Holder shall be deemed to be the
record holder of the shares of Common Stock issuable upon such exercise. As soon
as practicable after the exercise, in whole or in part, of this Warrant, and in
any event within 10 Business Days thereafter, the Company at its expense
(including the payment by it of any applicable issuance taxes) will cause to be
issued in the name of and delivered to the Warrant Holder, or as the Warrant
Holder (upon payment by the Warrant Holder of any applicable transfer taxes) may
direct, a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock to which the Warrant Holder shall be
entitled upon such exercise. In the event of partial exercise of this Warrant by
the Investor as herein provided, the Warrant need not be surrendered to the
Company provided that the Investor agrees to make a notation of such partial
exercise on the Warrant. If the Warrant is assigned, in whole or in part,
pursuant to section 7 hereof, then the assigned hereof shall (a) upon exercise
of the Warrant or Warrants surrender the Warrant or Warrants to the Company and
(b) in the event of a partial exercise of the Warrant, surrender the Warrant or
Warrants to the Company and the Company shall execute and deliver a new Warrant
or Warrants reflecting such partial exercise. Upon exercise in full of the
Warrant by any Warrant Holder, such Warrant Holder shall surrender the Warrant
to the Company.
2. Investment Representation.
The Warrant Holder by accepting this Warrant represents that the Warrant Holder
is acquiring the Warrant for its own account for investment purposes and not
with the view to any offering or distribution and that the Warrant Holder will
not sell or otherwise dispose of the Warrant or the underlying Warrant Shares in
violation of applicable securities laws; provided, however, that the Investor
may transfer this Warrant, in whole or in part, to one of its general partners
(a "Partner").
<PAGE>
3. Validity of Warrant and Issue of Shares.
The Company warrants that this Warrant is validly issued and represents and
agrees that all shares of Common Stock that may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be validly issued,
fully paid and nonassessable and free from all taxes and liens and options. The
Company further warrants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized and reserved a sufficient number of shares of Common Stock
to provide for the exercise of the rights represented by this Warrant.
4. Antidilution Provisions
The terms of the Warrant shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a stock dividend or make a distribution to
holders of Common Stock in shares of its Common Stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common stock into a smaller number of shares or (iv) issue by reclassification
of its shares of Common Stock any shares of capital stock of the Company, the
Exercise Price shall be increased or decreased, as the case may be, to an amount
which shall bear the same relation to the Exercise Price in effect immediately
prior to such action shall bear to the total number of shares outstanding
immediately after such action and, upon each such adjustment of the Exercise
Price, each Warrant outstanding prior to the adjustment in the Exercise Price
shall thereafter evidence the right to purchase the number of shares of Common
stock which the Warrant Holder would have owned after such action had the
Warrant been exercised immediately prior thereto. An adjustment made pursuant to
this subsection (a) shall become effective retroactively immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(b) In case the Company shall fix a record date for the making of a distribution
to holders of Common Stock (including any such distribution made in connection
with a consolidation or merger in which the Company is the continuing
corporation) of (i) assets (other than cash dividends or cash distributions
payable out of consolidated net income or earned surplus or dividends payable in
Common Stock), (ii) evidences of indebtedness or other securities of the
Company, or of any corporation other than the Company (except for the Common
Stock of the Company) or (iii) subscription rights, options or warrants to
purchase any of the foregoing assets or securities (excluding those referred to
in Section 4(d)(3)), whether or not such rights, options or warrants are
immediately exercisable (hereinafter collectively called "Distributions on
Common Stock"), the Company shall make: provisions for the Warrant Holder to
receive upon exercise of a Warrant, a proportional amount (depending upon the
extent to which such Warrant is exercised) of such assets, evidences of
indebtedness, securities or such other rights, options or warrants, as if such
Warrant Holder had exercised the Warrant on or before such record date.
(c) Subject to the exception referred to in Section 4(f), in case the Company
shall at any time or from time to time after the date hereof issue any
additional shares of Common Stock ("Additional Common Stock") (Other than a
dividend or a distribution to holders of Common stock in shares of Common Stock)
for a consideration per share less than (i) the then current Market Price per
share of Common Stock (determined as provided in Section 4(g)) immediately prior
to the issuance of such Additional Common Stock or (ii) the then current
Exercise Price immediately prior to the issuance of such Additional Common
Stock, or without consideration, then, and thereafter successively upon each
such issuance, the current Exercise Price shall forthwith be reduced to a price
determined by multiplying such current Exercise Price by a fraction of which:
( 1 ) the numerator shall be (i) the number of shares of Common Stock
(other than Warrant Shares for which no adjustment is to be made pursuant to
Section 4(f)) outstanding immediately prior to such issuance of Additional
Common Stock plus (ii) the number of shares of Common Stock which the
consideration,, if any, received by the Company upon such issuance of such
Additional Common Stock would purchase at the higher of the then current
Exercise Price or the Market Price per share; and
- 2 -
<PAGE>
153211-1.WPD
(2) the denominator shall be (i) the number of shares of Common Stock
(Other than Warrant Shares for which no adjustment is to be made pursuant to
Section 4(f)) outstanding immediately prior to such issuance of Additional
Common Stock plus (ii) the number of shares of such Additional Common Stock
issued.
Upon each such adjustment of the Exercise Price and subject to the exception
referred to in Section 4(f), each warrant outstanding prior to the making of the
adjustment in the Exercise Price shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of Warrant Shares obtained
by multiplying the number of Warrant Shares which would have been issuable upon
exercise of the Warrant at the current Exercise Price by a fraction obtained by
dividing the Exercise Price immediately prior to the adjustment by the adjusted
Exercise Price; provided however, that such adjustments shall be made only if
the Exercise Price determined from the fraction set forth in subparagraphs (1)
and (2) shall be less than the Exercise Price in effect immediately prior to the
issuance of such Additional Common Stock.
(d) For purposes of any adjustment as provided in Section 4(c), the following
provisions shall also be applicable.
(1) ln case of the issuance of Additional Common Stock for cash, the
consideration received by the Company therefor shall be deemed to be the net
cash proceeds received by the Company for such Additional Common Stock before
deducting any commissions or other expenses paid or incurred by the Company for
any underwriting or placement of, or otherwise in connection with the issuance
of, such Additional Common Stock;
(2) In case of the issuance (otherwise than conversion of obligations
or shares of stock of the Company) of Additional Common Stock for consideration
other than cash, including securities acquired in exchange therefor, or
consideration a part of which shall be other than cash the amount of the
consideration other than cash so received or to be received by the Company shall
be deemed to be the value of such consideration at the time of its receipt by
the Company as determined in good faith by the Board of Directors of the
Company;
(3) In case of the issuance (other than by way of a Distribution on
Common Stock pursuant to Section 4(b)) whether by distribution or sale to
holders of its Common Stock or to other, by the Company of (i) any security that
is convertible into Common Stock or (ii) any rights, options or warrants to
purchase Common Stock other than Warrants, if inclusion thereof in calculating
for purposes of Section 4(c) would result in an Exercise Price lower than if
excluded, the Company shall be deemed to have issued, hr the consideration
described below, the number of shares of Common stock into which such
convertible security may be converted when first convertible, or in the number
of shares of Common stock deliverable upon the exercise of such rights, options
or warrants when first exercisable, as the case may be (and such shares shall be
deemed to be Additional Common Stock for purposes of Section 4(c)); provided
that if such number of shares is thereafter increased in accordance with the
terms of such convertible security rights, options or warrants, as a result of
the antidilution provisions of such convertible security, rights, options or
warrants, or otherwise, other than any increase due to an adjustment in the
Warrant or Warrant Shares pursuant to this Section 4, the Company shall be
deemed to have issued at that time such increase and at no consideration, the
additional shares of Common stock into which such convertible securities may be
converted as a result of such increase or the additional shares of Common Stock
for which such rights, options or warrants may be exercised as a result of such
increase, as the case may be. The consideration deemed to be received by the
Company at the time of the issuance of such convertible securities or such
rights, options or warrants shall be the consideration so received determined in
the manner provided in Section 4(d)( 1) and 4(d)(2) before deducting any
commissions or other expenses paid or incurred by the Company in connection with
the issuance of such convertible securities or rights, options or warrants, plus
(x) any consideration or adjustment payment to be received by the Company in
connection with such conversion, or (y) the aggregate price at which shares of
Common Stock are to be delivered upon the exercise of such rights, options-or
warrants when first exercisable or if no price is specified and such shares are
to be delivered at an option price related to the market value of the subject
Common Stock measured at the time of exercise, then the aggregate price at which
shares of Common stock would be delivered upon the exercise of such rights,
options or warrants, if the Market Price at such time were the same as the
Market Price of the subject Common Stock; measured at the time such rights,
options or warrants, if the Market Price at such time were the same as the
Market Price of the subject Common Stock measured at the time such rights,
options, or warrants were granted; provided that as to such
- 3 -
<PAGE>
rights, options or warrants further adjustment as shall be necessary on the
basis of the actual option price at the time of exercise shall be made at the
time of exercise if the actual option price is different from the aforesaid
assumed option price. No further adjustment of the Exercise Price shall be made
as a result of the actual issuance of shares of Common Stock of the Company
referred to in this paragraph (3). On the expiration or termination of such
rights, options, options or warrants, or rights to convert, the Exercise Price
hereunder shall be readjusted to such Exercise Price as would have obtained had
the adjustments made upon the issuance of such rights, options, warrants or
convertible securities Been made upon the basis of the deliver of only the
number of shares of Common Stock actually delivered upon the exercise of such
rights, options or warrants or upon the conversion of any such securities; and
(4) The number of shares of Common Stock at the time outstanding shall
exclude all shares of Common Stock then owned or held directly or indirectly by
or for the account of the Company but shall include the aggregate number of
shares of Common stock at the time deliverable in respect of the convertible
securities, rights, options and warrants referred to in Section 4(d)(3) and
Section 4(f); provided that, to the extent that such rights, options, warrants
or conversion privileges are not exercised, such shares of Common Stock shall be
deemed to be outstanding only until the expiration dates of the rights, options,
warrants or conversion privileges or the prior cancellation thereof.
(e) In the case of the either (x) any consolidation or merger or
recapitalization or reclassification to which the Company is a party, other than
a consolidation or a merger in which the Company is the continuing corporation
and which does not result in any reclassification of, or change (other than a
change in par value or from par value to no par value or from no par value to
par value, or as a result of a subdivision or combination) in outstanding shares
of the Common Stock, or (y) any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, then the
Warrant Holder shall have the right to purchase for the aggregate Exercise Price
the kind and amount of shares of stock and other securities and property
(including cash) receivable upon such consolidation, merger, reclassification,
recapitalization, sale or conveyance by a holder of the number of shares of
Common Stock issuable upon exercise in full of this Warrant immediately prior to
such consolidation, merger, reclassification, recapitalization, sale or
conveyance, subject to adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 4 assuming, in the
case of any conveyance, such holder of Common Stock of the Company (i) is not a
person with or into which the Company consolidated or merged into the Company or
to which such sale or conveyance was made, as the case may be ("Constituent
Person") or an affiliate of a Constituent Person and (ii) failed to exercise his
rights-or election, if any, as to the kind or amount of shares of stock and
other securities and property (including cash) receivable upon such
consolidation, merger, reclassification, recapitalization, sale or conveyance is
not the same for each share of Common Stock of the Company held immediately
prior to such consolidation, merger, reclassification, recapitalization, sale or
conveyance by others than a Constituent Person or an affiliate thereof and in
respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purpose of this property (including cash)
receivable upon such consolidation, merger, reclassification,recapitalization,
sale or conveyance by each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the non-electing shares). The
provisions of this subsection (e) shall similarly apply to successive
consolidations, mergers, reclassification, recapitalization, sales or
conveyances.
(f) No adjustment of the Exercise Price or the number of Warrant Shares shall be
made as a result of or in connection with the issuance of Warrant Shares upon
exercise of the Warrant.
(g) For the purpose of any computation under this Section 4, the current market
price (the "Market Price") per share of Common Stock on any date shall be deemed
to be the average of the daily closing prices for the ten consecutive trading
days before such date, provided that for purposes of the application of
subsection (c) to the issuance of Additional Common Stock pursuant to a public
offering registered under the Securities Act of 1933, as amended (the "1933
Act"), "Market Price" means the closing price per share for the trading day
preceding the effective date of the registration statement with respect to the
shares offered in such public offering. The closing price for each day shall be
the last reported sale price regular way or, in case no such sale takes place on
such day, the average of the closing bid and asked prices regular way, in either
case on the principal national securities
- 4 -
<PAGE>
exchange on which the Common Stock is listed or admitted to trading or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the average of the Highest reported bid and lowest reported asked
price as furnished by the National Association of Securities Dealers, Inc.,
Automated Quotation System Level 1, or comparable system, or in the absence of
either, the per-share value of the Company determined by allocating ratably to
each share of Common Stock of the Company which is then issued and outstanding
the amount which is equal to the sum of (i) the value of the equity in all
Subsidiaries then owned by the Company, which shall be determined according to
GAAP for all Subsidiaries which are not Insurance Company Subsidiaries and
which, in the case of each Insurance Company Subsidiary, shall be the sum of its
Surplus plus its Discounted Value of Business in force, as determined by an
actuary or actuarial firm reasonably acceptable to the Investor (the costs and
expenses of such determination being borne by the Company) and (ii) the book
value of the other assets of the Company, all as calculated as of a date no
earlier than forty-five days prior to the date of determination.
(h) The Company shall have the right, at any time or from time to time,
voluntarily to reduce the current Exercise Price for such period or periods of
time as the Boards of Directors of the Company may determine; provided that each
such period shall be at least 30 days. In each such event the Company shall
prepare a certificate of an officer of the Company stating (x) the election of
the Company to reduce the current Exercise Price in accordance with this
subsection (h), (y) that such election is irrevocable during the period before
referred to, and (z) the period in which such reduced current Exercise Price
shall be in effect. A brief summary of the provisions of such certificate shall
be mailed by the Company at least 10 days prior to the date fixed for the
commencement of any period in which the reduced current price shall be in effect
in accordance with this subsection (h)to the Warrant Holder). Failure to receive
such notice by mail, or any defect therein, shall not affect the validity or the
reduction of the current price during such period. No reduction of the current
Exercise Price pursuant to the provisions of this subsection (h) shall be deemed
for the purposes of subsection 4(c) to alter or adjust the current Exercise
Price.
(i) The Company shall not be required upon the exercise of the Warrant to issue
any fraction of shares, but shall make any adjustment therefor by rounding the
number of shares obtainable upon exercise to the next highest whole number of
shares.
5. Registration Rights.
(a) Neither the Warrant nor the Warrant Shares have been registered with the
Securities and Exchange Commission (the "Commission") under the 1933 Act, or
qualified for sale pursuant to any state blue sky law, and may not be sold or
transferred without such registration or qualification, except pursuant to an
exemption therefrom. For purposes of this Section 5; (i) the term "Warrant
Holder" shall include, and the rights granted to the Warrant Holder pursuant to
this Section 5 shall extend to, the lawful holder of unregistered Warrant
Shares, provided that no rights shall be hereby granted which are in violation
of applicable securities laws or regulations; (ii) the terms Warrant and Warrant
Holder shall include any number of Warrants subsequently issued pursuant to
section 7 and the holders of those Warrants, respectively, together with any
securities issuable in exchange therefor in the event of a recapitalization,
stock split, merger, consolidation or other combination or exchange of shares;
and (iii) the terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the 1933 Act. (a "registration statement") and the declaration
or ordering of effectiveness of such registration statement under the 1933 Act.
(b) At any time after six (6) months from the date hereof, the holders
representing at least an aggregate of 50% of the then total of the Warrants
and/or Warrant Shares ("Fifty Percent Holders"), may, upon one (1) occasion,
make a written request to the Company requesting that the Company effect the
registration of all or a portion of the Warrant Shares (whether issued or
issuable) of such holders under the 1933 Act and specifying the intended method
or methods of disposition thereof. Any such requested registration may also
register other unregistered Common Stock held by such Warrant Holders or holders
of Warrant Shares. After receipt of such a request, the Company, shall promptly
notify all holders of Warrants and Warrant Shares in writing of the receipt of
such request and each such holder may elect (by written notice sent to the
Company within ten (10) business days from
- 5 -
<PAGE>
the date of such holder's receipt of the Company's notice to have its Warrant
Shares (whether issued or issuable) included in such registration pursuant to
this Section 5(b) Thereupon the Company shall, as expeditiously as is possible,
use its best efforts to effect the registration under the 1933 Act of all
Warrant Shares and other shares of Common Stock which the Company has been so
requested to register by such holders for sale, all to the extent required to
permit the disposition (in accordance with the intended method or methods
thereof, as aforesaid) of the Common Stock so registered.
(c) If the Company at any time proposes to file on its behalf and/or on behalf
of any of its security holders ("the demanding security holders") a registration
statement under the 1933 Act on any form (other than a Registration Statement on
Form S-4 or S-8 or any successor form for securities to be offered in a
transaction of the type referred to in Rule 145 under the 1933 Act or to
employees of the Company pursuant to any employee benefit plan, respectively)
for the general registration of any class of its Act of 1934, as amended) to be
sold for case, other than pursuant to a registration statement filed pursuant to
subsection 5(b) hereof, it will give written notice to all the holders of
Warrants and Warrant Shares at least sixty (60) days before the initial filing
with the Securities and Exchange Commission (the "Commission") of such
registration statement, which notice shall set forth the intended method of
disposition of the securities proposed to be registered by the Company. The
notice shall offer to include in such filing such shares of issued or issuable
Common Stock as such holders may request.
Each holder of Warrants or Warrant Shares desiring to have Common Stock (whether
issued or issuable) registered under this subsection 5(c) shall advise the
Company in writing within twenty (20) days after the date of receipt of such
offer from the Company, setting forth the amount of such Common Stock for which
registration is requested. The Company shall thereupon include in such filing
the number of shares Common Stock for which registration is so requested,
subject to the next sentence, and shall use its best efforts to effect
registration under the 1933 Act of such shares. If the managing underwriter of a
proposed underwritten public offering of Common Stock shall advise the Company
in writing that, in its opinion, the distribution of the common Stock requested
to be included in the registration concurrently with the securities being
registered by the Company or any demanding security holder would materially and
adversely affect the distribution of such securities by the Company or such
demanding security holder, then the number of shares of Common Stock determined
by such underwriter to be the maximum number capable of being included in such
registration shall be allocated as follows: (i) first, to the shares (if any)
sought to be included by the Company and the demanding security holders and (ii)
second, to the shares sought to be included by the holders of Warrants and/or
Warrant Shares, pro rata based upon the number of Warrants and/or Warrant Shares
held by each such holder. Alteratively, in the event of such advice by the
managing underwriter, any holder of the Common Stock may at its option delay its
offering and sale for a period not to exceed ninety (90) days after the
effective date of such registration as such managing underwriter shall
reasonably request. In the event of such delay, the Company shall use its best
efforts to effect any registration or qualification under the 1933 Act and the
securities or blue sky laws of any jurisdiction as may be necessary to permit
such holder to make its proposed offering and sale following the end of such
period of delay and shall pay all expenses related thereto in accordance with
Section 5(g).
(d) If at any time the Company is eligible to use Form S-3 for registration of
secondary sales of Common stock, then Fifty Percent Holders may, upon not more
than two (2) occasions, request in writing that the Company register shares of
Common Stock (whether issued or issuable) on such form. Upon receipt of such
request, the Company shall promptly notify all holders of Warrants and/or
Warrant Shares in writing of the receipt of such request and each such holder
may elect (by written notice sent to the Company within ten (10) business days
from the date of such holder's receipt of the Company's notice) to have its
Common Stock (issued or issuable) included in such registration pursuant to this
subsection 5(d). Thereupon the Company registration on Form S-3 of all Common
Stock which the Company has been so requested to register by such holders for
sale. Notwithstanding anything to the contrary contained in this Section 5(d),
the Company shall not be obligated to register shares of Common Stock under this
Section 5(d) on more than one (1) occasion if shares of Common Stock owned by
holders of Warrants or Warrant Shares have been registered on a pervious
occasion pursuant to either Section 5(b) or Section 5(c). The Company shall use
its best efforts to qualify for eligibility to use Form S-3 for such purposes at
all times following its Initial Public Offering of any its equity securities
pursuant to a registration statement filed with the Commission.
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<PAGE>
(e) Whenever the Company is required by the provisions of Section 5(b), 5(c) or
5(d) hereof to use its best efforts to effect the registration of any of its
securities under the 1933 Act, the Company will, as expeditiously as is
possible:
(1) prepare and file with the Commission a registration statement with
respect to such securities in connection with which the Company will give each
seller, their underwriters, if any, their respective counsel and accountants,
the opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss the business
of the Company with its officers and the independent public accountants which
have examined its financial statements as shall be necessary, in the opinion of
such sellers' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the 1933 Act;
(2) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
the prospectus current and to comply with the provisions of the 1933 Act with
respect to the sale of all securities covered by such registration statement
wherever the seller of such securities shall desire to sell the same; provided,
however, the Company shall have no obligation to file any amendment or
supplement as its own expense more than ninety (90) days after the effective
date of such registration statement;
(3) furnish to each seller such numbers of copies of preliminary
prospectuses and prospectuses and each supplement or amendment thereto and such
other documents as each seller may reasonably request in order to facilitate the
sale or other disposition of the securities owned by such seller in conformity
with (i) the requirements of the 1933 Act and (ii) the seller's proposed method
of distribution;
(4) register or qualify the securities covered by such registration
statement under the securities or blue sky laws of such jurisdiction within the
United States as each seller shall reasonably request, and do such other
reasonable acts and things as may be required of it to enable each seller to
consummate the sale or other disposition in such jurisdictions of the securities
owned by such seller; provided, however, that the Company shall not be required
to (i) qualify as a foreign corporation or consent to a general and unlimited
service of process in any such jurisdictions, or (ii) qualify as a dealer in
securities;
(5) furnish, at the request of any seller on the date such securities
are delivered to the underwriters for sale pursuant to such registration or, if
such securities are not being sold through underwriters, on the date the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of counsel representing the Company for the purposes
of such registration, addressed to the underwriters, if any, and the seller
making such request, covering such legal matters with respect to the
registration in respect of which such opinion is being given as the seller of
such securities may reasonably request and are customarily included in such
opinions and (ii) the date such securities are delivered to the underwriters, if
any, for sale pursuant to such registration, from a firm of independent public
accountants of recognized national standing selected by the Company, addressed
to the underwriters, if any, and to the seller making such request, covering
such financial statistical and accounting matters with respect to the
registration in respect of which such letters are being given as the seller of
such securities may reasonably request and are customarily included in such
letters;
(6) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security holders as
soon as reasonably practicable, but not later than sixteen (16) months after the
effective date of registration statement, an earnings statement covering a
period of at least twelve (12) months beginning after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
(7) enter into and perform an underwriting agreement with the managing
underwriter, if any, containing customary (i) terms of offer and sale of the
securities, payment provisions, underwriting discounts and commissions, and (ii)
representations, warranties, covenants, indemnities, terms and conditions; such
sellers shall
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<PAGE>
not be required to make any representations or warranties to or agreements with
the Company or the underwriters other than representations, warranties or
agreements regarding such sellers and such sellers' intended method of
distribution and any other representation required by law;
(8) notify each seller at any time when a prospectus relating to the
registration is required to be delivered under the 1933 Act, upon discovery
that, or upon 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 any material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made, and at the request of any
such seller promptly prepare and furnish to such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be necessary
so that as thereafter delivered to the purchaser of such securities, such
prospectus shall not include an untrue statement of a material fact or omit 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 under which
they were made; and
(9) keep each seller advised in writing as to the initiation and
progress of any registration under Section 5(b), 5(c) or 5(d) hereof.
(f) The Company agrees not to effect any public sale or distribution of
or otherwise dispose of any equity securities of the Company or securities
convertible into or exchangeable or exercisable for any of such equity
securities during the seven (7) days prior to or ninety (90) days after the date
any underwritten registration pursuant to Section 5(b) hereof has become
effective, except as part of such underwritten registration and except pursuant
to registrations on Form S-4 or S-8 or any successor or similar forms thereto,
and to use its best efforts to cause each person which purchases its equity
securities or any securities convertible into or exchangeable or exercisable for
any such equity securities at any time after the date of this Agreement (other
than in a public offering) to agree not to effect any such public sale or
distribution of such securities during such period.
(g) If the Company is required by the provisions of Section 5(b), 5(c)
or 5(d) to effect the registration or qualification under the 1933 Act or any
state securities or blue sky laws of any of the shares of Common Stock, the
Company shall pay all expenses in connection therewith, including, without
limitation, (i) all expenses incident to filing with the National Association of
Securities Dealers, Inc., (ii) registration fees, (iii) printing expenses, (iv)
accounting and legal fees and expenses, except to the extent the holder of
Common Stock elects to engage accountants or attorneys in addition to the
accountants and attorneys engaged by the Company, in which case such holder
shall pay the fees and expenses of such additional accountants and attorneys,
(v) expenses of any special audits incident to or required by any such
registration or qualification, (vi) premiums for insurance in such amount, if
any, deemed appropriate by the managing underwriter, and (vii) expenses of
complying with the securities or blue sky laws of any jurisdictions in
connection with such registration or qualification; provided, however. the
Company shall not be liable for (1) any discounts or commissions to any
underwriter attributable to the sale of Common Stock, (2) any stock transfer
taxes incurred in respect of the Common Stock sold by the sellers or (3) any
fees or expenses incurred by a holder of Common Stock in connection with such
registration which, according to the written instructions of any regulatory
authority, the Company is not permitted to pay.
(h) In connection with any registration or qualification of securities
under Section 5(b), 5(c) or 5(d) hereof, the Company agrees to indemnify each
holder of any shares of Common Stock seeking such registration and each
underwriter thereof, including each person, if any, who controls the holder or
such stockholder or underwriter within the meaning of Section 15 of the 1933
Act, against all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) caused by any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary prospectus, prospectus or notification or offering circular (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or caused by any omission, or alleged omission, to state
therein a material fact required to be stated therein or necessary to make the
statement therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses are caused by any untrue statement or alleged
untrue statement or omission or alleged omission based upon information
furnished to the Company expressly for use therein in a writing signed by the
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<PAGE>
holder of Common Stock or arising from an underwriter's or holder's failure to
deliver a prospectus to a purchaser when the delivery was required by law. The
Company and each officer, director and controlling person of the Company shall
be indemnified by the holder of any Common Stock for all such losses, claims,
damages, liabilities and expenses (including the costs of reasonable
investigation) caused by any such untrue, or alleged untrue, statement or any
such omission, or alleged omission, based upon information furnished to the
Company expressly for use therein in a writing signed by the holder of Common
Stock.
Promptly upon receipt by a party indemnified under this Section 5(h) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 5(h), such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may have to any indemnified party otherwise than under this
Section 5(h) unless such failure shall materially adversely affect the defense
of such action. In case notice of commencement of any such action shall be given
to the indemnifying party as above provided, the indemnifying party shall be
entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and satisfactory to such
indemnified party. The indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel (other than reasonable costs of investigation)
shall be paid by the indemnified party unless (i) the indemnifying party agrees
to pay the same, (ii) the indemnifying party fails to assume the defense of such
action with counsel reasonably satisfactory to the indemnified party or (iii)
the named parties to any such action (including any impleaded parties) have been
advised by such counsel that representation of such indemnified party and the
indemnifying party by the same counsel would be inappropriate under applicable
standards of professional conduct (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party). No indemnifying party shall be liable for any settlement
entered into without its consent.
(i) If for any reason the indemnification provisions contemplated by
Section 5(h) are unavailable or insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages or liabilities referred to
therein, then the indemnifying party in respect of any losses, claims, damages
or liabilities referred to therein, shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities referred to therein, shall contribute to the amount paid or payable
by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified patty as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party. In no event shall a holder of Common Stock be
required to contribute an amount greater than the dollar amount of the proceeds
received by such holder with respect to the sale of any Common Stock.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(i) were determined by pro rata
allocation (even if the holders or any underwriters or all of them were treated
as one entity for such purposes) or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1993 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The contribution provided for this Section 5(i) shall survive with
respect to the Company and a holder of Common Stock and shall remain in full
force and effect regardless of any investigation made by or on behalf of an'
indemnified party.
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<PAGE>
(j) The indemnity agreement contained herein shall remain operative and
in full force and effect regardless of (i) any termination of this Agreement,
(ii) any investigation made by or on behalf of any indemnified party or by or on
behalf of the Company, its officers or directors or any other person controlling
the Company and (iii) acceptance of and payment for any of the Warrant Shares.
6. Voting Rights. The Warrant Holder shall be entitled to vote the
number of Warrants held hereunder as voting Common Stock of the Company as if
the.Warrant Shares were issued and outstanding as of the date of this
instrument.
7. Notice to Warrant Holder.
In case at any time:
(a) the Company shall take any action which would require an adjustment
in the Exercise price and/or in the number of Warrant Shares pursuant to Section
4; or
(b) the Company shall authorize the granting to the holders of its
Common Stock of any distributions on Common Stock as set forth in subsection
4(b), and notice thereof shall be given to holders of Common Stock; or
(c) the Company shall issue any Additional Common Stock or declare any
dividend (or any other distribution) other than a normal quarterly dividend on
its Common Stock; or
(d) there shall be any capital reorganization or reclassification of
the Common Stock (other than a change in par value or from par value to no par
value or from no par value to par value of the Common Stock), or any
consolidation or merger to which the Company is a party or any sale or transfer
of all or substantially all of the assets of the Company; or
(e) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of said cases, the Company shall give written
notice to the Warrant Holder, not less than 20 days before any record date or
other date set for definitive action, or of the date on which such
reorganization, reclassification, sale, consolidation, merger, dissolution,
liquidation, or winding up shall take place, as the case may be. Such notice
shall also set forth such facts as shall indicate the effect of such action (to
the extent such effect may be known at the date of such notice) on the current
Exercise price and the kind and amount of the Warrant Shares and other
securities and property deliverable upon exercise of the Warrant. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, sale,
consolidation, merger, dissolution, liquidation or winding up, as the case may
be (on which date, in the event of voluntary or involuntary dissolution,
liquidation or winding up of the Company, the right to exercise the Warrant
shall terminate).
8. Transfer of Rights.
This Warrant is transferable, in whole or in part, to any Partner of
the Investor or to any other person; provided that no transfer hereof shall be
made which violates the 1993 Act or any applicable state blue sky law or which
would require registration or qualification by the Company of the Warrant
pursuant to the 1993 Act or any such blue sky law. The preceding sentence does
not affect the Company's obligations under Section 5. This Warrant may be
assigned, at the option of the Warrant Holder upon delivery of the Warrant
Assignment Form annexed as Annex B hereto duly executed and funds sufficient to
pay any transfer tax imposed in connection with such assignment (if any) and,
upon surrender of this Warrant to the Company. The Company shall execute and
deliver a new Warrant or Warrants in the form of this Warrant with appropriate
changes to reflect such
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<PAGE>
assignment, in the name of the assignee or assignees named in such instrument of
assignment and, if the Warrant Holder's entire interest is not being transferred
or assigned, in the name of the Warrant Holder, and this Warrant shall promptly
be cancelled. Any transfer or exchange of this Warrant shall be without charge
to the Warrant Holder (except as provided above with respect to transfer taxes,
if any) and any new Warrant or Warrants issued shall be dated the date hereof.
The term "Warrant" as used herein includes all Warrants into which this Warrant
or any successor Warrant) may be exchanged or issued in connection with the
transfer or assignment of this Warrant (or any successor Warrant).
9. Lost, Mutilated or Missing Warrant.
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in the case of loss,
theft or destruction of satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
10. Rights of the Warrant Holder.
The rights of the Warrant Holder are limited to those expressed in this
Warrant.
11. Availability of Information.
The Company shall comply with all applicable public information
reporting requirements of the Commission (including those required to make
available the benefits of Rule 144 under the 1993 Act) to which it may from time
to time be subject. The Company shall also cooperate with each Warrant Holder
and holder of any Warrant Shares in supplying such information concerning the
Company as may be necessary for such Warrant Holder or holder to complete and
file any information reporting forms currently or hereafter required by the
Commission as a condition to the availability of an exemption from the 1993 Act
for the sale of any Warrants or Warrant Shares.
I 2. Successors.
All the provisions of this Warrant by or for the benefit of the Company
or the Warrant Holder shall bind and inure to the benefit of their respective
successors and assigns.
1 3. Miscellaneous.
(a) As used herein, the term "Common Stock" shall mean and include the
Company's currently authorized Common Stock, no par value per share, stock of
any other class or other consideration into which such currently authorized
Common Stock may hereafter have been changed and stock of any class of capital
stock in distributions either of earnings or assets of the Company without limit
as to amount or percentage.
(b) As used herein, the term "Discounted Value of Business in Force"
shall mean as of any date the aggregate present value of the estimated "net gain
from operations after dividends to policyholders and federal income taxes
(excluding tax on capital gains)" to be earned after such date by all insurance
Company Subsidiaries with respect to insurance policies and annuities in effect
on such date in each calendar year (or portion thereof) ending after such date
and within seven years of such date, determined in accordance with actuarial
assumptions then in use and other reasonable assumptions not inconsistent
therewith, discounted annually at an interest rate per annum equal to the sum of
(i) 5% and (ii) the per annum interest rate, as of the last day of the preceding
calendar quarter (unless such day is the last day of a calendar quarter, in
which case as of such date) for U.S. Treasury
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<PAGE>
securities having a seven year maturity, as published in the most recent version
of U.15(519) published by the Board of Governors of the Federal Reserve System
on or prior to the last day of such calendar quarter.
(c) As used herein, the term "Surplus" means, with respect to any
Insurance Company Subsidiary that issues insurance or annuity policies and as of
any date, the sum of (i) gross paid in and contributed capital and surplus and
(ii) unassigned funds (surplus) less treasury stock, at cost in each case as of
such date.
(d) This Warrant shall not entitle the Warrant Holder to any rights
except the rights herein expressed, and no such cash dividend paid out of
earnings or surplus shall be payable or accrue in respect of this Warrant or the
interest represented thereby or the shares which may be subscribed for and
purchased hereunder until and unless and except to the extent that the rights
represented by this Warrant shall be exercised.
(e) The issuance of certificates for Warrant Shares upon the exercise
of the Warrant shall be made without charge to the Warrant Holders of such
certificates, and such certificates shall be issued in the respective names of,
or in such names as may be directed by, the Warrant Holder; provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
(f) This Warrant shall be construed in accordance with and governed by
the law of the State of California.
(g) The caption headings used in this Warrant are for convenience of
reference only and shall not be construed in any way to affect the
interpretation of any provisions of this Warrant.
14. Notices.
All notices, requests and other communications to either party
hereunder shall be in writing (including bank wire, telecopy or similar writing)
and shall be given as follows:
For Notices to the Company:
Thinking Tools, Inc.
One Lower Ragsdale Drive, 1-250
Monterey, California 94940
For Notices to the Warrant Holder, to the address as shown on the books
of the Company. Each such Notice shall be effective 72 hours after deposited in
the United States mail for delivery within the United States.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer on this 1st day of July 1996.
THINKING TOOLS, INC.
Ms. Linda Levinson, its: President
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<PAGE>
ANNEX A
COMMON STOCK PURCHASE WARRANT
Notice of Exercise
, 199
To: Thinking Tools, Inc.
The undersigned, pursuant to the provisions set forth in Warrant No. , hereby
irrevocably elects and agrees to purchase shares of the Company's Common
Stock covered by such Warrant, and makes payment herewith in full therefor of
the aggregate Warrant Price of $ in the following form:
The undersigned hereby represents that the undersigned is exercising
the Warrant for its own account or the account of an affiliate for investment
purposes and not with the view to any offering or distribution and that the
Warrant Holder will not sell or otherwise dispose of the Warrant or the
underlying Warrant Shares in violation of the applicable securities laws. If
said number of shares is less than all of the shares purchasable hereunder and
the undersigned is any Person other than the Investor or an affiliate of the
Investor, the undersigned requests that a new Warrant certificate representing
the remaining balance of the shares be registered in the name of
whose address is
Signature
Printed Name
Address
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<PAGE>
Thinking Tools, Inc.
One Lower Ragsdale Drive, I-250
Monterey, CA 93940
Barington Capital Group, L.P.
888 Seventh Avenue
New York, NY 10019
Dear Sir/Madam:
In order to satisfy the letter agreement dated July 23, 1996 (the
"Letter Agreement") between Thinking Tools, Inc. (the "Company") and Barington
Capital Group, L.P. (the "Underwriter"), and to induce the Underwriter to enter
into the Underwriting Agreement (the "Underwriting Agreement") to be entered
into in connection with a public offering (the "Public Offering") of the
Company's Common Stock (as hereinafter defined), the undersigned agrees that
from the date hereof and continuing for a period (the "Lock-Up Period") of
twelve (12) months from the date of closing of the Public Offering, I will not,
without the Underwriter's prior written consent, or except as set forth below,
offer, pledge, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any shares of the Company's common
stock, $0.001 par value per share (the "Common Stock"), or other securities of
the Company or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for shares of Common Stock or
other securities of the Company, including, without limitation, any shares of
Common Stock issuable under any employee stock options (each such transaction, a
"Sale"). The foregoing restrictions shall not apply to sales of Common Stock
commencing six months after the Offering is completed in the event that the last
sales price for the Common Stock on its principal exchange has been at least
200% of the initial offering price for a period of 20 consecutive trading days
ending within 5 days of the date of such sale, and such sale is completed at a
price in excess of 200% of the initial offering price. In addition, I hereby
waive any registration rights to which I would be entitled during the Lock-Up
Period.
The provisions of this agreement shall be binding upon the undersigned
and the assigns, heirs, and personal representatives of the undersigned and
shall be for the benefit of the Company and the Underwriter.
Very truly yours,
<PAGE>
Thinking Tools, Inc.
One Lower Ragsdale Drive, I-250
Monterey, CA 93940
Barington Capital Group, L.P.
888 Seventh Avenue
New York, NY 10019
Dear Sir/Madam:
In order to satisfy the letter agreement dated July 23, 1996
(the "Letter Agreement") between Thinking Tools, Inc. (the "Company") and
Barington Capital Group, L.P. (the "Underwriter"), and to induce the Underwriter
to enter into the Underwriting Agreement (the "Underwriting Agreement") to be
entered into in connection with a public offering (the "Public Offering") of the
Company's Common Stock (as hereinafter defined), the undersigned agrees that
from the date hereof and continuing for a period (the "Lock-Up Period") of
twelve (12) months from the date of closing of the Public Offering, I will not,
without the Underwriter's prior written consent, or except as set forth below,
offer, pledge, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any shares of the Company's common
stock, $0.001 par value per share (the "Common Stock"), or other securities of
the Company or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for shares of Common Stock or
other securities of the Company, including, without limitation, any shares of
Common Stock issuable under any employee stock options (each such transaction, a
"Sale"). The foregoing restrictions shall not apply to sales of Common Stock
commencing six months after the Offering is completed in the event that the last
sales price for the Common Stock on its principal exchange has been at least
200% of the initial offering price for a period of 20 consecutive trading days
ending within 5 days of the date of such sale, and such sale is completed at a
price in excess of 200% of the initial offering price. In addition, I hereby
waive any registration rights to which I would be entitled during the Lock-Up
Period.
I further agree that if the Underwriter satisfies its
obligations in accordance with the terms of the Underwriting Agreement or the
Underwriter is prepared to offer the securities of the Company substantially on
the terms set forth in the Letter Agreement or in the Underwriting Agreement,
the Underwriter shall have an irrevocable preferential right for a period of
three years from the later of July 23, 1996 or the date the Public Offering is
completed, to purchase for its account or to sell for my account, any securities
of the Company or any subsidiary or successor to the Company which I may seek to
sell (other than sales of small amounts of securities by me (which shall include
sales of less than 5% of my shares) through brokers in open market
transactions), whether pursuant to registration under the Securities Act of
1933, as amended (the "Act"), or otherwise. I will consult with the Underwriter
with regard to any such offering and will offer the Underwriter the opportunity
to purchase or sell any such securities on terms not more favorable to me than I
can secure elsewhere. If the Underwriter fails to accept such offer within 20
business days
<PAGE>
with respect to an underwritten offering (5 business days with respect to any
other proposed sale) after the mailing of a notice containing such offer by
registered mail addressed to the Underwriter, then the Underwriter shall have no
further claim or right with respect to the proposal contained in such notice.
If, however, the terms of such proposal are subsequently modified in any
material respect, the preferential right referred to herein shall apply to such
modified proposal as if the original proposal had not been made. The
Underwriter's failure to exercise its preferential right with respect to any
particular proposal shall not affect its preferential rights relative to future
proposals.
The provisions of this agreement shall be binding upon the
undersigned and the assigns, heirs, and personal representatives of the
undersigned and shall be for the benefit of the Company and the Underwriter.
Very truly yours,
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<PAGE>
Thinking Tools, Inc.
One Lower Ragsdale Drive, I-250
Monterey, CA 93940
Barington Capital Group, L.P.
888 Seventh Avenue
New York, NY 10019
Dear Sir/Madam:
In order to satisfy the letter agreement dated July 23, 1996
(the "Letter Agreement") between Thinking Tools, Inc. (the "Company") and
Barington Capital Group, L.P. (the "Underwriter"), and to induce the Underwriter
to enter into the Underwriting Agreement (the "Underwriting Agreement") to be
entered into in connection with a public offering (the "Public Offering") of the
Company's Common Stock (as hereinafter defined), the undersigned agrees that
from the date hereof and continuing for a period (the "Lock-Up Period") of
twenty-four (24) months from the date of closing of the Public Offering, I will
not, without the Underwriter's prior written consent, or except as set forth
below, offer, pledge, sell, contract to sell, grant any option for the sale of,
or otherwise dispose of, directly or indirectly, any shares of the Company's
common stock, $0.001 par value per share (the "Common Stock"), or other
securities of the Company or any security or other instrument which by its terms
is convertible into, exercisable for, or exchangeable for shares of Common Stock
or other securities of the Company, including, without limitation, any shares of
Common Stock issuable under any employee stock options (each such transaction, a
"Sale"). The foregoing restrictions shall not apply to sales of Common Stock
commencing six months after the Offering is completed in the event that the last
sales price for the Common Stock on its principal exchange has been at least
200% of the initial offering price for a period of 20 consecutive trading days
ending within 5 days of the date of such sale, and such sale is completed at a
price in excess of 200% of the initial offering price. In addition, I hereby
waive any registration rights to which I would be entitled during the Lock-Up
Period.
I further agree that if the Underwriter satisfies its
obligations in accordance with the terms of the Underwriting Agreement or the
Underwriter is prepared to offer the securities of the Company substantially on
the terms set forth in the Letter Agreement or in the Underwriting Agreement,
the Underwriter shall have an irrevocable preferential right for a period of
three years from the later of July 23, 1996 or the date the Public Offering is
completed, to purchase for its account or to sell for my account, any securities
of the Company or any subsidiary or successor to the Company which I may seek to
sell (other than sales of small amounts of securities by me (which shall include
sales of less than 5% of my shares) through brokers in open market
transactions), whether pursuant to registration under the Securities Act of
1933, as amended (the "Act"), or otherwise. I will consult with the Underwriter
with regard to any such offering and will offer the Underwriter the opportunity
to purchase or sell any such securities on terms not more favorable to me than I
can secure elsewhere. If the Underwriter fails to accept such offer within 20
business days
<PAGE>
with respect to an underwritten offering (5 business days with respect to any
other proposed sale) after the mailing of a notice containing such offer by
registered mail addressed to the Underwriter, then the Underwriter shall have no
further claim or right with respect to the proposal contained in such notice.
If, however, the terms of such proposal are subsequently modified in any
material respect, the preferential right referred to herein shall apply to such
modified proposal as if the original proposal had not been made. The
Underwriter's failure to exercise its preferential right with respect to any
particular proposal shall not affect its preferential rights relative to future
proposals.
The provisions of this agreement shall be binding upon the
undersigned and the assigns, heirs, and personal representatives of the
undersigned and shall be for the benefit of the Company and the Underwriter.
Very truly yours,
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EXHIBIT 5.1
[Squadron, Ellenoff, Plesent & Sheinfeld, LLP Letterhead]
October 10, 1996
Thinking Tools, Inc.
One Lower Ragsdale Drive, I-250
Monerey, California 93940
Re: Registration Statement on Form SB-2 (Registration No.
333-11321)
Ladies and Gentlemen:
You have requested our opinion, as counsel for Thinking Tools, Inc., a
Delaware corporation (the "Company"), in connection with the registration
statement on Form SB-2 (No. 333-11321), as amended (the "Registration
Statement"), filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act").
The Registration Statement relates to the offering by the Company of
1,400,000 shares of common stock, par value $.001 per share, of the Company (the
"Common Stock"), and up to 210,000 shares of Common Stock to be issued solely to
cover over-allotments (collectively, the "Shares").
We have examined such records and documents and made such examinations
of law as we have deemed relevant in connection with this opinion. Based upon
such examinations, it is our opinion that when there has been compliance with
the Act and the applicable state securities laws, the Shares to be sold by the
Company, when issued, delivered, and paid for in the manner described in the
form of Underwriting Agreement filed as Exhibit 1 to the Registration Statement,
will be validly issued, and the Shares, when so issued, delivered and paid for
will also be fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ Squadron, Ellenoff,
Plesent & Sheinfeld, LLP
KEY-MAN EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter "Agreement") is made in Monterey,
California, dated and effective September 21, 1994, by and between THINKING
TOOLS, INC., a California Corporation (hereinafter the "Company'), and JOHN
HILES (hereinafter "Executive").
Recitals
A. Executive has participated in the organization of the Company
and its business.
B. Executive is expected to continue to make a major contribution
to the profitability, growth and financial strength of the
Company.
C. The Company considers the continued services of the Executive to be in the
best interest of the Company and its shareholders and desires to assure the
continued services of the Executive on behalf of the Company on an objective and
impartial basis and without distraction or conflict of interest in the event of
an attempt to obtain control of the Company.
D. Executive is willing to remain in the employ of the Company under the terms
and conditions hereof and upon the understanding that the Company will provide
him with the income security herein if his employment is terminated by the
Company without cause or if he voluntarily terminates his employment for good
reason.
NOW, THEREFORE, in consideration of the mutual agreements contained herein, the
parties to this Agreement hereby agree as follows:
Agreement
1. Employment. The Company hereby agrees to employ Executive as President and
Chief Executive Officer of the Company. Executive accepts such employment and
agrees to be subject to the general supervision, orders, advice and direction of
the Board of Directors of the Company in a manner consistent with the Articles
of Incorporation and By-Laws of the Company.
2. Terms of Employment and Compensation. Executive's term of
employment (the "Employment Term") hereunder shall start on the
date first written above and continue until such employment
terminates pursuant to Section 7 hereof. In consideration for providing services
hereunder Executive shall be compensated through the salary and bonus provisions
of Section 3.
3. Salary and Bonus. Executive's salary for the first year hereunder shall be
equivalent to that paid to Executive from the period of January 1, 1994 to the
date hereof, or greater, as is determined in good faith by the Board of
Directors. Thereafter
<PAGE>
during the Employment Term, Executive's salary may be increased at the
discretion of the Company's Board of Directors. Executive's salary shall be
payable on the Company's regular salary payment dates. In addition, within 90
days after the end of each fiscal year during the Employment Term, Executive may
receive a bonus, at the discretion of the Board of Directors. The salary and
bonus payments hereunder shall be subject to withholding and any other
applicable tax law.
4. Salary Guarantee. The Company shall pay to Executive the salary set forth in
Section 3 for the full Employment Term or any extensions thereof pursuant to
Section 7(a) (or a pro rata portion thereof in the event the Executive's
employment is terminated pursuant to Section 7 (b) or 7 (c) hereof prior to the
completion of the full Employment Term or any extension thereof). All such
salary payments are hereinafter referred to as the "Guaranteed Payments."
a. None of the Guaranteed Payments described in this Section shall prevent the
Executive from receiving the Termination Benefits described in Section 13 of the
Agreement.
b. All Guaranteed Payments described in this Section 4 and payable to the
Executive shall be payable to the Executive's estate in the event of death of
Executive.
c. In the event of death or any physical or mental disability which renders
Executive unable to fulfill his duties pursuant to Section 1 of this Agreement,
all Guaranteed Payments shall be made to Executive's spouse, his attorney in
fact, his personal representative, his guardian, or any other such person
legally authorized to receive monetary payments due and owing to Executive.
Further, in the event of death, any physical or mental disability which renders
Executive unable to fulfill his duties hereunder or involuntary termination of
Executive by the Company, without cause, the Company shall, in good faith,
liquidate Executive's investment in the Company and payment therefore shall be
made to Executive, Executive's spouse, his attorney in fact, his personal
representative, his guardian, or any other such person legally authorized to
receive monetary payments due and owing to Executive. If the Company does not
possess sufficient funds to make a good-faith liquidation, then the Company
shall use its best efforts to find a buyer for the stock. The definition of
"cause" shall include, but not be limited to, the definition of "cause. in the
California Labor Code, and shall also include Executive's failure to submit to
the general supervision, orders, advice and direction of the Board of Directors
of the Company, and shall include failure of performance, within the sole
discretion of the Board of Directors; provided, however, that "cause" shall not
include termination because of an acquisition of the Company, which is provided
for in paragraph 8 hereinbelow.
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<PAGE>
5. Reimbursement for Expenses. The Company shall, during the Employment Term,
reimburse Executive for all reasonable travel, business entertainment and other
business expenses incurred by Executive in rendering services under this
Agreement. Such reimbursement shall be subject to compliance with the applicable
policies and procedures established by the Company.
6. Fringe Benefits. During the Employment Term, Executive shall be entitled to
participate in the Company's corporate, medical and disability insurance plans.
Executive shall be entitled to all other fringe benefits generally provided for
salaried employees of the Company upon attaining eligibility as provided under
such fringe benefit programs.
7. Termination. The Employment Term shall terminate on the first
to occur of the following:
(a) the second anniversary of the date on which the Employment Term commenced;
provided, however, that after such second anniversary, the Employment Term shall
be extended each year thereafter for an additional one year period unless either
party gives the other written notice at least 90 days before such extension of
its intention not to renew the Agreement
(b) the 90th day after notice from the Company to Executive that Executive is
considered to be permanently disabled due to his inability to perform his duties
or fulfill his responsibilities hereunder, which inability existed for a period
of 90 days or more before such notice; or
(c) the 90th day after Executive provides written notice to the Company
terminating his employment by the Company.
Upon termination of Executive's employment pursuant to Section 7(c) hereof,
Executive (or his estate) shall receive (i) any unpaid salary payments with
respect to periods prior to the date of termination, and (ii) any termination,
disability or death benefits to which he is entitled up until such termination
under any employee benefit plan of the Company which is in effect at the time
of, the termination of his employment. In other events of termination including
death, disability or involuntary termination by the Company, without cause,
executive shall continue to receive the Guaranteed Payments as if such
termination had not occurred. Upon termination of Executive's employment by the
Company with cause, Executive shall receive (i) any unpaid salary payments with
respect to periods prior to the date of termination, and (ii) any termination,
disability or death benefits to which he is entitled up until such termination
under any employee benefit plan of the Company which is in effect at the time
of, the termination of his employment. The definition of "cause" shall include,
but not be limited to, the definition of "cause" in the California Labor Code,
and shall also include Executive's failure to submit to the general supervision,
orders, advice and direction of the Board of
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<PAGE>
Directors of the Company, and shall include failure of performance, within the
sole discretion of the Board of Directors; provided, however, that cause" shall
not include termination because of an acquisition of the Company, which is
provided for in paragraph 8 hereinbelow.
8. Termination Benefits for Acquisition of the Company. In addition to the
payments Executive shall receive under Section 4 hereof in the event of the
termination of his employment, the Company agrees to pay to the Executive the
Termination Benefits specified in Section 9 hereof if (a) control of the Company
is acquired (as defined in Section 10 (a) hereof) and (b) within three years
after the acquisition of control occurs the Company terminates the employment of
Executive for any reason other than pursuant to Section 7(b) or 7(c) hereof.
9. Termination Benefits. If Executive is entitled to termination benefits
pursuant to section 8 hereof, the Company agrees to pay to Executive as
termination compensation in a lump sum payment within five calendar days of the
termination of Executive's employment an amount to be computed by multiplying
(a) two (2) by (b) Executive's average annual salary payable by the Company
hereunder in each of the most recent five calendar years ending coincident with
or immediately before the date on which control of the Company is acquired (or
such portion of such period during which Executive was an employee of the
Company). For purposes of this Agreement, employment and compensation paid by
any direct or indirect subsidiary of the Company, if any, will be deemed to be
employment and compensation paid by the Company.
a. The Termination Benefits described in this section are payable to the
Executive regardless of any determination by the Company's independent public
accountants that payments made pursuant to this section are or would be
non-deductible by the Company for federal income tax purposes because of Section
280G of the Internal Revenue Code of 1986 or any subsequent revisions in the
Internal Revenue Code.
10. Definitions.
(a) As used in this Agreement, "acquisition of control" means attaining
ownership of more than 50% of the shares of voting stock of the Company by any
person or group (other than a person or group including Executive or with whom
or which Executive is affiliated or who or which is an affiliate or subsidiary
of the Company).
(b) As used in this Agreement, "cause" shall include, but not be limited to, the
definition of "cause" in the California Labor Code, and shall also include
Executive's failure to submit to the general supervision, orders, advice and
direction of the Board of Directors of the Company, and shall include failure of
performance, within the sole discretion of the Board of Directors;
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<PAGE>
provided, however, that "cause" shall not include termination because of an
acquisition of the Company, which is provided for in paragraph 8 hereinabove.
11. Additional Provisions Relating To Termination
(a) The Company shall not be entitled to set off against the amounts payable to
Executive after termination of his employment with the Company any amounts
earned by Executive in other employment after termination of his employment with
the Company, or any amounts which might have been earned by Executive in other
employment had he sought such other employment. Executive shall have no duty or
obligation to mitigate the compensation due to him under this Agreement.
(b) Any purported termination by the Company or by Executive shall be
communicated by written Notice Of Termination to the other party hereto in
accordance with this Agreement. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of his
Employment under the provision so indicated. For purposes of this Agreement, no
such purported termination shall be effective without such Notice of
Termination.
12. Duty To Devote Full Time and To Avoid Conflict of Interest. Executive agrees
that during the period of this agreement, Executive shall devote full-time
efforts to his or her duties as an Executive of the Company. During the period
of this agreement, Executive further agrees not to (i) solely or jointly with
others undertake or join any planning for or organization of any business
activity competitive with the business activities of the Company, and (ii)
directly or indirectly, engage or participate in any other activities in
conflict with the best interests of the Company.
13. Confidentiality.
a. Definition. During the term of this agreement with the Company, Executive
will develop and will have access to and become acquainted with various trade
secrets and other proprietary and confidential information which are owned by
the Company and which are used in the operation of the Company's business.
"Trade secrets and other proprietary and confidential information" consist of,
for example, and not intending to be inclusive, (i) software (source and object
code), algorithms, computer processing systems, techniques, methodologies,
formulae, processes, compilations of information, drawings, proposals, job
notes, reports, records, and specifications, and (ii) information concerning any
matters relating to the business of the Company, any of its customers, customer
contacts, licenses, the prices it obtains or has obtained for the licensing of
its software products
- 5 -
<PAGE>
and services, or any other information concerning the business of
the Company and Company's good will.
b. No Disclosure. Executive shall not disclose or use in any manner, directly or
indirectly, any such trade secrets and other proprietary and confidential
information either during the term of this Agreement or at any time thereafter,
except as required in the course of employment with the Company.
14. Return of Material. Executive agrees that, upon request of the Company or
upon termination of employment, Executive shall turn over to the Company all
documents, disks or other computer media, or other material in his possession or
under his control that (i) may contain or be derived from ideas, concepts,
creations, or trade secrets and other proprietary and confidential information
as set forth in paragraph 13 above, or (ii) connected with or derived from
Executive's services to the Company.
15. Covenant Not To Compete.
a. Restriction. Executive agrees that he or she will not, during the course of
employment or for a period-of two (2) years commencing upon the expiration of
employment, voluntarily or involuntarily, directly or indirectly, anywhere in
the world develop, or assist others to develop, software product(s) with
functionality similar to the functionality of any software product(s) developed
or under development by the Company. The term "develop software product(s)"
shall mean design, create general or detailed functional or technical
specifications for, create or write code for, enhance, debug or otherwise modify
code for, or otherwise participate in the creation or modification of software
product(s), including simulations and object oriented technology.
b. Executive's Acknowledgments and Agreements. Executive acknowledges and agrees
that the software developed by the Company is or is intended to be marketed and
licensed to customers worldwide. Executive further acknowledges and agrees to
the reasonableness of this covenant not to compete and the reasonableness of the
geographic area and duration of time which are a part of said covenant. Company
also acknowledges and agrees that this covenant will not preclude Executive from
becoming gainfully employed following termination of employment with the
Company.
16. Inducing Employees To Leave The Company; Employment of Employees. Any
attempt on the part of Executive to induce others to leave the Company's employ,
or any effort by Executive to interfere with the Company's relationship with its
employees would be harmful and damaging to the Company. Executive agrees that
during the term of employment and for a period of two (2) years thereafter,
Executive will not in any way, directly or indirectly (i) induce or attempt to
induce any employee of the Company to quit employment with the Company; (ii)
otherwise interfere with or
- 6 -
<PAGE>
disrupt the Company's relationship with its employees; (iii) solicit, entice, or
hire away any Executive of the Company; or (iv) hire or engage any employee of
the Company or any former employee of the Company whose employment with the
Company ceased less than one (1) year before the date of such hiring or
engagement.
17. Nonsolicitation of Business. For a period of two (2) years from the date of
termination of employment, Executive will not divert or attempt to divert from
the Company any business the Company had enjoyed or solicited from its customers
during the term of Executive's employment by the Company.
18. Remedies - Injunction. In the event of a breach or threatened breach by
Executive of any of the provisions of this Agreement, Executive agrees that the
Company -- in addition to and not in limitation of any other rights, remedies,
or damages available to the Company at law or in equity -- shall be entitled to
a permanent injunction in order to prevent or restrain any such breach by
Executive or by Executive's partners, agents, representatives, servants,
Executives, and/or any and all persons directly or indirectly acting for or with
Executive.
19. Severability. In the event that any of the provisions of this Agreement
shall be held to be invalid or unenforceable in whole or in part, those
provisions to the extent enforceable and all other provisions shall nevertheless
continue to be valid and enforceable as though the invalid or unenforceable
parts had not been included in this Agreement. In the event that any provision
relating to the time period or scope of restriction shall be declared by a court
of competent jurisdiction to exceed the maximum time period or scope such court
deems reasonable and enforceable, then the time period or scope of restriction
deemed reasonable and enforceable by the court shall become and shall thereafter
be the maximum time period.
20. Governing Law. This Agreement shall be construed and enforced
according to the laws of the State of California. All legal
actions arising under this Agreement shall be instituted in, and
both the Company and Executive consent to jurisdiction in,
California.
21. Expenses Any legal fees and expenses incurred by reason of any dispute
between the parties as to the enforceability of the terms contained in this
Agreement shall be the sole responsibility of the party incurring such fees and
expenses, provided, that each party agrees to comply with the terms of any final
judgement of a court of competent jurisdiction finding such party liable for the
legal fees and expenses incurred by the other party in connection with any such
dispute.
22. Entire Agreement. This Agreement contains the entire agreement
of the parties relating to the employment of Executive by the
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<PAGE>
Company, superseding any and all prior such agreements, and cannot be amended,
modified, or supplemented in any respect except by subsequent written agreement
entered into by the parties.
23. Benefit. Executive acknowledges that the services to be rendered by him are
unique and personal; accordingly Executive may not assign any of his rights or
delegate duties or obligations under this Agreement. The rights and obligations
of the Company under this Agreement shall inure to the benefit of, and be
binding upon, the legal representatives, successors and assigns of the Company.
24. Agreement, Read, Understood and Fair. Executive has carefully
read and considered all provisions of this Agreement and agrees
that all of the restrictions set forth are fair and reasonable and
are reasonably required for the protection of the interests of the
Company.
AGREED:
The Company:
Signature
Name
Title
Date
Executive:
Signature /s/ John E. Hiles
Name John E. Hiles
Date 9-27-94
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DEVELOPMENT AGREEMENT
between
THINKING TOOLS, INC.
and
SHL SYSTEMHOUSE INC.
Agreement No. EC00202
THIS DEVELOPMENT AGREEMENT (the "AGREEMENT"), is made this 30th day of
June between SHL SYSTEMHOUSE INC., with its principal offices at 501 O'Connor
Street, Suite 501, Ottawa, Ontario, Canada KIP 6L2 ("SHL"), and Thinking Tools,
Inc., with its principal offices at One Lower Ragsdale Drive, Suite 1-250,
Monterey, California USA 93940 ("Thinking Tools") who agree as follows:
1.0 TERM
The term of this Agreement shall commence on the last date entered
below by the parties signing this Agreement (the "Effective Date"), and unless
otherwise terminated pursuant to Section 14, shall terminate on August 31, 1996
(the "Expiration Date").
2.0 GOOD AND DELIVERABLES TO BE SUPPLIED
2.1 Thinking Tools agrees to provide to SHL, on the terms and
conditions hereinafter stated, those deliverables described in Schedule A (the
"Deliverables") attached hereto and incorporated herein.
2.2 The Schedule(s) attached to this Agreement shall specify the
following for the Deliverables included therein, as applicable:
(a) the Statement of Work;
(b) the assumptions;
(c) the payment schedule.
2.3 In addition to the Schedule(s), also incorporated into this
Agreement is Thinking Tools' Proposal. In the event of a conflict the order of
precedence for these documents shall be as follows:
(1) This Development Agreement;
(2) The Schedule(s);
(3) Thinking Tools' proposal.
3.0 FEES AND PAYMENT
3.1 SHL agrees to pay to Thinking Tools the amounts specified in the
Schedule(s) for the provision of the Deliverables specified therein. SHL and
Thinking Tools agree that the Project Schedule and associated charges specified
in the Schedule(s) are subject to adjustment at any time
<PAGE>
that SHL and Thinking Tools mutually agree to change, add to or delete any
previously agreed upon work as described in the Statement of Work subject to and
in accordance with the Change Control Procedures specified in Section 4.0.
3.2 Thinking Tools will bill SHL on a monthly basis, or as otherwise
specified in the attached Schedules(s). Payment in full of each invoice shall be
due within forty-five (45) days of receipt of that invoice. Amounts invoiced but
not paid by SHL within forty-five (45) days of receipt of an invoice shall bear
interest at the lesser of one and one-half percent (1.5%) per month, calculated
monthly not in advance (19.56% per annum), or the highest rate permitted by law.
3.3 Unless otherwise provided, SHL shall reimburse Thinking Tools for
all reasonable, receipted out-of-pocket expenses identified in this Agreement,
as follows:
(a) Travel and Living expenses of Thinking Tools project
members including airfare, local transportation, hotels and meals. It is
understood that all such Travel and Living expenses shall be as required to
conduct business directly with SHL employees, or their designates. Travel and
Living expenses incurred by Thinking Tools to conduct business without the
direct involvement of SHL employees are not reimbursable. All such expenses
shall be in accordance with SHL's then current expense account guidelines.
(b) Courier expenses required to conduct business directly
with SHL Systemhouse employees, or their designates. Courier expenses incurred
by Thinking Tools to conduct business without the direct involvement of SHL
System house employees are not reimbursable.
SHL shall pay the expenses in full within forth-five (45) days
of receipt of an invoice therefor accompanied by supporting vouchers and
receipts.
Notwithstanding the above Thinking Tools shall not incur any
reimbursable expenses for this Agreement without the prior consent of SHL. In
addition, Thinking Tools shall maintain complete and accurate accounting records
in accordance with sound business practices to substantiate reimbursable
expenses. Such records will be available to SHL upon request.
4.0 CHANGE CONTROL PROCEDURES
4.1 A Change Control Document in the form attached to this Agreement as
Exhibit A shall be used to accommodate changes to the Deliverables specified in
the Schedule(s). Requests by SHL for changes to the Deliverables specified in a
Schedules are subject to the procedures specified in this Section 4.0.
4.2 SHL shall advise the Thinking Tools Project Manager, in writing, of
the desired change, with the same degree of specificity as in the relevant
Schedule.
4.3 The Thinking Tools Project Manager will assess the impact of the
desired change on:
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<PAGE>
(a) The total cost of the Deliverables to be provided
under this Agreement;
(b) the milestones to be reached;
(c) the time frame for completion; and
(d) any further areas which, in the opinion of the
Thinking Tools Project Manager, are likely to be affected by the desired change.
Thereupon, Thinking Tools will prepare a Change Control Document
incorporating the description of the changes requested.
4.4 Thinking Tools shall provide SHL with the Change Control Document.
The Change Control Document from Thinking Tools shall constitute an offer by
Thinking Tools to provide the Deliverables request by SHL at the prices stated
in the Change Control Document. This offer shall be irrevocable for ten (10)
business days following receipt by SHL.
4.5 If SHL accepts Thinking Tools' offer by signing the Change Control
Document, the Schedules(s) affected by the change shall be deemed amended to
incorporate the change in question. The price stated in the Change Control
Document shall be recoverable from SHL by Thinking Tools outside any limit of
maximum expenditure in the relevant Schedule(s) and/or this Agreement.
5.0 WARRANTIES AND LIMITATION OF LIABILITY
5.1 Thinking Tools warrants that (i) the Beta Prototype and Final
Release deliverables which it is providing under this Agreement will be of
professional quality conforming to generally accepted data processing and
consulting practices; (ii) the Beta Prototype and Final Release deliverables
provided to SHL shall conform in all material respects to the specifications and
requirements for such items as specified in this Agreement; and (iii) Thinking
Tools is able to provide the Deliverables specified in this Agreement and
Thinking Tools does not have any agreement with any third party which would
restrict its ability to perform under this Agreement; and (iv) the use of the
Deliverables, or any information relating thereto or contained therein will not
infringe any copyright, patent or trademark of any third party, or breach any
trade secret or right of privacy of any third party.
In the event of a breach of this warranty, and after having followed
the Deliverables Acceptance Process outlined in Schedule A, Section A.1.2, SHL
shall provide written notification to the Thinking Tools Project Manager of said
breach. The written notification shall describe specific actions required of
Thinking Tools to remedy the breach. Thinking Tools shall then without charge
and without delay, repair, replace or modify the Beta Prototype or Final Release
deliverable so as to correct said warranty breach within 30 days of notification
for the Final Release deliverable. If Thinking Tools fails to remedy a defect or
nonconformity within the required time frames, SHL's sole remedy shall be the
recovery of its actual damages which shall be limited to the total amount paid
by SHL to Thinking Tools for those services upon which the liability is based.
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<PAGE>
Thinking Tools warrants that, for the earlier of, a period of twelve
months following the date of the acceptance by SHL of the Final Release
deliverable, or, a period of six months from the date that the Project Challenge
product (hereinafter referred to as "the Product") is made generally available
by SHL to its internal or external customers, the Product shall perform in
accordance with the functional specifications set out in the Definitions
Document deliverable. Thinking Tools also warrants that it shall, at its
expense, correct any errors or omissions in the Product which cause the Product
to fail to function in accordance with its functional specifications.
5.2 Thinking Tools will negotiate in good faith to reach a reasonable
maintenance agreement to support the Product, if and when requested by SHL,
which would take effect at the end of the warranty period. If Thinking Tools and
SHL are unable to reach a reasonable maintenance agreement with Thinking Tools'
maintenance rates comparable to SHL's standard maintenance rates, SHL shall
acquire the rights and tools necessary to maintain the Product.
5.3 SHL shall indemnify Thinking Tools in the event that SHL's
unauthorized use of the Deliverables infringes any copyright, patent, or
trademark of any third party, or breach any trade secret or right of privacy of
any third party.
5.4 Each party (the "Indemnifying Party") hereto agrees to defend the
other party (the "Indemnified Party") against claims, suits or actions alleging
that the Indemnifying Party's use of the Software infringes a U.S. or Canadian
patent, copyright or trade secret of a third party and agrees to pay costs and
damages finally awarded against the Indemnified Party for infringement of such
patent, copyright or trade secret with respect to the use of the Deliverables,
providing that the Indemnifying Party is notified in writing within five (5)
business days as of any suit or claim whether in the form of a lawsuit or
otherwise against the Indemnified Party; and that the Indemnified Party permits
the Indemnifying Party to defend, compromise or settle said claim of
infringement and gives the Indemnifying Party all available information,
assistance, and authority to enable the Indemnifying Party to do so; and that
the Indemnified Party fully observes all the terms and conditions of this
Agreement. The Indemnifying Party shall not be responsible for any compromise or
settlement made without its consent.
Further, the Indemnifying Party shall have no liability for any claim
based on or arising out of:
(i) unauthorized modification of the Deliverables by the
Indemnified Party or any other party not authorized by the Indemnifying Party;
(ii) use of the Deliverables in a manner not authorized by the
Indemnifying Party; or
(iii) use of the Deliverables in association with hardware or software
not provided or authorized by the Indemnifying Party.
The foregoing constitutes the Indemnifying Party's entire liability for
copyright, patent, trade mark, industrial design, trade secret or other
intellectual property right infringement.
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<PAGE>
6.0 PROPERTY RIGHTS
6.1 Thinking Tools acknowledges and agrees that SHL has the worldwide,
unlimited, perpetual, irrevocable exclusive right to use, copy, market, sell and
distribute ("Rights") the Product in accordance with this Agreement. SHL shall
retain title to and ownership in the executable version of the Product. Thinking
Tools shall retain intellectual property rights to all pre-existing Thinking
Tools materials and materials produced or authored by Thinking Tools in the
course of providing Deliverables to SHL. SHL shall retain intellectual property
rights for all SHL materials and ideas regarding project management know-how and
methodologies, whether pre-existing or developed specifically by SHL for
incorporation in the Product. In the event Thinking Tools utilizes any
independent contractors in performing work for SHL, Thinking Tools warrants that
it has taken all necessary actions with its own independent contractors to
ensure that SHL will enjoy the Rights as specified in the Agreement.
6.2 SHL's Rights shall extend to the executable version of the Product
and includes the right to use the Product internally without restriction.
Thinking Tools will maintain full rights and title to the Product source code.
As SHL may require access to the Product source code, Thinking
Tools shall place the Product source code in escrow subject to the execution of
an escrow agreement. SHL shall reimburse Thinking Tools for the escrow fees
identified in the escrow agreement to be executed.
6.3 SHL's Rights include the exclusive rights to market, distribute,
license, and sell the Product worldwide. Thinking Tools will receive a royalty
fee for external sales as negotiated, and mutually agreed to, by the parties. It
is the intent of the parties to negotiate and execute the formal Royalty
Agreement prior to the completion of the Final Release deliverable, anticipated
to be completed by March 15, 1996.
6.4 Thinking Tools shall not include components containing SHL
proprietary information in other products. Thinking Tools may reuse all
components that do not contain SHL proprietary information in a product Thinking
Tools develops for itself or for others.
Thinking Tools will develop a product under this agreement
whose primary purpose is to be used as an SI/IT project management training
tool. Thinking Tools may not develop a product for itself or for others whose
primary purpose is to be used as an SI/IT project management training tool
(hereinafter referred to as a "Competing Product").
It is the intent of the parties to negotiate in good faith a Royalty
Agreement to address:
(a) selling the Product as is;
(b) selling the Product with enhancements, where SHL
retains its Rights and Thinking Tools has the rights to develop the custom
enhancements;
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(c) selling a derivative work of the Product, where SHL
and Thinking Tools mutually agree to the derivative work, where SHL receives an
industry reasonable royalty for the derivative work, and where Thinking Tools
has rights to develop the Competing derivative work.
Thinking Tools hereby acknowledges that these restrictions are
reasonable. Any breach of this Section 6.4 shall be deemed a breach of a
material provision of this Agreement. The parties acknowledge and agree that the
Royalty Agreement shall contain a clause substantially similar to the provisions
of this Section 6.4.
6.5 Thinking Tools has the rights to generalize the non-proprietary
components of the Product, i.e., use base simulation components without SHL
methodology content or project management know-how to build a Non-Competing
product. A Non-Competing Product is a product whose primary purpose is other
than for SI/IT project management training. Examples of a Non-Competing Product
include a general purpose tool used for planning and a project management
training tool used for specific types of projects, such as construction
projects.
6.6 In the event that this Agreement terminates, Thinking Tools shall
not use or reproduce the Concept Paper, Final Design, or Prototype produced
under Agreement number EC00170, or any enhancements to these items completed
under this Agreement, to create a Competing Product for any party other than
SHL.
7.0 PROJECT MANAGEMENT
7.1 Each party shall appoint a Project Manager who shall be fully
responsible for coordinating the activities of the appointing party. Each party
shall direct all performance-related inquiries to the Project Manager of the
other party.
7.2 SHL's Project Manager shall be the sole representative of SHL with
authority to request or approve amendments to the Deliverables to be provided
under this Agreement.
8.0 CONFIDENTIALITY
8.1 Each party agrees to treat all information and materials received
from the other party that are labeled "Confidential" or "Proprietary" as
confidential information of the other party. Each party further agrees to use at
least the same degree of care to avoid disclosure or dissemination of the other
party's confidential information as it uses to protect its own confidential
materials, but in any event, at least a reasonable degree of care. Neither party
shall use the confidential information of the other party for its own benefit or
for the benefit of any third party, except as expressly permitted in this
agreement.
8.2 Each party agrees to advise all of its employees, agents,
subcontractors or consultants that may have access to or otherwise receive the
confidential information of the other party of all obligations pertaining to the
protection of the confidential information of the other party under this
Agreement.
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<PAGE>
8.3 Neither party shall disclose confidential information of the other
party to any third party (other than independent contractors having a
"need-to-know"), without the other party's prior written consent; provided,
however, that a party shall not be liable for disclosure of information
designated as "Confidential" or "Proprietary" by the other party if the same:
(a) is in the public domain at the time of disclosure;
(b) becomes known to the other party from a third-party
source under no obligation to maintain confidentiality;
(c) becomes publicly available through no fault or
failure to act by the receiving party in breach of this Agreement; or
(d) is already known by the receiving party when
received, or is independently developed by the receiving party without
reference to the information provided by the other party, as established by
documentary evidence; or
(e) is required by a court or other governmental
authority to be disclosed (provided that the receiving party has used
reasonable efforts to make such disclosure subject to a protective order or
confidentiality agreement).
8.4 If, in order to fulfill the purposes of this Agreement, it is
necessary for the party receiving confidential information of the other party to
copy the same, in whole or in part, the receiving party may do so, but solely
for the purpose of enabling such party to perform under this Agreement.
8.5 Upon achieving the purpose(s) intended, or in the event of the
earlier termination of this Agreement, each party shall immediately return
and/or destroy all materials containing confidential information of the other
party. Each party shall further certify in writing to the other party that all
copies or partial copies of material containing confidential information of the
other party have been returned and/or destroyed.
9.0 ACCESS
SHL agrees to allow Thinking Tools and its independent contractors
sufficient working space as well as such access to SHL's personnel, files, and
equipment at SHL's facility as is necessary for the performance by Thinking
Tools' employees and/or independent contractors of the Deliverables required
hereunder, subject to the prior agreement of SHL concerning the details of such
access.
10.0 OFFERS OF EMPLOYMENT
10.1 Each party to this Agreement hereby undertakes that, without the
prior written approval of the other party, it shall not solicit for employment
any employee(s) of the other party who shall have been assigned to or worked
under this Agreement, nor shall it, either directly or indirectly, induce any
such employee to terminate his or her employment with the other party.
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<PAGE>
10.2 This Section shall be effective and enforceable until a period of
six (6) months after the date of acceptance by SHL of all of the Deliverables to
be provided by Thinking Tools under this Agreement.
11.0 INDEPENDENT CONTRACTORS
11.1 The relationship of Thinking Tools to SHL is that of an
independent contractor. Under no circumstances shall any employees of one party
be deemed to be the employees of the other for any purpose. Each party shall pay
all wages, salaries, and other amounts due its respective employees relative to
this Agreement and shall be responsible for all obligations respecting them
relating to income tax withholdings, unemployment insurance premiums, pension
plan contributions, and other similar responsibilities.
11.2 Neither party has the right or authority to assume or to create
any obligation or responsibility on behalf of the other party, except as may
from time to time be provided by written instrument signed by both parties.
11.3 Nothing contained herein shall be construed as implying a joint
venture or partnership relationship between the parties.
12.0 FORCE MAJEURE
Thinking Tools shall not be responsible for any failure to comply with
or for any delay in performance of the terms of this Agreement where the failure
or delay is due to acts of God or the public enemy, war, riot, embargo, fire,
explosion, sabotage, flood, accident; or, without limiting the foregoing, any
circumstances of like character beyond its control.
13.0 TERMINATION
13.1 If either party shall at any time neglect, fail, refuse to perform
under, or otherwise breach any of the material provisions of this Agreement,
then the other party may serve upon the defaulting party notice of intention to
terminate this Agreement (including its Schedule(s)). If, within 30 days of the
date of service of such notice, the defaulting party has not fully cured all the
defaults indicated therein, or presented a plan acceptable to the other party to
cure such defaults, then upon expiration of the 30 days, this Agreement shall
terminate.
14.0 ENTIRE AGREEMENT
14.1 This Agreement (including the Schedule(s) attached hereto),
constitutes the entire understanding between the parties pertaining to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
understandings, negotiations, and discussions, whether oral or written, of the
parties. There are no warranties, representations, promises, covenants, or other
agreements between the parties other than those expressly set forth herein.
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<PAGE>
14.2 No supplement, modification, or amendment of this Agreement or any
Schedule shall be binding unless executed in writing by an authorized
representative of each party.
15.0 APPLICABLE LAW
15.1 This Agreement (including the Schedules(s) attached hereto) shall
be governed by and construed according to the laws of the Province of Ontario
without regard to its choice of law rules.
16.0 WAIVER
16.1 No term or condition of this Agreement shall be deemed waived, and
no breach or omission excused, unless in writing and signed by the party against
whom enforcement of such waiver or consent is sought. A waiver of any condition
or term of this Agreement in any regard shall not constitute a waiver or consent
to any different or subsequent breach or omission, and either party may invoke
any remedy available at law or in equity despite any such prior waiver or
consent.
17.0 SEVERANCE
If any provision of this Agreement or the accompanying Schedule(s) is
held to be void, illegal, unenforceable, or otherwise in conflict with the law
governing this Agreement, such provision shall be deemed to be restated to
reflect as nearly as possible the original intentions of the parties in
accordance with applicable law, and the other provisions shall remain in full
force and effect.
18.0 TAXES
The amounts payable to Thinking Tools under this Agreement are
exclusive of any taxes, however designated, levied or based on this Agreement or
the Deliverables furnished by Thinking Tools hereunder, including, without
limitation, any personal property, sales and use taxes. SHL agrees to pay and be
responsible for all such taxes (excluding taxes based on Thinking Tools' net
income). SHL shall promptly reimburse Thinking Tools for any such taxes which
Thinking Tools pays directly.
19.0 SURVIVAL
Notwithstanding the termination of this Agreement, it is acknowledged
and agreed that the following provisions shall survive:
(a) Section 3.0 Fees and Payment
(b) Section 5.0 Warranties and Limitation of Liability
(c) Section 6.0 Property Rights
(d) Section 8.0 Confidentiality
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<PAGE>
(e) Section 10.0 Offers of Employment
(f) Section 11.0 Independent Contractors
(g) Section 13.0 Termination
(h) Section 14.0 Entire Agreement
(i) Section 15.0 Applicable Law
(j) Section 18.0 Taxes
(k) Section 20.0 Notices
(l) Exhibit B Contingent Development Package License
20.0 NOTICES
20.1 Any notices required or permitted to be sent under this Agreement
shall be sent by registered mail, return receipt requested or by express mail,
telecopy, or hand delivery to the address of the party in this Section. Notices
sent by registered mail shall be deemed effective on the third business day
following mailing and if sent by express mail, telecopied, or hand delivered,
shall be deemed effective on receipt.
20.2 Any notice required to be delivered to SHL shall be sent to:
SHL Systemhouse Inc.
55 York Street, 7th Floor
Toronto, Ontario, Canada M5J 1R7
Attn: Brian Cishecki
c/o Anna Kennedy
Telecopy: (416) 366-3370
20.3 Any notice required to be delivered to Thinking Tools shall
be sent to:
Thinking Tools, Inc.
One Lower Ragsdale Drive, Suite 1-250
Monterey, CA, USA 93940
Attn: John Hiles
Telecopy: (408) 373-7020
20.4 Either party may change its address and/or recipient for
notices by notifying the other party in accordance with this Section 20.
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<PAGE>
21.0 ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of
Thinking Tools, its successors and permitted assigns, and SHL, its successors
and assigns. Thinking Tools may not assign this Agreement or any of its rights
or obligations under this Agreement (including its rights under the
Schedule(s)), without the prior written consent of SHL.
22. LOSS OF VIABILITY
If Thinking Tools is dissolved and liquidated, becomes bankrupt,
insolvent, acknowledges in writing its inability to meet its debts as they fall
due or ceases to do business or files a petition for or is petitioned into
bankruptcy or if the assets of Thinking Tools are placed into the hands of a
receiver or liquidator, SHL shall have the right to:
(a) immediately terminate this Agreement;
(b) offer employment to Thinking Tools' employees or
former employees;
(c) activate the Contingent Development Package License
("Contingent License") attached to this Agreement as Exhibit B;
(d) forever enjoy Rights to the object code for the Product
for all interim deliverables produced up to the date of termination as well as
to all deliverable completed by or on behalf of SHL.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
last date entered below:
THINKING TOOLS, INC.
By: /s/ John Hiles
----------------------------------
Name: Mr. John Hiles
Title: President
Date: August 11, 1995
SHL SYSTEMHOUSE INC.
By: /s/ Diane Switzer
------------------------------------
Name: Mrs. Diane Switzer
Title: Director, Integration Methods
Date: August 10, 1995
By: /s/ Rick Beatty
------------------------------------
Name: Mr. Rick Beatty
Title: President, Transformational
Services
Date: August 14/95
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SERVICES AGREEMENT
between
THINKING TOOLS, INC.
and
SHL SYSTEMHOUSE INC.
Agreement No. EC00170
THIS SERVICES AGREEMENT (the "AGREEMENT"), is made this 8th day of March between
SHL SYSTEMHOUSE INC., with it principal offices at 50 O'Connor Street, Suite
501, Ottawa, Ontario, Canada KIP 6L2 ("SHL Systemhouse"), and Thinking Tools,
Inc., with its principal offices at One Lower Ragsdale Drive, Suite 1-250,
Monterey, California, USA 93940 ("Thinking Tools") who agree as follows:
1.0 TERM
The term of this Agreement shall commence on the last date entered
below by the parties signing this Agreement (the "Effective Date") and unless
otherwise terminated pursuant to Section 14, shall terminate on August 31, 1995
(the "Expiration Date").
2.0 GOODS AND SERVICES TO BE SUPPLIED
2.1 Thinking Tools agrees to provide to SHL Systemhouse, on the terms
and conditions hereinafter stated, those deliverables described in Schedule A
(the "Services") attached hereto and incorporated herein.
2.2 The Schedule(s) attached to this Agreement shall specify the
following for the Services included therein, as applicable:
(a) the Statement of Work;
(b) the assumptions;
(c) the payment schedule.
2.3 In addition to the Schedule(s), also incorporated into this
Agreement is Thinking Tools' Proposal. In the event of a conflict, the order of
precedence for these documents shall be as follows:
(1) This Services Agreement;
(2) The Schedule(s);
(3) Thinking Tools' proposal.
3.0 FEES AND PAYMENT
3.1 SHL Systemhouse agrees to pay to Thinking Tools the amounts
specified in the Schedule(s) for the provision of the Services specified
therein. SHL Systemhouse and Thinking Tools agree that the Project Schedule and
associated charges specified in the Schedule(s) are subject
<PAGE>
to adjustment at any time that SHL Systemhouse and Thinking Tools mutually agree
to change, add to or delete any previously agreed upon work as described in the
Statement of Work. It is understood that any and all such changes shall require
the written consent of both parties.
3.2 Thinking Tools will bill SHL Systemhouse on a monthly basis, or as
otherwise specified in the attached Schedule(s). Payment in full of each invoice
shall be due within forty-five (45) days of receipt of that invoice. Amounts
invoiced but not paid by SHL Systemhouse within forty-five (45) days of receipt
of an invoice shall bear interest at the lesser of one and one-half percent
(1.5%) per month, calculated monthly not in advance, or the highest rate
permitted by law.
3.3 Unless otherwise provided, SHL Systemhouse shall reimburse Thinking
Tools for all reasonable receipted out-of-pocket expenses identified in this
Agreement, as follows:
a. Travel and Living expenses of Thinking Tools project
members including airfare, local transportation, hotels and meals. It is
understood that all such Travel and Living expenses shall be as required to
conduct business directly with SHL Systemhouse employees, or their designates.
Travel and Living expenses incurred by Thinking Tools to conduct business
without the direct involvement of SHL Systemhouse employees are not
reimbursable. All such expenses shall be in accordance with SHL Systemhouse's
then current expense account guidelines.
SHL Systemhouse shall pay the expenses in full within forty-five (45)
days of receipt of an invoice therefore accompanied by supporting vouchers and
receipts.
Notwithstanding the above Thinking Tools shall not incur any
reimbursable expenses for this Agreement without the prior consent of SHL
Systemhouse. In addition, Thinking Tools shall maintain complete and accurate
accounting records in accordance with sound business practices to substantiate
reimbursable expenses. Such records will be available to SHL Systemhouse upon
request.
4.0 CHANGE PROCEDURES
4.1 A Change Control Document in the form attached to this Agreement as
Exhibit A shall be used to accommodate changes to the Services specified in the
Schedule(s). Request by SHL Systemhouse for changes to the Services specified in
a Schedule are subject to the procedure specified in this Section 4.0.
4.2 SHL Systemhouse shall advise the Thinking Tools Project Manager, in
writing, of the desired change, with the same degree of specificity as in the
relevant Schedule.
4.3 The Thinking Tools Project Manager will assess the impact of
the desired change on:
(a) The total cost of the Services to be provided under
this Agreement;
(b) the milestones to be reached;
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<PAGE>
(c) the time frame for completion; and
(d) any further areas which, in the opinion of the
Thinking Tools Project Manager, are likely to be affected by the desired change.
Thereupon, Thinking Tools will prepare a Change Control Document
incorporating the description of the change requested.
4.4 Thinking Tools shall provide SHL Systemhouse with the Change
Control Document. The Change Control Document from Thinking Tools shall
constitute an offer by Thinking Tools to provide the Services requested by SHL
Systemhouse at the prices stated in the Change Control Document. This offer
shall be irrevocable for ten (10) business days following receipt by SHL
Systemhouse.
4.5 If SHL Systemhouse accepts Thinking Tools' offer by signing the
Change Control Document, the Schedule(s) affected by the change shall be deemed
amended to incorporate the change in question. The price stated in the Change
Control Document shall be recoverable from SHL Systemhouse by Thinking Tools
outside any limit of maximum expenditure in the relevant Schedule(s) and/or this
Agreement.
5.0 WARRANTIES AND LIMITATIONS OF LIABILITY
5.1 Thinking Tools warrants that (i) the Services which it is providing
under this Agreement will be of professional quality conforming to generally
accepted data processing and consulting practices; (ii) the deliverables
provided to SHL Systemhouse shall conform in all material respects to the
specifications for such item included in this Agreement; and (iii) Thinking
Tools is able to perform the services and provide the deliverables specified in
this Agreement and Thinking Tools does not have any agreement with any third
party which would restrict its ability to perform under this Agreement.
Thinking Tools further represents and warrants that the services and/or
deliverables provided hereunder shall meet or exceed the requirements specified
in this Agreement. In the event of a breach of this warranty, Thinking Tools
shall without charge and without delay, repair, replace or modify the products
or services so as to correct said warranty breach. If Thinking Tools fails to
remedy a defect or nonconformity, SHL Systemhouse shall without prejudice to its
other rights and remedies under this Agreement, at law or in equity, have the
right by contract or otherwise to correct or replace with similar equipment,
materials or services and charge to Thinking Tools the cost incurred by SHL
Systemhouse, or exercise any other right reserved in this Agreement.
6.0 PROPERTY RIGHTS
6.1 Thinking Tools acknowledges and agrees that SHL Systemhouse has
worldwide, unlimited, exclusive rights to use, copy, market, and distribute the
Concept Paper, Final Design and Prototype produced or authored by Thinking Tools
in performance of this contract. Thinking Tools shall retain intellectual
property rights to all pre-existing Thinking Tools materials and materials
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<PAGE>
produced or authored by Thinking Tools in the course of performing services for
SHL Systemhouse. SHL Systemhouse shall retain intellectual property rights for
all pre-existing SHL materials and for all SHL Systemhouse ideas regarding
project management know-how and methodologies generated during the course of
this contract. In the event Thinking Tools utilizes any independent contractors
in performing work for SHL Systemhouse, Thinking Tools shall obtain for SHL
Systemhouse ownership of, and all rights of copyright in, the writings or other
works of authorship created by an independent contractor.
All pre-existing proprietary materials of SHL Systemhouse will be
marked as such as disclosed to Thinking Tools prior to their inclusion in any
deliverable provided hereunder.
6.2 In the event that this agreement terminates, and the parties have
not entered into an agreement to develop and deliver a production-ready project
simulation of software product, Thinking Tools shall not use or reproduce the
Concept Paper, Final Design, or Prototype to create a project management
simulation product for any party other than SHL Systemhouse.
7.0 PROJECT MANAGEMENT
7.1 Each party shall appoint a Project Manager who shall be fully
responsible for coordinating the activities of the appointing party. Each party
shall direct all performance-related inquiries to the Project Manager of the
other party.
7.2 SHL Systemhouse Project Manager shall be the sole representative of
SHL Systemhouse with authority to request or approve amendments to the Services
to be provided under this agreement.
8.0 CONFIDENTIALITY
8.1 Each party agrees to treat all information and materials received
from the other party that are labeled "Confidential" or "Proprietary" as
confidential information of the other party. Each party further agrees to use at
least the same degree of care to avoid disclosure or dissemination of the other
party's confidential information as it uses to protect its own confidential
materials, but in any event, at least a reasonable degree of care. Neither party
shall use the confidential information of the other party for its own benefit or
for the benefit of any third party, except as expressly permitted in this
agreement.
8.2 Each party agrees to advise all of its employees, agents,
subcontractors or consultants that may have access to or otherwise receive the
confidential information of the other party of all obligations pertaining to the
protection of the confidential information of the other party under this
Agreement.
8.3 Neither party shall disclose confidential information of the other
party to any third party (other than independent contractors having a
"need-to-know"), without the other party's prior written consent; provided,
however, that a party shall not be liable for disclosure of information designed
as "Confidential" or "Proprietary" by the other party if the same:
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<PAGE>
(a) is in the public domain at the time of disclosure;
(b) becomes known to the other party from a third-party
source under no obligation to maintain confidentiality;
(c) becomes publicly available through no fault or
failure to act by the receiving party in breach of this Agreement; or
(d) is already known by the receiving party when
received, or is independently developed by the receiving party without
reference to the information provided by the other party, as established by
documentary evidence; or
(e) is required by a court or other governmental
authority to be disclosed (provided that the receiving party has used
reasonable efforts to make such disclosure subject to a protective order or
confidentiality agreement).
8.4 If, in order to fulfill the purposes of this Agreement, it is
necessary for the party receiving confidential information of the other party to
copy the same, in whole or in part, the receiving party may do so, but solely
for the purpose of enabling such party to perform under this Agreement.
8.5 Upon achieving the purpose(s) intended, or in the event of the
earlier termination of this Agreement, each party shall immediately return
and/or destroy all materials containing confidential information of the other
party. Each party shall further certify in writing to the other party that all
copies or partial copies of material containing confidential information of the
other party have been returned and/or destroyed.
9.0 ACCESS
SHL Systemhouse agrees to allow Thinking Tools and its independent
contractor sufficient working space as well aa such access to SHL Systemhouse's
personnel, files, and equipment at SHL Systemhouse's facility as is necessary
for the performance by Thinking Tools' employees and/or independent contractors
of the Services required hereunder, subject to the prior agreement of SHL
Systemhouse concerning the details of such access.
10.0 OFFERS OF EMPLOYMENT
10.1 Each party to this Agreement hereby undertakes that, without the
prior written approval of the other party, it shall not solicit for employment
any employee(s) of the other party who shall have been assigned to or worked
under this Agreement, nor shall it, either directly or indirectly, induce any
such employee to terminate his or her employment with the other party.
10.2 This Section shall be effective and enforceable until a period of
six (6) months after the date of acceptance by SHL Systemhouse of all of the
Services to be provided by Thinking Tools under this Agreement.
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11.0 INDEPENDENT CONTRACTORS
11.1 The relationship of Thinking Tools to SHL Systemhouse is that of
an independent contractor. Under no circumstances shall any employees of one
party be deemed to be the employees of the other for any purpose. Each party
shall pay all wages, salaries, and other amounts due its respective employees
relative to this Agreement and shall be responsible for all obligations
respecting them relating to income tax withholdings, unemployment insurance
premiums, pension plan contributions, and other similar responsibilities.
11.2 Neither party has the right or authority to assume or to create
any obligation or responsibility on behalf of the other party, except as may
from time to time be provided by written instrument signed by other parties.
11.3 Nothing contained herein shall be construed as implying a joint
venture or partnership relationship between the parties.
12.0 FORCE MAJEURE
Thinking Tools shall not be responsible for any failure to comply with
or for any delay in performance of the terms of this Agreement where the failure
or delay is due to acts of God or the public enemy, war, riot, embargo, fire,
explosion, sabotage, flood, accident; or, without limiting the foregoing, any
circumstances of like character beyond its control.
13.0 TERMINATION
13.1 If either party shall at any time neglect, fail, refuse to perform
under, or otherwise breach any of the material provisions of this Agreement,
then the other party may serve upon the defaulting party notice of intention to
terminate this Agreement (including its Schedule(s)). If, within ten (10) days
of the date of service of such notice, the defaulting party has not fully cured
all the defaults indicated therein, or presented a plan acceptable to the other
party to cure such defaults, then upon expiration of the ten (10) days, this
Agreement shall terminate.
14.0 ENTIRE AGREEMENT
14.1 This Agreement (including the Schedule(s) attached hereto)
constitutes the entire understanding between the parties pertaining to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
understandings, negotiations, and discussions, whether oral or written, of the
parties. There are no warranties, representations, promises, covenants, or other
agreements between the parties other than those expressly set forth herein.
14.2 No supplement, modification, or amendment of this Agreement or any
Schedule shall be binding unless executed in writing by an authorized
representative of each party.
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<PAGE>
15.0 APPLICABLE LAW
This Agreement (including the Schedule(s) attached hereto) shall be
governed by and construed according to the laws of the Province of Ontario
without regard to its choice of law rules.
16.0 WAIVER
No term or condition of this Agreement shall be deemed waived, and no
breach or omission excused, unless in writing and signed by the party against
whom enforcement of such waiver or consent is sought. A waiver of any condition
or term of this Agreement in any regard shall not constitute a waiver or consent
to any different or subsequent breach or omission, and either party may invoke
any remedy available at law or in equity despite any such prior waiver or
consent.
17.0 SEVERANCE
If any provision of this Agreement or the accompanying Schedule(s) is
held to be void, illegal, unenforceable, or otherwise in conflict with the law
governing this Agreement, such provision shall be deemed to be restated to
reflect as nearly as possible the original intentions of the parties in
accordance with applicable law, and the other provisions shall remain in full
force and effect.
18.0 TAXES
The amounts payable to Thinking Tools under this Agreement are
exclusive of any taxes, however designated, levied or based on this Agreement or
the Services furnished by Thinking Tools hereunder, including, without
limitation, any personal property, sales and use taxes. SHL Systemhouse agrees
to pay and be responsible for all such taxes (excluding taxes based on Thinking
Tools' net income). SHL Systemhouse shall promptly reimburse Thinking Tools for
any such taxes which Thinking Tools pays directly.
19.0 SURVIVAL
Notwithstanding the termination of this Agreement, it is acknowledged
and agreed that the following provisions shall survive:
(a) Section 3.0 Fees and Payment
(b) Section 6.0 Property Rights
(c) Section 8.0 Confidentiality
(d) Section 10.0 Offers of Employment
(e) Section 11.0 Independent Contractors
(f) Section 13.0 Termination
(g) Section 14.0 Entire Agreement
(h) Section 15.0 Applicable Law
(i) Section 18.0 Taxes
(j) Section 20.0 Notices
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<PAGE>
20.0 NOTICES
20.1 Any notices required or permitted to be sent under this Agreement
shall be sent by registered mail, return receipt requested or by express mail,
telecopy, or hand delivery to the address of the party in this Section. Notices
sent by registered mail shall be deemed effective on the third business day
following mailing and if sent by express mail, telecopied, or hand delivery,
shall be deemed effective on receipt.
20.2 Any notice required to be delivered to SHL Systemhouse shall
be sent to:
SHL Systemhouse Inc.
55 York Street, 7th Floor
Toronto, Ontario, Canada M5J 1R7
Attn: Brian Cishecki
Telecopy: (416) 366-3370
20.3 Any notice required to be delivered to Thinking Tools shall
be sent to:
Thinking Tools, Inc.
One Lower Ragsdale Drive, Suite 1-250
Monterey, CA USA 93940
Attn: Frank Holsworth
Telecopy: (408) 373-7020
20.4 Either party may change its address and/or recipient for notices
by notifying the other party in accordance with this Section 20.
21.0 ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit
of Thinking Tools, its successors and assigns, and SHL Systemhouse's successors
and assigns permitted. Thinking Tools may not assign its rights or obligations
under this Agreement (including its rights under the Schedule(s)), without the
prior written consent of SHL Systemhouse.
- 8 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
last date entered below:
THINKING TOOLS, INC.
By: /s/ John Hiles
-----------------------------------
Name: Mr. John Hiles
Title: President
Date: March 17, 1995
SHL SYSTEMHOUSE, INC.
By: /s/ Diane Switzer
----------------------------------
Name: Ms. Diane Switzer
Title: Director, Integration Methods
Date: 8 March 1995
By: /s/ Rick Beatty
------------------------------------
Name: Mr. Rick Beatty
Title: President, Systems Integration
and Transformational Services
Date: 4/10/95
- 9 -
VERTICAL MARKET
SOFTWARE DEVELOPMENT/LICENSING AGREEMENT
THIS AGREEMENT is made and entered into this 12th day of October, 1994,
between, Thinking Tools, Inc., a California Corporation, with a principal place
of business at One Lower Ragsdale Drive, Building One, Suite 250, Monterey, CA,
93940, ("Developer"), and Coopers & Lybrand L.L.P., a Delaware limited liability
partnership with offices at 1301 Avenue of the Americas, New York, NY, 10019
("Licensee") who hereby agree as follows:
1. Introduction
Licensee is interested in securing Developer to create and
license to Licensee the Original Work described in Exhibit A attached hereto.
Developer is interested in developing the Original Work and licensing the same
to Licensee pursuant to the terms and for the purposes expressed in this
Agreement.
2. Definitions
(a) "Conversion": A version of a software program similar in
look, feel, use and play to an end user of the software program upon which it is
based, but which is a SKU other than the SKU of the software program.
(b) "Original Work": The work or product to be created by
Developer pursuant to this Agreement, and as generally defined in Exhibit A,
including the title of the work, executable software code (but excluding the
source code or any object modules), any end-user documentation, manuals,
artwork, promotional and other materials related to the same, except for any
end-user documentation, manuals, artwork, promotional and other materials
prepared by licensee or by third parties with licensee's assistance, all of
which shall be the property of the licensee or third party, as the case may be.
If Developer has performed for Licensee a design study, the term "Original Work"
shall further include the design study as developed by Developer. The term
Original Work shall also include any New Version, Translation, or Conversion to
the product created by Developer pursuant to this Agreement or any other
Agreement subsequently entered into between Developer and Licensee.
(c) "Derivative Work": Any product that is based on or derived
from the Original Work which contains code from the Original Work, or utilizes
any artwork from the Original Work, and in whatever medium incorporated.
Derivative Work shall include, in addition, any work or product considered
derivative pursuant to 17 U.S.C. Section 101 to the Original Work for purposes
of this Agreement. Notwithstanding the above, Derivative Work shall exclude any
work considered a part of the Original Work under this Agreement.
(d) "Licensee Material": All information and materials
provided to Developer by Licensee or Licensee's agents, during the course of the
development of the Original Work, including, but not limited to, comments,
design notes, images, likenesses, and the layout and design of any of Licensee's
facilities, plant, physical operations or other such properties of Licensee
included in the artwork of the Original Work.
<PAGE>
(e) "New Version": An updated version of the Original
Work correcting for errors or incorporating minor improvements or modifications.
(f) "Point Of Contact": An individual appointed by Licensee,
and one appointed by Developer to facilitate the communication and exchange of
information between the parties. As of the date of this agreement, the Point Of
Contact individuals for Developer and Licensee are the individuals listed in
Exhibit A to this Agreement. All notices required under this Agreement, any
information to be exchanged, and all reports or comments concerning the Original
Work, including delivery of the Original Work itself, shall be through and to
the Point of Contact unless otherwise provided for herein.
(g) "Territory": The geographical area expressed in Exhibit A.
(h) "Translation": A version of a software program in a
language other than that of the original program (i.e., French, German,
English, etc.) but otherwise generally identical to the software program.
3. Grant of Rights
(a) Subject to the terms of this Agreement, Licensee hereby
commissions Developer to create the Original Work for the consideration provided
for herein and for the licensing of the same to Licensee for the Territory, on
the terms and for the uses specified in Exhibit A. Licensee understands that the
license of the Original Work to Licensee is non-transferable or assignable
except as provided in Exhibit A to this Agreement.
(b) In order to protect Licensee's Confidential Information
and trademarks/logo, Licensee hereby grants to Developer a fully paid up and
perpetual worldwide license for the use of Licensee's Confidential Information
and trademarks/logo solely for incorporation of the same into the Original Work
as licensed to Licensee. Licensee grants to Developer a fully paid up and
perpetual worldwide license to incorporate all other Licensee Material for use
in the Original Work and/or any Derivative Work.
(c) Title to the Original Work and any Derivative Work,
including all components thereto, shall vest and remain with Developer.
(d) Developer and Licensee agree that: (a) the copyright for
the P/Q Matrix, shown in Exhibit C, is jointly owned by Developer and Licensee;
(b) both Developer and Licensee have the right to use the P/Q Matrix for any
purpose; and (c) Developer and Licensee shall each be responsible for its use of
the P/Q Matrix.
4. Developer Obligations
(a) Developer shall assign technically competent software
personnel to the development of the Original Work, and agrees to use its best
efforts to develop and license the Original Work to Licensee as is provided for
in the Milestones To Completion provided for in
- 2 -
<PAGE>
Exhibit B to this Agreement. Due to the nature of custom programming of this
type, the Milestones provided for in Exhibit B are estimates only, and Developer
makes no guarantee that all or any of the Milestones will be met as originally
contemplated. If, however, Developer believes that a Milestone is not achievable
by Developer, Developer shall contact Licensee, in writing and to Licensee's
Point of Contact, and specify the Milestones which may not be achieved within
the schedule originally provided for or at all, the reason for the delay or
modification, and proposed remedial measures to mitigate the same. The parties
shall meet and confer on the development of new or additional Milestones, or for
the modification of the dates for existing Milestones, and as regards the
completion of the Original Work.
(b) If, in the development of the Original Work, Developer is
or becomes of the opinion that the Original Work is not possible as anticipated
by Licensee, Developer shall contact Licensee, in writing to Licensee's Point of
Contact, and provide to the same Developer's foundation for Developer's
conclusion concerning the feasibility of the Original Work, the modifications to
the Original Work necessary to render the same feasible and/or useful to
Licensee and any new or modified Milestone necessitated by the same. Developer
and Licensee shall meet and confer on the modifications proposed by Developer,
and to work in good faith to resolve the conceptual obstacles as presented. If,
however, Developer or Licensee in good faith believe these problems are not
surmountable, or the remedial measures necessary to resolve the same would
either render the Original Work unusable by Licensee or uneconomical for
Developer to develop, either may terminate this Agreement at such time. Upon
termination under this paragraph, only payments then due from Licensee shall be
and become immediately payable, however no unaccrued payments will be due
pursuant to this Agreement thereafter, and the license granted to Licensee
herein shall terminate. Upon termination of this Agreement under this paragraph,
all materials and software provided to or exchanged between the parties hereto
shall be resumed.
(c) Six-Month Maintenance and Updates. Developer agrees that
for a period of six-months following the date of acceptance, Developer shall, at
its expense, correct any errors in the Original Works which comes to its
attention that has a significant negative effect on the sales or perception of
the product as mutually agreed to by Developer and Licensee. These corrections
are limited to the functionality and features of the Original Work as described
in Exhibit A. Developer agrees to release a New Version of the Original Work
which includes any agreed to corrections and/or minor improvements within the
Six-Month Maintenance and Update period if requested by Licensee. At Licensee's
option and cost, Developer will place such portions of the source or object code
of which the Original Work is comprised, and a list of commercially available
third party software tools required, into a mutually agreeable escrow account
for the use of the same by Licensee solely for the support and maintenance of
the Original Work and solely in the event of Developer's inability to continue
providing such maintenance, support and update services.
(d) Delivery of Original Work. Delivery of all materials and
updates, including the Original Work itself, shall be made to Licensee, FOB
Developers principal place of business.
- 3 -
<PAGE>
5. Licensee Obligations
(a) Licensee understands that the Original Work is to be
designed to the specifications and with the data and other information to be
supplied by Licensee, and that Licensee's integral involvement is necessary to
the successful completion of the Original Work as called for herein.
(b) Licensee shall review the progress of the Original Work at
various stages of development of the same. Developer shall submit the Original
Work to Licensee at regular intervals for review and comment by Licensee, and
Licensee shall provide timely review responses, suggestions and objections to
Developer concerning the same. Licensee shall submit the response, suggestions
and objections, in writing, to Developer's Point of Contact, no greater than
fifteen (15) days after submission of the Original Work as then developed for
Licensee's review. Failure to respond to the submitted work, or any part
thereof, within the fifteen (15) day period (unless the same is extended by
mutual written agreement of the parties) shall be deemed acceptance of the same
as meeting Licensee's requirements.
(c) If at any time during the development of the Original Work
Licensee believes that, due to the modifications or additions made in the
revision then under consideration, the Original Work is or will not be of a
nature or quality reasonably required by Licensee, Licensee shall immediately
notify Developer in writing of the same, including a written detail of the
modifications necessary to cause the Original Work to be or become suitable. If
Developer is unable or unwilling to modify the same as requested, and an
irreconcilable conflict should arise, the parties shall submit the issue to
binding Arbitration under the rules of the American Arbitration Association
provided, however, that the arbitration panel selected shall include no less
than two individuals with significant experience in software development. The
decision of the arbitration panel as to how the issues or conflicts are to be
equitably addressed by the parties shall be final.
6. Copyright and Intellectual Property Interests
(a) Licensee agrees to take all actions and cooperate as is
necessary or reasonably requested of Licensee by Developer to secure, evidence
and protect Developer's ownership interest in the Original Work or any
Derivative Work, including the copyrightability and the vesting of any copyright
or tradename of the Original Work or any Derivative Work in Developer. Licensee
and Developer further agree to execute such documents as might be necessary to
carry out this provision.
(b) The name and logo of Developer, and appropriate
intellectual property notices, shall appear on the sign-on or initial screen of
the Original Work, and any documentation for the same, provided, however, that
the display of Developer's Logo and other notices shall in no event exceed the
prominence of Licensee's name or logo.
(c) Developer agrees to assign to Licensee the trade name
selected by Licensee for its use on the Original Work, and will take all action
and cooperate as is necessary or reasonably
- 4 -
<PAGE>
requested by Licensee to secure, evidence and protect Licensee's ownership
interest, including the copyright ability and the vesting of any copyright in
such trade name (provided such trade name is not then in use by Developer or any
of its affiliates).
7. Payments
(a) Payments. Licensee shall pay Developer the development
fees and/or royalties as provided for and in accordance with Exhibit B to this
Agreement. All payments shall be due within thirty (30) days of Developer's
invoice for the same. Payments shall be made directly to Developer's principal
place of business via certified, or registered US mail, return receipt
requested, wire transfer, DHL, UPS or Federal Express.
(b) Currency and Conversion. All payments made pursuant to
this Agreement shall be made in United States dollars. Where conversion from a
local currency to United States currency is necessary for payment, all royalties
and receipts for the period for which payment is made shall be converted as of
the exchange rate applicable as of the last day of the period to which payment
relates. Licensee agrees to bear any costs of conversion.
(c) Time is of the essence in all payments pursuant to this
Agreement, and any unpaid amounts not paid within ten days of the due date for
the same shall include a late payment penalty in the amount of five percent (5%)
of the amount unpaid and shall further bear interest of 1.5% per month,
compounded annually, on the unpaid balance.
8. Warranties and Indemnification
(a) Title. Developer warrants that the Original Work,
exclusive of Licensee Material, will be an original work of authorship and shall
incorporate only such software and artwork as is owned or licensed by Developer.
Developer warrants that Developer will have good and marketable title or license
to the Original Work, exclusive of Licensee Material, sufficient to license the
same to Licensee as provided for in this Agreement. Developer further warrants
that Developer has no knowledge of any fact or event which would preclude
Developer from entering into this Agreement or to carry out the obligations
contained herein.
(b) Developer makes no warranties with respect to the Original
Work, or any documentation thereof, either express or implied, including without
limitation any warranties as to the merchantability or fitness for a particular
purpose or quality thereof. Developer does not warrant, for example, that the
Original Work will be free of errors or that its use will be uninterrupted, nor
does Developer warrant that any data or calculation included in the Original
Work will be accurate or materially correct.
(c) Developer agrees to indemnify, defend and hold Licensee
harmless from any and all claims by subcontractors of Developer, and for
whatever reason, excluding, however, claims of or relating to the Licensee
Material.
- 5 -
<PAGE>
(d) Developer agrees to indemnify, defend and hold Licensee
harmless from any and all claims, and resulting losses, damages or expenses,
that the Original Work, the Derivative Work or the New Version infringe any U.S.
patents, copyrights or trade secrets, trademarks or similar proprietary rights
related to an item or component provided or work performed by the Developer,
provided that Licensee gives Developer prompt notice thereof. If any such item
or component thereof is in Developer's reasonable opinion likely to be held to
constitute an infringing product, Developer shall at its expense and option
either (i) procure for Licensee the right to use such item or component, (ii)
replace it with a non-infringing item, or, (iii) modify it in a manner
acceptable to Licensee to make it non-infringing.
(e) Licensee agrees to indemnify, defend and hold Developer
harmless from any and all claims, based upon products liability or strict
liability theories, by end users of the Original Work, or claims which are
predicated upon the use of the Original Work or the content of any Licensee
Material. The parties understand that the subject matter, accuracy and scope of
the Original Work is within the specific area of Licensee's expertise, and
Licensee is obligated under this Agreement to ensure the accuracy of the
Original Work in these particulars and to the extent feasible.
(f) Neither party shall be responsible to the other, under any
circumstances, for personal injury, consequential, punitive, lost profits or
other damages. The sole remedy of the parties for any breach of this Agreement,
but for the confidentiality and indemnification provisions hereof, shall be
limited to the consideration provided for herein, rescission of this Agreement
or injunctive relief, as is appropriate.
9. Term and Termination
(a) Term. The licenses granted herein shall be in
perpetuity.
(b) Effect of Termination.
(i) Developers Right to Terminate. Developer
shall have the right to terminate this Agreement if Licensee materially
defaults on any of its obligations under this Agreement unless, within thirty
(30) days after written notice of such default from Developer, Licensee takes
such steps as would be reasonably required to cure the default in a timely
fashion.
(ii) Licensee's Right to Terminate. Except as
provided for herein, Licensee shall have the right to terminate this Agreement
if Developer materially defaults on any of its obligations under this Agreement,
unless within thirty (30) days after written notice of such default Developer
takes such steps as would be reasonably required to cure the default in a timely
fashion.
(iii) Termination in Event of Bankruptcy. Either
party shall have the right immediately to terminate this Agreement if the other
party makes a general assignment for the benefit of creditors, suffers or
permits the appointment of a receiver for its business or assets, becomes
subject to any proceeding under any bankruptcy or insolvency law (which shall
not be
- 6 -
<PAGE>
dismissed within sixty (60) days from the filing of any petition in connection
therewith), whether domestic or foreign, or has wound up or liquidated,
voluntarily or otherwise.
10. Confidentiality
(a) Retention of Proprietary Rights in Confidential
Information. Each party may disclose to the other information concerning its
inventions, confidential information, trade secrets, and confidential know-how
("Confidential Information") to further the performance of this Agreement.
Except as provided for herein, all such Confidential Information disclosed
hereunder shall remain the sole property of the party disclosing the same, and
the receiving party shall have no interest or rights with respect thereto. The
source code listings and the supporting documentation for the Original Work, and
any documentation related thereto, are regarded as Confidential Information of
Developer, and are subject to this non-disclosure provision.
Notwithstanding the above, Confidential Information shall not
include, whether or not the same is marked as such or included on the
Non-Disclosure List, information or materials (i) which is known to the public
(ii) which is already known to the receiving party prior to its disclosure (iii)
which is lawfully received from third parties without obligations or
confidentiality or (iv) which is developed by the receiving part independently
of the information or materials received from the other party.
(b) Confidentiality. Each party agrees to maintain the
Confidential Information of the other in confidence and to the same extent that
it protects its own proprietary information in order to assure recognition and
continued protection of the status of such information as a trade secret or
confidential information, and further agrees to take all reasonable precautions
to prevent any unauthorized disclosure of such information. The obligation of
this paragraph shall survive the termination of this Agreement for whatever
reason.
11. Agreement not to Constitute Joint Venture
Nothing in this Agreement shall be construed as making either
Developer, or Licensee the agent of, or in joint venture with, the other for any
purposes.
12. Assignment
This Agreement and the rights and obligations hereunder shall
not be assigned in whole or in part by either party without the prior written
consent of the other, and any purported assignment without such written consent
shall be void and of no effect. Licensee understands that Developer may contract
with others to perform some or all or Developer's obligations hereunder, however
any such agreement shall not absolve Developer of its responsibilities under
this Agreement.
Notwithstanding the foregoing provision, Developer shall have
the right to assign its right to payments hereunder without Licensee's consent,
and either party may assign this
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<PAGE>
Agreement without the other party's consent to any subsidiary or affiliate or to
a successor by reason of merger, consolidation or sale or exchange of assets or
other reorganization.
13. Notice
Any notice required or permitted to be given under this
Agreement will be given in writing to the Point of Contact at their respective
addresses as set forth in this Agreement. Notices will be deemed given on the
earlier of (1) the date when the same is actually received or (2) five (5) days
after mailing by certified or registered mail, return receipt requested, to the
address of the receiving party. Address and Point of Contact may be changed by
giving notice of the same pursuant to this paragraph.
14. Administrative Provisions
This Agreement represents the full and complete understanding
of every kind or nature whatsoever between the parties hereto concerning this
subject matter, may be executed in counterparts, and shall be construed in
accordance with the laws of the State of California. All amendments or
modifications to this Agreement shall be in writing and signed by all parties to
this Agreement. This Agreement is severable and the invalidity of any term of
condition shall not effect the validity of any other term or condition. The
covenants, conditions and obligations herein contained shall apply to and bind
any heirs, successors or assigns of the parties hereto.
Any delay or failure to enforce a provision of this Agreement
shall not be deemed to constitute a waiver of the same. This Agreement shall be
deemed executed in the County of Contra Costa, State of California, and any
dispute relating to this Agreement or its performance shall be resolved by
binding arbitration under the then existing rules of the American Arbitration
Association to be conducted in said County. The powers of the Arbitrator(s) in
such proceeding shall include the ability to grant injunctive relief as deemed
appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
[DEVELOPER] /s/ John Hiles LICENSEE /s/ Win Farrell
---------------- -----------------
Date: October 21, 1994 Date: October 25, 1994
By: John Hiles By: Win Farrell
Title: President Title: Principal
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<PAGE>
EXHIBIT A
1. Description of Original Work: TeleSim
TeleSim is a computer software, game-like simulation of the
telecommunications market where the user creates and executes
product strategies for their telecom company while competing
with other telecom companies for market share, revenues,
profits and customer awareness.
2. Features and Function of the Original Work
The features and functions of TeleSim are expressed in the
beta release of TeleSim for NYNEX (Version 1.0).
3. License Territory
World-wide
4. Usage
TeleSim will be used to train the senior executives of the
telecommunications industry, giving them an awareness of the
nature of competing in a high technology, competitive market
place.
5. License Terms
Developer hereby grants to Licensee a world-wide, perpetual
license to use and without limitation, to reproduce, the
Original Work subject to the following:
(i) For a period the greater of five years from
Licensee's final acceptance of the Original Work or
any period of one-year of non-use by Licensee,
Developer shall not license or sell the Original Work
worldwide without written approval from Licensee.
(ii) Notwithstanding the foregoing, Developer may use
the Original Work in any product for use outside the
telecommunications industry (such as a similar
product for the senior executive group of another
industry), and for any noncompetitive product,
including other products for the telecommunications
industry (such as process simulations of the physical
plant of a telecommunications provider, the
simulation of particular telecom plant and equipment
or training products not focused upon senior
executives of the telecom industry), provided
however, that Developer shall not use Licensee's
confidential information and trademarks.
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<PAGE>
November 8, 1995
Fax: (212) 259-1337
Mr. Win Farrell
Coopers & Lybrand
1301 Avenue of the Americas
New York, New York 10019
Dear Mr. Farrell:
By signing below, this letter will serve as an agreement that the
royalty paid by Coopers & Lybrand to Thinking Tools, Inc. for sale of generic
versions of TeleSim I (i.e., based on the AT&T version of TeleSim I) shall be
20% of the sales price or $2,000, whichever is greater. At no charge to Coopers
& Lybrand, Thinking Tools, Inc. will include a customer identification screen
for each customer, provided that the customer has signed a written
authorization, that allows Thinking Tools, Inc. to utilize the customer's name
and logo on that screen.
THINKING TOOLS, INC. COOPERS & LYBRAND
/s/ John E. Hiles /s/ Win Farrell
- ----------------------------- -----------------------------------------
By: John E. Hiles By: Win Farrell
President Partner, Coopers & Lybrand Consulting LLP
- ----------------------------- -----------------------------------------
Title Title
November 20, 1995 11/9/95
- ----------------------------- -----------------------------------------
Date Date
<PAGE>
EXHIBIT A
1. Description of Original Work: TeleSim
TeleSim is a computer software, game-like simulation of the
telecommunications market where the user creates and executes
product strategies for their telecom company while competing
with other telecom companies for market share, revenues,
profits and customer awareness. Original Work shall include
the TeleSim product created by AT&T.
2. Features and Function of the Original Work
The features and functions of TeleSim are expressed in the
beta release of TeleSim for NYNEX (Version 1.0).
3. License Territory
World-wide
4. Usage
TeleSim will be used to train the senior executives of the
telecommunications industry, giving them an awareness of the
nature of competing in a high technology, competitive market
place.
5. License Terms
Developer hereby grants to Licensee a world-wide, perpetual
license to use and without limitation, to reproduce, the
Original Work subject to the following:
(i) For a period the greater of five years from
Licensee's final acceptance of the Original Work or
any period of one-year of non-use by Licensee,
Developer shall not license or sell the Original Work
worldwide without written approval from Licensee.
(ii) Notwithstanding the foregoing, Developer may use
the Original Work in any product for use outside the
telecommunications industry (such as a similar
product for the senior executive group of another
industry), and for any noncompetitive product,
including other products for the telecommunications
industry (such as process simulations of the physical
plant of a telecommunications provider, the
simulation of particular telecom plant and equipment
or training products not focused upon senior
executives of the telecom industry), provided
however, that Developer shall not use Licensee's
confidential information and trademarks.
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STOCK PURCHASE AND LOAN AGREEMENT
DATED AS OF SEPTEMBER 26, 1994
BETWEEN
THINKING TECHNOLOGIES, L.P.
AND
THINKING TOOLS, INC.
<PAGE>
STOCK PURCHASE AND LOAN AGREEMENT
THIS STOCK PURCHASE AND LOAN AGREEMENT is made as of the 26th day of
September, 1994, by and between Thinking Tools, Inc., a California corporation,
(the "Company") on the one hand and Knoll Capital Management, a Delaware Limited
Partnership, as general partner of Thinking Technologies, L.P., a Delaware
Limited Partnership (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Stock.
(a) The Company shall adopt and file with the
Secretary of State of California on or before the Closing (as defined below)
Amended Articles of Incorporation as attached hereto as Exhibit A.
(b) Subject to the terms and conditions of this
Agreement, Investor agrees to purchase at the Closing and the Company agrees to
sell and issue to Investor at the Closing, 157.142858 shares of the Company's,
pre-split Common Stock, which, after the stock split provided for hereunder,
will represent 550,000 shares, or, 61.11% of the duly authorized, issued and
outstanding post-split stock of the Company (the "Stock"), for the purchase
price of $100,000.00, as well as for Investor's agreement to make the Loan (as
defined below) and to provide for the assumption of the Bridge Loan (as defined
below) hereunder.
(c) At the Closing, the Company shall immediately
authorize, by all required consents, a stock-split which shall effect an
issuance of 3500 shares of Stock for each pre-split share, resulting in
Investor's ownership of 550,000 shares of Stock, or 61.11% of the duly
authorized, issued and outstanding Stock of the Company, and further resulting
in Mr. John Hiles' ownership of 350,000 shares of Stock, or 38.89% of the duly
authorized, issued and outstanding Stock of the Company.
(d) Investor and Company acknowledge that the
issuance of the full amount of shares of Stock, not to exceed 100,000 post-split
shares, under the Company employee stock option plan, as provided for
hereinbelow, will result in a final percentage ownership as follows: Investor
55%; Mr. John Hiles 35%; employees receiving stock under the option plan 10%;
1.2 Closing. The purchase and sale of the Stock shall take
place at the offices of James D. Houston, 235 Montgomery Street, Suite 920, San
Francisco, California at 12:00 p.m. on September 28, 1994, or at such other time
and place as the Company and the Investor mutually agree upon orally or in
writing (which time and place are designated as the "Closing"). At the Closing,
the Company shall deliver to the Investor a certificate representing the Stock,
which the Investor is purchasing against delivery to the Company by the Investor
of a check payable to the Company's order or by wire transfer in the aggregate
amount of $1,100,000.00, including the purchase price for the Stock and the Loan
proceeds. The total amount of "new money" provided by Investor in purchase price
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and Loan proceeds is $1,100,000.00. The additional $200,000 of debt provided for
herein is set forth with particularity in subsection 2.3 hereinbelow.
1.3 Documents to be Delivered by the Company. At the Closing, the
Company will deliver to the Investor:
(a) stock certificates for the Stock and the Pledged
Stock (as defined below), free and clear of all liens, claims, charges,
restrictions, except for those legends required under state and federal
securities laws, equities or encumbrances of any kind, duly executed on behalf
of the Company and duly issued in the name of Investor;
(b) a certificate of the Company in the form of
Exhibit B certifying as to the accuracy of the Company's representations and
warranties at and as of the Closing and that the Company has performed and
complied with all of the terms, provisions and conditions to be performed and
complied with by the Company at or before the Closing;
(c) a certificate of the Company in the form of
Exhibit C certifying as to certain corporate matters, together with all of the
attachments referred to therein; and
(d) such other certificates and documents as set
forth herein, or as Investor or its counsel may reasonably request.
1.4 Documents and Funds to Be Delivered by Investor. At the
Closing, Investor will deliver to the Company:
(a) the amount of the Purchase Price by transfer of
immediately available funds to the account listed herein;
(b) a certificate of Investor in the form of Exhibit
D certifying as to the accuracy of Investor's representations and warranties at
and as of the Closing and that Investor has performed and complied with all of
the terms, provisions and conditions to be performed and complied with by
Investor at or before the Closing;
(c) the corporate consents required to effect the
stock split as provided for hereinbelow; and
(d) such other certificates and documents as the
Company or its counsel may reasonably request.
1.5 Form and Substance of Documents. The documents and
instruments referred to in Sections 1.3 and 1.4 shall be in form and substance
satisfactory to counsel for the party to whom they are delivered.
2. Loan.
2.1 Amount of Loan. On or before September 28, 1994, at
Company's request, Investor will lend to Company the sum of $1,200,000.00 (the
"Loan"). The Loan shall be evidenced by a promissory note in the form attached
hereto as Exhibit E (the "Note") executed by the Company, dated as of the date
the Loan
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is made, due and payable on September 27, 1999, and providing for the
semi-annual payment of interest at ten percent (10%) per annum if the Company
realizes $2,000,000.00 in gross income, or alternatively, if the Company does
not realize $2,000,000.00 in gross income, interest shall accrue to the
principal amount at the rate of 10% per annum. No interest is required to be
paid on the Loan, but interest will continue to accrue, for the first 18 months
that the Loan is outstanding. The interest accrued during the initial 18 month
period will be added to the principal of the Loan, unless paid within 30 days
after March 30, 1996.
The Note provides for the payment of principal (1) from
time-to-time over the term of the Note at the discretion of the Board of
Directors of the Company, from profits through operations; (2) upon the closing
of an initial public offering through which the Company realizes proceeds of
over $2,500,000.00; (3) upon the merger or acquisition of the Company with, or
by, any other entity; or (4) upon any other refinancing, including any private
placement sale of any securities of the Company, in the sum of over
$1,000,000.00. In the case of proceeds realized by the Company from the
occurrence of an event under subparagraph 2.1 (4), the amount of the principal
to be paid will be negotiated in good faith among the Investor and the Board of
Directors of the Company. Concurrently therewith, amounts of Pledged Stock
negotiated among the Investor and the Board of Directors shall then be released
to Mr. John Hiles and the Company, respectively.
The Loan shall be closed by Investor providing new funds in
the amount of $1,000,000.00 to the Company, in addition to the assumption of the
$200,000.00 Bridge Loan, as set forth in subsection 2.3 hereof, under the terms
of this Agreement and of the Note.
2.2 Security Agreement Required. The Loan shall be secured by
a security agreement for the pledge of all of the postsplit stock of the
Company, as provided for hereinbelow, issued and outstanding to Mr. John Hiles,
as provided for hereinbelow, in the total amount of 350,000 shares (the "Pledged
Stock"). The pledge agreement is in the form attached as Exhibit F, executed by
the Company as debtor and John Hiles as Additional Pledging Party, to Investor
as secured party, which also grants Investor a security interest in all of the
Company's assets including, but not limited to, all of the intellectual property
formerly held in the name of John Hiles, which was transferred to the Company by
virtue of the technology transfer agreement attached as Exhibit C to that
certain Bridge Loan Agreement between the Company and Investor, dated July 29,
1994 (the "Bridge Loan"). The pledge agreement also provides that if the Company
meets the budget approved by the Board of Directors, Investor will release 1/4
of the Pledged Stock per year. Finally, the pledge agreement provides that John
Hiles shall execute an irrevocable proxy, in the form attached hereto as Exhibit
G, to Knoll Capital Management to vote the Pledged Stock, which proxy shall be
effective until the Company (1) is acquired through a merger or acquisition; or
(2) effects an initial public offering in the aggregate amount of $2,500,000~00,
subsequent to which time the voting rights to the Pledged Stock shall revert to
John Hiles, through operation of the Proxy.
2.3 Bridge Loan Assumed Hereunder. All of the obligations of
the Company, as Borrower, to Investor, as Lender, under the Bridge Loan dated
July 29, 1994, and First Amended Bridge Loan dated September 12, 1994, with the
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exception of the affirmative representations and positive and negative covenants
of the Company which will survive execution of this Agreement, are hereby
extinguished and assumed hereunder pursuant to the Novation Agreement
Substituting Obligations to be signed by the Investor and the Company, in the
form as attached hereto as Exhibit H.
2.4 Loan Closing. The Loan Closing shall take place at the
offices of James D. Houston, 235 Montgomery Street, Suite 920, San Francisco,
California at 12:00 p.m. on September 28, 1994, or at such other time and place
as the Company and the Investors mutually agree upon orally or in writing (which
time and place are designated as the "Loan Closing"). At the Loan Closing, the
Company shall deliver to Investor all documents required to be executed as set
forth hereinabove.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to Investor that, except as set forth on a Schedule of
Exceptions furnished to the Investor and to counsel for the Investor
specifically identifying the relevant subparagraph hereof which exceptions shall
be deemed to be representations and warranties as if made hereunder:
3.1 Organization. Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties.
3.2 Capitalization and Voting Rights. As of the date of the
Closing, and after giving full effect to the stock-split provided for
hereinabove, the authorized capital of the Company will consist of:
(i) 1,000,000 shares of Stock, no par value, of which
900,000 shares will be duly authorized, issued, delivered and outstanding, fully
paid and non-assessable, unless otherwise indicated immediately herein, and of
which 550,000 shares are Stock owned by Investor pursuant to this Agreement and
of which 350,000 shares will be duly authorized, issued, delivered and
outstanding to Mr. John Hiles, fully paid and non-assessable, herein designated
as Pledged Stock, and of which 100,000 shares will be duly authorized and
reserved for conveyance to the Company employee stock option plan, as provided
for in Section 3.26 hereinbelow. The designations, powers, preferences, rights,
qualifications, limitations and/or restrictions of the Stock are as stated in
the Company's Amended Articles of Incorporation in the form as attached hereto
as Exhibit A;
(ii) there are no outstanding options, warrants,
rights (including conversion or preemptive rights) or agreements for the
purchase or acquisition from the Company of any shares of its capital stock,
except as set forth in Section 3.26 hereinbelow. The Company is not a party or
subject to any agreement or understanding, and, to the Company's knowledge,
there is no agreement or understanding between any persons and/or entities,
which affects or relates to the voting or giving of written consents with
respect to any
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security or by a director of the Company, except as set forth in this agreement.
3.3 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association or other business entity.
3.4 Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Stock has been taken or will be taken prior to the Closing, and
this Agreement constitutes a valid and legally binding obligation of the
Company, enforceable in accordance with its terms.
3.5 Valid Issuance of Stock. The Stock which is being
purchased by the Investor hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and, based in part upon
the representations of the Investor set forth in Section 4 of this Agreement,
will be issued in compliance with all applicable federal and state securities
laws.
3.6 Governmental Consents. No consent, approval, order or
authorization on, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for: (i) the filing pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended, and the
rules thereunder, which filing will be effected within fifteen (15) days after
the sale of the Stock hereunder.
3.7 Financial Statements. The Company has delivered to
Investor copies of the balance sheets of the Company as at June 30, 1994, and
related statements of operations and retained earnings and cash flows for the
period to June 30, 1994, together with the report thereon of Dunlap Accountancy,
certified public accountants. All of such financial statements present fairly
and accurately the financial position of the Company as at the date of said
balance sheets and the results of the operations and changes in cash and cash
equivalents of the Company for the period then ended, in conformity with
generally accepted accounting principles. The Company represents that it has
provided to its accountants all information required for the accountants to give
an unqualified opinion with regard to all financial matters stated herein,
although such unqualified opinion is not required under the terms of this
Agreement.
3.8 No Undisclosed Liabilities Etc. Since June 30, 1994
(except (i) for the transactions contemplated by this Agreement and (ii) as set
forth in Schedules 3.8 and 3.10) the Company has not incurred any liability or
obligation (absolute, accrued, contingent or otherwise) of any nature, other
than liabilities and obligations incurred in the ordinary course of business
that singly or in the aggregate are not material.
3.9 Absence of Certain Changes.
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(a) Since June 30, 1994, except for the execution and
delivery of this Agreement, the Company has not:
(i) had any change in its condition (financial or
otherwise), operations (present or prospective), business (present or
prospective), properties, assets or liabilities, other than changes in the
ordinary course of business, none of which has been materially adverse to the
Company;
(ii) suffered any damage, destruction or loss of
physical property (whether or not covered by insurance) materially and adversely
affecting its condition (financial or otherwise), operations (present or
prospective), business (present or prospective), assets or liabilities;
(iii) issued, sold or otherwise disposed of, or
agreed to issue, sell or otherwise dispose of, any capital stock or any other
security of the Company or granted or agreed to grant any option, warrant or
other right to subscribe for or to purchase any capital stock or any other
security of the Company;
(iv) incurred any indebtedness for borrowed money
except for the due and owing obligation to Maxis Corporation which obligation
the Company represents and warrants shall be paid in full through the proceeds
received from Investor through the operation of subparagraphs 3.29 and 10.1 of
this Agreement;
(v) paid in excess of $10,000 in the aggregate as
capital expenditures;
(vi) suffered any substantial loss or waived any
substantial right;
(vii) sold, transferred, leased or otherwise
disposed of, or agreed to sell, transfer, lease or otherwise dispose of, any
assets having a fair market value at the time of sale, transfer, lease or
disposition of $10,000 or more in the aggregate, other than in the ordinary
course of business, or cancelled, or agreed to cancel any debts or claims;
(viii) mortgaged, pledged or subjected to any
charge, lien, claim or encumbrance any of its properties or assets, other than
as security for the Company's debt to Maxis Corporation;
(ix) declared, set aside or paid any dividend or
made any distribution (whether in cash, property or stock) with respect to any
of its capital stock or redeemed, purchased or otherwise acquired any of its
capital stock;
(x) increased the compensation or bonuses or
special compensation of any kind of any of its officers, employees or agents
over the rate being paid to them on March 31, 1994, other than normal merit
and/or cost-of-living increases pursuant to customary arrangements consistently
followed, or entered into any employment or consulting contract with any
officer, employee or agent, or adopted or increased any benefit under any
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insurance, pension or other employee benefit plan, payment or arrangement made
to, for or with any such officer, employee or agent;
(xi) made or permitted any material amendment or
termination of any material contract, agreement or license to which it is a
party, other than in the ordinary course of business;
(xii) had any resignation or termination of
employment of any of its key officers or employees, or knows of any impending or
threatened resignation or resignations or termination or terminations of
employment, that would have a material adverse effect on its condition
(financial or otherwise), operations (present or prospective), business (present
or prospective), properties, assets or liabilities;
(xiii) made any change in its accounting methods
or practices with respect to its condition, operations, business, properties,
assets or liabilities;
(xiv) made any charitable or political
contribution or pledge in excess of $10,000.00 in the aggregate;
(xv) entered into any transaction not in the
ordinary course of business; or
(xvi) agreed or committed to do, or authorized or
approved any action looking to, any of the foregoing.
3.10 Contracts. Except as set forth in Schedule 3.10, the Company
is not a party to any written or oral:
(i) collective bargaining agreement, contract, or
other agreement or understanding with any labor organization (as defined in the
National Labor Relations Act of 1935, as amended (the "NLRA")), a labor union,
or any group of two or more employees;
(ii) employment or consulting contract or other
contract for services involving a payment of more than $25,000 annually;
(iii) lease (except for the lease under which the
Company occupies its premises at One Lower Ragsdale, Monterey, California)
whether as lessee or lessor, with respect to any property, real, personal or
intangible, involving a payment of more than $10,000 annually;
(iv) loan agreement or instrument relating to any
debt;
(v) contract of purchase or sale involving more
than $10,000;
(vi) contract with any agent, dealer or
distributor;
(vii) partnership, joint venture, franchise,
license or similar agreement;
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(viii) stand-by letter of credit, guarantee or
performance bond;
(ix) contract or agreement restricting the ability
of any person from freely engaging in any business or competing anywhere in the
world;
(x) contract not made in the ordinary course of
business involving more than $10,000; or
(xi) other contract, except insubstantial
contracts for supplies or services not involving more than $10,000 and which can
be terminated within one year without cost.
Except as set forth in Schedule 3.10, the Company is not a
party to any contract with any governmental authority nor has made or submitted
any bid or contract proposal to any person, including, any governmental
authority which, if accepted or entered into, would result in a contract
required to be disclosed in Schedule 3.10. The Company is not a party to any
contract that materially and adversely affects its condition (financial or
otherwise), operations (present or prospective), business (present or
prospective), properties, assets or liabilities. Each contract or other
agreement listed in Schedule 3.10 is in full force and effect and is valid and
enforceable by the Company in accordance with its terms assuming the due
authorization, execution and delivery thereof by each of the parties thereto.
The Company is not in default in the observance or performance of any term or
obligation to be performed by it under any contract listed in Schedule 3.10. The
Company knows of no other person who is in default in the observance or
performance of any term or obligation to be performed by it under any material
contract with the Company. No bid or contract proposal has been made by the
Company that, if accepted or entered into, might result in a loss to the
Company. The Company has delivered to the Investor true and complete copies of
all contracts listed in Schedule 3.10 as in effect on the date hereof.
3.11 Returns and Complaints. The Company has received no
material customer complaints concerning its products and/or services, nor has it
had any of its products returned by a purchaser thereof.
3.12 Litigation. Except as provided in Schedule 3.12, there is
no action, suit, proceeding or investigation pending or currently threatened
against the Company which questions the validity of this Agreement or the right
of the Company to enter into it, or to consummate the transactions contemplated
hereby, or which might result, either individually or in the aggregate, in any
material adverse changes in the assets, condition, affairs or prospects of the
Company, financially or otherwise. The foregoing includes, without limitation,
actions pending or threatened (or any basis therefor known to the Company)
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
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3.13 Proprietary Information Agreements. Each employee and
officer of the Company has executed a Proprietary Information and Inventions
Agreement in the form as attached hereto as Exhibit I. The Company, after
reasonable investigation, is not aware that any of its employees are in
violation thereof, and the Company will use reasonable, good faith efforts to
prevent any such violation.
3.14 Key-Man Agreement With Mr. John Hiles. Mr. John Hiles and
the Company have entered into a "Key-Man" Employment, Proprietary Information
and Materials Agreement in the form as attached hereto as Exhibit J. The
"Key-Man" Employment Agreement provides that in the event of death, any physical
or mental disability or termination by the Company, without cause (as defined
therein), which renders Executive unable to fulfill his duties thereunder, the
Company shall, in good faith, liquidate Executive's stock ownership interest in
the Company (as provided in the agreement) and payment therefore shall be made
to Executive, Executive's spouse, his attorney in fact, his personal
representative, his guardian, or any other such person legally authorized to
receive monetary payments due and owing to Executive.
3.15 Patents and Trademarks. To the best of its knowledge, the
Company has sufficient title and ownership of all patents, trademarks, service
marks, trade names, copyrights, trade secrets, information, proprietary rights
and processes necessary for its business as now conducted and as proposed to be
conducted without any conflict with or infringement of the rights of others.
There are no outstanding options, licenses or agreements of any kind relating to
the foregoing, nor is the Company bound by or a party to any options, licenses
or agreements of any kind with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company has
not received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company 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 the use of his best efforts to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the material terms, conditions or
provisions of, or constitute a default under, any material contract, covenant or
instrument under which any of such employees is now obligated. The Company does
not believe it is or will be necessary to utilize any inventions of any of its
employees (or people it currently intends to hire) made prior to their
employment by the Company.
3.16 Compliance with Laws and Other Instruments. The Company
is not in violation or default of any provisions of its Articles of
Incorporation or Bylaws or of any instrument, judgment, order, writ, decree or
material contract to which it is a party or by which it is bound or, to its
knowledge, of any provision of federal or state statute, rule or regulation
applicable to the
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Company which either individually or in the aggregate would have a material
adverse effect on the assets, condition, affairs or prospects of the Company.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby will not result in any such violation or
be in conflict with or constitute, with or without the passage of time and
giving of notice, either a default under any such provision, instrument,
judgment, order, writ, decree or material contract or an event which results in
the creation of any lien, charge or encumbrance upon any assets of the Company.
3.17 Agreements, Action.
(a) Except for agreements explicitly contemplated
hereby, there are no agreements, understandings or proposed transactions between
the Company and any of its officers, directors, affiliates or any affiliate
thereof;
(b) There are no agreements, understandings,
instruments, contracts, judgments, orders, writs or decrees to which the Company
is a party or by which it is bound which may involve (i) obligations (contingent
or otherwise) of, or payments to the Company in excess of, $10,000, or (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company;
(c) The Company has not engaged in the past three (3)
months in any discussion (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the Company with or into
any such corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of, or (iii)
regarding any other form of acquisition, liquidation, dissolution or winding up
of the Company.
3.18 Misstatements or Omissions. Neither this Agreement nor
any certificates made or delivered in connection herewith contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading. There is no fact that affects,
or in the future might reasonably be expected to affect, adversely the condition
(financial or otherwise), operations (present or prospective), business (present
or prospective), properties, assets or liabilities of the Company in any
material respect that is not set forth in this Agreement or in the Schedule of
Exceptions.
3.19 Registration Rights. Except as provided in Section 9 of
this Agreement, the Company has not heretofore granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
3.20 Corporate Documents. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein (the form
of which amendments has been approved by the Investor), the Articles of
Incorporation and Bylaws of the Company are in the form previously provided to
counsel for the Investor.
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3.21 Title to Property and Assets. At Closing, the Company
will own its property and assets free and clear of all mortgages, liens, loans
and encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and which do not materially impair the Company's ownership or
use of such property or assets, and except as set forth in this Agreement. With
respect to the property and assets it leases, the Company is in compliance with
such leases and, to the best of its knowledge, holds a valid leasehold interest
free of any liens, claims or encumbrances.
3.22 Tax Returns Payments and Elections. The Company has filed
all tax returns and reports as required by law. These returns and reports are
true and correct in all material respects. The Company has paid all taxes and
other assessments due, except those contested by it in good faith which are
listed in the Schedule of Exceptions, and certain payroll taxes which shall be
paid on or shortly after the Closing Date with funds realized through this
transaction. No Event of Default, as defined hereunder shall be declared for
failure to pay taxes outstanding at the time of the signing of this Agreement,
unless such taxes are still outstanding 30 days after the conveyance to the
Company of the Loan Proceeds. The Company has not elected pursuant to the
Internal Revenue Code of 1986, as amended ("Code"), to be treated as a
Subchapter S corporation or a collapsible corporation pursuant to Section 341(f)
or Section 1362(a) of the Code, nor has it made any other elections pursuant to
the Code (other than elections which relate solely to methods of accounting,
depreciation or amortization) which would have a material effect on the Company,
its financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets.
3.23 Insurance. The Company maintains insurance of the type
and in amounts customarily maintained by similarly situated businesses which it
deems adequate for its business as presently conducted and as proposed to be
conducted, including, without limitation, general liability insurance and
insurance covering all risks customarily insured against by businesses that
are-similarly situated, all of which insurance is in full force and effect.
3.24 Minute Books. The minute books of the Company provided to
the Investor contain a complete summary of all meetings of directors and
stockholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
3.25 Labor Agreements and Actions. The Company is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the knowledge of
the Company, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company ending, or to the knowledge of the Company threatened, which could have
a material adverse effect on the assets, properties, financial condition,
operating results or business of the Company, nor is the Company aware of any
labor organization activity involving its employees. The Company is not aware
that any officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing.
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3.26 Management and Employee Stock Option Plan. The Company
has not ever had a management or employee benefit or stock option plan. The
employee stock option plan to be implemented in the future will be issued in the
form of 100,000 shares of Company Stock reserved therefore, as provided
hereinabove. The Company affirmatively represents that it will establish a stock
option plan providing for a total of 10% stock ownership by certain employees
and directors of the Company, funded with 100,000 shares of Stock.
3.27 Bank Accounts; Powers of Attorney. Schedule 3.27 sets
forth (i) the name of each bank in which the Company has an account or safe
deposit box and the names of all persons authorized to draw thereon or to have
access thereto; and (ii) the names of all persons, if any, holding powers of
attorney from the Company and a summary statement of the terms thereof.
3.28 Accounting Practices. The Company makes and keeps
accurate books and records reflecting its assets and maintains internal
accounting controls that provide reasonable assurance that (i) transactions are
executed with management's authorization; (ii) transactions are recorded as
necessary to permit preparation of the Company's financial statements and to
maintain accountability for the assets of the Company; (iii) access to the
assets of the Company is permitted only in accordance with management's
authorization; and (iv) the reported accountability of the assets of the Company
is compared with existing assets at reasonable intervals.
3.29 Debt to Maxis Corporation. The Company shall use the
proceeds received from Investor to immediately pay the full amount of the
Company's indebtedness to Maxis Corporation in the amount of $410,771.01, owed
pursuant to that certain agreement between the Company and Maxis Corporation
dated December 30, 1993, and to immediately obtain a release of all liens held
by Maxis Corporation thereunder, or to assign said liens to Investor.
4. RePresentations and Warranties of the Investor. Investor hereby
represents and warrants that:
4.1 Authorization. This Agreement constitutes Investor's valid
and legally binding obligation, enforceable in accordance with its terms.
4.2 Purchase EntirelY for Own Account; Assignment. This
Agreement is made with the Investor in reliance upon Investor's representation
to the Company, which by Investor's execution of this Agreement Investor hereby
confirms, that the Stock will be acquired for investment for Investor's own
account, without a view to or for sale in connection with any distribution of
the security which would require registration thereof. Investor represents that
it has full power and authority to enter into this Agreement. The Company
acknowledges and agrees that either the debt or equity provided for hereunder,
or any combination of debt and equity, may be assigned by Investor, in its sole
discretion, subject to subsection 4.7, hereinbelow.
4.3 Disclosure of Information. The Investor further represents
that it has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Stock. The
foregoing, however, does not limit or modify the representations and warranties
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of the Company in Section 3 of this Agreement or the right of the Investors to
rely thereon.
4.4 Investment Experience. Investor is an investor in
securities of companies in the development stage and can bear the economic risk
of its investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Stock. Investor is an "accredited investor" as that term is defined under
the federal and state securities laws. Investor also represents it has not been
organized for the sole purpose of acquiring the Stock.
4.5 Right of First Refusal. Investor warrants and represents
that in the case that Investor desires to sell any portion of Company Stock
received hereunder, the Company, and then Mr. John Hiles, shall have the right
of first refusal to purchase the Stock on the same terms and conditions offered
to other purchasers. The right of first refusal shall be effective for twenty
(20) days following notice under Section 15.6 hereof.
4.6 Restricted Securities. Investor understands that the
shares of Stock are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the "Act"), only in certain limited
circumstances.
4.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, the Investor further agrees not to
make any disposition of all or any portion of the Stock unless and until the
transferee has agreed in writing to be bound by the terms of this Agreement and:
(a) if reasonably requested by the Company, Investor
shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
of such shares under the Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144, except in
unusual circumstances;
(b) Notwithstanding the provisions of subparagraph
(a) above, and unless otherwise required by law, no such opinion of counsel
shall be necessary for a transfer by Investor which is a partnership to a
partner of such partnership or a retired partner of such partnership who retires
after the date hereof, or to the estate of any such partner or retired partner
or the transfer by gift, will or intestate succession of any partner to his
spouse or to the siblings, lineal descendants or ancestors of such partner or
his spouse, if the transferee agrees in writing to be subject to the terms
hereof to the same extent as if he were an original Investor hereunder.
4.8 Legends. It is understood that the certificates evidencing
the Stock may bear one or all of the following legends:
(a) "These securities have not been registered under
the Securities Act of 1933. They may not be sold, offered for sale, pledged or
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hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act.
(b) Any legend required by the laws of the State of
California and any applicable Blue Sky laws of various other states and
jurisdictions.
5. California Commissioner of Corporations.
5.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
6. Conduct of Business Pending Closing. From the date hereof until the
Closing, except as consented to by Investor in writing:
(i) the Company shall maintain itself at all times as a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction under which it is incorporated;
(ii) the Company shall carry on its business and operations in
a good and diligent manner on an arm's-length basis and substantially in the
manner carried on as of the date hereof and the Company shall not engage in any
activity or transaction or make any commitment to purchase or spend other than
in the ordinary course of its business as heretofore conducted; provided,
however, without the prior written consent of Investor, the Company shall not
make any commitment to purchase or spend involving $10,000 or more;
(iii) the Company shall not declare, authorize or pay any
distribution or dividend to its stockholders and the Company shall not issue,
redeem, purchase or otherwise acquire, or agree to issue, redeem, purchase or
otherwise acquire, any shares of stock of the Company;
(iv) the Company shall not pay or obligate itself to pay any
compensation, commission or bonus to any director, officer, employee or
independent contractor as such, except for the regular compensation and
commissions payable to such director, officer, employee, agent or independent
contractor at the rate in effect on the date of this Agreement or adopt or amend
any plan, program, fund, arrangement or contractual undertaking;
(v) the Company shall continue to carry all of its existing
insurance;
(vi) the Company shall use its best efforts to preserve its
business organization intact, to keep available to Investor the services of its
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employees, agents and independent contractors and to preserve for Investor its
relationships with suppliers, licensees, distributors and customers and others
having business relationships with it;
(vii) the Company shall not, nor shall it obligate itself to,
sell or otherwise dispose of or pledge or otherwise encumber, any of its
properties or assets except in the ordinary course of business and the Company
shall maintain its facilities in good operating condition and repair, subject
only to ordinary wear and tear;
(viii) the Company shall not amend its Articles of
Incorporation or By-Laws; provided, however, that the Company may amend its
Articles of Incorporation and By-Laws as provided in this Agreement;
(ix) the Company shall not engage in any activity or
transaction other than in the ordinary course of its business as heretofore
conducted; and
(x) without limiting the foregoing, the Company shall consult
with Investor regarding all significant developments, transactions and proposals
relating to the business or operations or any of the assets or liabilities of
the Company.
7. Conditions Precedent to the Investor's Obligations at Closing. The
obligations of the Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions:
7.1 Representations and Warranties. The representations and
warranties of the Company contained in Section-3 shall be true on and as of the
date of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Closing.
7.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
7.3 Compliance Certificate. The President of the Company shall
deliver to the Investor at the Closing a certificate certifying that the
conditions specified in Sections 7.1 and 7.2 have been fulfilled and stating
that there shall have been no adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since June
30, 1994, except for the obligations incurred by the Company under the Bridge
Loan and Amended Bridge Loan, which obligations are assumed hereunder.
7.4 Qualifications. Consent or approval of all relevant Blue
Sky authorities shall have been obtained with respect to the offer and sale of
the Stock to the Investor pursuant to this Agreement, or such offer and sale
shall be exempt from such consent or approval.
7.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Investor's counsel.
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7.6 Proprietary Information and Key-Man Employment Agreements.
Each employee of the Company shall have entered into a Proprietary Information
and Inventions Agreement in the form attached hereto as Exhibit I. Mr. John
Hiles shall have entered into the Employment Agreement in the form attached
hereto as Exhibit J.
7.7 Board of Directors/Employment of Officers. The Company
shall agree that Mr. Fred Knoll, or his nominee, as Chairman of the Board of
Directors, shall nominate the board of directors, which will include Mr. John
Hiles, and one other person designated by Mr. John Hiles. John Hiles, as
President and Chief Executive Officer of the Company shall agree to employ a
Chief Operating Officer and Chief Financial Officer, acceptable to Investor,
within a reasonable time.
7.8 Opinion of Company Counsel. Investor shall have received
from John Laughton and Davis & Schroeder, P.C., counsel for the Company, an
opinion, dated as of the Closing, in form and substance satisfactory to counsel
to the Investor, which opinion may be reasonably based on information provided
by the Company, and after due diligence review thereof, substantially to the
effect that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
and the Company has the requisite corporate power and authority to own its
properties and to conduct its business;
(b) The Company has the requisite corporate power and
authority to execute, deliver and perform this Agreement. The Agreement has been
duly and validly authorized by the Company, duly executed and delivered by an
authorized officer of the Company and constitutes a legal, valid and binding
obligation of the Company. Subject to bankruptcy and other laws of general
application affecting the rights and remedies of creditors, the Agreement is
enforceable according to its terms, except insofar as the enforceability of the
indemnification provisions of this of the Agreement may be limited by applicable
laws and except that no opinion need be given as to the availability of
equitable remedies;
(c) The capitalization of the Company as of the
Closing is as follows:
(i) Stock. 1,000,000 shares of post-split Stock, no
par value. 550,000 shares of Stock have been purchased by the Investor pursuant
to this Agreement. Such 550,000 shares of Stock have been duly authorized and
are validly outstanding, and have been approved by all requisite Company and
stockholder action. 350,000 shares of Stock have been issued to Mr. John Hiles
and are duly authorized and are validly outstanding, and have been approved by
all requisite Company and stockholder action. 100,000 shares of Stock are hereby
designated as reserved for conveyance to an employee stock option plan to be
established in the future, and such action has been approved by all requisite
Company and stockholder action. The respective designations, powers,
preferences, rights, qualifications, limitations or restrictions of the Stock
are as stated in the Company's Amended Articles of Incorporation attached as
Exhibit A;
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(ii) other than as provided in the Amended Articles
of Incorporation, there are no preemptive rights or, to the best of counsel's
knowledge, options, warrants, conversion privileges or other rights (or
agreements for any such rights) outstanding to purchase or otherwise obtain any
of the Company's securities;
(d) The certificates representing shares of the Stock
and the Pledged Stock are in due and proper form and have been duly and validly
executed by the officers of the Company named thereon;
(e) The execution, delivery, performance and
compliance with the terms of this Agreement do not violate any provision of any
applicable state or, to the best of such counsel's knowledge, local law, rule or
regulation or any provision of the Company's Amended Articles of Incorporation
or Bylaws and, which violation may individually or in the aggregate have a
material adverse effect on the assets, condition, affairs or prospects of the
Company, and to the best of such counsel's knowledge, do not conflict with or
constitute a default under the provision of any judgment, writ, decree, order or
agreement to which the Company is a party or by which it is bound;
(f) All consents, approvals, orders or authorizations
of, and all qualifications, registrations, designations, declarations or filings
with, any federal or state governmental authority on the part of the Company
required in connection with the consummation of the transactions contemplated by
this Agreement have been obtained, and are effective, as of the Closing, except
the filing required by Section 25102(f) of the California Corporate Securities
Law of 1968, as amended, and such counsel is not aware of any proceedings, or
threat thereof, which question the validity thereof;
(g) Based in part upon the representations of the
Investor, the offer and sale of the Stock pursuant to the terms of this
Agreement are exempt from: (i) the registration requirements of Section 5 of the
Securities Act of 1933, as amended, by virtue of Section 4(2) and Regulation D
thereof; and (ii) the qualification requirements of the California Corporate
Securities Law of 1968, as amended, by virtue of Section 25102(f) thereof;
(h) Except as set forth in the Schedule of
Exceptions, such counsel is not aware that there is any action, proceeding or
investigation pending, against the Company or any of its officers, directors or
employees, or that any of the foregoing has received any threat thereof, which
questions the validity of the Agreement, the Proprietary Information and
Inventions Agreements or the right of the Company or its officers, directors and
employees to enter into such agreements or which might result, either
individually or in the aggregate, in any material adverse change on the assets,
condition, affairs or prospects of the Company, nor is such counsel aware of any
litigation pending, against the Company or any of its officers, directors or
employees, by reason of the proposed activities of the Company, the past
employment relationships of its officers, directors or employees, or
negotiations by the Company or any of its officers or directors with possible
investors in the Company or its business;
(i) The Proprietary Information and Inventions
Agreements have each been duly authorized, executed and delivered by the Company
and, with
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respect to the Key-Man and Proprietary Information and Inventions Agreements for
Mr. Hiles, such Key-Man Agreement has been duly executed and delivered;
(j) Neither the Company's Articles of Incorporation,
nor the Amended Articles of Incorporation, nor Bylaws of the Company are in
violation of any provision of the California Corporations Code; (k) Upon payment
for and delivery of the Stock with all necessary endorsements in accordance with
the terms of this Agreement, and assuming Investor the Stock in good faith
without notice of any adverse claim, Investor will be the owner of the shares,
free and clear of any adverse claim; (l) Except as set forth in the Schedule of
Exceptions, such counsel knows of no litigation, proceeding or investigation
pending, threatened or proposed in any manner involving the Company or any of
the assets of the Company, or which questions the validity of this Agreement or
any action taken by the Company under this Agreement; (m) As to such other
matters (including the form of all documents and the validity of all
proceedings) incident to the matters herein contemplated as Investor and its
counsel may reasonably request. 7.9 No Right of First Refusal/Co-Sale Agreement.
Other than as set forth herein, there are no other agreements providing for a
right of first refusal or cosale as to a sale of shares of the Company. 7.10
Small Business Administration Issues. Issues related to the regulations of the
Small Business Administration, if any, shall be resolved to the reasonable
satisfaction of Investor. 7.11 Key-Man Life Insurance: Directors and Officers
Coverage. The Company shall use reasonable efforts to procure a life insurance
policy in the amount of $5,000,000 on the life of Mr. John Hiles, with proceeds
payable to the Company, or in such lesser amounts as may be approved by the
company writing the policy, with the approval of Investor. The Company shall use
reasonable efforts to obtain directors' liability insurance in the amount of
$1,000,000.00. 7.12 Investigation. All matters relating to Investor's
investigation of the Company shall have been completed, and the results of such
investigation shall be satisfactory to Investor and its counsel in all respects.
7.13 Adverse Chance. There shall have occurred no adverse change in the
business, prospects, financial status or affairs of the Company, which in the
sole judgment of the Investor, renders it inadvisable to perform under this
Agreement. 7.14 Amendment of By-Laws. The By-Laws of the Company shall be
amended such that Investor has the right to call meetings of the shareholders of
the Company, or meetings of the Board of Directors of the Company, at Investor's
discretion. As long as the Loan provided for herein-is outstanding, this power
shall not be abrogated. Further, as long as Investor owns greater than 20% of
the shares of the Company, this power shall not be abrogated. The By-Laws shall
be further amended to provide for the increase to 5 of the number of members of
the Board of Directors. 7.15 Investor's Dragging Right. The Company and Mr. John
Hiles, as President, agree that if, at any time, Mr. John Hiles has an offer to
sell any of his stock, Investor hereby acquires a dragging right which requires
that shares of Investor Stock will be sold in proportion to those offered to any
prospective purchaser equally to those sold by Mr. John Hiles, and on the same
terms and conditions.
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<PAGE>
8. Conditions of the Company's Obligations at Closing. The obligations of the
Company to the Investor under this Agreement are subject to the fulfillment on
or before the Closing of each of the following conditions by that Investor: 8.1
Representations and Warranties. The representations and warranties of the
Investor contained in Section 4 shall be true on and as of the date of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing. 8.2 Payment of Purchase Price.
The Investor shall have delivered the purchase price specified in Section 1.2.
8.3 Qualification. Consent or approval of all relevant Blue Sky authorities
shall have been obtained with respect to the offer and sale to the Investor of
the Stock, or such offer and sale shall be exempt from such consent or approval.
9. Registration Rights. The Company covenants and agrees as follows:
9.1 Definitions. For purposes of this Section 9:
(a) The term "register," "registered" and "registration refer to a registration
effected by preparing and filing a registration statement or similar document
in compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement or document;
(b) The term "Registrable Securities" means (1) the 350,000 shares of Stock held
as of this date by John Hiles, which individual shall, as a condition to
receiving these registration rights, agree to be bound by the terms hereof, (the
"Founder"); provided, however, that all such shares of Stock shall not be deemed
Registrable Securities, and the aforementioned individual shall not be deemed
a Holder, as defined below, for the purposes of Sections 9.2, 9.6, 9.12 and 9.14
hereof; (2) the Stock issuable or issued to Investor upon consummation of this
Agreement; and (3) any Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of the securities identified in (1) or (2) above, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which his rights under this Section 9 are not assigned; provided, that such
Stock issued or issuable with respect to the securities identified in (1) above
shall not be deemed Registrable Securities and the holders of such Stock shall
not be deemed Holders, as defined below, for purposes of Sections 9.2, 9.6, 9.12
and 9.14 hereof;
(c) The number of shares of "Registrable Securities then outstanding" shall be
determined by the number of shares of Stock outstanding which are, and the
number of shares of Stock issuable pursuant to then exercisable or convertible
securities which are, Registrable Securities;
(d) The term "Holder" means any person owning or having the right to acquire
Registrable Securities or any assignee thereof in accordance with Section 9.13
hereof; and
(e) The term "Form S-3" means such form under the Act as is in effect on the
date hereof or any registration form under the Act subsequently adopted by the
Securities and Exchange Commission ("SEC") which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
9.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier of (i) September
1, 1995, or (ii) thirty (30) days after the Company notifies the Holders that it
will file a first registration statement for a public offering of securities
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of the Company (other than a registration statement relating either to the sale
of securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction), a written request from
the holders of at least fifty percent (50%) of the Registrable Securities then
outstanding that the Company file a registration statement under the Act
covering the registration of at least twenty percent (20%) of the Registrable
Securities then outstanding (or a lesser percent if the anticipated aggregate
offering price, net of underwriting discounts and commissions, would exceed
$2,500,000.00), pursuant to a firm commitment underwriting with an underwriter
of nationally recognized standing, then the Company shall, within ten (10) days
of the receipt thereof, give written notice of such request to all Holders and
shall, subject to the limitations of subsection 9.2(b), effect as soon as
practicable, and in any event shall use its best efforts to file within one
hundred twenty (120) days in the case of an initial public offering and in all
other cases within sixty (60) days of the receipt of such request, a
registration statement under the Act covering all Registrable Securities which
the holders request to be registered within twenty (20) days of the mailing of
such notice by the Company in accordance with paragraph 15.6; (b) The
underwriter will be selected by a majority in interest of the Holders initiating
the registration request hereunder (the "Initiating Holders") and shall be
reasonably acceptable to the Company. In such event, the right of any Holder to
include his Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All holders proposing to distribute their securities through such
underwriting shall (together with the Company as provided in subsection 9.4(e))
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting. Notwithstanding any other provision
of this Section 9.2, if the underwriter advises the Initiating holders that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all holders thereof, including the
Initiating holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting; (c) The Company is obligated to effect only
three (3) such registrations pursuant to this Section 9.2; (d) Notwithstanding
the foregoing, if the Company shall furnish to Holders requesting a registration
statement pursuant to this Section 9.2, a certificate signed by the President 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 and its
stockholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company shall
have the right to defer such filing for a period of not more than one hundred
twenty (120) days in the case of an initial public offering and in all other
cases within sixty (60) days after receipt of the request of the Initiating
Holders; provided, however, that the Company may not utilize this right more
than once in any twelve (12) month period.
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9.3 Company Registration. If (but without any obligation to do so) the Company
proposes to register (including for this purpose a registration effected by the
Company for stockholders other than the Holders) any of its stock or other
securities under the Act in connection with the public offering of such
securities solely for cash (other than (i) a registration relating solely to the
sale of securities to participants in a Company stock plan; (ii) a registration
on any form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of the
Registrable Securities; or (iii) a registration in which the only Stock being
registered is Stock issuable upon conversion of convertible debt securities
which are also being registered) the Company shall, at such time, promptly give
each Holder written notice of such registration. Upon the written request of
each Holder given within twenty (20) days after mailing of such notice by the
Company in accordance with Section 15.6, the Company shall, subject to the
provisions of Section 9.8, cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
9.4 Obligations of the Company. Whenever required under this Section 9 to effect
the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible: (a) Prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use its
best efforts.to cause such registration statement to become effective, and, upon
the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for up to one
hundred twenty (120) days; (b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement; (c) Furnish to the Holders such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them; (d) Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Holders, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions; (e) In the event of any
underwritten public offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the managing
underwriter of such offering. Each Holder participating in such underwriting
shall also enter into and perform its obligations under such an agreement; (f)
Notify each Holder of Registrable Securities covered by such registration
statement at any time when a prospectus relating thereto is required to be
delivered under the 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. 9.5 Furnish
Information.
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(a) It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this Section 9 with respect to the Registrable Securities
of any selling Holder that such Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of such Holder's Registrable Securities; (b) The Company shall
have no obligation with respect to any registration requested pursuant to
Section 9.2 or Section 9.12 if, due to the operation of subsection 9.5(a), the
number of shares or the anticipated aggregate offering price of the Registrable
Securities to be included in the registration does not equal or exceed the
number of shares or the anticipated aggregate offering price required to
originally trigger the Company's obligation to initiate such registration as
specified in subsection 9.2(a) or subsection 9.12(b) (2), whichever is
applicable. 9.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 9.2, including
(without limitation) all registration, filing and qualification fees, printer's
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company. 9.7 Expenses of Company Registration. The Company shall
bear and pay all expenses incurred in connection with any registration, filing
or qualification of Registrable Securities with respect to the registrations
pursuant to Section 9.3 for each Holder (which right may be assigned as provided
in Section 9.13 hereof) including, without limitation, all registration, filing
and qualification fees, printer's and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by the holders of a majority of the Registrable Securities to be
included in such registration, but excluding underwriting discounts and
commissions relating to Registrable Securities. 9.8 Underwriting Requirements.
In connection with any offering involving an underwriting of shares of the
Company's capital stock, the Company shall not be required under Section 9.3 to
include any of the Holders' securities in such underwriting unless they accept
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by stockholders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling stockholders
according to the total amount of securities entitled to be included therein
owned by each selling stockholder or in such other proportions as shall mutually
be agreed to by such selling stockholders; provided, however, for purposes of
such pro rata apportionment the Founder shall be deemed to own only 50% of the
Registrable Securities that he would be otherwise entitled to include in such
registration); provided that the underwriters furnish to the selling Holders a
statement certifying that, in the
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judgment of the underwriters, the inclusion of such securities would have a
material adverse effect on the offering, but in no event shall (i) the amount of
securities of the selling Holders included in the offering be reduced by
operation of this Section 9.8 below thirty percent (30%) of the total amount of
securities included in such offering, unless such offering is the initial public
offering of the Company's securities in which case the selling stockholders may
be excluded if the underwriters make the determination described above and no
other stockholder's securities are included or (ii) notwithstanding (i) above,
any shares being sold by a stockholder exercising a demand registration right
similar to that granted in Section 9.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling stockholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and stockholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling stockholder," and any pro-rata reduction with
respect to such "selling stockholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such selling stockholder," as defined in this sentence.
9.9 Delay of Registration. No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 9. 9.10 Indemnification and Contribution. In the
event any Registrable Securities are included in a registration statement under
this Section 9: (a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
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
(iii) any violation or alleged violation by the Company of the Act, the 1934
Act, any state securities laws or any rule or regulation promulgated under the
Act, the 1934 Act or any state securities laws, and the Company will pay to each
such Holder, underwriter or controlling person, as and when incurred, any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection 9.10(a) 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
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it (a) arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished
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expressly for use in connection with such registration by any such Holder,
underwriter or controlling person or (b) arises out of any untrue statement or
alleged untrue statement or omission or alleged omission contained in any
preliminary prospectus which is corrected in the final prospectus; (b) To the
extent permitted by law, each selling Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within the
meaning of the Act, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will pay, as and when incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 9.10(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 9.10(b) 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; and provided further, that, in
no event shall any indemnity under this subsection 9.10(b) exceed the gross
proceeds from the offering received by such Holder; (c) Promptly after receipt
by an indemnified party under this Section 9.10 of notice of the commencement of
any action (including any governmental action), such indemnified party will, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 9.10, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying.party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party (together with all other indemnified parties which may
be represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 9.10, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 9.10; (d) If the
indemnification provided for in this Section 9.10 is unavailable to an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
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relative benefits received by the Holders and the underwriters from the offering
of the Registrable Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as if appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Holders and of the underwriters in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company, the Holders and the underwriters
shall be deemed to be in the same respective proportions as the net proceeds
from the offering (before deducting expenses) received by each of the Company,
and the Holders and the total underwriting discounts and commissions received by
the underwriters, bear to the aggregate public offering price of the Shares. The
relative fault of the Holders and the underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, or by the underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Holders agree that it would
not be just and equitable if contribution pursuant to this Section 9.10 were
determined by pro rata allocation (even if the underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section ll(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation; (e) The
obligations of the Company and Holders under this Section 9.10 shall survive the
completion of any offering of Registrable Securities in a registration statement
under this Section 9, and otherwise. 9.11 Reports Under Securities Exchange Act
of 1934. With a view to making available to the Holders the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to: (a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after ninety (90) days after
the effective date of the first registration statement filed by the Company for
the offering of its securities to the general public; (b) take such action,
including the voluntary registration of its common stock under Section 12 of the
1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale
of their Registrable Securities, such action to be taken as soon as practicable
after the end of the fiscal year in which the first registration statement filed
by the Company for the offering of its securities to the general public is
declared effective; (c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and (d)
furnish to any Holder, so long as the Holder owns any Registrable Securities,
forthwith upon request (i) a written statement by the Company that
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it has complied with the reporting requirements of Rule 144 (at any time after
ninety (90) days after the effective date of the first registration statement
filed by the Company), the Act and the 1934 Act (at any time after it has become
subject to such reporting requirements), or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form. 9.12 Form S-3
Registration. In case the Company shall receive from the Holder or Holders of at
least twenty percent (20%) of the then outstanding Registrable Securities a
written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will: (a)
promptly give written notice of the proposed registration, and any related
qualification or compliance, to all other Holders; and (b) 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 such Holder's or Holders' Registrable
Securities as are specified on such request, together with all or such portion
of the Registrable Securities 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 9.12: (1) if Form S-3 is
not available for such offering by the Holders; (2) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $400,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President 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 and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than sixty (60) days after
receipt of the request of the Holder or Holders under this Section 9.12;
provided, however, that the Company shall not utilize this right more than once
in any twelve (12) month period; (4) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected one
registration on Form S-3 for the Holders pursuant to this Section 9.12; or (5)
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; (c) Subject to the
foregoing, the Company shall file a registration statement covering the
Registrable Securities and other securities so requested to be registered as
soon as practicable after receipt of the request or requests of the Holders. All
expenses incurred in connection with a registration requested pursuant to
Section 9.12, including (without limitation) all registration, filing,
qualification, printer's and accounting fees and the reasonable fees and
disbursements of counsel for the selling Holder or Holders and counsel for the
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Company shall be borne pro rata by the Holder or Holders participating in the
Form S-3 Registration. Registrations effected pursuant to this Section 9.12
shall not be counted as demands for registration or registrations effected
pursuant to Sections 9.2 or 9.3, respectively. 9.13 Assignment of Registration
Rights. The rights to cause the Company to Register Registrable Securities
pursuant to this Section 9 may be assigned (but only with all related
obligations) by a Holder to a transferee or assignee as long as such transferee
or assignee acquires at least 100,000 shares of Registrable Securities, or less,
if all of such transferor's then Registrable Securities then outstanding,
provided the Company is, within a reasonable time after such transfer, furnished
with written notice of the name and address of such transferee or assignee and
the securities with respect to which such registration rights are being
assigned; and provided, further, that such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act and provided, further,
that such transferee will only be entitled to make one (1) request for
registration hereunder. The share limitation shall not apply, however, to
transfers by a Holder to stockholders or partners of such Holder or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner or the transfer by gift, will or
intestate succession of any partner to his spouse or lineal descendants or
ancestors, if all such transferees or assignees agree in writing to appoint a
single representative as their attorney-in-fact for the purpose of receiving any
notices and exercising their rights under this Section 9. 9.14 Limitations on
Subsequent Registration Rights. From and after the date of this Agreement, the
Company shall not, without the prior written consent of the Holders of a
majority of the outstanding Registrable Securities, enter into any agreement
with any holder or prospective holder of any securities of the Company which
would allow such holder or prospective holder (a) to include such securities in
any registration filed under Section 9.2 hereof, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of his securities will
not reduce the amount of the Registrable Securities of the Holders which is
included or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in subsection 9.2(a) or within one hundred twenty (120)
days of the effective date of any registration effected pursuant to Section 9.2.
9.15 "Market Stand-Off" Agreement. Investor hereby agrees that, during the
period of duration specified by the Company and an underwriter of Stock or other
securities of the Company, but in no event more than one hundred eighty (180)
days following the effective date of a registration statement of the Company
filed under the Act, it shall not, to the extent requested by the Company and
such underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except Stock included in such registration; provided, that:
(a) such agreement shall be applicable only to the first such registration
statement of the Company which covers Common Stock (or other securities) to be
sold on its behalf to the public in an underwritten offering; and
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(b) all officers and directors of the Company and all other persons with
registration rights (whether or not pursuant to this Agreement) enter into
similar agreements. In order to enforce the foregoing covenant, the Company may
impose stop transfer instructions with respect to the Registrable Securities of
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period. 9.16 Amendment of
Registration Rights. Any provision of this Section 9 may be amended and the
observance thereof 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 at least eighty percent (80%) of the Registrable
Securities then outstanding. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Registrable Securities
then outstanding, each future holder of all such Registrable Securities and the
Company. 9.17 Termination of Registration Rights. No Holder shall be entitled to
exercise any right provided for in this Section 9 after five (5) years following
the consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the initial underwritten
offering of its securities to the general public. 10. Covenants of the Company.
10.1 Positive Loan Covenants. The Company covenants and agrees that as long as
the Loan is due and outstanding to Investor, and until the full and final
payment of all indebtedness incurred by the Company under this Agreement and all
agreements related hereto, has been made, it will, unless Investor waives
compliance in writing: (a) Use the proceeds of the Loan to immediately pay the
full amount of the Company's indebtedness to Maxis Corporation in the amount of
$410,771.01 owed by the Company to Maxis pursuant to that certain agreement
between the Company and Maxis Corporation dated December 30, 1993 set forth in
full in Schedule 3.08, and to immediately obtain a release of all liens
presently held by Maxis Corporation; (b) Repay principal of, and interest on,
the Loan according to the terms of this Agreement and the terms of the Note;
(c) Promptly give written notice to Investor of: (i) all litigation affecting
the Company when the amount claimed is $10,000 or more; (ii) any substantial
dispute which may exist between the Company and any governmental regulatory body
or law enforcement authority; (iii) any labor controversy resulting in or
threatening to result in a strike against the Company; (iv) any proposal by any
public authority to acquire the Company's assets or business or to engage in
activities competitive with the Company; (v) any Event of Default or any event
which, on a lapse of time or notice or both, would become an Event of Default;
and (vi) any other matter that has resulted or might result in a material
adverse change in the Company's financial condition or operations; (d) Perform
such acts as may be necessary or advisable to perfect any lien or security
interest provided for in this Agreement or otherwise to carry out the intent of
this Agreement; (e) Maintain and preserve its corporate existence and all
rights, privileges and franchises now enjoyed, conduct its businesses in an
orderly, efficient and customary manner, keep all of its properties in good
working order and condition, and from time to time make all needed repairs to,
and renewals or
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replacements of, its properties so that the efficiency of those properties shall
be fully maintained and preserved; (f) Pay all obligations, including tax
claims, at maturity, unless the obligation to make such payment or payments is
in good faith being disputed or is being contested by appropriate proceedings
with due diligence; (g) Maintain and keep in force in adequate amounts fire
(including use and occupancy), public liability, property damage and workers'
compensation insurance, which must be satisfactory to Investor as to amount,
nature and carrier, and deliver to Investor a schedule certified to be correct
by a responsible officer of the Company setting forth all insurance in force as
of the date of the schedule; (h) Maintain adequate books, accounts and records
and prepare all financial statements required under this Agreement in accordance
with generally accepted accounting principles and practices consistently
applied, and in compliance with the regulations of any governmental regulatory
body having jurisdiction over them; and permit employees or agents of Investor
at any reasonable time to inspect the Company's properties, and to examine or
audit the Company's books, accounts and records and make copies and memoranda of
them; (i) Agree that regardless of Company Stock ownership of the clients of
Investor, or the sale of Company Stock to those not clients of Investor, that
Mr. Fred Knoll, or his nominee, as Chairman of the Board of Directors, shall
nominate the board of directors, which shall include Mr. John Hiles, and one
person designated by Mr. John Hiles; (j) Agree that Mr. Fred Knoll shall remain
Chairman of the Board of Directors. 10.2 Negative Loan Covenants. The Company
covenants and agrees that as long as the Loan provided for by this Agreement and
all agreements related hereto shall remain due and outstanding, and until full
and final payment of all indebtedness incurred by the Company payable to
Investor under this Agreement has been made, it will not, without the prior
written consent of Investor: (a) Declare or pay any dividends on any of its
shares; (b) Purchase, redeem or otherwise acquire for value, any of the
Company's shares, or create any sinking fund in relation to any of the Company's
shares; (c) Liquidate or dissolve the Company, or enter into any consolidation,
merger, pool, joint venture, syndicate or other combination, or sell, lease or
dispose of the Company's business or assets as a whole or such part as in the
opinion of Investor constitutes a substantial portion of the Company's business
or assets; (d) Except as provided in this Agreement, create or incur any
indebtedness for borrowed money, or become liable as a surety, guarantor,
accommodation endorser or otherwise, for or on the obligation of any other
person, firm or corporation; provided, however, that this section shall not
prohibit: (i) the acquisition of goods, supplies or merchandise related to the
Company's business on normal credit; (ii) the execution of bonds, undertakings
or contracts in the usual course of the Company's business; or (iii) the
endorsement of negotiable instruments received in the usual course of the
Company's business; (e) Create, assume or suffer to exist any mortgage,
encumbrance or other lien (including a lien of attachment, judgment or
execution), or security interest (including the interest of a conditional seller
of goods), securing a charge or obligation, on or of any of their property, real
or personal, whether now owned or hereafter acquired, except: (i) any lien or
charge for current tax, assessment or other governmental charge, which is not
delinquent or remains payable without any penalty, or the validity of which is
contested in good faith
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<PAGE>
by appropriate proceedings on stay of execution of the enforcement of the lien
or charge; (ii) deposits or pledges to secure (a) statutory obligations, (b)
surety or appeal bonds, (c) bonds for release of attachment r stay of execution
or injunction, or (d) performance of bids, tenders, contracts (other than for
the payment of borrowed money) or leases, or for purposes of like general nature
in the ordinary course of the Company's business; (iii) Purchase-money security
interests in Company personal property acquired for a purchase price of less
than $10,000.00 after the date of this Agreement when the obligation secured
does not exceed 90 percent of the cost of the property purchased and the
security interest does not extend beyond the property purchased; (f) Dispose of
any of its substantial assets not in the ordinary course of business, or any
assets for a purchase price of greater than $3,000.00; (g) Expend or incur
obligations not set forth in the Company's yearly budget plan, or expend or
incur obligations in excess of $30,000.00 for the acquisition of fixed or
capital assets not set forth in the Company's yearly budget plan, purchases
subject to ratification by the board of directors, or the leasing of fixed or
capital assets, except if such acquisition is in replacement of capital assets
presently held or acquired after the date of this Agreement, only the net
expenditure or obligation over the case or credit received for the assets so
replaced shall be taken into account under this section; (h) Except as provided
for herein, allow any of the Loan proceeds to be used to pay for any personal or
incidental expenses of the Company's officers, directors or control persons; (i)
As further explained in Schedule 10.2 (i), enter into any joint ventures or
partnerships that are not in the ordinary course of business or that involve
vertical markets, horizontal markets or geographical licenses, or purchase, or
contract to purchase any property that involves a material capital investment,
or enter into any contracts producing a net income loss, without prior approval
of the Board of Directors; (j) Create a subsidiary outside of the territorial
jurisdiction of the United States without approval of the Board of Directors of
the Company; (k) Repurchase any shares of Stock of the Company; (l) Engage in
any transaction with an officer, director, employee or shareholder; (m) Make
investments in, loans or advances to, or guarantees of the obligations of, any
persons or corporations, other than to shareholders or employees, except for
investments with a maturity period not in excess of one year in: (i) prime
commercial paper; (ii) qualified certificates of deposits; or (iii) obligations
of the United States or its agencies, or obligations guaranteed by the United
States; (n) Enter into any employment agreements for officer or nonofficer
employees, provided, however, that Mr. John Hiles is authorized to hold the sole
discretion to hire in his best business judgment, so long as the agreement is an
"at-will" agreement, terminable by the Company at any time, contains no
guarantee of payment past the date of termination and is limited to payment of
salary, regular Company benefits and stock options; (o) Create any new class of
shares; (p) Subdivide or reclassify the Stock or the Pledged Stock into a
greater number of shares of such class or combine or reclassify the then
outstanding shares of Stock into a smaller number of shares of such Stock; (g)
Sell or authorize for sale any Stock not issued and outstanding as provided in
this agreement, except for Stock under the Company employee stock option plan;
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(r) Amend its Articles of Incorporation or By-Laws, except as provided for
herein. 10.3 Delivery of Financial Statements. The Company shall deliver to
Investor: (a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, an income statement for such
fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles in a manner consistent with prior periods, and audited and certified
by independent public accountants of nationally recognized standing selected by
the Company; (b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement, schedule as to the
sources and application of funds for such fiscal quarter and an unaudited
balance sheet as of the end of such fiscal quarter; (c) within thirty (30) days
of the end of each month, an unaudited income statement and schedule as to the
sources and application of funds and balance sheet for and as of the end of such
month, in reasonable detail; (d) as soon as practicable, but in any event thirty
(30) days prior to the end of each fiscal year, a budget and business plan for
the next fiscal year, prepared on a monthly basis, including balance sheets and
sources and applications of funds statements for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and (e)
such other information relating to the financial condition, business, prospects
or corporate affairs of the Company as the Investor or any assignee of the
Investor may from time to time request, provided, however, that the Company
shall not be obligated under this subsection (e) or any other provision of
subsection 10.3 to provide information to an assignee of Investor which it deems
in good faith to be a trade secret or similar confidential information. 10.4
Inspection. The Company shall permit Investor, at Investor's expense and during
regular working hours, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor; provided, however, that the Company shall not be obligated
pursuant to this subsection 10.4 to provide access to an assignee of Investor to
any information which it reasonably considers to be a trade secret or similar
confidential information. 10.5 Termination of Information and Inspection
Covenants. The covenants set forth in Sections 10.3 and 10.4 shall terminate as
to Investor and be of no further force or effect only when the Loan is paid in
full and when Investor ceases to hold at least a 5% stock ownership interest in
the Company. 10.6 Initial Public Offering. The initial public offering of the
Company's Common Stock shall be pursuant to a firm commitment underwriting with
an underwriter of nationally recognized standing, pursuant to a registration
statement on Form S-1 or Form SB-2 or any successor forms thereto under the
Securities Act of 1933, as amended, which results in aggregate gross proceeds of
at least $2,500,000.00 at a per share public offering price of not less than
$10.00 (adjusted to reflect subsequent stock dividends, stock splits and
recapitalization). 10.7 Surviving Negative Covenants. So long as 20% of Company
Stock is owned by Investor, regardless of the state of the Loan provided for
hereunder, the Company shall not, without the prior written consent of the
Investor:
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(a) As further explained in Schedule 10.2 (i), enter into any joint ventures or
partnerships that are not in the ordinary course of business or that involve
vertical markets, horizontal markets or geographical licenses, or purchase, or
contract to purchase, any property that involves a material capital investment,
or enter into any contracts producing a net loss, without prior approval of the
Board of Directors; (b) Create a subsidiary outside of the territorial
jurisdiction of the United States without the approval of the Board of
Directors; (c) Repurchase any shares of Common Stock of the Company; (d) Engage
in any transaction with an officer, director, employee or shareholder; (e) Make
investments in, loans or advances to, or guarantees of the obligations of, any
persons or corporations, other than to shareholders or employees, except for
investments with a maturity period not in excess of one year in: (i) prime
commercial paper; (ii) qualified certificates of deposits; or (iii) obligations
of the United States or its agencies, or obligations guaranteed by the United
States, (f) Enter into any employment agreements for officer or nonofficer
employees, provided, however, that Mr. John Hiles is authorized to hold the sole
discretion to hire in his best business judgment, so long as the agreement is an
"at-will" agreement, terminable by the Company at any time, contains no
guarantee of payment past the date of termination and is limited to payment of
salary, regular Company benefits and stock options; (g) Cause the dissolution of
the Company; (h) Create any new class of shares; (i) Subdivide or reclassify the
Stock into a greater number of shares of such class or combine or reclassify the
then outstanding shares of Stock into a smaller number of shares of such Stock;
(j) Sell or authorize for sale any Stock not issued and outstanding as provided
in this agreement, except for Stock under the Company employee stock option
plan; (k) Amend its Articles of Incorporation or By-Laws, except as provided for
herein. The covenants contained in this Section 10.7 shall terminate upon
payment of the Loan, in full, and when Investor ceases to hold at least 20% of
the Company's stock. 11. Events of Default. Regardless of the terms of the Note
or the Pledge Agreement issued under this Agreement, the occurrence of any of
the events set out below ("Events of Default") shall, at the option of Investor,
make all interest and principal remaining on the Loan immediately due and
payable, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor, or other notices or demands of any kind,
except as specified in this Agreement: (a) The Company shall fail to pay the
interest or the principal in accordance with the terms of this Agreement or of
the Note;
(b) Any representation or warranty by the Company in this Agreement or in any
agreement, instrument or certificate executed under this Agreement or in
connection with any transaction contemplated by this Agreement shall prove to
have been false or misleading in any material respect when made. "Material"
shall have the same meaning as under California law in that material is defined
as "that which would be likely to affect the conduct of a reasonable person with
reference to the transaction";
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(c) Investor shall fail to have a legal, valid, and binding first lien on, or a
valid and enforceable prior perfected security interest in, any property covered
by any security agreement required under this Agreement, unless otherwise set
forth therein; (d) An involuntary lien or liens in the aggregate sum of $10,000
or more, of any kind, shall attach to the assets or property of the Company,
except for taxes due but not in default, or for taxes that are being contested;
provided, however, that no lien shall be considered for the purpose of this
section if: (i) such lien is removed without expenditure of funds by the Company
other than the costs of appropriate proceedings; or (ii) the Company, in the
opinion of its counsel, has the right to and is diligently proceeding to have
such lien removed without expenditure of funds by the Company other than the
costs of appropriate proceedings, and such opinion of counsel is furnished to
Investor within 30 days after written request for it; (e) A judgment or
judgments shall be entered against the Company in the aggregate amount of
$50,000.00 or more on a claim or claims not covered by insurance; provided,
however, that no judgment shall be considered for the purpose of this section
if: (i) such judgment is vacated without expenditure of funds by the Company
other than the cost of appropriate proceedings; or (ii) the Company, in the
opinion of its counsel, has the right to and is diligently proceeding to have
such judgment vacated without expenditure of funds by the Company other than the
costs of appropriate proceedings, and such opinion of counsel is furnished to
Investor within 30 days after written request for it; (f) The Company shall
admit in writing inability to pay its debts generally as they come due, shall
become insolvent as the term is defined in the federal Bankruptcy Act, or shall
commit any act of bankruptcy; (g) The Company shall file any petition or action
for relief under any bankruptcy, arrangement, reorganization, insolvency or
moratorium law, or any other law or laws for the relief of or relating to
debtors, or shall, with respect to any involuntary petition or action for relief
under such law or laws, file an answer consenting to the relief requested in
such petition; (h) An involuntary petition shall be filed under any bankruptcy
statute against The Company, or a receiver, trustee, or similar officer of the
court shall be appointed to take possession of all or any substantial part of
The Company's properties, unless such petition or appointment is set aside or
withdrawn or ceases to be in effect within 30 days from the date of the filing
or appointment; (i) Any default shall occur under any other agreement pertaining
to the borrowing of money or the advance of credit to which the Company may be a
party as the Company, if that default gives to the holder of the obligation
concerned the right to accelerate the indebtedness; (j) Any guaranty or security
agreement required by this Agreement shall be breached or become unenforceable
or ineffective; (k) John Hiles ceases to be employed by the Company as Chief
Executive Officer, for any reason under the control of Mr. John Hiles; (l)
Investor ceases to control the Board of Directors of the Company; (m) The
Company shall breach or default under any term, condition, provision,
representation or warranty in this Agreement not specifically referred to herein
in that breach or default shall continue for 30 days after its occurrence, or,
if Investor has received notice of the breach or default within that 30 day
period, after notice of the breach or default to The Company or Hiles from
Investor, whichever is later. 12. Remedies.
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The occurrence of an Event of Default, in addition to any remedies provided for
under the Security Agreement and by operation of law, at the Investor's option,
makes the Loan immediately due and payable. Additionally, if the Company has not
already done so, the Company shall upon default immediately issue the Pledged
Stock in the name of Investor, under which the Company hereby irrevocably
warrants and promises that Investor shall thereafter own at least 90% of the
issued and outstanding stock of the Company. The Company agrees that Investor
has no adequate remedy at law in case of default by the Company as to the
issuance of the Pledged Stock, and the Company hereby irrevocably agrees that a
court of competent jurisdiction may issue an affirmative injunction ordering the
Company to execute stock certificates in the name of Investor. The Company
hereby expressly and irrevocably waives any legal protection the Company may
have reserved by failing to deliver any of the Pledged Stock to Investor prior
to any event of default.
13. Termination.
13.1 Termination by Investor. This Agreement may be terminated by Investor
without liability to the Company by notice to the Company (i) at any time prior
to the Closing if default shall be made by the Company in the observance or in
the due and timely performance of any of the terms hereof to be performed by the
Company that cannot be cured at, or prior to, the Closing, or (ii) at the
Closing if any of the conditions precedent to the performance of Investor's
obligations at the Closing shall not have been fulfilled. 13.2 Termination by
the Company. The Company may, without liability to Investor, terminate this
Agreement by notice to Investor (i) at any time prior to the Closing if default
shall by made by Investor in the observance or in the due and timely performance
of any of the terms hereof to be performed by the Investor that cannot be cured
at, or prior to, the Closing, or (ii) at the Closing if any of the conditions
precedent to the performance of Company's obligations at the Closing shall not
have been fulfilled. 13.3 Effect of Termination. If this Agreement is
terminated, this Agreement (except for Sections 14.2, 14.3 and 15.8) shall no
longer be of any force or effect and there shall be no liability on the part of
any party or its respective directors, officers or stockholders except, in the
case of termination because of a material default or material breach resulting
from the willful fault of another party, the aggrieved party or parties may
recover from the defaulting party the amount of expenses incurred by such
aggrieved party or parties in connection with this Agreement and the
transactions contemplated hereby which the aggrieved party or parties would
otherwise have to bear pursuant to Section 15.8 of this Agreement. If this
Agreement shall be terminated, each party will (i) redeliver all documents, work
papers and other materials of any other party relating to the transactions
contemplated hereby, whether so obtained before or after the execution of this
Agreement, to the party furnishing the same; (ii) destroy all documents, work
papers and other materials developed by its accountants, agents and employees in
connection with the transactions contemplated hereby which embody proprietary
information or trade secrets furnished by any party hereto or deliver such
documents, work papers and other materials to the party furnishing the same or
excise such information or secrets therefrom and all information received by any
party hereto with respect to the business of any other party (other than
information which is a matter of public knowledge or which has heretofore been
or is hereafter published in any publication for public distribution or filed as
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public information with any governmental authority) shall not at any time be
used for personal advantage or disclosed by such party to any third person to
the detriment of the party furnishing such information; (iii) the Company will
immediately deliver a stock certificate in the amount of 100,000 shares
representing 10% of the total issued and outstanding stock of the Company, as
set forth in the Bridge Loan Agreement; and (iv) all provisions of the Bridge
Loan Agreement shall become in full force and effect as of the date of the
termination. 14. Survival of Representations and Warranties; Indemnification.
14.1 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement, any Schedule and any certificate
delivered at the Closing of the Company or Investor shall be deemed to have been
relied upon notwithstanding any investigation heretofore or hereafter made or
omitted by any party hereto and shall survive the Closing. 14.2 Company's
Indemnification Obligations. Subject to the terms and conditions of this Section
14, the Company agrees to indemnify and hold Investor harmless against and in
respect of: (a) any and all losses, liabilities, damages or expenses (including
legal fees and expenses) relating to or arising out of any misrepresentation or
breach of warranty of the Company contained in this Agreement or in any Schedule
or in any statement or certificate delivered by the Company; provided that any
claim for indemnification by Investor under this paragraph (a) may be made no
later than a date two years from and after the Closing Date, excepting only that
any claim for misrepresentation or breach of warranty relating to the tax
liability of the Company may be made no later than a date ninety days from and
after the expiration of the period of the applicable tax statute of limitation
(including any extension thereof); (b) any and all losses, liabilities, damages
or expenses (including legal fees and expenses) relating to or arising out of
any breach of any covenant of the Company contained in this Agreement; and any
and all actions, suits, demands, assessments or judgments with respect to any
claim arising out of or relating to the subject matter of the indemnification.
14.3 Investor's Indemnification Obligations. Subject to the terms and conditions
of this Section 14, Investor agrees to indemnify and hold the Company harmless
against any and all losses, costs and expenses (including legal and other
expenses), except as expressly limited by the terms of Section 14.4, resulting
from or relating to: (a) any misrepresentation or breach of warranty of Investor
contained in this Agreement or in any Schedule of Investor or in any statement
or certificate delivered by Investor at the Closing; provided that any claim for
indemnification by the Company under this paragraph (a) may be made no later
than a date two years from and after the Closing Date; and (b) any breach of any
covenant of Investor contained in this Agreement; and any and all actions,
suits, demands, assessments or judgments with respect to any claim arising out
of or relating to the subject matter of the indemnification. 14.4 Limitation on
Indemnification Obligations. The Company and Investor, respectively, have no
obligation to provide indemnification pursuant to Sections 14.2 and 14.3 except
to the extent that the aggregate amount of indemnification to which the Company
or Investor respectively, but for this Section 14.4, shall have become entitled
hereunder shall exceed $100,000. 14.5 Procedure for Indemnification Claims. The
respective indemnification obligations of the Company and Investor pursuant to
Sections 14.2 and 14.3 shall be conditioned upon compliance by the Company and
Investor with the following
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procedures for indemnification claims based upon or arising out of any claim,
action or proceeding by any person not a party to this Agreement: (a) If at any
time a claim shall be made or threatened, or an action or proceeding shall be
commenced or threatened, against a party hereto (the "Aggrieved Party") which
could result in liability of the other party (the "Indemnifying Party") under
its indemnification obligations hereunder, the Aggrieved Party shall give to the
Indemnifying Party prompt notice of such claim, action or proceeding. Such
notice shall state the basis for the claim, action or proceeding and the amount
thereof (to the extent such amount is determinable at the time when such notice
is given) and shall permit the Indemnifying Party to assume the defense of any
such claim, action or proceeding (including any action or proceeding resulting
from any such claim). Failure by the Indemnifying Party to notify the Aggrieved
Party of its election to defend any such claim, action or proceeding within a
reasonable time, but in no event more than 15 days after notice thereof "hall
have been given to the Indemnifying Party, shall be deemed a waiver by the
Indemnifying Party of its right to defend such claim, action or proceeding;
provided, however, that the Indemnifying Party shall not be deemed to have
waived its right to contest and defend against any claim of the Aggrieved Party
for indemnification hereunder based upon or arising out of such claim, action or
proceeding; (b) If the Indemnifying Party assumes the defense of any such claim,
action or proceeding, the obligation of the Indemnifying Party as to such claim,
action or proceeding shall be limited to taking all steps necessary in the
defense or settlement thereof and, provided the Indemnifying party is held to be
liable for indemnification hereunder, to holding the Aggrieved Party harmless
from and against any and all losses, damages and liabilities caused by or
arising out of any settlement approved by the Indemnifying Party or any judgment
or award rendered in connection with such claim, action or proceeding. The
Aggrieved Party may participate, at its expense, in the defense of such claim,
action or proceeding provided that the Indemnifying Party shall direct and
control the defense of such claim, action or proceeding. The Aggrieved Party
agrees to cooperate and make available to the Indemnified Party all books and
records and such officers, employees and agents as are reasonably necessary and
useful in connection with the defense. The Indemnifying Party shall not, in the
defense of such claim, action or proceeding, consent to the entry of any
judgment or award, or enter into any settlement, except in either event with the
prior consent of the Aggrieved Party, which does not include as an unconditional
term thereof the giving by the claimant or the plaintiff to the Aggrieved Party
of a release from all liability in respect of such claim, action or proceeding;
(c) If the Indemnifying Party does not assume the defense of any such claim,
action or proceeding, the Aggrieved Party may defend against such claim, action
or proceeding in such manner as it may deem appropriate. The Indemnifying Party
agrees to cooperate and make available to the Aggrieved Party all books and
records and such officers, employees and agents as are reasonably necessary and
useful in connection with the defense. If the Indemnifying Party, within ten
days after notice shall have been given to it by the Aggrieved Party of the
latter's intention to effect a settlement of any such claim, action or
proceeding, which notice shall describe with particularity the terms of any such
proposed settlement, shall not deposit with an escrowee mutually satisfactory to
the Aggrieved Party and the Indemnifying Party a sum equivalent to the total
amount demanded in such claim, action or proceeding or deliver to the Aggrieved
Party a surety bond or an irrevocable letter of credit for such sum in form and
substance reasonably satisfactory to the Aggrieved party, then the Aggrieved
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Party may settle such claim, action or proceeding on the terms detailed in its
notice to the Indemnifying Party, and the Indemnifying Party shall be deemed to
have agreed to the terms of such settlement and shall not thereafter in any
proceeding by the Aggrieved Party for indemnification question the propriety of
such settlement. If the Indemnifying Party makes an escrow deposit or delivers a
surety bond or letter of credit as aforesaid and thereafter the Aggrieved Party
settles such claim, action or proceeding, then in any proceeding by the
Aggrieved Party for indemnification in the event the Indemnifying Party is held
liable for indemnification hereunder, the Aggrieved Party shall have the burden
of proving the amount of such liability of the Indemnifying Party, and the
amount of the payments made in settlement of any claim, action or proceeding
shall not be determinative as between the Aggrieved Party and the Indemnifying
Party of the amount of such indemnification liability, except that the amount of
the settlement payments shall constitute the maximum amount of the
indemnification liability of the Indemnifying Party. Such escrow deposit, surety
bond or letter of credit shall by their respective terms be payable to the
Aggrieved Party in an amount determined in accordance with the last sentence of
this paragraph (c) and in the event the Indemnifying Party is held liable for
indemnification hereunder. If the Indemnifying Party neither makes an escrow
deposit nor delivers a surety bond or letter of credit as aforesaid, 80 that no
settlement of such claim, action or proceeding is effected, in any proceeding by
the Aggrieved Party for indemnification in the event the Indemnifying Party is
held liable for indemnification hereunder, such liability shall be for the
amount of any judgment or award rendered with respect to such claim or in such
action or~proceeding and of all expenses, legal and otherwise, incurred by the
Aggrieved Party in the defense against such claim, action or proceeding; (d) In
the event an Aggrieved Party or Indemnifying Party shall cooperate in the
defense or make available books, records, officers, employees or agents, as
required by the terms of paragraphs (b) and (c), respectively, of this Section
14.5 the party to which such cooperation is provided shall pay the out-of-pocket
costs and expenses (including legal fees and disbursements) of the party
providing such cooperation and of its officers, employees and agents reasonably
incurred in connection with providing such cooperation, but shall not be
responsible to reimburse the party providing such cooperation for such party~s
time or the salaries or costs of fringe benefits or other similar expenses paid
by the party providing such cooperation to its officers and employees in
connection therewith. 14.6 Sole and Exclusive Remedy. The indemnification
obligations of the Company and the Investor under this section 14 shall
constitute the sole and exclusive remedies of the Company and Investor,
respectively, for the recovery of money damages with respect to the matters
described in subsections 14.2 and 14.3, respectively. The terms of this
subsection 14.6 shall not be construed as limiting in any way whatsoever any
remedy other than for the recovery of money damages to which the Company or the
Investor may be entitled. 15. Miscellaneous. 15.1 Survival of Warranties. The
warranties, representations and covenants of the Company and Investors contained
in or made pursuant to this Agreement shall survive the execution and delivery
of this Agreement and the Closing and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the Investor
or the Company. 15.2 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of
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any securities sold hereunder or any Stock issued upon conversion thereof).
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
15.3 Governing Law. This Agreement shall be governed by and construed under the
laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
15.4 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.
15.5 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
15.6 Notices. Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or upon deposit with the
United States Post Office, by registered or certified mail, postage prepaid and
addressed to the party to be notified at the address indicated for such party
below, or at such other address as such party may designate by ten (10) days'
advance written notice to the other parties:
If to the Company:
Mr. John Hiles
Thinking Tools, Inc.
One Lower Ragsdale Drive, I-250
Monterey, California 93940-5749
With Copies to:
John Laughton, Esq.
Davis & Schroeder
P.O. Box 3080
Monterey, California 93942
If to Investor:
Mr. Fred Knoll
Knoll Capital Management
245 Park Avenue, 41st Floor
New York, New York 10167
With Copies to:
James D. Houston, Esq.
235 Montgomery Street, Suite 920
San Francisco, California 94104
15.7 Finder's Fee. Each party acknowledges that Mr. Ted Prince will be entitled
to a finder's fee of $50,000.00, payable in equal monthly installments over one
year by the Company. The Company also acknowledges that it will negotiate with
Mr. Prince a consulting agreement which provides for on demand consulting
services, when and if needed by the Company.
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15.8 Expenses. Irrespective of whether the Closing is effected, the Company
shall pay all costs and expenses that it incurs with respect to the negotiation,
execution, delivery and performance of this Agreement. The Company shall pay at
the Closing Date the fees and expenses of James D. Houston, counsel for
Investors, irrespective of whether the Closing is effected. The Company shall
also pay Investor's deal expenses up until Closing, including travel and
incidental expenses, and all expenses incurred by Investor relative to
membership on Company's Board of Directors including, but not limited to,
professional fees incurred in reviewing documents and exercising Investor's role
as a director of the Company. 15.9 Delay and Waivers. No delay or omission to
exercise any right, power or remedy accruing to Investor on any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of Investor, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence in such breach or default, or waiver of or
acquiescence in any similar breach or default occurring later; nor shall any
waiver of any single breach or default be considered a waiver of any other prior
or subsequent breach or default. The Company hereby expressly and irrevocably
waives any legal protection the Company may have reserved by failing to deliver
any of its stock to Investor prior to any event of default. Any waiver, permit,
consent or approval of any kind by Investor of any breach or default under this
Agreement, or any waiver by Investor of any provision or condition of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in that writing. All remedies, either under this
Agreement or by law or otherwise afforded to Investor, shall be cumulative and
not alternative. 15.10 Attorney's Fees. In the event of any legal action or suit
in relation to this Agreement or any note or other instrument or agreement
required under this Agreement, in addition to all other sums which the party not
prevailing in the action may be called on to pay, the prevailing party will be
entitled to an award for its attorney's fees and all other costs and expenses,
as costs of suit. 15.11 Remedies. Except as otherwise provided in this
Agreement, the rights and remedies provided herein are cumulative and the use of
any one right or remedy by either party shall not preclude or waive its right to
use any other or all other remedies. The rights and remedies specified in this
Agreement are in addition to any of the rights the parties may have by law,
statute, ordinance or otherwise, subject to any provision for exclusive remedies
in this Agreement.
15.12 Additional Documents. The parties agree to execute any and all other
documents which may be required to carry out the purposes of this Agreement.
15.13 Entire Agreement. The entire Agreement between the parties is set forth
herein and any amendment or modification shall be in writing and shall be
executed by duly authorized representatives in the same manner as this
Agreement. The provisions of this Agreement are severable, and if any one or
more such provisions are determined to be illegal or otherwise unenforceable, in
whole or in part, under the laws of any jurisdiction, the remaining provisions
or portions hereof shall, nevertheless, be binding on and enforceable by and
between the parties hereto. 15.14 Separate Provisions. If any provisions in this
Agreement or the application thereof to any person or circumstances shall be
invalid or unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not be
affected
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<PAGE>
thereby, and the intent of this Agreement shall be enforced to the greatest
extent permitted by law.
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<PAGE>
THIS STOCK PURCHASE AND LOAN AGREEMENT is hereby executed by Investor and the
Company as of the date first set forth hereinabove.
INVESTOR/THINKING TECHNOLOGIES, L.P.
Dated: September _ , 1994
/s/ Fred Knoll
Mr. Fred Knoll for Knoll Capital
Management, General Partner of
Thinking Technologies, L.P.
THE COMPANY/THINKING TOOLS, INC.
Dated: September 27, 1994
/s/ John E. Hiles
Mr. John Hiles for Thinking Tools,
Inc., as its President
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SCHEDULES
Schedule 3.8. Attached hereto as Exhibit 1 is a true and correct copy of all
agreements between the Company and Maxis Corporation. Payment of the full amount
of the Maxis debt, as provided for hereunder, will result in the full
satisfaction of the Company's obligations to Maxis Corporation, and will result
in satisfaction of all liens held by Maxis Corporation. In addition to
satisfying its obligations under the Maxis contract, the Company shall make a
one-time payment to Maxis in the amount of $20,000.00 so that the Company's
obligations to produce the "MacPort" project under the agreement with the Markle
Foundation shall be satisfied. Schedule 3.10. See schedule 3.8 for Maxis
Contract. Attached hereto as Exhibit 2 are true and correct copies of all
agreements between the Company and the Markle Foundation. Attached hereto
collectively as Exhibit 3 are true and correct copies of all employment
contracts to which the Company is a party. Attached hereto as Exhibit 4 is a
true and correct copy of the agreement between the Company and the United States
of America. Attached, collectively, as Exhibit 5, are true and correct copies of
pending agreements known as the "Homeview" and "Steelcase" agreements. Schedule
3.15. Maxis Contract (Schedule 3.8), which will be satisfied from the proceeds
of this Agreement. Schedule 3.17. The Company shall make a one time payment of
$10,000.00 to the former shareholders of Delta Logic, Inc. and that payment
shall satisfy all obligations of the Company with regard to payment for
exclusive ownership of the intellectual property assets pledged as security to
Investor under this, and related, agreements. Schedule 3.21. Maxis Agreement
(Schedule 3.8) provides for a lien on assets which will be released upon
performance under this agreement and full payment of the Maxis debt. Schedule
3.17 (b). See Schedule 3.8 and 3.10 for Maxis and Markle contracts. Schedule
3.27. The Company's bank accounts are as follows: First National Bank of Central
California 495 Washington Street Monterey, California 93940 (408) 373-4900
Account No. 01-135300
Schedule 10. Investor recognizes that the Company has indicated a need for
expansion of its business premises. The Company will expand into space pursuant
to its lease which will add an additional 3000 square feet to the premises
leased by the Company. The Company will have to provide a one time payment for
build out of the additional premises and will incur a larger liability under its
lease. Such expenditures are subject to ratification by the board of directors
of the Company. Schedule 10.2 (i). The limitations concerning the Company's
ability to enter into joint ventures and partnerships is further explained as
follows: (a) In the case of Company customers who provide payment for projects
during the development thereof in that the project is financed, substantially,
by the customer payments, and who request exclusive use of the property produced
by the Company consisting solely of the product for which the Company has
contracted, and not any of its component intellectual properties, such projects
will be considered "in the ordinary course of business" and do not require prior
approval;
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<PAGE>
(b) In the case of a project where a customer requests broader exclusivity than
that solely related to use of the product for which the Company has contracted,
such projects will be considered "not in the ordinary course of business" and
will require prior approval; and (c) In the case where a project is financed by
Thinking Tools, Inc., without any provision for ongoing payment by the customer,
such projects will be considered "not in the ordinary course of business" and
will require prior approval.
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<PAGE>
Exhibits
[A] Amended Articles of Incorporation
[B] Certificate of Representations and Warranties
[C] Certificate of Secretary of Thinking Tools, Inc.
[D] Certificate of Knoll Capital Management
[E] Promissory Note
[F] Pledge Agreement
[G] Proxy
[H] Novation Agreement Substituting Obligations
[I] Proprietary Information and Inventions Agreement
[J] "Key-Man" Employment Agreement
Schedules
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CONSENT, WAIVER AND AMENDMENT
Reference is hereby made to the Stock Purchase and Loan Agreement dated
as of September 26, 1994 (the "Stock Purchase Agreement") between THINKING
TECHNOLOGIES, L.P., by and through its general partner, Knoll Capital
Management, L.P. ("Technologies") and THINKING TOOLS, INC. (the "Company") and
the Bridge Loan Agreement dated as of July 1, 1996, by and between the Company
and Mr. John Hiles on the one hand, and Technologies (the "Bridge Loan
Agreement" and together with the Stock Purchase Agreement the "Agreements").
Capitalized terms used but not otherwise defined herein shall have the
respective meanings ascribed to them in the Agreements.
WHEREAS, the Company proposes to offer 18.25 Units, each unit
consisting of a 10% Senior Secured Promissory Note in the
Principal Amount of $100,000 and Warrants to purchase 25,000
shares of Common Stock of the Company pursuant to a private
offering under Regulation D under the Securities Act of 1933
(the "Private Placement");
WHEREAS, following the consummation of the Private Placement,
the Company proposes to offer shares of Common Stock in an
initial public offering (the "IPO"); and
WHEREAS, Technologies has agreed to waive and amend certain
provisions of the Stock Purchase Agreement in connection with
the Private Placement and the IPO.
Now, therefore, the parties hereby agree as follows:
1. Prior to the closing of the Private Placement, the Company shall
merge into Thinking Tools, Inc., a Delaware corporation (the "Merger") and
Technologies hereby consents to the Merger pursuant to the terms of the
Agreement of Merger executed in connection therewith.
2. At the closing of the Private Placement, Technologies agrees that
(i) the Promissory Note (the "First Note") dated September 28, 1994, executed by
the Company in favor of Technologies in connection with the Stock Purchase
Agreement in the original principal amount of $1,200,000 shall be cancelled, and
accrued interest thereon in the amount of $120,310 shall be forgiven, and the
Note and accrued interest thereon shall be converted and exchanged for 263,158
shares of Common Stock, par value $.001 per share, of the Company to be issued
to Technologies by the Company (the "Conversion"), pursuant to a Plan of
Reorganization in the form of Exhibit A hereto; and (ii) the Company shall pay
to Technologies, an aggregate of $625,000 out of the proceeds of the Private
Placement, in full satisfaction of the Promissory Note (the "Second Note") dated
July 1, 1996, executed by the Company in favor of Technologies in connection
with the Bridge Loan Agreement in the original principal amount of $502,000 and
accrued interest in the aggregate principal amount of $123,000 due under the
First Note and the Second Note, and Technologies agrees to concurrently pay to
the Company such $625,000 amount in satisfaction of the purchase price of 6.25
Units to be purchased by Technologies in the Private Placement. Technologies
further agrees to deliver the original of the First Note and the Second Note for
cancellation at the closing of the Private Placement, to execute a UCC-3
Termination Statement to terminate the security interest granted in connection
with the First Note, and to execute such documents as may be necessary to
evidence the termination of the First Note and Second Note and to effect the
Conversion. The Company agrees to deliver a stock certificate to Technologies
representing the issuance of 263,158 shares of Common Stock, par value $.001 per
share, of the Company to Technologies, pursuant to the Conversion.
3. At the closing of the IPO, Technologies agrees that certain rights
and restrictions granted to Technologies pursuant to the Stock Purchase
Agreement shall be terminated in their entirety by amending the Stock Purchase
Agreement to delete Section 7.15, Section 9 and Section 10.7 of the Stock
Purchase Agreement which provisions shall be terminated and of no further force
or effect following the closing of the IPO.
4. Technologies hereby consents to the consummation of each of the
Private Placement and the IPO and waives any conflicts or breaches which may
arise under the Agreements as a result of such transactions.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
this 31st day of August, 1996.
THINKING TECHNOLOGIES, L.P.
By: /s/ Fred Knoll
-----------------------------
Name: Title
Title: President
THINKING TOOLS, INC.
By: /s/ Fred Knoll
-----------------------------
Name: Fred Knoll
Title: Chairman of the Board
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FULL SERVICE OFFICE LEASE - MONTEREY
ARTICLE 1. SALIENT LEASE TERMS
THIS LEASE is dated for reference purposes only this 19th day of August _, 1994.
1.1. Rent Payment: KI Monterey Research, Inc.
c/o The Edward Pike Company
P.0. Box 689 Orinda, CA 94563
1.2. Parties and Lessor: KI Monterey Research, Inc.
Notice c/o The Edward Pike Company
Addresses: P.O. Box 689
Orinda, CA 94563
Lessee: Thinking Tools,. Inc A California Corporation
1 Lower Ragsdale Drive
Bldg #l-250
Monterey, CA 93940
Attn: John Hiles
(If more than one, then the obligations
hereunder shall be joint and several.)
<TABLE>
<S> <C> <C>
(Section 49.12)
1.3. Premises: (A) Name and Location of Complex: Monterey Commerce Center
1 Lower Ragsdale Drive, Building 1, Monterey, CA 93940.
(B) Leased Premises: Suite #250
(C) Approximately 3.776 Square Feet (Section 3.2)
1.4. Term: (A) Estimated Delivery Date: November 10, 1994
(B) Thirty-Six (36} Months
(Section 4.1)
1.5. Rent: (A) Minimum Monthly Rent: $
Month 01 $ 664,00; $ .1758 per square foot
Months 02-12 $5,664.00: $1.50 per square foot
Months 13-24 $5,852.00; $1.55 per square foot
Months 25-36 $6,041.60; $1.60 per square foot
(Section 7.1)
(B) Advance Rent: Five Thousand Six Hundred Sixty-Four
Dollars ($5,664.00) due the first month of the term
(Section 7.2)
1.6. Initial
Security
<PAGE>
Deposit: Five Thousand Four Hundred Seventy-Five Dollars and Twenty
Cents ($5,465.20). (Section 10.1)
1.7. Use: Premises used solely for Software Development and
General Office use. (Section 11.1)
1.8. Initial
Pro Rats %: . 0762 % 3.776 sq.ft./50.031 sq.ft.
(Section 2.1(1))
1.9. Base Operating $ (1) per year for
Costs: Complex Costs
$ (1) per year for
Building Costs (Section 8.2)
1.10. Declaration of Date of Recordation January 31, 1990
Restrictions: Book 6498 Page 035-2-3
Document Number --
(Section 3.5)
1.11. Contents: This Lease consists of:
Pages 1 through 34
Sections 1 through 49.1
Addenda:
Exhibits:
"A" - Legal Description
"B" - Floor Plan/Site Plan
"C" - Construction Obligations
"D" - Acknowledgment of Commencement
"E" - Rules Regulations
"F" - California Code.
"G" - Parking Area
"H" - Building Standard Signage
</TABLE>
ARTICLE 2. DEFINITIONS
2.1. The terms defined in this Article 2 shall, for all purposes of
this Lease and all agreements supplemental hereto, have the meanings herein
specified unless expressly stated otherwise.
(a) "Base Operating Cost" means the sum set forth in Section 1.9
hereof.
(b) "Building" shall mean the structure which contains the Leased
Premises.
(c) "Building Standard Work" shall mean the typical interior
improvements constructed or to be constructed by Lessor, which are of the nature
and quality required by specifications developed for the Complex by Lessor's
architect.
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<PAGE>
(d) "Commencement" shall mean the earlier of the following dates:
(i) The day upon which Lessee takes possession of the Leased
Premise; or
(ii) The date upon which the leasehold Improvements have been
substantially completed an determined by Lessor's project architect, except in
event completion of the Leasehold Improvements is delayed by design decisions,
revisions or additional work or preparation of plans of Lessee or its agent.
("Lessee Delay"), such delay shall thereupon effect a postponement of the date
at which Lessor is obliged to deliver the Leased Premises to Lessee, by the
number of days of Lessee Delay. Moreover, the Commencement Date as would
otherwise be established had Lessee Delay not occurred shall not be postponed by
the number of days of Lessee Delay. Thus the date for commencement of Rent shall
not be delayed by Lessee Delay. Lessor estimates such completion will be made on
or before the date specified in Section 1.4(A).
(e) "Common Areas" shall mean all areas and facilities outside the
Leased Premises within the exterior boundaries of the Complex of which the
Leased Premises form a part, that are provided and designated by Lessor from
time to time for the general use and convenience of Lessee and of other tenants
of Lessor having the common use of such areas, and their respective authorized
representatives and invitees. Common Areas include, without limitation,
corridors, stairways, elevator shafts, Janitor rooms, driveways, parking areas,
and landscaped areas all as generally described on Exhibit "B" attached hereto.
Exhibit "B" is tentative and Lessor reserves the right to make alterations
thereto from time to time.
(f) "Complex" is that parcel of real property, or parcels of real
property in common ownership with, and contiguous to, the parcel of which the
Leased Premises forms a part, which is described with particularity in Exhibit
"A" attached hereto and made a part hereof by reference.
(g) "Lease Year" means any calendar year, or portion thereof, following
the commencement hereof, the whole or any part of which period is included
within the Term.
(h) "Leased Premises" shall mean the portion of space leased to Lessee
hereunder.
(i) "Leasehold Improvements" shall mean the aggregate of the Building
standard work and the Building nonstandard work done in accordance with the work
letter agreement, which agreement is attached hereto, as Exhibit "C."
(j) "Major Vertical Penetrations" shall mean stairs, elevator shafts,
flues, pipe shafts, vertical ducts, and the like, and their enclosing walls,
which serve more than one floor of the Building, but shall not include stairs,
dumb-waiters, lifts, and the like, exclusively serving a tenant occupying
offices on more than one floor.
(k) "Operating Costs" means the total amount paid or payable, whether
by Lessor or others on behalf of Lessor, in connection with the ownership,
maintenance, repair, and operations of the Complex (including, without
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<PAGE>
limitation, all areas and facilities within the exterior boundaries of the
Complex) as determined by standard accounting procedures. Operating Costs shall
include, but not be limited to, the aggregate of the amount paid for all fuel
used in heating and air conditioning of the Building; the amount paid or payable
for all electricity furnished by Lessor to the Complex (other than electricity
furnished to other buildings in the Complex); the cost of periodic relamping and
reballasting of lighting fixtures; the amount paid or payable for all hot and
cold water (other than that furnished to other buildings in the Complex); the
amount paid or payable for all labor and/or wages and other payments including
cost to Lessor of worker's compensation and disability insurance, payroll taxes,
welfare and fringe benefits made to Janitors, caretakers, and other employees,
contractors and subcontractors of Lessor (including wages of the Building
manager) involved in the operation, maintenance and repair of the Complex;
managerial end administrative expenses related to the Building, the total
charges of any independent contractors employed in the repair, care, operation,
maintenance, and cleaning of the Building; the amount paid or payable for all
supplies occasioned by everyday wear and tear; the costs of climate control,
window and exterior wall cleaning, telephone end utility costs for the Building;
the cost of accounting services necessary to compute the rents and charges
payable by Lessees and keep the books of the Complex; fees for management,
legal, accounting, inspection and consulting services; the cost of operating,
repairing end maintaining the Building elevators; the costs of porters, guards
and protection services the cost of establishing and maintaining the Building's
directory board; payments for general maintenance and repairs to the plant and
equipment applying climate control; the cost of supplying all services pursuant
to Article 13 hereof to the extent such services are not paid by individual
lessees; amortization of the costs, including repair and replacement, of all
maintenance and cleaning equipment and master utility meters and of the costs
incurred for repairing or replacing all other fixtures, equipment and facilities
serving or comprising the Complex which by their nature, require periodic or
substantial repair or replacement, and which are not charged fully in the year
in which they are incurred, at rates on the various items determined from time
to time by Lessor in accordance with sound accounting principles; and the net
cost and expenses for insurance for which Lessor is responsible hereunder or
which Lessor reasonably deems necessary in connection with the operation of the
Complex. Operating Cost shall also include any Real Estate Taxes as defined in
Paragraph 2.1(n) hereof. Operating Costs shall also include, without limitation,
the repair and replacement, resurfacing or repaving of any of the paved areas,
curbs or gutters within the Complex, and the repair and replacement of any
equipment or facilities serving or located within the Complex and the costs of
any capital improvements made by Lessor to the Complex for the purpose of
reducing other operating expenses or utility costs, from which Lessee can expect
a reasonable benefit, or that are required by governmental law, ordinance,
regulation or mandate, not applicable to the Complex at the time of the original
construction. For the purposes hereof "Capital Costs" are defined aa any
expenditures of the type which do not normally recur more frequently than every
five (5) years in the normal course of operation and maintenance of the Complex.
The portion of Capital Costs to be included each year in Operating Costs shall
be that fraction allocable to the year in question calculated by amortizing the
cost over the reasonably useful life of such improvement, as determined by
Lessor, with interest on the unamortized balance at the higher of (i) ten
percent (10%) per annum; or (ii) the interest rate as may have been paid by
Lessor for funds borrowed for the purpose of constructing such improvements, but
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<PAGE>
in no event to exceed the highest rate permissible by law. Operating Costs shall
not include legal or accounting expenses incurred expressly for negotiating a
lease with a particular tenant, or as a result of a default of a specific
tenant, which negotiation or default does not affect the operation of the
Complex. Operating Costs may be classified into two (2) components: Complex
Costs, relating to those Operating Costs which are not specifically related to
the Building, and building Costs, relating to Operating Costs which are
specifically incurred with respect to the Building.
(1) "Proportionate Share" or "Pro rata Percent" shall be that fraction
(converted to a percentage) the numerator of which is the Usable Area of the
Leased Premises multiplied by the R/U Ratio and the denominator of which is the
Rentable Area of all floors (or Leased Premises if the Complex is on a single
floor) rentable to lessees in the Complex. Lessee's Proportionate Share as of
the commencement of the term hereof, is specified in Section 1.8. With respect
to Complex Costs, Lessee shall pay it. Proportionate Share of the Complex Costs
which are allocated to the Building. The Building shall be allocated a share of
the Complex Costs equal to a fraction thereof, the numerator of which is the
total leased and occupied Rentable Area of the Building and the denominator of
which is the total leased and occupied Rentable Area of all buildings in the
Complex. Said Proportionate Share shall be recalculated as may be required
effective as at the commencement of any period to which the calculation is
applicable in this Lease. Notwithstanding the preceding provisions of this
Section 2.1(1), Lessee's proportionate share as to certain expenses may be
calculated differently to yield a higher percentage share for Lessee as to
certain expenses in the event Lessor permits other tenants in the Complex to
directly incur such expenses rather than have Lessor incur the expense in common
for the Complex (such as, by way of illustration, wherein a tenant performs its
own Janitorial services). In such case Lessee's proportionate share of the
applicable expense shall be calculated as having its denominator the gross
leasable area of all Premises in the Complex less the gross leasable area of
tenants who have incurred such expense directly. In any case in which Lessee,
with Lessor's consent, incurs such expenses directly, Lessee's proportionate
share will be calculated specially so that expenses of the same character which
are incurred by Lessor for the benefit of other tenants in the Complex shall not
be prorated to Lessee. Nothing herein shall imply that Lessor will permit Lessee
or any other tenant of the Complex to incur any Common Area Cost or Operating
Costs. Any such permission shall be in the sole discretion of the Lessor, which
Lessor may grant or withhold in its arbitrary judgment.
(m) "R/U Ratio" (an abbreviation for Rentable/Usable Ratio) shall mean
that fraction the numerator of which is Rentable Area and the denominator of
which is Usable Area.
(n) "Real Estate Taxes" or "Taxes" shall mean and include all general
and special taxes, assessments, fees of every kind and nature, duties and
levies, charged and levied upon or assessed by any governmental authority
against the Complex including the land, the Building, any other improvements
situated on the land other than the Building, the various estates in the land
end the Building, any Leasehold Improvements, fixtures, installations, additions
and equipment, whether owned by Lessor or Lessee; except that it shall exclude
any taxes of the kind covered by Section 8.1 hereof to the extent Lessor is
reimbursed therefor by any tenant in the Building. Real Estate Taxes shall also
include the
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<PAGE>
reasonable cost to Lessor of contesting the amount, validity, or the
applicability of any Taxes mentioned in this Section. Further included in the
definition of Taxes herein shall be general and special assessments, license
fees, commercial rental tax, levy or tax (other than inheritance or estate
taxes) imposed by any authority having the direct or indirect power to tax, as
against any legal or equitable interest of Lessor in the Leased Premises or in
the Complex or on the act of entering into this Lease or, as against Lessor's
right to rent or other income therefrom, or as against Lessor's business of
leasing the Leased Premises or the Complex, any tax, fee, or charge with respect
to the possession, leasing, transfer of interest, operation, management,
maintenance, alteration, repair, use, or occupancy by Lessee, of the Leased
Premises or any portion thereof or the Complex, or any tax imposed in
substitution, partially or totally, for any tax previously included within the
definition of Taxes herein, or any additional tax, the nature of which may or
may not have been previously included within the definition of Taxes. Further,
if at any time during the term of this Lease the method of taxation or
assessment of real estate or the income therefrom prevailing at the time of
execution hereof shall be, or has been altered so as to cause the whole or any
part of the Taxes now or hereafter levied, assessed or imposed on real estate to
be levied, assessed or imposed upon Lessor, wholly or partially, as a capital
levy, business tax, fee, permit or other charge, or on or measured by the Rents
received therefrom, then such new or altered taxes, regardless of their nature,
which are attributable to the land, the Building or to other improvements on the
land shall be deemed to be included within the term "Real Estate Taxes" for
purposes of this Section, whether in substitution for, or in addition to any
other Real Estate Taxes, eave and except that such shall not be deemed to
include any enhancement of said tax attributable to other income of Lessor. With
respect to any general or special assessments which may be levied upon or
against the Leased Premises, the Complex, or the underlying realty, or which may
be evidenced by improvement or other bonds, and may be paid in annual or
semi-annual installments, only the amount of such installment, prorated for any
partial year, and statutory interest shall be included within the computation of
Taxes for which Lessee is responsible hereunder.
(o) "Rent" means Minimum Monthly Rent and all other sums required to be
paid by Lessee pursuant to the terms of this Lease.
(p) "Rentable Area". The Rentable Area of a floor shall be computed by
measuring to the inside finished surface of the dominant portion of the
permanent outer building walls, excluding any Major Vertical Penetration of the
floor. No deductions shall be made for columns and projection necessary to the
buildings. The Rentable Area of an office on the floor shall be computed by
multiplying the Usable Area of that office by the R/U Ratio described in Section
2.1(m) for the floor.
(q) "Structural" as herein used shall mean any portion of the Leased
Premises or Complex which provides bearing support to any other integral member
of the Complex such as, by limitation, the roof structure (trusses, joists,
beams), posts, load bearing walls, foundations, girders, floor joists, footings,
and other load bearing members constructed by Lessor.
(r) "Term" shall mean the Term of the lease as specified in Article 4
hereof, including any partial month at the commencement of the Term.
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<PAGE>
(s) "Total Building Area" is the total gross leasable area of the
Building.
(t) "Usable Area". The Usable Area of an of(pound)ice shall be the
number of square feet computed by measuring to the finished surface of the
office side of corridor and other permanent walls, to the center of partitions
that separate the office from adjoining Usable Areas, and to the inside finished
surface of the permanent outer building walls. No deductions shall be made for
the columns and projections necessary to the buildings. The Usable Area of floor
shall be equal to the sum of all Usable Areas on that floor.
ARTICLE 3. PREMISES
3.1. Demising Clause. Lessor hereby leases to Lessee, and Lessee hires
from Lessor a portion of the Complex as hereinafter defined.
3.2. Description. The "Complex" as defined in Section 2.1 (f), is
described generally in Section 1.3(A) hereof. The premises leased herein are
described in Section 1.3(B) and delineated on Exhibit "B", which is attached
hereto and made a part hereof by reference, consisting of the approximate amount
of square footage as specified in Section 1.3(C) hereof. The term "Building"
shall refer to the Building in which the Leased Premises are located. The
portion leased herein to Lessee is hereinafter referred to as the "Leased
Premises." Lessor reserves the area beneath and above the Leased Premises and
the use thereof together with the right to install, maintain, use, repair and
replace pipes, ducts, conduits, wires, and structural elements leading through
the Leased Premises serving other parts of the Complex, so long as such items
are concealed by walls, flooring or ceilings. Such reservation in no way affects
the maintenance obligations imposed herein.
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<PAGE>
3.4. Covenants, Conditions and Restrictions.
The parties agree that this Lease is subject to the effect of (a) any
covenants, conditions, restrictions, easements, mortgages or deeds of trust,
ground leases, rights of way of record, and any other matters or documents of
record; (b) any zoning laws of the city, county and state where the Complex is
situated; and (c) general and special taxes not delinquent. Lessee agrees that
as to its leasehold estate, Lessee and all persons in possession or holding
under Lessee, will conform to and will not violate the terms of any covenants,
conditions or restrictions of record which may now or hereafter encumber the
property (hereinafter the "restrictions"). This Lease is subordinate to the
restrictions and any amendments or modifications thereto.
3.5. Declaration of Restrictions. The Leased Premises are subject to a
Declaration of Restrictions as referenced in Section 1.10 hereof.
ARTICLE 4. TERM
4.1. Commencement Date. The term of this Lease shall commence on the
date specified in Section 1.4(A) hereof and shall be for the term specified in
Section 1.4(B) hereof, plus any partial month at the commencement of the term.
4.2. Acknowledgment of Commencement. After delivery of the Leased
Premises to Lessee, Lessee shall execute a written acknowledgment of the date of
commencement in the form attached hereto as Exhibit "D" and by this reference it
shall be incorporated herein.
ARTICLE 5. PRE-TERM POSSESSION
5.1. Conditions of Entry. In the event the Leased Premises are to be
constructed or remodelled by Lessor, Lessor may notify Lessee when the Leased
Premises are ready for Lessee's fixturing or Lessee's work, which may be prior
to substantial completion of the Leased Premises by Lessor. Lessee may thereupon
enter the Leased Premises for such purposes at its own risk, to make such
improvements as Lessee shall have the right to make, to install fixtures,
supplies, inventory and other property. Lessee agrees that it shall not in any
way interfere with the progress of Lessor's work by such entry. Should such
entry prove an impediment to the progress of Lessor's work, in Lessor'.
Judgment, Lessor may demand that Lessee forthwith vacate the Leased Premises
until such time as Lessor's work is complete, and Lessee shall immediately
comply with this demand.
During the course of any pre-term possession, whether such pre-term
period arises because of an obligation of construction on the part of Lessor, or
otherwise, all terms and conditions of this Lease, except for rent and
commencement, shall apply, particularly with reference to indemnity by Lessee of
Lessor under Article 17 herein for all occurrences within or about the Leased
Premises.
ARTICLE 6. DELAY IN DELIVERY OF POSSESSION
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ARTICLE 7. MINIMUM RENT
7.1. Payment. Lessee shall pay to Lessor at the address specified in
Section 1.1, or at such other place at Lessor may otherwise designate, as
"Minimum Monthly Rent" for the Leased Premises the amount specified in Section
1.5(A) hereof, payable in advance on the first day of each month during the
Lease term. If the Lease term commences on other than the first day of a
calendar month, the rent for the first partial month shall be prorated
accordingly.
All payments of Minimum Monthly Rent (including sums defined as rent in
Section 30.2) shall be in lawful money of the United States, and payable without
deduction, offset, counterclaim, prior notice or demand.
7.2. Advance Rent. The amount specified in Section 1.5(B) hereof is
paid herewith to Lessor upon execution of this Lease as advance rent, receipt of
which is hereby acknowledged, provided, however, that such amount shall be held
by Lessor as a "Security Deposit" pursuant to Section 10.1 hereof until it is
applied by Lessor to the first Minimum Monthly Rent due hereunder.
7.3. Late Payment. If during any twelve (12) month period Lessee fails
on more than one occasion to make any payment of Minimum Monthly Rent to Lessor
on the date when it is due, then Lessor may, by giving written notice to Lessee,
require that Lessee pay the Minimum Monthly Rent to Lessor quarterly in advance.
ARTICLE 8. ADDITIONAL RENT
8.1. Personal Property, Gross Receipts, Leasing Taxes. This Section 8.1
is intended to deal with impositions or taxes directly attributed to Lessee or
this transaction, as distinct from taxes attributable to the Complex which are
to be allocated among various tenants and others and which are included in
Operating Costs. In addition to the Minimum Monthly Rent and additional charges
to be paid by Lessee hereunder, Lessee shall reimburse Lessor upon demand for
any and all taxes required to be paid by Lessor (excluding state, local or
federal personal and corporate income taxes measured by the income of Lessor
from all sources, and estate and inheritance taxes) whether or not now customary
or within the contemplation of the parties hereto:
(a) upon, measured by, or reasonably attributable to the cost or value
of Lessee's equipment, furniture, fixtures and other personal property located
in the Leased Premises or by the cost or value of any Leasehold Improvements
made in or to the Leased Premises by or for Lessee, other than Building Standard
Work, regardless of whether title to such improvements shall be in Lessee or
Lessor;
(b) upon or with respect to the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by Lessee of the
Leased Premises or any portion thereof to the extent such taxes are not included
as Real Estate Taxes as defined in section 2.1(m) and:
(c) upon this transaction or any document to which Lessee is a party
creating or transferring an interest or an estate in the Leased Premises.
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In the event that it shall not be lawful for Lessee so to reimburse
Lessor, the Minimum Monthly Rent payable to Lessor under this Lease shall be
increased to net Lessor (i.e. after payment of the Taxes for which Lessor may
not receive reimbursement from Lessee) the amount of Minimum Monthly Rent plus
reimbursement for Taxes which would have been receivable by Lessor if such tax
had not been imposed. All taxes payable by Lessee under this Section shall be
deemed to be, end shall be paid as, additional Rent.
8.2. Operating Costs.
(a) If either component or both components of Operating Costs for
any Lease Year, calculated on the basis of the greater of (i) actual Operating
Costs; or (ii) as if the Complex were at least ninety percent (90%) occupied and
operational for the whole of such Lease Year, is/are more than the Base
Operating Cost for such component(s), Lessee shall pay to Lessor its
Proportionate Share of any such increase aa additional Rent in accordance with
Section 8.3 hereof.
(b) If any Lease Year of less than twelve (12) months is included
within the Term, the amount payable by Lessee for such period shall be prorated
on a per diem basis (utilizing a three hundred sixty (360) day year).
8.3. Method of Payment. Any additional Rent payable by Lessee under
Sections 8.1 and 8.2 hereof shall be paid as follows, unless otherwise provided:
(a) During the Term, Lessee shall pay to Lessor monthly in advance
with its payment of Minimum Monthly Rent, one-twelfth (l/12th) of the amount of
such additional Rent as estimated by Lessor in advance, in good faith, to be due
from Lessee.
(c) If the aggregate amount of such estimated additional Rent
payments made by Lessee in any Lease Year should be less than the additional
Rent due for such year, then Lessee shall pay to Lessor as additional Rent upon
demand the amount of such deficiency. If the aggregate amount of ketch
additional Rent payments made by Lessee in any Lease Year of the Term should be
greater than the additional Rent due for such year, then should Lessee not be
otherwise in default hereunder, the amount of such excess will be applied by
Lessor to the next succeeding installments of such additional Rent due
hereunder; and if there is any such excess for the last year of the Term, the
amount thereof will be refunded by Lessor to Lessee, provided Lessee is not
otherwise in default under the terms of this Lease.
ARTICLE 9. ACCORD AND SATISFACTION
9.1. Acceptance of Payment. No payment by Lessee or receipt by Lessor
of a lesser amount of Minimum Monthly Rent or any other sum due hereunder, shall
be deemed to be other than on account of the earliest due rent or payment, nor
shall any endorsement or statement on any check or any letter accompanying any
such check or payment be deemed an accord and satisfaction, and Lessor may
accept such check or payment without prejudice to Lessor's right to recover the
balance of such rent or payment or pursue any other remedy available in this
Lease, at law or in equity. Lessor may accept any partial payment from Lessee
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without invalidation of any contractual notice required to be given herein (to
the extent such contractual notice is required) and without invalidation of any
notice required to be given pursuant to California Code of Civil Procedure
Section 1161, et seq., or of any successor statute thereto.
ARTICLE 10. SECURITY DEPOSIT
10.1. Payment on Lease Execution. Lessee shall pay Lessor upon
execution hereof the sum specified in Section 1.6. This sum is designated as a
Security Deposit and shall remain the sole and separate property of Lessor until
actually repaid to Lessee (or at Lessor's option the last assignee, if any, of
Lessee's interest hereunder), said sum not being earned by Lessee until all
conditions precedent for its payment to Lessee have been fulfilled. As this sum
both in equity and at law is Lessor's separate property, Lessor shall not be
required to (1) keep said deposit separate from his general accounts, or (2) pay
interest, or other increment for its use. If Lessee fails to pay rent or other
charges when due hereunder, or otherwise defaults with respect to any provision
of this Lease, including and not limited to Lessee's obligation to restore or
clean the Leased Premises following vacation thereof, Lessee, at Lessor's
election, shall be deemed not to have earned the right to repayment of the
Security Deposit, or those portions thereof used or applied by Lessor for the
payment of any rent or other charges in default, or for the payment of any other
sum to which Lessor may become obligated by reason of Lessee's default, or to
compensate Lessor for any loss or damage which Lessor may suffer thereby. Lessor
may retain such portion of the Security Deposit as it reasonably deems necessary
to restore or clean the Leased Premises following vacation by Lessee. The
Security Deposit is not to be characterized as rent until and unless so applied
in respect of a default by Lessee.
10.2. Restoration of Deposit. If Lessor elects to use or apply all or
any portion of the Security Deposit aa provided in Section 10.1, Lessee shall
within ten (10) days after written demand therefor pay to Lessor in cash, an
amount equal to that portion of the Security Deposit used or applied by Lessor,
and Lessee's failure to so do shall be a material breach of this Lease. The ten
(10) day notice specified in the preceding sentence shall insofar as not
prohibited by law, constitute full satisfaction of notice of default provisions
required by law or ordinance.
ARTICLE 13. USE
11.1. Permitted Use. The Leased Premises may be used and occupied only
for the purposes specified in Section 1.7 hereof, and for no other purpose or
purposes. Lessee shall promptly comply with all laws, ordinances, orders and
regulations affecting the Leased Premises, their cleanliness, safety, occupation
and use.
11.2. Safes, Heavy Equipment. Lessee shall not place a load upon any
floor of the Leased Premises which exceeds fifty (50) pounds per square foot
live load. Lessor reserves the right to prescribe the weight and position of all
safes and heavy installations which Lessee wishes to place in the Leased
Premises so as properly to distribute the weight thereof, or to require plans
prepared by a qualified structural engineer at Lessee's sole cost and expense
for such heavy objects. Notwithstanding the foregoing, Lessor shall have no
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liability for any damage caused by the installation of such heavy equipment or
safes.
11.3. Machinery. Business machines and mechanical equipment belonging
to Lessee which cause noise and/or vibration that may be transmitted to the
structure of the Building or to any other leased space to such a degree as to be
objectionable to Lessor or to any Lessees in the Complex shall be placed and
maintained by the party possessing the machines or equipment, at such party's
expense, in settings of cork, rubber or spring type noise and/ or vibration
eliminators, and Lessee shall take such other measures as needed to eliminate
vibration and/or noise. If the noise or vibrations cannot be eliminated, Lessee
must remove such equipment within ten (10) days following written notice from
Lessor.
ARTICLE 12. COMPLIANCE WITH LAWS AND REGULATIONS
12.1. Lessee's Obligations. Lessee, shall, at its sole cost and
expense, comply with all of the requirements of all municipal, state and federal
authorities now in force, or which may hereafter be in force, pertaining to the
Leased Premises, and shall faithfully observe in the use of the Leased Premises
all municipal ordinances and state and federal statutes now in force or which
may hereafter be in force. The Judgment of any court of competent jurisdiction,
or the admission of Lessee in any action or proceeding against Lessee, whether
Lessor be a party thereto or not, that any such ordinance or statute pertaining
to the Leased Premises has been violated, shall be conclusive of that fact as
between Lessor and Lessee.
12.2. Condition of Leased Premises. Subject to Lessor's work, if any,
as referred to in Exhibit "C" to this Lease, Lessee hereby accepts the Leased
Premises in the condition existing as of the date of occupancy, subject to all
applicable zoning, municipal, county and state laws, ordinances, rules,
regulations, orders, restrictions of record, and requirements in effect during
the Term or any part of the Term hereof regulating the Leased Premises.
12.3. Hazardous Materials. For purposes hereof, "Hazardous Materials"
shall mean any and all flammable explosives, radioactive material, hazardous
waste, toxic substance or related material, including but not limited to those
materials and substances defined as "hazardous substances", "hazardous
materials", "hazardous wastes" or "toxic substances" in the Environmental Laws.
For purposes hereof, "Environmental Laws" shall mean the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Section 9601 et seq.; the Hazardous Materials Transportation Act, 39 U.S.C.
Section 1801, et seq.; the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.; the Federal Clean
Water Act, 33 U.S.C. Section 1251 et seq.; the Clean Air Act, 42 U.S.C. Section
7401 et seq.; the Porter-Cologne Water Quality Act, California State Code
Section 13020 et seq.; and the California Health and Safety Code, Section 25100
et seq., including all amendments thereto replacements thereof, and regulations
adopted and publications promulgated pursuant thereto. (1) (See Addendum
Paragraph 12.3)
(a) Lessee agrees that during the Term of this Lease Lessee
shall not be in violation of any federal, state or local law, ordinance or
regulation
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relating to industrial hygiene, soil, water, or environmental conditions on,
under or about the Leased Premises including, but not limited to, the
Environmental Laws.
(b) Lessee further agrees that during the Term of this Lease,
there shall be no use, presence, disposal, storage, generation, release, or
threatened release of Hazardous Materials on, from or under the Leased Premises.
ARTICLE 13. SERVICE AND EQUIPMENT
13.1. Climate Control. So long as Lessee is not in default under any of
the covenants of this Lease, Lessor shall provide climate control to the Leased
Premises from 7:00 a.m. to 6:00 p.m. (the "Climate Control Hours") on weekdays
(Saturdays, Sundays and Holidays excepted) to maintain a temperature adequate
for comfortable occupancy, provided that Lessor shall have no responsibility or
liability for failure to supply climate control service when making repairs,
alterations or improvement" or when prevented from so doing by strikes or any
cause beyond Lessor's reasonable control. Any climate control furnished for
periods not within the Climate Control Hours pursuant to Lessee's request shall
be at Lessee's sole cost and expense in accordance with rate schedules
promulgated by Lessor from time to time. Lessee acknowledges that Lessor has
installed in the Building a system for the purpose of climate control. Any use
of the Leased Premises not in accordance with the design standards or any
arrangement of partitioning which interferes with the normal operation of such
system may require changes or alterations in the system or ducts through which
the climate control system operates. Any changes or alterations so occasioned,
if such changes can be accommodated by Lessor's equipment, shall be made by
Lessee at its cost and expense but only with the written consent of Lessor first
had and obtained, and in accordance with drawings and specifications and by a
contractor first approved in writing by Lessor. If installation of partitions,
equipment or fixtures by Lessee necessitates the rebalancing of the climate
control equipment in the Leased Premises, the same will be performed by Lessor
at Lessee's expense. Lessee acknowledges that up to one (1) year may be required
after Lessee has fully occupied the Leased Premises in order to adjust and
balance the climate control systems. Any charges to be paid by Lessee hereunder
shall be due within ten (10) days of receipt of an invoice from Lessor, which
invoice may precede Lessor's expenditure for the benefit of Lessee.
13.2. Elevator Service. Lessor shall provide elevator service (which
may be with or without operator at Lessor's option) during normal business hours
provided that Lessee, its employees, and all other persons using such services
shall do so at their own risk.
13.3. Cleaning Public areas. Lessor shall maintain and keep clean the
street level lobbies, sidewalks, truck dock, public corridors and other public
portions of the Building.
13.4. Refuse Disposal. Lessee shall pay Lessor, within ten (10) days of
being billed therefor, for the removal from the Leased Premises and the Building
of such refuse and rubbish of Lessee as shall exceed that ordinarily accumulated
daily in the routine of business office occupancy.
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13.5. Janitorial Service. Lessor shall provide cleaning and janitorial
service in and about the Complex and Leased Premises from time to time on
weekdays (Saturdays, Sundays and Holidays excepted) in accordance with standards
in first class office buildings in the city in which the Building is located.
To the extent that Lessee shall require special or more frequent
cleaning and/or janitorial service (hereinafter referred to as "Special Cleaning
Service") Lessor may, upon reasonable advance notice from Lessee, elect to
furnish such special Cleaning Service and Lessee agrees to pay Lessor, within
ten (10) days of being billed therefor, Lessor's charge for providing such
additional service.
Special Cleaning Service shall include but shall not be
limited to the following:
(a) The cleaning and maintenance of Lessee eating facilities
including the removal of refuse and garbage therefrom.
(b) The cleaning and maintenance of Lessee computer centers,
including peripheral areas, and removal of waste paper therefrom.
(c) The cleaning and maintenance of special equipment areas,
kitchen areas, private toilets and locker rooms, medical centers and large scale
duplicating rooms.
(d) The cleaning and maintenance in areas of special security
such as storage units.
(e) The provision of consumable supplies for private toilet
rooms.
13.6. Interruptions. It is understood that Lessor does not warrant that
any of the services referred to above or any other services which Lessor may
supply will be free from interruption. Lessee acknowledges that any one or more
such services may be suspended or reduced by reason of repairs, alterations or
improvements necessary to be made, by strikes or accidents, by any cause beyond
the reasonable control of Lessor, or by orders or regulations of any federal,
state, county or municipal authority.
Any such interruption or suspension of services shall not be deemed an
eviction or disturbance of Lessee's use and possession of the Leased Premises or
any part thereof, nor render Lessor liable to Lessee for damages by abatement of
Rent or otherwise, nor relieve Lessee of performance of Lessee's obligations
under this Lease.
ARTICLE 14. WASTE
14.1. Waste or Nuisance. Lessee shall not commit, or suffer to be
committed, any waste upon the Leased Premises, or any nuisance, or other act or
thing which may disturb the quiet enjoyment of any other tenant or occupant of
the Complex in which the Leased Premises are located.
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ARTICLE 15. ALTERATIONS
15.1. Consent of Lessor Ownership. Lessee shall not make, or suffer to
be made, any alterations to the Leased Premises, or any part thereof, without
the written consent of Lessor first had and obtained. Any additions to, or
alterations of, the Leased Premises, except trade fixtures, shall upon
expiration or termination of this Lease become a part of the realty and belong
to Lessor. Except as otherwise provided in this Lease, Lessee shall have the
right to remove its trade fixtures placed upon the Leased Premises provided that
Lessee restores the Leased Premises as indicated below.
15.2. Requirements. Any alterations, additions or installations
performed by Lessee (hereinafter collectively "alterations") shall be subject to
strict conformity with the following requirements:
(a) All alterations shall be at the sole cost and expense of
Lessee;
(b) Prior to commencement of any work of alteration, Lessee
shall submit detailed plans and specifications, including working drawings,
(hereinafter referred to as "Plans") of the proposed alterations, which shall be
subject to the consent of Lessor in accordance with the terms of Section 15.1
above;
(c) Following approval of the Plans by Lessor, Lessee shall
give Lessor at least ten (10) days prior written notice of commencement of work
in the Leased Premises so that Lessor may post notices of non-responsibility in
or upon the Leased Premises as provided by law;
(d) No alterations shall be commenced without Lessee having
previously obtained all appropriate permits and approvals required by and of
governmental agencies;
(e) All alterations shall be performed in a skillful and
workmanlike manner, consistent with the best practices and standards of the
construction industry, and pursued with diligence in accordance with the Plans
previously approved by Lessor and in full accord with all applicable laws and
ordinances. All material, equipment, and articles incorporated in the
alterations is to be new, and of recent manufacture, and of the most suitable
grade for the purpose intended;
(f) Lessee must obtain the prior written approval from Lessor
for Lessee's contractor prior to commencement of the work. Lessee's contractor
shall maintain all of the insurance reasonably required by Lessor, including
comprehensive general liability, workers' compensation, builder's risk insurance
and course of construction insurance;
(g) As a condition of approval of the alterations, Lessor may
require performance and labor and materialmen's payment bonds issued by a surety
approved by Lessor, in a sum equal to the cost of the alterations guarantying
the completion of the alterations free and clear of all liens and other charges
in accordance with the Plans. Such bonds shall name Lessor as beneficiary;
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(h) The alterations must be performed in a manner such that
they will not interfere with the quiet enjoyment of the other Lessees in the
Complex.
15.3. Liens. Lessee shall keep the Leased Premises and the Complex in
which the Leased Premises are situated, free from any liens arising out of any
work performed, materials furnished or obligations incurred by Lessee. In the
event a mechanic's or other lien is filed against the Leased Premises or the
Complex of which the Leased Premises forms a part as a result of a claim arising
through Lessee, Lessor may demand that Lessee furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to at least one hundred fifty percent
(150%) of the amount of the contested lien claim or demand, indemnifying Lessor
against liability for the same and holding the Leased Premises free from the
effect of such lien or claim. Such bond must be posted within ten (10) day~
following notice from Lessor. In addition, Lessor may require Lessee to pay
Lessor's attorney's fees and costs in participating in any action to foreclose
such lien if Lessor shall decide it is to its best interest to do so. Lessor may
pay the claim prior to the enforcement thereof, in which event Lessee shall
reimburse Lessor in full, including attorney's fees, for any such expense, as
additional rent, with the next due rental.
15.4. Restoration. Lessee shall return the Leased Premises to Lessor
at the expiration or earlier termination of this Lease in good and sanitary
order, condition and repair, free of rubble and debris, broom clean, reasonable
wear and tear excepted. However, Lessee shall ascertain from Lessor at least
thirty (30) days prior to the termination of this Lease, whether Lessor desires
the Leased Premises, or any part thereof, restored to its condition prior to the
making of permitted alterations, installations and improvements, and if Lessor
shall so desire, then Lessee shall forthwith restore said Leased Premises or the
designated portions thereof as the case may be, to its original condition,
entirely at its own expense, excepting normal wear and tear. All damage to the
Leased Premises caused by the removal of such trade fixtures and other personal
property that Lessee is permitted to remove under the terms of this Lease and/or
such restoration shall be repaired by Lessee at its sole cost and expense prior
to termination.
ARTICLE 16. PROPERTY INSURANCE
16.3. Personal Property Insurance. Lessee shall maintain in full force
and effect on all of its fixtures and equipment in the Leased Premises a policy
or policies of fire and casualty insurance in "all risk" form to the extent of
at least ninety percent (90%) of their replacement cost, or that percentage of
the replacement cost required to negate the effect of a co- insurance provision,
whichever is greater. No such policy shall have a deductible in a greater amount
than (3) (Five Thousand Dollars ($5,000.00) Lessee shall also insure in the same
manner the physical value of all its leasehold improvements in the Leased
Premises. During the term of this Lease, the proceeds from any such policy or
policies of insurance shall be used for the repair or replacement of the
fixtures equipment, and leasehold improvements (4) (made after the commencement
date) so insured. Lessor shall have no interest in said insurance, and will sign
all documents necessary or proper in connection with the settlement of any claim
or loss by Lessee.
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ARTICLE 17. INDEMNIFICATION, WAIVER OF CLAIMS AND SUBROGATION
17.2. Waiver of Subrogation. Lessor and Lessee release each other, and
their respective authorized representatives, from any claims for damage to any
person or to the Leased Premises and the Building and other improvements in
which the Leased Premises are located, and to the fixtures, personal property,
Lessee's improvements and alterations of either Lessor or Lessee, in or on the
Leased Premises and the Building and other improvements in which the Leased
Premises are located, including loss of income, that are caused by or result
from risks insured or required under the terms of this Lease to be insured
against under any property insurance policies carried or to be carried by either
of the parties. (1) (See Addendum - Paragraph 17.2)
17.4. Indemnity. Lessee, as a material part of the consideration to be
rendered to Lessor, shall indemnify, defend, protect and hold harmless Lessor
against all actions, claims, demands, damages, liabilities, losses, penalties,
or expenses of any kind which may be brought or imposed upon Lessor or which
Lessor may pay or incur by reason of injury to person or property, from whatever
cause, all or in any way connected with the condition or use of the Leased
Premises, or the improvements or personal property therein or thereon, including
without limitation any liability or injury to the person or property of Lessee,
its agents, officers, employees or invitees. Lessee agrees to indemnify, defend
and protect Lessor and hold it harmless from any and all liability, loss, cost
or obligation on account of, or arising out of, any such injury or lost however
occurring, including breach of the provisions of this Lease and the negligence
of the parties hereto. Nothing contained herein shall obligate Lessee to
indemnify Lessor against its own sole or gross negligence or willful acts. (3)
(See Addendum - Paragraph 17.4)
17.5. Defense of Claims. In the event any action, suit or proceeding
is brought against Lessor by reason of any such occurrence, Lessee, upon
Lessor's request will at Lessee's expense resist and defend such action, suit or
proceeding, or cause the same to be resisted and defended by counsel designated
either by Lessee or by the insurer whose policy covers the occurrence and in
either case approved by Lessor. The obligations of Lessee under this Section
arising by reason of any occurrence taking place during the Lease term shall
survive any termination of this Lease. (4) (See Addendum - Paragraph 17.5)
ARTICLE 18. LIABILITY INSURANCE
18.2. Worker's Compensation Insurance. Lessee shall carry Workers
Compensation insurance as required by law, including an employer's contingent
liability endorsement.
ARTICLE 19. INSURANCE POLICY REQUIREMENTS
19.1. General Requirements. All insurance policies required to be
carried by Lessee (except Lessee's Personal Property Insurance) hereunder shall
conform to the following requirements:
(a) The insurer in each case shall carry a designation in
"Best's Insurance Reports" as issued from time to time throughout the term as
follows: Policy holders' rating of A; financial rating of not less than (2)
(VII)
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(b) The insurer shall be qualified to do business in the state
in which the Leased Premises are located;
(d) Each policy shall name Lessor as an additional insured and,
at Lessor's request, shall carry a lender's loss payee endorsement in favor of
Lessor's lender and such other endorsement(s) as Lessor may from time to time
require;
(e) An executed copy of each insurance policy, or a certificate
thereof, shall be delivered to Lessor at commencement of the term and shall
remain in effect throughout the term, including copies of any renewals or
certificates thereof, at least (4) (five (5)) days prior to the expiration of
such policies;
(f) These policies shall require that Lessor be notified in
writing by the insurer (5) (immediately upon receipt by Lessee of notice of)
cancellation or expiration of such policy, or any reduction ~n the I amount~ of
insurance carried;
(g) Each policy shall be primary, not contributing with, and
not in excess of coverage which Lessor may carry;
ARTICLE 20. LESSEE INSURANCE DEFAULT
20.1. Rights of Lessor. In the event that Lessee fails to obtain any
insurance required of it under the terms of this Lease, Lessor may, at its
option, but is not obligated to, obtain such insurance on behalf of Lessee and
bill Lessee, as additional rent, for the cost thereof. Payment shall be due
wi.thin ten (10) days of receipt of the billing therefor by Lessee.
ARTICLE 21. FORFEITURE OF PROPERTY AND LESSOR'S LIEN
21.1. Removal of Personal Property. Lessee agrees that as at the date
of termination of this Lease or repossession of the Leased Premises by Lessor,
by way of default or otherwise, it shall remove all personal property to which
it has the right to ownership pursuant to the terms of this Lease. Any and all
such property of Lessee not removed by such date shall, at the option of Lessor,
irrevocably become the sole property of Lessor. Lessee waives all rights to
notice and all common law and statutory claims and causes of action which it may
have against Lessor subsequent to such date as regards the storage, destruction,
damage, loss of use and ownership of the personal property affected by the terms
of this Article. Lessee acknowledges Lessor's need to relet the Leased Premises
upon termination of this Lease or repossession of the Leased Premises and
understands that the forfeitures and waivers provided herein are necessary to
aid said reletting, and to prevent Lessor incurring a loss for inability to
deliver the Leased Premises to a prospective lessee. (1) (See Addendum Paragraph
21.1)
ARTICLE 22. MAINTENANCE AND REPAIRS
22.1 Lessor's Obligations. Subject to the other provisions of this
Lease imposing obligations in this respect upon Lessee, Lessor shall repair,
replace and maintain the external and Structural parts of the Complex which do
not
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comprise a part of the Leased Premises and are not leased to others, janitor and
equipment closets and shafts within the Leased Premises designated by Lessor for
use by it in connection with the operation and maintenance of the Complex, and
all Common Areas. Lessor shall perform such repairs, replacements and
maintenance with reasonable dispatch, in a good and workmanlike manner; but
Lessor shall not be liable for any damages, direct, indirect or consequential,
or for damages for personal discomfort, illness or inconvenience of Lessee by
reason of failure of such equipment, facilities or systems or reasonable delays
in the performance of such repairs, replacements and maintenance, unless caused
by the deliberate act or omission of Lessor, its servants, agents, or employees.
The cost for such repairs, maintenance and replacement shall be included in
Operating Costs in accordance with Section 2.1(k) hereof.
22.2 Negligence of Lessee. If the Building, the elevators, boilers,
engines, pipes or apparatus used for the purpose of climate control of the
Building or operating the elevators, or if the water pipes, drainage pipes,
electric lighting or other equipment of the Building, or the roof or the outside
walls of the Building, fall into a state of disrepair or become damaged or
destroyed through the negligence, carelessness or misuse of Lessee, its agents,
employees or anyone permitted by it to be ln the Complex, or through lt in any
way, the cost of the necessary repairs, replacements or alterations shall be
borne by Lessee who shall pay the same to Lessor as additional charges forthwith
on demand.
22.3 Lessee's Obligations. Lessee shall repair the Leased Premises,
including without limiting the generality of the foregoing, all interior
partitions and walls, fixtures, Leasehold Improvements and alterations in the
Leased Premises and all electrical and telephone outlets and conduits, fixtures
and shelving, and special mechanical and electrical equipment which equipment is
not a normal part of the Leased Premises installed by or for Lessee, reasonable
wear and tear, damage with respect to which Lessor has an obligation to repair
as provided in Section 22.1 and Section 23 hereof only excepted. Lessor may
enter and view the state of repair and Lessee will repair in a good and
workmanlike manner according to notice in writing.
22.4 Cleaning. Lessee agrees at the end of each business day to leave
the Leased Premises in a reasonably clean condition for the purpose of the
performance of Lessor's cleaning services referred to herein.
22.5 Waiver. Lessee waives all rights it may have under law to make
repairs at Lessor's expense.
22.6 Acceptance. Except as to the construction obligations of Lessor,
if any, stated in Exhibit "C" to this Lease, Lessee shall accept the Leased
Premises in "as is" condition as of the date of execution of this Lease by
Lessee, and Lessee acknowledges that the Leased Premises in such condition are
in good sanitary order, condition and repair.
ARTICLE 23. DESTRUCTION
23.1. Rights of Termination. In the ovens the Leased Premises suffers
(a) an uninsured casualty, or (b) a casualty which cannot be repaired within one
hundred twenty (120) days from the date of destruction under the laws and
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regulations of state, federal, county or municipal authorities, or other
authorities with Jurisdiction, Lessor may terminate this Lease as at the date of
the damage upon written notice to Lessee following the casualty. In the event of
a casualty to the Leased Premises which cannot be repaired within one hundred
ninety five (195) days of the occurrence thereof, Lessee shall have the right to
terminate the Lease by written notice to Lessor within twenty (20) days
following notice from Lessor that the time for restoration shall exceed one
hundred ninety five (195) days. (1) (See Addendum - Paragraph 23.1)
23.2. Repairs. In the event of a casualty which may be repaired within
one hundred twenty (120) days from the date of the damage, or, in the
alternative, in the event the parties do not elect to terminate this Lease under
the terms of Section 23.1 above, then this Lease shall continue in full force
and effect and Lessor shall forthwith undertake to make such repairs to
reconstitute the Leased Premises to as near the condition as existed prior to
the casualty as practicable. Such partial destruction shall in no way annul or
void this Lease except that Lessee shall be entitled to a proportionate
reduction of Minimum Monthly Rent following the casualty and until the time the
Leased Premises are restored. Such reduction shall be an amount which reflects
the degree of interference with Lessee's business. So long as Lessee conducts
it. business in the Leased Premises there shall be no abatement until the
parties agree on the amount thereof. If the parties cannot agree within forty
five (45) days of the casualty, the matter shall be submitted to arbitration
under the rules of the American Arbitration Association. Upon the resolution of
the dispute, the settlement shall be retroactive and Lessor shall within ten
(10) days thereafter refund to Lessee any sums due in respect of the reduced
rental from the date of the casualty. Lessor's obligations to restore shall in
no way include any construction originally performed by Lessee or subsequently
undertaken by Lessee, but shall include solely that property constructed by
Lessor prior to commencement of the term hereof.
23.3. Repair Costs. The cost of any repairs to be made by Lessor,
pursuant to Section 23.2 of this Lease, shall be paid by Lessor utilizing
available insurance proceeds. Lessee shall reimburse Lessor upon completion of
the repairs for any deductible for which no insurance proceeds will be obtained
under Lessor's insurance policy, or if other premises are also repaired, a pro
rata share based on total costs of repair equitably apportioned to the Leased
Premises. Lessee shall, however, not be responsible to pay any deductible or its
share of any deductible-to the extent. (1) such deductible exceeds Five Thousand
Dollars ($5.000.00)
23.4. Waiver. Lessee hereby waives all statutory or common law rights
of termination in respect to any partial destruction or casualty which Lessor is
obligated to repair or may elect to repair under the terms of this Article.
Further, in event of a casualty occurring during the last two (2) years of the
original term hereof or of any extension, Lessor need not undertake any repairs
and may cancel this Lease unless Lessee has the right under the terms of this
Lease to extend the term for an additional period of at least five (5) years and
does so within thirty (30) days of the date of the casualty.
23.5. Lessor's Election. In the event that the Complex or Building in
which the Leased Premises is situated be destroyed to the extent of not less
than thirty-three and one-third percent (33-1/3%) of the replacement cost
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thereof, Lessor may elect to terminate this Lease, whether the Leased Premises
be injured or not, in the same manner as in Section 23.1 above. At all events, a
total destruction of the Complex of which the Leased Premises form a part, or
the Leased Premises itself, shall terminate this Lease.
ARTICLE 24. CONDEMNATION
24.1. Definitions.
(a) "Condemnation" means (i) the exercise of any governmental
power, whether by legal proceedings or otherwise, by a condemnor and/or (ii)
voluntary sale or transfer by Lessor to any condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.
(b) "Date of taking" means the date the condemnor has the right
to possession of the property being condemned.
(c) "Award" means all compensation, sums or anything of value
awarded, paid or received on a total or partial condemnation.
(d) "Condemnor" means any public or quasi-public authority, or
private corporation or individual, having the power of condemnation.
24.2. Total Taking. If the Leased Premises are totally taken by
condemnation, this Lease shall terminate on the date of taking.
24.3. Partial Taking; Common Area.
(a) If any portion of the Leased Premises is taken by
condemnation, this Lease shall remain in effect, except that Lessee can elect to
terminate this Lease if 33-1/3% or more of the total number of square feet in
the Leased Premises is taken.
(b) If any part of the Common Areas of the Complex are taken by
condemnation, this Lease shall remain in full force and effect so long as there
is no material interference with the access to the Leased Premises, except that
if thirty percent (30%) or more of the Common Area is taken by condemnation,
either party shall have the election to terminate this Lease pursuant to this
Section.
(c) If fifty percent (50%) or more of the Building in which the
Leased Premises are located is taken, Lessor shall have the election to
terminate this Lease in the manner prescribed herein.
24.4. Termination or Abatement. If either party elects to terminate
this Lease under the provisions of Section 24.3, (such party is hereinafter
referred to as the "Terminating Party") it must terminate by giving notice to
the other party (the "Nonterminating Party") within thirty (30) days after the
nature and extent of the taking have been finally determined (the "Decision
Period"). The Terminating Party shall notify the Nonterminating Party of the
date of termination, which date shall not be earlier than sixty (60) days after
the Terminating Party has notified the Nonterminating Party of its election to
terminate nor later than the date of taking. If Notice of Termination is not
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given within the Decision Period, the Lease shall continue in full force and
effect except that Minimum Monthly Rent shall be reduced by subtracting
therefrom an amount calculated by multiplying the Minimum Monthly Rent in effect
prior to the taking by a fraction the numerator of which is the number of square
feet taken from the Leased Premises and the denominator of which is the number
of square feet in the Leased Premises prior to the taking.
24.5. Restoration. If there is a partial taking of the Leased Premises
and this Lease remains in full force and effect pursuant to this Article,
Lessor, at its cost, shall accomplish all necessary restoration so that the
Leased Premises is returned as near as practical to its condition immediately
prior to the date of the taking, but in no event shall Lessor be obligated to
expend more for such restoration than the extent of funds actually paid to
Lessor by the condemnor.
24.6. Award. Any award arising from the condemnation or the settlement
thereof shall belong to and be paid to Lessor except that Lessee shall receive
from the award compensation for the following if specified in the award by the
condemning authority, so long as it does not reduce Lessor's award in respect of
the real property: Lessee's trade fixtures, tangible personal property,
goodwill, loss of business and relocation expenses. At all events, Lessor shall
be solely entitled to all award in respect of the real property, including the
bonus value of the leasehold. Lessee shall not be entitled to any award until
Lessor has received the above sum in full.
ARTICLE 25. ASSIGNMENT AND SUBLETTING
25.1. Lease is Personal. The purpose of thin Lease is to transfer
possession of the Leased Premises to Lessee for Lessee's personal use in return
for certain benefits, including rent, to be transferred to the Lessor. Lessee's
right to assign or sublet as stated in this Article is subsidiary and incidental
to the underlying purpose of this Lease. Lessee acknowledges and agrees that it
has entered into this Lease in order to acquire the Leased Premises for its own
personal use and not for the purpose of obtaining the right to convey the
leasehold to others.
25.2. "Transfer of the Leased Premises" Defined. The terms "Transfer of
the Leased Premise" or "Transfer" as used herein shall include any assignment of
all or any part this Lease (including assignment by operation of law),
subletting of all or any part the Leased Premises or transfer of possession, or
right of possession or contingent right of possession of all or any portion of
the Leased Premises including without limitation, concession, mortgage, devise,
hypothecation, agency, franchise or management agreement, or to suffer any other
person (the agents and servants of Lessee excepted) to occupy or use the said
Leased Premises or any portion thereof. If Lessee is a corporation which is not
deemed a public corporation, or is an unincorporated association or partnership,
or Lessee consists of more than one party,the transfer, assignment or
hypothecation of any stock or interest in such corporation, association,
partnership or ownership interest, ln the aggregate ln excess of twenty-five
percent (25%), shall be deemed a Transfer of the Leased Premises.
25.3. No Transfer Without Consent. Lessee shall not suffer a Transfer
of the Leased Premises or any interest therein, or any part thereof, or any
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right or privilege appurtenant thereto without the prior written consent of
Lessor, and a consent to one Transfer of the Leased Premises shall not be deemed
to be a consent to any subsequent Transfer of the Leased Premises. Any Transfer
of the Leased Premises without such consent shall be void, and shall, at the
option of Lessor, terminate this Lease.
25.4. When Consent Granted.
(a) The consent of Lessor to a Transfer may not be
unreasonably withheld, provided should Lessor withhold its consent for any of
the following reasons, which list is not exclusive, such withholding shall be
deemed to be reasonable:
(i) Financial strength of the proposed transferee is
not at least equal to that of Lessee at the time of execution of thin Lease;
(ii) A proposed transferee whose occupation of the
Leased Premises would cause a diminution in the reputation of the Complex or the
other businesses located therein;
(iii) A proposed transferee whose impact on the
common facilities or the other occupants of the Complex would be
disadvantageous; or
(iv) A proposed transferee whose occupancy will
require a variation in the terms of the lease.
(v) Lessee agrees that its personal business skills
and philosophy were an important inducement to Lessor for entering into this
Lease agreement and that Lessor may reasonably object to the transfer of the
Leased Premises to another whose proposed use, while permitted by the use clause
of this Lease, would involve a different quality, manner or type of business
skills than that of Lessee.
(b) Notwithstanding the foregoing, Lessee shall have the
right, without the consent of Lessor, but upon prior written notice to Lessor,
to assign this Lease to a company incorporated or to be incorporated by Lessee
provided that Lessee owns or beneficially controls all the issued and
outstanding shares of capital stock of the company.
25.5. Procedure for Obtaining Consent.
(a) Lessor need not commence its review of any proposed
Transfer, or respond to any request by Lessee with respect to such, unless and
until it has received from Lessee adequate descriptive information concerning
the business to be conducted by the proposed transferee, the transferee's
financial capacity, and such other information as may reasonably be required in
order to form a prudent Judgment as to the acceptability of the proposed
Transfer, including, without limitation, the following:
(i) The past two year's Federal income Tax returns of
the proposed transferee (or in the alternative the past two years audited annual
Balance Sheets and Profit and Loss statements, certified correct by a Certified
Public Accountant);
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(ii) Banking references of the proposed transferee;
(iii) A resume of the business background and
experience of the proposed transferee;
(iv) At least five (5) business and three (3)
personal references for the proposed transferee;
(v) An executed copy of the instrument by which
Lessee proposes to effectuate the Transfer.
(b) Lessee shall reimburse Lessor as additional rent for
Lessor's reasonable costs and attorney's fees incurred in conjunction with the
processing and documentation of any proposed Transfer of the Leased Premises,
whether or not content is granted. (1) (See Addendum - Paragraph 25.5(b))
25.6. Effect of Transfer. If Lessor consents to a Transfer, the
following conditions shall apply:
(a) Each and every covenant, condition or obligation imposed
upon Lessee by this Lease and each and every night, remedy or benefit afforded
Lessor by this Lease shall not be impaired or diminished as a result of such
Transfer.
(b) On a monthly basis, any sums of money, or other economic
consideration received by Lessee from the Transferee in such month (whether or
not for a period longer than one month), including higher rent, bonuses, key
money, or the like which exceed, in the aggregate, the total sums which Lessee
pays Lessor under this Lease in such month, or the prorated portion thereof if
the Leased Premises transferred is less than the entire Leased Premises, shall
be payable eighty percent (80%) to Lessor and twenty percent (20%) to Lessee,
and Lessor's share shall be paid with Lessee's payment of Minimum Monthly Rent.
(c) No Transfer, whether or not consent of Lessor is required
hereunder, shall relieve Lessee of its primary obligation to pay the rent and to
perform all other obligations to be performed by Lessee hereunder. The
acceptance of rent by Lessor from any person shall not be deemed to be a waiver
by Lessor of any provision of this Lease or to be a consent to any Transfer of
the Leased Premises.
(d) If Lessor consents to a sublease, such sublease shall not
extend beyond the expiration of the term of this Lease.
(e) No Transfer shall be valid and no transferee shall take
possession of the Leased Premises or any part thereof unless, within ten (10)
days after the execution of the documentary evidence thereof, Lessee shall
deliver to Lessor a duly executed duplicate original of the Transfer instrument
in form satisfactory to Lessor which provides that (i) the transferee assumes
Lessee's obligations for the payment of rent and for the full and faithful
observance and performance of the covenants, terms and conditions contained
herein, (ii) such transferee will, at Lessor's election, attorn directly to
Lessor in the event Lessee's Lease is terminated for any reason on the terms set
forth in the instrument of transfer and (iii) such instrument of transfer
contains such other assurances as Lessor reasonably deems necessary.
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ARTICLE 26. ABANDONMENT
26.1. Lessee to Occupy. Lessee shall not vacate nor abandon the Leased
Premises at any time during the Lease term, nor permit the Leased Premises to
remain unoccupied for a period longer than ten (10) consecutive days during the
Lease term, and if Lessee shall abandon, vacate or surrender the Leased
Premises, or be dispossessed by process of law, or otherwise, any personal
property belonging to Lessee and remaining on the Leased Premises after such ten
(10) day period shall, at the option of Lessor, be deemed abandoned.
ARTICLE 27. ENTRY BY LESSOR
27.1. Rights of Lessor. Lessee shall permit Lessor and Lessor's agents
to enter the Leased Premises at all reasonable times for the purpose of
inspecting the same or for the purpose of maintaining the Building, or for the
purpose of making repairs, alterations or additions to any portion of the
Building, including the erection and maintenance of such scaffolding, canopies,
fences and props as may be required, or for the purpose of posting notices of
non-responsibility for alterations, additions or repairs, or for the purpose of
placing upon the Building any usual or ordinary "for sale" signs, without any
rebate of Rent and without any liability to Lessee for any loss of occupation or
quiet enjoyment of the Leased Premises thereby occasioned, and shall permit
Lessor, at any time within ninety (90) days prior to the expiration of this
Lease, to place upon the Leased Premises any usual or ordinary "to let" or "to
lease" signs. This Section in no way affects the maintenance obligations of the
parties hereto. (1) (See Addendum - Paragraph 27.1)
ARTICLE 28. SIGNS
28.1. Approval, Installation and Maintenance. Lessee shall not place on
the Leased Premises or on the Complex, any exterior signs or advertisements nor
any interior signs or advertisements that are visible from the exterior of the
Leased Premises, without Lessor's prior written consent, which Lessor reserves
the right to withhold for any aesthetic reason in its sole judgment. The cost of
installation and regular maintenance of any such signs approved by Lessor shall
be at the sole expense of Lessee. At the termination of this Lease, or any
extension thereof, Lessee shall remove all his signs, and all damage caused by
such removal shall be repaired at Lessee's expense.
ARTICLE 29. DEFAULT
29.1. Definition. The occurrence of any of the following shall
constitute a material default and breach of this Lease by Lessee:
(b) The abandonment or vacation of the Leased Premises by
Lessee in violation of Section 26.1 thereof;
(c) A failure by Lessee to observe and perform any other
provision of this Lease to be observed or performed by Lessee, where such
failure continues for ten (10) days after written notice thereof by Lessor to
Lessee; provided, however, that if the nature of the default is such that the
same cannot reasonably be cured within the ten (10) day period allowed, Lessee
shall
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not be deemed to be in default if Lessee shall, within such ten (10) day period,
commence to cure and thereafter diligently prosecute the same to completion;
(d) Either (1) the appointment of a receiver (except a
receiver appointed at the instance or request of Lessor) to take possession of
all or substantially all of the assets of Lessee, or (2) a general assignment by
Lessee for the benefit of creditors, or (3) any action taken or suffered by
Lessee under any insolvency or bankruptcy act shall constitute a breach of this
Lease by Lessee. In such event, Lessor may, at its option, declare this Lease
terminated and forfeited by Lessee, and Lessor shall be entitled to immediate
possession of the Leased Premises. Upon such notice of termination, this Lease
shall terminate immediately and automatically by its own limitation;
ARTICLE 30. REMEDIES UPON DEFAULT
30.1. Termination and Damages. In the event of any default by Lessee,
then in addition to any other remedies available to Lessor here in or at law or
inequity, Lessor shall have the immediate option to terminate this Lease and all
rights of Lessee here under by giving written notice of such intention to
terminate. In the event that Lessor shall elect to so terminate this Lease, then
Lessor may recover from Lessee:
(a) The worth at the time of award of any unpaid rent which
had been earned at the time of such termination; plus
(b) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss Lessee proves could have been
reasonably avoided: plus
(c) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after termination of award exceeds the
amount of such rental loss that Lessee proves could be reasonably avoided; plus
(d) Any other amount necessary to compensate Lessor for all
the detriment proximately caused by Lessee's failure to perform its obligations
under this Lease or which in the ordinary course of events would be likely to
result there from; and
(e) At Lessor's election, such other amounts in addition to or
in lieu of the foregoing as maybe permitted from time to time by the applicable
law in the state in which the Leased Premises are located.
30.2. Definitions.
(a) The term "rent", as used in this Lease, shall be deemed to
be and to mean the Minimum Monthly Rent and all other sums required to be paid
by Lessee pursuant to the terms of this Lease.
(b) As used in Sections 30.1(a) and (b) above, the worth at
the time of award,is computed by allowing interest at the rate of ten percent
(10%) per annum. As used in Section 30.1(c) above, the "worth at the time of
award" is computed by discounting such amount at the discount rate of the
Federal
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Reserve Bank for the region in which the Complex is located at the time of award
plus one percent (1%).
30.3. Personal Property.
(a) In the event of any default by Lessee, Lessor shall also
have the right, with or without terminating this Lease, to reenter the Leased
Premises and remove all persons and property from the Leased Premises; such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Lessee.
(b) In the event of default, all of Lessee's fixtures,
furniture, equipment, improvements, additions, alterations and other personal
property, shall remain upon the Leased Premises and in that event, and
continuing during the length of such default, Lessor shall have the sole right
to take exclusive possession of such property and to use it, renter charge free,
until all defaults are cured or, at Lessor's option, at any time during the term
of this Lease, to require Lessee to forthwith remove such property. The rights
stated herein are in addition to Lessor' rights described in Section 21.1.
30.4. Recovery of Rent: Reletting.
(a) In the event of the vacation or abandonment of the Leased
Premises by Lessee or in the event that Lessor shall elect to reenter as
provided in Section 30.3 above, or shall take possession of the Leased Premises
pursuant to legal proceeding or pursuant to any notice provided by law, then if
Lessor does not elect to terminate this Lease as provided in Section 30.1 above,
Lessor may from time to time, without terminating this Lease, either recover all
rental as it becomes due or relet the Leased Premises or any part thereof for
such term or terms and at such rental or rentals and upon such other terms and
conditions as Lessor in its sole discretion, may deem advisable with the right
to make alterations and repairs to the Leased Premises.
(b) In the event that Lessor shall elect to so relet, then
rentals received by Lessor from such reletting shall be applied: first, to the
payment of any indebtedness other than rent due hereunder from Lessee to Lessor;
second, to the payment of any cost of such reletting: third, to the payment or
the cost of any alterations and repairs to the Leased Premises; fourth, to the
payment of rent due and unpaid hereunder; and the residue, if any, shall be held
by Lessor and applied in payment of future rent as the same may become due and
payable hereunder. Should that portion of such rentals received from such
reletting during any month, which is applied by the payment of rent thereunder,
be less than the rent payable during that month by Lessor hereunder, then Lessee
shall pay such deficiency to Lessor immediately upon demand there for by Lessor.
Such deficiency shall be calculated and paid monthly. Lessee shall also pay to
Lessor as soon as ascertained, any cost and expenses incurred by Lessor in such
reletting or in making such alteration and repairs not covered by the rentals
received from such reletting.
(c) No reentry or taking possession of the Leased Premises or
any other action under this Section shall be construed as an election to
terminate this Lease unless a written notice of such intention be given to
Lessee or unless the termination thereof be decreed by a Court of competent
jurisdiction.
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Notwithstanding any reletting without termination by Lessor because of any
default by Lessee, Lessor may at any time after such reletting elect to
terminate this Lessee for any such default.
30.5. No Waiver. Efforts by Lessor to mitigate the damages caused by
Lessee's default in this Lease shall not constitute a waiver of Lessor's right
to recover damages hereunder, nor shall Lessor have any obligation to mitigate
damages hereunder.
30.6. Curing Defaults. Should Lessee fail to repair, maintain, and/or
service the Premises, or any part or contents thereof at any time or times, or
perform any other obligations imposed by this Lease or otherwise, then after
having given Lessee reasonable notice of the failure or failures and a
reasonable opportunity which in no case shall exceed ten (10) days, to remedy
the failure, Lessor may perform or contract for the performance of the repair,
maintenance, or other Lessee obligation, and Lessee shall pay Lessor for all
direct and indirect costs incurred in connection therewith within ten (10) days
of receiving a bill therefor from Lessor.
30.7. Cumulative Remedies. The various rights, options, election
powers, and remedies of Lessor contained in this Article and elsewhere in this
Lease shall be construed as cumulative and no one of them exclusive of any
others or of any legal or equitable remedy which Lessor might otherwise have in
the event of breach or default, and the exercise of one right or remedy by
Lessor shall not in any way impair its right to any other right or remedy.
ARTICLE 31. BANKRUPTCY
31.1. Bankruptcy Events. If at any time during the term of this Lease
there shall be filed by or against Lessee in any court pursuant to any statute
either of the United States or of any State a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or trustee
of all or a portion of Lessee's property, or if a receiver or trustee takes
possession of any of the assets of Lessee, or if the leasehold interest herein
passes to a receiver, or if Lessee makes an assignment for the benefit of
creditors or petitions for or enters into an arrangement (any of which are
referred to herein as "a bankruptcy event"), then the following provisions shall
apply:
(a) At all events any receiver or trustee in bankruptcy or
Lessee as debtor in possession ("debtor"), shall either expressly assume or
reject this Lease within sixty (60) days following the entry of an "Order for
Relief".
(b) In the event of an assumption of the Lease by a debtor,
receiver, or trustee, such debtor, receiver, or trustee shall immediately after
such assumption (l) cure any default or provide adequate assurances that
defaults will be promptly cured; and (2) compensate Lessor for actual pecuniary
loss or provide adequate assurances that compensation will be made for actual
pecuniary loss; and (3) provide adequate assurance of future performance.
For the purposes of this paragraph 46.1(b), adequate assurance
of future performance of all obligations under this Lease shall include, but is
not limited to:
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(i) written assurances that rent and any other
consideration due under the Lease shall first be paid before any other of
Lessee's costs of operation of its business in the Leased Premises are paid;
(ii) written agreement that assumption of this Lease
will not cause a breach of any provision hereof including, but not limited to,
any provision relating to use or exclusivity in this or any other Lease, or
agreement relating to the Leased Premises, or if such a breach is caused, the
debtor, receiver or trustee will indemnify Lessor against such loss (including
costs of suit and attorney's fees), occasioned by such breach:
(c) Where a default exists under the Lease, the party
assuming the Lease may not require Lessor to provide services or supplies
incidental to the Lease before its assumption by such trustee or debtor, unless
Lessor is compensated under the terms of the Lease for such services and
supplies provided before the assumption of such Lease.
(d) The debtor, receiver, or trustee may only assign this
Lease if adequate assurance of future performance by the assignee is provided,
whether or not there has been a default under the Lease. Any consideration paid
by any assignee in excess of the rental reserved in the Leases shall be the sole
property of, and paid to, Lessor. Upon assignment by the debtor or trustee the
obligations of the Lease shall be deemed to have been assumed and the assumption
shall execute an assignment agreement on request of Lessor.
(e) Lessor shall be entitled to the fair market value for
the Leased Premises and the services provided by Lessor (but in no event less
than the rental reserved in the Lease) subsequent to the commencement of a
bankruptcy event.
(f) Lessor specifically reserves any and all remedies
available to Lessor in Article 30 hereof or at law or inequity in respect of a
bankruptcy event by Lessee to the extent such remedies are permitted by law.
ARTICLE 32. SURRENDER OF LEASE
32.1. No Merger. The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, shall not work as a merger, and shall,
at the option of Lessor, terminate all or any existing subleases or
subtenancies, or may, at the option of Lessor, operate as an assignment to it of
any or all such subleases or subtenancies.
ARTICLE 33. LESSOR'S EXCULPATION
33.1. In the event of default, breach, or violation by Lessor (which
term includes Lessor's partners, co-venturers, co-tenants, officers, directors,
employees, agents, or representatives) of any Lessor's obligations under this
Lease, Lessor's liability to Lessee shall be limited to its ownership interest
in the Leased Premises (or its interest in the Complex, if applicable) or the
proceeds of a public sale of such interest pursuant to foreclosure of a Judgment
against Lessor. Lessor may, at its option, and among its other alternatives,
relieve itself of all liability under this Lease by conveying the Leased
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Premises to Lessee. Notwithstanding any such conveyance, Lessee's leasehold and
ownership interest shall not merge.
33.2. No Recourse. Lessor (as defined in Section 33.1) shall not be
personally liable for any deficiency beyond its interest in the Leased Premises.
ARTICLE 34. ATTORNEY'S FEES
34.1. Actions, Proceedings, etc. Lessee hereby agrees to pay, as
additional rent, all attorney's fees and disbursements, and all other court
costs or expenses of legal proceedings or other legal services which Lessor may
incur or pay out by reason of, or in connection with:
(a) any action or proceeding brought by Lessor wherein Lessor
obtains a final judgment or award against Lessee (including arbitration) on
account of any default by Lessee in the observance or performance of any
obligation under this Lease including, but not limited to, matters involving
payment of rent and additional rent, alterations or other Lessee's work and
subletting or assignment;
(b) any action or proceeding brought by Lessee against Lessor
(or any officer, partner, or employee of Lessor) in which Lessee fails to secure
a final judgment against Lessor;
(c) any other appearance by Lessor (or any officer, partner,
or employee of Lessor) as a witness or otherwise in any action or proceeding
whatsoever involving or affecting Lessee or this Lease;
(d) any assignment, sublease, or leasehold mortgage proposed
or granted by Lessee (whether or not permitted under this Lease), and all
negotiations with respect thereto; and (1) (See Addendum - Paragraph 34.1(d))
(e) any alteration of the Leased Premises by Lessee, and all
negotiations with respect thereto.
In any action or proceeding referred to in subsection (a), Lessee shall
be entitled to recover its attorney fees and costs if Lessee is the prevailing
party against Lessor.
34.2. Survival. Lessee's obligations under this Section shall survive
the expiration or any other termination of this Lease. This Section is intended
to supplement (and not to limit) other provisions of this Lease pertaining to
indemnities and/or attorney's fees.
34.3 Counsel Fees. Should it be necessary for Lessor to employ legal
counsel to enforce any of the provisions of this Lease. This Section is intended
to supplement (and not to limit) other provisions of this Lease pertaining to
indemnities and/or attorney's fees.
35.1 Writing. All notices, demands and requests required or permitted
to be given or made by personal service or by mailing same by registered or
certified mail, return receipt requested, postage prepaid, or by reputable
courier which provides written evidence of delivery, addressed to the respective
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party at the address set forth in Section 1.2 of this Lease or at such other
address as the party may from time to time designate, by a written notice, sent
to the other in the manner aforesaid.
35.2. Effective Date. Any such notice, demand or request (notice")
shall be deemed given or made on the third day after the date so mailed.
Notwithstanding the foregoing, notice given by personal delivery to the party at
its address as aforesaid, shall be deemed given on the day on which delivery is
made. Notice given by a reputable courier service which provides written
evidence of delivery shall be deemed given on the business day immediately
following deposit with the courier service.
35.3. Authorization to Receive. Each person and/or entity whose
signature is affixed to this Lease as Lessee or as guarantor of Lessee's
obligations ("obligor") designates such other obligor their agent for the
purpose of receiving any notice pertaining to this Lease or service of process
in the event of any litigation or dispute arising from any obligation imposed by
this Lease.
ARTICLE 36. SUBORDINATION
36.1. Priority of Encumbrances. This Lease, at Lessor's option, shall
be subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation for security now or hereafter placed upon the real property of
which the Leased Premises are apart and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Lessee's right to quiet possession of the Leased Premises shall not be disturbed
if Lessee is not in default and so long as Lessee shall pay the rent and observe
and perform all the provisions of this Lease, unless this Lease, is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease prior to the lien of its mortgage, deed of trust
or ground lease, and shall give written notice thereof to Lessee, this Lease
shall be deemed prior to such mortgage, deed of trust or ground lease, whether
this Lease is dated prior or subsequent to the date of said mortgage, deed of
trust or ground lease or the date of recording thereof.
36.2. Execution of Documents. Lessee agrees to execute any documents
required to effectuate such subordination or to make this Lease prior to the
lien of any mortgage, deed of trust or ground lease, as the case may be, and
failing to do so within ten (10) days after written demand, does hereby make,
constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in
Lessee's name, place and stead, to do so. It is understood by all parties, that
Lessee's failure to execute the subordination documents referred to above may
cause Lessor serious financial damage by causing the failure of a financing or a
sale transaction.
36.3. Attornment. Lessee shall attorn to any purchaser at any
foreclosure sale, or to any grantee or transferee designated in any Deed given
in lieu of foreclosure.
ARTICLE 37. ESTOPPEL CERTIFICATES
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37.1. Execution by Lessee. Within ten (10) days of request therefor by
Lessor, Lessee shall execute a written statement acknowledging the commencement
and termination dates of this Lease, that it is in full force and effect, has
not been modified (or if it has, stating such modifications), and providing any
other pertinent information as Lessor or its agent might reasonably request.
Failure to comply with this Article shall be a material breach of this Lease by
Lessee giving Lessor all rights and remedies under Article 30 hereof, as well as
a right to damages caused by the loss of a loan or sale which may result from
such failure by Lessee. 37.2. Financing. If Lessor desires to finance or
refinance the Leased Premises, or any part thereof, or the Building, Lessee
hereby agrees to deliver to any lender designated by Lessor such financial
statement of Lessee as may be reasonably required by such lender. Such
statements shall include the past three (3) years' financial statements of
Lessee. All such financial statements shall be received by Lessor in confidence
and shall be used only for the purposes herein set forth.
ARTICLE 38. WAIVER
38.1. Effect of Waiver. The waiver by Lessor of any breach of any Lease
provision shall not be deemed to be a waiver of such Lease provision or any
subsequent breach of the same or any other term, covenant or condition therein
contained. The subsequent acceptance of rent thereunder by Lessor shall not be
deemed to be a waiver of any preceding breach by Lessee of any provision of this
Lease, other than the failure of Lessee to pay the particular rental so
accepted, regardless of Lessor's knowledge of such preceding breach at the time
of acceptance of such rent.
ARTICLE 39. HOLDING OVER
39.1. Month-to-Month Tenancy on Acceptance. If Lessee should remain in
possession of the Leased Premises after the expiration of the Lease term and
without executing a new Lease, then, upon acceptance of rent by Lessor, such
holding over shall be construed as a tenancy from month to month, subject to all
the conditions, provisions and obligations of this Lease as existed during the
last month of the term hereof, so far as applicable to a month to month tenancy,
except that the Minimum Monthly Rent shall be equal to twice the Minimum Monthly
Rent payable immediately prior to the expiration or sooner termination of the
Lease.
ARTICLE 40. SUCCESSORS AND ASSIGNS
40.1. Binding Effect. The covenants and condition herein contained
shall, subject to the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators and assigns of all of the parties hereto;
and all of the parties hereto shall be jointly and severally liable hereunder.
41.1. Time of the Essence.Time is of the essence of this Lease with
respect to each and every article, section and subsection hereof.
ARTICLE 42. EFFECT OF LESSOR'S CONVEYANCE
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42.1. Release of Lessor. If, during the term of this Lease, Lessor
shall sell its interest in the Building or Complex of which the Leased Premises
forms a part, or the Leased Premises, then from and after the effective date of
the sale or conveyance, Lessor shall be released and discharged from any and all
obligations and responsibilities under this Lease, except those already accrued.
ARTICLE 43. COMMON AREAS
43.1. Lessor shall, in Lessor's sole discretion, maintain the Common
Areas (subject to reimbursement pursuant to Article 8 hereof), establish and
enforce reasonable rule 6 and regulations concerning such areas, close any of
the Common Areas to whatever extent required in the opinion of Lessor's counsel
to prevent a dedication of any of the Common Areas or the accrual of any rights
of any person or of the public to the Common Areas, close temporarily any of the
Common Areas for maintenance purposes, and make changes to the Common Areas
including, without limitation, changes in the location of driveways, corridors,
entrances, exits, vehicular parking spaces, parking area, the designation of
areas for the exclusive use of others, the direction of the flow of traffic or
construction of additional buildings thereupon. Lessor may provide security for
the Common Areas but is not obligated to do so.
ARTICLE 44. TRANSFER OF SECURITY
44.1. Transfer to Purchaser. If any security be given by Lessee to
secure the faithful performance of all or any of the covenants of this Lease on
the part of Lessee, Lessor may transfer and/or deliver the security, as such, to
the purchaser of the reversion, in the event that the reversion be sold, and
thereupon Lessor shall be discharged from any further liability in reference
thereto.
ARTICLE 45. LATE CHARGES
45.1. Late Payment by Lessee. Lessee acknowledges that late payment by
Lessee to Lessor of rent or any other payment due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult and impractical to fix. Such costs include, without
limitation, processing and accounting charges that may be imposed on Lessor by
the terms of any encumbrance and note secured by any encumbrance covering the
Leased Premises. Therefore, if any installment of rent, or any other payment due
hereunder from Lessee is not received by Lessor when due, Lessee shall pay to
Lessor an additional sum of such rent or other charge as a late charge. Thy
parties agree that this late charge represents a fair and reasonable estimate of
the cost that Lessor will incur by reason of late payment by Lessee. Acceptance
of any late charge shall not constitute a waiver of Lessee default with respect
to the overdue amount, or prevent Lessor from exercising any other rights or
remedies available to Lessor.
ARTICLE 46. CORPORATE AUTHORITY
46.1. Authorization to Execute. If Lessee is a corporation, each
individual executing this Lease on behalf of said corporation, represents and
warrants that he is duly authorized to execute and deliver this Lease on behalf
of said corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the Bylaws of said
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corporation, and that this Lease is binding upon said corporation in accordance
with its terms.s Further, Lessee shall, within thirty (30) days after execution
of this Lease, deliver to Lessor a certified copy of a resolution of the Board
of Directors of said corporation authorizing or ratifying the execution of this
Lease.
ARTICLE 47. MORTGAGEE PROTECTION
47.1. Notice and Right to Cure Default. Lessee agrees to give any
mortgagee(s) and/or trust deed holders, by registered mail, a copy of any notice
of default served upon Lessor, Provided that prior to such notice Lessee has
been notified, in writing (by way of Notice of Assignment of Rents and Leases,
or otherwise), of the address of such mortgagees and/or trust deed holders.
Lessee further agrees that if Lessor shall have failed to cure such default
within the time provided for in this Lease, then the mortgagees and/or trust
deed holders shall have an additional thirty (30) days within which to cure such
default or if such default cannot be cured within that time, then such
additional time as may be necessary if within such thirty (30) days, any
mortgagee and/or trust deed holder has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings, if necessary
ARTICLE 48. MISCELLANEOUS PROVISIONS
48.1. Captions. The captions of this Lease are for convenience only and
are not a part of this Lease and do not in anyway limit or amplify the terms and
provisions of this Lease.
48.2. Number and Gender. Whenever the singular number is used in this
Lease and when required by the context, the same shall include the plural, the
plural shall include the singular, and the masculine gender shall include the
feminine and neuter genders, and the word "person" shall include corporation,
firm or association. If there be more than one Lessee, the obligations imposed
under this Lease upon Lessee, shall be joint and several.
48.3. Modifications. This instrument contains all of the agreements,
conditions and representations made between the parties to this Lease and may
not be modified orally or in an any other manner than by an agreement in writing
signed by all of the parties to this Lease.
48.4. Payments. Except as otherwise expressly stated, each payment
required to be made by Lessee shall be in addition to and not in substitution
for other payments to be made by Lessee.
48.5. 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.
48.6. No Offer. The preparation and submission of a draft of this Lease
by either party to the other shall not constitute an offer no shall either party
be bound to any terms of this Lease or the entirety of the Lease itself until
both parties have fully executed a final document and an original signature
document has been received by both parties. Until such time as described in the
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previous sentence, either party is free to terminate negotiations with no
obligation to the other.
48.7. Disputed Sums. Under the terms of this Lease numerous charges are
an may be due from Lessee to Lessor including, without limitation, Common Area
charges, real estate taxes, insurance reimbursement and other items of a similar
nature including advances made by Lessor in respect of Lessee's default at
Lessor's option. In event that at any time during the term there is a bona fide
dispute between the parties as to the amount due for any of such charges claimed
by Lessor to be due, the amount demanded by Lessor shall be paid by Lessee until
the resolution of the dispute between the parties or by litigation. Failure by
the dispute between the parties or by litigation. Failure by Lessee to pay the
disputed sums until resolution shall constitute a default under the terms of the
Lease.
48.9. Light, Air and View. No diminution of light, air, or view by any
structure which may hereafter be erected (whether or not be Lessor) shall
entitle Lessee to any reduction of Rent, result in any liability of Lessor to
Lessee, or in any other way affect this Lease or Lessee's obligations hereunder.
48.10. Public Transportation Information. Lessee shall establish and
maintain during the Term hereof a program to encourage maximum use of public
transportation by personnel of Lessee employed on the Leased Premises, including
without limitation the distribution to such employees of written materials
explaining the convenience and availability of public transportation facilities
adjacent or proximate to the Complex, staggering working hours of employees, and
encouraging use of such facilities, all at Lessee's sole reasonable cost and
expense. Lessee shall comply with all requirements of any local transportation
management ordinance.
48.11. Rules and Regulations. Lessee agrees to comply with all
reasonable rules and regulations adopted and promulgated by Lessor and
applicable to all tenants in the Complex for the lawful, orderly, clean, safe,
aesthetic, quiet, and beneficial use, operation, maintenance, management, and
enjoyment of the Complex.
48.12. Joint and Several Liability. Should Lessee consist of more than
one person or entity, they shall be jointly and severally liable on this Lease.
ARTICLE 49. WAIVER OF CALIFORNIA CODE SECTIONS
49.1. Waiver by Lessee. Lessee waives (for itself and all persons
claiming under Lessee) the provisions of Civil Code Sections 1932(2) and 1933(4)
with respect tot he destruction of the Leased Premises, Civil Code Sections 1941
and 1942 with respect to Lessor's repair duties and Lessee's right to repair,
Code of Civil Procedure Section 1265.130, allowing either party to petition the
Superior Court to terminate this Lease in the event of a partial taking of the
Leased Premises by condemnation as herein defined, and any right of redemption
or reinstatement of Lessee under any present or future case law or statutory
provision (including Code of Civil Procedure Sections 473 and 1179 and Civil
Code Section 3275) in the event Lessee is dispossessed from the Leased Premises
for any reason. This waiver applies to future statutes enacted in addition to
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or in substitution for the statutes specified herein. Copies of the above-
referenced Code sections are attached as Exhibit "F".
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease.
<TABLE>
<CAPTION>
<S> <C>
LESSOR: LESSEE:
KI MONTEREY RESEARCH, INC., A THINKING TOOLS, INC., A DELAWARE
CORPORATION CALIFORNIA CORPORATION
By: By:
Kemper Real Estate Management John Hiles, President
It's Authorized Agent
</TABLE>
David A. Kingery, Vice President
Date: Date:
FOR OFFICE USE ONLY:
PREPARED BY:
REVIEWED BY:
APPROVED BY:
Lessor's Lessee's
Initials Initials
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EXHIBIT "A"
THE LAND SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF MONTEREY, CITY OF
MONTEREY AND DESCRIBED AS FOLLOWS:
LOT 16 A AS SAID LOT IS SHOWN ON THAT CERTAIN RECORD OF SURVEY RECORDED
SEPTEMBER 22, 1988 IN BOOK 15 OF SURVEYS AT PAGE 174, OFFICIAL RECORDS OF
MONTEREY COUNTY, CALIFORNIA.
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EXHIBIT "D"
ACKNOWLEDGEMENT OF COMMENCEMENT
This Acknowledgement is made as of March 31, 1995, with reference to
that certain Lease Agreement (hereinafter referred to as the"lease") dated (1)
August 19, 1995, by and between as "Lessor" therein, and Thinking Tools, Inc.,
as "Lessee", for the demised premises situated at Monterey Commerce Center,
Building #1, Suite 250.
The undersigned hereby confirms the following:
1. That the Lessee accepted possession of the Demised Premises (as
described in said lease) on April 1, 1995, and acknowledges that the premises
are as represented by the Lessor and in good order, condition and repair, and
that the improvements, if any, required to be constructed for Lessee by Lessor
under this lease have been so constructed and are satisfactorily completed in
all respects.
2. That all conditions of said lease to be performed by Lessor
prerequisite to the full effectiveness of said lease have been satisfied and
that Lessor has fulfilled all of its duties of an inducement nature.
3. That in accordance with the provisions of Article 3 of said lease
the commencement date of the term is April 1, 1995, and that, unless sooner
terminated, the original term thereof expires on March 31, 1998.
4. That said lease is in full force and effect and that the same
represents the entire agreement between Lessor and Lessee concerning said lease.
5. That there are no existing defenses which Lessee has against the
enforcement of said lease by Lessor, and no offsets or credits against rentals.
6. That the minimum rental obligation of said lease is presently in
effect and that all rentals, charges and other obligations on the part of Lessee
under said lease commenced to accrue on April 1, 1995.
7. That the undersigned Lessee has not made any prior assignment,
hypothecation or pledge of said lease or of the rents thereunder.
LESSEE:
By:___________________________
Date: 3/31/95
(1)and in reference to the First Amendment dated September 27th, 1994, and the
Second Amendment ad dated January 3rd, 1995,
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EXHIBIT "E"
RULES AND REGULATIONS ATTACHED TO
AND MADE A PART OF THIS LEASE
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on the Building or to any part
thereof, or which is visible from the outside of the Building, without the
written consent of Lessor, first had and obtained and Lessor shall have the
right to remove any such sign, placard, picture, advertisement, name or notice
without notice to and at the expense of Lessee.
All approved signs or lettering on doors shall be printed, affixed or inscribed
by a person approved by Lessor.
Lessee shall not place anything or allow anything to be placed near the glass of
any window, door, partition or wall which may appear unsightly from outside the
Premises.
2. The director of the Building will be provided exclusively for the
display of the name and location of Lessee only and Lessor reserves the right to
exclude any other names therefrom.
3. The sidewalks, halls, passages, exits, entrances, elevators and
stairways in and around the Building shall not be obstructed by Lessee or used
by it for any purpose other than for ingress to and egress from the Premises.
The halls, passages, exits, entrances, elevators, stairways, and roof are not
for the use of the general public and Lessor shall in all cases retain the right
to control and prevent access thereto by all persons whose presence in the (1)
(reasonable) judgment of Lessor shall be prejudicial to the safety, character,
reputation and interests of the Building and its Lessees, provided that nothing
herein contained shall be construed to prevent such access to persons with whom
Lessee normally deals in the ordinary course of Lessee's business unless such
persons are engaged in illegal activities. Neither Lessee nor any employees or
invitees of Lessee shall go upon the roof of the Building.
4. Lessee shall not be permitted to install any additional lock or
locks on any door in the Building unless written consent of Lessor shall have
first been obtained. Two keys will be furnished by Lessor for any room.
5. The toilets and urinals shall not be used for any purpose other than
those for which they were constructed and no rubbish, newspapers or other
substances of any kind shall be thrown into them. Waste and excessive or unusual
use of water shall not be allowed. Lessee shall be responsible for any breakage,
stoppage or damage resulting from the violation of this rule by Lessee or its
employees or invitees.
6. Lessee shall not overload the floor of the Premises or mark, drive
nails, screw or drill into the partitions, woodwork, or plaster or in any way
deface the premises or any part thereof.
7. No furniture, freight or equipment of any kind shall be brought into
the Building without the consent of Lessor and all moving of the same into or
out of the Building shall be done at such time and in such manner as Lessor
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shall designate. Lessor shall have the right to determine of limit the weight,
size and position of all safes and other heavy equipment brought into the
Building and also the times and manner of moving the same in and out of the
Building. Safes or other heavy objects shall, if considered necessary by Lessor,
stand on wood strips of such thickness as is necessary to properly distribute
their weight. Lessor will not be responsible for loss or damage to any such safe
or property from any cause and all damage done to the Building by moving or
maintaining any such safe or other property shall be repaired at the expense or
Lessee.
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8. Lessee shall not employ any person or persons other than the janitor
of lessor for the purpose of cleaning the premises unless otherwise agreed by
Lessor. Except with the written consent of Lessor, no person or persons other
than those approved by lessor shall be permitted to enter the Building for the
purpose of cleaning the same. Lessee shall not cause any unnecessary labor by
reason of lessee's carelessness or indifference in the preservation of good
order and cleanliness.
9. Lessee shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to Lessor or other
occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other Lessees or those having business therein.
10. Cooking shall not be permitted by Lessee in the Premises (except
microwave cooking (1) (coffee and tea cooking)) and the Premises shall not be
used for the storage of merchandise (2) (except for finished software products)
for washing clothes, for lodging or for any improper, objectionable or immoral
purposes.
11. Lessee shall not use or keep in the Premises or the Building any
kerosene, gasoline, or inflammable or combustible fluid or material, or use any
method of heating or air conditioning other than that supplied by Lessor, except
as noted in paragraph 12.3(c) of the Lease.
12. Lessor will direct electricians to the manner and location in which
telephone and telegraph wires are to be introduced. No boring or cutting for
wires will be allowed without the consent of Lessor. the location of telephones,
call boxes and other office equipment affixed to the Premises shall be subject
to the approval of Lessor.
13. Lessee shall not lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Lessor. The expense of repairing any damage
resulting from violation of this rule or removal of any floor covering shall be
borne by Lessee.
14. No packages, supplies or merchandise will be received in the
Building or carried up or down in the elevators, except during such hours and in
such elevators as shall be designated by Lessor.
15. Blinds are furnished for each window by Lessor as part of the
Construction Allowance and any additional window covering desired by Lessee
shall be put up at Lessee's expense and must be of such uniform shape, color of
material and make as may be prescribed by Lessor.
16. The requirement of Lessee will be attended to only upon application
to the Building property manager. Employees shall not perform any work nor do
anything outside of their regular duties unless under special instructions from
the Lessor or his agent, and no employee shall admit any person (Lessee or
otherwise) to any office without instructions from the Lessor.
17. On Saturdays, Sundays and legal holidays, and on other days between
the hours of 6:00 p.m. and 8:00 a.m. the following day, access to the Building
or to the halls, corridors, elevators or stairways in the Building or to the
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premises may be refused unless the person seeking access is known to the person
or employee of the Building in charge and has a pass or is properly identified.
Lessor shall in no event be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In case of invasion,
mob, riot, public excitement or other commotion, Lessor reserves the right to
prevent access to the Building during the continuance of the same by closing the
doors or otherwise for the safety of lessees and protection property in the
Building.
18. Lessor reserves the right to exclude or expel from the Building any
person who, in the judgement of Lessor, is intoxicated or under the influence of
liquor or drugs, or who shall in any manner do any act in violation of any of
the rules and regulations of the Building.
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19. No vending machine or machines of any description shall be
installed, maintained or operated upon the Premises without the written consent
of the Lessor.
20. lessee shall not disturb, solicit or canvass any occupant of the
Building.
21. Without the written consent of Lessor, Lessee shall not use the
name of the Building in connection with or in promoting or advertising the
business of Lessee except as Lessee's address.
22. Lessee shall not any contractor or other person making any
alterations, additions or installations within the Premises to use the hallways,
lobby or corridors as storage or work areas without the prior written consent of
Lessor. Lessee shall be liable for and shall pay the expense of any additional
cleaning or other maintenance required to be performed by Lessor as a result of
the transportation or storage of materials or work performed within the Building
by or for Lessee.
23. Subject to Rule 17, normal hours in which the Building will be open
for Lessee, its employees and its invitees for business therein will be from
8:00 a.m. to 6:00 p.m.
24. Lessee shall be entitled to use parking spaces as a mutually agreed
upon between Lessee and Lessor subject to such reasonable conditions and
regulations as may be imposed from time to time by Lessor. Lessee agrees that
vehicles of Lessee or its employees or agents shall not park in driveways nor
occupy parking spaces or other areas reserved for any use such as Visitors,
Delivery, Loading or other tenants. Lessor or its agents shall have the right to
cause or be removed any car of Lessee, its employees or agents, that may be
parked in unauthorized areas, and Lessee agrees to save and hold harmless
Lessor, its agents and employees from any and all claims, losses, damages and
demands asserted or arising in respect to or in connection with the removal of
any such vehicle. Lessee, its employees, or agents shall not park campers,
trucks or cars on the Building parking areas overnight or over weekends. Lessee
will from time to time, upon request of Lessor, supply Lessor with a list of
license plate numbers of vehicles owned or operated by its employees and agents.
25. Lessor reserves the right to make modifications hereto and such
other and further rules and regulations as in its (1) (reasonable) judgment may
be required for the safety, care and cleanliness of the premises and the
Building and for the preservation of good order therein. Lessee agrees to abide
by all such rules and regulations.
26. Canvassing, soliciting and peddling is prohibited in the Building
and each Lessee shall cooperate to prevent the same.
27. Lessor is not responsible for the violation of any rule contained
herein by any other Lessee.
28. (2) (Where necessary and reasonably appropriate) Lessor may waive
any one or more of these rules for the benefit of any particular Lessee, but no
such waiver shall be construed as a waiver of Lessor's right to enforce these
rules against any or all Lessee occupying the Building.
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EXHIBIT "F"
TEXT OF CALIFORNIA CODE SECTIONS
CIVIL CODE SECTION 1932(2)
Hirer may terminate the hiring, when.
The hirer of a thing may terminate the hiring before the end of the term agreed
upon:
When the greater part of the thing hired, or that part which was and which the
latter had at the time of the hiring reason to believe was the material
inducement to the hirer to enter into the contract, perishes from any other
cause than the want of ordinary care of the hirer.
CIVIL CODE SECTION 1932(4)
When hiring terminates
The hiring of a thing terminates:
By the destruction of the thing hired.
CIVIL CODE SECTION 1941
Lessor to make dwelling-house fit for its purpose
The lessor of a building intended for the occupation of human beings must, in
the absence of an agreement to the contrary, put it into a condition fit for
such occupation, and repair all subsequent dilapidation thereof, which render it
untenantable, except such as are mentioned in section nineteen hundred and
twenty-nine.
CIVIL CODE SECTION 1942
When Lessee may make repairs, etc.
(a) If within a reasonable time after written or oral notice
to the landlord or his agent, as defined in subdivision (a) of Section 1962, of
dilapidation rendering the premises untenantable which the landlord ought to
repair, the landlord neglects to do so, the tenant may repair the same himself
where the cost of such repairs does not require an expenditure of more than one
month's rent of the premises and deduct the expenses of such repairs from the
rent when due, or the tenant may vacate the premises, in which case the tenant
shall be discharged from further payment of rent, or performance of other
conditions as of the date of vacating the premises. This remedy shall not be
available to the tenant more than twice in any 12-month period.
(b) For the purposes of this section, if a tenant acts to
repair and deduct after the 30th day following notice, he is presumed to have
acted after a reasonable time. The presumption established by this subdivision
is a rebuttable presumption affecting the burden of producing evidence and shall
not
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be construed to prevent a tenant from repairing and deducting after a shorter
notice if all the circumstances require shorter notice.
(c) The tenant's remedy under subdivision (a) shall not be
available if the condition was caused by the violation of Section 1929 or
1941.2.
(d) The remedy provided by this section is in addition to any
other remedy provided by this chapter, the rental agreement, or other applicable
statutory common law.
CIVIL CODE SECTION 3275
Relief in case of forfeiture
Whenever, by the terms of an obligation, a party thereto incurs a forfeiture, or
a loss in the nature of a forfeiture, by reason of his failure to comply with
its provisions, he may be relieved therefrom, upon making full compensation to
the other party, except in case of a grossly negligent, willful, or fraudulent
breach of duty.
CODE OF CIVIL PROCEDURE 473
Amendment of pleadings; Continuance;
Relief from judgment;
Correction of clerical errors.
The court may, in furtherance of justice, and on such terms as may be proper,
allow a party to amend any pleading or proceeding by adding or striking out the
name of any party, or by correcting q mistake in the name of a party or a
mistake in any other respect; and may, upon like terms, enlarge the time for
answer or demurrer. The court may likewise, in its discretion, after notice to
the adverse party, allow, upon such terms as may be just, an amendment to any
pleading or proceeding in other particulars and may upon like terms allow an
answer to be made after the time limited by this code.
When it appears to the satisfaction of the court that such amendment renders it
necessary, the court may postpone the trial, and may, when such postponement
will by the amendment be rendered necessary, require, as a condition tot he
amendment, the payment to the adverse party of such costs as may be just.
The court may, upon such terms as may be just, relieve a party or his or her
legal representative from a judgment, order, or other proceeding taken against
him or her through his or her mistake, inadvertence, surprise or excusable
neglect. Application for such relief must be accompanied by a copy of the answer
or other pleading proposed to be filed therein, otherwise the application shall
not be granted, and must be made within a reasonable time, in no case exceeding
six months, after such judgment, order or proceeding was taken; provided
however, that, in the case of a judgment, order or other proceeding determining
the ownership or right to possession of real or personal property, without
extending said six months period, when a notice in writing is personally served
within the State of California both upon the party against whom the judgment,
order or other proceeding has been taken, and upon his or her attorney of
record, if any, notifying said party and his or her attorney of record, if any,
that such order, judgment or other proceeding was taken against him or her and
that any rights said party has to apply for relief under the provisions of
Section 473 of the Code of Civil Procedure shall expire 90 days after service
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of said notice, then such application must be made within 90 days after service
of said notice upon the defaulting party or his or her attorney or record, if
any, whichever service shall be later. No affidavit or declaration of merits
shall be required of the moving party.
The court may, upon motion of the injured party, or its own motion, correct
clerical mistakes in its judgment or orders as entered, so as to conform to the
judgment order directed, and may, on motion of either party after notice to the
other party, set aside any void judgment or order.
CODE OF CIVIL PROCEDURE SECTION 1179
(Relief against forfeiture of lease:
Application by whom and how made:
Notice: Condition of granting of relief.
The court may relieve a tenant against a forfeiture of a lease, and restore him
to his former estate, in case of hardship, where application for such relief is
made within thirty days after the forfeiture is declared b the judgment of the
court, as provided in section one thousand one hundred and seventy-four. The
application may be made by a tenant or subtenant, or a mortgagee of the term, or
any person interested in the continuance of the term. It must be made upon
petition setting forth the facts upon which the relief is sought, and be
verified by the applicant. Notice of the application, with a copy of the
petition, must be served on the plaintiff i the judgment, who may appear and
contest the application. In no case shall the application be granted except on
condition that full payment of rent due, or full performance of conditions or
covenants stipulated, so far as the same is practicable, be made.
CODE OF CIVIL PROCEDURE SECTION 1265.130
Court order terminating lease
Where part of the property subject to a lease is acquired for public use, the
court may, upon petition of any party to the lease, terminate the lease if the
court determines that an essential part of the property subject to the lease is
taken or that the remainder of the property subject to the lease is no longer
suitable for the purposes of the lease.
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ADDENDUM
FULL SERVICE OFFICE LEASE
THIS ADDENDUM AMENDS that certain Lease ("Lease") made and entered into the 19th
day of August, 1994, between Thinking Tools, Inc., a California Corporation
("Lessee"), and KI Monterey Research, Inc. ("Lessor"), and the terms hereof
shall for all purposes, be incorporated into the Lease. Wherever any
inconsistency appears between the body of the Lease and this Addendum, the
provisions of the Addendum shall prevail, except where indicated otherwise in
this Addendum.
Accordingly, pursuant to Paragraph 48.3, Modifications, of the Original
Agreement, the parties hereby amend the same as follows:
Paragraph 6.1, Delay is hereby amended, in its entirety, to read as follows:
Effective upon execution of the Lease, Lessee acknowledges Delivery of the
Premises and accept the Premises in its "As Is" condition with no warranties or
representation by Lessor.
Subparagraph 8.3(b) is hereby amended, in its entirety, to read as follows:
(b) Annually, as soon as is reasonably possible after the expiration of each
Lease Year, Lessor shall prepare in good faith and deliver to Lessee a
comparative statement, which statement shall be conclusive between the parties
after a period of ninety (90) days following delivery of the same to Lessee if
not objected to by Lessee during this time, setting forth (1) the Operating
Costs for Lease Year, and (2) the amount of additional Rent as determined in
accordance with the provisions of this Article 8.
Subparagraph 12.3(c) is hereby added to state the following:
Notwithstanding Article 12, or any other provisions contrary in this Agreement,
Lessee shall not be in violation of the Lease Agreement by its use and storage
of standard office products, otherwise defined as hazardous, which products are
used by Lessee with due care and in accordance with the instructions of the
product manufacturer in the reasonable and prudent conduct of Lessee's business
and use of the Premises.
Paragraph 12.4, Indemnity, is hereby replaced in its entirety with the
following:
Lessee agrees to indemnify, defend, protect and hold harmless Lessor, its
directors, officers, employees, partners, and agents from and against any and
all claims and expenses arising out of Lessee use or storage of any Hazardous
Materials on or about the Leased Premises.
Paragraph 16.1, Use of Premises, is hereby deleted in its entirety and replaced
with the following:
16.1. Use of Premises. Other than the use as specified herein, no use shall be
made or permitted to be made on the Leased Premises, nor acts done, which will
increase the existing rate of insurance upon the Building in which the Leased
Premises are located or upon any other Building in the Complex or cause the
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cancellation of any insurance policy covering the Building, or any part thereof,
nor shall Lessee sell, or permit to be kept, used or sold, in or about the
Leased Premises, any article which may be prohibited by the standard form of
"Special Causes of Loss" fire insurance policies. Lessee shall, at its sole cost
and expense, comply with any and all reasonable requirements pertaining to the
Leased Premises, of any insurance organization or company, necessary for the
maintenance of reasonable property damage and commercial general liability
insurance, covering the Leased Premises, the Building or the Complex. Paragraph
16.2, Increase in Premiums, is hereby deleted in its entirety and replaced with
the following:
16.2. Increase in Premiums. Lessee agrees to pay to Lessor, as additional Rent,
any increase in premiums on policies which may be carried by Lessor on the
Leased Premises, the Building or the complex, or any blanket policies which
include the Building or the Complex, covering damage thereto and loss of Rent
caused by fire and other perils above the rates for the least hazardous type of
occupancy for office use, excluding, however, such use as is otherwise permitted
to Lessee under this Agreement. Lessee further agrees to pay to Lessor, as
additional Rent, any increase in such premiums resulting from the nature of
Lessee's occupancy or any act or omission of Lessee, to the extent the same are
inconsistent with the use permitted Lessee and as provided for herein.
Paragraph 17.1, Intent and Purpose, is hereby deleted in its entirety and
replaced with the following:
17.1. Intent and Purpose. This Article 17 is written and agreed to in respect of
the intent of the parties to assign the risk of loss, whether resulting from
negligence of the parties or otherwise, and to the extent of the insurance which
is required to be carried by said party under this Agreement, to the party who
is obligated hereunder to cover the risk of such loss with said insurance. Thus,
the indemnity and waiver of claims provisions of this Lease have as their
object, so long as such object is not in violation of public policy, the
assignment of risk for a particular casualty to the party carrying the insurance
for such risk only, however, to the extent of the insurance carried under this
Agreement, and without respect to the causation thereof.
Paragraph 17.2, Waiver of Subrogation, is hereby amended by the addition of the
following sentence at the end thereof:
The waiver and release provided for herein shall be applicable only to the
extent of the insurance required pursuant to this Agreement.
Paragraph 17.3, Form of Policy, is hereby deleted in its entirety and replaced
with the following:
17.3. Form of Policy. Each party shall cause each such insurance policy obtained
by it to provide that the insurance company waives all rights of recovery by way
of subrogation against either party in connection with any damage covered by
such policy. Neither party shall be liable to the other for any damage caused by
any peril included within the classification "Special Causes of Loss", to the
extent of the coverage required under this Agreement, and which is insured
against under any such policy carried under the terms of this Lease.
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<PAGE>
Paragraph 17.4, Indemnity, is modified by the addition of the following sentence
at the end thereof:
The requirement of Lessee to indemnify, defend, protect and hold harmless Lessor
as provided for in this provision shall be limited to claims arising by reason
of the negligence or misconduct of Lessee, or that of its agents, assigns,
invitees or Licensees.
Paragraph 17.5, Defense of Claims, is hereby modified by the addition of the
following sentence at the end thereof.
The obligations of Lessee under this Agreement shall apply only for such
actions, suits or proceedings as are brought as a result of the negligence or
misconduct of Lessee, or that of its agents, assigns, invitees, or Licensees.
Paragraph 18.1, Lessee's Insurance, is hereby deleted in its entirety and
replaced with the following:
18.1. Lessee's Insurance. Lessee shall, at Lessee's expense, obtain and keep in
force during the term of this Lease, a commercial general liability insurance
policy insuring Lessor and Lessee against the risks of personal injury and
property damage arising out of the use, occupancy or maintenance of the Leased
Premises by Lessee and all areas appurtenant thereto. Such insurance shall be a
combined single limit policy in an amount not less than one million dollars
($1,000,000.00) per occurrence with a two million dollar ($2,000,000.00) annual
aggregate. The policy shall contain cross liability endorsements and shall
insure performance by Lessee of the indemnity provisions of this Lease. In
addition, such policy shall cover contractual liability. The limits of said
insurance shall not, however, limit any liability of Lessee hereunder, except as
otherwise provided for herein. In the event that the Leased Premises do not
constitute part of a larger property, said insurance shall have a Lessor's
protective liability endorsement attached thereto.
Subparagraph 19.1 (c) is hereby amended in its entirety to read as follows:
(c) The policy shall be in a form and include such endorsements as are
customarily acceptable to fulfill requirements such as set forth in this lease.
Paragraph 21.1, Removal of Personal Property, is hereby amended by the addition
of the following sentence at the end thereof:
Under no circumstances under this provision shall the software owned, licensed
or developed by Lessee become the property of Lessor pursuant to this provision.
Paragraph 23.1, Rights of Termination, is modified by the addition of the
following sentence at the end thereof:
Notwithstanding any of the provisions of this Article 23, if more than one third
(as measured by square footage) of the Leased Premises suffers (a) an uninsured
casualty or (b) a casualty which cannot be repaired within sixty (60) days,
Lessee shall have the right to terminate this Lease by written notice to Lessor.
Subparagraph 25.5(b) is hereby amended by the addition of the following sentence
at the end thereof:
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Under no circumstances, however, shall the reimbursement provided for pursuant
to this Paragraph 25 exceed five thousand dollars ($5,000.00).
Paragraph 27.1, Rights of Lessor, is hereby amended by the addition of the
following:
Notwithstanding anything to the contrary in this Agreement, Lessee shall have in
the Leased Premises an area of no greater than one hundred square feet which
shall be sealed and inaccessible to all, save for those who are required to have
access by requirement of the laws or regulations of any governmental authority
(such as fire code, etc.). This area is for the storage of Lessee's trade
secrets, source code and other such materials. Upon reasonable request, however,
Lessee shall permit Lessor access to this area, as accompanied by a
representative of Lessee, during such reasonable hours as Lessor may request.
Paragraph 28. 1, Approval. Installation and Maintenance, is hereby amended by
the addition of the following sentence at the end thereof:
The signage as proposed in Exhibit H as of the date of this Agreement, is hereby
deemed approved pursuant to this paragraph.
Subparagraph 29.19(a) is hereby deleted in its entirety and replaced with the
following:
(a) Any failure by Lessee to pay the rental or to make any other payments
required to be made by Lessee hereunder when due after receipt by Lessee of
notice by Lessor sent by certified mail to Lessee demanding payment of the same,
if Lessee does not pay the same within five (5) days thereof shall be considered
to be a material default and breach hereunder.
Subparagraph 29.1(e) is hereby deleted in its entirety and replaced with the
following:
(e) Any habitual failure by Lessee to observe and perform any provision of this
Lease during any twelve (12) month period of the term, as such may be extended,
shall constitute, at the option of Lessor, a separate and non-curable default.
Subparagraph 34.1 (d) is hereby modified by the addition of the following:
Under no circumstances, however, shall the reimbursement provided for pursuant
to this Paragraph 34 exceed five thousand dollars ($5,000.00).
Subparagraph 45.1 is hereby modified by the addition of the following sentence
at the end thereof:
The late payment penalty under this paragraph shell not exceed $200.00 for any
one occurrence.
The following Paragraphs 50 through 56 are hereby added to the Lease Agreement
to read as follows:
50. Tenant Improvement Costs. Intentionally Omitted.
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<PAGE>
51. Option to Extend. Provided that Lessee is not in default under any terms and
conditions of this Lease, Lessee shall have the option to extend the term of
this Lease for one (1) three (3) year period on the same terms and conditions of
the Lease, except for the following provisions:
1. The base monthly rental payable under the option period will be
as follows:
Months 37-48: $6,230.40 $1.65 p.s.f.,Gross, Fully Serviced
Months 49-60: $6,419.20 $1.70 p.s.f., Gross, Fully Serviced
Months 61-72: $6,608.00 $1.75 p.s.f.,Gross, Fully Serviced
2. At least ninety (90) days prior to the expiration of the original term,
Lessee shall notify Lessor in writing of its intentions to exercise the option
period.
3. In the event that Lessee does not wish to exercise the option term, this
Lease shall terminate at the expiration of the original term.
52. Right of First Offer. If at any time during the initial term, or any
extension thereof, of this Lease, the 1,270 square feet of space (the "Offer
Space 1", see exhibit "B" attached hereto) is available or becomes available for
lease, Lessee shall have the right to include the same under the terms and
conditions of this agreement provided, however, that the rights of Lessee to any
such space currently under a right of first offer or right of first refusal
clause in another lessee's lease in the building, as of the date of this
agreement, or such rights are granted to GMAC, shall be subordinate to the
rights of the other lessee(s). If Lessee exercises its right to incorporate
additional space into this Lease, Lessee must commit to a minimum term of three
(3) years from the date of said commitment, and if Lessee so elects, the tenant
improvement allowance for Offer Space 1 is hereby established as $18.75 per
rentable square foot. The tenant improvements provided for herein are for
customary tenant improvements and not for specialty tenant improvements or
furniture, trade fixtures or equipment.
Lessor agrees to inform Lessee if an offer to lease the Offer Space is submitted
(Offer Notice). Within five (5) working days following Lessee's receipt of the
Offer Notice, Lessee shall notify Lessor whether or not Lessee is interested in
incorporating the Offer Space into the Leased Premises. Failure of Lessee to
respond within said five (5) working days, or failure to accept the Offer Space
on the above-specified conditions, Lessor shall have the right to rent the Offer
Space under whatever terms and conditions Lessor may desire. This right of first
offer shall continue to remain in full force and effect for the Offer Space
during the initial term or any extension thereof, and Lessor shall notify Lessee
in the same manner as referred to above for further offer notices. If Lessee
elects to accept the Offer Space, it shall be deemed to have done so under the
terms and conditions as set forth in Paragraph 1.5(a) of the Lease or paragraph
51 in this addendum, whichever is appropriate. Upon acceptance of the Offer
Space by Lessee, the parties shall amend this Lease to incorporate the Offer
Space into the Leased Premises and adjust the rent, pro-rata percentage, square
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footage, and other charges hereunder appropriate, and all other terms and
conditions of the Lease shall remain unchanged.
53. Parking. Lessee shall have the right to park in the Complex parking areas on
a non-exclusive basis with other lessees in the Complex. (See Exhibit "G"
attached and by this reference made a part hereof.) Lessee agrees not to
overburden the parking areas and agrees to cooperate with Lessor and other
lessees in the use of the parking areas. Parking will be provided on a ratio of
approximately 4.0 spaces per 1,000 square feet or 15 spaces, free of charge. All
parking is provided on a first come, first serve basis. Lessor, at Lessor's
reasonable discretion, reserves the right to modify parking policies.
54. Signage. Lessee shall retain the existing signage on the directory board,
monument board-and door in its "As Is" condition with no further contribution
from Lessor.
55. J.M. O'Neill. Intentionally Omitted.
56. Hold Harmless Agreement (Legal & Tax). The undersigned agrees to hold
BLICKMAN TURKUS, the "Broker", harmless with regard to the form and substance of
any and all of the legal documents and/or contract associated with this
transaction, and the undersigned has consulted separate counsel regarding legal
and tax matters pertaining to this transaction.
57. Early Occupancy. Intentionally Omitted.
All other terms and conditions of the Lease Agreement shall remain as stated
therein, and this amendment shall be considered merged with the same as a single
agreement and as if this amendment had been a part of the Lease Agreement as of
the date of its execution.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first above written.
DATED: 9/14/94 DATED: 9/7/94
LESSOR: KI MONTEREY RESEARCH, LESSEE: THINKING TOOLS, INC.
INC., A DELAWARE A CALIFORNIA
CORPORATION CORPORATION
BY: BY: /s/ John E. Hiles
KEMPER REAL ESTATE MANAGEMENT JOHN HILES, PRESIDENT
COMPANY, ITS AUTHORIZED AGENT
BY: /s/ David Kingery
DAVID A. KINGERY
ITS:
VICE PRESIDENT
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FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("Amendment") is entered into this 27th day of
September, 1994, by and between KI MONTEREY RESEARCH, INC.("LESSOR") and
THINKING TOOLS, INC. ("LESSEE").
RECITALS
A. The parties have entered into that certain lease dated August 19, 1994 (the
"Lease") whereby Lessor leased to Lessee, and Lessee leased from Lessor
approximately 3,776 square feet of floor space (the "Premises"); See Exhibit "A"
attached hereto, located at 1 Lower Ragsdale Drive, Building 1, Suite 250 in the
City of Monterey, California (the "Building").
B. The parties wish to amend the Lease to adjust the Rent and Term.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
TERMS
1. This Amendment shall take effect upon execution and delivery to Lessor of
this First Amendment to Lease and the Termination of Lease Agreement from Maxis.
2. The "Minimum Monthly Rent" (Paragraph 1.5 of the Lease) shall be as follows:
Month 1: $5,475.20
Month 2: $ 664.00
Months 3-12: $5,664.00
Months 13-24: $5,852.80
Months 25-37: $6,041.60
3. The "Term" (Paragraph 1.4 of the Lease) shall be thirty-seven (37) months,
commencing October 1, 1994, or upon the first day of the first month following
completion of the items in Paragraph #1 above, if later.
4. All other terms and conditions of the Lease, other than changes made herein,
shall be binding and insure to the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Amendment.
LESSOR: LESSEE:
KI Monterey Research, Inc., A Thinking Tools, Inc., A
Delaware Corporation California Corporation
By: Kemper Real Estate
Management Co.
Its: Authorized Agent
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By: /s/ David H. Kingery By: /s/ John Hiles
David A. Kingery, Vice President John Hiles, President
Date: 9/28/94 Date: September 27, 1994
5) The "Initial Pro-Rata %" (Paragraph 1.8 of the Lease) shall be changed to the
following:
.1009 5,046 sq.ft./50,031 sq.ft.
6) The "Base Operating Costs" (Paragraph 1.9 of the Lease) shall be changed to
the following:
$0.47 x 12 = $5.64 x 5,046 sq.ft. = $28,459.44
7) All other terms and conditions of the Lease, other than changes made herein,
shall be binding and inure to the benefit of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Amendment.
LESSOR: LESSEE:
KI Monterey Research, Inc., A Thinking Tools, Inc.,
Delaware Corporation A California Corporation
By: Kemper Real Estate
Management Co.
Its: Authorized Agent
By: /s/ David A. Kingery By: /s/ John E. Hiles
David A. Kingery, Vice President John Hiles, President
Date: 1/11/95 Date: 1-3-95
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<PAGE>
SECOND AMENDMENT TO LEASE
This First Amendment to Lessee Amendment is entered into this 3rd day of
January, 1995, by on between KI MONTEREY RESEARCH, INC. ("LESSOR") and THINKING
TOOLS, INC. ("LESSEE").
RECITALS
A. The parties have entered into that certain lease dated August 19, 1994 (the
"Lease") whereby Lessor leased to Lessee, and Lessee leased from Lessor
approximately 3,776 square feet of floor space (the "Premises"); See Exhibit "A"
attached hereto, located at 1 Lower Ragsdale Drive, Building 1, Suite 250 in the
City of Monterey, California (the "Building").
B. The parties wish to amend the Lease to enlarge the Premises, adjust the
Rent, Pro-Rata % and Base Operating Costs.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, the parties agree as follows:
TERMS
1. This Amendment shall take effect upon execution and delivery to Lessor of
this Second Amendment to Lease and (i) a Certificate of Occupancy from the City
of Monterey.
2. Lessor shall construct Tenant Improvements within the Premises and within
that area of the Complex which is to become a part of the Premises (the
"Expansion Space") composed of 1,270 square feet and is shown on the Floor Plan
attached hereto as Exhibit B hereof. Lessor shall contribute up to Twenty Nine
Thousand Five Hundred Sixty Dollars ($29,560.00) or Twenty Three Dollars and
Twenty Seven Cents $23.27 per square foot toward the cost of constructing the
Tenant Improvements within the Premises. All costs above this allowance shall be
paid directly by Lessee. Lessee's new total square footage will be approximately
5,046 square feet Lessor will make diligent efforts to complete Lessor's work
expeditiously and shall deliver the Expansion Space to Lessor promptly upon
completion of Lessor's work and receipt of a certificate of occupancy for the
Expansion Space. Estimated delivery date is March 1, 1995. Lessee shall have the
right to enter the Expansion Space for purposes of inspection during the course
of Lessor's work, at Lessee's sole risk, provided Lessee does not unreasonably
interfere with Lessor or cause a delay in the completion of Lessor's work.
3. The "Premises" (Paragraph 1.3(c) of the Lease) shall be changed as follows:
Approximately 5,046 square feet
4. The "Rent" (Paragraph 1.5 of the Lease) for the Premises shall be changed as
follows:
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Monthly Rent
Delivery Date through Month 12 $7,745.61
Month 13 through Month 24 $7,997.91
Month 25 through Month 36 $8,250.21
5) The "Initial Pro-Rata %" (Paragraph 1.8 of the Lease) shall be changed to the
following:
.1009 5,046 sq.ft./50,031 sq.ft.
6) The "Base Operating Costs" (Paragraph 1.9 of the Lease) shall be changed to
the following:
$0.47 x 12 = $5.64 x 5,046 sq.ft. = $28,459.44
7) All other terms and conditions of the Lease, other than changes made herein,
shall be binding and inure to the benefit of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Amendment.
LESSOR: LESSEE:
KI Monterey Research, Inc., A Thinking Tools, Inc.,
Delaware Corporation A California Corporation
By: Kemper Real Estate
Management Co.
Its: Authorized Agent
By: /s/ David A. Kingery By: /s/ John E. Hiles
David A. Kingery, Vice President John Hiles, President
Date: 1/11/95 Date: 1-3-95
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Consent of Independent Auditors
-------------------------------
The Board of Directors
Thinking Tools, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Our report dated August 16, 1996, except as to Note 13, which is as of August
28, 1996, contains an explanatory paragraph that states that the Company has
suffered recurring losses from operations and has a net capital deficiency that
raise substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
/s/ KPMG Peat Marwick LLP
San Jose, California
October 11, 1996
